UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

OR

 

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________

Commission File Number: 1-9927

ADVANZEON SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)

 

Delaware   95-2594724
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

2901 W. Busch Blvd. Suite 701

Tampa, FL

 

 

33618

(Address of principal executive offices)   (Zip Code)

 

813-517-8484
(Registrant’s telephone number, including area code)

 

 
(Former name, former address and former fiscal year, if changed since last report)

 

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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such fling requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

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Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
  Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 13, 2019, the Registrant had outstanding 71,661,656 shares of its $0.01 par value Common Stock.

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ADVANZEON SOLUTIONS, INC.

 

 

TABLE OF CONTENTS

    Pages
PART I. Financial Information  
Item 1. Consolidated Financial Statements  
  Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018 4 - 5
  Consolidated Statements of Operations for the Three and Nine Month Periods Ended September 30, 2019 and 2018 (unaudited) 6
  Consolidated Statement of Stockholders' Deficiency For the Nine Month Period Ended September 30, 2019 (unaudited) and December 31, 2018 7
  Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 2019 and 2018 (unaudited) 8
  Notes to Consolidated Financial Statements 9 - 17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18 - 26
Item 3. Quantitative and Qualitative Disclosure about Market Risk 27
Item 4. Controls and Procedures 27 - 28
PART II. Other Information  
Item 1. Legal Proceedings 29
Item 1A. Risk Factors 29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29 - 42
Item 3. Exhibits 42
   

 

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ADVANZEON SOLUTIONS, INC.

 

PART I – FINANCIAL INFORMATION

 

CONSOLIDATED BALANCE SHEETS

September 30, 2019 (unaudited) and December 31, 2018

 

ASSETS
         
    September 30, 2019   December 31,
    (unaudited)   2018
CURRENT ASSETS                
Cash   $ 64,057     $ 25,036  
Accounts receivable     25,171       24,890  
Current portion of right of use asset     124,311       53,634  
Other current assets     2,354,854       828,996  
Total current assets     2,568,393       932,556  
                 
PROPERTY, PLANT, AND EQUIPMENT                
Property and equipment, net     1,324       —    
Leasehold improvements, net     —         299  
Total property, plant, and equipment     1,324       299  
                 
RIGHT OF USE ASSET, NET OF CURRENT PORTION     171,885       28,920  
                 
TOTAL ASSETS   $ 2,741,602     $ 961,775  
                 

 

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

 

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ADVANZEON SOLUTIONS, INC.

 

PART I – FINANCIAL INFORMATION

 

CONSOLIDATED BALANCE SHEETS

September 30, 2019 (unaudited) and December 31, 2018

 

LIABILITIES AND STOCKHOLDERS' DEFICIENCY                
                 
      September 30, 2019       December 31,   
      (unaudited)       2018  
CURRENT LIABILITIES                
Related party loans payable   $ 444,920     $ 737,023  
Account payable     1,423,284       700,067  
Debt     12,163,189       10,087,939  
Contingent liability     642,659       642,659  
Current portion of lease liability     124,311       53,634  
Other accrued expenses     15,734,145       14,614,772  
Total current liabilities     30,532,508       26,836,094  
                 
LEASE LIABILITY, NET OF CURRENT PORTION     171,885       28,920  
                 
TOTAL LIABILITIES     30,704,393       26,865,014  
                 
STOCKHOLDERS' DEFICIENCY                
Preferred stock, $.001 par value; 1,000,000                
  shares authorized, as of September 30, 2019                
  and December 31, 2018     —         —    
Series C Convertible Preferred; $.001 par value;                
  14,400 shares authorized; 10,434 shares                
  issued and outstanding as of September 30, 2019                
  and December 31, 2018     10       10  
Series D Convertible Preferred; $.001 par value;                
  7,000 shares authorized; 250 shares issued                
  and outstanding as of September 30, 2019                
  and December 31, 2018     —         —    
Remaining Preferred stock; $.001 par value;                
  978,600 shares as of September 30, 2019                
  and December 31, 2018     —         —    
Common stock, $0.01 par value; 1,000,000,000                
  shares authorized; 67,361,656 and 66,661,656                
  shares issued and outstanding as of                
  Septmeber 30, 2019 and December 31, 2018     673,617       666,617  
Additional paid in capital     28,036,007       28,012,007  
Accumulated deficit     (56,672,425 )     (54,581,873 )
Total stockholders' deficiency     (27,962,791 )     (25,903,239 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY   $ 2,741,602     $ 961,775  

 

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

 

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ADVANZEON SOLUTIONS, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Nine Month Periods Ended September 30, 2019 and 2018 (unaudited)

 

  Three-Month Period Ended   Nine-Months Period Ended
  September 30,   September 30,
    2019   2018   2019   2018
Revenues:                
Obstructive sleep apnea (OSA)   $ 68,173     $ 99,083     $ 226,549       449,650  
Total revenues     68,173       99,083       226,549       449,650  
Costs and expenses:                                
Costs of revenues     2,394       46,028       110,211       280,372  
General and administrative     428,077       409,419       1,269,920       1,396,478  
Depreciation and amortization     84       149       524       449  
Total costs and expenses     430,555       455,596       1,380,655       1,677,299  
Loss from operations     (362,382 )     (356,513 )     (1,154,106 )     (1,227,649 )
Other income (expense):                                
Interest expense     (383,798 )     (307,922 )     (1,052,991 )     (1,148,795 )
Interest income     29       —         6,023       —    
Legal settlement     —         —         112,172       328,269  
State tax penalty     (1,650 )     —         (1,650 )     —    
Extinguishment of loan due to shareholder     —         —         —         7,771,140  
Settlement of prior accounting services     —         —         —         (240,000 )
Other income     —         —         —         2,380  
Total other income (expense)     (385,419 )     (307,922 )     (936,446 )     6,712,994  
Income taxes     —         —         —         —    
Net (loss) income   $ (747,801 )   $ (664,435 )   $ (2,090,552 )   $ 5,485,345  
PER SHARE INFORMATION                                
Net (Loss) Income Per Common Share   $ (0.01 )   $ (0.01 )   $ (0.03 )   $ 0.08  
Weighted Average Number of Common                                
Shares Outstanding     67,361,656       66,661,656       67,140,411       65,849,175  

 

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

 

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ADVANZEON SOLUTIONS, INC.

 

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY

For the Nine Month Period Ended September 30, 2019 (unaudited) and December 31, 2018

 

    Series C   Series C                    
    Convertible   Convertible   Common                
    Preferred   Preferred   Stock   Common   Additional        
  Stock Number   Stock   Stock Number   Stock   Paid-in   Accumulated    
    of Shares   Amount   of Shares   Amount   Capital   Deficit   Total
                             
Balance at December 31, 2018     10,434     $ 10       66,661,656     $ 666,617     $ 28,012,007     $ (54,581,873 )   $ (25,903,239 )
                                                         
Stock issued for services     —         —         200,000       2,000       14,000       —         16,000  
                                                         
Sale of stock     —         —         500,000       5,000       10,000       —         15,000  
                                                         
Net loss     —         —         —         —         —         (2,090,552 )     (2,090,552 )
                                                         
Balance at September 30, 2019     10,434     $ 10       67,361,656     $ 673,617     $ 28,036,007     $ (56,672,425 )   $ (27,962,791 )

 

 

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

 

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ADVANZEON SOLUTIONS, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Month Periods Ended September 30, 2019 and 2018 (unaudited)

  Nine Month Periods Ended
  September 30,
    2019   2018
CASH FLOWS FROM OPERATING ACTIVITIES                
Net (loss) income   $ (2,090,552 )   $ 5,485,345  
Adjustments to reconcile net (loss) income to net cash used in operating activities:                
Depreciation and amortization     524       449  
Stock issued for services     16,000       240,000  
Extinguishment of loan due to shareholder                
   and accrued interest     —         (7,771,140 )
Amortization of right of use assets     62,135       —    
Net changes in assets and liabilities:                
Accounts receivable     (281 )     (34,493 )
Other current assets     (1,525,858 )     (700,842 )
Payments on lease liabilities     (62,135 )     —    
Accounts payable     431,114       520,379  
Contingent liability     —         152,664  
Accrued interest - related party     —         (246,568 )
Other accrued expenses     1,119,373       1,328,842  
Net cash used in operating activities     (2,049,680 )     (1,025,364 )
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchase of property, plant, and equipment     (1,549 )     —    
Net cash used in investing activities     (1,549 )     —    
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from promissory notes     2,100,250       1,079,223  
Payments on debt     (25,000 )     —    
Sale of stock     15,000       —    
Net cash provided by financing activities     2,090,250       1,079,223  
Net increase in cash     39,021       53,859  
CASH - Beginning of Year     25,036       18,200  
CASH - END OF PERIOD   $ 64,057     $ 72,059  
Supplemental disclosures of cash flow information:                
Cash paid during the period for:                
Interest   $ 6,960     $ —    
Income taxes   $ —       $ —    
Recording of right of use assets under                
lease agreements (ASU 2016-02)   $ 390,260     $ —    
Schedule of non-cash investing transactions:                
Convertible promissory note converted to common stock   $ —       $ 51,231  

 

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

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ADVANZEON SOLUTIONS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF THE COMPANY’S BUSINESS AND BASIS OF PRESENTATION

 

The consolidated financial statements include the accounts of Advanzeon Solutions, Inc and its wholly owned subsidiary, and its respective subsidiaries (collectively referred to herein as, the “Company,” “Advanzeon,” “we”, “us,” or “our”).

In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the Company's financial position as of December 31, 2018, the changes therein for the three and nine month periods then ended and the results of operations for the three and nine month periods ended September 30, 2019 and 2018.

The financial statements included in the Form 10-Q are presented in accordance with the requirements of the Form and do not include all of the disclosures required by accounting principles general accepted in the United States of America. For additional information, reference is made to the Company's annual report on Form 10-K for the fiscal year ended December 31, 2018, filed May 24, 2019. The results of operations for the three and nine month periods ended September 30, 2019 and 2018, are not necessarily indicative of operating results for the full year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Established in 1969, Advanzeon Solutions, Inc., (formerly Comprehensive Care Corp.) (“Advanzeon”, “we”, “Parent”, or the “Company”), through its wholly-owned subsidiary Pharmacy Value Management Solutions, Inc.,(“PVMS”) and its wholly-owned subsidiaries during 2015, and partly in 2016, provided managed care services by acting as the administrator for certain administrative service agreements in the behavioral health and substance abuse fields. We primarily offered these services to commercial, Medicare, Medicaid, Children’s Health Insurance Program (“CHIP”) health plans, as well as self-insured companies. Our managed care operations consisted solely of servicing administrative service agreements. Starting in July of 2015, we implemented our comprehensive sleep apnea program, called “SleepMaster Solutions” ™. SleepMaster Solutions (“SMS”) utilizes an administrative system for the convenient identification/testing and therapy of Obstructive Sleep Apnea (“OSA”). We partnered with a national health care provider by initiating a sleep apnea wellness program whereby we screened, tested and when needed, offered treatment programs for treating this disorder. We also contracted with a union to treat its driver members. Beginning in 2017, our only business was our SMS sleep apnea program.

The Company has elected to not adopt the option available under United States generally accepted accounting principles (“GAAP”) to measure any eligible financial instruments or other items at fair market value at this time. Accordingly, the Company measures all of its assets and liabilities on the historical cost basis of accounting, except as otherwise required by GAAP.

Inter-company accounts and transactions have been eliminated in consolidation. Certain minor reclassifications of prior period amounts have been made to conform to the current period presentation.

Use of Estimates - The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts. Actual results could differ from these estimates. Estimates involved in the determination of an allowance for doubtful accounts receivable are considered by management as particularly susceptible to material change in the next year. Other significant estimates relate to stock-based compensation, warrants and beneficial conversion features.

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ADVANZEON SOLUTIONS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable - Accounts receivable is carried at its estimated collectible value. Since customer credit is generally extended on a short-term basis, accounts receivable does not bear interest and are uncollateralized. We manage credit risk and determine necessary allowances by evaluating customers’ credit worthiness before extending credit and periodically for collectability, based primarily on customers’ past credit history and current financial conditions and general economic conditions, results of prior collection efforts, the relative strength of our relationship therewith and, in the event of a dispute, its legal position and the estimated cost of proposed collection proceedings. Management has not established a policy for when to charge off uncollectible accounts receivable or to use external collection agencies and makes such decisions on a case-by-case basis. The maximum losses that the Company would incur if a customer failed to pay would be limited to the carrying value of the receivable.

Revenue Recognition- The Company is on an accrual basis and revenue is recognized when billed, which is approximately when the testing service is performed or CPAP machine is shipped.

Property and Equipment - Property and equipment, as described in Note 4, is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives ranging from 2 to 12 years.

Leasehold Improvement - Leasehold improvement, as described in Note 5, is stated at cost less accumulated amortization. Leasehold improvements are amortized over the shorter of the lease term or the asset’s useful life.

Fair Value Measurements - The carrying amounts of cash, accounts receivable and accounts payable approximate their estimated fair value due to the short-term nature of these instruments. Since our other financial liabilities are not traded in an open market, we generally use a present value technique, which is a level 3 input, as defined in GAAP, to measure the estimated fair value of these financial instruments, except for valuing stock options and warrants (see below). The rate used for discounting expected cash flows is a risk-free rate adjusted for systematic and unsystematic risk.

The carrying amounts of long-term debt and estimated fair values of the attached warrants at September 30, 2019 and December 31, 2018 are as follows:

  September 30, 2019   December 31, 2018
        Estimated       Estimated
        Fair Value of       Fair Value of
    Carrying   Attached   Carrying   Attached
    Amount   Warrants   Amount   Warrants
                 
Convertible promissory notes   $ 7,375,173     $ —       $ 5,299,923     $ —    
Short term notes payable   $ 4,788,016     $ —       $ 4,788,016     $ —    
Loan payable related party     444,920       —         737,023       —    
    $ 12,608,109     $ —       $ 10,824,962     $ —    

During the nine month period ended September 30, 2019, there have been 47 additional convertible notes issued totaling $2,100,250 and one note paid off totaling $25,000.

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ADVANZEON SOLUTIONS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Cost of Revenues- Costs of services consist of supplies and operating expenses. Supplies are recognized in the period in which a patient actually receives the supplies.

Right of Use Assets and Lease Liabilities - During the quarter ended March 31, 2019, the Company implemented Accounting Standards Update 2016-02, Leases. Under the new guidance, a lessee must record a liability for lease payments (referred to as the lease liability) and an asset for the right to use the leased asset during the lease term (referred to at the right of use asset) for all leases, regardless of whether they are designated as finance or operating leases. This election requires the lessee to recognize lease expense on a straight-line basis over the lease term. The right of use assets and corresponding right of use liabilities have been recorded using the present value of the leases. See Notes 10 and 11 within the financial statement for additional disclosure on leases.

Income Taxes - We are subject to the income tax jurisdictions of the U.S. and multiple state tax jurisdictions. However, our provisions for income taxes for 2018 and 2019 include only state income taxes.

Management has evaluated our tax positions taken or to be taken on income tax returns that remain subject to examination (i.e., tax years 2016 and thereafter federally), and has concluded that there have been no uncertain tax positions (as defined in GAAP) taken that require recognition or disclosure in the consolidated financial statements. In the event of any income tax-related interest or penalties are incurred, they would be included in general and administrative expense.

Stock Options and Warrants - We grant stock options and warrants to our employees, non-employee directors, note holders and certain consultants allowing them to purchase our common stock pursuant to approved terms. The estimated value of the warrants issued with debt instruments is recorded as a discount on notes payable and amortized as interest expense over the term of the notes using the effective interest method.

3. OTHER CURRENT ASSETS

 
Other current assets consists of the following at September 30, 2019 and December 31, 2018:

    September 30, 2019   December 31, 2018
         
Due from escrow account   $ 1,918,898     $ 472,788  
Loans to others     22,459       —    
Security deposit     5,500       13,500  
Capitalized portion of lease     2,094       2,951  
Prepaid expenses     71,394       5,248  
Miscellaneous receivable     334,509       334,509  
                 
Other current asset   $ 2,354,854     $ 828,996  

 

 

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ADVANZEON SOLUTIONS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4. PROPERTY AND EQUIPMENT


 

Property and equipment, net, consists of the following at September 30, 2019 and December 31, 2018:

    September 30, 2019   December 31, 2018
         
Property and equipment   $ 1,549     $ —    
Less accumulated depreciation     (225 )     —    
Property and equipment - net   $ 1,324     $ —    

 

Depreciation expense for the nine month periods ended September 30, 2019 and 2018 is $225 and $0, respectively. A computer was acquired in February of 2019.

5. LEASEHOLD IMPROVEMENT

 

Leasehold improvement, net, consists of the following at September 30, 2019 and December 31, 2018:

    September 30, 2019   December 31, 2018
         
Leasehold improvements   $ 2,992     $ 2,992  
Less accumulated amortization     (2,992 )     (2,693 )
Leasehold improvements - net   $ —       $ 299  

 

Amortization expense for the nine month periods ended September 30, 2019 and 2018 is $299 and $449, respectively.

6. RELATED PARTY LOANS PAYABLE

 

The Company has received financing from Management of the Company as well as from members of our Board of Directors. These individuals are deemed to be related parties to the Company and their indebtedness must be disclosed separately.

As of September 30, 2019 and December 31, 2018, there are the following related party notes payable:

    September 30, 2019   December 31, 2018
                 
Related party loans payable   $ 444,920     $ 737,023  

 

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ADVANZEON SOLUTIONS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

7. DEBT

 

As of September 30, 2019 and December 31, 2018, the balance was as follows:

    September 30, 2019   December 31, 2018
                 
Notes payable   $ 12,163,189     $ 10,087,939  

 

During the nine month period ended September 30, 2019, there have been 47 additional convertible-promissory notes totaling $2,100,250. One $25,000 convertible promissory note was repaid with interest of $6,960 during the third quarter 2019. One previous $50,000 convertible-promissory note was converted into stock during the year ended December 31, 2018.

Break-out of debt between the parent company and our subsidiary PVMS is as follows:

    September 30, 2019   December 31, 2018
         
Advanzeon parent   $ 5,010,016     $ 5,010,016  
PVMS     7,153,173       5,077,923  
    $ 12,163,189     $ 10,087,939  

 

At PVMS, the total of notes issued year-to-date and their dollar values were as follows:

    September 30, 2019   December 31, 2018
         
Number of notes issued     47       31  
                 
Dollar value   $ 2,100,250     $ 1,751,923  

 

All debt are short-term in nature, one-year maturity date. All debt issued has a stated interest rate of 12% per year.

 

8. CONTINGENT LIABILITY


Contingent liability consisted of 3 items:

1. a lawsuit against the Company for $450,000 from the son of a deceased promissory note holder. This matter has been dismissed twice by the judge but is ongoing due to appeals. This case should expire in June or July for lack of prosecution.
2. interest payable in the amount of $171,247 to the same person listed in (1). This interest is related to the lawsuit reference in (1).
3. Advanzeon won a decision on a court case against Universal Healthcare. The attorney's fees relating to this matter total $21,412. This fee will be paid out of the proceeds of the case when collected.

 

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ADVANZEON SOLUTIONS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

As of September 30, 2019 and December 31, 2018, the balance of this indebtedness is as follows:

 

    September 30, 2019   December 31, 2018
         
Disputed note payable   $ 450,000     $ 450,000  
Disputed interest payable     171,247       171,247  
Pending attorney fees     21,412       21,412  
                 
Total contingent liability   $ 642,659     $ 642,659  

 

 

9. OTHER ACCRUED LIABILITIES



As of September 30, 2019 and December 31, 2018, the balance of other accrued liabilities is as follows:

    September 30, 2019   December 31, 2018
         
Management compensation   $ 8,873,802     $ 8,873,802  
Accrued interest non-related party     5,839,509       4,809,644  
Board of Director fees     1,012,500       900,000  
State fees     —         21,000  
Payroll liabilities     3,725       2,927  
Accrued wages and related     4,609       7,399  
Total other accrued debt   $ 15,734,145     $ 14,614,772  

10. RIGHT OF USE ASSETS


The Company entered into two leases for office space and one automobile lease prior to the end of the quarter ended September 30, 2019 that are classified as right of use assets and lease liabilities. The lease for the Company’s office spaces expire in April 2020 and June 2022. The lease for the automobile expires in June 2021. As the implicit interest rate is not readily identifiable in the leases, the Company calculated the present a value of the leases using the average commercial real estate interest rate of 5.50% at the commencement of the office leases and the interest of 2.99% for the automobile lease. Applying the commercial rate, the Company calculated the present value of $361,223 for the office leases and $29,037 for the automobile leasing, that are being amortized over the life of the leases.

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ADVANZEON SOLUTIONS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2019, the right of use assets associated with future operating leases are as follows:

Total present value of right of use assets    
    under lease agreements   $ 390,260  
         
Amortization of right of use assets     (94,064 )
         
Total right of use assets as of September 30, 2019   $ 296,196  

 

Total amortization expense related to the right of use assets under the lease agreements was $62,135 and $0 for the nine month periods ended September 30, 2019 and 2018, respectively.

11. RIGHT OF USE LEASE LIABILITIES



As disclosed in Note 10, the Company entered into two leases for office space and automobile lease prior to the quarter ended September 30, 2019 that are classified as right of use assets and lease liabilities.

As of September 30, 2019, the lease liabilities associated with future payments due under the leases are as follows:

Total present value of future lease payments   $ 390,260  
         
Principal payments made as of the quarter        
 ended September 30, 2019     (94,064 )
         
Total right of use lease liabilities as of September 30, 2019   $ 296,196  

 

The following is a schedule of future minimum lease payments under the right of use lease agreements together with the present value of the net minimum lease payments as of September 30, 2019:

Total future minimum lease payments   $ 317,251  
         
Less present value discount     21,055  
         
Total right of use lease liabilities as of September 30, 2019     296,196  
         
Less current portion due within one year     124,311  
         
Long-term right of use liabilities   $ 171,885  

 

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ADVANZEON SOLUTIONS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Total maturities of lease liabilities as of September 30, 2019 are as follows:

 

    Total future        
    minimum lease   Present value   Right of use
    payments   discount   lease liabilities
  2020     $ 136,858     $ 12,547     $ 124,311  
  2021     $ 106,330     $ 6,839     $ 99,491  
  2022       74,063       1,669       72,394  
        $ 317,251     $ 21,055     $ 296,196  

 

12. COMMON STOCK



During the nine month period ended September 30, 2019, the Company issued 700,000 shares of its common stock as follows:

On March 21, 2019, the Company issued 200,000 shares of its common stock to its Securities Exchange Commission counsel, who elected to take common stock in the Company as partial payment of its legal fees. The total value shares were valued at $0.08 per share on the total value of $16,000.

Additionally, on March 29, 2019, the Company issued 500,000 shares of its common stock to an existing shareholder and warrant holder, who elected to exercise his warrants to purchase 500,000 shares of the Company's common stock for $15,000. The warrants were issued during May of 2017 for $0.03 per share.

During the nine month period ended September 30, 2018, the Company issued 2,000,000 shares of common stock for a legal settlement. The shares were issued at a value of $0.12 per share or for a total value of $240,000. In addition, the Company issued 1,597,971 shares for the conversion of a promissory note of $50,000 and accrued interest of $1,231. The stock was issued at a value of $0.03 per share. The Company relied on Section 4(a)(2) of the Securities Act of 1933, as amended, as the exemption from registration under the Act.

13. LEGAL PROCEEDINGS



The Company previously reported that the litigation between Rotech Healthcare, Inc. and Pharmacy Value Management Solutions, Inc. settled. The Company rejected the draft settlement terms and continues to aggressively defend this litigation.

Except as disclosed above and in Item 1, all of the legal proceedings for the nine-month period ended September 30, 2019, are disclosed in our annual report on Form10-K for the year ended December 31, 2018, filed on May 24, 2019.

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ADVANZEON SOLUTIONS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

14. SUBSEQUENT EVENTS

In accordance with ASC Topic 855, “Subsequent Events”, the Company evaluated subsequent events through November 13, 2019, the date these financial statements were available to be issued. During its evaluation, the following subsequent events were identified:

Issuance of debt and warrants

Subsequent to the balance sheet date, the Company has issued $139,000 of convertible-promissory notes. All of the debt matures in 2020 and has a stated interest rate of 12% and is unsecured. Concurrent with the issuance of debt, the Company has issued 4,128,000 warrants at an average exercise price of $0.15 At the time of issuance, all warrants had a three or five year term.

Stock issued for services

 The Company issued 4,300,000 shares of restricted common stock to the investment banker, D. H. Blair Investment Banking Corp. The services were valued at $473,000 or $0.11 per share.

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ADVANZEON SOLUTIONS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The following information should be read in conjunction with the financial statements and notes thereto and in conjunction with Managements’ Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

This report includes forward-looking statements, the realization of which may be affected by certain important factors discussed previously above under Item 1A, “Risk Factors.”

Overview

The Company through its wholly owned subsidiary Pharmacy Value Management Solutions, Inc. administers and operates a medically driven sleep apnea program branded SleepMaster Solutions™ (“SMS”). Management believes that SMS is the largest provider of these combined services in the nation. We are in all 50 states and provide a turnkey solution designed to effectively keep drivers on the road with no down time, compliant with DOT regulations, improve their health, and significantly decrease legal liability risk for the employer. We are vertically integrated, and we provide a “Program” of services that addresses all the needs of a corporate transportation system, union or other driver-related organizations. We believe we are the only company capable of providing the full range of needed services in a timely manner.

Our services start with the identification of the target population and the potential risk the client currently has. We can do this through our SMS Program, which includes the ability to screen every driver to identify if signs and symptoms of sleep apnea are present. We can then take this data and provide the employer with a list of those drivers that should be tested and the statistical likelihood of the percentage of those drivers who will test positive for obstructive sleep apnea (OSA). Together with the employer/union, SMS provides a realistic time frame, actual total cost, and process for testing all drivers who need to be tested. For those drivers testing positive for OSA, we then provide the appropriate treatment such that the driver will meet the DOT requirements and remain on the road. We monitor 365 days per year driver’s usage of the treatment device according to DOT standards and we report that usage to all stakeholders as required/permitted. We utilize mathematical algorithms to determine if the driver is predicatively meeting the annual DOT requirements for usage. Using those predictive algorithms, we reach out to those drivers and provide case management, encouragement designed to solve problems such that the driver increases usage, if necessary, and remains compliant.

PVMS constructed its model based upon the foregoing principles. The SMS Program includes all processes attended in sleep apnea screening, testing, treatment, monitoring and overall management of commercial drivers’ as well as their employers’ needs. We have successfully established relationships with national health care clinic providers, all with certified medical examiner (“CME”) status. These clinics total almost 1,000 throughout the U.S. We also have both formal and informal relationships with employers; municipalities; a significant veteran’s group; union and non-union driving organizations; suppliers of home sleep testing equipment and a variety of OSA treatment devices; and, a national network of telemedicine sleep specialists covering all 50 states. We have an internal medical team for governance and protocol purposes and a customer service department that interfaces directly with our drivers. We also have a marketing team that regularly interfaces with our existing accounts and markets our services to potential new accounts. Our services are performed utilizing a best medical practices model and an efficient, cost-effective delivery system. We obtain the required equipment on a per order basis from a durable medical equipment distributor.

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ADVANZEON SOLUTIONS, INC.

Revenue is recognized when billed, which is approximately when the testing service is performed, or CPAP machine is shipped.

During the nine-month period ending September 30, 2019, we continued to work with Concentra Health Services, Inc. toward the implementation of the program whereby the Company will serve as one of three of Concentra’s preferred national sleep apnea services providers. Concentra did not roll out this service until the middle of October. At the time of the roll out we were informed by Concentra that they anticipated the roll out would start slow and progressively build as their centers get used to the new process. As a result, our revenue for the period was not what we had expected. During the period the Company did see revenues coming from other third-party payor accounts that had been established in prior periods. These accounts include unions, municipalities, school districts and small to mid-size corporations-all authorizing the Company to bill them directly for providing our sleep apnea services to their members/employees. Subsequent to the period we announced the establishment of a relationship with All Aboard America, a part of All Aboard America Holdings, Inc., the fourth largest motor coach operator in North America. The Company will screen, test and treat all of its drivers and employees for sleep apnea via our SMS program. We expect to see an increase in our revenues during the fourth quarter as a result of our existing relationships and other potential accounts we are currently working to establish.

Three month periods ended September 30, 2019 and 2018

Sources of Revenue

A quantitative summary of our revenues by source category for the three month periods ended September 30, 2019 and 2018:

 

    2019   2018   Change
                         
OSA- related   $ 68,173     $ 99,083     $ (30,910 )

Results of Operations

OSA services decreased to $68,173 in 2019 from $99,083 in 2018. The decrease was primarily the result of the timing of the Concentra launch. Earlier in the year, May 14, 2019, we reached an agreement with Concentra whereby Concentra engaged the Company, and the Company accepted the engagement, to serve as Concentra’s preferred national sleep apnea services provider. The launch by Concentra of this program, which included notifying all of the Concentra clinics of same, was delayed so that same launched much later than anticipated. Pending the launch, we were asked by Concentra, albeit informally, to cease activities in terms of having our regional representative’s visit the various Concentra clinics promoting our sleep apnea services to said clinics. We honored that request, and in so honoring the request, our sales were diminished. The launch occurred in mid-October and we were informed by Concentra that they anticipated the roll out would start slowly and progressively build as their centers get used to the new process. Nonetheless, as a result of the Concentra launch and the Pinnacle agreement, as described below, we expect to see an increase in revenue during the fourth quarter of 2019.

Cost of revenues decreased from $46,028 in 2018 to $2,394 in 2019 due to a decrease in sales and a settlement agreement from a previous supplier reducing the cost of sales by $34,400.

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ADVANZEON SOLUTIONS, INC.

General and administrative expense

General and administrative expense in total for the three month periods ended September 30, 2019 and 2018 was as follows:

  2019     $ 428,077  
  2018       409,419  
  Change     $ 18,658  
  Percentage Change       4.56 %

 

We evaluate expenses at the Parent company level as well as at our PVMS subsidiary. Expenses at the Parent company level include overhead and the cost of being a public entity. Expenses at PVMS are solely related to the OSA services segment. A breakdown of these expenses for the three month periods ended September 30, 2019 and 2018 is as follows:

    2019   2018   Change   Percent Change
                 
  Parent     $ 118,096     $ 130,218     $ (12,122 )     -9.31 %
  PVMS       309,981       279,201       30,780       11.02 %
                                     
  Total     $ 428,077     $ 409,419     $ 18,658       4.56 %

 

Parent Company Level

    2019   2018   Change   Percent Change
                 
Professional fees   $ 34,329     $ 49,735     $ (15,406 )     -30.98 %
Travel expense     —         1,500       (1,500 )     -100.00 %
Board of Directors fees     37,500       37,500       —         0.00 %
Rent expense     25,255       25,129       126       0.50 %
Other     21,012       16,354       4,658       28.48 %
                                 
Total G & A   $ 118,096     $ 130,218     $ (12,122 )     -9.31 %

 
Explanations of variations by line item follow:

Travel expense decreased by $1,500 due to main operations moving to the subsidiary level.

Professional fees decreased by $15,406. The decrease is a result of a $18,000 decrease in legal fees in the three month period ended September 30, 2019 compared to the three month period ended September 30, 2018.

Rent expense has stayed relatively the same.

Other general and administrative expense increased by $4,658. This increase was due to a new D&O Insurance expense of $16,000 while storage, travel, and marketing decreased by $9,000. Other miscellaneous items decreased by $2,300.

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PVMS Subsidiary Level

    2019   2018   Change   Percent Change
                 
Payroll related   $ 129,457     $ 141,516     $ (12,059 )     -8.52 %
Travel and related expense     60,048       61,003       (955 )     -1.57 %
Professional fees     53,454       21,550       31,904       148.05 %
Marketing costs     16,511       14,066       2,445       17.38 %
Automobile expense     6,733       5,015       1,718       34.26 %
Office supplies     13,191       13,481       (290 )     -2.15 %
Rent expense     12,941       7,400       5,541       74.88 %
Other     17,646       15,170       2,476       16.32 %
                                 
Total G & A   $ 309,981     $ 279,201     $ 30,780       11.02 %

Explanations of variations by line item follow:

Payroll related expenses decreased $12,059. The Company no longer used 4 subcontractors in the three months ended September 30, 2019 that were used in the comparable period in 2018.

Travel expense stayed relatively the same.

Professional Fees increased $31,904. This increase is due to the new consulting services expense in the total of $31,500. In January 2019, we hired a law firm to begin litigation against our former accountants.

Marketing costs increased by $2,445 due to the increased visits to potential clinics in building up new clientele. In August 2019, we hired a new advertising firm.

Office supplies stayed relatively the same.

Rent expense increased by $5,541. The California office lease began mid-way through the three months period ended June 30, 2018. As of May 2019, the California office lease was renewed for a new monthly rate of $4,000. We pay the California lease payments on a residential unit that we use as an office for our account managers, sales and marketing staff. The unit is also used as a temporary residence for one of our national account managers while developing the West Coast market.

Other general and administrative expense stayed relatively the same.

Interest expense

Interest expense in total for the three month periods ended September 30, 2019 and 2018 was as follows:

  2019     $ 383,798  
  2018       307,922  
  Change     $ 75,876  
  Percentage Change       24.64 %

 

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A breakdown of the interest expense for the three month periods ended September 30, 2019 and 2018 is as follows:

    2019   2018   Change
             
  Parent     $ 172,720     $ 163,092     $ 9,628  
  PVMS       211,078       144,830       66,248  
                             
  Total     $ 383,798     $ 307,922     $ 75,876  

 

Nine-month periods ended September 30, 2019 and 2018

Sources of Revenue

A quantitative summary of our revenues by source category for the nine month periods ended September 30, 2019 and 2018:

    2019   2018   Change
                         
OSA- related   $ 226,549     $ 449,650     $ (223,101 )

Results of Operations

OSA services decreased to $226,549 in 2019 from $449,650 in 2018. The decrease was primarily the result of the timing of the Concentra launch. Earlier in the year, May 14, 2019, we reached an agreement with Concentra whereby Concentra engaged the Company, and the Company accepted the engagement, to serve as Concentra’s preferred national sleep apnea services provider. The launch by Concentra of this program, which included notifying all of the Concentra clinics of same, was delayed so that same launched much later than anticipated. Pending the launch, we were asked by Concentra, albeit informally, to cease activities in terms of having our regional representative’s visit the various Concentra clinics our sleep apnea services to said clinics. We honored that request, and in so honoring the request, our sales were diminished. The launch occurred in mid-October and we were informed by Concentra that they anticipated the roll out would start slowly and progressively build as their centers get used to the new process. Nonetheless, as a result of the Concentra launch and the Pinnacle agreement, as described below, we expect to see an increase in revenue during the fourth quarter of 2019.

Cost of revenues decreased to $110,211 in 2019 from $280,372 in 2018 due to a decrease in sales and a settlement agreement from a previous supplier reducing the cost of sales by $34,400.

General and administrative expense

General and administrative expense in total for the nine-month periods ended September 30, 2019 and 2018 was as follows:

  2019     $ 1,269,920  
  2018       1,396,478  
  Change     $ (126,558 )
  Percentage Change       -9.06 %

 

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We evaluate expenses at the Parent company level as well as at our PVMS subsidiary. Expenses at the Parent company level include overhead and the cost of being a public entity. Expenses at PVMS are solely related to the OSA services segment. A breakdown of these expenses as September 30, 2019 and 2018 is as follows:

                Percent
    2019   2018   Change   Change
                 
  Parent      $ 470,917     $ 484,377     $ (13,460 )     -2.78 %
  PVMS       799,003       912,101       (113,098 )     -12.40 %
                                     
  Total     $ 1,269,920     $ 1,396,478     $ (126,558 )     -9.06 %

 

Parent Company Level

                Percent
    2019   2018   Change   Change
                 
Professional fees   $ 245,594     $ 213,766     $ 31,828       14.89 %
Travel expense     3,815       25,367       (21,552 )     -84.96 %
Board of Directors fees     112,500       112,500       —         0.00 %
Office supplies     336       3,370       (3,034 )     -90.03 %
Rent expense     76,532       74,736       1,796       2.40 %
Other     32,140       54,638       (22,498 )     -41.18 %
                                 
Total general and administrative   $ 470,917     $ 484,377     $ (13,460 )     -2.78 %

Explanations of variations by line item follow:

Professional fees increased by $31,828. The increase is a result of a $53,000 increase in accounting fees, a $56,000 increase in audit fees, a $200 increase in other professional fees, and a $77,000 decrease in legal fees in the nine-month period ended September 30, 2019 compared to the nine-month period ended September 30, 2018.

Travel expense decreased by $21,552 due to main operations moving to the subsidiary level.

Rent expense remained relatively the same.

Other general and administrative expense decreased by $22,498.

Office supplies decreased by approximately $3,004 due to the operations moving to the subsidiary level.

Taxes decreased by approximately $17,000 due to a change in par value.

Advertising and promotion expense decreased by $8,000 due to marketing efforts moving to the subsidiary level.

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PVMS Subsidiary Level

                Percent
    2019   2018   Change   Change
                 
Payroll related   $ 341,769     $ 408,172     $ (66,403 )     -16.27 %
Travel and related expense     151,372       200,446       (49,074 )     -24.48 %
Professional fees     135,201       83,206       51,995       62.49 %
Marketing costs     33,740       42,296       (8,556 )     -20.23 %
Dues and subscriptions     841       38,557       (37,716 )     -97.82 %
Office supplies     30,768       41,824       (11,056 )     -26.43 %
Rent expense     35,942       11,100       24,842       223.80 %
Other     69,370       86,500       (17,130 )     -19.80 %
                                 
Total general and administrative   $ 799,003     $ 912,101     $ (113,098 )     -12.40 %

Explanations of variations by line item follow:

Payroll related expenses decreased $66,403. The Company no longer used 3 subcontractors in the nine-month period ended September 30, 2019 that were used in the comparable period in 2018. There is an increase of $7,000 due to one of the employees receiving a raise in the nine-month period ended September 30, 2019.

Travel expense was $49,074 lower due to the sales force having cutback on traveling to trade shows and visiting existing and potential clinics. The sales force and supporting forces were most active in 2017 in building up new clientele while in 2018 expanding the services offered to current clientele from local to national.

Professional Fees increased $51,995. In January 2018, we hired an outside accountant for PVMS, whom we pay $7,000 per month. For the period January through March 2018 the fee was prorated to $11,000. There were also 2 consultants hired and paid $34,000 to improve social media and miscellaneous in the nine-month period ended September 30, 2018 that were not used in 2019. Legal expense increased by $23,000 due to litigation against our former accountants and former supplier.

Marketing costs decreased by $8,556 due to the sales force having cutback on traveling to trade shows and visiting existing and potential clinics. The sales force and supporting forces were most active in 2017 in building up new clientele while in 2018 expanding the services offered to current clientele from local to national.

Dues and Subscriptions comprised, in part, an annual payment to a national organization of $25,000 during the nine-month period of 2018 that is no longer used in the comparable period of 2019.

Office supplies decreased by $11,056 due to the expense of setting up the California location in 2018.

Rent expense increased $24,842 due to having a California office lease beginning in June of 2018.

Other general and administrative expense decreased by $17,130. This was mainly due to $11,500 in provider fees in 2018 that the Company is no longer using in 2019. In the nine months ended September 30, 2018, the Company had bad debt expense due to cleaning up it's receivables. During 2019, there has been very little bad debt.

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ADVANZEON SOLUTIONS, INC.

Interest expense

Interest expense in total for the nine month periods ended September 30, 2019 and 2018 was as follows:

  2019     $ 1,052,991  
  2018       1,148,795  
  Change     $ (95,804 )
  Percentage Change       -8.34 %

 

A breakdown of the interest expense for the nine month periods ended September 30, 2019 and 2018 is as follows:

 

    2019   2018   Change
             
  Parent     $ 498,905     $ 780,936     $ (282,031 )
  PVMS       554,086       367,859       186,227  
                             
  Total     $ 1,052,991     $ 1,148,795     $ (95,804 )

 

 

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ADVANZEON SOLUTIONS, INC.

Financial Condition

Liquidity and Capital Resources

During the nine month period ended September 30, 2019, we funded our operations from revenues and $2,100,250 in private borrowings. During the nine month period ended September 30, 2018, we funded our operations from revenues and $1,079,223 in private borrowings. We will continue to fund our operations from these sources until we are able to produce operating revenue sufficient to cover our cost structure. In the event we are not able to secure such funding, our operations will be adversely affected.

Short Term: We funded our operations with revenues from sales and private borrowings.

During the period in September 2019, we hired a person to serve as our national director of sales and marketing. On September 17, 2019, we entered into an agreement with D.H. Blair Investment Banking Corp. (“D.H. Blair”), whereby D.H. Blair will act as a financial and business advisor to the Company. Included in D.H. Blair’s undertaking is assisting the Company in conducting a series of transactions designed to position the Company to list its shares of common stock on The Nasdaq Stock Market. We will attempt to institute a series of corporate actions that will result in a recapitalization of our capital structure. Among the transactions being contemplated are attempting to reduce our stockholder deficiency by among other actions being able to convert a large portion of the accumulated debt to equity and raising more equity through the sale of our securities. As we are able to generate more revenue from operations, which we expect to do in the forthcoming periods, the deficiency should be reduced as well. Additionally, we may seek to institute a reverse common stock split. We can offer no assurances that any of these contemplated steps can be accomplished to the extent necessary to meet the eligibility requirements for listing.

Subsequent Events

In October, we announced that we had entered into an exclusive contract with Pinnacle National, a leading third party administrator serving union employees. Under the agreement, we will be positioned to screen, test and treat as needed, all Pinnacle National members electing to utilize this service at no cost to the members. All costs will be borne by Pinnacle National. This program will roll out in four segments, the first of which will impact in excess of 150,000 members. The number of members within each subsequent segment will increase. The term of the agreement is three years. We expect the first segment to begin immediately. On May 14, 2019, we entered into an agreement with Concentra Health Services, Inc., which agreement provided, in pertinent part, that Concentra engaged the Company, and the Company accepted such engagement, to serve as “ Concentra’s preferred national sleep apnea Services provider ” That program was launched by Concentra on October 16, 2019, pursuant to which Concentra notified all of its clinic facilities that the Company, along with two other providers have been designated as Concentra’s preferred providers with respect to sleep apnea services. At the time of the roll out we were informed by Concentra that they anticipated the roll out would start slowly and progressively build as their centers get used to the new process. We received an immediate response in that we started receiving referrals from Concentra clinics with which we had previously not received referrals. Although there can be no assurances, the Company would anticipate a substantial increase in its referrals from the Concentra clinics, nationwide. The Company also reached a verbal agreement with Sleep Cycle, a Swedish-based App company that markets an App that it has denominated as the “smart alarm clock.” Sleep Cycle’s App is reportedly the largest selling App, worldwide, with over 35 million downloads and in excess of 25 million active users. Through this App, Sleep Cycle collects significant data from its users such that it is probable that when analyzing the data, with the expertise we possess in the sleep apnea field, potential sufferers of sleep apnea can be readily identified. The Company’s agreement with Sleep Cycle is to initially test ours and Sleep Cycle’s theory of being able to identify sufferers of sleep apnea from Sleep Cycle’s existing data, and assuming the theory proves out, the Company and Sleep Cycle will jointly market our testing and treatment capabilities to select groups of Sleep Cycle’s App users. The initial market will be the United States. Existing plans call for the program to launch within the fourth quarter of 2019. Both Sleep Cycle and the Company are optimistic that the theory will prove out, thus providing the platform for the next marketing phase of this project.

Subsequent to the close of the period ended September 30, 2019 we issued a total of 4,128,000 common stock purchase warrants. we also issued 4,300,000 shares of our restricted common stock to our investment banker, D. H. Blair Investment Banking Corp., as consideration for advisory services and as provided in our Financial and Business Advisory Agreement dated September 17, 2019. The services were valued at $473,000. Additionally, we issued a total of $139,000 in convertible promissory notes.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk:

As a smaller reporting company, we are not required to make any disclosure.

Item 4. Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; (iii) provide reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and (iv) provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because changes in conditions may occur or the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2019. This evaluation was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, Internal Control-Integrated Framework. Based upon such assessment, our CFO concluded that, as of September 30, 2019, our internal controls over financial reporting were not optimally effective in the specific areas described in the paragraphs below.

 

As of September 30, 2019, our CFO identified the following specific material weaknesses in the Company’s internal controls over its financial reporting processes:

Policies and Procedures for the Financial Close and Reporting Process – During the period of this report, the Company’s policies or procedures did not clearly define the roles in the financial reporting process. The various roles and responsibilities related to this process should be defined, documented, updated and communicated. Not having clear policies and procedures in place amounts to a material weakness in the Company’s internal controls over its financial reporting processes.

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ADVANZEON SOLUTIONS, INC.

Representative with Financial Expertise – For nine month period ended September 30, 2019, the Company did not continuously have an employee with the requisite knowledge and expertise to review the financial statements and disclosures at a sufficient level to monitor the financial statements and disclosures to the Company. Failure to have, continuously, an employee with such knowledge and expertise amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

As a result of our retaining the services of an Outside Accountant in January 2018 and appointing an internal Company employee to interface with the Outside Accountant, we have instituted the following policies and procedures designed to address the material weaknesses cited above.

All billing invoices prepared by the billing department are sent to the Outside Accountant for review and approval before sending out to the customer.
Copies of all incoming payable invoices are sent to the Outside Accountant for review, approval and data entry into the accounting system. That way Corporate Office has the originals and the outside accountants have duplicate copies. Accounts Payable Aging Report is sent once a week from the Outside Accountants to the Corporate office. The Corporate office, along with Outside Accountants, decide on which bills to pay weekly. Electronic payments have a duel control approval system (one person is initiating the payment and another person is approving the payment). We also appointed the principle from our Outside Accountants to be our Chief Accounting Officer.
Paperwork on all customer invoices, credit card payments and check payments received at Corporate are copied and forwarded to Outside Accountants. Customer invoices are recorded daily. Customer payments received are recorded daily. Customer payments are reconciled with the bank on a daily basis. Aged Accounts Receivable Reports are sent to Corporate by the Outside Accountants with suggestions on a regular basis.
All bank accounts are reconciled monthly.
Financial Statements are prepared and reviewed monthly.

 
The Company plans to further augment its addressing of material weaknesses, on an as-needed basis, by hiring additional accounting personnel once its initial corrective steps have been fully implemented, tested and found to be effective.

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ADVANZEON SOLUTIONS, INC.

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

With the exception of the matter set forth below, all of the legal proceedings for the nine-month period ended September 30, 2019, are disclosed in our annual report on Form 10-K for the year ended December 31, 2018, filed on May 24, 2019.

The Company previously reported that the litigation between Rotech Healthcare, Inc. and Pharmacy Value Management Solutions, Inc. settled. The Company rejected the draft settlement terms and continues to aggressively defend this litigation.

Item 1A. Risk Factors

The risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2018 have not materially changed.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

With the exception of the matter set forth below, the sale of unregistered securities for the nine month period ended September 30, 2019 were disclosed in our annual report on Form 10-K for the year ended December 31, 2018, filed on May 24, 2019.

On May 1, 2019, we issued a convertible promissory note in the principle amount of $50,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On May 8, 2019, we issued a convertible promissory note in the principle amount of $50,250 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 105,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

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ADVANZEON SOLUTIONS, INC.

On May 21, 2019, we issued a convertible promissory note in the principle amount of $50,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On May 22, 2019, we issued a convertible promissory note in the principle amount of $50,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On May 22, 2019, we issued a convertible promissory note in the principle amount of $15,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 30,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

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ADVANZEON SOLUTIONS, INC.

On May 30, 2019, we issued a convertible promissory note in the principle amount of $50,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On May 31, 2019, we issued a convertible promissory note in the principle amount of $150,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On June 12, 2019, we issued a convertible promissory note in the principle amount of $100,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 200,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On June 19, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

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ADVANZEON SOLUTIONS, INC. 

On June 24, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On June 27, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On July 1, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

  32  

 

 

ADVANZEON SOLUTIONS, INC.

On July 1, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On July 1, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On July 2, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

  33  

 

 

ADVANZEON SOLUTIONS, INC.

On July 2, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On July 2, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On July 2, 2019, we issued a convertible promissory note in the principle amount of $125,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 250,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On July 2, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

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ADVANZEON SOLUTIONS, INC.

On July 3, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On July 3, 2019, we issued a convertible promissory note in the principle amount of $100,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 200,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On July 5, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

  35  

 

 

ADVANZEON SOLUTIONS, INC.

On July 5, 2019, we issued a convertible promissory note in the principle amount of $50,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On July 8, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On July 10, 2019, we issued a convertible promissory note in the principle amount of $50,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

  36  

 

 

ADVANZEON SOLUTIONS, INC.

On July 10, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On July 11, 2019, we issued a convertible promissory note in the principle amount of $30,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 60,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On July 11, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On July 12, 2019, we issued a convertible promissory note in the principle amount of $25,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

  37  

 

 

ADVANZEON SOLUTIONS, INC.

On July 17, 2019, we issued a convertible promissory note in the principle amount of $50,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On July 19, 2019, we issued a convertible promissory note in the principle amount of $50,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

On August 24, 2019, we issued a convertible promissory note in the principle amount of $50,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

  38  

 

 

ADVANZEON SOLUTIONS, INC.

On August 24, 2019, we issued a convertible promissory note in the principle amount of $200,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five-year warrant to purchase 400,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

All of the convertible promissory notes listed above were issued to accredited investors, as that term is defined under the Section 501 of Regulation D, promulgated under the Securities Act of 1933, as amended. The warrants issued in connection with the promissory notes all have a cashless exercise feature.

On May 1, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On May 1, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On May 10, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On May 11, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On May 19, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On May 22, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On May 28, 2019, we issued 3,000,000 warrants to our Chief Accounting Officer. The warrants have a term of five years and an exercise price of $0.0650 per warrant.

  39  

 

 

ADVANZEON SOLUTIONS, INC.

On May 30, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On May 31, 2019, we issued 638,888 warrants to our Chief Executive Officer in lieu of 2019 first quarter salary. The warrants have a term of five years and an exercise price of $0.09 per warrant.

On May 31, 2019, we issued 347,222 warrants to our President in lieu of 2019 first quarter salary. The warrants have a term of five years and an exercise price of $0.09 per warrant.

On June 03, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On June 06, 2019, we issued 50,000 warrants to a member of our Dental Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On June 08, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On June 08, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On June 11, 2019, we issued 50,000 warrants to a member of our Dental Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On June 12, 2019, we issued 1,000,000 warrants to a member of our contracted supplier. The warrants have a term of five years and an exercise price of $0.11 per warrant.

On June 14, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On June 20, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On June 22, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On June 24, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

  40  

 

 

ADVANZEON SOLUTIONS, INC. 

On June 24, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On June 25, 2019, we issued 718,750 warrants to our Chief Executive Officer in lieu of 2019 second quarter salary. The warrants have a term of five years and an exercise price of $0.08 per warrant.

On June 25, 2019, we issued 390,625 warrants to our consultant in lieu of 2019 second quarter salary. The warrants have a term of five years and an exercise price of $0.08 per warrant.

On June 27, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On June 30, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On June 30, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On July 1, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On July 1, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On July 1, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On July 1, 2019, we issued 50,000 warrants to a member of our Dental Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On July 6, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On July 11, 2019, we issued 50,000 warrants to a member of our Dental Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On July 25, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

  41  

 

 

ADVANZEON SOLUTIONS, INC.

On August 19, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On August 31, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On September 25, 2019, we issued 50,000 warrants to a member of our Medical Advisory Board, an accredited investor. The warrants have a term of three years and an exercise price of $0.25 per warrant.

On September 30, 2019, we issued 136,905 warrants to our Chief Executive Officer in lieu of 2019 third quarter salary. The warrants have a term of five years and an exercise price of $0.42 per warrant.

On September 30, 2019, we issued 62,500 warrants to our consultant in lieu of 2019 third quarter salary. The warrants have a term of five years and an exercise price of $0.42 per warrant.

We relied on Section 4 (2) of the Securities Act of 1933, as amended and or Section 501 of Regulation D promulgated under said Act as the exemption from registration under the Act.

Item 3. Exhibits

Documents filed as part of this Report.

Exhibit 31.1 Certification of Clark A. Marcus pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 Certification of Arnold B. Finestone 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 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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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.

 

 

Advanzeon Solutions, Inc.

          Registrant
   
Date: November 13, 2019  By: /s/ Clark A. Marcus
    Clark A. Marcus,
Chief Executive Officer

 

   
Date: November 13, 2019  By: /s/ Arnold B. Finestone
    Arnold B. Finestone
President and Chief Financial Officer

 

 

  43  

 

 

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