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, 2019.

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.

PVMS 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.





                                     - 15 -





                           ADVANZEON SOLUTIONS, INC.

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

The first quarter of 2020 saw the beginnings of a dramatic shift in the economic business structure of the U.S., ultimately resulting in substantial nationwide business closures and employee layoffs/furloughs. Unemployment went from a low of 3.6% to over 14% in April 2020 - an almost overnight shift. All of this was a result of the rapid spread of COVID-19. Caught up in the business closures during a national "stay at home" directive, were a significant number of Concentra clinics. During this same period, the federal government, specifically the Department of Transportation ("DOT"), suspended the need for interstate commercial drivers to report for previously mandated DOT physical exams and lifted the commercial drivers' driving time restrictions. While the Company is substantially dependent upon the commercial drivers' need for these physical exams, their attendance at various Concentra clinics for these exams and the referral of the drivers by these clinics to the Company when sleep apnea is suspected, these closures and the suspension of the DOT physical exams did not adversely impact on the Company as much as might have been anticipated. The company was well positioned to withstand these events and had established itself securely enough with both the still open Concentra clinics and new business accounts to maintain its referral momentum, albeit not at the same pace.

The Company's sales in January 2020 were up 74% compared to its sales in January 2019. The Company's sales in February 2020 increased 101% over its sales in February 2019. The Company's overall sales during the first quarter of 2020 increased over 88%. This increase resulted largely from the Company's senior management's positioning with senior management of Concentra, its sales reps' strategic restarting of their regional contacts with Concentra clinic managers and the hiring of additional customer service representatives, adding depth to an already solid rep force. The Company's growth over 2019 has continued into the second quarter of 2020 with current sales being up an additional 7% over last year's comparable period. It is also notable that during the first quarter of 2020, approximately 7% of the Company's increased sales over the comparable period of 2019 were occasioned by relationships established by the Company at the end of 2019 with new third-party payers such as The Pacific Gas & Electric Company (PG&E); the United States Postal Service in Indianapolis, Indiana; a West Coast-based Workers' Compensation organization with substantial national accounts; and the Transit Authority in Baltimore, Maryland. We expect our growth pattern to continue in 2020 as the Company spends more time encouraging these new accounts to utilize the Company's services, exclusively, and as relationships established by the Company with labor in the latter part of 2019 and into 2020 mature and strengthen.

Additionally, the Company would note that while its staff was offered the choice of working from home or at the Company's offices, 100% of the Company's employees elected to work from the Company's offices. Thus, notwithstanding the fact that many of the Company's accounts were not reachable, either personally or by phone, during the first quarter of 2020, the Company's staff diligently pursued those contacts and new accounts in a coordinated effort to maintain and increase the Company's business.





                                     - 16 -





                           ADVANZEON SOLUTIONS, INC.

While a number of labor-related programs were put on hold during the first quarter of 2020, the Company elected to engage in a modified launch of its program with CoreChoice. In March of 2020, the Company prepared for this launch to a limited number of CoreChoice facilities (350 clinics). This launch occurred in late April 2020, and while revenues have not yet commenced from these clinics, management fully expects same to occur within the next 30 - 45 days as the CoreChoice clinics reopen.

In addition, the Company hired two senior labor consultants whose directive is to enhance our sales revenue from the Western Teamsters Welfare Trust Fund, a long-standing Company account, and increase the Company's revenue through new accounts from the labor/union market.

Additionally, the Company accelerated the development of its CPAP sanitizing device and daily sanitizing wipes product line (see our announcement of April 13, 2020). In April 2020, we commenced taking orders for this product line and first deliveries to our customers are expected to occur by the end of May. The Company's sales reps market our sanitizer and sanitizing wipes products in tandem with sales of the Company's CPAP device.

The Company believes that its sales activities will shortly place the Company in a position to move forward with its expressed intent to relist the Company on NASDAQ. In the first quarter of 2020, the Company commenced activities aimed at reducing Company debt, much of which existed with the Company for decades. In the second quarter of 2020, the Company successfully negotiated with debt holders holding debt against the Company of approximately $2.9 million to convert that debt into Common Stock of the Company (equity). Additionally, the Company has received commitments to convert another approximately $7 million of debt into equity of the Company. The Company intends to pursue these efforts with the goal of ultimately converting much, if not all, of the Company's long-standing debt (as opposed to continuing operation expenses) into equity in the Company, bringing it one step closer to its "up-listing" goal.





Sources of Revenue

A quantitative summary of our revenues by source category for the three month periods ended March 31, 2020 and 2019:





                 2020          2019        Change

OSA- related   $ 127,548     $ 67,923     $ 59,625




Results of Operations

OSA services increased to $127,548 in 2020 from $67,923 in 2019. The increase was primarily the result of the timing of the Concentra launch. 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 Concentra's preferred national sleep apnea services provider. The launch by Concentra of this program included notifying all of the Concentra clinics of same. The launch was delayed but was initiated during the fourth quarter of 2019.





Cost of revenues increased to $64,909 in 2020 from $41,660 in 2019 due to an
increase in sales.



                                     - 17 -





                           ADVANZEON SOLUTIONS, INC.

General and administrative expense

General and administrative expense in total for the three month periods ended March 31, 2020 and 2019 was as follows:





2020                $ 596,065
2019                  425,804
Change              $ 170,261

Percentage Change 39.99 %

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 for the three month periods ended March 31, 2020 and 2019 is as follows:





                                                   Percent
           2020          2019         Change        Change

Parent   $ 243,222     $ 196,135     $  47,087        24.01 %
PVMS       352,843       229,669       123,174        53.63 %

Total    $ 596,065     $ 425,804     $ 170,261        39.99 %




                              Parent Company Level



                                                                            Percent
                                     2020          2019         Change       Change

Professional fees                  $ 166,376     $ 124,461     $ 41,915        33.68 %
Travel expense                            67         3,000       (2,933 )     -97.77 %
Board of Directors fees               37,500        37,500            -         0.00 %
Rent expense                          23,181        25,829       (2,648 )     -10.25 %
Other                                 16,098         5,345       10,753       201.18 %

Total general and administrative $ 243,222 $ 196,135 $ 47,087 24.01 %

Explanations of variations by line item follow:

Travel expense decreased by $2,933 due to main operations moving to the subsidiary level.

Professional fees increased by $41,915. There was increase due to a new consulting service expenses in the total of $118,000 and an increase of $11,197 in legal fees in the three month period ended March 31, 2020 compared to the three month period ended March 31, 2019. Audit fees decreased by $63,550 and accounting fees decreased by $19,832 due to the fact that the 2019 10-K was filed in April 2020.

Rent expense has stayed relatively the same.





Other general and administrative expense increased by $10,753. This increase was
due to a new D&O Insurance expense of $12,780 while other miscellaneous items
decreased by $2,000.





                                     - 18 -





                           ADVANZEON SOLUTIONS, INC.



                             PVMS Subsidiary Level



                                                                             Percent
                                     2020          2019         Change        Change

Payroll related                    $ 175,872     $ 102,145     $  73,727        72.18 %
Travel and related expense            66,165        39,427        26,738        67.82 %
Professional fees                     51,792        42,497         9,295        21.87 %
Marketing costs                       16,834         7,500         9,334       124.45 %
Automobile expense                     7,394         5,561         1,833        32.96 %
Office supplies                        2,942         8,859        (5,917 )     -66.79 %
Rent expense                          11,837        10,549         1,288        12.21 %
Other                                 20,007        13,131         6,876        52.36 %

Total general and administrative $ 352,843 $ 229,669 $ 123,174 53.63 %

Explanations of variations by line item follow:

Payroll related expenses increased $73,727. There are 5 additional subcontractors in the three months ended March 31, 2020 that were used in the comparable period in 2019.

Travel expense increased by 26,738 due to the company's increased travel between states.

Professional Fees increase by $9,295. The company hired 5 new consultants to bring in additional revenue.

Marketing costs increased by $9,334. In August 2019, the company hired a new advertising firm to work on the company's website.

Office supplies decreased by $5,917 due to office supplies were fully stocked going into the new year of 2020.

Rent expense stayed relatively the same.

Other general and administrative expense increased by $6,876. This is due to revamp of website, employee benefits, and printing and postage for a conference.





                                     - 19 -





                           ADVANZEON SOLUTIONS, INC.



Interest expense

Interest expense in total for the three month periods ended March 31, 2020 and 2019 was as follows:





2020                $ 394,629
2019                  328,015
Change              $  66,614

Percentage Change 20.31 %

A breakdown of the interest expense for the three month periods ended March 31, 2020 and 2019 is as follows:





           2020          2019         Change

Parent   $ 144,113     $ 163,092     $ (18,979 )
PVMS       250,516       164,923        85,593

Total    $ 394,629     $ 328,015     $  66,614




                                     - 20 -





                           ADVANZEON SOLUTIONS, INC.



Financial Condition

Liquidity and Capital Resources

During the three month period ended March 31, 2020, we funded our operations from revenues and $182,000 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.





Subsequent Events

Subsequent to March 31, 2020, we issued a convertible promissory note in the principal amount of $109,180. The term of the note is 12 months and the interest rate is 10% per annum.

On April 27, 2020, we filed a report on Form 8-K regarding our entry into a material definitive agreement and the creation of a direct financial obligation which report is hereby incorporated herein by reference.





Agreements

On May 13, 2020, we entered into an Exchange Agreement (the "Agreement") with certain holders of our 10% Senior Debt Due April 15, 2012 (collectively, the "Noteholders"). The Agreement provides that the Noteholders with Notes, totaling $2,916,869 of principal and accrued but unpaid interest, exchange their Notes for 14,584,350 shares of the Company's Common Stock and 5,121,105 Common Stock purchase warrants. The exchange rate was $0.20 per share, which was the market price of the Common Stock as of April 21, 2020. The warrants are for a term of five years and the exercise price is $0.25 per share. The Agreement further provides that the Noteholders lock-up their acquired shares until the earlier of (a) one year from the date of the Agreement, or (b) the average daily trading volume of the Company's Common Stock is no less than 500,000 shares for 30 consecutive trading days (collectively, the "Lock-up Period"). Following the Lock-up Period and for a period of 18 months from the date of the Agreement, if the Noteholders intend to sell more than 200,000 shares on any single trading day, the Noteholders shall give the Company prior notice of the amount of shares they intend to sell and the Company shall have a right to purchase all, but not less than all, of the offered shares at the closing bid price of the Common Stock on the date of the notice. The Agreement is in further implementation of the Company's strategy to position the Company for the relisting of its securities on a national stock exchange such as the New York Exchange, the American Exchange or NASDAQ.

© Edgar Online, source Glimpses