The accompanying
notes are an integral part of these consolidated financial statements.
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, 2019, the changes therein for the three month periods then ended and the results of operations for the three month periods
ended March 31, 2020 and 2019.
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 year ended December 31, 2019, filed April 9, 2020. The results of operations for the three month
periods ended March 31, 2020 and 2019 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.
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- In
accordance with FASB ASC Topic 606, "Revenue from contracts with customers", the Company recognizes revenue when obligations
under the terms of a contract with the customer are satisfied. Generally, this occurs upon shipment of the CPAP to their
customer or when the test is performed.
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 March 31, 2020 and December 31, 2019 are as follows:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair Value of
|
|
|
|
|
|
Fair Value of
|
|
|
|
Carrying
|
|
|
Attached
|
|
|
Carrying
|
|
|
Attached
|
|
|
|
Amount
|
|
|
Warrants
|
|
|
Amount
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory notes
|
|
$
|
7,746,173
|
|
|
$
|
-
|
|
|
$
|
7,564,173
|
|
|
$
|
-
|
|
Short term notes payable
|
|
|
4,788,016
|
|
|
|
-
|
|
|
|
4,788,016
|
|
|
|
-
|
|
Loan payable related party
|
|
|
257,729
|
|
|
|
-
|
|
|
|
342,670
|
|
|
|
-
|
|
|
|
$
|
12,791,918
|
|
|
$
|
-
|
|
|
$
|
12,694,859
|
|
|
$
|
-
|
|
During the three month period ended March
31, 2020, there have been 4 additional convertible notes issued totaling $182,000.
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 2020
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 2017 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.
Other current assets consists of the following
at March 31, 2020 and December 31, 2019:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Loans to others
|
|
$
|
34,406
|
|
|
$
|
42,676
|
|
Security and lease deposits
|
|
|
3,500
|
|
|
|
3,500
|
|
Capitalized portion of lease
|
|
|
1,523
|
|
|
|
1,808
|
|
Prepaid expenses
|
|
|
301,319
|
|
|
|
452,953
|
|
Miscellaneous receivable
|
|
|
326,334
|
|
|
|
325,660
|
|
|
|
|
|
|
|
|
|
|
Other current asset
|
|
$
|
667,082
|
|
|
$
|
826,597
|
|
ADVANZEON
SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4.
|
PROPERTY AND EQUIPMENT
|
Property and equipment, net, consists of
the following at March 31, 2020 and December 31, 2019:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
6,616
|
|
|
$
|
1,549
|
|
Less accumulated depreciation
|
|
|
(621
|
)
|
|
|
(310
|
)
|
Property and equipment - net
|
|
$
|
5,995
|
|
|
$
|
1,239
|
|
Depreciation expense for the three month
periods ended March 31, 2020 and 2019 is $311 and $56, respectively. A laptop was acquired in January of 2020.
Leasehold improvement, net, consists of the following at March
31, 2020 and December 31, 2019:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
2,992
|
|
|
$
|
2,992
|
|
Less accumulated amortization
|
|
|
(2,992
|
)
|
|
|
(2,992
|
)
|
Leasehold improvements - net
|
|
$
|
-
|
|
|
$
|
-
|
|
Amortization expense for the three month
periods ended March 31, 2020 and 2019 is $0 and $149, 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 March 31, 2020 and December 31, 2019,
there are the following related party notes payable:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Related party loans payable
|
|
$
|
257,729
|
|
|
$
|
342,670
|
|
ADVANZEON
SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2020 and December 31, 2019,
the balance was as follows:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
12,534,189
|
|
|
$
|
12,352,189
|
|
During the three month period ended March
31, 2020, there have been 4 additional convertible-promissory notes totaling $182,000.
Break-out of debt between the parent company
and our subsidiary PVMS is as follows:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Advanzeon parent
|
|
$
|
5,010,016
|
|
|
$
|
5,010,016
|
|
PVMS
|
|
|
7,524,173
|
|
|
|
7,342,173
|
|
|
|
$
|
12,534,189
|
|
|
$
|
12,352,189
|
|
At PVMS, the total of notes issued year-to-date
and their dollar values were as follows:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Number of notes issued
|
|
|
4
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
Dollar value
|
|
$
|
182,000
|
|
|
$
|
2,289,250
|
|
All debt is short-term in nature, one-year
maturity date. All debt issued has a stated interest rate of 12% per year.
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 is anticipated to 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 referenced 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.
|
ADVANZEON
SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2020 and December 31, 2019,
the balance of this indebtedness is as follows:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
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 March 31, 2020 and December 31, 2019,
the balance of other accrued liabilities is as follows:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Management compensation
|
|
$
|
8,873,802
|
|
|
$
|
8,873,802
|
|
Accrued interest non-related party
|
|
|
6,347,826
|
|
|
|
5,956,368
|
|
Board of Director fees
|
|
|
1,087,500
|
|
|
|
1,050,000
|
|
State fees
|
|
|
-
|
|
|
|
2,800
|
|
Payroll liabilities
|
|
|
3,803
|
|
|
|
-
|
|
Other accrued liabilities
|
|
|
8,940
|
|
|
|
8,817
|
|
Total other accrued debt
|
|
$
|
16,321,871
|
|
|
$
|
15,891,787
|
|
The Company entered into two leases
for office space and one automobile lease 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 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
rate of 2.99% for the automobile lease. Applying the commercial rate, the Company calculated the present value of $294,203
for the office leases and $29,037 for the automobile leasing, that are being amortized over the life of the leases.
ADVANZEON
SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2020, the right of use
assets associated with future operating leases are as follows:
Total present value of right of use assets under lease agreements
|
|
$
|
323,240
|
|
|
|
|
|
|
Amortization of right of use assets
|
|
|
(107,508
|
)
|
|
|
|
|
|
Total right of use assets as of March 31, 2020
|
|
$
|
215,732
|
|
Total amortization expense related to the
right of use assets under the lease agreements was $45,059 and $12,087 for the three month periods ended March 31, 2020 and 2019,
respectively.
11.
|
RIGHT OF USE LEASE LIABILITIES
|
As disclosed in Note 10, the Company entered
into two leases for office space and automobile lease that are classified as right of
use assets and lease liabilities.
As of March 31, 2020, the lease liabilities
associated with future payments due under the leases are as follows:
Total present value of future lease payments
|
|
$
|
323,240
|
|
|
|
|
|
|
Principal payments made as of the quarter ended March 31, 2020
|
|
|
(107,508
|
)
|
|
|
|
|
|
Total right of use lease liabilities as of March 31, 2020
|
|
$
|
215,732
|
|
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
March 31, 2020:
Total future minimum lease payments
|
|
$
|
229,376
|
|
|
|
|
|
|
Less present value discount
|
|
|
13,644
|
|
|
|
|
|
|
Total right of use lease liabilities as of March 31, 2020
|
|
|
215,732
|
|
|
|
|
|
|
Less current portion due within one year
|
|
|
94,410
|
|
|
|
|
|
|
Long-term right of use liabilities
|
|
$
|
121,322
|
|
ADVANZEON
SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total maturities of lease liabilities as
of March 31, 2020 are as follows:
|
|
Total future
|
|
|
|
|
|
|
|
|
|
minimum lease
|
|
|
Present value
|
|
|
Right of use
|
|
|
|
payments
|
|
|
discount
|
|
|
lease liabilities
|
|
2020
|
|
$
|
103,639
|
|
|
$
|
9,229
|
|
|
$
|
94,410
|
|
2021
|
|
|
101,095
|
|
|
|
4,191
|
|
|
|
96,904
|
|
2022
|
|
|
24,642
|
|
|
|
224
|
|
|
|
24,418
|
|
|
|
$
|
229,376
|
|
|
$
|
13,644
|
|
|
$
|
215,732
|
|
During the three month period ended March
31, 2020, the Company has not issued any shares.
During the three month period ended March
31, 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.