Advanzeon Solutions, Inc. - Quarter Report: 2019 March (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2019

OR

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

For the transition period from ______________

Commission File Number: 1-9927

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such fling requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

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

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

Securities registered pursuant to Section 12(b) of the Act:

As of June 10, 2019, the Registrant had outstanding 67,361,656 shares of its $0.01 par value Common Stock.

ADVANZEON SOLUTIONS, INC.

TABLE OF CONTENTS

ADVANZEON SOLUTIONS, INC.

PART I – FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS

March 31, 2019 (unaudited) and December 31, 2018

ASSETS

ADVANZEON SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

March 31, 2019 (unaudited) and December 31, 2018

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

ADVANZEON SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Month Period Ended March 31, 2019 and 2018 (unaudited)

ADVANZEON SOLUTIONS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY

For the Three Month Period Ended March 31, 2019 (unaudited) and December 31, 2018

ADVANZEON SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Month Period Ended March 31, 2019 and 2018 (unaudited)

ADVANZEON SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

ADVANZEON SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Property and Equipment - Property and equipment (Note 4) is stated at cost less accumulated depreciation. Depreciation and amortization are computed using the straight-line method over the estimated useful lives ranging from 2 to 12 years. Leasehold improvements are amortized over the shorter of the lease term or the asset’s useful life.

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 lease term or the asset’s useful life.

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

The carrying amounts and estimated fair values of long-term debt at March 31, 2019 and December 31, 2018 are as follows:

During the first quarter of 2019, there have been 11 additional convertible notes totaling $355,000.

ADVANZEON SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Income Taxes - We are subject to the income tax jurisdictions of the U.S. and multiple state tax jurisdictions. However, our provisions for income taxes for 2017 and 2018 include only state income taxes.

Management has evaluated our tax positions taken or to be taken on income tax returns that remain subject to examination (i.e., tax years 2013 and thereafter federally), and has concluded that there have been no uncertain tax positions (as defined in GAAP) taken that require recognition or disclosure in the consolidated financial statements. In the event of any income tax-related interest or penalties are incurred, they would be included in general and administrative expense.

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

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

ADVANZEON SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Depreciation expense for the three month period ended March 31, 2019 is $56. A computer was acquired in February of 2019.

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

Amortization expense for the three month periods ended March 31, 2019 and March 31, 2018 is $149 and $150 respectively.

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

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

ADVANZEON SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

During the three month ended March 31, 2019, there have been 11 additional convertible-promissory notes totaling $355,000. One previous $50,000 convertible-promissory note was converted into stock during the year ended December 31, 2018.

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

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

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

ADVANZEON SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Contingent liability consisted of 3 items:

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

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

The Company entered into one lease for office space and one automobile lease prior to the quarter ended March 31, 2019 that are classified as right of use assets and lease liabilities. The lease for the Company’s office space expires April 2020. The lease for the automobile expires in June 2021. In accordance with ASU 2016-02, the Company calculated the present a value of the leases using the average commercial real estate interest rate of 5.50% at the commencement of the office leases and the interest of 2.99% for the automobile lease. Applying the commercial rate, the Company calculated the present value of $87,445 for the office lease and $32,195 for the automobile leasing, that is being amortized over the life of the leases.

ADVANZEON SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2019, the right of use assets associated with future operating leases are as follows:

The right of use assets were amortized approximately $4,554 per month. Total amortization expense related to the right of use assets under the lease agreements was $13,662 and $0 for the quarters ended March 31, 2019 and 2018, respectively.

Future amortization of the right of use assets as of March 31, 2019 are as follows:

As disclosed in Note 10, the Company entered into one lease for office space and one automobile lease prior to the quarter ended March 31, 2019 that are classified as right of use assets and lease liabilities.

As of March 31, 2019, the lease liabilities associated with future payments due under the leases are as follows:

ADVANZEON SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a schedule of future minimum lease payments under the right of use lease agreements together with the present value of the net minimum lease payments as of March 31, 2019:

Total maturities of lease liabilities as of March 31, 2019 are as follows:

During the three-month period ended March 31, 2019, the Company issued 700,000 shares of its common stock as follows:

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

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

During the three month period ended March 31, 2018, no stock was sold or issued.

Except as disclosed in Item 1, all of the legal proceedings for the three months ended March 31, 2019, is disclosed in our annual report on Form10-K filed on May 24, 2019.

ADVANZEON SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In accordance with ASC Topic 855, “Subsequent Events”, the Company evaluated subsequent events through June 12, 2019, the date these financial statements were available to be issued. During its evaluation, the following subsequent events were identified:

During 2019, the Company renegotiated the Tampa office lease and agreed to a three-year extension of the lease with no increase in payments. Effective July 1, 2019, the Company will adopt ASU 2016-02 “Leases” and will record a right of use asset and lease liability of $272,528 related to the lease.

The Huntington Beach lease has been extended during 2019 on a month to month basis at a monthly rate of $4,000.

Issuance of debt and warrants

Subsequent to the balance sheet date, the Company has issued $540,250 of convertible-promissory notes. All of the debt matures in 2020 and has a stated interest rate of 12% and is unsecured. Concurrent with the issuance of debt, the Company has issued 5,728,933 warrants at an average exercise price of $0.17. At the time of issuance, all warrants had a three or five year term.

New service contracts

In the latter part of May 2019, the Company entered into an agreement with Concentra Health Services, Inc. (“Concentra”), whereby, the Company was engaged by Concentra to serve as Concentra’s preferred national sleep apnea services provider. Although the Agreement is not exclusive, the Company believes that Concentra has not entered into any similar type agreement with any other company. With approximately 700 occupational medicine facilities, nationwide, Concentra is the national leader in performing the required Department of Transportation (DOT) medical exams for commercial drivers accounting, annually, for approximately fifty percent (50%) of all DOT medical exams performed in the United States. Sleep apnea screening is a required component of all DOT medical exams.

Before the program can be launched, there are a significant number of operational actions, including systems programming, which must be completed by both the Company and Concentra. Following the execution of the Agreement, the Company immediately undertook the task of completing what was needed to be done for the program launch, which included jointly designing with Concentra an appropriate sleep apnea test “Referral Form” to the Company; purchasing additional I.T. equipment; creating and/or purchasing I.T. programs; expanding customer service/sales personnel; and, putting in place appropriate technical equipment so that each referring Concentra clinic can track, in real time on the Company’s system, the status of each patient. The Company believes its portion of this integration will be completed shortly. While we do not know the status of Concentra’s implementation, we would anticipate same to be similar to the Company’s. The Company believes it will realize substantial new revenue immediately upon program launch. 

ADVANZEON SOLUTIONS, INC.

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

General

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

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

Overview

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

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

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

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

ADVANZEON SOLUTIONS, INC.

Sources of Revenue

Three month periods ended March 31, 2019 and 2018

A quantitative summary of our revenues by source category for the three month periods ended March 31, 2019 and 2018:

Results of Operations

OSA services decreased to $67,923 in 2019 from $180,623 in 2018 due to sales efforts in establishing new contracts on a national basis, which should take effect in the second quarter of 2019.

Cost of revenues decreased from $49,104 in 2018 to $41,660 in 2019 due to a decrease in sales.

General and administrative expense

General and administrative expense in total for the three month periods ended March 31, 2019 and 2018 was as follows:

We evaluate expenses at the Parent company level as well as at our PVMS subsidiary. Expenses at the Parent company level include overhead and the cost of being a public entity. Expenses at PVMS are solely related to the OSA services segment. A breakdown of these expenses as of March 31, 2019 and 2018 is as follows:

ADVANZEON SOLUTIONS, INC.

Parent Company Level

Explanations of variations by line item follow:

Travel expense remained relatively the same.

Professional fees increased by $98,009. The increase is a result of $64,000 billed for audit fees in the three month period ended March 31, 2019 that was not billed in the three month period ended March 31, 2018. In addition, there was $20,000 billed for accounting fees for the preparation of the audit and 10-K for years 2015-2017 in the three month period ended March 31, 2019 that was not billed in the comparable period.

Director’s fees accrue at the rate of $37,500 for each fiscal quarter.

Other general and administrative expense decreased by $27,444. Office supplies decreased by approximately $3,000 due to the operations moving to the subsidiary level. Taxes decreased by approximately $17,000 due to a change in par value. Advertising and promotion expense decreased by $4,500 due to marketing efforts moving to the subsidiary level.

PVMS Subsidiary Level

ADVANZEON SOLUTIONS, INC.

Explanations of variations by line item follow:

Payroll related expenses decreased $31,356. The Company no longer used 3 subcontractors in the three months ended March 31, 2019 that were used in the comparable period in 2018.

Travel expense was $43,497 lower due to the sales force having cutback on traveling to trade shows and visiting existing and potential clinics. The sales force and supporting forces were most active in 2017 in building up new clientele while in 2018 expanding the services offered to current clientele from local to national.

Professional Fees increased $10,151. In January 2018, we hired an outside accountant for PVMS, whom we pay $7,000 per month. For the period January through March 2018 the fee was prorated to $11,000.

Marketing costs decreased by $8,275 due to the sales force having cutback on traveling to trade shows and visiting existing and potential clinics. The sales force and supporting forces were most active in 2017 in building up new clientele while in 2018 expanding the services offered to current clientele from local to national.

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

Office expense decreased by $4,252 due to the establishment of the California location in 2018.

Rent expense increased $10,549 due to having a California office during the three months period ended March 2019 that did not exist in the comparable period in 2018.

Other general and administrative expense decreased by $26,576. This was mainly due to $11,500 in provider fees in 2018 that the Company is no longer using in 2019. In 2018, the Company had bad debt expense of approximately $13,600 that is not recognized in 2019.

Interest expense

Interest expense in total for the three month periods ended March 31, 2019 and 2018 was as follows:

A breakdown of the interest expense for the three month periods ended March 31, 2019 and 2018 is as follows:

ADVANZEON SOLUTIONS, INC.

Financial Condition

Liquidity and Capital Resources

During the three-month period ended March 31, 2019, we funded our operations from revenues and $355,000 in private borrowings. We will continue to fund our operations from these sources until we are able to produce operating revenue sufficient to cover our cost structure. In the event we are not able to secure such funding, our operations will be adversely affected.

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk:

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

Item 4. Controls and Procedures

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

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

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

Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2019. This evaluation was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, Internal Control-Integrated Framework. Based upon such assessment, our CFO concluded that, as of March 31, 2019, our internal controls over financial reporting were not optimally effective in the specific areas described in the paragraphs below.

As of March 31, 2019, our CFO identified the following specific material weaknesses in the Company’s internal controls over its financial reporting processes:

ADVANZEON SOLUTIONS, INC.

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

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.

ADVANZEON SOLUTIONS, INC.

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

With the exception of the matter set forth below, all of the legal proceedings for the three months ended March 31, 2019, are disclosed in our annual report on Form 10-K filed on May 24, 2019.

None.

Item 1A. Risk Factors

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

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

With the exception of the matter set forth below, the sale of unregistered securities for the three months period ended March 31, 2019 were disclosed in our annual report on Form 10-K filed on May 24, 2019.

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

On May 8, 2019, we issued a convertible promissory note in the principle amount of $50,250 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

ADVANZEON SOLUTIONS, INC.

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

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

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

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

ADVANZEON SOLUTIONS, INC.

On May 31, 2019, we issued a convertible promissory note in the principle amount of $150,000 to an accredited investor. The interest rate was 12%. The Holder of the note has the right to convert all or a portion of the principle and any accrued interest into shares of our common stock at a per share price equal to the lesser of (i) 15% below the average daily closing price of our common stock for the immediately preceding twenty (20) business days or (ii) $0.11. The principal amount and any accrued but unpaid interest under the note shall be due and payable on the earliest to occur (i) the date which is twelve months from the effective date of the note or (ii) the receipt by the Company of payment on its account receivable owed to it by Universal Health Care, Inc. and Universal Health Care Insurance Company, which accounts receivable is currently being processed in the matter of The Receivership of Universal Health Care, Inc., a Florida corporation and The Receivership of Universal Health Care Insurance Company, Inc., a Florida corporation under case numbers 2013-CA and 2013-CA, respectively. The Company also granted to the purchaser a five year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.15 per share.

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

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

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

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

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

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

On May 28, 2019, we issued 3,000,000 warrants to a member of our Chief Accounting Officer. The warrants have a term of five years and an exercise price of $0.0685 per warrant.

ADVANZEON SOLUTIONS, INC.

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

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

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

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

Item 3. Exhibits

Documents filed as part of this Report.

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.

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