We do not own any real property. During 2013 and the first part of 2014, we leased our Tampa corporate office and paid $218,250 in 2013 and $52,326 in 2014 in rent. In May 2014, we moved our offices to a smaller location in Tampa, Florida. The term of the lease is for 5 years beginning in May of 2014 and ending on June 30, 2019. We lease approximately 3,133 square feet. We currently pay approximately $7,697 per month. We consider the condition of our leased property to be average and adequate for our current needs. In our Tampa office we maintain clinical operations, business development, accounting, financial and regulatory reporting and other management information systems, and provider and member service functions.
Advanzeon manages the delivery of a continuum of behavioral healthcare, substance abuse, and drug management services for commercial, Medicare, Medicaid, and CHIP members on behalf of health plans. It also provides these services to employees of self-insured companies and members of unions. Our managed care operations included at-risk contracts, administrative service agreements, and fee-for-service agreements. The customer base for our services was primarily health plans that contract with governmental entities. Our clinical services were provided by unrelated contracted providers on a fee for service or subcontracted basis. In December 2013, we sold our wholly owned subsidiary, Comprehensive Behavioral Care, Inc., (“CBC”) which handled all of our at-risk contracts, ASO contracts and held the provider network contracts. In January 2014, we entered in an agreement with CBC whereby we oversaw administrative services for CBC’s contract services. We conducted no other revenue generating operations in 2014. In 2014, we continued our plan to market our Pharmacy Savings Management Program. In October 2013, we established a wholly-owned subsidiary, Pharmacy Value Management System (“PVMS”). The purpose of PVMS was to act as a strategic partner to Pharmacy Benefit Mangers (“PBM”) PVMS would contract with health plans, self-insured entities, unions and Taft-Hartley health and welfare funds whereby we would offer to manage on an at-risk basis prescription drug programs. We would secure a bond to cover our guaranteed savings. PVMS would enter into agreements with smaller PBM’s whereby they would agree to the discounts we would provide. After working on the program for most of 2014, we determined that we did not have the financial resources to successfully implement the program. In the fourth of quarter of 2014, we began working on a business model for the virtual treatment of Obstructive Sleep Apnea or OSA.
A quantitative summary of our revenues by source category for 2014 and 2013 follows:
Revenues for the fiscal year ended December 31, 2014, were $535,863 compared to revenues of $3,181,789 for the comparable period ending December 31, 2013. At-risk contract revenue totaled $766,116 in 2013. In December 2013, we sold CBC which held all of our at-risk and ASO contracts. For the fiscal year ended December 31, 2014, all of our revenues were derived from the fee we received from CBC for servicing, on an ASO basis, their contracts which totaled $535,863. For the comparable period ending December 31, 2013, revenue from the ASO contracts totaled $460,619. The decrease in revenue is attributable to the sale of CBC in December 2013.
Selling, general and administrative expense decreased from $5,229,607 in fiscal year 2013, to $$1,399,814 in the fiscal year ending December 31, 2014. This decrease was largely due to the sale of CBC. Approximately $2.4 million of the decrease was due to the sale of CBC. Another $1.2 million in expense reduction was due to the closing of our Puerto Rico operations.
Interest expense decreased $512,390 from $1,881,193 to $1,369,803 due primarily to reduced average balances outstanding and reduced amortization of debt discount.
Gain on sale of subsidiary was $9,270,336 and did not exist in 2014. On December 30, 2013, The Company sold its wholly-owned subsidiary, Comprehensive Behavioral Care, Inc. (“CBC”). The sales price was $100.00 and the buyer received all of the issued and outstanding equity of CBC. As part of the transaction, the Company was entitled to receive any sums owing or payable to the Company or its subsidiaries for work or event occurring prior to the date of the sale. On January 1, 2014, the Company and CBC entered into an arrangement whereby the Company agreed to provide administrative services only for contracts held by CBC. These services consisted of the performance of clinical management, utilization management, claims administration, intensive case management, discharge planning and referral. In return CBC agreed to pay a monthly fee based on the number of employees/members covered on a client by client basis. The initial term is three years with provisions for subsequent one year renewals that has occurred every year since since commencement. Also on January 1, 2014, the Company and CBC entered into an agreement whereby the Company could lease the access to the Network Providers. The initial term was two years with provisions for subsequent one year term renewals. The Company agreed to pay a fixed rate per member, per month. See Note 11 Sale of Comprehensive Behavioral Care, Inc. for more detail.
During the fiscal year ended December 31, 2013, we funded our operations from revenues and a line of credit. For the fiscal year ended December 31, 2014, we funded our operations from revenues and private borrowings. We will continue to fund our operations from these sources until we are able to produce operating revenue sufficient to cover our cost structure. In the event we are not able to secure such funding, our operations will be adversely affected.
Short Term: We funded our operations with revenues from sales and private borrowings. We could not access commercial lines of credit during 2014.
We typically enter into contracts on an annual basis to provide managed behavioral healthcare and substance abuse services to our customers’ members. Our arrangements with our clients fall into two broad categories:
During 2013, we managed programs through which services were provided to recipients in 8 states. Our objective is to provide easily accessible, high quality behavioral healthcare services and to manage costs through measures such as the monitoring 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.
● management of prescription drugs on an at-risk basis for health plans, self-insured companies, and unions;
● analytic services for medical and pharmacy claims for medical integration of behavioral and medical care coordination;
Accrued claims payable. Claims expense, a major component of cost of revenue, is recognized in the period in which an eligible plan member actually receives services and includes a provision for claims incurred but not reported (“IBNR”). We contracted 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.
Income taxes. Computing our provision for income taxes involves significant judgment and estimates particularly in relation to the determination of a valuation allowance for deferred tax assets (primarily from net operating loss carryforwards). See Note 14 to the consolidated financial statements. As further discussed in Item9A Controls and Procedures, during the fourth quarter of 2013, there was a departure of the entire fiscal management department including the Chief Financial Officer. As a result, management did not have access to any of the financial records of the Company. Consequently, the Company has not filed any federal, state, or local income returns since 2012. The financial statements do not reflect any fines or penalties that may result from not filing the various income tax returns.