NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
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1.
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DESCRIPTION
OF THE COMPANY’S BUSINESS AND BASIS OF PRESENTATION
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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 March 31, 2018, the changes therein for the three-month period then ended and the
results of operations for the three-month periods ended March 31, 2018 and 2017.
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, 2017. The results of
operations for the three-month periods ended March 31, 2018 and 2017 are not necessarily indicative of operating results for the
full year.
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2.
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SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
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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., 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.
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
– 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 (Note 3) is stated at cost less accumulated depreciation. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives ranging from 2 to 12 years. 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 and estimated fair values of long-term debt at March 31, 2018 and December 31, 2017 are as follows:
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March
31,
2018
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December
31,
2017
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|
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|
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Carrying
Amount
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Estimated
Fair
Value
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Carrying
Amount
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Estimated
Fair
Value
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Promissory notes
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$
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4,663,795
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$
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—
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$
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4,663,795
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$
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—
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Convertible debt
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4,048,000
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|
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—
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3,798,000
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|
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—
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Related party loans payable
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|
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3,929,933
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|
|
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—
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3,019,923
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—
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$
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12,641,728
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$
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—
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$
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11,481,718
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$
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—
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During
the first quarter of 2018, there have been 8 additional convertible notes totaling $250,000 and $910,010 was reclassified from
accounts payable to related party loans payable.
Cost
of Revenues
- Costs of revenues consist of sleep testing expenses, supplies, service fees, and product shipping.
ADVANZEON
SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 2017 and 2018 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
2013 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 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.
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3.
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PROPERTY
AND EQUIPMENT
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Property
and equipment, net, consists of the following at March 31, 2018 and December 31, 2017:
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March 31,
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December
31,
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2018
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2017
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Leasehold improvements
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2,992
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2,992
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Less accumulated depreciation
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(2,244
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)
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(2,094
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)
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Property and equipment - net
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$
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748
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$
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898
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Depreciation
expense for the three month periods ended March 31, 2018 and 2017 is $150 and $0, respectively.
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4.
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RELATED
PARTY AND SHAREHOLDER LOANS PAYABLE
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The
Company has received financing from Management of the Company as well as from members of our Board of Directors. These individuals
are deemed to be related parties to the Company and their indebtedness must be disclosed separately.
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March 31,
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December 31,
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2018
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2017
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Related party loans payable
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$
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929,933
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$
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19,923
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Due to shareholder
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3,000,000
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3,000,000
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$
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3,929,933
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$
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3,019,923
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ADVANZEON
SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
During
the first quarter of 2018, $910,010 was reclassified from accounts payable to related party loans payable.
As
of March 31, 2018, and December 31, 2017, the balance was as follows:
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March 31,
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December 31,
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2018
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2017
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Notes payable
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$
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8,711,795
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$
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8,461,795
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During
the first quarter of 2018, there have been 8 additional notes totaling $250,000.
Break-out
of debt between the parent company and our subsidiary PVMS is as follows:
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March 31,
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December 31,
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2018
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2017
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Advanzeon parent
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$
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5,035,795
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$
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5,035,795
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PVMS
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3,676,000
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3,426,000
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Total
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$
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8,711,795
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$
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8,461,795
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At
PVMS, the sum total of notes issued year-to-date and their dollar values were as follows:
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March 31,
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December 31,
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2018
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2017
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Number of notes issued
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8
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39
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Dollar value
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$
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250,000
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$
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1,570,000
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All
notes are short-term in nature, one year maturity date. All debt issued has a stated interest rate of 12% per year.
Contingent
Liability consisted of 2 items:
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1)
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a
lawsuit by the son of a deceased promissory note holder in the amount of $450,000. The
son’s actions have been dismissed by the court 2 previous times.
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2)
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interest
payable to the same person listed in (1) in the amount of $171,247.
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ADVANZEON
SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of March 31, 2018 and December 31, 2017, the balance of this indebtedness is as follows:
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March 31,
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|
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December 31,
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2018
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2017
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Legal settlement payable
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$
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—
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$
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39,995
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Disputed note payable
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450,000
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450,000
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Disputed interest payable
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171,247
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—
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Total Contingent Liability
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$
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621,247
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$
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489,995
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During
the quarter ended March 31, 2018, the Company reclassified the legal settlement payment due of $39,995 to accounts payable.
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7.
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ACCRUED
INTEREST-RELATED PARTY
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As
of March 31, 2018 and December 31, 2017, the balance of accrued interest on this indebtedness is as follows:
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March 31,
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December 31,
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2018
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2017
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Accrued interest-related party
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$
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5,173,035
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$
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5,017,708
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8.
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OTHER
ACCRUED LIABILITIES
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As
of March 31, 2018 and December 31, 2017, the balance of other accrued liabilities is as follows:
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March 31
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December 31
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2018
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2017
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Management compensation
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$
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8,873,802
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$
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8,873,802
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Accrued interest non related party
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3,430,486
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2,632,159
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Board of Director fees
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787,500
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600,000
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State fees
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21,000
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—
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Payroll liabilities
|
|
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3,389
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11,522
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Other
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—
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1,053,270
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Total other accrued debt
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$
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13,116,177
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$
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13,170,753
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ADVANZEON
SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
2018, other accrued liabilities of $1,053,270 has been reclassified to its proper category, $696,989 has been reclassified to
Accrued Interest-Non-Related Party, $196,260 to Loan Payable Related Party, $150,000 to Accrued Board of Directors Fees, and $10,021
was a reversal of the December 31, 2017 year-end accrual of Wages, Subcontractor Fees, and Commissions.
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9.
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COMMITMENTS
AND CONTINGENCIES
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We
lease certain office space under an operating lease that expires on June 30, 2019. The Tampa office lease contains an annual escalation
clause and a provision for payment of real estate taxes, insurance, and maintenance and repair expenses. Total rental expense
for the lease for the three-month periods ended March 31, 2018 and 2017 is $24,881 and $30,788, respectively.
During
the quarter ended March 31, 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. We relied on Section 4(a)(1) of the Securities
Act of 1933, as amended, as the exemption from registration under the Act.
In
accordance with ASC Topic 855, “
Subsequent Events
”, the Company evaluated subsequent events through April 12,
2019, the date these financial statements were available to be issued. During their evaluation, the following subsequent events
were identified.
Subsequent
to quarter end the Company issued 1,597,971 shares of common stock for the conversion of debt and accrued interest valued at $51,231. On September 28, 2018 the Company adjusted the par
value of the Series C Convertible Preferred Stock from $50 per share to $.001 per share.
In
addition, the Company wrote off the note due to shareholder of $3,000,000 and the accrued interest associated with the note of
$4,607,598 and entered into various loan agreements and convertible debt agreements totaling $1,451,923.
ADVANZEON
SOLUTIONS, INC.