UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DCD.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 20132020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________
Commission File NumberNumber: 1-9927
COMPREHENSIVE CARE CORPORATION
(Exact name of registrant as specified in its charter)
ADVANZEON SOLUTIONS, INC. |
(Exact name of registrant as specified in its charter) |
Delaware | 95-2594724 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
2901 W. Busch Blvd. Suite 701 Tampa, FL |
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(Address of principal executive offices) | (Zip Code) |
3405 W. Dr. Martin Luther King Jr. Blvd, Suite 101, Tampa, FL 33607
813-517-8484 |
(Registrant’s telephone number, including area code) |
(Address of principal executive offices and zip code)
(813) 288-4808
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report) |
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingfling requirements for the past 90 days. Yes xYes☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes xYes☒ No ¨☐
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and large accelerated filer”"emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
☐ | Smaller reporting company | ☒ | ||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒
As of August 9, 2013, there were 62,887,90210, 2020, the Registrant had outstanding 117,516,838 shares of the registrant’s common stock,its $0.01 par value outstanding.Common Stock.
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ADVANZEON SOLUTIONS, INC.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIESTABLE OF CONTENTS
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM ITEM 1. CONSOLIDATED FINANCIAL STATEMENTSConsolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
June 30, 2020 (unaudited) and December 31, 2019
(Amounts in thousands)
June 30, 2020 | December 31, | |||||||
(unaudited) | 2019 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 145,915 | $ | 69,327 | ||||
Restricted cash | 845,340 | — | ||||||
Accounts receivable | 40,990 | 29,769 | ||||||
Current portion of right of use asset | 136,230 | 113,911 | ||||||
Other current assets | 657,025 | 826,597 | ||||||
Total current assets | 1,825,500 | 1,039,604 | ||||||
PROPERTY, PLANT, AND EQUIPMENT | ||||||||
Property and equipment, net | 5,683 | 1,239 | ||||||
Leasehold improvements, net | — | — | ||||||
Total property, plant, and equipment | 5,683 | 1,239 | ||||||
RIGHT OF USE ASSET, NET OF CURRENT PORTION | 179,221 | 146,880 | ||||||
TOTAL ASSETS | $ | 2,010,404 | $ | 1,187,723 | ||||
CURRENT LIABILITIES | ||||||||
Related party loans payable | $ | 102,229 | $ | 342,670 | ||||
Account payable | 403,265 | 99,441 | ||||||
Debt | 10,416,176 | 12,352,189 | ||||||
Contingent liability | 642,659 | 642,659 | ||||||
Current portion of lease liability | 136,230 | 113,911 | ||||||
Other accrued expenses | 13,742,192 | 15,891,787 | ||||||
Total current liabilities | 25,442,751 | 29,442,657 | ||||||
LEASE LIABILITY, NET OF CURRENT PORTION | 179,221 | 146,880 | ||||||
TOTAL LIABILITIES | 25,621,972 | 29,589,537 | ||||||
STOCKHOLDERS' DEFICIENCY | ||||||||
Preferred stock, $.001 par value; 1,000,000 shares authorized as of June 30, 2020 and December 31, 2019 | — | — | ||||||
Series C Convertible Preferred; $.001 par value; 14,400 shares authorized; 10,434 shares issued and outstanding as of June 30, 2020 and December 31, 2019 | 10 | 10 | ||||||
Series D Convertible Preferred; $.001 par value; 7,000 shares authorized; 250 shares issued and outstanding as of June 30, 2020 and December 31, 2019 | — | — | ||||||
Remaining Preferred stock; $.001 par value; 978,600 shares authorized as of June 30, 2020 and December 31, 2019 | — | — | ||||||
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 13,201,582 shares reserved; 116,751,439 and 71,661,656 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively | 1,167,514 | 716,617 | ||||||
Additional paid in capital | 35,361,980 | 28,719,246 | ||||||
Accumulated deficit | (60,141,072 | ) | (57,837,687 | ) | ||||
Total stockholders' deficiency | (23,611,568 | ) | (28,401,814 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY | $ | 2,010,404 | $ | 1,187,723 |
June 30, 2013 | December 31, 2012 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 1,245 | $ | 920 | ||||
Accounts receivable | 850 | 4,546 | ||||||
Other | 648 | 181 | ||||||
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2,743 | 5,647 | |||||||
Property and equipment, net | 107 | 172 | ||||||
Other | 221 | 305 | ||||||
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$ | 3,071 | $ | 6,124 | |||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY DEFICIENCY | ||||||||
Current liabilities: | ||||||||
Notes payable: | ||||||||
Related parties | $ | 2,000 | $ | 2,000 | ||||
Other | 2,996 | 2,239 | ||||||
Current portion of long-term debt, including $1,000 to related parties | 4,005 | 3,067 | ||||||
Accounts payable | 1,001 | 1,110 | ||||||
Accrued claims payable | 11,650 | 13,099 | ||||||
Other accrued expenses | 6,407 | 5,820 | ||||||
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28,059 | 27,335 | |||||||
Long-term debt, net of current portion | 249 | 1,732 | ||||||
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Total liabilities | 28,308 | 29,067 | ||||||
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Stockholders’ equity deficiency: | ||||||||
Preferred stock, $50.00 par value, noncumulative: | ||||||||
Series C Convertible, 14,400 shares authorized; 10,434 shares issued and outstanding | 522 | 522 | ||||||
Series D Convertible; 7,000 shares authorized; 250 shares issued and outstanding; none vested | — | — | ||||||
Other series; 974,260 shares authorized; none issued | — | — | ||||||
Common stock, $0.01 par value; authorized: 500,000,000 shares; issued and outstanding: 62,316,502 and 59,451,836 shares | 623 | 594 | ||||||
Additional paid-in capital | 26,713 | 25,982 | ||||||
Deficit | (53,095 | ) | (50,041 | ) | ||||
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Total stockholders’ equity deficiency | (25,237 | ) | (22,943 | ) | ||||
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$ | 3,071 | $ | 6,124 | |||||
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See
The accompanying notes toare an integral part of these consolidated financial statements.
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIESADVANZEON SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)For the Three and Six-Month Periods Ended June 30, 2020 and 2019 (unaudited)
(Amounts in thousands, except per share amounts)
Three-Month Period Ended | Six-Month Period Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues: | ||||||||||||||||
Obstructive sleep apnea (OSA) | $ | 103,444 | $ | 90,453 | $ | 230,992 | 158,376 | |||||||||
Total revenues | 103,444 | 90,453 | 230,992 | 158,376 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Costs of revenues | 65,000 | 66,157 | 129,909 | 107,817 | ||||||||||||
General and administrative | 715,397 | 416,039 | 1,311,462 | 841,843 | ||||||||||||
Depreciation and amortization | 312 | 235 | 623 | 440 | ||||||||||||
Total costs and expenses | 780,709 | 482,431 | 1,441,994 | 950,100 | ||||||||||||
Loss from operations | (677,265 | ) | (391,978 | ) | (1,211,002 | ) | (791,724 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (707,774 | ) | (341,178 | ) | (1,102,403 | ) | (669,193 | ) | ||||||||
Interest income | — | 5,994 | 20 | 5,994 | ||||||||||||
Legal settlement | — | 112,172 | — | 112,172 | ||||||||||||
Forgivable SBA EIBL loan advance | 10,000 | — | 10,000 | — | ||||||||||||
Total other expense | (697,774 | ) | (223,012 | ) | (1,092,383 | ) | (551,027 | ) | ||||||||
Net loss | $ | (1,375,039 | ) | $ | (614,990 | ) | $ | (2,303,385 | ) | $ | (1,342,751 | ) | ||||
PER SHARE INFORMATION | ||||||||||||||||
Net Loss Per Common Share | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | ||||
Weighted Average Number of Common | ||||||||||||||||
Shares Outstanding | 79,534,495 | 67,361,656 | 75,598,076 | 67,027,954 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Managed care revenues | $ | 1,078 | $ | 18,124 | $ | 2,295 | $ | 36,014 | ||||||||
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Costs and expenses: | ||||||||||||||||
Costs of revenues | 682 | 13,765 | 1,471 | 30,409 | ||||||||||||
General and administrative | 1,488 | 2,226 | 2,879 | 2,741 | ||||||||||||
Depreciation and amortization | 24 | 60 | 64 | 156 | ||||||||||||
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2,194 | 16,051 | 4,414 | 33,306 | |||||||||||||
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Operating income (loss) | (1,116 | ) | 2,073 | (2,119 | ) | 2,708 | ||||||||||
Other income (expense): | ||||||||||||||||
Interest expense, including amortization of debt discount of $41, $75, $89, and $270 | (533 | ) | (465 | ) | (934 | ) | (1,028 | ) | ||||||||
Other non-operating income, net | 4 | 1 | 4 | 12 | ||||||||||||
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(Loss) income before income taxes | (1,645 | ) | 1,609 | (3,049 | ) | 1,692 | ||||||||||
Income taxes | 2 | 2 | 5 | 5 | ||||||||||||
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Net income (loss) | $ | (1.647 | ) | $ | 1,607 | $ | (3,054 | ) | $ | 1,687 | ||||||
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Net income (loss) attributable to common stockholders | $ | (1,647 | ) | $ | 1,607 | $ | (3,054 | ) | $ | 1,687 | ||||||
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(Loss) earnings per common share: | ||||||||||||||||
Basic | $ | (0.03 | ) | $ | 0.03 | $ | (0.05 | ) | $ | 0.03 | ||||||
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Diluted | n/a | $ | 0.02 | n/a | $ | 0.02 | ||||||||||
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Weighted average common shares outstanding: | ||||||||||||||||
Basic | 61,102 | 59,252 | 60,427 | 59,252 | ||||||||||||
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Diluted | n/a | 88,434 | n/a | 81,787 | ||||||||||||
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SeeThe accompanying notes toare an integral part of these consolidated financial statements.
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIESADVANZEON SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY
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, 2018 | 10,434 | $ | 10 | 66,661,656 | $ | 666,617 | $ | 28,012,007 | $ | (54,581,873 | ) | $ | (25,903,239 | ) | ||||||||||||||
Stock Issued for Services | — | — | 200,000 | 2,000 | 14,000 | — | 16,000 | |||||||||||||||||||||
Sale of Stock | — | — | 500,000 | 5,000 | 10,000 | — | 15,000 | |||||||||||||||||||||
Net Loss | — | — | — | — | — | (727,761 | ) | (727,761 | ) | |||||||||||||||||||
Balance at March 31, 2019 | 10,434 | 10 | 67,361,656 | 673,617 | 28,036,007 | (55,309,634 | ) | (26,600,000 | ) | |||||||||||||||||||
Stock Issued for Services | — | — | — | — | — | — | — | |||||||||||||||||||||
Sale of Stock | — | — | — | — | — | — | — | |||||||||||||||||||||
Net Loss | — | — | — | — | — | (614,990 | ) | (614,990 | ) | |||||||||||||||||||
Balance at June 30, 2019 | 10,434 | 10 | 67,361,656 | 673,617 | 28,036,007 | (55,924,624 | ) | (27,214,990 | ) | |||||||||||||||||||
Stock Issued for Services | — | — | — | — | — | — | — | |||||||||||||||||||||
Sale of Stock | — | — | — | — | — | — | — | |||||||||||||||||||||
Net Loss | — | — | — | — | — | (747,801 | ) | (747,801 | ) | |||||||||||||||||||
Balance at September 30, 2019 | 10,434 | 10 | 67,361,656 | 673,617 | 28,036,007 | (56,672,425 | ) | (27,962,791 | ) | |||||||||||||||||||
Stock Issued for Services | — | — | 4,300,000 | 43,000 | 430,000 | — | 473,000 | |||||||||||||||||||||
Sale of Warrants | — | — | — | — | 253,239 | — | 253,239 | |||||||||||||||||||||
Sale of Stock | — | — | — | — | — | — | — | |||||||||||||||||||||
Net Loss | — | — | — | — | — | (1,165,262 | ) | (1,165,262 | ) | |||||||||||||||||||
Balance at December 31, 2019 | 10,434 | 10 | 71,661,656 | 716,617 | 28,719,246 | (57,837,687 | ) | (28,401,814 | ) | |||||||||||||||||||
Stock Issued for Services | — | — | — | — | — | — | — | |||||||||||||||||||||
Sale of Warrants | — | — | — | — | — | — | — | |||||||||||||||||||||
Sale of Stock | — | — | — | — | — | — | — | |||||||||||||||||||||
Net Loss | — | — | — | — | — | (928,346 | ) | (928,346 | ) | |||||||||||||||||||
Balance at March 31, 2020 | 10,434 | 10 | 71,661,656 | 716,617 | 28,719,246 | (58,766,033 | ) | (29,330,160 | ) | |||||||||||||||||||
Stock Issued for Services | — | — | — | — | — | — | — | |||||||||||||||||||||
Sale of Warrants | — | — | — | — | 18,251 | — | 18,251 | |||||||||||||||||||||
Sale of Stock | — | — | 45,089,783 | 450,897 | 6,624,483 | — | 7,075,380 | |||||||||||||||||||||
Net Loss | — | — | — | — | (1,375,039 | ) | (1,375,039 | ) | ||||||||||||||||||||
Balance at June 30, 2020 | 10,434 | 10 | 116,751,439 | 1,167,514 | 35,361,980 | (60,141,072 | ) | (23,611,568 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)For the Six-Month Periods Ended June 30, 2020 and 2019 (unaudited)
Six Months Ended | ||||||||
June 30, | ||||||||
2013 | 2012 | |||||||
Cash flows from operating activities: | ||||||||
Net cash provided by operating activities | $ | 44 | $ | 812 | ||||
Cash flows from investing activities: | ||||||||
Additions to property and equipment | — | (2 | ) | |||||
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Net cash used in investing activities | — | (2 | ) | |||||
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Cash flows from financing activities: | ||||||||
Proceeds from borrowings | — | 100 | ||||||
Debt issuance costs | — | (8 | ) | |||||
Net receipt from revolving credit arrangement | 855 | — | ||||||
Repayment of debt, including $50 to related parties in 2012 | (574 | ) | (243 | ) | ||||
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Net cash provided by (used in) financing activities | 281 | (151 | ) | |||||
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Net increase in cash | 325 | 659 | ||||||
Cash at beginning of period | 920 | 832 | ||||||
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Cash at end of period | $ | 1,245 | $ | 1,491 | ||||
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Supplemental disclosures of cash flow information: | ||||||||
Cash paid for: | ||||||||
Interest | 334 | 405 | ||||||
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June 30, | ||||||||
2020 | 2019 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (2,303,385 | ) | $ | (1,342,751 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 623 | 440 | ||||||
Stock issued for services | — | 16,000 | ||||||
Amortization of right of use assets | 54,660 | 25,579 | ||||||
Net changes in assets and liabilities: | ||||||||
Accounts receivable | (11,221 | ) | (2,756 | ) | ||||
Other current assets | 169,572 | (712,065 | ) | |||||
Payments on lease liabilities | (54,660 | ) | (25,579 | ) | ||||
Accounts payable | 51,383 | 210,951 | ||||||
Other accrued expenses | 1,215,572 | 742,356 | ||||||
Net cash used in operating activities | (877,456 | ) | (1,087,825 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchase of property, plant, and equipment | (5,067 | ) | (1,549 | ) | ||||
Net cash used in investing activities | (5,067 | ) | (1,549 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from promissory notes | 559,360 | 1,070,250 | ||||||
Proceeds from PPP loan | 1,243,840 | — | ||||||
Payments on debt | (17,000 | ) | — | |||||
Sale of stock | 18,251 | 15,000 | ||||||
Net cash provided by financing activities | 1,804,451 | 1,085,250 | ||||||
Net increase (decrease) in cash | 921,928 | (4,124 | ) | |||||
CASH - Beginning of Year | 69,327 | 25,036 | ||||||
CASH AND RESTRICTED CASH - END OF PERIOD | $ | 991,255 | $ | 20,912 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | — | $ | — | ||||
Income taxes | $ | — | $ | — | ||||
Recording of right of use assets under | ||||||||
lease agreements (ASU 2016-02) | $ | 135,075 | $ | 119,640 | ||||
Schedule of non-cash investing transactions: | ||||||||
Convertible promissory note and accrued interest | ||||||||
converted to common stock | $ | 7,075,380 | $ | — |
See
The accompanying notes toare an integral part of these consolidated financial statements.
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIESADVANZEON SOLUTIONS, INC.
NOTE 1 – DESCRIPTIONOFTHE COMPANY’S BUSINESSAND BASISOF PRESENTATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. | DESCRIPTION OF THE COMPANY’S BUSINESS AND BASIS OF PRESENTATION |
The accompanying unaudited interim consolidated financial statements for Comprehensive Care Corporation (referred to herein as the “Company,” or “CompCare”) and its subsidiaries have been prepared in accordance with the Securities and Exchange Commission (“SEC”) rules for interim financial information and do not include all information and notes required for annual financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Interim results for the current periods are not necessarily indicative of the results that may be expected for the entire fiscal year. The accompanying financial information should be read in conjunction with the consolidated financial statements and the notes thereto in our most recent annual report on Form 10-K. Our consolidated financial statements include the accounts of the CompanyAdvanzeon Solutions, Inc and our wholly-owned subsidiaries, each with theirits wholly owned subsidiary, and its respective wholly-owned subsidiaries (collectively referred to herein as, “we,”the “Company” ,“Advanzeon” ,“we”, “us” or “our”).
In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the Company's financial position as of December 31, 2019, the changes therein for the three and six-month periods then ended and the results of operations for the three and six-month periods ended June 30, 2020 and 2019.
The financial statements included in the Form 10-Q are presented in accordance with the requirements of the Form and do not include all of the disclosures required by accounting principles general accepted in the United States of America. For additional information, reference is made to the Company's annual report on Form 10-K for the fiscal year ended December 31, 2019, filed April 9, 2020. The results of operations for the three and six-month periods ended June 30, 2020 and 2019 are not necessarily indicative of operating results for the full year.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Established in 1969, Advanzeon Solutions, Inc., (formerly Comprehensive Care Corp.) (“Advanzeon”, “we”, “Parent”, or the “Company”), through its wholly-owned subsidiary Pharmacy Value Management Solutions, Inc., and its wholly-owned subsidiaries during 2015, and partly in 2016, provided managed care services by acting as the administrator for certain administrative service agreements in the behavioral health and substance abuse fields. We primarily offered these services to commercial, Medicare, Medicaid, Children’s Health Insurance Program (“CHIP”) health plans, as well as self-insured companies. Our managed care operations consisted solely of servicing administrative service agreements. Starting in July of 2015, we implemented our comprehensive sleep apnea program, called “SleepMaster Solutions” ™. SleepMaster Solutions (“SMS”) utilizes an administrative system for the convenient identification/testing and therapy of Obstructive Sleep Apnea (“OSA”). We partnered with a national health care provider by initiating a sleep apnea wellness program whereby we screened, tested and when needed, offered treatment programs for treating this disorder. We also contracted with a union to treat its driver members. Beginning in 2017, our only business was our SMS sleep apnea program.
The Company has elected to not adopt the option available under United States generally accepted accounting principles (“GAAP”) to measure any eligible financial instruments or other items at fair market value at this time. Accordingly, the Company measures all of its assets and liabilities on the historical cost basis of accounting, except as otherwise required by GAAP.
Inter-company accounts and transactions have been eliminated in consolidation. Certain minor reclassifications of prior period amounts have been made to conform to the current period presentation.
We provide managed care servicesUse 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 behavioral health, substance abuse,determination of an allowance for doubtful accounts receivable are considered by management as particularly susceptible to material change in the next year. Other significant estimates relate to stock-based compensation, warrants and pharmacy management fields for commercial, Medicare, Medicaid and Children’s Health Insurance Program (“CHIP”) health plans, as well as self-insured companies, unions, and Taft-Hartley health and welfare funds. Our managed care operations include administrative service agreements, fee-for-service agreements, and capitation contracts. Thebeneficial conversion features.
Accounts Receivable - Accounts receivable is carried at its estimated collectible value. Since customer base for our services includes both private and governmental entities. Our services are provided by unrelated vendorscredit is generally extended on a subcontract basis.
We assume the financial risk for the costs of member behavioral healthcare services under at-risk contracts in exchange for a fixed, per member per month fee. We may also manage behavioral healthcare programs or perform various managed care functions, such as clinical care management, provider network development and claims processing without assuming financial risk for member behavioral healthcare costs under administrative services only (“ASO”) contracts. In addition, we manage pharmaceutical services for the members of health plans on either an at-risk or ASO basis. In general, our contracts with our other customers have one-year or two-year initial terms, with automatic annual extensions, but they generally provide for cancellation by either party upon 60 to 90 days written notice or, under certain circumstances, the right to request a renegotiation of terms.
NOTE 2 – ACCOUNTS RECEIVABLE
Ourshort-term basis, accounts receivable at June 30, 2013,does not bear interest and December 31, 2012, are concentrateduncollateralized. We manage credit risk and determine necessary allowances by evaluating customers’ credit worthiness before extending credit and periodically for collectability, based primarily in one account related to a major contract in Puerto Rico that expired December 31, 2012. Duringon customers’ past credit history and current financial conditions and general economic conditions, results of prior collection efforts, the six months ended June 30, 2013, we collected approximately $2.9 million fromrelative strength of our Puerto Rico client. The remaining receivable balance was further reduced by approximately $0.8 million of claims payments made on our behalf by the Puerto Rico client.
Pursuant to an Assignment agreement executed April 10, 2013relationship therewith and, effective March 15, 2013, the receivable, then totaling $1.3 million, from our former Puerto Rico client was assigned to a creditor (Note 3).
NOTE 3 – NOTES PAYABLE
In April 2013, a 14%, $100,000 convertible note matured and was renewed on the same terms until July 31, 2013 at which time the note was again renewed. The new note utilizes the same terms as the previous note and has a maturity date of October 31, 2013.
In May 2013, a zero-coupon note in the amountevent of $230,000 matureda dispute, its legal position and was replaced bythe estimated cost of proposed collection proceedings. Management has not established a new notepolicy 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 similar termsthe receivable.
7 |
Revenue Recognition - In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, "Revenue from Contracts with Customers", the same face value and a maturity date of August 31, 2013.
On March 15, 2013, we executed an agreement with a creditor to modifyCompany recognizes revenue when obligations under the terms of a previously matured but unpaid note for $1.4 million. Under such modified terms, the maturity date was extended to January 31, 2014 and the conversion price per common share was reduced to $0.125. In addition, the exercise price per common share of a warrant issued in conjunctioncontract with the note was reset to $0.22. We also assigned a customer receivable from our former Puerto Rico client and a potential arbitration recovery to the creditor as a source of future repayment of a second loan from the creditor of $625,000 and a $75,000 loan from an individual related to the creditor. The modification was accounted for as a troubled debt restructuring, but we recognized no gain because the effective interest rateare satisfied. Generally, this occurs upon shipment of the modified promissory note wasCPAP to their customer or when the test is performed.
Property and Equipment - Property and equipment (Note 4) is stated at cost less thanaccumulated depreciation. Depreciation and amortization are computed using the effective interest ratestraight-line method over the estimated useful lives ranging from 2 to 12 years.
Leasehold Improvement - Leasehold improvement (Note 5) is stated at cost less accumulated amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives ranging from 2 to 12 years. Leasehold improvements are amortized over the shorter of the original promissory note.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
On May 8, 2013, by agreement withlease term or the creditor, the maturity date of the $625,000 loan was extended to July 15, 2013, the conversion price per common share was reduced to $0.125, and the exercise price per common share of a warrant issued in conjunction with the note was likewise decreased $0.22. However, the note was not repaid on its July 15, 2013 due date and is currently the subject of ongoing resolution negotiations. The $75,000 loan from the creditor-related individual was repaid on May 6, 2013.
In addition, we were unable to repay our 14% senior promissory notes of approximately $1.8 million on their maturity date of April 15, 2013. However, prior to June 30, 2013, we completed agreements to extend the maturity date to April 15, 2014, for approximately $1.7 million of the notes. We are currently in negotiations with the remaining holders.
On May 3, 2013, we entered into a Senior Secured Revolving Credit Facility Agreement that will allow us to borrow up to $5,000,000 to fund our general working capital needs. On the closing date, our current maximum allowable amount to borrow was $1,000,000. Increased borrowing amounts above the $1 million are subject to the sole and absolute discretion of the lender. Our initial draw on the credit facility occurred May 3, 2013 in the amount of approximately $884,000, which represents an initial draw of $1 million less transaction expenses. As of August 8, 2013, our current outstanding balance on the credit facility is approximately $800,000 and there is currently no availability to draw additional funds on the credit facility. The credit facility is guaranteed by the current and future assets of CompCare and its subsidiaries, with the exception of our Puerto Rico subsidiary. Borrowings under the credit facility will bear interest at an annual rate of 12%, payable weekly. The credit facility will mature on November 3, 2013. The Agreement contains financial covenants such as, but not limited to, minimum revenues, positive earnings before interest, tax, depreciation and amortization expenses, and loan-to-value ratio. The Agreement also specifies events of default and related remedies, including acceleration and increased interest rates following an event of default.
Loans under the credit facility will be evidenced by a Revolving Convertible Promissory Note. In the event of a default by the Company, the lender may convert all or any portion of the outstanding principal, accrued but unpaid interest and other sums payable under the Note into shares of our common stock at a price equal to (i) the amount to be converted, divided by (ii) 85% of the lowest daily volume weighted average price of our common stock during the five business days immediately prior to the conversion date. The Note or any portion thereof may also be converted in a likewise manner with the consent of the Company.
As consideration for investment banking and advisory services provided to us by the lender, we paid a fee to the lender in the form of 1,470,588 restricted shares of our common stock, which in accordance with the terms of the Agreement, was equivalent to $125,000. The Agreement specifies that if the lender has not realized $125,000 in cash proceeds from the sale of the shares within one year following the Agreement date, we will issue to the lender additional shares of our common stock such that upon lender’s sale of such additional shares, lender may realize $125,000 in cash proceeds. Alternatively, one year after the Agreement date, the lender may require us to redeem any shares that remain in its possession for cash equal to $125,000 less proceeds realized by the lender on previous sales of shares of our common stock. Should the lender realize $125,000 of proceeds without selling all shares, the remaining shares will be returned to us.
The ability of the lender, at its sole discretion, to redeem all or a portion of the shares constitutes a put option. Although the put option is not eligible for settlement until one year after the Agreement date, if it were settled as of June 30, 2013, it would require us to pay the lender $125,000. The following settlement amounts would result from $.01 changes in our stock price below and above the $0.085 per share price at which the initial quantity of shares were issue to the lender, assuming settlement after one year:
Stock price | Additional funds due lender | (Shares due borrower) Shares due lender | ||||||||
$ | 0.115 | n/a | (383,635 | ) | ||||||
$ | 0.105 | n/a | (280,114 | ) | ||||||
$ | 0.095 | n/a | (154,800 | ) | ||||||
$ | 0.085 | n/a | n/a | |||||||
$ | 0.075 | $ | 14,706 | 196,080 | ||||||
$ | 0.065 | $ | 29,412 | 452,492 | ||||||
$ | 0.055 | $ | 44,118 | 802,145 |
In the foregoing table, at a stock price of $.075 and below, the lender would receive cash or additional shares of stock, but not both.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
The maximum amount that we potentially would be required to pay to redeem the shares issued to the lender is $125,000.
We were also unable to repay a $1 million loan from a related party when due May 8, 2013.
In July 2013, a 10%, $50,000 promissory note that had matured May 31, 2013 was repaid.
NOTE 4 LONG TERM DEBT
In June 2013, a 14%, $100,000 note payable matured and was renewed with the same terms until December 2014.
As of June 30, 2013, we were in payment default of $140,000 in principal related to a promissory note requiring monthly $10,000 principal reductions. The note holder has not provided the Company with formal notice of default.
NOTE 5 CONTINGENCIESasset’s useful life.
Going concern uncertainty:
At June 30, 2013, we had a working capital deficiency of approximately $25.3 million and a stockholders’ equity deficiency of approximately $25.2 million resulting primarily from a history of operating losses and costs of capital. As of June 30, 2013, past due principal and interest totaled approximately $6.0 million, of which $4.7 million was owed to a related party who had not provided the Company with formal notice of default. As a result of these conditions, our ability to continue as a going concern will be dependent upon the success of management’s plans, as set forth in the following paragraph, and is subject to significant uncertainty. Except for consideration in determining the valuation allowance for deferred tax assets from net operating loss carryforwards (Note 8), the accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Additional Financing
Although our existing capital may not be sufficient to meet our cash needs, we expect to be able to sustain current operations over the near term with our new Senior Secured Revolving Credit Facility, existing customer contracts, the addition of new pharmacy management contracts that we are close to obtaining through our marketing efforts, the collection of receivables, and the extension of vendor payments. However, we will need additional financing in the future and we will continue to explore various alternative sources of financing. Nevertheless, there can be no assurance that we will be able to find such financing in amounts or on terms acceptable to us, if at all, or that we will be able to achieve or sustain profitable operations and positive operating cash flows in the near term. Our ability to achieve our business objectives and continue as a going concern for a reasonable period of time is dependent upon the success of our plans.
Concentration, major customer contract:
We currently provide behavioral health services on an at-risk basis to approximately 37,000 members of a health plan providing Medicare benefits. This contract accounted for 46.0%, or approximately $1.0 million, of our revenue for the six months ended June 30, 2013. This contract is for a three-year period effective January 1, 2012, and may be terminated by either party with 90 days written notice.
Legal matters:
Aside from the litigation described below, as of the date of this report, we are not currently involved in any legal proceeding that we believe would have a material adverse effect on our business, financial condition or operating results.
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
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Management believes that it has established a provision for legal expenses that it believes is adequate for the estimated probable minimum losses, including legal defense costs, to be incurred from these matters.
NOTE 6 – FAIRVALUEOFFINANCIALINSTRUMENTS
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 generally accepted accounting principles,GAAP, to measure the estimated fair value of these financial instruments, except for valuing stock options and warrants (see Note 7 below). The rate used for discounting expected cash flows is a risk-free rate adjusted for systematic and unsystematic risk.
The carrying amounts of long-term debt and estimated fair values of these financial instruments (all are liabilities)the attached warrants at June 30, 2013,2020 and December 31, 2019 are as follows (in thousands):follows:
Carrying | Estimated | |||||||
Amount | Fair Value | |||||||
Notes Payable | $ | 2,705 | $ | 2,660 | ||||
Zero-coupon notes | 230 | 224 | ||||||
Debentures | 537 | 479 | ||||||
Senior notes | 1,771 | 1,761 | ||||||
Long-term notes | 225 | 221 | ||||||
Less unamortized discount | (150 | ) | — | |||||
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Net liabilities | $ | 5,318 | $ | 5,345 | ||||
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Due to the inherent nature of related party transactions, we have not attempted to estimate the fair value of liabilities payable to related parties of the Company. As such, related party notes payable with a carrying value of $3,000,000 are excluded from the table above.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
June 30, 2020 | December 31, 2019 | |||||||||||||||
Estimated | Estimated | |||||||||||||||
Fair Value of | Fair Value of | |||||||||||||||
Carrying | Attached | Carrying | Attached | |||||||||||||
Amount | Warrants | Amount | Warrants | |||||||||||||
Convertible promissory notes | $ | 5,956,533 | $ | — | $ | 7,564,173 | $ | — | ||||||||
Short term notes payable | 3,215,803 | — | 4,788,016 | — | ||||||||||||
Loan payable related party | 102,229 | — | 342,670 | — | ||||||||||||
PPP Loan | 1,243,840 | — | — | — | ||||||||||||
$ | 10,518,405 | $ | — | $ | 12,694,859 | $ | — |
We may be obligatedDuring the six-month period ended June 30, 2020, there have been 10 additional convertible notes issued totaling $547,360. During the six-month period ended June 30, 2020, 53 convertible notes totaling $3,727,213 plus accrued interest was converted to issue shares under a redemption provision within the Revolving Credit Facility (see Note 3). The redemption provision constitutes a put option for which we calculated a fair value at the issuancestock.
Cost of the Revolving Credit FacilityRevenues - Costs of services consist of supplies and recorded the value as a component of other accrued expenses on our balance sheet. We valued the put option using the Black Scholes options pricing model, a level 3 input, using a risk free interest rate, estimated volatility of our stock price, an estimated term, and expected dividend yield. At each reporting date, we revalue the put option using the same pricing model.
NOTE 7 – EQUITY INSTRUMENTS
Our Series C preferred stock is currently convertible into common stock at the rate of approximately 316.28 common shares for each share of Series C preferred, adjustable for any dilutive issuances of common occurringoperating expenses. Supplies are recognized in the future. Series C preferred shares vote withperiod in which a patient receives the common stockholders onsupplies.
Right of Use Assets and Lease Liabilities - During the quarter ended March 31, 2019, the Company implemented Accounting Standards Update 2016-02, Leases. Under the new guidance, a lessee must record a liability for lease payments (referred to as the lease liability) and an 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:
asset for the right to voteuse 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 separate class to appoint five directorsstraight-line basis over the lease term. The right of use assets and corresponding right of use liabilities have been recorded using the Company, and
liquidation preferences, whereby the Series C holders 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 (thepresent value of the liquidation preference is $250 per share, or approximately $2.6 million at June 30, 2013).
We also have a class of convertible preferred stock, Series D,leases. See Notes 10 and 11 within the financial statement for which 7,000 shares are authorized and 250 shares were issued and outstanding as of June 30, 2013. 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 cancelation 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 declareddisclosure 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. At June 30, 3013, approximately $3.2 million of compensation expense remained to be recognized over the next 8.5 years related to the Series D shares.
We may periodically issue shares of common stock as payment for services, interest and debt. During the six months ended June 30, 2013, we issued approximately 2.9 million shares of common stock to consultants, vendors, and creditors in lieu of cash payment.
Our common stock activity for the six months ended June 30, 2013 and 2012 is summarized below:
Share Quantity 2013 | Share Value ($) | Share Quantity 2012 | Share Value ($) | |||||||||||
Shares outstanding, January 1, | 59,451,836 | 59,251,836 | ||||||||||||
Shares issued as compensation for services | 425,000 | $ | 83,805 | |||||||||||
Shares issued in connection with Revolving Credit Facility | 1,470,588 | $ | 125,000 | |||||||||||
Shares issued as payment for interest and fees | 969,078 | $ | 96,908 | |||||||||||
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Shares outstanding, June 30, | 62,316,502 | 59,251,836 |
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIESleases.
STOCK INCENTIVE COMPENSATION PLANSIncome Taxes
WARRANTS:
During the six months ended June 30, 2013, we issued to note holders and consultants warrants to purchase an aggregate of 3.7 million shares of our common stock. The warrants were immediately exercisable at prices ranging from $0.15 to $0.25 and had terms of from two to three years. We recognized approximately $109,000 and $165,000, respectively, of compensation costs related to warrants during the three and six months ended June 30, 2013. Total unrecognized compensation costs related to warrants as of June 30, 2013 was approximately $1,000 which is expected to be recognized over a weighted-average period of six months. The total fair value of warrants vested during the three and six months ended June 30, 2013 was approximately $108,000 and $167,000.
A summary of our warrant activity for the three and six months ended June 30, 2013 and 2012 follows:
Warrants | Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | |||||||
Outstanding at January 1, 2013 | 35,957,583 | $ | 0.33 | 4.26 years | ||||||
Granted | 1,700,000 | $ | 0.25 | |||||||
Forfeited or expired | (325,000 | ) | $ | 0.37 | ||||||
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Outstanding at March 31, 2013 | 37,332,583 | $ | 0.33 | 4.00 years | ||||||
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Granted | 2,010,000 | $ | 0.20 | |||||||
Cancelled | (2,000,000 | ) | $ | 0.20 | ||||||
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Outstanding at June 30, 2013 | 37,342,583 | $ | 0.33 | 3.75 years | ||||||
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Exercisable at June 30, 2013 | 37,308,583 | $ | 0.33 | 3.75 years | ||||||
Outstanding at January 1, 2012 | 41,057,583 | $ | 0.35 | 4.86 years | ||||||
Granted | 25,000 | $ | 0.25 | |||||||
Forfeited or expired | (100,000 | ) | $ | 0.53 | ||||||
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Outstanding at March 31, 2012 | 40,982,583 | $ | 0.35 | 4.61 years | ||||||
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Forfeited or expired | (2,300,000 | ) | $ | 0.32 | ||||||
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Outstanding at June 30, 2012 | 38,682,583 | $ | 0.35 | 4.58 years | ||||||
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Exercisable at June 30, 2012 | 37,615,583 | $ | 0.33 | 4.62 years |
OPTIONS:
As of June 30, 2013, there were a total of 44,518,000 options available for grant and 6,443,000 options outstanding, 6,116,334 of which were exercisable, under our employee stock option plans.
As of June 30, 2013, there were 801,668 shares available for option grants and 100,000 options outstanding under the non-qualified directors’ plan, 80,000 of which were exercisable.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
A summary of our option activity for the three and six months ended June 30, 2013 and 2012 follows:
Options | Shares | Weighted- Average Exercise Price | Weighted-Average Remaining Contractual Term | |||||||
Outstanding at January 1, 2013 | 6,618,000 | $ | 0.32 | 8.29 years | ||||||
Forfeited or expired | (190,000 | ) | $ | 0.79 | ||||||
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Outstanding at March 31, 2013 | 6,428,000 | $ | 0.31 | 8.15 years | ||||||
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Granted | 300,000 | $ | 0.25 | |||||||
Forfeited or expired | (185,000 | ) | $ | 0.38 | ||||||
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Outstanding at June 30, 2013 | 6,543,000 | $ | 0.31 | 7.86 years | ||||||
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Exercisable at June 30, 2013 | 6,196,334 | $ | 0.31 | 7.86 years | ||||||
Outstanding at January 1, 2012 | 8,795,400 | $ | 0.33 | 7.74 years | ||||||
Forfeited or expired | (40,000 | ) | $ | 0.38 | ||||||
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Outstanding at March 31, 2012 | 8,755,400 | $ | 0.33 | 7.49 years | ||||||
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Forfeited or expired | (119,500 | ) | $ | 0.35 | ||||||
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Outstanding at June 30, 2012 | 8,635,900 | $ | 0.33 | 7.24 years | ||||||
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Exercisable at June 30, 2012 | 7,978,000 | $ | 0.33 | 7.15 years |
Total recognized compensation costs during the three and six months ended June 30, 2013 were approximately $8,000 and $23,000, respectively. As of June 30, 2013, there was approximately $35,000 of unrecognized compensation cost related to options expected to be recognized over a weighted-average period of 10 months. We might have recognized approximately $5,000 and $8,000, respectively, of tax benefits attributable to stock-based compensation expense recorded during the three and six months ended June 30, 2013. However, this potential benefit was fully offset by our valuation allowance due to the aforementioned significant uncertainty of future realization. The total fair value of options vested during the three and six months ended June 30, 2013 was approximately $20,000 and $30,000, respectively.
The following table lists the assumptions utilized in applying the Black-Scholes valuation model for options and warrants.
Six months ended June 30, | ||||||
2013 | 2012 | |||||
Expected volatility | 160% | 160 | % | |||
Expected life (in years) of options | 3 | * | ||||
Expected life (in years) of warrants | 2-3 | 3 | ||||
Risk-free interest rate range, options | 0.66% | * | ||||
Risk-free interest rate range, warrants | 0.23-0.74% | 0.57 | % | |||
Expected dividend yield | 0% | 0 | % |
NOTE 8 – INCOMETAXES
- We are subject to the income tax jurisdictions of the U.S. and multiple state tax jurisdictions. OurHowever, our provisions for income taxes for the three2020 and six months ended June 30, 2013 and 2012, consist solely of certain2019 include only state taxes.
At June 30, 2013, we have federal net operating loss carryforwards of approximately $35.5 million, the deductibility of $29.1 million of which is available but subject to limitations under Section 382 of the Internal Revenue Code. Approximately $361,000 of any net operating losses prior to the January 2009 ownership change (“the earlier change”) can be used to offset taxable income annually. In addition, we can offset our taxable income each year by approximately $274,000 of the net operating losses which incurred between the earlier change and the August 2011 ownership change. We estimate that 59.6% of the $29.1 million pre-change losses will expire and be unavailable to offset our future taxable income.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIEStaxes.
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Management has evaluated our tax positions taken or to be taken on income tax returns that remain subject to examination (i.e.(i.e., tax years 20092017 and thereafter federally, and earlier for certain other jurisdictions)federally), and has concluded that there arehave been no uncertain tax positions as(as defined in generally accepted accounting principles,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.
Concentration of Credit Risk - The Company maintains its cash and cash equivalents with a financial institution which management believes to be of high credit quality. Their accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 in coverage. The Company had an uninsured cash balance of $595,340 as of June 30, 2020 and no uninsured cash balances as of December 31, 2019.
NOTE 9 – PERSHAREDATAStock Options and Warrants - We grant stock options and warrants to our employees, non-employee directors, note holders and certain consultants allowing them to purchase our common stock pursuant to approved terms. The estimated value of the warrants issued with debt instruments is recorded as a discount on notes payable and amortized as interest expense over the term of the notes using the effective interest method.
3. | CURRENT ASSETS |
Cash and Restricted Cash - On April 23, 2020, the Company’s wholly owned subsidiary, Pharmacy Value Management Solutions, Inc. (‘PVMS”) received a loan in the principal amount of $1,243,840 from Mechanics Bank (the “Bank”) pursuant to the Paycheck Protection Program “PPP”. On May 22, 2020, the Bank notified PVMS that the loan was in default as a result of false statements made in the loan application. PVMS disputes the Bank’s claim and believes that it made no false statements in it's PPP loan application. The statements relate to the number of employees and the monthly payroll amounts. As a result, PVMS’ account with Mechanics Bank has been frozen with a balance of $845,340. Both PVMS and the Bank are seeking guidance from the Small Business Administration as to how to resolve this dispute. Until resolved, it is likely that this account will remain frozen.
For the periods presented,
Cash and restricted cash consists of the following table sets forthat June 30, 2020 and December 31, 2019:
June 30, 2020 | December 31, 2019 | |||||||
Cash | $ | 145,915 | $ | 69,327 | ||||
Restricted Cash | 845,340 | — | ||||||
Total cash and restricted cash shown in the | ||||||||
consolidated statement of cash flows | $ | 991,255 | $ | 69,327 |
Other current assets consists of the computationfollowing at June 30, 2020 and December 31, 2019:
June 30, 2020 | December 31, 2019 | |||||||
Loans to others | $ | 34,406 | $ | 42,676 | ||||
Security and lease deposits | 3,500 | 3,500 | ||||||
Capitalized portion of lease | 1,237 | 1,808 | ||||||
Prepaid expenses | 288,487 | 452,953 | ||||||
Miscellaneous receivable | 329,395 | 325,660 | ||||||
Other current asset | $ | 657,025 | $ | 826,597 |
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4. | PROPERTY AND EQUIPMENT |
Property and equipment, net, consists of basicthe following at June 30, 2020 and diluted (loss) earningsDecember 31, 2019:
June 30, 2020 | December 31, 2019 | |||||||
Property and equipment | $ | 6,616 | $ | 1,549 | ||||
Less accumulated depreciation | (933 | ) | (310 | ) | ||||
Property and equipment - net | $ | 5,683 | $ | 1,239 |
Depreciation expense for the six-month periods ended June 30, 2020 and 2019 is $623 and $141, respectively. A laptop was acquired in January of 2020.
5. | LEASEHOLD IMPROVEMENT |
Leasehold improvement, net, consists of the following at June 30, 2020 and December 31, 2019:
June 30, 2020 | December 31, 2019 | |||||||
Leasehold improvements | $ | 2,992 | $ | 2,992 | ||||
Less accumulated amortization | (2,992 | ) | (2,992 | ) | ||||
Leasehold improvements - net | $ | — | $ | — |
Amortization expense for the six-month periods ended June 30, 2020 and 2019 is $0 and $299, respectively.
6. | RELATED PARTY LOANS PAYABLE |
The Company has received financing from Management of the Company as well as from members of our Board of Directors. These individuals are deemed to be related parties to the Company and their indebtedness must be disclosed separately.
As of June 30, 2020 and December 31, 2019, there are the following related party notes payable:
June 30, 2020 | December 31, 2019 | |||||||
Related party loans payable | $ | 102,229 | $ | 342,670 |
7. | DEBT |
As of June 30, 2020 and December 31, 2019, the balance was as follows:
June 30, 2020 | December 31, 2019 | |||||||
Notes payable | $ | 10,416,176 | $ | 12,352,189 |
During the six-month period ended June 30, 2020, there have been 10 additional convertible-promissory notes totaling $547,360. There have been 53 convertible-promissory notes totaling $3,727,213 converted to 39,652,283 shares of common stock.
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On April 23, 2020, the Company’s wholly owned subsidiary, Pharmacy Value Management Solutions, Inc. (‘PVMS”) received a loan in the principal amount of $1,243,840 from Mechanics Bank (the “Bank”) pursuant to the PPP. On May 22, 2020, the Bank notified PVMS that the loan was in default as a result of false statements made in the loan application. PVMS disputes the Bank’s claim and believes that it made no false statements in its PPP loan application. The statements relate to the number of employees and the monthly payroll amounts. As a result, PVMS’ account with Mechanics Bank has been frozen with a balance of $845,340. Both PVMS and the Bank are seeking guidance from the Small Business Administration as to how to resolve this dispute. Until resolved, it is likely that this account will remain frozen.
Break-out of debt between the parent company and our subsidiary PVMS is as follows:
June 30, 2020 | December 31, 2019 | |||||||
Advanzeon parent | $ | 3,381,163 | $ | 5,010,016 | ||||
PVMS | 7,035,013 | 7,342,173 | ||||||
$ | 10,416,176 | $ | 12,352,189 |
At Advanzeon, the total notes issued year-to-date and their dollar values were as follows:
June 30, 2020 | December 31, 2019 | |||||||
Number of notes issued | 2 | — | ||||||
Dollar value | $ | 165,360 | $ | — |
All debts issued during the six-month period ended June 30, 2020 are short-term in nature and have a stated interest rate of 10%.
At PVMS, the total of notes issued year-to-date and their dollar values were as follows:
June 30, 2020 | December 31, 2019 | |||||||
Number of notes issued | 8 | 51 | ||||||
Dollar value | $ | 382,000 | $ | 2,289,250 |
All debt is short-term in nature, one-year maturity date. All debt issued has a stated interest rate of 12%.
8. | CONTINGENT LIABILITY |
Contingent liability consisted of 3 items:
1. | A lawsuit against the Company for $450,000 from the son of a deceased promissory note holder. This matter has been dismissed twice by the judge but is ongoing due to appeals. The case has been dormant over a year. The Court has not dismissed it for lack of prosecution yet. The Court does this on its own motion and because of COVID, it is not doing this at this time. |
2. | Interest payable in the amount of $171,247 to the same person listed in (1). This interest is related to the lawsuit referenced in (1). |
3. | Advanzeon won a decision on a court case against Universal Healthcare. The attorney's fees relating to this matter total $21,412. This fee will be paid out of the proceeds of the case when collected. |
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As of June 30, 2020 and December 31, 2019, the balance of this indebtedness is as follows:
June 30, 2020 | December 31, 2019 | |||||||
Disputed note payable | $ | 450,000 | $ | 450,000 | ||||
Disputed interest payable | 171,247 | 171,247 | ||||||
Pending attorney fees | 21,412 | 21,412 | ||||||
Total contingent liability | $ | 642,659 | $ | 642,659 |
9. | OTHER ACCRUED LIABILITIES |
As of June 30, 2020 and December 31, 2019, the balance of other accrued liabilities is as follows:
June 30, 2020 | December 31, 2019 | |||||||
Management compensation | $ | 8,907,258 | $ | 8,873,802 | ||||
Accrued interest non-related party | 4,760,728 | 5,956,368 | ||||||
Board of Director fees | 37,500 | 1,050,000 | ||||||
State fees | — | 2,800 | ||||||
Payroll liabilities | 14,047 | — | ||||||
Other accrued liabilities | 22,659 | 8,817 | ||||||
Total other accrued debt | $ | 13,742,192 | $ | 15,891,787 |
10. | RIGHT OF USE ASSETS |
The Company entered into two leases, one for office space and one for an automobile lease that are classified as right of use assets and lease liabilities. The Company pays the lease payments on a residential unit in California that is used as an office/residential unit for certain of its marketing personnel. The lease is on a month-to month basis. The Company has occupied this unit for the past approximately 1-1/2 year period and intends to do so for the foreseeable future. The lease for the Company’s office space expire in June 2022.The lease for the automobile expires in June 2021.As the implicit interest rate is not readily identifiable in the leases, the Company calculated the present value of the leases using the average commercial real estate interest rate of 5.50% at the commencement of the office leases and the interest of 2.99% for the automobile lease. Applying the commercial rate, the Company calculated the present value of $339,833 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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As of June 30, 2020, the right of use assets associated with future operating leases are as follows:
Total present value of right of use assets | ||||
under lease agreements | $ | 368,870 | ||
Amortization of right of use assets | (53,419 | ) | ||
Total right of use assets as of June 30, 2020 | $ | 315,451 |
Total amortization expense related to the right of use assets under the lease agreements was $54,660 and $25,579 for the six-month periods ended June 30, 2020 and 2019, respectively.
11. | RIGHT OF USE LEASE LIABILITIES |
As disclosed in Note 10, the Company entered into two leases for office space prior to the quarter ended June 30, 2020 that are classified as right of use assets and lease liabilities.
As of June 30, 2020, the lease liabilities associated with future payments due under the leases are as follows:
Total present value of future lease payments | $ | 368,870 | ||
Principal payments made as of the six month period ended June 30, 2020 | (53,419 | ) | ||
Total right of use lease liabilities as of June 30, 2020 | $ | 315,451 |
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 June 30, 2020:
Total future minimum lease payments | $ | 336,671 | ||
Less present value discount | 21,220 | |||
Total right of use lease liabilities as of June 30, 2020 | 315,451 | |||
Less current portion due within one year | 136,230 | |||
Long-term right of use liabilities | $ | 179,221 |
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Total maturities of lease liabilities as of June 30, 2020 are as follows:
Total future | ||||||||||||||
minimum lease | Present value | Right of use | ||||||||||||
payments | discount | lease liabilities | ||||||||||||
2021 | $ | 150,103 | $ | 13,873 | $ | 136,230 | ||||||||
2022 | 146,568 | 6,358 | 140,210 | |||||||||||
2023 | 40,000 | 989 | 39,011 | |||||||||||
$ | 336,671 | $ | 21,220 | $ | 315,451 |
12. | COMMON STOCK |
During the six-month period ended June 30, 2020, the Company issued 45,089,783 shares of its common stock as follows:
On April 01, 2020, the Company issued 3,262,500 shares of its common stock to a board of director member who elected to convert director’s fees and salary totaling $652,500. The stock was issued at $0.20 per share.
On April 01, 2020, the Company issued 1,087,500 shares of its common stock to a board of director member who elected to convert director’s fees and salary totaling $217,500. The stock was issued at $0.20 per share.
On April 01, 2020, the Company issued 1,087,500 shares of its common stock to a board of director member who elected to convert director’s fees and salary totaling $217,500. The stock was issued at $0.20 per share.
On April 21, 2020, the Company issued 14,584,350 shares of its common stock to existing note holders who elected to convert promissory notes plus accrued and unpaid interest totaling $2,916,869. The stock was issued at $0.20 per share.
On April 21, 2020, the Company issued 1,327,252 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $265,450. The stock was issued at $0.20 per share.
On April 21, 2020, the Company issued 2,156,515 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $431,303. The stock was issued at $0.20 per share.
On May 15, 2020, the Company issued 1,263,745 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $139,012. The stock was issued at $0.11 per share.
On May 15, 2020, the Company issued 4,284,565 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $471,302. The stock was issued at $0.11 per share.
On May 15, 2020, the Company issued 7,210,168 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $793,118. The stock was issued at $0.11 per share.
On May 18, 2020, the Company issued 700,751 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $77,083. The stock was issued at $0.11 per share.
On May 21, 2020, the Company issued 502,434 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $55,268. The stock was issued at $0.11 per share.
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On May 25, 2020, the Company issued 319,627 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $35,159. The stock was issued at $0.11 per share.
On May 25, 2020, the Company issued 333,824 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $36,721. The stock was issued at $0.11 per share.
On May 26, 2020, the Company issued 781,206 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $85,933. The stock was issued at $0.11 per share.
On May 28, 2020, the Company issued 884,555 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $97,301. The stock was issued at $0.11 per share.
On May 29, 2020, the Company issued 937,116 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $103,083. The stock was issued at $0.11 per share.
On June 1, 2020, the Company issued 1,024,189 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $112,661. The stocks was issued at $0.11 per share.
On June 05, 2020, the Company issued 668,797 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $73,568. The stock was issued at $0.11 per share.
On June 05, 2020, the Company issued 603,987 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $66,439. The stock was issued at $0.11 per share.
On June 12, 2020, the Company issued 1,564,245 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $172,067. The stock was issued at $0.11 per share.
On June 18, 2020, the Company issued 504,957 shares of its common stock to an existing note holder who elected to convert promissory notes plus accrued and unpaid interest totaling $55,545. The stock was issued at $0.11 per share.
During the six-month period ended June 30, 2019, the Company issued 700,000 shares of its common stock as follows:
On March 21, 2019, the Company issued 200,000 shares of its common stock to its Securities Exchange Commission counsel, who elected to take common stock in the Company as partial payment of its legal fees. The total value shares were valued at $0.08 per share attributableon the total value of $16,000.
Additionally, on March 29, 2019, the Company issued 500,000 shares of its common stock to an existing shareholder and warrant holder, who elected to exercise his warrants to purchase 500,000 shares of the Company's common stockholders (dollarsstock for $15,000. The warrants were issued during May of 2017 for $0.03 per share.
13. | LEGAL PROCEEDINGS |
The Company previously reported that the litigation between Rotech Healthcare, Inc. and Pharmacy Value Management Solutions, Inc. settled. The Company rejected the draft settlement terms and continues to aggressively defend this litigation.
Except as disclosed above and in thousands, except per share data):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Numerator: | ||||||||||||||||
Net (loss) income attributable to common stockholders | $ | (1,647 | ) | $ | 1,607 | $ | (3,054 | ) | $ | 1,687 | ||||||
Add impact of assumed conversions: | ||||||||||||||||
Interest on convertible debts | — | 231 | — | 223 | ||||||||||||
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Net income (loss) attributable to common stockholders after assumed conversions | (1,647 | ) | $ | 1,838 | (3,054 | ) | $ | 1,910 | ||||||||
Denominator: | ||||||||||||||||
Weighted average common shares – basic | 61,102 | 59,252 | 60,427 | 59,252 | ||||||||||||
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Effect of dilutive securities: | n/a | n/a | ||||||||||||||
Series C convertible preferred stock | 3,300 | 3,300 | ||||||||||||||
Series D convertible preferred stock | 5,182 | 6,551 | ||||||||||||||
Stock options | — | — | ||||||||||||||
Warrants | — | — | ||||||||||||||
Convertible debts | 20,700 | 12,684 | ||||||||||||||
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Weighted average common shares – diluted | 88,434 | 81,787 | ||||||||||||||
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(Loss) earnings per share: | ||||||||||||||||
Basic | $ | (0.03 | ) | $ | 0.03 | $ | (0.05 | ) | $ | 0.03 | ||||||
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Diluted | n/a | $ | 0.02 | n/a | $ | 0.02 | ||||||||||
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NOTE 10 – SUBSEQUENT EVENTS
Other thanItem 1, all of the changeslegal proceedings for the six-month period ended June 30, 2020, are disclosed in our outstanding debt instruments described in Note 3, noannual report on Form10-K filed on April 9, 2020.
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14. | SUBSEQUENT EVENTS |
In accordance with ASC Topic 855, “Subsequent Events”, the Company evaluated subsequent events were identified that in our opinion require accounting recognition or disclosure inthrough August 19, 2020, the date these financial statements were available to be issued. During its evaluation, the following subsequent events were identified:
Issuance of debt and warrants
Subsequent to the balance sheet date, the Company has issued $56,180 of convertible-promissory notes. All of the debt matures in 2021 and has a stated interest rate of 22% and is unsecured. Concurrent with the exceptionissuance of debt, the following:
Warrant issuance
During July 2013, weCompany has issued 300,000 warrants to purchase 2.3 million common shares to three individuals in lieu of cash compensation for marketing services. The warrants expire in July 2016 and can be exercised at aan average exercise price of $0.25$0.25. At the time of issuance, all warrants had a three or five year term.
Stock issued for conversion of debt and accrued interest
The Company issued 765,399 shares of common stock for the conversion of debt and accrued interest. The total debt and accrued interest converted was $84,194 or $0.11 per share. Of the 2.3 million total issued, 2.1 million were immediately vested at issuance with the remaining vesting over the next 24 months.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
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In addition to historical information, the following information contains forward-looking statements as defined under federal securities laws for Comprehensive Care Corporation (referred to herein as the “Company,” or “CompCare”) and its subsidiaries (collectively referred to herein as “we,” “us” or “our”). In our case, such statements include, but are not limited to, the overall performance of the healthcare market, our anticipated operating results, the success of our Pharmacy Savings Management Program, financial resources, increases in revenues, increased profitability, interest expense, growth and expansion, anticipated favorable results from legal actions, the ability to obtain new and maintain existing behavioral healthcare contracts and the profitability, if any, of such behavioral healthcare contracts. These statements are based on current expectations, estimates and projections about the industry and markets in which we operate, the customers we serve and management’s beliefs and assumptions. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, 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 healthcare operating expenses, our ability to achieve expected results from new business, the profitability of our capitated contracts, cost of care, seasonality, our ability to obtain additional financing, and other risks detailed herein and from time to time in our filings with the SEC.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussioninformation should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto and in conjunction with Managements’ Discussion and Analysis of CompCareFinancial Condition and subsidiaries appearing elsewhereResults of Operations in this report.our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
OVERVIEWThis report includes forward-looking statements, the realization of which may be affected by certain important factors discussed previously above under Item 1A, “Risk Factors.”
We provide managed careOverview
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 behavioralnation. We are in all 50 states and provide a turnkey solution designed to effectively keep drivers on the road with no down time, compliant with DOT regulations, improve their health, substance abuse, and pharmacysignificantly decrease legal liability risk for the employer. We are vertically integrated, and we provide a “Program” of services that addresses all the needs of a corporate transportation system, union or other driver-related organizations. We believe we are the only company capable of providing the full range of needed services in a timely manner.
Our services start with the identification of the target population and the potential risk the client currently has. We can do this through our SMS Program, which includes the ability to screen every driver to identify if signs and symptoms of sleep apnea are present. We can then take this data and provide the employer with a list of those drivers that should be tested and the statistical likelihood of the percentage of those drivers who will test positive for obstructive sleep apnea (OSA). Together with the employer/union, SMS provides a realistic time frame, actual total cost, and process for testing all drivers who need to be tested. For those drivers testing positive for OSA, we then provide the appropriate treatment such that the driver will meet the DOT requirements and remain on the road. We monitor 365 days per year driver’s usage of the treatment device according to DOT standards and we report that usage to all stakeholders as required/permitted. We utilize mathematical algorithms to determine if the driver is predicatively meeting the annual DOT requirements for usage. Using those predictive algorithms, we reach out to those drivers and provide case management, fields, primarilyencouragement designed to solve problems such that the driver increases usage, if necessary, and remains compliant.
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 Medicare, Medicaid, Children’s Health Insurance Program (“CHIP”) health plans,drivers’ as well as self-insured companies, unions,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 Taft-Hartley healthinformal relationships with employers; municipalities; a significant veteran’s group; union and welfare funds. Our managed care operations include administrative service agreements, fee-for-service agreements,non-union driving organizations; suppliers of home sleep testing equipment and capitation contracts.
SOURCES OF REVENUE
Our revenue can be segregated into the following significant categories (amounts in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
At-risk behavioral contracts | $ | 922 | $ | 7,490 | $ | 1,836 | $ | 14,966 | ||||||||
Administrative services only contracts | 156 | 853 | 459 | 1,670 | ||||||||||||
At-risk pharmacy contracts | — | 9,781 | — | 19,378 | ||||||||||||
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$ | 1,078 | $ | 18,124 | $ | 2,295 | $ | 36,014 | |||||||||
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Our customer base primarily includes regional health plans that do not have their own behavioral network. We provide services primarily through a variety of OSA treatment devices; and, a national network of contracted providerstelemedicine sleep specialists covering all 50 states. We have an internal medical team for governance and protocol purposes and a customer service department that includes: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.
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psychiatrists;
During the three-month period ending June 30, 2020, the majority of our revenue was received from patient referrals from only certain of the clinics operated by Concentra Health Services. During this period and as a result of the Coronavirus pandemic, the Department of Transportation (DOT), which had previously suspended the requirement that interstate commercial drivers have a prescribed DOT medical exam from a DOT certified medical examiner, extended the DOT medical exam suspension to expire September 30, 2020. This action by the DOT, coupled with the effect of the pandemic, caused a significant number of clinics that we rely upon for referrals to either continue to be closed, close anew or operate with reduced staffing and reduced capacity. All of the foregoing resulted in fewer patients. Additionally, many commercial drivers, who, but for the aforesaid medical exam suspension, would have gone to the Concentra clinics for their required DOT medical exam, elected to wait until the suspension expires. All of those events materially reduced our referral resources. We did continue to receive revenue from certain Concentra referrals, other clinic referrals and some of our in-house account, such as PG&E, the Veteran’s organization with whom we contract, and others, but this patient flow was materially reduced, as well. Our recently announced launch of our CoreChoice account (April 29, 2020), scheduled to launch this period, did not launch as a result of the pandemic. During this period, we successfully added new accounts which, principally due to the pandemic, have not yet launched. However, they are in the process of preparing to do so. As clinics reopen and staff returns, management expects to see revenue from these new accounts. We continue to experience the effect of these closures/reduced staffing and cannot predict when either our referral sources or our own operation will begin to normalize, resulting in more positive financial results. However, we continue to aggressively seek new accounts and work with our existing accounts to achieve increased patient flow.
Sources of Revenue
Three-month periods ended June 30, 2020 and 2019
A quantitative summary of our revenues by source category for the three-month periods ended June 30, 2020 and 2019:
2020 | 2019 | Change | ||||||||||
OSA- related | $ | 103,444 | $ | 90,453 | $ | 12,991 |
Results of Operations
OSA services increased to $103,444 in 2020 from $90,453 in 2019. The increase was primarily the result of the Concentra account. Last year, on May 14, 2019, we reached an agreement with Concentra whereby Concentra engaged the Company, and the Company accepted the engagement, to serve as one of Concentra’s preferred national sleep apnea services provider. The launch was initiated during the fourth quarter of 2019.
While there was an increase in OSA services, the increase would have been greater without the clinics having to shut down due to the COVID-19 pandemic. As demonstrated in the first quarter of 2020, OSA services increased by $59,625 than in the comparable period of 2019. With the clinics having to be closed during the three months period ended June 30, 2020 due to the COVID-19 pandemic, there was only an increase of $12,990.
Cost of revenues decreased to $65,000 in 2020 from $66,157 in 2019. In 2019, the cost allocation was changed to reflect the cost and sales in the same month. This caused two months’ worth of charges in the month of April 2019. April 1, 2019 and April 30, 2019
General and administrative expense
General and administrative expense in total for the three month periods ended June 30, 2020 and 2019 was as follows:
2020 | $ | 715,397 | ||||
2019 | 416,039 | |||||
Change | $ | 299,358 | ||||
Percentage Change | 71.95 | % |
psychologists;
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therapists;
other licensed healthcare professionals;
psychiatric hospitals;
general medical facilities with psychiatric beds;
residential treatment centers; and
other treatment facilities.
The services provided through our provider network include outpatient programs (such as counseling or therapy), intermediate care programs (such as intensive outpatient programs and partial hospitalization services), inpatient programs and crisis intervention services. We do not directly provide treatment or own any treatment facility.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
We typically enter into contracts on an annual basis to provide managed behavioral healthcare, substance abuse,evaluate expenses at the Parent company level as well as at our PVMS subsidiary. Expenses at the Parent company level include overhead and pharmacy management services to our customers’ members. Our arrangements with our clients fall into two broad categories:
At-risk arrangements under which our clients pay us a fixed fee per member in exchange for our assumption of the financial risk of providing services; and
ASO arrangements where we manage behavioral healthcare programs or perform various managed care services, such as clinical care management, provider network development, and claims processing without assuming financial risk for member behavioral healthcare costs.
We also cover pharmacy management services, where we receive an additional per-member per-month amount. We manage pharmacy services through the collection and analysis of pharmacy claims data which is provided by the health plan’s pharmacy benefit manager (“PBM”), whose primary functions are claims adjudication and drug cost negotiation. Through data analysis and usage evaluation against clinically sound, evidence-based criteria, we are able to identify ineffective, inappropriate and costly drug utilization. Our approach is to address these issues in a collaborative manner with the primary care physicians and psychiatrists through the provision of useful information based on our analysis. Our goal is to produce positive outcomes for patients while controlling pharmacy costs.
Under at-risk arrangements, the number of covered members as reported to us by our clients determines the amount of premiums we receive, which is independent of the cost of services rendered to members. The amount of premiums we receive for each member is fixed by our contractbeing a public entity. Expenses at the beginning of our contract term. Under certain circumstances these premiums may be subsequently adjusted up or down, or the contract terminated, generally at the commencement of each renewal period.
Our largest costsPVMS are those of behavioral health services and pharmacy drugs that we provide, which is based primarily on our arrangements with healthcare providers. Since we are subject to increases in healthcare operating costs based on an increase in the number and frequency of our members seeking behavioral care services, our profitability depends on our ability to predict and effectively manage these costs in relationsolely related to the fixed premiums we receive under at-risk arrangements. ProvidingOSA services on an at-risk basis exposes us to the risk that our contracts may ultimately be unprofitable if we are unable to control or otherwise anticipate healthcare costs. Accrued claims payable and claims expense are our most significant critical accounting estimates. See “Critical Accounting Policies and Estimates” below.
We manage programs through which services are provided to recipients in five states. Our objective is to provide easily accessible, high quality behavioral healthcare and pharmacy services and to manage costs through measures such as the monitoringsegment. A breakdown of hospital inpatient admissions and the review of authorizations for various types of outpatient therapy. Our goal is to combine access to quality behavioral healthcare services with effective management controls in order to ensure the most cost-effective use of healthcare resources.
Our programs and services include:
management of prescription drugs on an at-risk basis for health plans;
fully integrated behavioral healthcare and pharmacy management services;
analytic services for medical and pharmacy claims for medical integration of behavioral and medical care coordination;
case management/utilization review services;
administrative services management;
preferred provider network development;
management and physician advisor reviews; and
overall care management services.
We continue our efforts to expand our new Pharmacy Savings Management Program, marketed through our dedicated, wholly-owned subsidiary CompCare Pharmacy Solutions, Inc. For health plans, self insured entities, unions, and Taft-Hartley health and welfare funds, we will offer to manage on an at-risk basis prescription drug programs. Through the use of selected pharmacy benefits managers, pharmacy data analytics, and the development of cost-saving ancillary pharmacy programs, we believe we can materially reduce drug costs for our clients that utilize our program. Our marketing efforts of this program are receiving positive traction.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
RECENT DEVELOPMENTS
Pharmacy Savings Management Program; New Business
In March of 2013, we entered into an agreement with Local No. 29 of the Laborers International Union of North America to provide our Pharmacy Savings Management Program, and in May 2013, we signed a Pharmacy Savings Management agreement with Utica City (NY) School District. Both programs are scheduled to launch in January of 2014.
Contract Terminations
On July 31, 2013, our contract to provide ASO services to a health plan serving approximately 49,000 Medicare and Healthy Families program members expired without renewal. The contract accounted for 12.5%, or $0.3 million of our revenuesthese expenses for the six monthsthree month periods ended June 30, 2013.2020 and 2019 is as follows:
2020 | 2019 | Change | Percent Change | ||||||||||||||
Parent | $ | 296,036 | $ | 156,686 | $ | 139,350 | 88.94 | % | |||||||||
PVMS | 419,361 | 259,353 | 160,008 | 61.70 | % | ||||||||||||
Total | $ | 715,397 | $ | 416,039 | $ | 299,358 | 71.95 | % |
Parent Company Level
2020 | 2019 | Change | Percent Change | |||||||||||||
Professional fees | $ | 243,494 | $ | 86,804 | $ | 156,690 | 180.51 | % | ||||||||
Travel expense | — | 815 | (815 | ) | -100.00 | % | ||||||||||
Board of Directors fees | 57,500 | 37,500 | 20,000 | 53.33 | % | |||||||||||
Office supplies | 417 | 287 | 130 | 45.30 | % | |||||||||||
Rent expense | (23,181 | ) | 25,448 | (48,629 | ) | -191.09 | % | |||||||||
Other | 17,806 | 5,832 | 11,974 | 205.33 | % | |||||||||||
Total G & A | $ | 296,036 | $ | 156,686 | $ | 139,350 | 88.94 | % |
Explanations of variations by line item follow:
Professional fees increased by $156,690. The health plan had been a client since Januaryincrease is mainly due to new consulting service expenses in the total of 2011.
Our at-risk contract with a health plan serving approximately 37,000 CHIP members is expected to expire without renewal during$118,250 and an increase of $43,827 in legal fees in the third or fourth quarter of 2013 at a point yet to be chosen by the health plan. The contract accounted for 20.9%, or $0.5 million of our revenues for the six monthsthree-month period ended June 30, 2013. The health plan has been a client since April of 2000.
Retirement of President and Appointment of Pharmacy Savings Management Program President
On April 22, 2013, we were notified by our President, Robert R. Kulbick, that he needed2020 compared to retire for medical reasons effective May 1, 2013. We have named Ramon Martinez to direct our Pharmacy Savings Management Program as President of CompCare Pharmacy Solutions, Inc., our wholly-owned subsidiary dedicated to marketing our pharmacy savings program. Mr. Martinez was working with the Company on its new, innovative pharmacy savings program as a Senior Management Advisor since August 2012.
Debt Matters
SeeLIQUIDITYAND CAPITAL RESOURCES, below.
RESULTSOF OPERATIONS
Three monthsthree month period ended June 30, 2013vs. 20122019.
WithTravel expense decreased by $815 due to due to the expiration of our at-risk behavioral healthCOVID-19 pandemic. Many clinics have been closed and pharmacy contracts in Puerto Rico on December 31, 2012, which then comprised approximately 83% of the Company’s total revenue, our operating revenuesthose that are open have decreased significantly. Prior to December 31, 2012, anticipating this decrease, we accelerated our efforts to advance the Company’s Pharmacy Savings Management Program so that we would be prepared to commence aggressively marketing it by January 1, 2013, which we did in early January. Simultaneously, we significantly reduced salaries, decreased our work forcestaffs and generally cut back expenses. To date, we have entered into two pharmacy savings management agreements, both scheduled for launchbeen requested to not conduct any in January 2014. We are actively engaged in discussions withperson visits.
Board of Directors fees increased by $20,000 due to an additional $20,000 paid to a numberBoard of other potential pharmacy account customers. The Company’s shift of focus away from the behavioral health/Medicare/Medicaid segments of the healthcare market to pharmacy savings market was occasioned by reason of the Company’s management’s belief that significantly greater margins, less regulation and ease of closing transactions exists in the pharmacy management sector of healthcare. The Company believes that its focus on its Pharmacy Savings Management Program, coupled with its decreased operating expenses, will give the Company the best opportunity to achieve profitability during 2014.director member.
Revenues:
At-risk behavioral health contracts: Operating revenues from at-risk contractsRent expense decreased by 87.7%, or approximately $6.6 million,48,629 due to $0.9 million foroffice lease moving to subsidiary level as of January 01, 2020. The same will show as an increase on the subsidiary level.
Other general and administrative expense increased by $11,974. This increase was due to a new D&O Insurance expense of $14,205 while other miscellaneous items decreased by $1,421.
19 |
PVMS Subsidiary Level
2020 | 2019 | Change | Percent Change | |||||||||||||
Payroll related | $ | 243,871 | $ | 110,167 | $ | 133,704 | 121.36 | % | ||||||||
Travel and related expense | 9,059 | 51,897 | (42,838 | ) | -82.54 | % | ||||||||||
Professional fees | 57,265 | 39,250 | 18,015 | 45.90 | % | |||||||||||
Marketing costs | 17,758 | 9,729 | 8,029 | 82.53 | % | |||||||||||
Dues and subscriptions | 27 | 200 | (173 | ) | -86.50 | % | ||||||||||
Office supplies | 1,135 | 8,718 | (7,583 | ) | -86.98 | % | ||||||||||
Rent expense | 54,096 | 12,452 | 41,644 | 334.44 | % | |||||||||||
Other | 36,150 | 26,940 | 9,210 | 34.19 | % | |||||||||||
Total G & A | $ | 419,361 | $ | 259,353 | $ | 160,008 | 61.70 | % |
Explanations of variations by line item follow:
Payroll related expenses increased $133,704. The company hired 4 employees in the three months ended June 30, 2013, compared to $7.5 million for2020 that were not included in the comparable period in 2019. The Company paid our CEO $32,699 and accrued wages in the amount of $33,456 during the three months ended June 30, 2012. As noted above, the decrease was primarily attributable2020.
Travel expense decreased by $42,838 due to due to the expiration of our Puerto Rico contract during the fourth quarter of 2012COVID-19 pandemic. Many clinics have been closed and those that accountedare open have reduced staffs and we have been requested to not conduct any in person visits.
Professional Fees increased by $18,015. The increase is mainly due to an increase in accounting fees by $25,000 due to services for $4.4 million of revenue forspecial projects. There was a decrease in legal fees by $13,485. The Company no longer used a law firm in the three months ended June 30, 2012,2020 that were used in the comparable period in 2019.
Marketing costs increased by $8,029. The company hired an advertising firm in the 3rd quarter of 2019 to work on the company's website and other marketing responsibilities and is still with the expirationcompany as of contractsJune 30, 2020.
Office supplies decreased by $7,583 due to office supplies were fully stocked going into the new year of 2020.
Rent expense increased by $41,644 due a decrease on to rent expense moving from parent level to subsidiary level as of January 01, 2020. The same will show as a decrease on the parent level.
Other general and administrative expense increased by $9,210. The increase is mainly due to a fraudulent charge of $9,500 and an increase in Louisiana and Michigan that generatedpayroll taxes of $13,371 due to an increase in wages. There is a decrease in automobile expenses of $4,912 due to the COVID-19 pandemic.
Interest expense
Interest expense in total of $2.1 million in revenue duringfor the quarterthree-month periods ended June 30, 2012.2020 and 2019 was as follows:
2020 | $ | 707,774 | |||
2019 | 341,178 | ||||
Change | $ | 366,596 | |||
Percentage Change | 107.45 | % |
20 |
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
ASO contracts: Revenue from ASO contracts decreased by 81.7%, or approximately $0.7 million, to $0.2 millionA breakdown of the interest expense for the three monthsthree-month periods ended June 30, 2013 due2020 and 2019 is as follows:
2020 | 2019 | Change | |||||||||||
Parent | $ | 492,340 | $ | 163,093 | $ | 329,247 | |||||||
PVMS | 215,434 | 178,085 | 37,349 | ||||||||||
Total | $ | 707,774 | $ | 341,178 | $ | 366,596 |
Sources of Revenue
Six-month periods ended June 30, 2020 and 2019
A quantitative summary of our revenues by source category for the six-month periods ended June 30, 2020 and 2019:
2020 | 2019 | Change | ||||||||||
OSA- related | $ | 230,992 | $ | 158,376 | $ | 72,616 |
Results of Operations
OSA services increased to $230,992 in 2020 from $158,376 in 2019. The increase was primarily the result of the Concentra account. Last year, on May 14, 2019, we reached an agreement with Concentra whereby Concentra engaged the Company, and the Company accepted the engagement, to the lossserve as one of a customerConcentra’s preferred national sleep apnea services provider. The launch was initiated during the fourth quarter of 2012 that had accounted for approximately $0.4 million2019.
While there was an increase in OSA services, the increase would have been greater without the clinics having to shut down due to the COVID-19 pandemic. As demonstrated in the first quarter of business2020, OSA services increased by $59,625 than in the comparable period of 2019. With the clinics having to be closed during the quarterthree months period ended June 30, 2012.
Pharmacy management contracts: Due2020 due to the expirationCOVID-19 pandemic, there was only an additional increase of our major contract$12,990.
Cost of revenues increased to $129,909 in Puerto Rico, we did not generate any revenue2020 from $107,817 in 2019 due to an increase in sales.
General and administrative expense
General and administrative expense in total for the three monthssix-month periods ended June 30, 2013,2020 and 2019 was as comparedfollows:
2020 | $ | 1,311,462 | |||
2019 | 841,843 | ||||
Change | $ | 469,619 | |||
Percentage Change | 55.78 | % |
We evaluate expenses at the Parent company level as well as at our PVMS subsidiary. Expenses at the Parent company level include overhead and the cost of being a public entity. Expenses at PVMS are solely related to $9.8 million for the same period in 2012.OSA services segment. A breakdown of these expenses as June 30, 2020 and 2019 is as follows:
2020 | 2019 | Change | Percent Change | ||||||||||||||
Parent | $ | 539,259 | $ | 352,821 | $ | 186,438 | 52.84 | % | |||||||||
PVMS | 772,203 | 489,022 | 283,181 | 57.91 | % | ||||||||||||
Total | $ | 1,311,462 | $ | 841,843 | $ | 469,619 | 55.78 | % |
Parent Company Level
Costs
Percent | ||||||||||||||||
2020 | 2019 | Change | Change | |||||||||||||
Professional fees | $ | 409,870 | $ | 211,265 | $ | 198,605 | 94.01 | % | ||||||||
Travel expense | 67 | 3,815 | (3,748 | ) | -98.24 | % | ||||||||||
Board of Directors fees | 95,000 | 75,000 | 20,000 | 26.67 | % | |||||||||||
Office supplies | 495 | 351 | 144 | 41.03 | % | |||||||||||
Rent expense | — | 51,277 | (51,277 | ) | -100.00 | % | ||||||||||
Other | 33,827 | 11,113 | 22,714 | 204.40 | % | |||||||||||
Total general and administrative | $ | 539,259 | $ | 352,821 | $ | 186,438 | 52.84 | % |
Explanations of revenues: Anticipating our decreasevariations by line item follow:
Professional fees increased $198,605. The increase is mainly due to new consulting service expenses in revenue commencing January 1, 2013, we successfully decreased our costs by 95.1%, or approximately $13.0 million, for the three monthstotal of $236,500 and an increase of $55,023 in legal fees in the six-month period ended June 30, 2013 as2020 compared to the three monthssix-month period ended June 30, 2012 for reasons set forth in the following three paragraphs.
Behavioral health contracts: Claims expense on at-risk contracts2019. Audit fees decreased approximately $6.0 million due to expense reductionsby $66,300 and cost containment measures mentioned above and a reduction to claims expense of approximately $0.3 million relating to favorable claims experience from our former major Puerto Rico contract.
Pharmacy drug costs: Pharmacy costsaccounting fees decreased 100%, or approximately $6.2 million,by $22,957 due to the expiration of our Puerto Rico pharmacy contract on December 31, 2012.fact that the 2015 - 2017 10-K was filed in January 2019.
Other healthcare operating costs: Other healthcare costs, attributable to servicing both at-risk contracts and ASO contracts,Travel expense decreased approximately $1.2 million from approximately $1.8 million for the three months ended June 30, 2012 to approximately $0.6 million for the three months ended June 30, 2013 due primarily to reductions in salaries and benefits attributable to workforce reductions.
General and administrative expense: General and administrative expenses decreased by 33.2%, or approximately $0.7 million, to $1.5 million for the three months ended June 30, 2013 as compared to $2.2 million for the three months ended June 30, 2012, primarily consisting of a $0.3 million decrease in salaries and benefits$3,748 due to workforce reductions,due to the COVID-19 pandemic. Many clinics have been closed and those that are open have reduced staffs and we have been requested to not conduct any in person visits.
Board of Directors fees increased $20,000 due to an additional $20,000 paid to a $0.2 million reduction in miscellaneous fees, reducedBoard of director member.
Rent expense decreased $51,277 due to rent expense moving from parent level to subsidiary level as of $0.1 million due to lease renegotiation, and a $0.1 million reduction in consulting fees due to less usage. As a percentage of total operating revenue,January 01, 2020. The same will show as an increase on the subsidiary level.
Other general and administrative expense increased to 137.9% for the three months ended June 30, 2013, compared to 12.3% for the three months ended June 30, 2012,by $22,714. This increase was due to significantly lower operating revenue.
Interest expense. Interest expense, excluding amortization of debt discount, increased by 26.5%, or approximately $0.1 million for the three months ended June 30, 2013, as compared to the three months ended June 30, 2012 due to an increase in the effective interest rate on debt for the three months ended June 30, 2013, to approximately 21.4% from 16.7% for the same period in 2012, net of the effect of a small decline in the weighted average amount of debt outstanding to $9.2 million from $9.3 million for the three months ended June 30, 2013,vs. 2012 . The increase in the effective interest rate is attributable to the inclusion in interestnew D&O Insurance expense of a pro-rata share$26,174 while other miscellaneous items decreased $3,463.
21 |
PVMS Subsidiary Level
Percent | ||||||||||||||||
2020 | 2019 | Change | Change | |||||||||||||
Payroll related | $ | 419,743 | $ | 212,312 | $ | 207,431 | 97.70 | % | ||||||||
Travel and related expense | 75,224 | 91,324 | (16,100 | ) | -17.63 | % | ||||||||||
Professional fees | 109,057 | 81,747 | 27,310 | 33.41 | % | |||||||||||
Marketing costs | 34,592 | 17,229 | 17,363 | 100.78 | % | |||||||||||
Dues and subscriptions | 208 | 640 | (432 | ) | -67.50 | % | ||||||||||
Office supplies | 4,077 | 17,577 | (13,500 | ) | -76.80 | % | ||||||||||
Rent expense | 65,933 | 23,001 | 42,932 | 186.65 | % | |||||||||||
Other | 63,369 | 45,192 | 18,177 | 40.22 | % | |||||||||||
Total general and administrative | $ | 772,203 | $ | 489,022 | $ | 283,181 | 57.91 | % |
Explanations of origination and other closingvariations by line item follow:
Payroll related fees from the six-month senior secured credit facility that began May 3, 2013.
Six months ended June 30, 2013vs. 2012
Revenues:
At-risk behavioral health contracts: Operating revenues from at-risk contracts decreased by 87.7%, or approximately $13.1 million, to $1.8 million for the six months ended June 30, 2013, compared to $15.0 million for the six months ended June 30, 2012. As noted above, the decrease was primarily attributable to the expiration of the Puerto Rico contract during the fourth quarter of 2012 that accounted for $8.7 million of revenue for the six months ended June 30, 2012, and the expiration of contracts in Louisiana and Michigan that generated a total of $4.2 million in revenueexpenses increased $207,431. The Company hired 4 employees during the six months ended June 30, 2012.
ASO contracts: Revenue from ASO contracts decreased by 72.5%, or approximately $1.2 million, to $0.5 million for2020 that were not included in the six months ended June 30, 2013 due primarily to the loss of a customer during the fourth quarter of 2012 that had accounted for $0.9 million of business during the same period ended June 30, 2012.
Pharmacy management contracts: Due to the expiration of our major contract in Puerto Rico, we did not generate any revenue for the six months ended June 30, 2013, as compared to $19.4 million for the samecomparable period in 2012.
Costs of revenues:Anticipating2019. The Company paid our decrease in revenue commencing January 1, 2013, we successfully decreased our costs by 95.2%, or approximately $28.9 million for the six months ended June 30, 2013, as compared to the six months ended June 30, 2012 for reasons set forth in the following three paragraphs.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Behavioral health contracts: Claims expense on at-risk contracts decreased by 99.1%, or approximately $11.0 million, to $0.1 million for the six months ended June 30, 2013 as compared to the six months ended June 30, 2012 due to expense reductionsCEO $32,699 and cost containment measures mentioned above and a reduction to claims expense of approximately $1.0 million relating to favorable claims experience from our former major Puerto Rico contract.
Pharmacy drug costs: Pharmacy costs decreased 100%, or approximately $15.9 million, due to the expiration of our Puerto Rico pharmacy contract on December 31, 2012.
Other healthcare operating costs: Other healthcare costs, attributable to servicing both at-risk contracts and ASO contracts, decreased approximately 63.9%, or $2.4 million, from approximately $3.8 million for the six months ended June 30, 2012 to approximately $1.4 million for the six months ended June 30, 2013. The reduction is primarily due to a $1.5 million decrease in salaries and benefits due to workforce reductions, a $0.4 million reduction in purchased services, and a $0.2 million decrease in medical director and case review fees.
General and administrative expense: General and administrative expenses decreased by 33.7%, or approximately $1.5 million (after excluding a $1.6 million adjustment of legal expense for the six months ended June 30, 2012), to $2.9 million for the six months ended June 30, 2013 as compared to $4.3 million for the six months ended June 30, 2012 due primarily to a $0.7 million decrease in salaries and benefits due to workforce reductions, a $0.2 million reduction in miscellaneous fees, and a $0.2 million reduction in rent expense as a result of lease renegotiation. As a percentage of total operating revenue, general and administrative expense increased to 125.4% for the six months ended June 30, 2013, compared to 12.1% for the six months ended June 30, 2012, due to significantly lower operating revenue.
Interest expense: Interest expense, excluding amortization of debt discount, increased by 11.6%, or approximately $88,000, for the six months ended June 30, 2013, as compared to the six months ended June 30, 2012 due to an increase in the effective interest rate on debt for the six months ended June 30, 2013, to approximately 18.3% from 16.2% for the same period in 2012. It is also affected by an increase in the weighted average amount of debt outstanding to $9.2 million for the six months ended June 30, 2013 from $9.3 million for the comparable prior period. The increase in the effective interest rate is attributable to the inclusion in interest expense of a pro-rata share of origination and other closing related fees from the six-month senior secured credit facility that began May 3, 2013.
CRITICAL ACCOUNTING POLICIESAND ESTIMATES
Preparation of our consolidated financial statements requires us to make significant estimates and judgments to develop the amounts reflected and disclosed in the consolidated financial statements. On an on-going basis, we evaluate the appropriateness of our estimates and we maintain a thorough process to review the application of our accounting policies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
We believe our accounting policies specific to our revenue recognition, accrued claims payable, premium deficiencies and claims expense, and income taxes are critical to the preparation of our consolidated financial statements.
Revenue recognition. The majority of our managed care activities are performed under at-risk arrangements pursuant to terms of agreements primarily with health plans to provide contracted behavioral healthcare and pharmacy management services to subscribing members. Revenue under these agreements is earned continuously over time regardless of services actually provided and, therefore, is recognized monthly based on the number of qualified members. The information regarding qualified members is supplied by our clients, and we review member eligibility records and other reported information to verify its accuracy and determine the amount of revenue to be recognized. The remaining balance of our revenues is earned and recognized as services are delivered on a non-risk basis.
Accrued claims payable.Claims expense, a major component of cost of care, is recognized in the period in which an eligible plan member actually receives services and includes incurred but not reported (“IBNR”) claims. We contract with various healthcare providers including hospitals, physician groups and other licensed behavioral healthcare professionals either on a discounted fee-for-service or a per-case basis. We determine that a member has received services when we receive a claim within the contracted timeframe with all required billing elements correctly completed by the service provider. We then determine whether the member is eligible to receive the service, the service provided is medically necessary and is covered by the benefit plan’s certificate of coverage, and the service is authorized by one of our employees, if required. If all of these requirements are met, the claim is entered into our claims system for payment.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
The accrued claims payable liability represents the estimated ultimate net amounts owed for all behavioral healthcare services provided through the respective balance sheet dates, including estimated amounts for claims IBNR. We have used the same methodology and assumptions for estimating the IBNR portion of the accrued claims liability for the last two years.
Our unpaid claims liability is estimated using an actuarial paid completion factor methodology and other statistical analyses. These estimates are subject to the effects of trends in utilization and other factors. Any significant increase in member utilization that falls outside of our estimates would increase claims expense and could adversely affect our ability to achieve and sustain improvements in profitability and positive cash flow. Although considerable variability is inherent in such estimates, we believe that our unpaid claims liability is adequate.
Whenever we believe it is probable that a future loss will be incurred under a managed care contract based on an expected premium deficiency and we are unable to cancel our obligation or renegotiate the contract, we record a losswages in the amount of the expected future losses. We perform our loss accrual analysis on a contract-by-contract basis by taking into consideration various factors such as future contractual revenue, estimated future healthcare and maintenance costs, and each contract’s specific terms related to future revenue increases as compared to expected increases in healthcare costs. The estimated future healthcare and maintenance costs are based on historical trends and expected future cost increases. Our analysis at June 30, 2013 did not identify any loss contracts.
Accrued claims payable consists primarily of amounts established for reported claims and IBNR claims, which are unpaid through the respective balance sheet dates. Our policy is to record management’s best estimate of IBNR. The IBNR liability is estimated monthly using an actuarial paid completion factor methodology and is continually reviewed and adjusted, if necessary, to reflect any change in the estimated liability as more information becomes available. In deriving an initial range of estimates, we use an industry accepted actuarial model that incorporates past claims payment experience, enrollment data and key assumptions such as trends in healthcare costs and seasonality. Authorization data, utilization statistics, calculated completion percentages and qualitative factors are then combined with the initial range to form the basis of management’s best estimate of the accrued claims payable balance. However, estimating IBNR claims involves a significant amount of judgment by our management. The following are the principal factors that would have an impact on our future operations and financial condition:
Changes in the number of employee plan members due to economic factors;
Other changes in utilization patterns;
Changes in healthcare costs;
Changes in claims submission timeframes by providers;
Success in renegotiating contracts with healthcare providers;
Occurrence of catastrophes;
Changes in benefit plan design; and
The impact of present or future state and federal regulations.
The accrued claims payable ranges were between $11.6 and $11.7 million at June 30, 2013 and between $12.9 and $13.1 million at December 31, 2012. Based on the information available, we determined our best estimate of the accrued claims liability to be $11.7 million at June 30, 2013 and $13.1 million at December 31, 2012. Our accrued claims liability at June 30, 2013 and December 31, 2012 includes approximately $9.7 million and $9.8 million, respectively, of submitted and approved but unpaid claims and $1.9 million and $3.3 million for IBNR claims, respectively. A 5% increase in assumed healthcare cost trends from those used in our calculations of IBNR at June 30, 2013 could increase our claims expense by approximately $23,000. Actual claims incurred could differ from estimated claims accrued.
Income taxes. Computing our provision for income taxes involves significant judgment and estimates particularly in relation to the realization of deferred tax assets from net operating loss carryforwards, uncertain income tax positions, and in estimating the probable annual effective income tax rates for interim financial reporting periods.
At June 30, 2013, we have federal net operating loss carryforwards of approximately $35.5 million, the deductibility of $29.1 million of which is presently limited under Section 382 of the Internal Revenue Code to approximately $361,000 annually due to recent changes in control of the Company. We are particularly vulnerable to additional changes in control in the near term due to probable future equity dilution or possible takeover resulting in further loss of our ability to utilize the remaining carryforwards pursuant to Section 382. In addition, as of June 30,
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
2013, the Company continues to be in a deficit position. Based on this evidence, and the uncertainty as to our ability to continue as a going concern, we concluded that at this time, it is likely that the Company’s deferred tax assets, which relate primarily to the federal net operating losses, will not be realizable within the carryforward period. Accordingly, the Company continues to maintain an effective 100% valuation allowance against the balance of these deferred tax assets at this time. Our judgments regarding future taxable income may change due to many factors, including changes in operating results from changing economic or market conditions, or changes in tax laws, operating results or other factors.
RECENT ACCOUNTING PRONOUNCEMENTS
No recent accounting pronouncements have been issued that are not yet effective and that have not been early adopted that, in our opinion, have a significant effect on our consolidated financial statements in future periods.
SEASONALITYOF BUSINESS
Historically, we have experienced increased member utilization during the months of March, April and May and consistently low utilization by members during the months of June, July, and August. Such variations in member utilization affect our costs of care during these months, having a generally positive impact on our operations during June through August and a negative impact from March through May.
LIQUIDITYAND CAPITAL RESOURCES
At June 30, 2013, we had a working capital deficiency of approximately $25.3 million and a stockholders’ equity deficiency of approximately $25.2 million resulting from a history of operating losses. We were unable to repay our 14% senior promissory notes in the amount of approximately $1.8 million on the maturity date of April 15, 2013. However, as of June 30, 2013, we have executed agreements to extend the maturity date for approximately $1.7 million of the notes to April 15, 2014. We are currently in discussions with the holders of the remaining senior notes and do not anticipate difficulty in completing extension agreements. In addition, we were not able to repay a $1 million loan due May 8, 2013. As of August 14, 2013, past due principal and interest totaled approximately $6.7 million, of which $4.8 million was owed to a related party who had not provided the Company with formal notice of default.
Our ability to continue as a going concern will be dependent upon the success of management’s plans, as set forth in the following paragraphs, and is subject to significant uncertainty. In their report on our most recent audited financial statements as of and for the year ended December 31, 2012, our independent auditors expressed substantial doubt as to our ability to continue as a going concern. Except for its consideration in establishing our valuation allowance for deferred tax assets, and an impairment write-down of goodwill taken in 2012, the accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Revolving Credit Facility Agreement
On May 3, 2013, we entered into a Senior Secured Revolving Credit Facility Agreement that will allow us to borrow up to $5,000,000 to fund our general working capital needs. On the closing date, our current maximum allowable amount to borrow was $1,000,000. Increased borrowing amounts above the $1 million are subject to the sole and absolute discretion of the lender. Our initial $1,000,000 draw on the credit facility less transaction expenses of approximately $116,000 occurred May 3, 2013. As of August 8, 2013, our current outstanding balance on the credit facility is approximately $800,000 and there is currently no availability to draw additional funds on the credit facility. The credit facility is guaranteed by the current and future assets of CompCare and its subsidiaries, with the exception of our Puerto Rico subsidiary. Borrowings under the credit facility will bear interest at 12%, payable weekly. The credit facility will mature on November 3, 2013, at which time we may request an extension of the maturity date for an additional six-month period provided that we are not in default in any respect, which, however, may be accepted or rejected by the lender in its sole discretion.
The credit facility agreement contains financial covenants such as, but not limited to, minimum revenues, positive earnings before interest, tax, depreciation and amortization expenses, and loan-to-value ratio. The agreement also specifies events of default and related remedies, including acceleration and increased interest rates following an event of default. In the event of a default by the Company, the lender may convert all or any portion of the outstanding principal, accrued but unpaid interest and other sums payable under the note into shares of our common
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
stock at a price equal to (i) the amount to be converted, divided by (ii) 85% of the lowest daily volume weighted average price of our common stock during the five business days immediately prior to the conversion date. The note or any portion thereof may also be converted in a likewise manner with the consent of the Company. As consideration for investment banking and advisory services provided to us by the lender, we issued 1,470,588 shares of our common stock to the lender as a fee, which in accordance with the terms of the Agreement, was equivalent to $125,000.
Debt Modifications
On May 21 and June 18, 2013, we reached agreement with five holders of our senior promissory notes aggregating approximately $0.4 million of principal to extend the maturity date of the notes from April 15, 2013 to April 15, 2014. In connection with the renewals we issued a total of 194,688 shares of our common stock to the holders as partial payment of interest and fees owed as of April 15, 2013.
On May 13, 2013, we executed an agreement with a holder of approximately $1.3 million of our senior promissory notes to extend the maturity date of the notes from April 15, 2013 to April 15, 2014. We also agreed to extend the term of approximately 5.2 million warrants that had been issued at the time the notes were issued in April 2010 for an additional two years, such that the warrants will now expire in 2017. In conjunction with the renewal, we issued 774,391 shares of our common stock to the lender relating to 50% of the interest and fees owed as of April 15, 2013.
On March 15, 2013, we executed an agreement with a creditor to modify the terms of a previously matured but unpaid promissory note in the amount of $1.4 million. Under the modified terms of the note, the maturity date was extended from February 28, 2013 to January 31, 2014 and the conversion price at which the note may be converted into our common stock was reduced to $0.125 from $0.25. In addition, the exercise price of a warrant to purchase our common stock issued in conjunction with the note was reset from $0.44 to $0.22. We also assigned a customer receivable (see Note 2 “Accounts Receivable”) and a potential arbitration recovery to the creditor as a source of future repayment of a second loan from the creditor in the amount of $625,000 that matured May 14, 2013 and a $75,000 loan from an individual related to the creditor, also due on May 14, 2013. By agreement with the creditor on May 8, 2013, the maturity date of the $625,000 loan was extended to July 15, 2013 and the conversion price at which the note may be converted into our common stock was reduced to $0.125 from $0.25. Additionally, the exercise price of a warrant to purchase our common stock issued in conjunction with the note was decreased from $0.44 to $0.22. The note was not repaid on its July 15, 2013 due date and is currently the subject of ongoing resolution negotiations. The $75,000 loan from the individual related to the creditor was repaid on May 6, 2013.
Need for Additional Financing
Our existing capital may not be sufficient to meet our cash needs. We expect that with:
i. our new Senior Secured Revolving Credit Facility;
ii. existing customer contracts;
iii. collection of receivables;
iv. extension of vendor payments;
v. the addition of significant new pharmacy management contracts that we have reason to believe will be obtained through:
that the Company will have the best opportunity to sustain and grow current operations over the near term. We continue to look at various alternative sources of financing if operations cannot support our ongoing plan. Nevertheless, there can be no assurance that we will be able to achieve the growth expected from all or some of the above factors, nor find such financing in amounts or on terms acceptable to us, if at all, or that we will be able to achieve or sustain profitable operations and positive operating cash flows in the near term. While management believes that our current cash position will likely be sufficient to meet our current levels of operations in the short term, our ability to achieve our business objectives and continue as a going concern for a reasonable period of time may be dependent upon the success of our plans to obtain sufficient debt or equity financing, and, ultimately, to achieve profitable operations and positive cash flows from operations during 2013.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Our primary internal source of liquidity on an on-going basis has been from operations, which consists of the monthly capitation payments we receive from our clients for providing managed care services. Based on historical experience, there is a high degree of certainty with respect to the reliability and timing of these payments from continuing contracts. However, the commencement of new contracts or the expiration of existing contracts, such as our major Puerto Rico contract that ended December 31, 2012, may cause our operational cash flow to vary significantly from period to period, which would require us to seek external sources of liquidity.
Our external sources of liquid funds consist primarily of the use of debt and equity instruments. Our ability to continue to borrow funds on a secured or unsecured basis cannot be predicted, nor can our ability to sell shares of our common stock in private placement offerings. With the exception of contracted maturities of debt, there are no other future liquidity demands due to known commitments or events. We do not have any off-balance sheet financing arrangements. The duration of our borrowings has typically ranged from one week to three years, with stated interest rates ranging from 7% to 24%. Certain of the loans have contained features such as the ability to convert all or a portion of the loan into our common stock, or have had a detachable warrant for the future purchase of our common stock typically issued in conjunction with the loan, or both.
As evident in our statement of cash flows,$33,456 during the six months ended June 30, 2013, our cash balance2020.
Travel expense decreased $16,100 due to the COVID-19 pandemic. Many clinics have been closed and those that are open have reduced staffs and we have been requested to not conduct any in person visits.
Professional Fees increased $27,310. There is an increase in accounting fees by $25,000 due to services for special projects. Consulting fees increased $33,750 because the company hired 5 new consultants to bring in additional revenue. There was a decrease in legal fees by $23,657. The Company no longer used a law firm in the six months ended June 30, 2020 that was used in the comparable period in 2019.
Marketing costs increased by $325,000$17,363. The company hired an advertising firm in the 3rd quarter of 2019 to work on the company's website and other marketing responsibilities and is still with the company as of June 30, 2020.
Office supplies decreased by $13,500 due primarily to collectionsoffice supplies were fully stocked going into the new year of receivables, receipts2020.
Rent expense increased $42,932 due to rent expense moving from parent level to subsidiary level as of January 01, 2020. The same will show as a decrease on the parent level.
Other general and administrative expense increased by $18,180 due to a fraudulent charge of $9,500 and an increase in payroll taxes of $10,764 because of an increase in wages. Other miscellaneous items increased by $6,876 due to revamp of website, employee benefits, and printing and postage for a conference. Automobile expenses decreased $3,078 due to the COVID-19 pandemic. Bad debt expense decreased $3,510 due to a decrease in bad debt in the six months ended June 30, 2020 than in the comparable period in 2019.
Interest expense
Interest expense in total for the six-month periods ended June 30, 2020 and 2019 was as follows:
2020 | $ | 1,102,403 | |||
2019 | 669,193 | ||||
Change | $ | 433,210 | |||
Percentage Change | 64.74 | % |
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A breakdown of the interest expense for the six-month periods ended June 30, 2020 and 2019 is as follows:
2020 | 2019 | Change | |||||||||||
Parent | $ | 636,453 | $ | 326,185 | $ | 310,268 | |||||||
PVMS | 465,950 | 343,008 | 122,942 | ||||||||||
Total | $ | 1,102,403 | $ | 669,193 | $ | 433,210 |
Financial Condition
Liquidity and Capital Resources
During the six-month period ended June 30, 2020, we funded our revolving credit facility,operations from revenues and $547,360 in private borrowings. As a result of the coronavirus pandemic some of our traditional sources of private borrowing have not been accessible. We have had to obtain private borrowing on terms less favorable than we were able to prior to the pandemic. We will continue to fund our operations from these sources until we are able to produce operating revenue sufficient to cover our cost reduction initiativesstructure. 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.
On April 23, 2020, the Company’s wholly owned subsidiary, Pharmacy Value Management Solutions, Inc. (‘PVMS”) received a loan in the principal amount of $1,243,840 from Mechanics Bank (the “Bank”) pursuant to the Paycheck Protection Program. On May 22, 2020, the Bank notified PVMS that the loan was in default as a result of false statements made in the loan application. PVMS disputes the Bank’s claim and believes that it made no false statements in its PPP loan application. The statements relate to the number of employees and the monthly payroll amounts. As a result, PVMS’ account with Mechanics Bank has been frozen with a balance of $845,340. Both PVMS and the Bank are seeking guidance from the Small Business Administration as to how to resolve this dispute. Until resolved, it is likely that this account will remain frozen.
During the period we continued toward our goal to be able to uplist our Common Stock to another trading platform. Among the actions is our attempt to reduce our stockholder’s deficiency by, among, other things, being able to convert a large portion of our corporate debt to equity. For the six months ended June 30, 2020, $3,727,213 of debt plus accrued interest was converted into 39,652,283 shares of Common Stock. All of the holders of the converted debt agreed, subject to several different conditions, to a one year lock-up from publicly offering the shares. The primary condition being to not publicly sell the shares until the earlier of (i) one year from the date of the exchange, or otherwise managing(ii) until the shares are tradable on the NASDAQ or comparable national exchange. The other condition for a block of 14,584,350 shares received in an exchange has the lock-up as the earlier of one year or such time as our cash outflows relatedCommon Stock has an average trading volume of no less than 500,000 shares for 30 consecutive trading days.
Subsequent Events
Subsequent to June 30, 2020, we issued a convertible promissory note in the principal amount of $56,180. The term of the note is 12 months and the interest rate is 10% per annum.
In August we announced that we will start using a disposable home sleep test device known as the WatchPAT™ ONE which utilizes cloud-based technology for the immediate upload of testing data. This feature will streamline the Company's receipt of test data and its ability to render faster obstructive sleep apnea (“OSA”) test results - critical, in light of the increased OSA testing reasonably to be anticipated when DOT-required medical exams resume. With the WatchPAT™ ONE, we can measure the patient's PAT® signal, heart rate, oximetry, actigraphy, body position, snoring, and chest motion. As discussed, in March of this year, the Federal Motor Carrier Safety Association (FMCSA) suspended the commercial driver's required annual/biennial medical exams. This suspension was a reaction to the COVID-19 pandemic, and the nation's need to keep its commercial drivers on the road delivering essential supplies. The suspension is currently scheduled to expire on September 30, 2020. We anticipate that almost seven months of drivers will need to schedule and complete their required medical exams shortly after September 30th. Thus, whenever the suspension is lifted, it is anticipated that there will be an increased number of drivers all needing completion of their medical exams including OSA testing (when indicated).. These drivers would be in addition to our costs, and from delaying paymentsnew patient accounts acquired during the past four-month period. With our implementation of this new technology, we expect to providers and other creditors, sometimes causing defaultsnot only be more efficient in our obligationtesting process, but to greatly enable our clinic partners to process the OSA portion of their drivers' DOT medical exams faster and sometimes negotiating successfully for extended terms. We also repaid existing debt, including certain capitalized leases,more efficiently. While there is an additional cost to the extent of $574,000.Company for the WatchPAT™ ONE process, we have elected to not pass this cost on to the clinic, the driver or the driver's employer.
ITEM Item 3. QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISKQuantitative and Qualitative Disclosures about Market Risk:
As a smaller reporting company, as defined by Rule 229.10(f)(1) of the Exchange Act, we are not required to provide the information under this item.make any disclosure.
ITEM Item 4. CONTROLSAND PROCEDURESControls and Procedures
Our management with the participation ofis responsible for establishing and maintaining adequate internal control over our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, our Chief Executive Officer along with the Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectivelyfinancial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
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Our internal control over financial reporting includes those policies and procedures that the information required to be disclosed by the Company in reports filed under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated(i) pertain to the Company’smaintenance 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 includingauthorization; and (iv) provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.risk that controls may become inadequate because changes in conditions may occur or the degree of compliance with the policies or procedures may deteriorate.
No change inOur management assessed the effectiveness of our internal control over financial reporting occurred duringas of June 30, 2020. 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 most recent fiscal quarterCFO concluded that, has materially affected, or is reasonably likely to materially affect,as of June 30, 2020, our internal controlcontrols over financial reporting.reporting were not optimally effective in the specific areas described in the paragraphs below.
PART IIAs of June 30, 2020, our CFO identified the following specific material weaknesses in the Company’s internal controls over its financial reporting processes:
InDuring the ordinary conductperiod of this report, the Company’s policies or procedures did not clearly define the roles in the financial reporting process. The various roles and responsibilities related to this process should be defined, documented, updated and communicated. Not having clear policies and procedures in place amounts to a material weakness in the Company’s internal controls over its financial reporting processes.
As a result of our business,retaining the services of an Outside Accountant in January 2018 and appointing an internal Company employee to interface with the Outside Accountant, we have instituted the following policies and procedures designed to address the material weaknesses cited above.
The Company plans to further augment its addressing of material weaknesses, on an as-needed basis, by hiring additional accounting personnel once its initial corrective steps have been fully implemented, tested and found to be effective.
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
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Management believes that the Company has made adequate provision for any estimated probable losses, including legal defense costs, from the litigation described above.
ITEM 1A. RISK FACTORSPART II-OTHER INFORMATION
With the exception of the matter set forth below, all of the legal proceedings for the six-month period ended June 30, 2020, are disclosed in our annual report on Form 10-K filed on April 9, 2020.
In addition to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012,2019, we include the following:
Effect of the Coronavirus Pandemic
The coronavirus pandemic is adversely affecting and is expected to continue to adversely affect our business, financial condition and results of operations. We are unable to predict the extent or nature these effects will have not changed materially.on our business at this time.
ITEMItem 2. UNREGISTERED SALESOF EQUITY SECURITIESAND USEOF PROCEEDSUnregistered Sales of Equity Securities and Use of Proceeds
DuringWith the exception of the matter set forth below, the sale of unregistered securities for the six-month period May 21, 2013 through August 14, 2013,ended June 30, 2020 were disclosed in our annual report on Form 10-K filed on April 9, 2020.
On April 15, 2020, we issued sharesa convertible promissory note (the "Note”) in the principle amount of common stock$109,180 with an original issue discount of $6,180. The Note matures on October 15, 2021, and warrants to purchasethe interest rate is 10%. This Note may not be prepaid in whole or in part except as follows. Should the Note be prepaid within the first ninety days from the date of issuance, the prepayment percentage is one hundred and twenty-five (125%) per cent of the outstanding principal and any accrued and unpaid interest. For the next ninety days the Note may be prepaid and the prepayment percentage is one hundred thirty (130%) per cent of the outstanding principal and any accrued and unpaid interest. Thereafter, the Note may not be prepaid.
On April 21, 2020, we issued a total of 14,584,350 shares of our common stock in private placements not involving a public offeringexchange for $2,916,869 of our Senior Debt and accrued interest to seven holders of the Debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as follows:amended.
On May 31, 2013,April 21, 2020, we issued an aggregatea total of 958,5471,327,252 shares of our common stock as payment of $95,855 of past due interest and amendment fees to three holdersin exchange for $265,450 of our senior promissory notes who had agreedconvertible debt and accrued interest to renew their notes for an additional year.the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On June 3, 2013,April 21, 2020, we issued 100,000a total of 2,156,515 shares of our common stock to a vendor in exchange for website design$431,303 of our convertible debt and maintenance services valued at $6,800.accrued interest to the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On June 25, 2013,May 13, 2020, we issued a warrantconvertible promissory note in the principle amount of $50,000 to purchase 10,000an 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 to a vendor. The warrant, which expires June 2016, was vested in full at issuance and can be exercised at a per share price equal to the lesser of $0.25 per share.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
On June 26, 2013, we issued an aggregate of 10,531 shares(i) 15% below the average daily closing price of our common stock asfor 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 $1,053The Receivership of past due interestUniversal 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 two holders of our senior promissory notes who had agreed to renew their notes for an additional year.
On July 15, 2013, we issued two warrants that may be used to purchasethe purchaser a total of 2,000,000 shares of our common stock. The warrants were issued to two consultants in lieu of cash compensation for marketing services. The warrants, which expire in July 2016, were vested in full at issuance and can be exercised at a price of $0.25 per share.
On July 25, 2013, we issued a three yearfive-year warrant to purchase 300,000100,000 shares of ourthe Company’s common stock at an exercise price of $0.25 to a consultant in lieu of cash compensation for marketing services. One-third of the shares obtainable with the warrant vested at issuance. The remaining shares vest evenly at 12 and 24 months after the issuance date.$0.15 per share.
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On July 26,May 15, 2020, we issued 571,400a total 1,263,745 shares of our common stock to an individualin exchange for $139,012 of our convertible debt and two companies as payment of $60,000 of fees relatedaccrued interest to the Senior Secured Revolving Credit Facility, under which we borrowed $1 million on May 3, 2013.
Based on certain representations and warrantiesholder of the recipients referenced above, wedebt. We relied on Section 3(a)(9) of the Securities Act of 1933, as amended.
On May 15, 2020, we issued a total 4,284,565 shares of our common stock in exchange for $471,302 of our convertible debt and 4(2)accrued interest to the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On May 15, 2020, we issued a total 7,210,168 shares of our common stock in exchange for $793,118 of our convertible debt and accrued interest to the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On May 18, 2020, we issued a total 700,751 shares of our common stock in exchange for $77,083 of our convertible debt and accrued interest to the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On May 21, 2020, we issued a total 502,434 shares of our common stock in exchange for $55,268 of our convertible debt and accrued interest to the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On May 22, 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.
On May 25, 2020, we issued a total 319,627 shares of our common stock in exchange for $35,159 of our convertible debt and accrued interest to the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On May 25, 2020, we issued a total 333,824 shares of our common stock in exchange for $36,721 of our convertible debt and accrued interest to the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On May 26, 2020, 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 May 26, 2020, we issued a total 781,206 shares of our common stock in exchange for $85,933 of our convertible debt and accrued interest to the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On May 28, 2020, we issued a total 884,555 shares of our common stock in exchange for $97,301 of our convertible debt and accrued interest to the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On May 29, 2020, we issued a total 937,116 shares of our common stock in exchange for $103,083 of our convertible debt and accrued interest to the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On June 1, 2020, we issued a convertible promissory note (the "Note”)in the principle amount of $56,180 with an original issue discount of $3,180. The Note matures on June 1, 2021, and the interest rate is 10%. This Note may not be prepaid in whole or in part except as follows. Should the Note be prepaid within the first ninety days from the date of issuance, the prepayment percentage is one hundred and twenty-five (125%) per cent of the outstanding principal and any accrued and unpaid interest. For the next ninety days the Note may be prepaid and the prepayment percentage is one hundred thirty (130%) per cent of the outstanding principal and any accrued and unpaid interest. Thereafter, the Note may not be prepaid.
On June 1, 2020, we issued a total 1,024,189 shares of our common stock in exchange for $112,661 of our convertible debt and accrued interest to the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On June 5, 2020, we issued a total 668,797 shares of our common stock in exchange for $73,568 of our convertible debt and accrued interest to the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On June 5, 2020, we issued a total 603,987 shares of our common stock in exchange for $66,438 of our convertible debt and accrued interest to the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On June 12, 2020, we issued a total 1,564,245 shares of our common stock in exchange for $172,067 of our convertible debt and accrued interest to the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On June 18, 2020, we issued a total 504,957 shares of our common stock in exchange for $55,545 of our convertible debt and accrued interest to the holder of the debt. We relied on Section 3(a) (9) of the Securities Act of 1933, as amended.
On June 21, 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 March 22, 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 March 31, 2020, we issued 169,551 warrants to our Chief Executive Officer in lieu of 2020 first quarter salary. The warrants have a term of five years and an exercise price of $0.39 per warrant.
On April 14, 2020, we issued 96,058 warrants to a promissory note holder, an accredited investor, in lieu of interest. The warrants have a term of five years and an exercise price of $0.19 per warrant. The warrant has a cashless feature.
On April 19, 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 April 21, 2020, we issued 101,599 warrants to a promissory note holder in exchange of their notes, principal amount plus accrued and unpaid interest. The warrants have a term of five years and an exercise price of $0.25 per warrant.
On April 21, 2020, we issued 230,630 warrants to a promissory note holder in exchange of their notes, principal amount plus accrued and unpaid interest. The warrants have a term of five years and an exercise price of $0.25 per warrant.
On April 21, 2020, we issued 146,811 warrants to a promissory note holder in exchange of their notes, principal amount plus accrued and unpaid interest. The warrants have a term of five years and an exercise price of $0.25 per warrant.
On April 21, 2020, we issued 1,589,044 warrants to a promissory note holder in exchange of their notes, principal amount plus accrued and unpaid interest. The warrants have a term of five years and an exercise price of $0.25 per warrant.
On April 21, 2020, we issued 368,804 warrants to a promissory note holder in exchange of their notes, principal amount plus accrued and unpaid interest. The warrants have a term of five years and an exercise price of $0.25 per warrant.
On April 21, 2020, we issued 1,589,044 warrants to a promissory note holder in exchange of their notes, principal amount plus accrued and unpaid interest. The warrants have a term of five years and an exercise price of $0.25 per warrant.
On April 21, 2020, we issued 1,095,253 warrants to a promissory note holder in exchange of their notes, principal amount plus accrued and unpaid interest. The warrants have a term of five years and an exercise price of $0.25 per warrant.
On April 25, 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 May 1, 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 May 1, 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 May 10, 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.
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On May 11, 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 May 19, 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 June 3, 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 June 6, 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 June 8, 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 June 8, 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 June 10, 2020, we issued 200,000 warrants to our consultant. The warrants have a term of three years and an exercise price of $0.35 per warrant.
On June 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 June 14, 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 June 20, 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 June 22, 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 June 24, 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 June 24, 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 June 27, 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 June 30, 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 June 30, 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.
We relied on Section 4 (2) of the Securities Act of 1933, as amended (the “Securities Act”)and or Section 501 of Regulation D promulgated under said Act as applicable, for an exemption from the registration requirements of the Securities Act. The shares purchased have not been registered under the Securities Act and may not be sold in the United States absent registration or an applicable exemption from registration requirements.
ITEM 3. DEFAULTSUPON SENIOR SECURITIES
As of August 14, 2013, past due principal and interest totaled approximately $6.7 million, of which $4.8 million was owed to a related party who had not providedunder the Company with formal notice of default. We are currently in negotiations with certain of the holders to resolve the payment defaults.Act.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Not applicable.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Documents filed as part of this Report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant | ||||||
Date: August 19, 2020 | By: | /s/ Clark A. Marcus | ||||
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Clark A. Marcus, | ||||||
Chief Executive Officer | ||||||
Date: August 19, 2020 | By: | /s/ Arnold B. Finestone | ||||
Arnold B. Finestone, | ||||||
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Chief Financial Officer |
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