UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to10-K/A
| ☒ | Annual Report Pursuant under Section 13 or 15(d) of the Securities Act of 1934. |
For the year ended December 31, 2019
☐ Transition report under section 13 or 15(d) of the Securities Exchange Act of 1934
1934.
For the fiscal year ended May 31, 1994 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to __________
________.
Commission file number 0-5751
COMPREHENSIVE CARE CORPORATION
(ExactFile Number: 1-9927
ADVANZEON SOLUTIONS, INC.
(Exact name of Registrantregistrant as specified in its charter)
| Delaware | 95-2594724 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
2901 W. Busch Blvd. Suite Tampa, FL | 33618 | |
| (Address of | (Zip Code) |
813-517-8484
(Registrant’s telephone number including area code (314) 537-1288
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Securities to be registered pursuant to Section 12(b) of the Exchange Act:
Securities registered or to be registered pursuant to Section 12(g) of the Exchange Act:
(Title of class)
Common Stock, Par Value $0.01 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to section 13 or Section 15 (d) of the Act.
☐ Yes ☒ No
Indicate by check mark whether the Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the precedingpast 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X☒ No ----- -----
☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if disclosure of delinquent filersany, every Interactive Data File required to be submitted and posted pursuant to ItemRule 405 of Regulation S-KS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not contained herein, and will not be contained, to use the bestextended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(s) of Registrant's knowledge,the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in definitive proxy or information
statements incorporated by reference in Part IIIRule 12b-2 of this Form 10-K or any
amendment to this Form 10-K. [ X ]
the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrantregistrant computed by reference to the price at August 22, 1994,which the common equity was $14,839,164.
At August 25, 1994,sold, or the Registrant had 21,986,916average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $12,735,287. This calculation does not reflect a determination that certain persons are affiliates of the registrant for any other purposes.
The number of shares of Common Stock
outstanding.
the registrant’s common stock outstanding on April 9, 2020 was 71,661,656.
Explanatory Note
The purpose of this amendment to Advanzeon Solutions Inc. Annual Report on Form 10-K for the year ended December 31, 2019 is to add the additional activity for the year ended December 31, 2018 to the statement of stockholders deficiency, to organize the Exhibits 31 and 32 in numerical order, to add the certification of the CFO, and on page 53 disclose the relationship between our CEO and our Chief Accounting Officer.
No other changes have been made to the Form 10-K. This amendment to the Form 10-K is presented as of the filing date of the original Form 10-Q and does not modify or update in any way the disclosures made in the original Form 10-K.
Pursuant to Rule 12b-15 under the Securities and Exchange Act of 1934, as amended, this Form 10-K/A includes new certifications by our principal executive officer and principal financial officer under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. Except for the items noted above no other information included in the Company's original Form 10-K is being amended by this Form 10-K/A.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates
None.
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TABLE OF CONTENTS
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CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Certain information by reference fromincluded in this Annual Report on Form 10-K and in our other reports, Securities and Exchange Commission (“SEC”) filings, statements, and presentations is forward looking within the Registrant's
definitive proxy statement for the Registrant's 1994 annual meeting of
shareholders presently scheduled to be held on November 14, 1994, which Proxy
Statement will be filed no later than 120 days after the closemeaning of the Registrant's fiscal year ended May 31, 1994.
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PART I
ITEM 1. BUSINESS.Private Securities Litigation Reform Act of 1995, including, but not limited to, our anticipated operating results, financial resources, increases in revenues, increased profitability, growth and expansion. And our ability to enter into new contracts. Such forward-looking information involves important risks and uncertainties that could significantly affect actual results and cause them to differ materially from expectations expressed herein and in our other reports, SEC filings, statements, and presentations. These risks and uncertainties include, among others, changes in local, regional, and national economic and political conditions, the effect of governmental regulation, competitive market conditions, varying trends in member utilization, our ability to manage our operating expenses, our ability to obtain additional financing, our ability to renegotiate or extend expiring debt instruments, and other risks detailed in Item 1A in this Annual Report.
OVERVIEW
Established in 1969, Advanzeon Solutions, Inc., (formerly Comprehensive Care Corporation (the "Company"Corp.) is a Delaware
corporation organized(“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 January 1969. The Company is transitioning from
predominantly a provider of treatment programs for psychiatric disorders and
chemical dependency (including alcohol and drug) to a2016, provided managed care behavioral
health care company providing a continuum of services. Such services include
risk based contract capitation ofby acting as the administrator for certain administrative service agreements in the behavioral health expenses for specific
populations and a broad spectrum of inpatient and outpatient mental 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 counseling. Programswhen needed, offered a 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.
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OBSTRUCTIVE SLEEP APENA
In 2014, the Department of Transportation (“DOT”) overhauled its system such that regulations now require commercial drivers, that is drivers with a commercial driver’s license (‘CDL”) must be specifically examined with respect to whether or not they have a respiratory dysfunction which is defined to include Obstructive Sleep Apnea (“OSA”). OSA is a breathing disorder that causes the airway in a person’s throat to close during sleep for ten seconds or more. This loss of breathing function can occur as many as 400 times during the night, and those who have the disorder wake up multiple times, which can lead to exhaustion during the day. Although OSA is diagnosed across a wide demographic, there are certain factors that increase the risk of a person developing this disorder:
| · | Obesity | |
| · | Smoking and drinking alcohol | |
| · | Family history | |
| · | Small airway | |
| · | Recessed chin, large overbite | |
| · | Ethnicity |
The troubling aspect of OSA as it relates to CDL drivers is that it causes intense fatigue often causing a driver to struggle with focusing and remaining alert while driving. Sleep apnea is one of the major contributing factors in truck accidents.
SOURCES OF REVENUE
For the years ended December 31, 2019 and 2018, all of our revenue was earned from our sleep apnea business.
OUR BUSINESS
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 and 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 to provide case management and encouragement designed to solve problems such that the driver increases usage, if necessary, and remains compliant.
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SMS 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.
Revenue is recognized when billed, which is approximately when the testing service is performed or CPAP machine is shipped. For the fiscal year ended December 31, 2019, two contractual relationships accounted for ten percent or more of our total revenues; the U.S. Healthworks account generated $132,518 in revenue representing 44% of our total revenue and Concentra accounted for $113,223 in revenue representing 38% of the total revenue. During the year U.S. Healthworks merged into Concentra. With these accounts the patients are invoiced individually and make their own payments but are referred through Concentra and US Healthworks.
In the past, the commercial transportation industry, and industry in general, did not fully appreciate OSA as a health/liability issue. Today, more and more companies have begun to identify OSA as a major health and liability concern. Part of this realization has been occasioned by the number of successful lawsuits initiated on account of drivers accused of having accidents caused, in part, by their having OSA (sleep apnea). Several years ago, the Company identified this health problem and an industry trend toward more attention being devoted to issues involving OSA. We took steps to address what we saw as a national healthcare epidemic, and in the process, we constructed a nationwide virtual system for the screening, testing and treatment of OSA. We believe we are the only nationwide, medically-driven company that actively engages and promotes to industry a national screening, testing and treatment program targeting OSA.
The United States government has provided impetus to certain employers and unions to start paying more attention to OSA by passing legislation requiring that commercial interstate drivers (including truckers, airline pilots and railway conductors) be examined for a respiratory dysfunction (sleep apnea) as a condition of their maintaining their commercial license. That, notwithstanding, however, the challenge we faced, and continue to face, is getting employers, associations, municipalities and unions (collectively, “employers”) to fully realize the health and economic value to them for actively promoting an internal OSA program to their employees and/or members (collectively, “employees”) which consists of providing our services to their employees on an employer-paid basis – no cost to the employee. Therefore, once we have made our initial contact with an employer who is willing to pay for all or a part of our SMS services, our job is to then assist them in implementing a comprehensive OSA program and, either directly or indirectly, promoting same to their employees.
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We have found that while many companies wholeheartedly embrace the need to address OSA from a management perspective, others, while recognizing the problem, are not yet ready to actually promote such a program, internally, from a cost perspective. They are oftentimes not willing to enter into a formal contract for our services, preferring an informal relationship whereby they agree that while they will pay for the services we rendered to their employees, they will not engage in the active promotion of the program. The result is that unless we convince the employers to make their employees aware of such coverage, the employees often remain unaware of the fact that their employer is providing them with such a benefit. It is, therefore, our responsibility, and our cost, to work with each such employer, generally through their human resources staff to provide the design and necessary materials needed to implement and monitor an effective OSA benefit program. This requires an active marketing effort on our part both before the relationship is solidified, and consistently thereafter. As a result of our limited financial resources, while we have now successfully established a significant number of these relationships, there still remains the task of continuing our marketing efforts to fully realize the economic benefit of those relationships. We are confident that our continued efforts will ultimately provide a meaningful revenue stream in tandem with the growth of our patient population.
Our Home Sleep Test (HST) Process:
After a driver has been diagnosed as at risk for OSA, the next step is for the driver to be evaluated with a Home Sleep Test ("HST”). The HST is a testing device used overnight by the driver. The device takes readings of the sleep interruptions, oxygen levels and other related data. SMS contacts the driver and coordinates where to send the Home Seep Test. The driver is advised what will come in the box and when the box will arrive. SMS then ships the test along with a return shipping box. When the test is completed, the driver places the device in the return box. The driver then calls USPS for a free pickup or drops off the box at a USPS location. The test is then returned to SMS where the test is downloaded, results evaluated by a certified sleep specialist, and a report generated. We coordinate with our supplier and provide the HST and related services to the driver for a fee.
CPAP Therapy:
Once the HST Is returned and results evaluated, the driver falls into one of two categories. If sleep apnea is ruled out, the driver and all relevant stakeholders are provided at freestanding
facilities operatedwith a “Certificate of Compliance” which is used by the Companycertified medical examiner (CME) to certify the driver’s medical card. If sleep apnea is confirmed, the driver and all relevant stakeholders are advised, and a medically correct and regulatory compliant treatment plan is recommended. This plan is most often Continuous Positive Air Pressure ("CPAP”) therapy. SMS will provide the driver with an auto-regulating CPAP machine and deliver same to the driver’s home, office, or wherever he/she prefers to receive it. The driver is instructed on how to use the CPAP machine and preferences for mask type, fitting size, etc. are customized for the driver. SMS employs staff who is skilled at independent general hospitals under
contractswalking a driver through the process. SMS also utilizes a “hotline” that a driver may call with any questions.
Monitoring:
SMS provides monitoring of drivers for compliance as required by the DOT. There are two phases of monitoring. For those drivers determined to require CPAP therapy, an initial thirty day report is required to demonstrate that the driver is using the CPAP machine at least 70% of the time. SMS not only monitors the driver, but actively intervenes with the Company. A wholly-owned subsidiary, CareUnit, Inc.,
develops, marketsdriver to encourage compliance. SMS utilizes an algorithm based on current usage to predict if the driver will meet compliance guidelines. If our monitoring indicates the driver is not meeting guidelines, we alert them and managesoffer suggestions and encouragement to help them meet compliance. At the Company's contract programs. During fiscal
1994, psychiatric and chemical dependency treatment programs accounted for
approximately 86%conclusion of the Company's operating revenues. AccessCare, Inc.
("AccessCare"thirty day period, SMS provides a DOT appropriate report documenting compliance performance. SMS also provides ongoing monitoring via a WIFI-based model to monitor the driver’s usage 24/365. We provide the same case management function of encouraging compliance and offering solutions to keep the driver healthy, safe, compliant and on the road.
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The following diagram shows how we deliver our services.
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The Master Distributor Agreement:
During 2019, the Company entered into a supplemental agreement (the “Agreement”) a wholly-owned subsidiary primarily engagedwith its durable medical equipment supplier (“Supplier”). The purpose of the Agreement was to provide the Company with increased back-office support in anticipation of growing business volume occurring in the developmentlatter part of 2019 and deliverycontinuing into 2020. The Company’s primary concerns were that it would need (i) additional customer services reps and telephone sales personnel; (ii) additional support equipment for such expansion; (iii) additional space to house such SMS Personnel; and, (iv) an increased supply of managed care serviceshome sleep testing and treatment equipment.
The Company’s Agreement with its Supplier provides, in material part, that Supplier would serve as the Company’s master distributor for behavioral medicine, accountedpurposes of obtaining and distributing testing and treatment equipment necessary to service the Company’s patients. In exchange for approximately 10% ofthis appointment, the Company's operating revenues. The remaining 4% of
fiscal 1994 revenues were derived from other activities.
The following table sets forth for each ofSupplier agreed to provide the years in the five-year
period ended May 31, 1994, the contribution to operating revenues of the
Company's freestanding operations, CareUnit, Inc. contracts, AccessCare
operations, RehabCare programs, and other activities.
Additionally, Supplier agreed that it would be responsible for providing SMS Personnel with appropriate local hardware, telephone system, telephones and computers. The following table sets forth selected operating data
regardingSupplier also agreed that if additional SMS Personnel were needed, as determined in the Company's freestanding facilities. Facilities are designated
either psychiatric or chemical dependency based onCompany’s sole discretion, the licenseSupplier would pay 45% of the facility
andcompensation costs of such additional personnel.
As compensation for the predominant treatment provided. For information concerningSupplier performing its contractual obligations, the natureCompany granted the Supplier a three-year warrant to purchase one-million (1,000,000) shares of the Company's interestCompany’s common stock at an exercise price of $0.11 per share (the “Warrant”). The Warrant vests in equal quarterly amounts over a period of time commencing June 2019 through March 2020, provided that vesting is conditioned upon the facilities, see Item 2, "PROPERTIES".
OUR ADVISORY BOARDS
Medical Advisory Board
Our SMS program is a 68-bed adolescent psychiatric hospital and Starting Point,
Orange County, a 70-bed psychiatric facility. This agreement was mutually
dissolved on February 28, 1993.
(13) Includes Brea Hospital Neuropsychiatric Center, CareUnit Hospital of
Orange, CareUnit Hospital of St. Louis, CareUnit of DuPage, Sutter Center
for Psychiatry and Golden Valley Health Center. These facilities were
closed or sold in fiscal 1989 through 1991.
(14) A facility may have appropriate licensure for more beds than are in use
for a number of reasons, including lack of demand, anticipation of future
need, renovation and practical limitations in assigning patients to
multiple-bed rooms. Available beds is defined as the number of beds which
are available for use at any given time.
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4
(15) Average occupancy rate is calculated by dividing total patient days by the
average number of available bed-days during the relevant period.
FREESTANDING FACILITY PROGRAMS
The services offered at a freestanding facility are determined by the
licensure of the facility, the needs of the patient community and reimbursement
considerations including working relationships with managed care companies. Amedically-driven program within the facility represents a separately staffed unit dedicated to the treatmentconcept that by attacking and containing root causes of patients whose primary diagnosis suggests that their treatment
needs will best be met withinvarious ailments affecting our population, we can dramatically reduce the unit. Patients whose diagnosis suggests the
need for supplemental services are accommodated throughout their stay as
dictated by the individual treatment plan developed for each patient.
Psychiatric. Psychiatric programs are offered in mostcost of the Company's
freestanding facilities. Admission to the programs offered by the Company is
typically voluntary although certain facilities provide emergency psychiatric
services and accept involuntary patients who are suffering an acute episodic
psychiatric incident.
Each patient admitted to a psychiatric program undergoes a complete
assessment including an initial evaluation by a psychiatrist, a medical
history, physical examination, a laboratory work-up, a nursing assessment, a
psychological evaluation, and social and family assessments. The assessments
are utilized to develop an individualized treatment plan for each patient.
The treatment programs are undertaken by an interdisciplinary team of
professionals experienced in the treatment of psychiatric problems. Length of
stay varies in accordance with the severity of the patient's condition. A
comprehensive discharge plan which may include outpatient psychiatric or
psychological treatment, or referral to an alternate treatment facility is
prepared for each patient. Psychiatric programs are also available on an
inpatient, day treatment and outpatient basis and form a continuum of care.
Chemical Dependency. Chemical dependency programs, offered in all
freestanding facilities, are delivered under the names CareUnit(SM), Starting
Point and Aurora Behavioral Health and include programs for adults and
adolescents. Facilities offer a comprehensive treatment program based on
therapy and education. The medically based programs utilize a team approach to
treatment, with a supervising physician, psychologists, counselors, therapists
and specially trained nurses. This multi-disciplinary team approach means that
the medical, emotional, psychological, social and physical needs of the patient
are all addressed in treatment.
Facilities offer levels of care that can form a continuum, including
detoxification, inpatient, residential, day treatment and outpatient programs
which meet the evolving needs of patients and their families. Based on an
initial assessment, each patient is placed into the level of care that is most
appropriate for his or her needs. Following assessment, each patient admitted
into treatment receives a full medical and social history as well as a physical
examination that includes those diagnostic studies ordered by the patient's
attending physician. Throughout the course of treatment, each plan is reviewed
frequently to ensure that it continues to meet the changing needs of the
patient. The length of time spent in treatment is dependent on an individual's
needs and can range from several weeks to several months.
SOURCES OF REVENUES
During fiscal 1994, approximately 57% of the Company's operating
revenues from freestanding operations were received from private sources
(private health insurers, managed care companies and directly from patients)
and the balance from Medicare, Medicaid and other governmental programs.
Private health insurers offer plans that typically include coverage for
psychiatric and chemical dependency treatment. In many instances, the level of
coverage for psychiatric and chemical dependency benefits is less than that
provided for medical/surgical services. Lower coverage levels result in higher
co-payments by the patient, who is often unable to meet his or her commitment
in its entirety or is unable to pay as rapidly as the insurance company. This
pattern tends tohealthcare; increase bad debts and days outstanding in receivables.
Private insurance plans vary significantly in their methods of payment,
including cost, cost plus, prospective rate, negotiated rate, percentage of
charges, and billed charges. Health insurers have adopted a number of payment
mechanisms for the primary purpose of decreasing the amounts paid to hospitals
(including the Company's operations) for services rendered. These mechanisms
include various forms of utilization review, preferred provider
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arrangements where use of participating hospitals is encouraged in exchange for
a discount, and payment limitations or negotiated rates based on community
standards. Without program changes that offer a continuum of care ranging from
outpatient to intensive inpatient services, the Company believes these changing
payment mechanisms will continue to have a negative effect on its revenues.
Employers, union trusts and other major purchasers of health care
services have become increasingly aggressive in pursuing cost containment. To
the extent that major purchasers are self-insured, they actively negotiate with
hospitals, Health Maintenance Organizations ("HMOs") and Preferred Provider
Organizations ("PPOs") for lower rates. Those major purchasers that are
insured or use a third-party administrator expect the insurer or administrator
to control claims costs. In addition, many major purchasers of health care
services are reconsidering the benefits that they provideworkplace productivity; decrease and, in many cases, reducing the level of coverage, thereby shifting moreeliminate unnecessary expenses; and, provide for a healthier population, both in and out of the burdenworkplace. The primary focus of our Medical Advisory Board panel in regard to their
employees or members. Such reductions in benefits have had a negative impactthe foregoing is sleep apnea.
The Medical Advisory Board consists of 33 members at present and is composed of members with specialties and sub-specialties specifically selected so that it can address all of the various sleep-disorder breathing co-morbidities. Some of the practices represented on the Company's business.
UnderBoard include cardiovascular, pathology and diabetes The Board meets at least twice a year, and more often as needed. Management consults with individual members on an as needed basis. The Medical Advisory Board furthers the Social Security Amendments ActSMS program mission to perform its services utilizing a best medical practices model and an efficient, cost-effective delivery system.
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Dental Advisory Board
The Dental Advisory Board meets jointly with the Medicinal Advisory Board. With the expansion of 1983,dental practice into the areas of detection and treatment of OSA the Board advises management on advances and new solutions for the treatment of OSA. It presently has three members.
MARKETING AND SALES
Our marketing and sales efforts are led by our management. In addition, we utilized independent sales agents for direct sales to commercial, CHIP health plans, health care providers as well as self-insured companies and unions. We enter into written agreements with these sales agents whereby we pay a prospective payment
system ("PPS") was adopted to cover routine and ancillary operating costs of
most Medicare inpatient hospital services. Under this system, the Secretary of
the United States Department of Health and Human Services ("HHS") established
fixed payment amounts per discharge based on diagnostic-related groups
("DRG's"). In general, a hospital's payment for Medicare inpatients is limited
to the DRG rate and capital costs, regardless of thebase amount of compensation plus a commission amount. In September,2019, we hired a national manager of sales and marketing. In December 2019, we hired a chief marketing officer. We currently have five such agents. Our customer service operations and telemarketing efforts are handles by independent contractors. We pay these contractors a set amount of compensation. We currently have seven such contractors.
COMPETITION
We operate in a very competitive but highly fractured health care environment. There are traditional sleep test centers that have operated for a long time and are well established. The services provided to the patient or the length of the patient's hospital stay. Under
PPS, a hospital may keep any difference between its prospective payment rate
and its operating costs incurred in furnishing inpatient services, but is at
risk for any operating costs that exceed its payment rate. Qualified providers
of alcohol and drug treatmentprovide by such centers are most often covered by insurance. Our services are paid under PPS. Psychiatric
hospitals, freestanding inpatient rehabilitation facilitiesnot generally covered by insurance as we are not presently credentialed to be able to accept insurance. Once a person has been diagnosed with OSA there are a number of ways that equipment may be obtained. Again, insurance may cover the purchase of such equipment. Equipment for the treatment of OSA is readily obtainable from many sources including the internet. In addition, there are a number of devices advertised that claim to treat OSA without the need for CPAP equipment. We believe that our SMS Program is the only medically driven comprehensive program that provides the customer/employer with a turnkey solution from initial screening through testing, when required, treatment and outpatient
rehabilitation services are exempt from PPS. Inpatient psychiatric and
rehabilitation units within acute care hospitals are eligible to obtain an
exemption from PPS upon satisfaction of specified federal criteria. Exempt
hospitals and exempt units within acute care hospitalsongoing compliance monitoring.
GOVERNMENT REGULATION
We are subject to limitations on the level of cost or the permissible increase in cost subject to
reimbursement under the Medicare program, including those limitations imposed
under the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"). No
assurance can be given that psychiatric services will continue to be eligible
for exemption from PPS or that other regulatory or legislative changes will not
adversely affect the Company's business.
Five of the Company's facilities participate in the Medicare program.
Of these, three are currently excluded from PPS (TEFRA limits are applicable to
these facilities). Medicare utilization at those facilities participating in
the Medicare program averaged approximately 34% in fiscal 1994. The Company
does not believe that the imposition of TEFRA limits or PPS has had a material
adverse impact on its business at its freestanding facilities or that loss of
exclusion from PPS at freestanding facilities would materially impact the
Company's business. During fiscal 1994, three of the Company's facilities
reflected an increase in Medicare utilization primarily due to their partial
hospitalization programs. In addition, two of the Company's facilities' first
full year in the Medicare program was fiscal 1994.
Hospitals participating in the Medicare program are required to retain
the services of a peer review organization ("PRO"). The PRO is responsible for
determining the medical necessity, appropriateness and quality of care given
Medicare program patients. In instances where the medical necessity of an
admission or procedure is challenged by the PRO, payment may be delayed,
reduced or denied in its entirety. Amounts denied because of medical review
may not be charged to the service recipient, and are absorbed by the hospital.
In non-emergency admissions (which encompass most of the Company's admissions)
review is performed prior to the patient's arrival at the hospital. In the
event that the PRO does not approve inpatient admission, the patient may be
admitted for outpatient treatment, referred to an alternative treatment
provider or sent home. The Company believes that the existence of PROs has
reduced inpatient admissions in its facilities serving Medicare patients.
The Medicaid program is a combined federal and state program providing
coverage for low income persons. The specific services offered and
reimbursement methods vary from state to state. Less than 9% of the Company's
freestanding facility revenues are derived from the Medicaid program.
Accordingly, changes in Medicaid program reimbursement are not expected to have
a material adverse impact on the Company's business.
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COMPETITION AND PROMOTION
The Company's primary competitors are hospitals and hospital management
companies (both not-for-profit and investor-owned) that offer programs similar
to those of the Company. The Company has faced generally increasing
competition in the last few years. Some of the hospitals that compete with the
Company are either owned or supported by governmental agencies or are owned by
not-for-profit corporations supported by endowments and charitable
contributions enabling some of these hospitals to provide a wide range of
services regardless of cost-effectiveness.
Most patients are directed to a specific facility by their employer (or
their agent), the employer's insurance company (i.e. managed care companies), a
physician, a social services agency or another health care provider. The
Company markets its services by contracting with these referral sources. The
primary competitive factors in attracting referral sources and patients are
reputation, success record, cost and quality of care, location and scope of
services offered at a facility. The Company believes it is competitive in
factors necessary for patient attraction. The Company and its competitors also
compete to attract qualified physicians and psychiatrists and other licensed
mental health providers.
The Company maintains a public relations program designed to increase
public awareness of its treatment programs. During fiscal 1994, the Company
spent approximately $0.4 million for media advertising (television, radio and
print) in support of its freestanding operations. The forms of media used are
specifically tailored to the geographic area in which the public relations
efforts are directed.
CONTRACT OPERATIONS
CareUnit, Inc. operates contract programs for behavioral medicine
services in dedicated units of independent hospitals. The programs offered are
similar to the behavioral medicine services offered in the Company's
freestanding facilities.
Under a contract, the hospital furnishes patients with all hospital
facilities and services necessary for their generalized medical care, including
nursing, dietary and housekeeping. CareUnit, Inc. is obligated to provide a
multi-disciplinary team consisting of a physician (who serves as medical
director for the program), a program manager, a social worker, a therapist and
other appropriate supporting personnel. CareUnit, Inc. also typically provides
support in the areas of program implementation and management, staff
recruiting, continuing education, treatment team training, community education,
advertising, public relations, insurance and ongoing program quality assurance.
As a result of reimbursement changes and competitive pressures, the contractual
obligations of CareUnit, Inc. have been subject to intense evaluation. In
general, some prospective client hospitals have expressed a desire for more
control over the services provided by CareUnit, Inc. and, in response,
CareUnit, Inc. is providing a more flexible approach to contract management.
During fiscal 1994 and 1993, CareUnit, Inc. through CareInstitute, a wholly
owned non-profit subsidiary, managed two contracts for the State of Idaho.
These programs provide behavioral medicine services in a residential and
outpatient setting.
During fiscal 1994, CareUnit, Inc. continued to experience a decline in
the number of contracts and beds although three new contracts were opened. The
Company believes that the decline in the number of contracts and beds under
contract is a result of managed care intervention and reduction in available
reimbursement from third parties, which have had the effect of making CareUnit,
Inc.'s contracts less profitable to hospitals. In addition, CareUnit, Inc.
terminated one unprofitable contract during the fiscal year and four were
terminated by the contracting hospital.
Responding to market demands, CareUnit, Inc. has implemented, in the
majority of its contracts, a program of levels of care, offering a wide range
of treatment options including detoxification, inpatient, residential,
day-treatment and outpatient. As a result, inpatient occupancy rates have
declined as patients are moved to a more appropriate level of care.
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The following table sets forth selected operating data regarding
behavioral medicine programs managed under contract:
YEAR ENDED MAY 31,
----------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Number of contracts at end of period (1):
Adult CareUnits (2)(3) . . . . . . . . . . . 10 12 15 21 36
Adolescent CareUnits (2) . . . . . . . . . . . 1 1 1 2 4
Adult CarePsychCenters (2) . . . . . . . . . . 3 3 3 4 6
Adolescent CarePsychCenters (2) . . . . . . . 0 0 0 0 1
Eating disorders units . . . . . . . . . . . . 1 1 2 2 2
--- --- --- --- ---
Total . . . . . . . . . . . . . . . . . . . . 15(5) 17 21 29 49
=== === === === ===
Available beds at end of period . . . . . . . . . 236 306 479 685 1,210
Patient days served during period . . . . . . . . 34,464 51,524 92,574 151,219 358,185
Admissions . . . . . . . . . . . . . . . . . . . 3,992 5,139 7,867 11,902 23,996
Average occupied beds per contract . . . . . . . 7.3 8.3 9.9 10.6 12.9
Average occupancy rate for period (4) . . . . . . 37% 39% 42% 45% 50%
- -------------------------
(1) Excludes contracts which have been executed but are not operational as of
the end of the period.
(2) CareUnit is the service mark under which the Company markets chemical
dependency treatment programs. CarePsychCenter is the service mark under
which the Company markets psychiatric treatment programs.
(3) Includes two state chemical dependency full-service contracts.
(4) Average occupancy rate is calculated by dividing total patient days by
the number of available bed-days during the relevant period.
(5) During fiscal 1994, CareUnit, Inc. opened 3 contracts and closed 5
contracts, 1 of which was terminated by CareUnit, Inc. and 4 by the
contracting hospitals.
SOURCES OF REVENUES
Patients are admitted to a behavioral medicine program under the
contracting hospital's standard admission policies and procedures. The
hospital submits to the patient, the patient's insurance company, or other
responsible party a bill that covers the services of the hospital. Generally,
CareUnit, Inc. receives a negotiated fee for each patient day of service
provided and in many cases also receives a fixed monthly management fee or a
percentage of net revenue. Fees paid by the hospital are subject to annual
adjustments to reflect changes in the Consumer Price Index. CareUnit, Inc. and
the hospital share the risk of nonpayment by patients based on a predetermined
percentage participation by CareUnit, Inc. in bad debts. CareUnit, Inc. may
also participate with a contracting hospital in charity care and certain
contractual allowances and discounts. Hospitals contracting for programs
generally suffer from the same reimbursement pressures as the Company's
freestanding facilities.
Management contracts are generally entered into for a period of two to
five years and thereafter are automatically renewed for successive one-year
periods unless either party gives notice of termination at least 90 days prior
to the end of such periods. Contracts are also terminable for material
defaults. A significant number of contracts are terminable by either party on
their anniversary dates.
DEVELOPMENT, COMPETITION AND PROMOTION
CareUnit, Inc. directs its development activities toward increasing the
number of management contracts with hospitals. The primary competitors of
CareUnit, Inc. are hospitals and hospital management companies that offer
programs similar to those offered by CareUnit, Inc. A major development effort
will be made in conjunction with the Company's managed care subsidiary,
AccessCare, Inc., to expand the contract operations in general hospitals and
develop the continuum of care.
PUBLISHING ACTIVITIES
Since 1976, the Company (under the name CompCare Publishers) has been
engaged in the publication, distribution and sale of books, pamphlets and
brochures generally relating to the Company's health care activities.
Literature distributed by the Company is sold to the general public and
educational institutions. Such literature is also sold to patients
participating in programs managed by the Company. The Company does not own or
operate the printing facilities used in the publication of its literature.
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In April 1994, certain assets and rights representing a material
portion of the publishing business were sold. CompCare Publishers is currently
operating and distributing the books and material remaining after the sale via
a distribution agreement with the buyer that expires on April 30, 1995. The
Company will determine on or before April 30, 1995 as to whether it will
liquidate the remaining assets and rights or continue to operate via a
distribution agreement. Publishing activities accounted for less than 3% of
the Company's operating revenues in fiscal 1994.
MANAGED CARE OPERATIONS
The Company has provided a managed care product since the acquisition
of AccessCare, Inc's predecessor in December 1992. AccessCare provides
managed behavioral health care and substance abuse service for employers,
HMO's, PPO's, government organizations, third party claim administrators and
other group purchasers of health care. AccessCare currently provides service
to contracted members in 29 states. The programs and services currently
offered by AccessCare include fully integrated capitated behavioral health care
services, employee assistance programs, case management/utilization review
services, provider sponsored health plan development, preferred provider
network development and management and physician advisor reviews. AccessCare
distinguishes itself from other providers by furnishing superior clinical
management systems, total quality management and supervision, mutual respect
for both providers and clients and responsive and appropriate care that
includes quality and cost effectiveness. AccessCare distinguishes itself from
the competition by being the "science-based" provider of care. AccessCare
manages its clinical service programs on proven treatment technologies and is a
leader in training its providers to use science-based efficacious treatment.
AccessCare accounted for approximately 10% of the Company's operating
revenues in fiscal 1994. AccessCare, in concert with a network of providers
(i.e., CareUnit, Inc.), will assist the Company in developing an integrated
service model to provide high quality, cost effective care.
GOVERNMENTAL REGULATION
The development and operations of health care facilities are subject to
compliance with various federal, state and local laws and regulations. Health
care facilities operated by the Company as well as by hospitals under contract
with CareUnit, Inc. must comply with the licensing requirements of federal,
state and local health agencies, with state-mandated rate control initiatives,
with state certificate of need and similar laws regulating various aspects of
the operation of health facilities (including construction of facilities and
initiation of new services), and with the requirements of municipal building
codes,the Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”). One of the purposes of HIPAA is to improve the efficiency and effectiveness of the healthcare system through standardization of the electronic data interchange of certain administrative and financial transactions and, also, to protect the security and privacy of protected health codesinformation. Entities subject to HIPAA include some healthcare providers and local fire departments. State licensingall healthcare plans.
MANAGEMENT INFORMATION SYSTEMS
All of facilities
isour OSA information technology and systems operate on a prerequisitesingle platform. This approach avoids the costs associated with maintaining multiple systems and improves productivity. The open architecture of the systems gives us the ability to participationtransfer data from other systems thereby facilitating the integration of new health plan business. We use our information system for customer processing, utilization management, reporting, cost trending, planning, and analysis. The system also supports customer and provider service functions.
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We significantly enhanced our network by installing a storage area network and virtualizing our computer servers. This implementation brought in the Medicarecurrent best practices approach and Medicaid programs.
Legislative, regulatory and policy changes by governmental agencies (including
reductionpermitted a major overhaul of budgets for payments under the Medicare, Medicaid and other state
and federal governmental health care reimbursement programs) may impact the
Company's ability to generate revenue andour information technology infrastructure. The technology centralizes storage management, increases the utilization of its health care
facilities.
Certain facilities operated by the Company are certified as providers
for Medicare and Medicaid services. Both the Medicare and Medicaid programs
contain specific physical plant, safety, patient care and other requirements
that must be satisfied by health care facilities in order to qualify under
those programs. The Company believes that the facilities it owns or leases are
in substantial compliance with the various Medicare and Medicaid regulatory
requirements applicable to them. The requirements for certification under
these governmental reimbursement programs are subject to change, and in order
to remain qualified for the program, it may be necessary for the Company to
effect changes from time to time in its facilities, equipment, personnel and
services.
Under the Social Security Act, the Department of Health and Human
Services ("HHS") has the authority to impose civil monetary penalties against
any participant in the Medicare program that makes claims for payment for
services that were not rendered as claimed or were rendered by a person or
entity not properly licensed under state law or other false billing practices.
The Social Security Act also contains provisions making it a felony for a
hospital to make false statements relating to claims for payments under the
Medicare program or to make false statements relating to compliance with the
Medicare conditions of participation. In addition, the making of false claims
for payment by providers participating in the Medicare program is subject to
criminal penalty under federal laws relating generally to claims for payment
made to the federal government or any agency.
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Various federal and state laws regulate the relationship between
providers of health care services and physicians. These laws include the
"fraud and abuse" provisionsimproves redundancy of the Social Security Act, under which civilservers, reduces the overall hardware requirements, and criminal penalties can be imposed upon persons who pay or receive remuneration
in return for inducementfacilitates growth, while driving down the total cost of referrals of patients who are eligible for
reimbursement under the Medicare or Medicaid programs. Violations of the law
may result in civil and criminal penalties. Civil penalties range from
monetary fines that may be levied on a per-violation basis to temporary or
permanent exclusion from the Medicare program.
The prohibitions on inducements for referrals are so broadly drafted
that they may create liability in connection with a wide variety of business
transactions and other hospital-physician relations that have been traditional
or commonplace in the health care industry. Courts, HHS and officials of the
Office of Inspector General have construed broadly the fraud and abuse
provisions of the Social Security Act concerning illegal remuneration
arrangements and, in so doing, have created uncertainty as to the legality of
numerous types of common business and financial relationships between health
care providers and practitioners. Such relationships often are created to
respond to competitive pressures.
Limiting "safe harbor" regulations define a narrow scope of practices
that will be exempted from prosecution or other enforcement action under the
illegal remuneration provisions of the fraud and abuse law. These clarifying
regulations may be followed by more aggressive enforcement of these provisions
with respect to relationships that do not fit within the specified safe harbor
rules. Activities that fall outside of the safe harbor rules include a wide
range of activities frequently engaged in between hospitals, physicians and
other third parties. These regulations identifying business practices that do
not constitute illegal remuneration do not eliminate this uncertainty, and may
cause providers and practitioners alike to abandon certain mutually beneficial
relationships. The Company does not believe that any such claims or
relationships exist with respect to the Company.
In April 1989, the Inspector General of the Department of HHS issued a
report on financial arrangements between physicians and health care businesses.
The report contained a number of recommendations, including a prohibition of
physician referrals to any facilities in which the physician has a financial
interest. Congress adopted legislation in 1989 (effective January 1992, the
"Stark Amendment"), that unless an exemption is otherwise available, prohibits
or restricts a physician from making a referral for which Medicare
reimbursement may be made to a clinical laboratory with which such physician
has a financial relationship, and prohibits such clinical laboratory from
billing for or receiving reimbursement on account of such referral. On March
11, 1992, proposed regulations implementing the Stark Amendment were issued,
but have not been adopted. The Company believes that it is in compliance with
the proposed regulations in all material respects.
Additional legislation expanding the Stark Amendment to other physician
and health care business relationships has been passed as part of the Omnibus
Reconciliation Act of 1993 ("OBRA 1993"). OBRA 1993 broadens the services
included within the referral prohibition of the Stark Amendment: a physician
having a financial relationship with an entity may not make referrals to that
entity for "designated health services," which include, in addition to clinical
laboratory services, physician therapy services; occupational therapy services;
radiology or other diagnostic services; radiation therapy services; durable
medical equipment; parenteral and enteral nutrients, equipment and supplies;
prosthetics, orthotics and prosthetic devices; home health services; outpatient
prescription drugs; and inpatient and outpatient hospital services. This law,
applicable to services covered by Medicaid as well as Medicare, takes effect
after December 31, 1994 with respect to referrals for the expanded list of
designated health services.
Numerous exceptions are allowed under the OBRA 1993 revisions to the
Stark Amendment for financial arrangements that would otherwise trigger the
referral prohibition. These provide, under certain conditions, exceptions for
relationships involving rental of office space and equipment, employment
relationships, personal service arrangements, payments unrelated to designated
services, physician recruitment and certain isolated transactions. HHS may
adopt regulations in the future which expand upon the conditions attached to
qualification for these exceptions. Certain of the Company's relationships
with physicians in its contract operations, as well as the Company's
development of relationships with physicians, will need to be structured in
compliance with the law and its exceptions, including any future regulations,
by the January 1, 1995 effective date. The Company is unable to predict at
this time what effect, if any, the expanded Stark Amendment and any future
regulations implementing its provisions, will have upon its business.
Proposals for health care reform on a national basis have been
introduced in both the House of Representatives and the Senate. The goals of
these health care proposals may include, but would not necessarily be
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limited to, proposals which would impose short-term governmental price
controls, create a national health care budget limiting the amount to be spent
on health care coverage, and give federal and state governments new powers with
respect to medical fees and health insurance premiums. At this time, it is not
possible to determine the exact nature of the proposals, or their legislative
outcome, or their likely impact upon institutional providers.
In addition, several states are undertaking analysis and legislation
designed to modify the financing and delivery of health care at the state
level. A wide variety of bills and regulations are pending in several states
proposing to regulate, control or alter the financing of health care costs;
however, it is not possible at this time to predict with assurance the effect
on the business of the Company, if any, of such bills or regulatory actions.
ACCREDITATION
The Joint Commission on Accreditation of Healthcare Organizations
("JCAHO") is an independent commission that conducts voluntary accreditation
programs with the goal of improving the quality of care provided in health care
facilities. Generally, hospitals including dedicated units, long-term care
facilities and certain other health care facilities may apply for JCAHO
accreditation. If a hospital under contract with CareUnit, Inc. requests a
JCAHO survey of its entire facility, the contract program, if a psychiatric or
chemical dependency program, will be separately surveyed. After conducting
on-site surveys, JCAHO awards accreditation for up to three years to facilities
found to be in substantial compliance with JCAHO standards. Accredited
facilities are periodically resurveyed. Loss of JCAHO accreditation could
adversely affect the hospital's reputation and its ability to obtain
third-party reimbursement. All of the Company's freestanding facilities are
accredited and the hospitals under contract with CareUnit, Inc. have received
or have applied for such accreditation.
To develop standards that effectively evaluate the structure and
function of medical and quality management systems in managed care
organizations, the National Committee for Quality Assurance ("NCQA") has
developed in conjunction with the managed care industry, health care
purchasers, state regulators and consumers, an extensive review and development
process. The Standards for Accreditation of Managed Care Organizations used by
NCQA reviewers to evaluate a managed care organization address the following
areas: quality improvement, utilization management, credentialing, members'
rights and responsibilities, preventative care services guidelines and medical
records. These standards validate that a managed care organization is founded
on principals of quality and is continuously improving the clinical care and
services provided. NCQA also utilizes Health Plan Data and Information Set
("HEDIS") which is a core set of performance measurements developed to respond
to complex but simply defined employer needs as standards for patient and
customer satisfaction. AccessCare is accredited by NCQA and has adopted HEDIS.
ownership.
ADMINISTRATION AND EMPLOYEES
The Company's
Our executive and administrative offices are located in Chesterfield, Missouri,Tampa, Florida, where management controlswe maintain operations, business development, legalaccounting, reporting and accounting functions, governmentalinformation systems, and statistical
reporting, researchprovider and treatment program evaluation.
At Augustcustomer service functions. As of December 31, 2019, we employed two people and contracted for ten others.
AVAILABLE INFORMATION
Our investors’ website can be found at www.advanzeonshareholders.com. We make available free of charge, through a link to the SEC internet site, our annual, quarterly, and current reports, and any amendments to these reports, as well as any beneficial ownership reports of officers and directors filed electronically on Forms 3, 1994,4, and 5. Information contained on our website or linked through our website is not part of this Annual Report on Form 10-K. The public may read and copy any materials we file with the Company employed approximately 32 persons in its
corporate and administrative offices, 326 persons in its freestanding
facilities, 104 persons assigned to CareUnit, Inc., 37 persons assigned to
AccessCare, Inc. and 2 persons in other operations. ManySEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the physiciansPublic Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an internet site that contains reports, proxy and psychiatrists whoinformation statements, and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov.
Our Board of Directors has two committees, an audit committee and a compensation and stock option committee. Each of these committees has a formal charter which was filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2009. Any references to our stockholder website and the SEC’s website above are intended to be inactive textual references only, and the medical directorscontents of those Web sites are not incorporated by reference herein.
In addition, you may request a copy of the Company's contract units,foregoing charters at no cost by writing us at the psychologists servingfollowing address or telephoning us at the following telephone number:
Advanzeon Solutions, Inc.
P.O. Box 271485
Tampa, FL 33688
Attention: Investor Relations
Tel: (813) 517-8484
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You should carefully consider and evaluate all of the information in this Annual Report on treatment teamsForm 10-K, including the risk factors listed below. Risks and the physicians utilizing the
facilities operated by the Companyuncertainties in addition to those we describe below, that may not be presently known to us, or that we currently believe are not employed by the Companyimmaterial, may also harm our business and are
treated as independent contractors. The Company isoperations in the process of reviewing
the treatmentfuture. If any of these individuals as partrisks occur, our business, and its future financial condition, results of its settlement withoperations and cash flows could be harmed, the Internal
Revenue Service (See Note 15-- "Commitmentsprice of shares of our common stock could decline, and Contingencies"). The Company
has not encountered any work stoppages due to labor disputes with its
employees.
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ITEM 2. PROPERTIES.
The following table setsfuture events and circumstances could differ significantly from those expected that are set forth certain information regardingin or underlie the properties owned or leased by the Company at May 31, 1994:
OWNED OR LEASE MONTHLY
NAME AND LOCATION LEASED(1) EXPIRES(2) RENTAL(3)
----------------- --------- ---------- ---------
Psychiatric/Chemical Dependency Treatment Facilities
CareUnit Hospital . . . . . . . . . . Owned --- ---
Fort Worth, Texas
CareUnit Hospital . . . . . . . . . . Leased 2035 $16,106(4)
Kirkland, Washington
CareUnit Facility (5) . . . . . . . . Owned --- ---
Jacksonville Beach, Florida
CareUnit Hospital . . . . . . . . . . Owned --- ---
Cincinnati, Ohio
Starting Point, Oak Avenue (6) . . . . Owned --- ---
Orangevale, California
Starting Point, Orange County . . . . Owned --- ---
Costa Mesa, California
CareUnit Facility . . . . . . . . . . Leased 1995 8,333
Grand Rapids, Michigan
CareUnit Facility (7) . . . . . . . . Owned --- ---
Orlando, Florida
Aurora Behavioral Health Hospital . . Owned --- ---
Aurora, Colorado
CareUnit Facility (8) . . . . . . . . Owned --- ---
San Diego, California
OTHER OPERATING FACILITIES
CompCare Publishers (9) . . . . . . . Leased 1997 3,009
Minneapolis, Minnesota
AccessCare, Inc.
Tampa, Florida . . . . . . . . . . Leased 1995 7,435
Las Vegas, Nevada . . . . . . . . . Leased 1995 1,997
Edgewood, Kentucky . . . . . . . . Leased 1995 392
Ft. Lauderdale, Florida . . . . . . Leased 1995 586
Tarrytown, New York . . . . . . . . Leased 1994 412
ADMINISTRATIVE FACILITIES
Corporate Headquarters . . . . . . . . Leased 1997 11,355
Chesterfield, Missouri
Regional Headquarters (9) . . . . . . Leased 1995 4,408
Newport Beach, California
Data Processing Center (10) . . . . . Leased 1997 3,882
Riverside, California
_________________________
(1) Subject to encumbrances. For information concerning the Company's
long-term debt, see Note 10 to the Company's consolidated financialforward-looking statements contained in this report.
(2) Assumes all options
Dependence on our Chief Executive Officer
We are dependent on the services of Mr. Clark A. Marcus, our Chief Executive Officer. The loss of his services would have a materially adverse effect on the performance and growth of our business for some period of time. We do not have any “Key Man” insurance for Mr. Marcus.
Our inability to renew, extend or replace expiring or terminated contracts in the near term could adversely affect our liquidity, profitability and financial condition.
Many of the contracts we service could be terminated immediately either for cause or without cause by the client upon notice of a specified time (typically between 30 and 60 days). The loss of one of these contracts could materially reduce our net revenue and have a material adverse effect on our liquidity, profitability and financial condition.
A compromise of our information systems or unauthorized access to confidential information or our customers personal information could materially harm our business and/or our reputation.
An effective and secure information system, available at all times, is vital to our individual and corporate customers. We collect and store confidential medical and personal from our customers. Certain of the information we collect is Personnel Health Information as that term is defined under HIPPA. We depend on our computer systems for significant service and management functions, such as providing membership monitoring, utilization, processing customer information, and providing regulatory data and other client and managerial reports. Although our computer and communications hardware is protected by physical and software safeguards and other internal controls, it is still vulnerable to computer hacking which if successful, could cause such information to be misappropriated. We could be subject to liability for failure to comply with HIPPA or other privacy laws. Any compromise of our systems or data could disrupt our operations, damage our reputation, and expose us to claims from customers. This could have an adverse effect on our business, financial condition and results of operations. We do not have 100% redundancy for all of our computer operations.
We are subject to intense competition that may prevent us from gaining new customers or pricing our contracts at levels sufficient to achieve gross margins to ensure profitability.
We are continually pursuing new business. Many of our competitors are significantly larger and better capitalized than we are. Our smaller size and weak financial condition have been a deterrent to some prospective customers. One of the general ways in which testing is presently done for OSA is a “sleep center”. These facilities are able to accept insurance. We are not presently credentialed to accept insurance. As a result, we may not be able to successfully compete in our industry in some respects.
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Failure to adequately comply with HIPAA may result in penalties.
Our industry is subject to the security and privacy requirements of HIPAA relative to patients’ health information. Although we believe we are fully compliant with all HIPAA regulations, any assertions of lack of compliance with HIPAA regulations could result in penalties and have a material adverse effect on our ability to retain our customers or to gain new business.
We may require additional funding, and we cannot guarantee that we will find adequate sources of capital at acceptable terms in the future.
Our available revenue from operations is not currently sufficient to fund our business. If we are unable to increase our revenue from operations, we may need to seek new financing, possibly in the form of additional debt or equity (which could dilute current stockholders’ ownership interests). We cannot provide assurance that such additional funding will be exercised.
(3) All leases,available on acceptable terms.
Risks related to our common and preferred stock.
Our Series C Convertible Preferred stockholders have significant rights and preferences over the holders of our common stock and may be deemed to operate as an anti-takeover device.
Our Series C Convertible Preferred stockholders are entitled to receive dividends when declared by our Board of Directors before dividends are paid on our common stock and also have a claim against our assets senior to the claim of the holders of our common stock in the event of our liquidation, dissolution or winding-up. The aggregate amount of that senior claim is currently $2,608,500. In addition, each Series C Convertible Preferred stockholder is entitled to vote together with the holders of our common stock on an “as converted” basis, and, voting together as a separate class, all holders have the right to elect five of our nine directors to our Board of Directors. The holders by their ability to control a majority of our Directors may be deemed to be an anti-takeover device.
The holders of our Series C Convertible Preferred Stock have other rights and preferences as detailed elsewhere in this report. These rights and preferences could adversely affect our ability to finance future operations, satisfy capital needs or engage in other business activities that may be in our interest.
Our Series D Convertible Preferred stockholders have significant rights and preferences over the holders of our common stock and may be deemed to operate as an anti-takeover device.
We also have a class of convertible preferred stock, Series D, for which 7,000 shares are authorized and 250 shares have been issued. On August 26, 2019, the Board of Directors changed the vesting date of the Series D from January 4, 2022, to August 27, 2019. Each share is convertible into 100,000 shares of common stock. Prior to conversion, each Series D convertible preferred share is entitled to all voting, dividend, liquidation and other rights accorded a share of Series D convertible preferred stock. If a dividend is declared on the common stock, each share of Series D stock is entitled to receive a dividend equal to 50% of the dividend declared for the common stock as if the Series D stock had been converted. Despite their nonvested status, voting rights of each share nevertheless consist of the right to cast the number of votes equal to those of 500,000 shares of common stock. Unless otherwise required by applicable law, holders of shares of Series D have the right to vote together with holders of common stock as a single class on all matters submitted to a vote of our stockholders. The holders by virtue of their superior voting rights may be deemed to operate as an anti-takeover device.
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We may raise additional funds in the future through issuances of securities and such additional funding may be dilutive to stockholders or impose operational restrictions.
To fund our operations, repay our existing debt and grow our business we may raise additional capital in the future through sales of shares of our common stock or securities convertible into shares of our common stock or through debt. Such additional financing may be dilutive to our stockholders, and debt financing, if available, may involve significant interest costs and/or restrictive covenants which may limit our operating flexibility.
Applicable SEC rules governing the trading of “penny stocks” may limit the trading and liquidity of our common stock which, along with our small public capitalization may affect the trading price of our common stock and may subject us to securities litigation.
Our common stock is a “penny stock” as defined under Rule 3a51-1 of the Exchange Act and is accordingly subject to SEC rules and regulations that impose limitations upon the manner in which our common stock may be publicly traded. These regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than those relatingestablished customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations may have the Company's administrative
facilities, are triple net leases under whicheffect of limiting the trading activity of our common stock and reducing the liquidity of an investment in our common stock. In addition, the size of our public market capitalization is relatively small, resulting in highly limited trading volume in, and high volatility in the price of, our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
We leased our Tampa corporate office and paid annual rent of $97,850 in 2019. The term of the lease is on a month to month basis. We currently lease approximately 3,133 square feet and pay approximately $8,229 per month. We consider the condition of our leased property to be average and adequate for our current needs. In our Tampa office, we maintain clinical operations, business development, accounting, financial and regulatory reporting and other management information symptoms information systems, and provider and member service functions. During 2019, the Company bears all costsrenegotiated the Tampa office lease and verbally agreed to a three-year extension of operations, including insurance, taxesthe lease with no increase in payments.
We leased our Huntington Beach office and utilities.paid annual rent of $46,800 in 2019. The Companyterm of the lease is responsible for specified increases in taxes, assessments1 year beginning April 18, 2018 and operating
costs relatingending April 30, 2019 at a monthly rent of $3,700 per month. The lease has been extended on a month to its administrative facilities.
(4) Subjectmonth basis. We currently pay a monthly rent of $4,000. We consider the condition of our leased property to increase every three years based upon increases in the
Consumer Price Index, not to exceed 10%.
(5) Closed February 1992. The Company intends to sell this property.
(6) Closed March 1993. The Company intends to sell this property.
(7) Closed October 1990. The Company intends to sell this property.
(8) Closed December 1989. The Company intends to sell this property.
(9) Office/operation closed; Company has sublet this property.
(10) This lease was converted to month-to-month.
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be average and adequate for our current needs.
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ITEM 3. LEGAL PROCEEDINGS.
On October 30, 1992, the Company filedPROCEEDINGS
Advanzeon is a complaintparty to litigation in the United States
DistrictCircuit Court for the Eastern District of Missouri against RehabCare
Corporation ("RehabCare") seeking damages for violations by RehabCare of the securities lawsThirteenth Judicial Circuit in and for Hillsborough County, Florida, Case No. 12-CA-2570, arising from an alleged breach of a Term Sheet. On March 8, 2017 the Court determined that Advanzeon breached the Term Sheet and entered a Final Judgment in the amount of $866,052 bearing interest at the statutory rate. In February 2018, a final judgment awarding attorney’s in the amount of $167,960 was entered in favor of the United States, for common law fraud and for breachPlaintiff, Katzman. In June 2018, as part of contract (Case No. 4-92CV002194-SNL). The Company seeks reliefthe execution of damagesjudgment process, in
the lost benefit of certain stockholder appreciation rights in an amount in
excess of $3.6 million and punitive damages. On May 18, 1993, the District
Court denied a motion for summary judgement filed by RehabCare. On June 16,
1993, RehabCare filedproceedings supplementary, pursuant to agreement of the parties the court entered an order appointing a counterclaim seeking a declaratory judgement with
respectspecial master to review the rightsfinancial condition of both parties underAdvanzeon to determine if the stock redemption agreement, an
injunction enjoiningforegoing judgment could be paid and if so from what assets. Advanzeon has objected to paying the Company from taking action under stock redemption or
restated shareholders agreementsFinal Judgment amount and damages. the Parties have been ordered to Mediation to take place in 2020.
The Company has filed a motionclaim for money it maintains is owed by Universal Health Care Insurance Company. In re: The Receivership of Universal Health Care Insurance Company. Case number 2013-CA-00358 and Case number 2013-CA-00375 in the Second Judicial Circuit Court, Leon County, FL. The objection to the claim by the receivership was heard April 4, 2018 and on May 15, 2018 the court entered an Order awarding Company $139,344 and $130,406, representing a portion of monies claimed by the Company owed it by Universal. The Company agrees it is owed the $269,750.10 and filed for a rehearing as to that portion of the Order specific to the additional monies owed to it. The rehearing was denied. On July 20, 2018 Company filed an appeal with the First District Court of Appeals with respect the denial by the court. The Company filed the appeal from the court denial of the additional monies owed to strike RehabCare's requestthe Company by Universal Health Care Insurance Company. The additional monies the Company believes are owed to it are in excess of $900,000, but less than $1,000,000.
In Michael Ross et. al v. Advanzeon Solutions, Inc., Plaintiff is suing the Company for money it claims is owed pursuant to a promissory note. Plaintiff has not proceeded with any action and maybe subject to a motion to dismiss for failure to prosecute. If any further action is taken by the Plaintiff the Company will file a motion for summary judgment. Case Number 16-CA-005737, Thirteenth Judicial Circuit Court Hillsborough County, FL. Filed April 7, 2015. This is the third attempt by the Plaintiff on the same note. The prior two actions were dismissed. The Company will continue to vigorously defend its position.
In Advanzeon Solutions, Inc. v. Mayer Hoffman et. al., Case Number 16-CA-005737 Filed June 17, 2016 Thirteenth Judicial Circuit Court Hillsborough County, FL., the Company sued Defendants for damages for attorney's fees
and costs on the grounds that such relief is not permitted by law nor
authorized by the agreements between the parties. This casebreach of audit services contract. The Judge ruled in favor of Defendants motion for summary judgment, but no judgment was scheduledentered. The Company will file for trial on May 9, 1994, but has been continued on the court's own initiative and
the new trial date has not been set. Management believes that the Company's
allegations have merit and intends to vigorously pursue this suit. Management
further believes that should RehabCare prevail at trial on its request for such
attorneys fees and costs, such fees and costs would not materially affect the
financial statementsa rehearing of the Company.
In connection with the proposed sale of hospitals to CMP Properties,
Inc. (see Note 5-- "Propertysummary judgment and Equipment for Sale"), the Company advanced
$1.1 million to a former consultant which was to be returnedor an appeal in the event the transaction was terminated. These advances were to be secured byCourt enters a judgment in favor of Defendants.
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In a matter entitled Pharmacy Value Management Solutions, Inc. vs. Young & Son Tax and Accounting, LLC, Charles Young Sr., Charles Young Jr. and Jay Jacques, the common
stockCompany sued for breach of an unrelated company. The sharesaccounting service contract, mandatory injunction, return of common stock pledged were
purported to bedocuments and conversion of accounting funds held in the possession ofaccountants’ trust account. The case is in the Company's former legal firm as
collateral for the advances, but were not provided to the Company when the
transaction was terminated.initial discovery stage. Case Number 18-CA-000960 Thirteenth Judicial Circuit, Hillsborough County, FL. Filed March 31, 2018. The Company is currentlywill aggressively pursue recovery of monies owed to it.
In a matter entitled Advanzeon Solutions, Inc. v. Cook Children’s Health Plan and Intervenors Cook Children’s medical center and Cook Children Physician Network, file 4/20/18 Company filed an action contesting the validity of a final foreign judgment (Texas) which judgment was filed in litigation with the former consultant and legal firm to recover the advances.
Other Litigationrecords of Hillsborough County. The Company is currently undergoing a payroll tax audit byhas objected to collection activities in Hillsborough County on the Internal
Revenue Service ("IRS") for calendar years 1983 through 1991. The IRS agent
conductingjudgment based upon the audit has asserted that certain physicians and psychologists and
other staff engaged as independent contractorsTexas action filed by the Company should have been
treated as employeescontesting the judgment.
In a matter entitled Pharmacy Value Management Solutions, Inc., d/b/a SleepMaster Solutions™ vs. Kristi Staite filed 5/7/2018 Thirteenth Judicial Circuit, PVMS brought suit against Staite for payroll tax purposes. On April 8, 1991,damages based upon fraud in the non performance of services Ms. Staite owed to Company in reference to obtaining insurance qualification. The case is in the beginning stages of response and discovery. The Company will aggressively pursue recovery of the monies paid to Ms. Staite for services not rendered.
In a matter entitled Rotech Healthcare, Inc. vs. Pharmacy Value Management Solutions, Inc. case no. 18-CA – 4218 Thirteenth Judicial Circuit Court – Tampa, the Plaintiff is suing the Company received a proposed assessment related to this assertion claiming additional
taxesfor breach of contract and penalties due totaling approximately $19.4 millionopen account for calendar years
1983 through 1988. The Company filed a protest with the IRS and contested the
proposed assessment with the Appeals Office of the Internal Revenue Service in
St. Louis, Missouri. The Appeals Office issued a reduced assessmentmoney owed in the amount of approximately $6,300,000, plus penalties$160,355 for services and interest of $6,500,000.
The IRS is also examiningsupplies. Company disputes the Company's employment tax returns forcharges were permitted under the years
1989 through 1991,contract and disputes the claimed amounts. Previously, the Company incorrectly reported that the matter had been settled. In fact, the Company did not execute the draft settlement agreement and the agent conductingmatter remains in litigation. The Company is aggressively defending against the examination proposedclaims asserted by Plaintiff.
In the assessment of additional taxes for those years in the approximate amount of
$1,600,000, plus penalties and interest in an undetermined amount. While
management believesmatter Oceans Healthcare, LLC, et al, v. Comprehensive Behavior Care, Inc., et al, 19th JDC No. 59633, Div. D, the Company has strong argumentsis aware of a claim Oceans Healthcare seeks to support its treatment
of the payments to independent contractors to whom substantially all of the
assessment relates,assert against the Company has submitted an offer in compromisearising from services rendered by a former subsidiary. Plaintiff is attempting to the IRS
for the calendar years 1983 through 1991 for $5 million. A reserve has been
established with respect to this matter to cover expenses the Company expects
to incur; however, there can be no assurance that such reserves are adequate
until a formal settlement is reached with the IRS. The Company and RehabCare,
in May 1991, entered into a Tax Sharing Agreement providing for the Company to
indemnify RehabCare for any claims of income or payroll taxes due for all
periods through February 28, 1991. The Company has established a reserve with
respect to covering expenses the Company expects RehabCare to incur under the
Tax Sharing Agreement.
The federal income tax returns of the Company for its fiscal years
ended 1984 and 1987 through 1991, have been examined by the IRS. The Company
has provided the IRS with satisfactory documentary support for the majority of
items questioned and those items have been deleted from the proposed assessment
and accepted as originally filed. The remaining items have been agreed to and
resulted in a disallowance of approximately $229,000 in deductions which will
be offset against the Company's net operating losses available for carryover.
The examination also included the review of the Company's claim for refund of
approximately $205,000 relating to an amended return for the fiscal year ended
May 31, 1992. During completion of the audit, the IRS noted that the Company
had received excess refunds representing its alternative minimum tax ("AMT")
liability of approximately $666,000 in 1990 and 1991 from the carryback of net
operating losses to the fiscal years ended May 31, 1988 and 1989, respectively.
On March 29, 1994, the Company agreed to the assessment of $666,000 plus
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interest and received the final bill of $821,000 during the fourth quarter of
fiscal 1994. The Company has accrued for this liability, net of refunds, in
income taxes payable.
From time to time,serve the Company and its subsidiaries are also parties
and their property is subject to ordinary routine litigation incidental to
their business. In some pending cases, claims exceed insurance policy limits
and the Company ordisputes service. The amount at issue is unknown at this time. In the event the Company is served at a subsidiary may have exposure to liability that is not
covered by insurance. Management believes that the outcome of such lawsuitslater date, it will not have a material adverse impact on the Company's financial statements.
aggressively defend against this claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 7, 1994, the Board of Directors of the Company approved and
recommended to the Stockholders an amendment to the Company's Certificate of
Incorporation to effect a reverse stock split of the Company's Common Stock
proportionate to the range of two- (2) through ten- (10) for-one, while
reducing the par value of the Company's Common Stock to one (1) cent ($0.01)
per share. In addition, the number of Common Shares authorized would be
reduced to five (5) times the number of shares outstanding, reserved or
otherwise committed for future issuance but not less than 12,500,000. On May
16, 1994, the shareholders approved each proposal by written consent with the
following vote:
MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. MARKET FOR COMPANY'SREGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The Company's Common StockMATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES
| (a) | Market Information - Our common stock is traded on the OTCBB under the symbol CHCR. The following table sets forth the range of high and low bid quotations for the common stock, as reported by the OTCBB, for the fiscal quarters indicated. The market quotations reflect inter-dealer prices without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. |
The below quotations, as determined through a query of Bloomberg LLP, reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions:
| High | Low | |||||||||
| Year ended December 31, 2019 | ||||||||||
| 4th quarter, ended December 31, 2019 | $ | 0.40 | $ | 0.37 | ||||||
| 3rd quarter, ended September 30, 2019 | $ | 0.42 | $ | 0.41 | ||||||
| 2nd quarter, ended June 30, 2019 | $ | 0.29 | $ | 0.26 | ||||||
| 1st quarter, ended March 31, 2019 | $ | 0.08 | $ | 0.08 | ||||||
| (b) | Holders – As of April 9, 2020, we had 412 holders of record of our common stock. |
| (c) | Dividends - We did not pay any cash dividends on our common stock during the year ended December 31, 2019 and do not contemplate the initiation of payment of any cash dividends in the foreseeable future. In the event that we do pay dividends, the holders of record of our Series C Convertible Preferred Stock and Series D Convertible Preferred Stock are entitled to receive such dividends in preference to the holders of our common stock, when and if declared by our Board of Directors. If declared, holders of our Series C Convertible Preferred Stock will receive dividends in an amount equal to the amount that would have been payable had the Series C Convertible Preferred Stock been converted into shares of our common stock immediately prior to the declaration of such dividend. Holders of our Series D Convertible Preferred Stock will receive dividends in an amount equal to 50% of the amount that would have been payable had the Series D Convertible Preferred Stock been converted into shares of our common stock. No dividends shall be authorized, declared, paid or set apart for payment on any class or series of our stock ranking, as to dividends, on a parity with or junior to the Series C Convertible Preferred Stock for any period unless full cumulative dividends have been, or contemporaneously are authorized, declared, paid or set apart in trust for such payment on the Series C Convertible Preferred Stock. In addition, as long as a majority of the 10,434 shares of our Series C Convertible Preferred Stock are outstanding, we cannot declare or pay any dividend or other distribution with respect to any equity securities without the affirmative vote of holders of at least 50% of the outstanding shares of Series C Convertible Preferred Stock. |
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RECENT SALES OF UNREGISTERED SECURITIES
With the exception of the transactions set forth below, the sale of unregistered securities for the year ended December 31, 2019 were disclosed in our Annual Report on the New York Stock ExchangeDecember 31, 2018 Form 10-K 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 symbol CMP.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 following table sets forthReceivership 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 rangepurchaser a five-year warrant to purchase 100,000 shares of highthe 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 low
sale pricesany 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 Common Stockimmediately 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.
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 fiscal quarters indicated:
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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On August 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.
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.
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On October 02, 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 October 11, 2019, we issued a convertible promissory note in the principle amount of $14,000 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 28,000 shares of the Company’s common stock at an exercise price of $0.15 per share.
On October 16, 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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On December 11, 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.
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.
We issued common stock purchase warrants separate from the warrants issued in connection with the issuance of the above-mentioned convertible promissory notes during the year ended December 31, 2019. With the exceptions of the transactions set forth below all of issuances of our warrants were disclosed in our Annual Report on the December 31, 2018 Form 10-K filed on May 24, 2019.
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.
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.
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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.
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.
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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.
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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.
On October 03, 2019, we issued 700,000 warrants to our consultant. The warrants have a term of three years and an exercise price of $0.11 per warrant.
On October 03, 2019, we issued 2,000,000 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 $0.11 per warrant.
On October 03, 2019, we issued 1,000,000 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 $0.11 per warrant.
On October 12, 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 October 15, 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 November 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 November 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.
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On December 09, 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 December 22, 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 December 28, 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 December 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 December 31, 2019, we issued 133,721 warrants to our Chief Executive Officer in lieu of 2019 fourth quarter salary. The warrants have a term of five years and an exercise price of $0.43 per warrant.
On December 31, 2019, we issued 72,674 warrants to our consultant in lieu of 2019 fourth quarter salary. The warrants have a term of five years and an exercise price of $0.43 per warrant.
We relied on Section 4 (a) (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.
We recognized no compensation costs during 2019 due to the issuance of the warrants.
We have not issued any shares of our common stock subsequent to December 31, 2019.
Subsequent to December 31, 2019, we issued the following convertible promissory notes and warrants:
On January 3, 2020, we issued a convertible promissory note in the principle amount of $32,000 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 64,000 shares of the Company’s common stock at an exercise price of $0.15 per share.
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On January 6, 2020, we issued a convertible promissory note in the principle amount of $75,000 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 150,000 shares of the Company’s common stock at an exercise price of $0.15 per share.
On February 13, 2020, 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 March 9, 2020, 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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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 January 11, 2020, 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 February 12, 2020, 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 February 16, 2020, 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 February 26, 2020, we issued 1,000,000 warrants to our consultant. The warrants have a term of three years and an exercise price of $0.25 per warrant.
On February 26, 2020, we issued 600,000 warrants to our consultant. The warrants have a term of three years and an exercise price of $0.25 per warrant.
On February 26, 2020, we issued 1,000,000 warrants to our consultant. The warrants have a term of three years and an exercise price of $0.25 per warrant.
We relied on Section 4 (a) (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.
We recognized no compensation costs in connection with the issuance of the warrants.
ITEM 6. SELECTED FINANCIAL DATA – SMALLER REPORTING ENTITY
As a result of the Company's operating losses and restrictions contained
in the Company's primary loan agreement, no cash dividend was declared
during any quarter of fiscal 1994, 1993 or 1992. The Company doessmaller reporting entity under SEC Regulations, we are not expectrequired to resume payment of cash dividends in the foreseeable future. See
Item 7, "MANAGEMENT'Sfurnish selected financial data.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
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ITEM 6. SELECTED FINANCIAL DATA.
OPERATIONS
Forward-Looking Information
The following tables summarize selected consolidated financial data and
should be read in conjunction with the consolidated financialCompany may from time to time make written or oral “forward-looking statements” including statements and
notes thereto appearing elsewherecontained in this report. Effective June 1, 1990, the
Company adopted the new accountingreport and reporting methods approved by the
American Institute of Certified Public Accountants ("AICPA") in its health care
industry audit guide (the "AICPA guide") dated July 15, 1990. Accordingly,
provision for losses on accounts receivable is included as an expense rather
than as a reduction of operating revenues beginning in fiscal 1991.
Reclassifications of prior year amounts have been made to conform with the
current year's presentation. See Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for a discussion of recent
results of operations and liquidity.
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Forward-looking statements in this report, including without limitation, statements related to the Company’s plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties including, without limitation, the following: (i) changes in the Company’s plans, strategies, objectives, expectations and intentions, which may be made at any time at the discretion of the Company; (ii) the impact of uncertainties in global economic conditions, including the impact on the Company’s suppliers and customers; (iii) changes in client needs and consumer spending habits; (iv) the impact of competition and technological changes on the Company; (v) the Company’s ability to manage its growth effectively, including its ability to successfully integrate any business it might acquire; (vi) currency fluctuations; (vii) increases in the cost of borrowings resulting from rising interest rates; (viii) international trade policies and their impact on demand for our products and our competitive position, including the imposition of new tariffs or changes in existing tariff rates; and (ix) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission. For a more detailed discussion of these and other factors affecting the Company, owned a 48% interestsee the Risk Factors set forth above in RehabCare which was accounted forItem 1A of this Annual Report on Form 10-K.
OVERVIEW
Throughout the equity method. Subsequent to the
sale,year ended December 31, 2019, the Company no longer has an interest in RehabCarecontinued its marketing and no longer reports
a portion of RehabCare's earnings in its statement of operations. Included in
the loss for fiscal 1993 is a charge of approximately $6.7 million,
attributablesales efforts with respect to restructuring the organization, of which $1.2 million was
reclassified as asset writedownsagreements and relationships established during the fourth quarter. In fiscal 1993,
the Company recorded pretax chargesfirst three quarters of approximately $4.4 million primarily
associated with the write-down of property2019. It focused on establishing additional relationships within its existing market (referrals from occupational healthcare clinics) and equipment held for sale. Of
this amount, $3.4 million wasestablishing a result of revaluing certain underperforming
assets that the Company had designated for dispositionfoothold in other markets, such as national labor unions and the remaining $1.0
million was attributable to the write-down of other property and equipment to
net realizable value.
Operating revenues declined $17.6 million or 34%third-party payor accounts.
The Company’s revenue, however, in 2019, decreased from fiscal 1993,
primarily as the result of the closure of four facilities during fiscal 1993,
the sale of a fifth facility and the declineits revenue in both admissions and length of
stay.
Operating expenses decreased by approximately $19.0 million or 37%,2018. This decrease occurred primarily as a result of the closure of four facilities during fiscal 1993 and
the sale of a fifth. General and administrative expenses declined by
approximately $0.3 million or 5% in fiscal 1994 primarily as a result of
management's continued effort to reduce corporate overhead expenses. Interest
expense was reduced by $0.5 million or 30%, primarily as the resultacquisition of the paydownCompany’s largest account by another account with whom the Company also had a contract, but had not yet had time to implement. In 2018, the Company had existing contracts with two of senior secured debtthe nation’s largest clinic chains servicing the interstate commercial trucking industry -- Concentra and U.S. Healthworks (USHW). Although the Company had contractual relationships with both accounts, at the time of the acquisition of USHW by Concentra, the Company’s principal relationship from a revenue perspective was with USHW. Prior to the acquisition, the Company’s national account representatives would regularly visit select USHW clinic facilities. In 2019, we were asked to suspend our visit activities so as to not disrupt Concentra’s efforts to integrate the two corporate cultures into one. The Company immediately ceased these visits and turned its attention to diversifying its client base, focusing more heavily on national labor unions and other third-party payors. The Company’s intent was to broaden its client base while still retaining its existing client base with a now much larger Concentra.
During 2019, and into 2020, the Company successfully materially expanded its customer base. In October 2019, we entered into an exclusive three-year contract with Pinnacle National, a leading Third Party Administrator servicing approximately $1.91.2 million union employees and their dependents. All costs will be borne by Pinnacle National. We expect the program to launch in the first half of 2020.
In February 2020, we entered into an exclusive three-year agreement with CoreChoice, a third party payor who added our sleep apnea detection and treatment program to their portfolio of covered programs. CoreChoice has approximately 1 million union members who, along with their dependents, total approximately 2.5 million covered lives. We begin servicing this account in March 2020.
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In the first part of 2020, we entered into a three-year, exclusive, worldwide cooperation agreement with Sleep Cycle AB (Sleep Cycle). The Sleep Cycle app is devoted to the single issue of sleep -- how one sleeps, the best time to wake up, snoring, etc. It claims to be the single largest selling app in the world with over 25 million active users. We began working with Sleep Cycle during the latter part of 2019. In January 2020, we began beta testing in select U.S. market areas to determine how to effectively incorporate our SleepMaster Solutions™ program into their database such that we could most accurately identify which of their app users, if tested, would most likely test positive for obstructive sleep apnea (OSA). Although the Beta testing is still in the early stages, 100% of all app users tested so far have tested positive.
We have also now established relations with the proceeds
of asset sales. In addition, general and administrative expenses reflectUnited States Postal Service in Indianapolis, Indiana; The Pacific Gas & Electric Power Company (PG&E) in California; a credit of $0.8 million for fiscal 1993. This credit is the result of the
reduction of provisions for general and administrative expenses.
Equity in the earnings of unconsolidated affiliates was approximately
$0.4 million during fiscal 1993. No equity in the earnings of unconsolidated
affiliates was included in the Company's financial statements for fiscal 1994
(see Note 7-- "Investments in Unconsolidated Affiliates").
The Financial Accounting Standards Board ("FASB") has issued Statement
No. 109, "Accounting for Income Taxes". Effective June 1, 1993, the Company
adopted Statement No. 109 which changed the Company's method of accounting for
income taxes from the deferred method to the asset and liability method. The
change to Statement No. 109 had no cumulative effect on the financial
statements of the Company.
Freestanding Operations
Admissions in fiscal 1994 declined overall by 3,131 to 3,916 from 7,047
in fiscal 1993, an overall decline of 44%. Of this decline, 2,843 fewer
admissions were attributable to facilities which were closed or under contract
to be sold as of May 31, 1994. The remaining facilities ("same store", i.e.,
those operational during both fiscal years) experienced a 7% decrease in
admissionsWest Coast-based Workers’ Compensation organization with substantial national accounts; and, a 11% decline in lengthsignificant number of stay to 10.0 days, resulting in 21%
fewer patient days than the prior fiscal year. The decrease in "same store"
patient days was primarily due to Aurora Behavioral Health Hospital which
experienced a 16% decrease in admissionsthird party payor labor organizations servicing both active and a 53% decline in lengthretired union members. Patient referrals have commenced from all but one of stay
which resulted in 60% fewer patient days in fiscal 1994 compared to the prior
fiscal year. This decline was primarily attributable to the termination during
fiscal 1993 of an acute psychiatric program specializing in dissociative
disorders. Patients in the dissociative disorder program traditionally have a
higher acuity requiring additional care and a longer length of stay. The
following table sets forth selected quarterly utilization data on a "same
store" basis:
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Same Store Utilization
-------------------------------------------------------------------------------
Fiscal 1994 Fiscal 1993
------------------------------------- -------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
---- ---- ---- ----- ---- ---- ---- ----
Admissions . . . . . . . . 1,011 955 996 954 1,019 914 1,058 1,213
Average length of stay . . 10 9.9 9.9 10 10.1 10.2 11.8 12.0
Patient days . . . . . . . 9,792 9,409 9,897 9,587 10,277 9,348 12,524 14,582
Average occupancy rate . . 30% 30% 31% 30% 32% 30% 40% 46%
Overall operating revenue per patient day increased by 20% to $618 in
fiscal 1994 from fiscal 1993 and overall patient days declined 53% to 38,685,
resulting in a decrease of approximately $18.0 million, or 43%, in operating
revenues. In addition to the decrease caused by the sale and/or closure of
hospitals,these new accounts.
Additionally, the Company believes that the increasing roleintegration of HMOs, reduced
benefitsUSHW into Concentra is essentially complete, and the Company’s revenue from employers and indemnity companies,this account has shown a greater number of
competitive beds and a shifting to outpatient programs are responsible for this
decline in patient days. In response to these factors the Company accelerated
the development of effective, lower cost outpatient, daycare, and partial
hospitalization programs in conjunction with its freestanding facilities, and
shifted its marketing activities toward developing relationships and contracts
with managed care and other organizations which pay for or broker such
services.
The following table illustrates the revenues in outpatient and daycare
programs offered by the freestanding facilities on a "same store" basis:
SOURCES OF REVENUE
A quantitative summary of our revenues by source category for 2019 and 2018 as follows:
| 2019 | 2018 | Change | ||||||||||||
| OSA-related | $ | 300,098 | $ | 524,172 | $ | (224,074 | ) | |||||||
Results of Operations
2019 vs. 2018
Revenues and Costs of Goods sold
Revenues For the year ended December 31, 2019, were $300,098 compared to revenues of $524,172 for the comparable period ending December 31, 2018.
OSA-related
OSA services decreased to $300,098 in length of stay
resulted2019 from $524,172 in an 11% decline2018. The Company's sales in utilization to 21,654 patient days. Since
average net revenue per patient day at these units increased by $19, net
inpatient operating revenues increased by 10% to $2.1 million. An additional
$0.6 million was generated by units closed during2019 decreased from 2018 while the fiscal year. Outpatient
revenues increased 11% in fiscal 1994.
The following table illustrates the revenues in outpatient and daycare
programs offered by eight contract unitsCompany worked on a "same store" basis:
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Cost of revenues decreased to $145,254 from its competition by being the "science-based" provider
of care and manages all clinical programs based upon proven treatment
technologies.
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In fiscal 1994, operating revenue increased 191% from fiscal 1993 due
to the fact that fiscal 1993 consisted of only five months. In addition,
AccessCare$261,170. The difference in amounts is a start-up venture and is in its growth stage. Operating
expenses increased 134% in fiscal 1994 also as a result that fiscal 1993
consisted of only five months and the expenses related to AccessCare's
expansion and development. Although AccessCare experienced an increase in
operating revenue during fiscal 1994, it was more than offset by the increase
in total operating expenses resulting in an increase in AccessCare's net
operating loss of 70% or $0.7 million from fiscal 1993.
RESULTS OF OPERATIONS - FISCAL 1993 (COMPARED WITH FISCAL 1992)
The Company incurred a loss of approximately $11.6 million or $0.53 per
share for the fiscal year ended May 31, 1993, which was a loss of $7.0 million
or $0.32 per share more than the $4.6 million or $0.21 per share loss incurred
in the prior fiscal year. The fiscal 1993 fourth quarter loss of $4.3 million
or $0.20 per share reflected a deterioration from the fourth quarter of the
prior fiscal year by $5.0 million or $0.23 per share.
Results for fiscal 1993 were impacted by a gain of approximately $13.1
million recorded during the second quarter of the fiscal year as a result of the sale bysales decreasing. The cost of revenue decreased at the Companysame percentage rate as the sales decrease.
Selling, general and administrative expense
Selling, general and administrative expense in total was as follows:
| 2019 | $ | 2,092,806 | ||||
| 2018 | 1,745,094 | |||||
| Change | $ | 347,712 | ||||
| Percentage Change | 19.93 | % |
We evaluate selling, general and administrative expenses at the Parent company level as well as at our PVMS subsidiary. Selling, general, and administrative expenses at the Parent company level include overhead and the cost of 2,300,000 shares of its formerly wholly-owned
subsidiary RehabCare. Priorbeing a public entity. Selling, general, and administrative expenses at PVMS are solely related to the saleOSA services segment. A breakdown of these expenses is as follows:
| 2019 | 2018 | Change | ||||||||||
| Parent | 870,305 | 533,933 | $ | 336,372 | ||||||||
| PVMS | 1,222,501 | 1,211,161 | 11,340 | |||||||||
| Total selling, general and administrative | $ | 2,092,806 | $ | 1,745,094 | $ | 347,712 | ||||||
| Parent Company level | ||||||||||||
| 2019 | 2018 | Change | ||||||||||
| Travel expense | $ | 3,993 | $ | (413 | ) | $ | 4,406 | |||||
| Professional fees | 566,206 | 223,314 | 342,892 | |||||||||
| Board of Directors fees | 150,000 | 150,000 | — | |||||||||
| Rent expense | 97,860 | 99,485 | (1,625 | ) | ||||||||
| Other | 52,246 | 61,547 | (9,301 | ) | ||||||||
| Total selling, general and administrative | $ | 870,305 | $ | 533,933 | $ | 336,372 | ||||||
Explanations of variations by line item follow:
Travel expense increased by $4,406. Travel was relatively the Company owned a 48% interest in
RehabCare which was accounted for onsame between 2018 and 2019.
Professional Fees increased by $342,892. Part of the equity method. Subsequent to the
sale, the Company no longer has an interest in RehabCare and no longer reports
a portion of RehabCare's earnings in its statement of operations. Included in
the loss for fiscal 1993 is a charge of approximately $6.7 million,
attributable to restructuring the organization, of which $1.2 million was
reclassified as asset writedowns during the fourth quarter. In fiscal 1993,
the Company recorded pretax charges of approximately $4.4 million primarily
associated with the write-down of property and equipment held for sale. Of
this amount, $3.4 million was a result of revaluing certain underperforming
assets that the Company had designated for disposition and the remaining $1.0
millionincrease was attributable to an increase of $135,442 in legal fees and an increase of $71,757 in audit-related fees. Legal fees increased in order to continue with various lawsuits.
Board of Directors Fees accrue at the write-downrate of other property and equipment$150,000 each year
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| PVMS Subsidiary | ||||||||||||
| 2019 | 2018 | Change | ||||||||||
| Executive compensation and payroll related | $ | 512,844 | $ | 542,578 | $ | (29,734 | ) | |||||
| Travel expense | 254,289 | 258,469 | (4,180 | ) | ||||||||
| Professional fees | 177,449 | 123,606 | 53,843 | |||||||||
| Advertising | 50,562 | 50,811 | (249 | ) | ||||||||
| Other | 227,357 | 235,697 | (8,340 | ) | ||||||||
| Total selling, general and administrative | $ | 1,222,501 | $ | 1,211,161 | $ | 11,340 | ||||||
Payroll related expenses decreased by $29,734. The company had 1 less commissioned sales person for part of the year.
Travel expense was $4,180 lower. Travel expense was relatively the same from 2018 to net realizable value. During fiscal 1992,2019.
Professional Fees increased $53,843. In February 2018, PVMS hired an outside accountant for the Company recorded pretax charges
of approximately $16.0 million primarily associated withas a whole whom we pay $7,000 per month. We also pay the write-down of
property and equipment heldoutside accountant additional fees for sale. Of this amount, approximately $9.3
millionspecial projects. In 2019, the outside accountant was paid for the full year. In 2019 we hired a result of revaluing certain underperforming assets that the
Company had designated for disposition. The remaining $6.7 million was
attributableconsultant to the write-down to net realizable value of certain hospitals.
Operating revenues declined $8.1 million or 14% from fiscal 1992,
primarily as the result of the closure of four facilities during fiscal 1993,
sale of a fifth facility, the declinehelp bring in both admissions and length of stay and
the redesignation of facilities as continuing operations.
Operating expensesadditional business. Legal fees increased by approximately $12.1 million or 31%,
primarily$22,000 due to increased litigation expenses.
Advertising decreased $249. Advertising expense was relatively the same from 2018 to 2019.
Other Expense decreased by $8,340. Other expense was relatively the same from 2018 to 2019
Interest Expense
Interest expense between 2019 and 2018 was as a resultfollows
| 2019 | $ | 1,428,671 | ||||
| 2018 | 1,436,974 | |||||
| Change | $ | (8,303 | ) | |||
| Percentage change | (0.58 | )% |
A breakdown of the redesignationinterest expense for the years ended December 31, 2019 and 2018 is as follows:
| 2019 | 2018 | Change | ||||||||||||
| Parent | $ | 648,879 | $ | 935,849 | $ | (286,970 | ) | |||||||
| PVMS | 779,792 | 501,125 | 278,667 | |||||||||||
| Total | $ | 1,428,671 | $ | 1,436,974 | $ | (8,303 | ) | |||||||
| 38 |
Interest expense stayed consistent with the interest expense in 2018.
Liquidity and Capital Resources
During the year ended December 31, 2019, we funded our operations from revenues and 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.
Subsequent to 2019, we issued $182,000 of facilities as continuing
operations,promissory notes through April 9, 2020.
ACCOUNTING POLICIES AND ESTIMATES
Preparation of our consolidated financial statements requires us to make significant estimates and judgments to develop the expenses incurredamounts reflected and disclosed in the developmentconsolidated financial statements. On an on-going basis, we evaluate the appropriateness of psychiatric services atour estimates and we maintain a thorough process to review the company's freestanding facilitiesapplication of our accounting policies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the start- up costs associated with
the development of its behavioral medicine managed care business. General and
administrative expenses declined by approximately $7.2 millioncircumstances. Actual results may differ from these estimates under different assumptions or 56% in fiscal
1993 primarily as a result of management's continued effort to reduce corporate
overhead expenses. Interest expense was reduced by $2.1 million or 55%,
primarily as the result of the paydown of senior secured debt by approximately
$11.8 million with the proceeds of asset sales, the lowering of the prime
interest rate, and the reduction of interest expense attributable to the
Financial Security Plan (see Note 13-- "Employee Benefit Plans").
Equity in the earnings of unconsolidated affiliates improved by
approximately $.2 million during fiscal 1993, primarily as a result of the
termination of a joint venture from which the company reported losses of $1.1
million in fiscal 1992 (see Note 7-- "Investments in Unconsolidated
Affiliates").
LIQUIDITY AND CAPITAL RESOURCES
The Company's current assets at May 31, 1994 amounted to approximately
$15.1 million and current liabilities were approximately $14.7 million,
resulting in working capital of approximately $0.4 million and a current ratio
of 1:1. Included in current assets are four hospital facilities designated as
property and equipment held for sale with a total carrying value of $6.9
million. Should the Company be unable to complete the sales transactions during
fiscal 1995, the Company's working capital would be materially adversely
affected.conditions.
Revenue recognition. The Company is seekingon an accrual basis and revenue is recognized when billed, which is approximately when the testing service is performed or CPAP machine is shipped.
Income taxes. Computing our provision for income taxes involves significant judgment and estimates particularly in relation to sell these four hospital facilities during
fiscal 1995. The Company's primary usethe determination of working capital isa valuation allowance for deferred tax assets (primarily from net operating loss carryforwards). See Note 16 to fund operating
losses while it seeksthe consolidated financial statements.
Stock-based compensation. We issue various stock-based compensation awards to restore profitability to certainour employees and members of its freestanding
facilities and expand its behavioral medicine managed care business. The
Company had no senior secured debt at May 31, 1994.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
YEARS ENDED MAY 31, 1994, 1993 AND 1992
NUMBER PAGE
- ------ ----
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Balance Sheets, May 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Statements of Operations, Years Ended May 31, 1994, 1993 and 1992 . . . . . . . . . . 24
Consolidated Statements of Stockholders' Equity, Years Ended May 31, 1994, 1993 and 1992 . . . . . 25
Consolidated Statements of Cash Flows, Years Ended May 31, 1994, 1993 and 1992 . . . . . . . . . . 26
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Financial Statement Schedules:
V. Property and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
VI. Accumulated Depreciation and Amortization of Property and Equipment . . . . . . . . . . . . . 47
X. Supplementary Statements of Operations Information . . . . . . . . . . . . . . . . . . . . . . 48
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Comprehensive Care Corporation:our Board of Directors. We have audited the accompanying consolidated balance sheets of
Comprehensive Care Corporation (a Delaware corporation) and subsidiaries as of
May 31, 1994 and 1993, and the related consolidated statements of operations,
stockholders' equity and cash flowsaccount for the years then ended. These
consolidated financial statements and the schedules referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and schedules based on
our audits.
We conducted our auditsawards in accordance with generally accepted auditing
standards. Those standards require that we planASC 718 “Compensation – Stock Compensation” and performmeasure compensation cost for stock options at fair value on the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining,grant date and recognize compensation cost on a teststraight-line basis evidence
supportingover the amounts and disclosures inservice period for those options expected to vest. We use the financial statements. An audit
also includes assessingBlack-Scholes option pricing model, which requires us to use certain variable assumptions for input, to calculate the accounting principles used and significant
estimates made by management, as well as evaluatingfair value of a stock award on the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Comprehensive Care
Corporation and subsidiaries as of May 31, 1994 and 1993, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As further discussed in Note 15, the Company is negotiating a settlement
with the Internal Revenue Service (IRS) regarding assessments of payroll taxes.
Management believes that adequate reserves have been provided for the
additional taxes to be assessed by the IRS. There can be no assurance,
however, that such reserves will be sufficient until a formal settlement is
reached.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussedgrant date. These assumptions, which are set forth in Note 2 to our consolidated financial statements variables include the expected volatility of our stock price, award exercise behaviors, the risk-free interest rate, and expected dividends. We use significant judgment in estimating expected volatility of the stock, exercise behavior and forfeiture rates developing our assumptions as follows:
Expected Volatility
We estimate the volatility of the share price by using historical data of our traded stock in combination with our expectation of the extent of fluctuation in future stock prices. We believe our historical volatility is more representative of future stock price volatility and as such it has been given greater weight in estimating future volatility.
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Expected Term
A variety of factors are considered in determining the expected term of options granted. Options granted are grouped by their homogeneity based on the optionees’ position, whether managerial or clerical, and length of service and turnover rate. Where possible, we analyze exercise and post-vesting termination behavior. For any group without sufficient information, we estimate the expected term of the options granted by averaging the vesting term and the contractual term of the options.
Expected Forfeiture Rate
We generally separate our option awards into two groups: employee and non-employee awards. The historical data of each group are analyzed independently to estimate the forfeiture rate of options at the time of grant. These estimates are revised in subsequent periods if actual forfeitures differ from estimated forfeitures.
Risk-free Interest Rate
We estimate the risk-free interest rate by reference to the interest rate for a U.S. Treasury constant maturity security with the same estimated term as the stock-based award being issued.
Expected Dividends
No dividends are expected to be paid for the expected life of the instruments; therefore, we assume a dividend rate of zero.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Standards Update - Recently various new ASUs were issued by the Financial Accounting Standards Board (FASB). Management has determined based on their review that the following ASU issued will be applicable to the Company. As new ASU are released, Management will assess if they are applicable and, if they are applicable, the effect will be included in the notes to the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases,” which significantly changes the accounting for a lessee. Under previous guidance, lessees did not have to record a lease it designated as operating on its balance sheet. 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 as the right of use asset) for all leases, regardless of whether they are designated as finance or operating leases. If a lessee has a lease with a term of 12 months of less, it may make an accounting policy election (by leased asset class) not to recognize lease assets or lease liabilities. This election generally requires the lessee to recognize lease expense on a straight-line basis over the lease term. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018 for public entities, not-for-profit entities that have issued (including conduit bond obligors) securities that are traded, listed, or quoted on an exchange or an over-the-counter market, and employee benefit plans that file financial statements with the United States Securities and Exchange Commission (SEC). All other entities must apply the ASU to annual periods beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Any entity may early adopt the ASU. Management has determined this ASU will have an impact on the Company and has incurred
significant recurring lossesimplemented this ASU.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have no material exposure to changing interest rates as the interest rates on our short term and negativelong-term debt are fixed. Additionally, we do not use derivative financial instruments for investment or trading purposes and our investments are generally limited to cash flows from operations which
raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The consolidateddeposits.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
Our audited financial statements do not include any adjustmentsmay be found beginning on Page 63, appearing elsewhere in this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Management of Advanzeon Solutions, Inc. is responsible for maintaining disclosure controls and procedures that might result shouldare designed to ensure that information required to be disclosed in the reports that the Company be unable to continue as a going concern.
Our audits were made forfiles or submits under the purposeSecurities Exchange Act of forming an opinion on1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the basic
financial statements taken as a whole. The financial statement schedules V, VI
and X for the years ended May 31, 1994 and 1993, are presented for purposes of
complying withtime periods specified in the Securities and Exchange Commission'sCommission’s rules and are not partforms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.
At the end of the basicperiod covered by this report, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision of our Chief Financial Officer (“CFO”). Based upon this evaluation of our disclosure controls and procedures, it was concluded that during the period covered by this report, such disclosure controls and procedures were not optimally effective. This was due to our limited resources, including the absence of a financial statements. These schedules have been subjectedstaff with accounting and financial expertise and deficiencies in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls and that may be considered to the
auditingbe “material weaknesses.”
To address these weaknesses, management plans to hire and designate an individual responsible for identifying reportable developments and to implement procedures applieddesigned to remedy material weaknesses by focusing additional attention and resources in our auditsinternal accounting functions. However, the material weaknesses will not be considered remedied until applicable controls have operated for a sufficient period of time and management has concluded that these controls are operating effectively.
Our CFO, who is also a member of our Board of Directors, was appointed CFO in April 2018. He will directly oversee our efforts to remedy material weaknesses. Additionally, in January 2018, we retained the services of an outside accounting firm (“Outside Accountant”) to work with our CFO in the implementation of the basicremedial process. Our CFO does not maintain an office in the Company, and we do not compensate him for his services.
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Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial statements
and, inreporting. Internal control over financial reporting is a process designed to provide reasonable assurance to our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN & CO.
St. Louis, Missouri
August 22, 1994
21
22
INDEPENDENT AUDITORS' REPORT
To the Stockholdersmanagement and Board of Directors Comprehensive Care Corporation:
Weregarding 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 auditeda 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 accompanying statementsrisk that controls may become inadequate because changes in conditions may occur or the degree of operations, stockholders'
equitycompliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 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 December 31, 2019, our internal controls over financial reporting were not optimally effective in the specific areas described in the paragraphs below.
As of December 31, 2019, our current CFO identified the following specific material weaknesses in the Company’s internal controls over its financial reporting processes:
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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, in May 2019, we appointed the principal of the Outside Accountant as our Chief Accounting Officer, 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).
• 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.
Not applicable.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table lists our executive officers and directors as of December 31, 2019. Each director is serving a term that will expire at our next shareholder meeting. There are no family relationships among any of our directors or executive officers.
| Name | Age | Position | ||
| Clark A. Marcus | 78 | Chairman of the Board, Chief Executive Officer and Director | ||
| Mark T. Heidt | 67 | Director | ||
| James L. Koenig | 73 | Director | ||
| Arnold B. Finestone, Ph.D. | 90 | President, Chief Financial Officer, Director, Audit Committee Chairman and Compensation and Stock Option Committee Member | ||
| Sharon Kay Ray | 62 | Director, Audit Committee Member, and Compensation and Stock Option Committee | ||
| Arthur K. Yeap | 64 | Director, Audit Committee Member, and Compensation and Stock Option Committee Chairman | ||
| Stephen M. Kreitzer | 74 | Director, Medical Director | ||
CLARK A. MARCUS
Clark A. Marcus was appointed as our Co-Chief Executive Officer, a director and Chairman of the Board on May 11, 2009. In September 2010, he assumed the position of sole Chief Executive Officer. Mr. Marcus was formerly Chairman and Chief Executive Officer of Core from September 2008 to January 2009. Prior to that, he was a founder, Chairman and Chief Executive Officer at The Amacore Group, Inc., a public company and marketer of healthcare related memberships, from September 1993 to August 2008. Mr. Marcus has been a practicing attorney since 1968 and was a senior partner in the New York law firms of Victor & Marcus and Marcus & Marcus. He is a Board member of America’s Agenda Health Care for All. He previously served as a member of the American Academy of Ophthalmology's Corporate Advisory Council. He has participated as a guest lecturer at various national healthcare conferences and has authored numerous healthcare related articles published in various national healthcare publications such as “Managed Care Weekly” and “Managing Employee Health Benefits”. .Mr. Marcus contributes to the Board of Directors through his unique expertise in the healthcare industry, legal expertise, decades of experience in building and operating companies as well as proven leadership skills in guiding public companies.
ARNOLD B FINESTONE, Ph.D.
Arnold B. Finestone was appointed to our Board of Directors on January 21, 2009. He is a business management consultant and formerly served on the Board of Directors of The Amacore Group, Inc., a public company and marketer of healthcare related memberships. He has served on the Boards of public companies and start-up business ventures since 1985. From 1982 to 1985, he was President of Dartco, Inc., a subsidiary of Dart & Kraft Inc., which was engaged in marketing and manufacturing of high-performance engineering plastics for consumer, industrial, and military uses. From 1970 to 1982, he served as Executive Vice President of the Chemical–Plastics Group of Dart Industries and Dart & Kraft, Inc. From 1957 to 1970, he was Vice President and Director of Planning, Development and Marketing for Foster Grant, Inc. Dr. Finestone’s qualifications to sit on our Board of Directors include his financial statement schedulesexpertise, which qualify him as our “Audit Committee Chairman and “financial expert,” and his extensive governance and executive experience, including executive level roles in complex organizations. In April 2018, Dr. Finestone was appointed as our Chief Financial Officer. We do not compensate Dr. Finestone for his services as our CFO and in May of 2019, he was assigned the responsibilities of our former President.. He does not work full time for the Company and he does not maintain an office at the Company.
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SHARON KAY RAY
Sharon Kay Ray was appointed to our Board of Directors on January 21, 2009. Since March 1989, she has served as a regional marketing representative for Novo Nordisk, a multi-national pharmaceutical company, and as a special marketing consultant for a number of public and non-public corporations. Within the last five years, Ms. Ray served on the Board of Directors of The Amacore Group, Inc. a public company and marketer of healthcare related memberships. Ms. Ray brings to the Board of Directors a unique marketing perspective that provides strategic insight into the promotion of our healthcare related consumer products.
ARTHUR K. YEAP
Arthur K. Yeap joined our Board of Directors on January 21, 2009. Since 1983, Mr. Yeap has served as Chief Executive Officer of Novo Group, consultants and manufacturers in the USA and Asia of audio, green lighting and LED Display products for professional use. He also has been a principal investigator on the staff of the University of California at Berkeley, engaged in research in perception and hearing for advanced military and consumer uses of the Internet. From 1996 to 1999, he was Director of Marketing, Consumer Products, for ITV Corporation. From 1995 to 1996 Mr. Yeap was Chief Engineer for WYSIWYG Networks. Mr. Yeap was a member of the Board of Directors of the Golden Gate Regional Center, which provides services and state funding for the mentally handicapped from 1992-1996 and served as its Chairperson from 1996-1997. He served on the Board of Trustees of Grace Cathedral in San Francisco and is currently on the Board of Clausen House in Oakland, a nonprofit agency serving individuals with special needs. Mr. Yeap provides valuable managerial knowledge to the Board of Directors as well as experience in strategic product development and operations, with a focus on information technology and systems.
STEPHEN M. KREITZER, M.D.
Dr. Stephen M. Kreitzer joined our Board in March 2018. He is a graduate of the Albert Einstein College of Medicine of the Yeshiva University and completed his fellowship training at the Harvard Medical School. He is Board Certified in Internal Medicine, Pulmonary Medicine and Sleep Medicine and has been in practice for over 30 years in Tampa, Florida. Dr. Kreitzer currently serves as the Medical Director of the Sleep Laboratory at Memorial Hospital of Tampa, as well as the Chief of Pulmonary Medicine. He has previously been Chief of Pulmonary Medicine at St. Joseph’s Hospital in Tampa. He chairs the Medical Ethics Committee at Memorial Hospital and previously served on the Board of Censors of the Hillsborough County Medical Association. He also served as a Major in the United States Air Force and has conducted over 100 clinical FDA approved trials besides authoring numerous articles in his field. Dr. Kreitzer has been voted “Top Doctor” by his peers in both sleep medicine and pulmonary medicine in the Tampa-St. Petersburg-Clearwater Florida area for 2016 and 2017. Dr. Kreitzer brings to the Board of Directors his considerable knowledge and experience in the treatment of sleep apnea. Dr. Kreitzer also services as our Medical Director
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MARK T. HEIDT
Mr. Heidt joined our Board of Directors in September 2014. Prior to his appointment, he served as a consultant to the Company since January 2014. Prior to that time, he was the owner and manager of BEC Worldwide, LLC, a national advertising, marketing and management company. Mr. Heidt contributes to the Board with over thirty years of experience in mass marketing, media placement and advertising placement with a specialty in infomercial design. In May 2019, Mr. Heidt resigned as President of the Company. He continues to serve as a consultant.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, an officer, director or greater than 10% stockholder of our outstanding common stock must file with the SEC initial reports of ownership and reports of changes in ownership of our equity securities. Such persons are required by SEC regulations to furnish us with copies of all such reports they file. Based solely upon a review of Section 16(a) reports furnished to us, we believe all such entities or persons subject to the Section 16(a) reporting requirements have complied with applicable filing requirements during 2014, with the exception of the following: Dr. Stephen Kreitzer, a Director filed one late report involving one transaction; Mr. Mark Heidt, a Director, filed three late reports involving four transactions; Mr. Clark A. Marcus, our CEO and a Director filed two late reports involving four transactions; Mr. Arnold B. Finestone, a Director, filed one report involving one transaction; Ms. Sharon Kay Ray , a Director filed one late report involving one transaction; Mr. Arthur Yeap filed one late report involving one transaction.
Board Leadership Structure
Our Board is led by its Chairman, Mr. Clark A. Marcus, who is also CEO of the Company. We believe that having our CEO serve as Chairman of the Board provides us with unified leadership and direction and strengthens the ability of the CEO to develop and implement strategic initiatives and respond efficiently to various situations. The Board is aware of the potential conflicts that may arise when an insider chairs the Board but believes any such conflicts are offset by the fact that independent directors comprise a majority of the Board and each of its committees. The committees facilitate deeper analysis of various matters and promote regular monitoring of our activities in their advisory role to the Board. At present, the Board believes that its current structure effectively maintains independent oversight of management and that having an independent director as Chair is unnecessary. The Board has the ability to quickly adjust its leadership structure should business or managerial conditions change.
Governance and Nominating Committee
Our Board does not utilize a separate Governance and Nominating Committee. Instead, our full Board performs the functions that are normally the responsibility of a Governance and Nominating Committee. In considering candidates for open Board positions, diversity of background and personal experience is considered by the Company's management. Our responsibilityBoard in assembling a group of individuals that will work well together in overseeing our affairs. Although we do not have a formal diversity policy, the Board considers, among other things, diverse business experiences, the candidate’s range of experiences with public companies, and racial and gender diversity in evaluating Board candidates. While diversity in background in directors is important, it does not necessarily outweigh other attributes or factors the Board may consider in evaluating any particular candidate.
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Code of Ethics
We have adopted a code of ethics applicable to all of our employees, including our principal executive officer, principal financial and accounting officer and persons performing similar functions. The text of this code of ethics can be found on our website at www.Advanzeon.com. We intend to post notice on our website of any waiver from, or amendment to, any provision of our code of ethics.
Audit Committee
Although we are not required to have an Audit Committee, we maintain one whose primary function is to express an opinion on these consolidated financial statements and financial
statement schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and performassist the audit to
obtain reasonable assurance about whether Board of Directors (“the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosuresBoard”) in the financial statements. An audit
also includes assessingoversight of the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe thatintegrity of our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of Comprehensive Care
Corporation's operations and their cash flows for the year ended May 31, 1992,
in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
As discussed in Note 15 to the consolidated financial statements, the Company is currently undergoing a payroll tax audit byeffectiveness of our internal control over financial reporting, the Internal Revenue
Service ("IRS") for calendar years 1983 through 1991. The IRS asserted that
certain physiciansidentification and psychologists engaged as independent contractors by the
Company should have been treated as employees for payroll tax purposesmanagement of risk, and has
issued an assessment claiming additional taxes due on that basis. Management
believes that its treatmentin evaluation of the performance of our independent contractorsauditor. As of December 31, 2018, the Audit Committee of our Board consisted of Arnold B. Finestone (Chairman) and Arthur K. Yeap. The Board of Directors has determined that, although not applicable in our case, all members of the Committee nevertheless were independent as defined in Section303A of the New York Stock Exchange’s listing standards and SEC Rule 10A-3, and that Dr. Finestone qualifies as a “financial expert,” as defined by Item407(d)(5) of Regulation S-K.
Compensation and Stock Option Committee
The purpose of the Compensation and Stock Option Committee is consistent with
IRS guidelines and established industry practice. Management has filed a
protestto determine, or recommend to the assessmentBoard for determination, the direct and intends to defend vigorously the claims made by
the IRS related to this issue. Also, as discussed in Note 15 to the
consolidated financial statements, on August 15, 1991 the Company, along with
others, were named in a stockholder complaint filed in District Court related
to the terminated reorganization with First Hospital Corporation. Management
intends to defend vigorously the claims related to this issue. The ultimate
outcome of these matters cannot presently be determined. Accordingly, no
provision for any liability that may result upon resolution of these matters
has been recognized in the accompanying consolidated financial statements.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, the Company incurred
significant recurring losses and has a substantial portion of its senior
secured debt due on November 15, 1992. The potential need for additional
financing to repay debt as it comes due and finance the Company's anticipated
working capital requirements during fiscal 1993 raises substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG Peat Marwick LLP
St. Louis, Missouri
August 27, 1992
22
23
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31,
--------------------
1994 1993
---- ----
(DOLLARS IN THOUSANDS)
A S S E T S
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 1,781 $ 1,126
Accounts and notes receivable, less allowance for
doubtful accounts of $5,729 and $8,217 . . . . . . . . . . . . 5,848 7,702
Property and equipment held for sale . . . . . . . . . . . . . . 6,939 8,254
Other current assets . . . . . . . . . . . . . . . . . . . . . . 508 1,896
------- ------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 15,076 18,978
------ ------
Property and equipment, at cost . . . . . . . . . . . . . . . . . . . 29,326 31,432
Less accumulated depreciation and amortization . . . . . . . . . . . (13,338) (13,229)
------ ------
Net property and equipment . . . . . . . . . . . . . . . . . . . . . 15,988 18,203
------ ------
Property and equipment held for sale . . . . . . . . . . . . . . . . --- 7,098
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,162 2,689
------- ------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,226 $ 46,968
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . . $ 13,776 $ 15,737
Current maturities of long-term debt . . . . . . . . . . . . . . 154 2,137
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 734 666
------- -------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 14,664 18,540
------ ------
Long-term debt, excluding current maturities . . . . . . . . . . . . 10,477 10,652
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 2,986 4,825
Commitments and contingencies (see Note 15)
Stockholders' equity:
Preferred stock, $50.00 par value; authorized 60,000 shares . . . --- ---
Common stock, $.10 par value; authorized 30,000,000 shares;
issued and outstanding 21,986,916 shares . . . . . . . . . . . 2,199 2,199
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 37,883 37,883
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . (34,983) (27,131)
------ ------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 5,099 12,951
------ ------
Total liabilities and stockholders' equity . . . . . . . . . . . . . $ 33,226 $ 46,968
====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
23
24
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED MAY 31,
----------------------------
1994 1993 1992
---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues and gains:
Operating revenues . . . . . . . . . . . . . . . . . $34,277 $51,847 $59,969
Gain on sale of RehabCare stock, net . . . . . . . . --- 13,114 17,683
Gain on Sovran settlement, net . . . . . . . . . . . --- 584 ---
Interest income . . . . . . . . . . . . . . . . . . . 50 69 336
Equity in earnings of unconsolidated affiliates . . . --- 384 168
-------- ------- -------
34,327 65,998 78,156
------ ------ ------
Costs and expenses:
Operating expenses . . . . . . . . . . . . . . . . . 31,875 50,924 38,810
General and administrative expenses . . . . . . . . . 5,455 5,754 12,946
Provision for doubtful accounts . . . . . . . . . . . 1,558 6,187 6,065
Depreciation and amortization . . . . . . . . . . . . 1,762 2,946 2,602
Loss on sale/write-down of assets . . . . . . . . . . --- 4,382 15,986
Interest expense . . . . . . . . . . . . . . . . . . 1,228 1,759 3,908
Other restructuring/nonrecurring expenses . . . . . . --- 5,452 2,152
-------- ------ ------
41,878 77,404 82,469
------ ------ ------
Loss before income taxes . . . . . . . . . . . . . . . . (7,551) (11,406) (4,313)
Provision for income taxes . . . . . . . . . . . . . . . 301 194 249
------ ------ ------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $(7,852) $(11,600) $(4,562)
===== ====== =====
Net loss per share . . . . . . . . . . . . . . . . . . . $(0.36) $(0.53) $(0.21)
==== ==== ====
The accompanying notes are an integral part of these consolidated financial
statements.
24
25
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED TREASURY STOCK STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT EQUITY
------ ------ ------- ------- ------ ------ ------
(AMOUNTS IN THOUSANDS)
Balance, May 31, 1991 . . . . . 21,921 $2,192 $38,743 $(10,969) (80) $(990) $28,976
Net loss . . . . . . . . . --- --- --- (4,562) --- --- (4,562)
Shares issued from
treasury stock . . . . --- --- (597) --- 49 602 5
Retirement of treasury stock (31) (3) (385) --- 31 388 ---
Exercise of stock options . 17 2 20 --- --- --- 22
------ ------ ------- -------- ---- ----- -------
Balance, May 31, 1992 . . . . . 21,907 2,191 37,781 (15,531) --- --- 24,441
Net loss . . . . . . . . . --- --- --- (11,600) --- --- (11,600)
Exercise of stock options . 40 4 46 --- --- --- 50
Issuance of shares for the
purchase of Mental
Health Programs, Inc. 40 4 56 --- --- --- 60
------ ------ ------- -------- ---- ----- -------
Balance, May 31, 1993 . . . . . 21,987 2,199 37,883 (27,131) --- --- 12,951
Net loss . . . . . . . . . --- --- --- (7,852) --- --- (7,852)
------ ------ ------- -------- ---- ----- -------
Balance, May 31, 1994 . . . . . 21,987 $2,199 $37,883 $(34,983) --- $ --- $ 5,099
====== ====== ======= ======== ==== ===== =======
The accompanying notes are an integral part of these consolidated financial
statements.
25
26
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MAY 31,
--------------------------
1994 1993 1992
---- ---- ----
(DOLLARS IN THOUSANDS)
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . $(7,852) $(11,600) $(4,562)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . 1,762 2,946 2,602
Provision for doubtful accounts . . . . . . . . . . . . . . . 1,558 6,187 6,065
Gain on sale of RehabCare stock, net . . . . . . . . . . . . . --- (13,114) (17,683)
Gain on Sovran settlement, net . . . . . . . . . . . . . . . . --- (584) ---
Loss on sale/write-down of assets . . . . . . . . . . . . . . 36 4,382 15,986
Carrying costs incurred on property and equipment
held for sale . . . . . . . . . . . . . . . . . . . . . . . (1,241) (1,330) (4,487)
Other restructuring/non-recurring expenses . . . . . . . . . . --- 5,452 ---
Equity in earnings of unconsolidated affiliates . . . . . . . --- (384) (168)
Decrease in refundable income taxes . . . . . . . . . . . . . --- --- 4,650
Decrease(increase) in accounts and notes receivable . . . . . 452 2,542 (3,554)
Decrease in accounts payable and accrued liabilities . . . . . (2,762) (4,927) (1,719)
Increase in income taxes payable . . . . . . . . . . . . . . . 68 --- ---
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . 818 278 (6,759)
------ ------ ------
Net cash used in operating activities . . . . . . . . . . . (7,161) (10,152) (9,629)
----- ------ ------
Cash flows from investing activities:
Proceeds from sale of property and equipment
(operating and held for sale) . . . . . . . . . . . . . . 10,357 3,489 4,700
Proceeds from the sale of RehabCare stock . . . . . . . . . . --- 18,825 20,553
Proceeds from Sovran settlement, net . . . . . . . . . . . . . --- 584 ---
Additions to property and equipment, net . . . . . . . . . . . (383) (474) (726)
Purchase of operating entity . . . . . . . . . . . . . . . . . --- (75) (750)
Distributions from joint ventures . . . . . . . . . . . . . . --- --- 50
-------- -------- -------
Net cash provided by investing activities . . . . . . . . . 9,974 22,349 23,827
------ ------ ------
Cash flows from financing activities:
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . (2,158) (11,835) (17,071)
Bank and other (repayments)borrowings . . . . . . . . . . . . --- (1,266) 1,266
Exercise of stock options . . . . . . . . . . . . . . . . . . --- 50 22
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . --- --- 5
------- -------- -------
Net cash used in financing activities . . . . . . . . . . . (2,158) (13,051) (15,778)
----- ------ ------
Net increase(decrease) in cash and cash equivalents . . . . . . . 655 (854) (1,580)
Cash and cash equivalents at beginning of year . . . . . . . . . 1,126 1,980 3,560
----- ------ ------
Cash and cash equivalents at end of year . . . . . . . . . . . . $ 1,781 $ 1,126 $ 1,980
====== ====== ======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,302 $ 2,050 $ 4,237
====== ====== ======
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . $ 233 $ 338 $ 135
====== ====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
26
27
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1993 AND 1992
NOTE 1-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of
Comprehensive Care Corporation (the "Company") and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The Company's consolidated financial statements are presented on the
basis that it is a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
continuationindirect compensation of the Company's business is dependent upon the resolution of
operatingCEO and short-term liquidity problems (see Note 2-- "Operating Lossesall other officers and Liquidity").
Revenue Recognition
Approximately 66%, 88% and 91% of the Company's operating revenues were
receivedto administer any incentive compensation plans from private sources in fiscal 1994, 1993 and 1992, respectively. The
remainder is received from Medicare, Medicaidwhich stock options and other governmental programs.
The latter are programs which provide for payments at rates generally less than
established billing rates. Payments are subject to audit by intermediaries
administering these programs. Revenues from these programs are recorded under
reimbursement principles applicable to each of the programs. Although
management believes estimated provisions currently recorded properly reflect
these revenues, any differences between final settlement and these estimated
provisions are reflected in operating revenues in the year finalized.
Property and Equipment
Depreciation and amortization of property and equipment are computed on
the straight-line method over the estimated useful lives of the related assets,
principally: buildings and improvements -- 5 to 40 years; furniture and
equipment -- 3 to 12 years; leasehold improvements -- life of lease or life of
asset, whichever is less. Property and equipment is carried at estimated net
realizable value.
Property and Equipment Held for Sale
Property and equipment held for sale represents net assets of certain
freestanding facilities and other properties that the Company intends to sell,
and is carried at estimated net realizable value. Net realizable value has
been reduced by the estimated operating and selling costs of these facilities
through their expected disposal dates.
Property and equipment held for sale, which are expected to be sold in
the next fiscal year, are shown as current assets on the consolidated balance
sheets. Gains and losses on facilities sold are recorded as an adjustment to
the remaining property values until all facilities are sold.
Intangible Assets
Intangible assets include costs in excess of fair value of net assets
of businesses purchased (goodwill), licenses, and similar rights. Costs in
excess of net assets purchased are amortized over 20 to 25 years. The costs of
other intangible assets are amortized over the period of benefit. The amounts
in the consolidated balance sheets are net of accumulated amortization of
goodwill of $652,000 and $536,000 at May 31, 1994 and 1993, respectively.
27
28
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1993 AND 1992
Deferred Contract Costs
The Company has entered into contracts with independent general
hospitals whereby it will provide services in excess of the standard agreement.
In recognition of the hospitals' long-term commitment, the Company has paid
certain amounts to them. These amountsstock based awards may be used by the hospitals for
capital improvements or as otherwise determined by the hospital.granted. The Company
is entitled to a prorata refund in the event that the hospital terminates the
contract before its scheduled termination date; accordingly, these amounts are
charged to expense over the lifeCompensation and Stock Option Committee of the contract.
Cashour Board consisted of Arthur K. Yeap (Chairman), Sharon Kay Ray, and Cash Equivalents
Cash in excess of daily requirements is invested in short-term
investments with original maturities of three months or less. Such investments
are deemed to be cash equivalents for purposes of the consolidated statements
of cash flows. Included in cash are short-term investments of $1,294,000 and
$228,000 at May 31, 1994 and 1993, respectively.
Income Taxes
Effective June 1, 1993, the Company adopted Financial Accounting
Standards Board ("FASB") Statement No. 109, "Accounting for Income Taxes" on a
prospective basis. Prior to this date, the Company accounted for income taxes
under APB 11. Statement No. 109 changed the Company's method of accounting
for income taxes from the deferred method required under APB 11 to the asset
and liability method. Under the deferred method, annual income tax expense is
matched with pretax accounting income by providing deferred taxes at current
tax rates for timing differences between the determination of net earnings for
financial reporting and tax purposes. The objective of the asset and liability
method is to establish deferred tax assets and liabilities for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities at enacted tax rates expected to be in effect
when such amounts are realized or settled. The change to Statement No. 109 had
no cumulative effect on the financial statements of the Company as a result of
recording a valuation allowance.
Charity Care
The Company provides charity care to patients who meet certain criteria
under its charity care policy without charge or at amounts less than its
established rates. Corporate policy allows for charity when appropriate which
must be prearranged and the patient must meet applicable federal and/or state
poverty guidelines. The Company will not pursue collection of charity
accounts. Charity charges foregone, based upon established rates, were less
than 1% of the Company's operating revenues for fiscal 1994 and 1993.
Loss Per Share
Primary and fully diluted loss per common and common equivalent share
have been computed by dividing net loss by the weighted average number of
common shares outstanding during the period. During fiscal 1994, 1993 and
1992, the convertible subordinated debentures had an antidilutive impact on
loss per share and, accordingly, were excluded from the computation.
The weighted average number of common and common equivalent shares used
to calculate loss per share was 21,987,000, 21,957,000 and 21,900,000 for the
years ended May 31, 1994, 1993 and 1992, respectively.
28
29
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1993 AND 1992
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
NOTE 2-- OPERATING LOSSES AND LIQUIDITY
The Company incurred losses before income taxes totaling approximately
$7.6 million for the year ended May 31, 1994, which was principally a result of
poor utilization of its freestanding facilities and behavioral medicine
contracts and the development and expansion of its behavioral medicine managed
care business.
In response to these continuing losses, the Company has taken steps to
bring expenses in line with revenues by reducing staff, closure and disposition
of various freestanding facilities and other cost cutting measures. If
utilization at particular facilities continues to deteriorate such that
anticipated reductions in operating losses are not achieved, those facilities
will also be considered for closure and disposition. The Company recorded no
asset writedowns during fiscal 1994 and $4.4 million in asset write-downs
during fiscal 1993 primarily related to the recognition of losses on facilities
to be sold and revaluation of facilities designated for disposition. These
amounts include the estimated future operating losses, selling costs and
carrying costs of such facilities until disposition at an assumed future point
in time. To the extent that actual costs and time required to dispose of the
facilities differ from these estimates, adjustments to the amount written-down
may be required. Future operating losses and carrying costs of such facilities
will be charged back directly to the carrying value of the respective assets
held for sale. Because chemical dependency treatment facilities are special
purpose structures, their resale value is negatively affected by the oversupply
of beds resulting from the diminished demand for inpatient treatment currently
being experienced throughout the industry. In the second quarter of 1993, the
Company redesignated various facilities as continuing operations and in the
fourth quarter of 1993, closed four facilities, incurring significant operating
losses. During fiscal 1994, none of the Company's remaining six operating
facilities were designated for disposition.
The Company's current assets at May 31, 1994, amounted to approximately
$15.1 million and current liabilities were approximately $14.7 million,
resulting in working capital of approximately $0.4 million and a current ratio
of 1:1. Included in current assets are four hospital facilities and two other
properties designated as property and equipment held for sale with a total
carrying value of $6.9 million. The Company sold three facilities during
fiscal 1994 and is seeking to sell the remaining facilities and properties
during fiscal 1995. Should the Company be unable to complete the sale
transactions during fiscal 1995, the Company's working capital would be
materially adversely affected. The Company's primary use of working capital is
to fund operating losses while it seeks to restore profitability to certain of
its freestanding facilities and expand its behavioral medicine managed care
business.
NOTE 3-- ACQUISITIONS AND DISPOSITIONS
On July 3, 1991, RehabCare, a wholly-owned subsidiary of the Company as
of May 31, 1991, and the Company completed an initial public offering of
2,500,000 shares of RehabCare common stock. Of the total shares sold to the
public, 1,700,000 shares were sold by the Company and 800,000 shares were new
shares issued by RehabCare. Net proceeds to the Company totaled approximately
$20.6 million, of which approximately $11.3 million was used to pay a portion
of the Company's senior secured debt. A gain of approximately $18 million on
the sale of the RehabCare shares was recorded in the Company's consolidated
statement of operations for the first quarter of fiscal 1992. The Company's
remaining 48% interest (2,300,000 shares) in RehabCare was accounted for on the
equity method (see Note 7-- "Investments in Unconsolidated Affiliates"). The
Company sold its remaining 48% interest in RehabCare to RehabCare during fiscal
1993 and a gain of approximately $13.1 million was recorded in the Company's
consolidated statement of operations for the second quarter of 1993. Net
proceeds
29
30
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1993 AND 1992
to the Company totaled $18.8 million which were used for the paydown of a
portion of senior secured debt, short-term borrowings, and to fund working
capital.
In November 1991, the Company sold its CareUnit Hospital of Orange
which closed in February 1991. In February 1992, the Company sold its
long-term care facility in Tustin, California as an operating facility.
In December 1992, the Company purchased Mental Health Programs, Inc.
based in Tampa, Florida, from the former owner. The Company has changed the
name to AccessCare, Inc. The terms of the purchase included a payment of
$75,000, issuance of 40,000 shares of the Company's common stock, an employment
agreement, a stock option agreement and the assumption of bank debt from the
former owner. Both the stock option and employment agreements and the release
of the former owner as guarantor of the bank debt are contingent upon the
continued employment of the former owner with the Company. In July 1993, the
Company terminated the employment agreement and is currently in litigation with
the former owner. In connection with this acquisition, the Company recorded
goodwill of approximately $829,000.
In October 1992, the Company's wholly-owned subsidiary, Starting Point,
Inc., entered into a joint operating agreement with Century HealthCare of
California to manage Newport Harbor Psychiatric Hospital, a 68-bed adolescent
psychiatric facility and Starting Point, Orange County, a 70-bed adult
psychiatric facility. The Company has an 80% interest in this venture. This
agreement was mutually dissolved on February 28, 1993. A pretax loss of
approximately $0.1 million and $1.1 million, net of minority interest, was
included in the consolidated financial statements for the years ended May 31,
1994 and 1993, respectively.
On April 5, 1993, the Company sold its CareUnit Hospital of Nevada.
Proceeds from the sale were utilized to reduce the Company's senior secured
debt and the remainder was used for working capital purposes. On July 1, 1993,
the Company sold its CareUnit Hospital of Albuquerque and on October 1, 1993,
sold its CareUnit Hospital of South Florida/Tampa. Proceeds from both of these
sales were utilized to reduce the Company's senior secured debt and the
remainder was utilized for working capital purposes. On December 10, 1993, the
Company sold its CareUnit Hospital of Coral Springs. Proceeds from the sale
were utilized for working capital purposes. In April 1994, the Company sold a
material portion of its publishing business. Proceeds from the sale will be
used for working capital purposes.
NOTE 4-- ACCOUNTS AND NOTES RECEIVABLE
There were no current notes receivable as of May 31, 1994. Current
notes receivable were $215,000 at May 31, 1993. The following table summarizes
changes in the Company's allowance for doubtful accounts and contractual
adjustments for the years ended May 31, 1994, 1993 and 1992:
ADDITIONS CHARGED TO
--------------------
BALANCE AT RESERVE FOR BALANCE AT
BEGINNING CLOSED END OF
OF YEAR EXPENSE FACILITIES RECOVERIES OTHER YEAR
------- ------- ---------- ---------- ----- ----
(DOLLARS IN THOUSANDS)
Year ended May 31, 1994 . . . $ 8,217 $1,558 $ 76 $2,283 $ (6,405) $ 5,729
Year ended May 31, 1993 . . . 10,882 6,187 381 3,518 (12,751) 8,217
Year ended May 31, 1992 . . . 8,714 6,065 2,777 3,815 (10,489) 10,882
30
31
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1993 AND 1992
During fiscal 1993, the Company fully implemented its current write-off
and reserve policy whereby all accounts past a certain aging category or
otherwise deemed by management to be uncollectible are written-off and recorded
as bad debt expense. Any recoveries are netted against expense. Other
represents the effect of the write-off of accounts net of the change in the
allowance for contractual adjustments.
NOTE 5-- PROPERTY AND EQUIPMENT HELD FOR SALE
The Company has decided to dispose of certain freestanding facilities
and other assets (see Note 2-- "Operating Losses and Liquidity"). Property and
equipment held for sale, consisting of land, building, equipment and other
fixed assets with an historical net book value of approximately $23.3 million
and $38.2 million at May 31, 1994 and 1993, respectively, is carried at
estimated net realizable value of approximately $6.9 million and $15.4 million
at May 31, 1994 and 1993, respectively. In fiscal 1993 and 1992, aggregate
losses were recorded totaling approximately $3.7 million and $15.2 million,
respectively, to reflect these assets at estimated net realizable value and
are included in loss on sale/write-down of assets in the consolidated
statements of operations. Operating revenues and operating expenses of the
facilities designated for disposition were approximately $0.1 million and $1.3
million, respectively, for the year ended May 31, 1994, and $0.8 million and
$2.1 million, respectively, for the year ended May 31, 1993. In addition,
$1,000,000 was reclassified to property and equipment during fiscal 1994 to
adjust property to its estimated fair market value.
A summary of the transactions affecting the carrying value of property
and equipment held for sale is as follows:
YEAR ENDED MAY 31,
----------------------------------
1994 1993 1992
---- ---- ----
(DOLLARS IN THOUSANDS)
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . $15,352 $35,568 $21,496
Designation of facilities as property and equipment held for sale --- 10,977 29,456
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . (9,806) --- (4,700)
Carrying costs incurred during phase-out period . . . . . . . . . 1,241 1,330 4,487
Loss on sale/write-down of facilities . . . . . . . . . . . . . . --- (3,670) (15,171)
Redesignation of facilities as continuing operations . . . . . . --- (28,853) ---
Reclassification to property and equipment . . . . . . . . . . . 1,000 --- ---
Other costs incurred upon sale of assets . . . . . . . . . . . . (848) --- ---
------- -------- --------
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,939 $15,352 $35,568
====== ====== ======
Property and equipment held for sale at May 31, 1992 included certain
hospitals which were proposed for inclusion in sale/leaseback transactions and
were carried at estimated net realizable value totaling $27.8 million. In
early fiscal 1993, the Company had expected to sell certain freestanding
facilities to CMP Properties, Inc. and lease them back. The facilities
expected to be sold and leased back were carried at estimated net realizable
value which had been reduced for estimated selling costs for these facilities.
On October 28, 1992, the board of directors of the Company terminated its plans
for the public offering of shares of common stock of its wholly owned
subsidiary CMP Properties, Inc. As a result, the proposed sale of hospitals to
CMP Properties subject to leaseback to the Company was not completed, and the
properties which were to be part of the transaction and were designated as
assets held for sale were reclassified during the second quarter as property
and equipment. In connection with this proposed transaction, the Company
advanced $1.1 million to a former consultant which was to be returned in the
event the transaction was terminated. These advances were to be secured by the
common stock of an unrelated company and were classified as accounts receivable
at May 31, 1993. The shares of common stock pledged were
31
32
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1993 AND 1992
purported to be in the possession of the Company's former legal counsel as
collateral for the advances, but were not provided to the Company when the
transaction was terminated. The Company is currently in litigation with the
former consultant and legal firm to recover the advances and has no receivable
recorded as of May 31, 1994.
NOTE 6-- PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
AS OF MAY 31,
-------------
1994 1993
---- ----
(DOLLARS IN THOUSANDS)
Land and improvements . . . . . . . . . . . . . . . . . . . . . . $ 4,063 $ 4,117
Buildings and improvements . . . . . . . . . . . . . . . . . . . 18,192 19,209
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . 4,817 5,866
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . 1,365 1,364
Capitalized leases . . . . . . . . . . . . . . . . . . . . . . . 889 876
------- ------
$29,326 $31,432
====== ======
Included in property and equipment are writedowns to net realizable
value totaling $4,631,700 and $3,490,000 as of May 31, 1994 and 1993,
respectively.
NOTE 7-- INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company has a 50% interest in a joint venture partnership with
another corporation for the purpose of operating two hospitals. Under the
terms of the joint venture agreement, the Company managed Crossroads Hospital
and its partner managed Woodview-Calabasas Hospital. Each of the partners in
the joint venture received a management fee for the hospital it managed. The
Company is currently in negotiation to dissolve this joint venture retroactive
to December 1991. The Company retained the hospital it managed and its partner
retained the other. The results of operations of the hospital retained have
been included in the consolidated financial statements beginning January 1,
1992. Crossroads Hospital continued to be managed by the Company although it
was closed in August 1992, and was subleased through the remaining term of the
lease which expired in September 1993. Woodview-Calabasas Hospital continues
to be managed by its joint-venture partner although it was closed in April
1993.
The Company has a 50% interest in a joint venture agreement with a
subsidiary of HealthOne Corporation (formerly The Health Central System). The
joint venture owned and operated Golden Valley Health Center, a behavioral
medicine facility located in a suburb of Minneapolis, Minnesota, which was sold
in fiscal 1989. The Company serves as managing partner of the joint venture,
which holds a promissory note from the purchaser of the facility in the amount
of $2.5 million. The purchaser was forced into receivership in January 1992
and was dissolved during fiscal 1994. The CompanyArnold B. Finestone.
Compensation Consultants
We did not receiveuse any proceeds
from this dissolution. In fiscal 1991, the Company recorded its respective
loss as a result of the uncollectability of the promissory note.
As of May 31, 1993, the Company no longer had any interest in the
outstanding common stock of RehabCare (a wholly-owned subsidiary prior to its
initial public offering which was completed on July 3, 1991) which was
previously carried on the equity method (see Note 3-- "Acquisitions and
Dispositions"). Earnings related to the Company's ownership in RehabCare
amounted to $384,000 and $1,224,000 for the years ended May 31, 1993 and 1992,
respectively. Carrying value, cost and market value of the Company's remaining
investment in RehabCare was $4.0, $3.1 and $19.6 million, respectively, at May
31, 1992. The condensed combined operating
32
33
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1993 AND 1992
results of affiliates for fiscal 1993 and 1992 include the results of RehabCare
subsequent to July 3, 1991 through the sale of the Company's remaining interest
in November 1992.
The Company reported its interest in these affiliates on the equity
method. The condensed combined operating results of affiliates are as follows:
YEAR ENDED MAY 31,
---------------------------
1994 1993 1992
---- ---- ----
(DOLLARS IN THOUSANDS)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $ --- $11,928 $47,854
Costs and expenses:
Operating, general and administrative . . . . . . . . . . . --- 10,536 45,500
Depreciation and amortization . . . . . . . . . . . . . . . --- 148 559
------ ------ ------
--- 10,684 46,059
------ ------ ------
Earnings before income taxes . . . . . . . . . . . . . . . . . --- 1,244 1,795
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . --- 443 1,360
------ ------ ------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ --- $ 801 $ 435
====== ====== ======
NOTE 8-- OTHER ASSETS
Other assets consist of the following:
AS OF MAY 31,
-------------
1994 1993
---- ----
(DOLLARS IN THOUSANDS)
Intangible assets, net . . . . . . . . . . . . . . . . . . . . $1,762 $1,877
Deferred contract costs, net . . . . . . . . . . . . . . . . . 81 142
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 670
----- -----
$2,162 $2,689
===== =====
NOTE 9-- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
AS OF MAY 31,
-------------
1994 1993
---- ----
(DOLLARS IN THOUSANDS)
Accounts payable and accrued liabilities . . . . . . . . . . . $9,132 $10,266
Accrued salaries and wages . . . . . . . . . . . . . . . . . . 1,140 1,527
Accrued vacation . . . . . . . . . . . . . . . . . . . . . . . 576 628
Accrued legal . . . . . . . . . . . . . . . . . . . . . . . . . 353 1,034
Payable to third-party intermediaries . . . . . . . . . . . . . 1,751 852
Deferred compensation and severance . . . . . . . . . . . . . . 824 1,430
------- -------
$13,776 $15,737
====== ======
33
34
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1993 AND 1992
NOTE 10-- LONG-TERM DEBT AND SHORT-TERM BORROWINGS
Long-term debt consists of the following:
YEAR ENDED MAY 31,
------------------
1994 1993
---- ----
(DOLLARS IN THOUSANDS)
Senior secured debt:
Senior secured notes, bearing interest at 11.4%, payable semiannually,
maturing in 1995 (b)(c) . . . . . . . . . . . . . . . . . . $ --- $ 1,944
------- ------
--- 1,944
9% to 10% notes, payable in monthly installments with maturity
dates through 1995, collateralized by real and personal
property having a net book value of $4,886 . . . . . . . . . . 41 96
7.5% convertible subordinated debentures due 2010 (a) . . . . . . . 9,538 9,538
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . 740 780
Bank debt, interest and principal payable in monthly installments
maturing in August 1997, collateralized by the trust of the
former owner (d) . . . . . . . . . . . . . . . . . . . . . . . 312 408
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- 23
-------- -------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . 10,631 12,789
Less current maturities of long-term debt . . . . . . . . . . . . . 154 2,137
------- ------
Long-term debt, excluding current maturities . . . . . . . . . . . $10,477 $10,652
====== ======
As of May 31, 1994, aggregate annual maturities of long-term debt for
the next five years (in accordance with stated maturities of the respective
loan agreements) are approximately $154,000 in 1995, $614,000 in 1996, $578,000
in 1997, $488,000 in 1998 and $449,000 in 1999.
In March 1992, to fund operations, the Company obtained approximately
$1.3 million in short-term borrowings secured by accounts and notes receivable
of CareUnit, Inc., bearing interest at 12% per annum, and due August 31, 1992.
The Company paid the principal and interest with the proceeds from the sale of
RehabCare stock.
The Company had no revolving loan or short-term borrowingscompensation consultants during fiscal 1994. The maximum amount outstanding on the revolving loan and
short-term borrowings was approximately $4.2 million during the years ended May
31, 1993 and 1992. The average amount outstanding of such borrowings, based
upon an average of month-end balances for periods when the Company had such
debt outstanding, was $2.2 million and $3.2 million during the years ended May
31, 1993 and 1992, respectively. Weighted average interest rates for
short-term borrowings were 7.54% and 8.63% for the years ended May 31, 1993 and
1992, respectively.
(a) In April 1985, the Company issued $46 million in convertible
subordinated debentures. These debentures require that the Company make semi-
annual interest payments in April and October at an interest rate of 7.5%. The
debentures are due in 2010 but may be converted to common stock of the Company
at the option of the holder at a conversion price of $25.97 per share, subject
to adjustment in certain events. The debentures are also redeemable at the
option of the Company in certain circumstances. Mandatory annual sinking fund
payments sufficient to retire 5% of the aggregate principal amount of the
debentures are required to be made on each April 15 commencing in April 1996 to
and including April 15, 2009. During fiscal 1991, holders of approximately
34
35
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1993 AND 1992
$36.5 million debentures voluntarily converted their debentures into 11,667,200
shares of common stock at a temporarily reduced conversion price.
(b) In July 1988, the Company and two subsidiaries of the Company
issued $20 million in senior secured notes to a group of insurance companies.
The notes were originally secured by three of the Company's freestanding
facilities. See also note (c) below. Performance of the subsidiaries'
obligations under the notes is guaranteed by the Company. The notes originally
provided for the payment of interest at a fixed rate of 10.5% per annum. The
notes require principal payments in five equal annual installments beginning on
August 1, 1991, the first of which was prepaid in July 1990. Interest on the
unpaid balance was payable semi-annually commencing February 1, 1989. From May
1990 to July 1992, the Company entered into several amendments to the trust
indenture which changed certain restrictive covenants, collateral provisions,
maturity dates and interest rates. The Company paid $5.5 million and $1.3
million with the proceeds of the sale of RehabCare stock on September 30, 1992
and November 13, 1992, respectively. The remaining balance at May 31, 1993
totaled $1.9 million, of which $0.6 million was paid on July 1, 1993, $0.6
million was paid on August 1, 1993 and the remaining balance was paid on
October 1, 1993.
(c) On May 3, 1990, the Company entered into a Collateral Trust
Agreement for the benefit of the holders of the Company's senior secured debt,
that is, the banks, the insurance companies and the revenue bondholder. Under
this agreement, substantially all the Company's assets not previously pledged
were pledged as additional collateral to secure the senior indebtedness.
Substantially all the proceeds resulting from a sale of any of the pledged
assets was used to repay senior indebtedness.
(d) On December 30, 1992, the Company assumed approximately $456,000
in bank debt with the purchase of Mental Health Programs, Inc. (see Note
3--"Acquisition and Dispositions"). The note is secured and guaranteed by the
trust of the former owner of Mental Health Programs, Inc. The release of
collateral and guarantee are contingent upon continued employment of the former
owner with the Company. The note is payable at $8,000 per month with the
balance due on August 31, 1997. Interest is at prime plus 1.5%.
NOTE 11-- LEASE COMMITMENTS
The Company leases certain facilities, furniture and equipment. The
facility leases contain escalation clauses based on the Consumer Price Index
and provisions for payment of real estate taxes, insurance, maintenance and
repair expenses. Total rental expenses for all operating leases are as
follows:
2019.
| 47 |
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the activitycash and non-cash compensation for our named executive officers for 2019:
| Changes in Pension | ||||||||||||||||||||||||||||||||||||||||
| Non- Equity | Value and Nonqualified | |||||||||||||||||||||||||||||||||||||||
| Stock | Option | Incentive Plan | Deferred Compensation | All Other | ||||||||||||||||||||||||||||||||||||
| Principal Position | Year | Salary ($) | Bonus ($) | Awards ($) | Awards ($) | Compensation ($) | and Earnings ($) | Compensation ($) | Total ($) | |||||||||||||||||||||||||||||||
| Clark A. Marcus | 2019 | $ | — | $ | — | $ | 100,041 | (4 | )(5) | $ | 230,000 | (2) | $ | — | $ | — | $ | — | $ | 330,041 | ||||||||||||||||||||
| Chairman of the Board and | 2018 | $ | — | $ | — | $ | — | $ | 200,000 | (2) | $ | — | $ | — | $ | — | $ | 200,000 | ||||||||||||||||||||||
| Chief Executive Officer | 2017 | $ | 1,892,013 | (1) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,892,013 | ||||||||||||||||||||||
| Mark T. Heidt | 2019 | $ | — | $ | — | $ | — | $ | 120,000 | (2) | $ | — | $ | — | $ | — | $ | 120,000 | ||||||||||||||||||||||
| President | 2018 | $ | — | $ | — | $ | — | $ | 125,000 | (2) | $ | — | $ | — | $ | — | $ | 125,000 | ||||||||||||||||||||||
| 2017 | $ | 300,000 | (1) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 300,000 | |||||||||||||||||||||||
| Arnold B. Finestone, P.h.D. | 2019 | $ | — | $ | — | $ | 50,000 | (5 | ) | $ | — | $ | — | $ | — | $ | 90,000 | (3) | $ | 140,000 | ||||||||||||||||||||
| President and | 2018 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 90,000 | (3) | $ | 90,000 | ||||||||||||||||||||||
| Chief Finanicial Officer | 2017 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 90,000 | (3) | $ | 90,000 | ||||||||||||||||||||||
| James L. Koenig | 2017 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||
| Chief Financial Officer | ||||||||||||||||||||||||||||||||||||||||
(1) Clark A. Marcus and Mark T. Heidt's 2017 salaries were not paid out but accrued.
(2) In July 2018, Mr. Marcus and Mr. Heidt both agreed to reduce their annual base compensation and to accept common stock purchase warrants in lieu of their respective cash compensation for 2018 and again in 2019. Mr. Marcus agreed to reduce his 2019 base compensation to $200,000 while his annual increases remain in effect. Mr. Heidt agreed to an annual base compensation of $125,000. The warrants have a term of five years and an exercise price that is fifty percent above the closing bid price as of the Company’s Common Stock as of July 11, 2018. We do not recognize any compensation costs related to ISOsthe issuance of warrants to Messrs. Marcus and Heidt. In May 2019, Mr. Heidt resigned as President. He presently serves as a consultant and continues to receive his same compensation rate.
(3) Arnold B. Finestone's compensation was for the years ended May 31, 1994, 1993 and 1992:
(4) In April 2019, the Board of Directors but in no event isvoted to issue 4,100 shares of Series C Preferred Stock to Clark A. Marcus as a bonus.
(5) The Board of Directors on August 26, 2019, changed the option exercise
price so determined less thanvesting date of the then fair market value (as definedIssuer’s Series D Preferred Stock from January 4, 2022, to August 27, 2019. Each share of the Series D Preferred Stock converts into 100,000 shares of the Issuer’s Common Stock. Included in the plans)stock awards for Clark A. Marcus of $100,041 is $100,000 and $50,000 for Arnold B. Finestone from the change in the vesting date.
Executive Employment Agreements
Chairman and Chief Executive Officer
On May 11, 2009, we executed an employment agreement with our Chairman of the sharesBoard and CEO, Clark A. Marcus. Mr. Marcus’ employment contract has a term of three years and includes an initial base salary of $700,000 per annum. As of December 31, 2017, the base salary for Mr. Marcus was $2,141,316. This compensation may, at our election, be accrued, in whole or in part, until such time as we receive financing and/or generate sufficient cash flows with which to pay Mr. Marcus his stated compensation, after the payment of our operating expenses.
| 48 |
Upon execution of the agreement in 2009, Mr. Marcus was paid an $80,000 signing bonus. In addition, Mr. Marcus is entitled to receive a special annual bonus in an amount equal to one percent of our pre-tax profits from the preceding year (as determined by the application of generally accepted accounting principles), up to the first $1,000,000 of such profits; plus, an additional sum equal to two percent of our pre-tax profits for all sums over $1,000,000.Mr. Marcus may also receive a bonus determined at the discretion of the Board of Directors.
In November 2011, the Compensation and Stock Option Committee modified Mr. Marcus’ employment agreement to state that it will not be deemed to have begun until all outstanding, deferred salary and bonus amounts have been paid, at which time the employment agreement will then proceed for a term of five years. In addition, Mr. Marcus will receive an annual increase on January 1st of each year the contract is effective, with such increase equal to the greater of 15% or the percentage change in the Consumer Price Index for the Tampa Bay metropolitan area for the preceding year. Furthermore, the Company will continue to pay the premiums on Mr. Marcus’ life insurance policies existing and following the termination of his employment through his 81st birthday.
In the event Mr. Marcus’ employment is terminated without cause, or Mr. Marcus terminates his employment within 12 months from a change in control, we will pay to Mr. Marcus a lump sum amount equal to the aggregate of (i) accrued unpaid salary, if any; (ii) accrued but unpaid expenses, if any; (iii) accrued but unpaid bonuses, if any; (iv) unissued warrants, if any; and (v) the total compensation which would have been paid to Mr. Marcus through five full years of compensation from the date of grant.termination. In July 2018, Mr. Marcus agreed to reduce his annual base compensation to $200,000. He also agreed to accept 833,333 common stock purchase warrants in lieu of his 2018 compensation. At December 31, 2018, we had accrued approximately $7,883,802 of compensation and bonuses to Mr. Marcus.
Director of Compensation
The following table provides information regarding compensation earned by certain of our non-employee directors during the caseyear ended December 31, 2019.
| Year | Fees Earned (1) | |||||||
| Arnold B. Finestone, Ph.D. | 2019 | $ | 90,000.00 | |||||
| Sharon Kay Ray | 2019 | $ | 30,000.00 | |||||
| Arthur K. Yeap | 2019 | $ | 30,000.00 | |||||
| (1) | Amounts represent fees earned for service as a director on our Board of Directors and as a member of one or more Board committees. Three of our directors are paid a monthly fee. Dr. Finestone is paid $7,500 per month; Ms. Ray is paid $2,500 per month and Mr. Yeap is paid $2,500 per month. Each of the above-named persons agreed in October 2013 to waive off on payments by the Company of any existing accrued fees and/or future fees until further notice. As of December 31, 2019, the total amount of accrued compensation for all of the named individuals was $1,050,000. |
| 49 |
Members of an ISO, if, on the
date of the grant of such option, the optionee is a restricted stockholder (as
defined in the plans), the option exercise price cannot be less than 110% of
the fair market value of the shares on the date of the grant.
Options vest and become exercisable at such times and in such
installments as the Board of Directors provides for in the individual option
agreement, except that an option granted to a director may not be exercised
until the expiration of one year from the date such option is granted. Subject
to the limitation with respect to the vesting of options granted to directors,
the Board of Directors may in its sole discretion accelerate the time at which
an optionwho are also executive officers or installment thereof may be exercised.
In July 1992, options not under any plan were issued to the former Vice
Chairman. Options for 1,000,000 shares were granted at an exercise price
ranging from $1.50 to $3.00. These options were exercisable 25 percent at
grant date and each year thereafter. Options for 250,000 shares are currently
exercisable at $1.50 and expire in February 1995. The remaining 750,000
options were forfeited. In December 1992, options not under any plan were
issued to the former owner of Mental Health Programs, Inc., as an inducement
essential to the purchase of Mental Health Programs, Inc. (see Note 3--
"Acquisitions and Dispositions"). Options for 100,000 shares were granted at
an exercise price ranging from $1.50 to $3.00. These options are exercisable
25 percent after one year from the grant date and each year thereafter and were
contingent upon the continued employment with the Company. In July 1993, the
Company terminated the employment agreement, and as a result, the 100,000
options were forfeited. In February 1993, options not under any plan were
issued to the Company's Chief Financial Officer. Options for 500,000 shares
were granted at an exercise price ranging from $1.00 to $2.00. These options
become exercisable 25 percent after one year from the grant date and each year
thereafter.
On April 19, 1988, the Company declared a dividend of one common share
purchase right ("Right") for each share of common stock outstanding at May 6,
1988. Each Right entitles the holder to purchase one share of common stock at
a price of $30 per share, subject to certain anti-dilution adjustments. The
Rights are not exercisable and are transferable only with the common stock
until the earlier of ten days following a public announcement that a person has
acquired ownership of 25% or more of the Company's common stock or the
commencement or announcement of a tender or exchange offer, the consummation of
which would result in the
39
40
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1993 AND 1992
ownership by a person of 30% or more of the Company's common stock. In the
event that a person acquires 25% or more of the Company's common stock or if
the Company is the surviving corporation in a merger and its common stock is
not changed or exchanged, each holder of a Right, other than the 25%
stockholder (whose Rights will be void), will thereafter have the right to
receive on exercise that number of shares of common stock having a market value
of two times the exercise price of the Right. If the Company is acquired in a
merger or more than 50% of its assets are sold, proper provision shall be made
so that each Right holder shall have the right to receive or exercise, at the
then current exercise price of the Right, that number of shares of common stock
of the acquiring company that at the time of the transaction would have a
market value of two times the exercise price of the Right. The Rights are
redeemable at a price of $.02 per Right at any time prior to ten days after a
person has acquired 25% or more of the Company's common stock.
NOTE 15-- COMMITMENTS AND CONTINGENCIES
On October 30, 1992, the Company filed a complaint in the United States
District Court for the Eastern District of Missouri against RehabCare
Corporation ("RehabCare") seeking damages for violations by RehabCare of the
securities laws of the United States, for common law fraud and for breach of
contract (Case No. 4-92CV002194-SNL). The Company seeks relief of damages in
the lost benefit of certain stockholder appreciation rights in an amount in
excess of $3.6 million and punitive damages. On May 18, 1993, the District
Court denied a motion for summary judgement filed by RehabCare. On June 16,
1993, RehabCare filed a counterclaim seeking a declaratory judgement with
respect to the rights of both parties under the stock redemption agreement, an
injunction enjoining the Company from taking action under stock redemption or
restated shareholders agreements and damages. The Company has filed a motion
with the court to strike RehabCare's request for damages for attorney's fees
and costs on the grounds that such relief is not permitted by law nor
authorized by the agreements between the parties. This case was scheduled for
trial on May 9, 1994, but has been continued on the court's own initiative and
the new trial date has not been set. Management believes that the Company's
allegations have merit and intends to vigorously pursue this suit. Management
further believes that should RehabCare prevail at trial on its request for such
attorneys fees and costs, such fees and costs would not materially affect the
financial statements of the Company.
In connection with the proposed sale of hospitals to CMP Properties,
Inc. (see Note 5-- "Property and Equipment for Sale"), the Company advanced
$1.1 million to a former consultant which was to be returned in the event the
transaction was terminated. These advances were to be secured by the common
stock of an unrelated company. The shares of common stock pledged were
purported to be in the possession of the Company's former legal firm as
collateral for the advances, but were not provided to the Company when the
transaction was terminated. The Company is currently in litigation with the
former consultant and legal firm to recover the advances.
The Company is currently undergoing a payroll tax audit by the Internal
Revenue Service ("IRS") for calendar years 1983 through 1991. The IRS agent
conducting the audit has asserted that certain physicians and psychologists and
other staff engaged as independent contractors by the Company should have been
treated as employees for payroll tax purposes. On April 8, 1991, the Company
received a proposed assessment related to this assertion claiming additional
taxes and penalties due totaling approximately $19.4 million for calendar years
1983 through 1988. The Company filed a protest with the IRS and contested the
proposed assessment with the Appeals Office of the Internal Revenue Service in
St. Louis, Missouri. The Appeals Office issued a reduced assessment in the
amount of approximately $6,300,000, plus penalties and interest of $6,500,000.
The IRS is also examining the Company's employment tax returns for the years
1989 through 1991, and the agent conducting the examination proposed the
assessment of additional taxes for those years in the approximate amount of
$1,600,000, plus penalties and interest in an undetermined amount. While
management believes the Company has strong arguments to support
40
41
COMPREHENSIVE CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1993 AND 1992
its treatment of the payments to independent contractors to whom substantially
all of the assessment relates, the Company has submitted an offer in compromise
to the IRS for the calendar years 1983 through 1991 for $5 million. A reserve
has been established with respect to this matter to cover expenses the Company
expects to incur; however, there can be no assurance that such reserves are
adequate until a formal settlement is reached with the IRS. The Company and
RehabCare, in May 1991, entered into a Tax Sharing Agreement providing for the
Company to indemnify RehabCare for any claims of income or payroll taxes due
for all periods through February 28, 1991. The Company has established a
reserve with respect to covering expenses the Company expects RehabCare to
incur under the Tax Sharing Agreement.
The federal income tax returns of the Company receive no compensation for its fiscal years
ended 1984serving as directors. Outstanding stock option and 1987 through 1991, have been examined by the IRS. The Company
has provided the IRS with satisfactory documentary supportwarrant awards for the majorityeach non-employee director as of items questioned and those items have been deleted from the proposed assessment
and acceptedDecember 31, 2019 are as originally filed. The remaining items have been agreed to and
resulted in a disallowance of approximately $229,000 in deductions which will
be offset against the Company's net operating losses available for carryover.
The examination also included the review of the Company's claim for refund of
approximately $205,000 relating to an amended return for the fiscal year ended
May 31, 1992. During completion of the audit, the IRS noted that the Company
had received excess refunds representing its AMT liability of approximately
$666,000 in 1990 and 1991 from the carryback of net operating losses to the
fiscal years ended May 31, 1988 and 1989, respectively. On March 29, 1994, the
Company agreed to the assessment of $666,000 plus interest and received the
final bill of $821,000 during the fourth quarter of fiscal 1994. The Company
has accrued for this liability, net of refunds, in income taxes payable.
From time to time, the Company and its subsidiaries are also parties
and their property is subject to ordinary routine litigation incidental to
their business. In some pending cases, claims exceed insurance policy limits
and the Company or a subsidiary may have exposure to liability that is not
covered by insurance. Management believes that the outcome of such lawsuits
will not have a material adverse impact on the Company's financial statements.
41
42
PART III
ITEMS 10 AND 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND EXECUTIVE
COMPENSATION.
The Company expects to file its definitive proxy statement for the 1994
annual meeting of shareholders no later than 120 days after the end of the
fiscal year with the Securities and Exchange Commission. The information set
forth therein under "Election of Directors" and "Executive Compensation" is
incorporated herein by reference. Executive Officers of Comprehensive Care
Corporation and principal subsidiaries are listed on page 13 of this Form 10-K.
follows:
| Number of shares underlying unexercised options, warrants | ||||
| Name | Options (#) | Warrants (#) | ||
| Arnold B. Finestone, Ph.D. | 1,000,000 | 500,000 | ||
| Sharon Kay Ray | 775,000 | - | ||
| Arthur Yeap | 775,000 | - | ||
| 50 |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information requiredMANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of December 31, 2019, the name, address, stock ownership and voting power of each person or group of persons known by us who is setnot a director or a named executive officer of the Company to own beneficially more than five percent of the outstanding shares of our common stock. Unless otherwise indicated, each of the stockholders has sole voting and investment power with respect to shares beneficially owned.
| Name and Address of Beneficial Owner | Common stock owned directly | Common stock acquirable (1) | Total common stock beneficially owned | Percent of Voting Common Stock Outstanding | ||||||||||||||||
| Howard Jenkins | 26,885,714 | 9,000,000 | 35,885,714 | (2 | ) | 46.49 | % | |||||||||||||
| c/o Advanzeon Solutions, Inc. | ||||||||||||||||||||
| 2901 W. Busch Blvd., Suite 701 | ||||||||||||||||||||
| Tampa, Florida 33618 | ||||||||||||||||||||
| Bernard C. Sherman | 0 | 14,712,500 | 14,712,500 | (3 | ) | 17.03 | % | |||||||||||||
| 150 Signet Dr. | ||||||||||||||||||||
| Weston, Ontario Canada M9L 1T9 | ||||||||||||||||||||
| Lloyd I. Miller | 602,100 | 5,121,100 | 5,723,100 | (4 | ) | 7.45 | % | |||||||||||||
| 222 Lakeview Ave., Suite 100-365 | ||||||||||||||||||||
| West Palm Beach, Florida 33401 | ||||||||||||||||||||
| Benjamin B. West | 4,000,000 | 50,000 | 4,050,000 | (5 | ) | 5.65 | % | |||||||||||||
| c/o Advanzeon Solutions, Inc. | ||||||||||||||||||||
| 2901 W. Busch Blvd, Suite 701 | ||||||||||||||||||||
| Tampa, Florida 33618 | ||||||||||||||||||||
| Joshua I. Smith | 1,922,829 | 2,525,000 | 4,447,829 | (6 | ) | 6.00 | % | |||||||||||||
| c/o Advanzeon Solutions, Inc. | ||||||||||||||||||||
| 2901 W. Busch Blvd, Suite 701 | ||||||||||||||||||||
| Tampa, Florida 33618 | ||||||||||||||||||||
| 51 |
| (1) | Includes common stock acquirable through the conversion of equity instruments convertible into common stock and the exercise of options and warrants to acquire common stock. |
| (2) | Information obtained from Form 13D/A dated June 4, 2010, filed on July 29, 2010 and Company records. |
| (3) | Information obtained from Form 13G/A dated November 14, 2011, filed on December 9, 2011 and Company records. |
| (4) | Information obtained from Form 13G/A dated February 5, 2015, filed on February 5, 2015. Of the 5,162,600 shares beneficially owned, Mr. miller has sole voting and investment power over 4,790,808 shares and shared voting and investment power over 371,792 shares. |
| (5) | Information obtained from Form 13G/A dated December 31, 2011, filed on February 14, 2012. |
| (6) | Information obtained from Company records. Does not include 5,000,000 shares obtainable from the conversion of the 50 shares of the Series D Convertible Preferred Stock. The Series D Convertible Preferred Stock vests in 10 years from the date of grant. Early vesting can occur if (a) the Grantee’s service as a member of the Board of Directors is terminated by the Company, or (b) by mutual agreement between the Company and the Grantee, or (c) by the Grantee for Good Reason, which is defined to mean without the Grantee’s express written consent, a material breach of any material provision of any agreement between the Company or a successor and the Grantee which breach is not cured within 30 days after notice, or (d) due to the Grantee’s death or disability before the vesting date. |
Security Ownership of Management
The following table sets forth, underas of December 31, 2019, information concerning the caption "Principal
Stockholders" inbeneficial ownership of our common stock by each director of the proxy statement forCompany and the 1994 annual meetingnamed executive officers and all directors and executive officers as a group. According to rules adopted by the SEC, a person is the “beneficial owner” of shareholderssecurities if he or she has, or shares, the power to vote such securities or to direct their investment. Unless otherwise indicated, each of the stockholders has sole voting and is incorporated herein by reference.
investment power with respect to shares beneficially owned.
| Name of Beneficial Owner | Shares Beneficially Owned | Percent of Common Stock Outstanding | ||||||
| Clark A. Marcus (1)(6) | 29,330,145 | 29.00 | % | |||||
| Arnold B. Finestone, Ph.D. (2)(6) | 6,577,171 | 8.40 | % | |||||
| Sharon Kay Ray (3)(6) | 3,675,000 | 4.89 | % | |||||
| Arthur K. Yeap (3)(6) | 3,675,000 | 4.89 | % | |||||
| Mark T. Heidt (4) | 2,002,979 | 2.71 | % | |||||
| James L. Koenig (4) | 1,600,000 | 2.18 | % | |||||
| Stephen M. Kreitzer, M.D. (5) | 3,337,000 | 4.45 | % | |||||
| All directors and named executive officers as a group (7 persons) | 50,197,295 | 56.52 | % | |||||
| 52 |
| (1) | Includes 121,800 shares of common stock held directly, 1,000,000 shares subject to options that are presently exercisable, 16,911,597 shares acquirable with warrants that are presently exercisable, 10,000,000 shares of common stock acquirable upon the conversions of 100 shares of the Series D Convertible Preferred Stock and 1,296,748 shares of common stock acquirable upon the conversions of 4,100 shares of the Series C Convertible Preferred Stock. . |
| (2) | Includes 1,000,000 shares subject to options that are presently exercisable, 500,000 shares acquirable with a warrant that is presently exercisable, and 77,171 shares obtainable from the conversion of 244 Series C Convertible Preferred Stock shares that are presently convertible and 5,000,000 shares obtainable from the conversion of 50 shares of the Series D Convertible Preferred Stock. |
| (3) | Includes 322,829 shares of common stock held directly, 775,000 shares subject to options that are presently exercisable, and 77,171 shares obtainable from the conversion of 244 Series C Convertible Preferred Stock shares that are presently convertible and 2,500,000 shares obtainable from the conversion of 25 shares of the Series D Convertible Preferred Stock. |
| (4) | Represents warrants to purchase common stock. |
| (5) | Includes 97,000 shares of common stock and 3,240,000 warrants to purchase common stock. Does not include a convertible promissory note in the principle amount of $100,000. At the option of the holder all or any part of the principle and any unpaid interest may be converted into shares of our common stock. The conversion rate shall be the lessor of (i) 15% below the average daily closing bid price of our common stock for the immediately preceding twenty business days or (ii) $0.11. |
| (6) | On August 26, 2019, the Board of Directors changed the vesting date of the Series D convertible Preferred Stock from January 4, 2023, to August 27, 2019. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information requiredTRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
In connection with an employment agreement with our Chairman and CEO, Clark A. Marcus, we have accrued compensation and bonuses payable to Mr. Marcus of approximately $7,883,802 as of December 31, 2019.
One of our independent sales agents is the son of our Chief Executive Officer. He is paid a monthly amount and is entitled to earn a commission on certain sales. In 2019, his total compensation was $83,280. We also pay for the California lease payments on a residential unit that we use as an office for our account managers, sales and marketing staff as a temporary residence for the son of our Chief Executive Officer. The total lease payments in 2019, were $47,453. We use the services of the daughter of our Chief Executive Officer for marketing purposes. In 2019, her total compensation was $27,500. In January 2018, we began using the services of an accounting firm owned by the brother of our Chief Executive Officer. In 2019, the firm was paid a total of $140,953. We presently pay the firm $7,000 per month for routine services and additional fees for special projects. We lease a vehicle for our Chief Executive Officer. The term of the lease is 3 years beginning July 9, 2018 and ending July 9, 2021. We currently pay a monthly rate of $893.
| 53 |
Director Independence
Although we are not listed on the New York Stock Exchange, and therefore not subject to its requirements, we nevertheless have used the definition of “independent” set forth in Section 303A of the New York Stock Exchange listing standards for the purpose of determining the independence of our directors and members of a committee of our Board of Directors. Such standards define an independent director, generally, as one who has no material relationship with us, has not been employed by us within the last three years, has not received compensation from us in excess of $120,000 other than director and committee fees, is not related to a person who is a partner or employee of our external auditor, is not related to any of our officers, and is not an officer or owner of a business having transactions with us that exceed the greater of $1 million or 2% of our consolidated gross revenues.
The following is a list of individuals that served as a director at any point during the period covered by this Annual Report on Form 10-K and that were considered independent:
Sharon Kay Ray
Arthur K. Yeap
There were no transactions, relationships, or arrangements considered by the Board of Directors in determining that a director is independent other than those described immediately above under the caption "Compensation
Committee Interlocks and Insider Participation" in the proxy statement for the
1994 annual meeting of shareholders and is incorporated herein by reference.
42
43
PART IV
“Transactions with Related Persons".
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULESPRINCIPAL ACCOUNTANTS’ FEES AND REPORTS ON FORM 8-K.
(A) 1. FINANCIAL STATEMENTS
Included in Part IISERVICES
Audit and Related Fees
The firm of this report:
ReportLouis Plung & Company, LLP (“Louis Plung”) currently serves as our independent registered public accounting firm to perform audits and to prepare our income tax returns. The Audit Committee approved 100% of Independent Public Accountants
Independent Auditors' Report
Consolidated Balance Sheets, May 31, 1994 and 1993
Consolidated Statementsthe services described below for audit fees.
Audit Fees. The aggregate fees billed by Louis Plung for services relative to audits of Operations, Years Ended May 31, 1994,
1993 and 1992
Consolidated Statements of Stockholders' Equity, Years Ended May 31,
1994, 1993 and 1992
Consolidated Statements of Cash Flows, Years Ended May 31, 1994,
1993 and 1992
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
V. Property and Equipment
VI. Accumulated Depreciation and Amortization of Property and Equipment
X. Supplementary Statements of Operations Information
Other schedules are omitted, as the required information is inapplicable or
the information is presented in theour annual consolidated financial statements or
related notes.
3.conducted for 2019 were $37,500.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm and assure that the provision of such services does not impair the firm’s independence. These services may include audit services, audit-related services, tax services and other services. Management is required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date.
| 54 |
ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES
| (a) | 1. | Consolidated Financial Statements - Included in Part II of this report: | |
| Report of Independent Registered Public Accounting Firm | 64 | ||
| Consolidated Balance Sheets as of December 31, 2019 and 2018 | 65 | ||
| Consolidated Statements of Operations for the years ended December 31, 2019 and 2018 | 66 | ||
| Consolidated Statements of Stockholders’ Deficiency for the years ended December 31, 2019 and 2018 | 67 | ||
| Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018 | 68 | ||
| Notes to Consolidated Financial Statements | 69 | ||
| 2. | Consolidated Financial Statement Schedules: None. | ||
| 3. | Exhibits: |
The exhibits listed below are filed as part of this Annual Report on Form 10-K. Certain of the exhibits, as indicated, have been previously filed and are incorporated by reference.
| 55 |
| 56 |
| 57 |
| 58 |
| * | Management contract or compensatory plan or arrangement with one or more directors or executive officers. | |
| (1) | Filed as an exhibit to the Company’s Form 10-K for the years ended December 31, 2015, 2016 and 2017. | |
| (2) | Filed as an exhibit to the Company’s Form 8-K dated November 9, 1995. | |
| (3) | Filed as an exhibit to the Company’s Form 8-K dated June 14, 2005. | |
| (4) | Filed as an exhibit to the Company’s Form 10-K for the year ended May 31, 2000. | |
| (5) | Filed as an exhibit to the Company’s Form 8-K dated November 25, 1998. | |
| (6) | Filed as Appendix A to the Company’s definitive proxy statement on Schedule 14A filed on January 28, 2005. | |
| (7) | Filed as an exhibit to Form S-8 (File No. 333-108561) filed on September 5, 2003. | |
| (8) | Filed as an exhibit to the Company’s Form 8-K, dated November 3, 2005. | |
| (9) | Filed as an exhibit to the Company’s Form 10-K for the fiscal year ended May 31, 2006. | |
| (10) | Filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2007. | |
| (11) | Filed as an exhibit to the Company’s Form 8-K, dated November 12, 2008. | |
| (12) | Filed as an exhibit to the Company’s Form 8-K, dated January 16, 2009. | |
| (13) | Filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2008. | |
| (14) | Filed as an exhibit to the Company’s Form 8-K, dated March 31, 2009. | |
| (15) | Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended March 31, 2009. | |
| (16) | Filed as an exhibit to the Company’s Form 8-K, dated June 17, 2009. | |
| (17) | Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended September 30, 2009. | |
| (18) | Filed as an exhibit to the Company’s Form 8-K, dated February 25, 2009. | |
| (19) | Filed as an exhibit to the Company’s Form 8-K, dated June 24, 2009. | |
| (20) | Filed as an exhibit to the Company’s Form 8-K/A, dated January 16, 2009 and filed April 6, 2009. | |
| (21) | Filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2009. | |
| (22) | Filed as an exhibit to the Company’s Form 8-K, dated May 6, 2010. | |
| (23) | Filed as an exhibit to the Company’s Form 8-K, dated June 10, 2010. |
| 59 |
| (24) | Filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2009. | |
| (25) | Filed as an exhibit to the Company’s Form 8-K, dated May 6, 2010. | |
| (26) | Filed as an exhibit to the Company’s Form 8-K, dated June 10, 2010. | |
| (27) | Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2010. | |
| (28) | Filed as an exhibit to the Company’s Form 8-K, dated November 19, 2010. | |
| (29) | Filed as an exhibit to the Company’s Form 10-Q/A for the quarterly period ended September 30, 2010. | |
| (30) | Filed as an exhibit to the Company’s Form 8-K, dated August 30, 2011. | |
| (31) | Filed as an exhibit to the Company’s Form 8-K, dated March 5, 2012. | |
| (32) | Filed as an exhibit to the Company’s Form 8-K, dated June 25, 2012. | |
| (33) | Filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2012. | |
| (34) | Filed as an exhibit to the Company’s Form 10-K for the years ended December 31, 2013 and 2014. | |
| (35) | Filed as an exhibit to the Company Annual Report on Form 10-K for the years ended December 31, 2015, 2016 and 2017. |
ITEM 16. FORM 10-K for the fiscal year ended
May 31, 1988.
(5) Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
May 31, 1990.
(6) Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
May 31, 1991.
(7) Filed as an exhibit to RehabCare Corporation's Form S-1 Registration
Statement No. 33-40467.
(8) Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
May 31, 1992.
(9) Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
May 31, 1993.
(B) REPORTS ON FORM 8-K
1) On March 7, 1994, the Company filed a current report on Form
8-K to report new members of the Board of Directors, new
members of the Compensation Committee, the Board approval of
amendment of the Company's Certificate of Incorporation
(subject to shareholder approval) and the tentative approval
of voluntary, temporary reduction of conversion price of
convertible debentures.
2) On May 10, 1994, the Company filed a current report on Form
8-K reporting the resignation of Richard C. Peters, President
and Chief Executive Officer.
3) On June 30, 1994, the Company filed a current report on Form
8-K to report an assessment received from the IRS relating to
the payroll tax audit for calendar years 1983 through 1988
(see Note 15-- "Commitments and Contingencies").
44
45
SUMMARY
Not applicable.
| 60 |
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, August 25, 1994.
COMPREHENSIVE CARE CORPORATION
By /s/ CHRISS W. STREET
---------------------------------
Chriss W. Street
Chairman and
July 7, 2020.
| ADVANZEON SOLUTIONS, INC. | |||||
| By: | /s/ CLARK A. MARCUS | ||||
Chief Executive Officer and Chairman (Principal Executive Officer) | |||||
| 61 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates so indicated.
indicated as of July 7, 2020.
| SIGNATURE | TITLE | |||
| /s/ CLARK A. MARCUS | Chief Executive Officer (Principal Executive Officer) | |||
| Clark A. Marcus | ||||
| Director, and Chief Financial Officer | ||||
| /s/ ARNOLD B. FINESTONE, Ph.D. | (Principal Financial Officer) | |||
| Arnold B. Finestone, Ph.D. | ||||
| /s/ LLOYD K. MARCUS | Chief Accounting Officer (Principal Accounting Officer) | |||
Lloyd K. Marcus /s/ ARTHUR K. YEAP | Director | |||
| Arthur K. Yeap | ||||
/s/ SHARON KAY RAY | Director | |||
| Sharon Kay Ray | ||||
/s/ JAMES | Director | |||
| James | ||||
/s/ MARK T. HEIDT | Director | |||
| Mark T. Heidt | ||||
/s/ STEPHEN M. KREITZER, MD. | Director | |||
| Stephen M. Kreitzer, M.D. | ||||
| 62 |
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS’ REPORT
December 31, 2019 and 2018
| 63 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Advanzeon Solutions, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Advanzeon Solutions, Inc. (the Company) as of December 31, 2019 and 2018, and the related consolidated statements of operations, stockholders’ deficiency, and cash flows for each of the years in the two year period ended December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
In early 2020, an outbreak of a novel strain of coronavirus was identified and infections have been found in a number of countries around the world, including the United States. The coronavirus and its impact on trade including customer demand, travel, employee productivity, supply chain, and other economic activities has had, and may continue to have, a significant effect on financial markets and business activity. The extent of the impact of the coronavirus on our operational and financial performance is currently uncertain and cannot be predicted.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Louis Plung & Company
We have served as the Company’s auditor since 2018.
Pittsburgh, Pennsylvania
April 9, 2020
| 64 |
CONSOLIDATED BALANCE SHEETS
For the Years Ended December 31, 2019 and 2018
| 2019 | 2018 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 69,327 | $ | 25,036 | ||||
| Accounts receivable | 29,769 | 24,890 | ||||||
| Current portion of right of use asset | 113,911 | 53,634 | ||||||
| Other current assets | 826,597 | 356,208 | ||||||
| Total current assets | 1,039,604 | 459,768 | ||||||
| PROPERTY, PLANT, AND EQUIPMENT | ||||||||
| Property and equipment, net | 1,239 | — | ||||||
| Leasehold improvements, net | — | 299 | ||||||
| Total property, plant, and equipment | 1,239 | 299 | ||||||
| RIGHT OF USE ASSET, NET OF CURRENT PORTION | 146,880 | 28,920 | ||||||
| TOTAL ASSETS | $ | 1,187,723 | $ | 488,987 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIENCY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Related party loans payable | $ | 342,670 | $ | 737,023 | ||||
| Account payable | 99,441 | 227,279 | ||||||
| Debt | 12,352,189 | 10,087,939 | ||||||
| Contingent liability | 642,659 | 642,659 | ||||||
| Current portion of lease liability | 113,911 | 53,634 | ||||||
| Other accrued expenses | 15,891,787 | 14,614,772 | ||||||
| Total current liabilities | 29,442,657 | 26,363,306 | ||||||
| LEASE LIABILITY, NET OF CURRENT PORTION | 146,880 | 28,920 | ||||||
| TOTAL LIABILITIES | 29,589,537 | 26,392,226 | ||||||
| STOCKHOLDERS' DEFICIENCY | ||||||||
| Preferred stock, $0.001 par value; 1,000,000 shares authorized, as of December 31, 2019 and 2018 | — | — | ||||||
| Series C Convertible Preferred, $0.001 par value; 14,400 shares authorized; 10,434 shares issued and outstanding as of December 31, 2019 and 2018 | 10 | 10 | ||||||
| Series D Convertible Preferred, $0.001 par value; 7,000 shares authorized; 250 shares issued and outstanding as of December 31, 2019 and 2018 | — | — | ||||||
| Remaining Preferred stock, $0.001 par value; 978,600 shares as of December 31, 2019 and 2018 | — | — | ||||||
| Common stock, $0.01 par value; 1,000,000,000 shares authorized; 71,661,656 and 66,661,656 shares issued and outstanding | 716,617 | 666,617 | ||||||
| Additional paid in capital | 28,719,246 | 28,012,007 | ||||||
| Accumulated deficit | (57,837,687 | ) | (54,581,873 | ) | ||||
| Total stockholders' deficiency | (28,401,814 | ) | (25,903,239 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY | $ | 1,187,723 | $ | 488,987 | ||||
The accompanying notes are an integral part of these consolidated financial statements
| 65 |
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2019 and 2018
| 2019 | 2018 | |||||||
| Revenues: | ||||||||
| Obstructive sleep apnea (OSA) - related | $ | 300,098 | $ | 524,172 | ||||
| Total revenues | 300,098 | 524,172 | ||||||
| Costs and expenses: | ||||||||
| Costs of revenues | 145,254 | 261,170 | ||||||
| Selling, general and administrative | 2,092,806 | 1,745,094 | ||||||
| Depreciation and amortization | 609 | 599 | ||||||
| Total costs and expenses | 2,238,669 | 2,006,863 | ||||||
| Operating loss | (1,938,571 | ) | (1,482,691 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | (1,428,671 | ) | (1,436,974 | ) | ||||
| Legal settlement (See Note 15) | 112,172 | 215,848 | ||||||
| Settlement of prior accounting services | — | (240,000 | ) | |||||
| Extinguishment of loan due to shareholder | — | 7,771,140 | ||||||
| Tax penalty | (6,794 | ) | (50 | ) | ||||
| Interest income | 6,050 | — | ||||||
| Other income | — | 2,380 | ||||||
| Total other income (expense) | (1,317,243 | ) | 6,312,344 | |||||
| Net income (loss) | $ | (3,255,814 | ) | $ | 4,829,653 | |||
| PER SHARE INFORMATION | ||||||||
| Basic | $ | (0.05 | ) | $ | 0.07 | |||
| Weighted average number of | ||||||||
| common shares outstanding | 69,161,656 | 65,362,240 | ||||||
The accompanying notes are an integral part of these consolidated financial statements
| 66 |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
For the Years Ended December 31, 2019 and 2018
| Series C Convertible Preferred Stock Number of Shares | Series C Convertible Preferred Stock Amount | Common Stock Number of Shares | Common Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
| Balance at December 31, 2017 | 10,434 | $ | 521,700 | 63,063,685 | $ | 630,637 | $ | 27,235,066 | $ | (59,411,526 | ) | $ | (31,024,123 | ) | ||||||||||||||
| Stock issued for settlement | ||||||||||||||||||||||||||||
| of accounting services | — | — | 2,000,000 | 20,000 | 220,000 | — | 240,000 | |||||||||||||||||||||
| Issuance of stock options | — | — | 1,597,971 | 15,980 | 35,251 | — | 51,231 | |||||||||||||||||||||
| Par value adjustment to Series | ||||||||||||||||||||||||||||
| C Convertible Perferred Stock* | — | (521,690 | ) | — | — | 521,690 | — | — | ||||||||||||||||||||
| Net income | — | — | — | — | — | 4,829,653 | 4,829,653 | |||||||||||||||||||||
| 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 | — | — | 4,500,000 | 45,000 | 444,000 | — | 489,000 | |||||||||||||||||||||
| Sale of warrants | — | — | — | — | 253,239 | — | 253,239 | |||||||||||||||||||||
| Sale of stock | — | — | 500,000 | 5,000 | 10,000 | — | 15,000 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (3,255,814 | ) | (3,255,814 | ) | |||||||||||||||||||
| Balance at December 31, 2019 | 10,434 | $ | 10 | 71,661,656 | $ | 716,617 | $ | 28,719,246 | $ | (57,837,687 | ) | $ | (28,401,814 | ) | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
| 67 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2019 and 2018
| 2019 | 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | (3,255,814 | ) | $ | 4,829,653 | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||
| Depreciation and amortization expense | 609 | 599 | ||||||
| Stock issued for settlement of accounting services | — | 240,000 | ||||||
| Extinguishment of loan due to shareholder and interest | — | (7,771,140 | ) | |||||
| Stock issued for services | 489,000 | — | ||||||
| Amortization of right of use asset | 97,690 | 31,779 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (4,879 | ) | (23,929 | ) | ||||
| Other current assets | (470,389 | ) | (1,035,163 | ) | ||||
| Accounts payable | (522,191 | ) | 528,226 | |||||
| Payments on lease liabilities | (97,690 | ) | (31,779 | ) | ||||
| Contingent liability | — | 152,664 | ||||||
| Accrued interest-related party | — | (246,568 | ) | |||||
| Other accrued expense | 1,277,015 | 1,641,510 | ||||||
| Net cash used in operating activities | (2,486,649 | ) | (1,684,148 | ) | ||||
| 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 | 2,289,250 | 1,772,763 | ||||||
| Repayment of notes | (25,000 | ) | (81,779 | ) | ||||
| Sale of stock | 268,239 | — | ||||||
| Net cash provided by financing activities | 2,532,489 | 1,690,984 | ||||||
| Net increase in cash | 44,291 | 6,836 | ||||||
| Cash - Beginning of Year | 25,036 | 18,200 | ||||||
| CASH - END OF YEAR | $ | 69,327 | $ | 25,036 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | — | $ | — | ||||
| Income taxes | $ | — | $ | — | ||||
| Schedule of non-cash inversting transactions | ||||||||
| Convertible promissory note converted to common stock | $ | — | $ | 51,231 | ||||
The accompanying notes are an integral part of these consolidated financial statements
| 68 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 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 subsidiaries, each with their respective subsidiaries (collectively referred to herein as, the “Company”, “Advanzeon”, “we”, “us”, or “our”).
Reclassification - PROPERTY AND EQUIPMENT
YEARS ENDED MAY 31, 1994, 1993 AND 1992
BALANCE AT SALES BALANCE AT
BEGINNING OF ADDITIONS AND RECLASSI- END OF
PERIOD AT COST RETIREMENTS FICATIONS(1) PERIOD
------ ------- ----------- --------- ------
(DOLLARS IN THOUSANDS)
Year ended May 31, 1994
Land and improvements . . . . . . . . $ 4,117 $ --- $ --- $ (54) $ 4,063
Buildings and improvements . . . . . 19,209 82 99 (1,000) 18,192
Furniture and equipment . . . . . . . 5,866 280 1,956 627 4,817
Leasehold improvements . . . . . . . 1,364 3 15 13 1,365
Capitalized leases . . . . . . . . . 876 18 --- (5) 889
------- ---- ------- ------- -------
$31,432 $383 $2,070 $ (419) $29,326
====== === ===== ==== ======
Year ended May 31, 1993
Land and improvements . . . . . . . . $ --- $ --- $ --- $ 4,117 $ 4,117
Buildings and improvements . . . . . 2,963 203 2,731 18,774 19,209
Furniture and equipment . . . . . . . 3,440 360 3,201 5,267 5,866
Leasehold improvements . . . . . . . 463 136 24 789 1,364
Capitalized leases . . . . . . . . . --- 67 --- 809 876
------- --- ------ ------ ------
$ 6,866 $766 $5,956 $29,756 $31,432
====== === ===== ====== ======
Year ended May 31, 1992
Land and improvements . . . . . . . . $ 7,525 $ --- $ --- $ (7,525) $ ---
Buildings and improvements . . . . . 25,309 337 56 (22,627) 2,963
Furniture and equipment . . . . . . . 11,463 403 2,330 (6,096) 3,440
Leasehold improvements . . . . . . . 829 11 377 --- 463
Capitalized leases . . . . . . . . . 745 --- 745 --- ---
------ ---- ----- --------- --------
$45,871 $751 $3,508 $(36,248) $ 6,866
====== === ===== ======= ======
(1) Includes amounts whichCertain 2018 items have been reclassified from(to) propertyto conform with the current year presentation.
NOTE 2 SUMMARY OF SIGNFICANT 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., 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 reclassifications of prior period amounts have been made to conform to the current year 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 and accrued claims payable, including incurred but not reported, are considered by management as particularly susceptible to material change in the next year. Other significant estimates relate to stock-based compensation, valuation of goodwill, warrants and beneficial conversion features.
Accounts Receivable - Accounts and notes receivable are carried at 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 after any related allowances provided.
Property and equipment – Property and equipment held(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 Improvements - Leasehold improvement (Note 5) is stated at cost less accumulated amortization. Depreciation and amortization 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 sale.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 December 31, 2019 and 2018 are as follows:
| 2019 | 2018 | |||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
| Convertible promissory notes | $ | 7,564,173 | $ | — | $ | 5,299,923 | $ | — | ||||||||
| Short term notes payable | 4,788,016 | — | 4,788,016 | — | ||||||||||||
| Loans payable related party | 342,670 | — | 737,023 | — | ||||||||||||
| $ | 12,694,859 | $ | — | $ | 10,824,962 | $ | — | |||||||||
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.
Concentrations - The Company sold products to two customer contracts in 2019 that individually exceeded 10% of the total sales. During the year ended December 31, 2019, total sales related to these customers were $245,741. Amounts receivable from these customers included in accounts receivable at December 31, 2019 were $1,995.
| 69 |
ADVANZEON SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cost of Revenues - Costs of revenues consist of supplies and operating expense. 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 (ASU) 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 accompanying ReportNotes 18 and 19 within the financial statement for additional disclosure on leases.
Legal Defense Costs - We accrue an estimate of Independent Public Accountants.
46
47
COMPREHENSIVE CARE CORPORATION
SCHEDULE VIincurred legal defense costs to be incurred in connection with pending disputes and litigation matters as part of our estimated minimum probable losses (see Note 13).
Income Taxes - ACCUMULATED DEPRECIATION AND AMORTIZATION OF We are subject to the income tax jurisdictions of the U.S. and multiple state tax jurisdictions. However, our provisions for income taxes for 2019 and 2018 include only state income taxes (see Note 16).
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 (see Note 14) to our non-employee directors, note holders and certain consultants and clients 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.
We use a Black-Scholes valuation model to estimate the fair value of options and warrants on the measurement date and for determining the allocation of the relative values of debt and warrants. In applying the model, we use level 3 inputs, as defined by GAAP, consisting of historical data and management judgment to estimate the expected terms of the instruments. Expected volatility is based on the historical volatility of our traded stock. We do not expect to pay dividends for the period of the expected life of the instruments, and therefore we assume no expected dividend. The assumed risk-free rates used are based on the U.S. Treasury yield curve with the same expected terms as those of the equity instruments at the time of grant.
| 70 |
ADVANZEON SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table lists the assumptions utilized in applying the Black-Scholes valuation model for options and warrants.
| Year ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Expected volatility | 160 | % | 160 | % | ||||
| Expected life (in years) of options | 2 | 2 | ||||||
| Expected life (in years) of warrants | 1 | /2 | 1 | /2 | ||||
| Risk-free interest rate range, options | 1.5 | % | 1.5 | % | ||||
| Risk-free interest rate range, warrants | 1.5 | % | 1.5 | % | ||||
| Expected dividend yield | 0 | % | 0 | % | ||||
PER SHARE DATA
For the periods presented, since losses would produce anti-dilution, no diluted loss per common share is presented.
The following table sets forth the computation of basic loss per common share:
| Year ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Numerator: | ||||||||
| Net income (loss) | $ | (3,255,814 | ) | $ | 4,829,653 | |||
| Denominator: | ||||||||
| Weighted average common shares | 69,161,656 | 65,362,240 | ||||||
| Basic income (loss) per share | ||||||||
| attributable to common stockholders | $ | (0.05 | ) | $ | 0.07 | |||
Recent Accounting Standards Update – During 2019 and 2018, the Financial Accounting Standards Board (FASB) issued new Accounting Standards Updates (ASUs) addressing the various accounting and reporting standards. Management has determined based on their review that the ASUs issued during 2019 and 2018 will have no material effect on the Company’s consolidated financial statements. As new ASUs are released, management will assess if they are applicable and if they are applicable, their effect will be included in the notes to the financial statements.
| 71 |
ADVANZEON SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 OTHER CURRENT ASSETS
Other current assets as of December 31, 2019 and 2018 consist of the following:
| 2019 | 2018 | |||||||
| Loans to others | 42,676 | — | ||||||
| Security and lease deposits | 3,500 | 13,500 | ||||||
| Prepaid expenses | 452,953 | 5,248 | ||||||
| Miscellaneous receivable | 325,660 | 334,509 | ||||||
| Capitalized portion of lease | 1,808 | 2,951 | ||||||
| Other current asset | $ | 826,597 | $ | 356,208 | ||||
Loan to others consist of mostly two consultants.
Prepaid expenses contain $394,000 worth of stock issued to a consultant for one year of services.
Miscellaneous receivable for 2019 consists of $24,617 owed to the Company for prepaid accounting fees paid to a previous accounting firm the Company used and no longer uses. The remaining $301,043 is Legal Settlement (see Note 15)
NOTE 4 PROPERTY AND EQUIPMENT
YEARS ENDED MAY
Property and equipment, net, consists of the following at December 31, 1994, 19932019 and 2018:
| 2019 | 2018 | |||||||
| Property and equipment | $ | 1,549 | $ | — | ||||
| Less accumulated depreciation | (310 | ) | — | |||||
| Property and equipment - net | $ | 1,239 | $ | — | ||||
Depreciation expense for the years ended December 31, 2019 and 2018 is $310 and $0, respectively.
NOTE 5 LEASEHOLD IMPROVEMENTS
Leasehold improvement, net, consists of the following at December 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Leasehold improvement | $ | 2,992 | $ | 2,992 | ||||
| Less accumulated amortization | (2,992 | ) | (2,693 | ) | ||||
| Leasehold improvement - net | $ | — | $ | 299 | ||||
Amortization expense for the years ended December 31, 2019 and 2018 is $299 and $599, respectively.
| 72 |
ADVANZEON SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 RELATED PARTY AND 1992
SHAREHOLDER LOANS PAYABLE
The Company has received financing from Management to 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 December 31, 2019 and 2018, balances were as follows:
| 2019 | 2018 | |||||||
| Loans payable related party | $ | 342,670 | $ | 737,023 | ||||
| $ | 342,670 | $ | 737,023 | |||||
During the first quarter of 2018, $910,010 was reclassified from accounts payable to loans payable related party. During the third quarter of 2018, the Company wrote off the due to shareholder balance and accrued interest totaling $7,771,140 as disclosed in Note 12.
NOTE 7 DEBT
As of December 31, 2019 and 2018, the balance was as follows:
| 2019 | 2018 | |||||||
| Notes payable | $ | 12,352,189 | $ | 10,087,939 | ||||
Break-out of debt between the parent company and our subsidiary PVMS is as follows:
| 2019 | 2018 | |||||||
| Advanzeon parent | $ | 5,010,016 | $ | 5,010,016 | ||||
| PVMS subsidiary | 7,342,173 | 5,077,923 | ||||||
| $ | 12,352,189 | $ | 10,087,939 | |||||
At PVMS, the sum total of notes issued, and their dollar values were as follows:
| 2019 | 2018 | |||||||
| Number of notes issued | 51 | 31 | ||||||
| Dollar value | $ | 2,289,250 | $ | 1,751,923 | ||||
All notes are short-term in nature, one year maturity date. All debt issued has a stated interest rate of 12% per year.
One $25,000 convertible promissory note was repaid with interest during the third quarter 2019.
| 73 |
ADVANZEON SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At PVMS, the sum total of notes converted to stock year-to-date and their dollar values were as follows:
| 2019 | 2018 | |||||||
| Number of notes converted | 0 | 1 | ||||||
| Dollar value | $ | — | $ | 50,000 | ||||
NOTE 8 COMMON STOCK
During the year ended December 31, 2019, the Company issued 5,000,000 shares of 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. On October 30, 2019, the Company issued 4,300,000 shares of its common stock as payment for consulting fees. The total value shares were valued at $0.11 per share on the total value of $473,000.
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 at $0.03 per share.
During the year ended December 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. 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.
NOTE 9 CONTINGENT LIABILITY
Contingent liability consisted of the following items as of December 31, 2019 and 2018:
(1) Includes amounts whicha 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.
(2) interest payable to the same person listed in (1) in the amount of $171,247.
(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.
| 74 |
ADVANZEON SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 and 2018, the balance of this indebtedness is as follows:
| 2019 | 2018 | |||||||
| Disputed note payable | $ | 450,000 | $ | 450,000 | ||||
| Disputed interest payable | 171,247 | 171,247 | ||||||
| Pending attorney fees | 21,412 | 21,412 | ||||||
| Contingent liability | $ | 642,659 | $ | 642,659 | ||||
NOTE 10 ACCRUED INTEREST-RELATED PARTY
As of December 31, 2019 and 2018, balances of accrued interest on this indebtedness were as follows:
| 2019 | 2018 | |||||||
| Accrued interest-related party | $ | — | $ | — |
During the second quarter of 2018, a total of $4,771,140 was written off to extinguishment of loan due to shareholder. The remaining balance of $246,568 was reclassified as accrued interest payable (non-related party).
NOTE 11 OTHER ACCRUED LIABILITIES
As of December 31, 2019 and 2018, balances of other accrued liabilities were as follows:
| 2019 | 2018 | |||||||
| Management compensation | $ | 8,873,802 | $ | 8,873,802 | ||||
| Accrued interest-non-related party | 5,956,368 | 4,809,644 | ||||||
| Board of Director fees | 1,050,000 | 900,000 | ||||||
| State fees | 2,800 | 21,000 | ||||||
| Payroll tax liabilities | — | 2,927 | ||||||
| Other | 8,817 | 7,399 | ||||||
| Total other accrued liabilities | $ | 15,891,787 | $ | 14,614,772 | ||||
| 75 |
ADVANZEON SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2018, other accrued liabilities of $1,053,270 has been reclassified to its proper categories; $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, $10,021 was a reversal of the December 31, 2017 year-end accrual of wages, subcontractor fees, and commissions.
NOTE 12 EXTINGUISHMENT OF LOAN DUE TO SHAREHOLDER
During 2018 an expired promissory note and the accrued interest were written off to extinguishment of loan due to shareholder due in accordance with Florida Law 95.11 (2)(b) on the expiration of debt. The principal amount of $3,000,000 and accrued interest of $4,771,140 was written off.
NOTE 13 LEGAL PROCEEDINGS
Advanzeon is a party to litigation in the Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida, Case No. 12-CA-2570, arising from an alleged breach of a Term Sheet. On March 8, 2017 the Court determined that Advanzeon breached the Term Sheet and entered a Final Judgment in the amount of $866,052 bearing interest at the statutory rate. In February 2018, a final judgment awarding attorney’s in the amount of $167,959.72 was entered in favor of the Plaintiff, Katzman. In June 2018, as part of the execution of judgment process, in a motion for proceedings supplementary, pursuant to agreement of the parties the court entered an order appointing a special master to review the financial condition of Advanzeon to determine if the foregoing judgment could be paid and if so from what assets. Advanzeon has objected to paying the Final Judgment amount and the Parties have been reclassified from(to)ordered to Mediation to take place in 2020.
The Company has filed a claim for money it maintains is owed by Universal Health Care Insurance Company. In re: The Receivership of Universal Health Care Insurance Company. Case number 2013-CA-00358 and Case number 2013-CA-00375 in the Second Judicial Circuit Court, Leon County, FL. The objection to the claim by the receivership was heard April 4, 2018 and on May 15, 2018 the court entered an Order awarding Company $139,344.04 and $130,406.06, representing a portion of monies claimed by the Company owed it by Universal. The Company agrees it is owed the $269,750.10 and filed for a rehearing as to that portion of the Order specific to the additional monies owed to it. The rehearing was denied. On July 20, 2018 Company filed an appeal with the First District Court of Appeals with respect the denial by the court. The Company filed the appeal from the court denial of the additional monies owed to the Company by Universal Health Care Insurance Company. The additional monies the Company believes are owed to it are in excess of $900,000, but less than $1,000,000.
| 76 |
ADVANZEON SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In Michael Ross et. al v. Advanzeon Solutions, Inc., Plaintiff is suing the Company for money it claims is owed pursuant to a promissory note. Plaintiff has not proceeded with any action and may be subject to a motion to dismiss for failure to prosecute. If any further action is taken by the Plaintiff the Company will file a motion for summary judgment. Case Number 16-CA-005737, Thirteenth Judicial Circuit Court Hillsborough County, FL. Filed April 7, 2015. This is the third attempt by the Plaintiff on the same note. The prior two actions were dismissed. The Company will continue to vigorously defend its position.
In Advanzeon Solutions, Inc. v. Mayer Hoffman et. al., Case Number 16-CA-005737 Filed June 17, 2016 Thirteenth Judicial Circuit Court Hillsborough County, FL., the Company sued Defendants for damages for breach of audit services contract. The Judge ruled in favor of Defendants motion for summary judgment, but no judgment was entered. The Company will file for a rehearing of the summary judgment and or an appeal in the event the Court enters a judgment in favor of Defendants.
In a matter entitled Pharmacy Value Management Solutions, Inc. vs. Young & Son Tax and Accounting, LLC, Charles Young Sr., Charles Young Jr. and Jay Jacques, the Company sued for breach of accounting service contract, mandatory injunction, return of documents and conversion of accounting funds held in the accountants’ trust account. The case is in the initial discovery stage. Case Number 18-CA-000960 Thirteenth Judicial Circuit, Hillsborough County, FL. Filed March 31, 2018. The Company will aggressively pursue recovery of monies owed to it.
In a matter entitled Advanzeon Solutions, Inc. v. Cook Children’s Health Plan and Intervenors Cook Children’s Medical Center and Cook Children Physician Network, file 4/20/18; the Company filed an action contesting the validity of a final foreign judgment (Texas) which judgment was filed in the records of Hillsborough County. The Company has objected to collection activities in Hillsborough County on the judgment based upon the Texas action filed by the Company contesting the judgment.
In a matter entitled Pharmacy Value Management Solutions, Inc., d/b/a SleepMaster Solutions™ vs. Kristi Staite filed 5/7/2018 Thirteenth Judicial Circuit, PVMS brought suit against Staite for damages based upon fraud in the non performance of services Ms. Staite owed to the Company in reference to obtaining insurance qualification. The case is in the beginning stages of response and discovery. The Company will aggressively pursue recovery of the monies paid to Ms. Staite for services not rendered.
In a matter entitled Rotech Healthcare, Inc. vs. Pharmacy Value Management Solutions, Inc. case no. 18-CA – 4218 Thirteenth Judicial Circuit Court – Tampa, the Plaintiff is suing the Company for breach of contract and open account for money owed in the amount of $160,355 for services and supplies. The Company disputes the charges were not permitted under the contract and disputes the claimed amounts. Previously, the Company incorrectly reported that the matter had been settled. In fact, the Company did not execute the draft settlement agreement and the matter remains in litigation. The Company is aggressively defending against the claims asserted by Plaintiff.
In the matter Oceans Healthcare, LLC, et al, v. Comprehensive Behavior Care, Inc., et al, 19th JDC No. 59633, Div. D, the Company is aware of a claim Oceans Healthcare seeks to assert against the Company arising from services rendered by a former subsidiary. Plaintiff is attempting to serve the Company and the Company disputes the service. The amount at issue is unknown at this time. In the event the Company is served at a later date, it will aggressively defend against this claim.
| 77 |
ADVANZEON SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 EQUITY INSTRUMENTS
Our Series C preferred stock is currently convertible into common stock at the rate of 316.28 common shares for each share of Series C preferred, adjustable for any dilutive issuances of common occurring in the future. Series C preferred shares vote with the common stockholders on an as-converted basis. The shares are nonparticipating except that dividends, when declared by our Board of Directors on the common stock, must be paid on the Series C stock on an as-converted basis before any dividends are paid on our common stock. The Series C is also cumulative with respect to dividends on common stock and junior series of preferred stock. Other significant rights and preferences of the Series C preferred include:
We also have a class of convertible preferred stock, Series D, for which 7,000 shares are authorized and 250 shares were outstanding at December 31, 2019 and 2018. The shares, which were granted in January 2012, do not vest until the tenth anniversary of the grant date. Such shares were issued in exchange for the cancellation of 120 previously granted warrants to purchase Series D shares. Once vested, a Series D preferred share will be convertible at any time into 100,000 shares of common stock, subject to adjustment in the event of any common stock dividend, split, combination thereof or other similar recapitalization, without additional consideration. Prior to vesting and thereafter, each Series D convertible preferred share is entitled to all voting, dividend, liquidation and other rights accorded a share of Series D convertible preferred stock. As to dividends, the Series D stock is noncumulative. If a dividend is declared on the common stock, each share of Series D stock is entitled to receive a dividend equal to 50% of the dividend declared for the common stock as if the Series D stock had been converted. Despite their nonvested status, voting rights of each share nevertheless consist of the right to cast the number of votes equal to those of 500,000 shares of common stock. Unless otherwise required by applicable law, holders of shares of Series D have the right to vote together with holders of common stock as a single class on all matters submitted to a vote of our stockholders.
STOCK INCENTIVE COMPENSATION PLANS
WARRANTS:
To Purchase Common Stock
During the year ended December 31, 2019, warrants were issued as parts of financing transactions to consultants and to members of our Board of Directors.
| 78 |
ADVANZEON SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The status of outstanding warrants for the year ended December 31, 2019 is as follows:
| Warrants | Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||
| Outstanding at January 1, 2019 | 32,468,588 | 0.20 | 1.77 years | — | ||||||||||
| Granted | 17,912,108 | |||||||||||||
| Forfeited, expired or cancelled | (620,000 | ) | ||||||||||||
| Exercisable at December 31, 2019 | 49,760,696 | 0.20 | 1.77 years | — | ||||||||||
We recognized no compensation costs during the year ended December 31, 2019 and 2018 due to the issuance of these securities.
OPTIONS:
From time-to-time, we grant stock options as compensation for services to our employees, non-employee directors and certain consultants (“grantees”) allowing grantees to purchase our common stock pursuant to stockholder-approved stock option plans. We currently have one active incentive qualified option plan, 2009 Equity Compensation Plan, that provides for the granting of stock options, stock appreciation rights, limited stock appreciation rights, restricted preferred stock, and common stock grants to grantees. Grants issued under the Plans may qualify as incentive stock options (“ISOs”) under Section422A of the Internal Revenue Code of 1986, as amended. Options for ISOs may be granted for terms of up to ten years. For the 2009 Equity Compensation Plan, the vesting period is determined by our Compensation and Stock Option Committee. The exercise price for ISOs must equal or exceed the fair market value of the underlying shares on the date of grant. The Plan also provide for the full vesting of all outstanding options under certain change of control events. The maximum number of common shares authorized for issuance under the plan is 50,000,000. We did not issue any options during the year ended December 31, 2019. The information regarding the options is set forth below.
| 79 |
ADVANZEON SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 2019 | 2018 | |||||||
| Shares available | 50,000,000 | 50,000,000 | ||||||
| Options outstanding (Directors and employees) | 3,695,000 | 3,695,000 | ||||||
| Options exercisable | 3,680,000 | 3,680,000 | ||||||
In addition, under our Non-employee Directors’ Stock Option Plan, we are authorized to issue non-qualified stock options to our non-employee directors for up to 1,000,000 common shares. Each non-qualified stock option is exercisable at a price equal to the average of the closing bid and asked prices of the common stock in the over-the-counter market for the most recent preceding day there was a sale of the stock prior to the grant date. Grants of options vest in accordance with vesting schedules established by our Board of Directors’ Compensation and Stock Option Committee. Upon joining our Board of Directors, directors receive an initial grant of 25,000 options for common shares. As of December 31, 2019, there were 10,000,000 shares available for option grants and 2,678,000 options for common shares outstanding under the non-qualified directors’ plan.
A summary of activity for the year ended December 31, 2019 is as follows:
| Warrants | Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||
| Outstanding at January 1, 2019 | 6,407,500 | 0.28 | 3.25 years | — | ||||||||||
| Granted | — | |||||||||||||
| Forfeited, expired or cancelled | — | |||||||||||||
| Exercisable at December 31, 2019 | 6,407,500 | 0.28 | 3.25 years | — | ||||||||||
The following table summarizes information about options granted and vested during the year ended December 31, 2019.
| 2019 | 2018 | |||||||
| Options granted | 0 | 0 | ||||||
| Weighted-average grant-date fair value ($) | N/A | N/A | ||||||
| Options vested | 0 | 0 | ||||||
| Fair value of vested options | N/A | N/A | ||||||
During 2019, we granted no options for common shares to employees, non-employee directors and consultants.
| 80 |
ADVANZEON SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of common stock options outstanding and exercisable as of December 31, 2019 follows:
| Options Outstanding | Exercise Price Range | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Options Exercisable | Weight-Average Exercise Price of Exercisable Options | |||||||||||||||||
| 6,407,500 | 0.28 | 0.25-0.65 | 9.85 | — | N/A | |||||||||||||||||
NOTE 15 LEGAL SETTLEMENTS
Legal settlements were as follows:
| 2019 | 2018 | |||||||
| Universal Healthcare settlement (1) | $ | — | $ | 269,750 | ||||
| John Hartman settlement (1)(2) | — | 70,000 | ||||||
| Rotech settlement (1) | 112,172 | (112,421 | ) | |||||
| Katzman litigation | — | (11,481 | ) | |||||
| Total legal settlement | $ | 112,172 | $ | 215,848 | ||||
(1) See Note 13 Legal Proceedings
(2) Of the $70,000 settlement, $29,858 was paid to the Company in April of 2018 and applied to the receivable balance that was recorded for the settlement.
The Company is currently pursuing repayment of prior accounting fees paid to a previous accounting firm. The Company has filed a complaint and recorded a receivable of $24,617 for the fees paid.
NOTE 16 INCOME TAXES
The Company did not provide for income taxes with respect to differences between financial loss and taxable loss arising from the timing of when certain transactions are recorded for book purposes versus tax purpose. The Company has not filed federal or state income tax returns since 2012. The financial statements do not reflect any fines or penalties that may or may result from not filing the various income returns.
| 81 |
ADVANZEON SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In prior years the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. For the 2019 tax year the Company had net operating loss carryforwards of approximately $44,100,000 for tax purposes. The net operating loss carryforwards prior to 2018 carryforward for 20 years. Realization of the deferred tax benefit related to the carryforward is dependent upon the Company generating sufficient taxable income in the future, against which the loss can be offset, which is not guaranteed.
Deferred income taxes reflect the net tax effect of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as tax benefits of net operating loss carryforwards. The significant components of the Company’s deferred tax assets and liabilities relate to the following:
| 2019 | 2018 | |||||||
| Net operating loss carryfoward | $ | 44,166,385 | $ | 40,910,571 | ||||
| Depreciation | — | — | ||||||
| Net deferred tax assts and before valuation allowance | 44,166,385 | 40,910,571 | ||||||
| Less: Valuation allowance | (44,166,385 | ) | (40,910,571 | ) | ||||
| Net deferred tax assets | $ | — | $ | — | ||||
For financial reporting purposes, the Company has incurred losses in previous years. Based on the available objective evidence, including the Company’s previous losses, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets as of December 31, 2019 and 2018.
The effective income tax rate varied from the statutory Federal tax rate as follows:
| 2019 | 2018 | |||||||
| Federal statutory rate | 21 | % | 21 | % | ||||
| Effect of net operating losses | (21 | )% | (21 | )% | ||||
| Effective income tax rate | — | % | — | % | ||||
The company’s effective tax rate is lower than what would be expected if the federal statutory rate were applied to income (loss) before taxes, primarily due to net operating loss carryforwards.
| 82 |
ADVANZEON SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 OPERATING LEASES
We leased our Tampa corporate office and paid annual rent of $97,860 and $99,485 for the years ended December 31, 2019 and 2018, respectively. The term of the lease is on a month to month basis. We currently lease approximately 3,133 square feet and pay approximately $8,229 per month. The lease was renegotiated in 2019 and verbally agreed to have a three-year extension with no rent increase. We consider the condition of the leased property to be average and equipment heldadequate for sale.
See accompanying Reportour current needs. In our Tampa office, we maintain clinical operations, business development, accounting, financial and regulatory reporting and other management information symptoms information systems, and provider and member service functions. Total lease expense during the year ended December 31, 2019 is $97,860.
We leased our Huntington Beach office. The term of Independent Public Accountants.
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COMPREHENSIVE CARE CORPORATION
SCHEDULE X - SUPPLEMENTARYthe lease is for 1 year beginning April 18, 2018 and ending April 30, 2019 at a monthly rent of $3,700 per month. The lease has been extended on a month to month basis. We currently pay a monthly rent 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. We consider the condition of our leased property to be average and adequate for our current needs. Total lease expense during the year ended December 31, 2019 and 2018 is $47,453 and $14,800, respectively.
We lease a vehicle for our CEO. The term of the lease is 3 years, beginning July 9, 2018 and ending July 9, 2021. We currently pay a monthly rate of $893.
NOTE 18 RIGHT OF USE ASSETS
The Company entered into two leases for office space and one automobile lease prior to the end of the year ended December 31, 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 December 31, 2019 and 2018 , the right of use assets associated with future operating leases are as follows:
| 2019 | 2018 | |||||||
| Total present value of right of use assets | ||||||||
| under lease agreements | $ | 390,260 | 114,333 | |||||
| Amortization of right of use assets | (129,469 | ) | (31,779 | ) | ||||
| Total right of use assets as of December 31, 2019 | $ | 260,791 | 82,554 | |||||
Total amortization expense related to the right of use assets under the lease agreements was $97,690 and $31,779 for the years ended December 31, 2019 and 2018, respectively.
NOTE 19 RIGHT OF OPERATIONS INFORMATION
YEARS ENDED MAYUSE LEASE LIABILITIES
As disclosed in Note 17, the Company entered into two leases for office space and automobile for the year ended December 31, 1994, 1993 AND 1992
As of December 31, 1994
2019 and 2018, the lease liabilities associated with future payments due under the leases are as follows:
| 2019 | 2018 | |||||||
| Total present value of future lease payments | $ | 390,260 | 114,333 | |||||
| Principal payments made as of the year | ||||||||
| ended | (129,469 | ) | (31,779 | ) | ||||
| Total right of use lease liabilities | $ | 260,791 | �� | 82,554 | ||||
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 December 31, 2019:
| Total future minimum lease payments | $ | 278,038 | ||
| Less present value discount | 17,247 | |||
| Total right of use lease liabilities as of December 31, 2019 | 260,791 | |||
| Less current portion due within one year | 113,911 | |||
| Long-term right of use liabilities | $ | 146,880 |
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ADVANZEON SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total maturities of lease liabilities as of December 31, 2019 are as follows:
| Total future | ||||||||||||||
| minimum lease | Present value | Right of use | ||||||||||||
| payments | discount | lease liabilities | ||||||||||||
| 2020 | $ | 124,857 | $ | 10,946 | $ | 113,911 | ||||||||
| 2021 | 103,804 | 5,519 | 98,285 | |||||||||||
| 2022 | 49,377 | 782 | 48,595 | |||||||||||
| $ | 278,038 | $ | 17,247 | $ | 260,791 | |||||||||
NOTE 20 OTHER MATTERS
During the year ended December 31, 2019, we funded our operations from revenues and new debt issuances. 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.
NOTE 21 SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent Events”, the Company evaluated subsequent events through April 9, 2020, the date these financial statements were available to be issued. During their evaluation, the following subsequent events were identified.
Issuance of debt and warrants
Subsequent to the balance sheet date, the Company has issued $182,000 of promissory notes. All of the debt matures in 2021 and has a stated interest rate of 12% and is unsecured. Concurrent with the issuance of debt, the Company has issued 3,114,000 warrants at an average exercise price of $0.21. At the time of issuance, all warrants had a three or five year term.
Issuance of common stock
The Company has not issued any shares subsequent to December 31, 2019.
Coronavirus Outbreak
In early 2020, an outbreak of a novel strain of coronavirus was identified and infections have been found in a number of countries around the world, including the United States. The coronavirus and its impact on trade including customer demand, travel, employee productivity, supply chain, and other economic activities has had, and may continue to have, a significant effect on financial markets and business activity. The extent of the impact of the coronavirus on our operational and financial performance is currently uncertain and cannot be predicted.
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