SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2018

The Company’s Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Certain prior period financial statement amounts have been reclassified to conform to current period presentation. Additionally, certain amounts in the Consolidated Statements of Operations have been reclassified to include the presentation of operating expenses and operating income (loss).

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition and Cost of Revenue

Cost of Revenue

Cost of revenue includes the costs of prescription medications, shipping and other direct and indirect costs, and nursing services, offset by volume and prompt pay discounts received from pharmaceutical manufacturers and distributors and manufacturer rebates, which are generally volume-based incentives that are recorded as a reduction to the cost of inventory purchases.

Revenue Recognition

On January 1, 2018, the Company adopted ASC 606 - Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not restated and continue to be reported in accordance with accounting standards in effect for those periods.

Net revenues are primarily generated by two performance obligations; delivery of prescription medications to patients and nursing services related to infusion therapies. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is defined as the unit of account for revenue recognition under ASC 606. Sources of net revenues include commercial insurance payors, Medicare, Medicaid, other government insurance payors, hospital and hospice facilities and patients. Revenue is allocated to each performance obligation based on its relative standalone price, determined using reimbursement rates established by third-party payor contracts. Revenue is recognized in the period in which the related performance obligation is satisfied. Prescription medication revenue is recognized at the time the product is delivered to the patient and nursing revenue is recognized on the date of service.

Transaction prices for performance obligations with contracted payors are based on contracted rates. Transaction prices for Medicare and Medicaid programs are based on predetermined net realizable rates that are established by statutes or regulation. Transaction prices for non-contracted payors are based on usual and customary rates for services provided. These transaction prices are reduced by estimates of variable consideration, consisting of (i) implicit price concessions resulting from differences between rates charged for services performed and expected reimbursements, and (ii) retroactive revenue adjustments due to audits or reviews by our third-party payors.

We determine our estimates of variable consideration based on historical collection experience with similar payor classes, aged accounts receivable by payor class, terms of payment agreements, correspondence from payors related to revenue audits or reviews, our historical settlement activity of audited and reviewed claims and current economic conditions using the portfolio approach. Revenue is recognized only to the extent that it is probable that a significant reversal of the cumulative amount recognized will not occur in future periods.

Net revenues are adjusted when changes in estimates of variable consideration occur. Changes in estimates typically arise as a result of new information obtained, such as actual payment receipt or denial, or retroactive pricing adjustments by payors for new medications or services. Subsequent changes to estimates of transaction prices are recorded as adjustments to net revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the payors ability to pay are recorded as an allowance for doubtful accounts.

The Company's performance obligations relate to contracts with a duration of less than one year; therefore, the Company has elected to apply the optional exemption provided by ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. The unsatisfied or partially unsatisfied performance obligations are completed when prescription medications are shipped, which generally occurs within a few days of the end of the reporting period. The Company's cost of obtaining contracts is not material.

In accordance with ASC 606, contract assets are to be recognized when an entity has the right to receive consideration in exchange for goods or services that have been transferred to a customer when that right is conditional on something other than the passage of time. The Company does not recognize contract assets as the right to receive consideration is unconditional in accordance with the passage of time criteria. Also in accordance with ASC 606, contract liabilities are to be recognized when an entity is obligated to transfer goods or services for which consideration has already been received. The Company does not receive consideration prior to the transfer of goods or services and, therefore, does not recognize contract liabilities. The Company elected a practical expedient to expense sales commissions when incurred as the amortization period associated therewith is generally one year or less. These costs are recorded in service location operating expenses.

Prior to the adoption of ASC 606, the Company accounted for revenue under ASC Subtopic 605-25, Revenue Recognition: Multiple-Element Arrangements (“ASC 605-25”). The Company concluded that its (i) delivery of prescription medications to patients and (ii) nursing services related to infusion therapies represented separate deliverables to its customers and allocated the total consideration to each deliverable based on its stand-alone selling price. Prescription medication revenue was recognized at the time the medication is shipped, and nursing revenue was recognized on the date of service.

Accounts Receivable and Allowance for Doubtful Accounts

Amounts billed that have not yet been collected that also meet the conditions for unconditional right to payment are presented as accounts receivable. We report accounts receivable related to delivery of prescription medications to patients and nursing services related to infusion therapies at their estimated transaction prices, inclusive of adjustments for variable consideration, based on the amounts expected to be collected from payors. Our accounts receivable are uncollateralized and consist of amounts due from commercial, government and patient payors. We write off accounts receivable once we have exhausted our collection efforts and deem an account to be uncollectible. Subsequent to the adoption of ASC 606, an allowance for doubtful accounts is established only as a result of an adverse change in the Company’s payors’ ability to pay outstanding billings. There was no allowance for doubtful accounts as of December 31, 2018.

Prior to the adoption of ASC 606, estimates of uncollectible accounts receivable were recorded as bad debt expense and a related allowance for doubtful accounts was established. The risk of collection varied based upon the product and the payor. We estimated the allowance for doubtful accounts based on several factors including the age of the outstanding receivables, the historical experience of collections, adjusting for current economic conditions, and evaluating specific customer accounts for the ability to pay. We evaluated trends in collections and the effects of systems and business process changes in determining our expected collection rates. Balances that were determined to be uncollectible were written off against the existing allowance for doubtful accounts.

Cash and Cash Equivalents and Restricted Cash

Highly liquid investments with a maturity of three months or less when purchased are classified as cash equivalents. Restricted cash consists of cash balances held by financial institutions as collateral for letters of credit. These balances are reclassified to cash and cash equivalents when the underlying obligation is satisfied. Restricted cash balances expected to become unrestricted during the next twelve months are recorded as current assets. As of December 31, 2018, the Company had a restricted cash balance, in a money market account, of approximately $4.3 million.

Inventory

Inventory is recorded at the lower of cost or net realizable value. Cost for prescription medications is determined using specific item identification and supplies are accounted for using the first-in, first-out method.

Acquisitions

We account for acquisitions in accordance with ASC Topic 850, Business Combinations, if the acquired assets assumed and liabilities incurred constitute a business. We consider acquired companies to constitute a business if the acquired set of activities and assets are capable of being managed for the purpose of providing a return to the Company. For acquired companies constituting a business, we recognize the identifiable assets acquired and liabilities assumed at their acquisition-date fair values and recognize any excess of total consideration paid over the fair value of the identifiable assets as goodwill.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of assets as follows:



	Useful Life
Computer hardware and software	3	years	-	5	years
Office equipment				5	years
Vehicles	4	years	-	5	years
Medical equipment	13	months	-	5	years
Furniture and fixtures				5	years

Leasehold improvements and assets leased under capital leases are depreciated using a straight-line basis over the lesser of the related lease term or estimated useful life of the assets. Software implementation costs, primarily consisting of application development activities, are capitalized and included in property and equipment. Costs related to the preliminary project and post-implementation stages of a project are charged to expense as incurred.

Depreciation of the property and equipment commences on the date the asset is ready for its intended use. A gain or loss is recorded in the statement of operations in the period in which the asset was sold or retired. Maintenance and repair costs are expensed as incurred.

The Company evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of its property and equipment may warrant revision or that the remaining balance of an asset may not be recoverable. The measurement of impairment is based on the ability to recover the balance of assets from expected future operating cash flows on an undiscounted basis. Impairment losses, if any, are determined based on the fair value of the asset, which is generally calculated as the present value of related cash flows using discount rates that reflect the inherent risk of the underlying business. No impairment charges related to property and equipment were recorded during the years ended December 31, 2018, 2017 or 2016.

Leases

Operating lease expense is recorded on a straight-line basis over the expected term of the lease beginning on the date the Company gains possession of leased property. The Company includes tenant improvement allowances and rent holidays received from landlords and the effect of any rent escalation clauses as adjustments to straight-line rent expense over the expected term of the lease.

Capital leases are reflected as a liability at the inception of the lease based on the present value of the minimum lease payments or, if lower, the fair value of the property. Assets recorded under capital leases are depreciated in the same manner as owned property.

Goodwill

In accordance with ASC Topic 350, Intangibles–Goodwill and Other (“ASC 350”), we evaluate goodwill for possible impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We concluded that the characteristics of all components of our business are similar and therefore the reporting unit for our goodwill analysis is the entity as a whole. We use a two-step process to assess the realizability of goodwill. The first step is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. For example, we analyze changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there are indicators of a significant decline in the fair value of a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required.

If a qualitative assessment indicates it is more likely than not that the fair value of our reporting unit is less than its carrying amount, we will proceed to the second step where we estimate the fair value of the reporting unit. We concluded that our goodwill was not impaired as a result of our 2018 assessment and none of the goodwill associated with our single reporting unit was considered at risk of impairment as of October 31, 2018.

Intangible Assets

Intangible assets as of December 31, 2018 consisted of managed care contracts and non-compete agreements. We amortize managed care contracts over their estimated useful lives of four years, and non-compete agreements on a straight-line basis over their contractual lives, which is generally one to five years. During 2018, we evaluated our intangible assets for indicators of impairment and determined that there have been no material developments, events, changes in operating performance or other circumstances that would cause management to believe it is more likely than not that the fair value of our intangible assets would be less than its carrying amount.

Amounts due to Plan Sponsors

Amounts due to plan sponsors represent payments received from plan sponsors in excess of the contractually required reimbursement that are expected to be refunded.

2017 Warrants

The 2017 Warrants are recorded at fair value and are included in other non-current liabilities on the accompanying Consolidated Balance Sheets. Fair value is remeasured each reporting period and a mark-to-market adjustment is recorded under the caption “Change in fair value of equity linked liabilities” on the accompanying Consolidated Statements of Operations. The fair value of the 2017 Warrants was $25.3 million and $20.5 million as of December 31, 2018 and 2017, respectively. Fair value increases of $4.8 million and $3.6 million were recorded during the years ended December 31, 2018 and 2017.

The Company estimates the fair value of the 2017 Warrants using a valuation model that considers attributes of the Company’s common stock, including the number of outstanding shares, share price and volatility. The valuation also considers the exercise period of the warrants and the attributes of other convertible instruments in estimating the number of shares that will be issued upon the exercise of the warrants.

See Note 8 - Preferred Stock and Stockholders’ Deficit for further discussion of the 2017 Warrants.

Income Taxes

The Company accounts for income taxes under ASC Topic 740, Income Taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using current enacted tax rates in effect in the years in which those temporary differences are expected to reverse. A valuation allowance is recorded against a deferred tax asset if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax asset will not be realized.

Uncertain tax positions are recognized if it is more likely than not that the Company will be able to sustain the tax position taken, and the measurement of the benefit is calculated as the largest amount that is more than 50% likely to be realized upon resolution of the benefit. The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. There were no liabilities recorded for uncertain tax positions as of December 31, 2018 or 2017.

Stock-Based Compensation

The Company accounts for stock-based compensation expense under the provisions of ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). Stock-based compensation expense is based on the grant date fair value. We estimate the fair value of stock option awards using a Black-Scholes option pricing model. The fair value of restricted stock unit awards is generally estimated using the close price of our common stock on the grant date. We recognize expense for share-based payment awards based on their vesting conditions as follows:


•	Awards with service-based vesting conditions only – Expense is recognized on a straight-line basis over the requisite service period of the award.

•

Awards with performance-based vesting conditions – Expense is not recognized until it is determined that it is probable the performance-based conditions will be met. When achievement of a performance-based condition is probable, a cumulative catch-up of expense will be recorded as if the award had been vesting on a straight-line basis from the award date. The award will continue to be expensed on a straight-line basis through the vesting period and will be updated if the probability of achieving the performance-based condition changes.

The impact of forfeited awards is recorded in the period in which the forfeiture occurs.

Fair Value Measurements

ASC Topic 820, Fair Value Measurement (“ASC 820”), provides a framework for measuring fair value and defines fair value as the price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that is determined using assumptions that market participants would use in pricing an asset or liability. The standard establishes a valuation hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on independent market data sources. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available.

The valuation hierarchy is composed of three categories. The categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The categories within the valuation hierarchy are described as follows:


•	Level 1 - Inputs to the fair value measurement are quoted prices in active markets for identical assets or liabilities.


•	Level 2 - Inputs to the fair value measurement include quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.


•	Level 3 - Inputs to the fair value measurement are unobservable inputs or valuation techniques.

The Company’s cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, amounts due to plan sponsors, accrued interest, accrued expenses and other current liabilities approximate fair value due to their fully liquid or short-term nature.

See Note 12 - Fair Value Measurements for additional information on the fair value of the Company’s debt facilities.

Accounting Pronouncements Recently Adopted and Issued

Accounting Pronouncements Recently Adopted

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15 — Internal Use Software. ASU 2018-15 aligns the requirements for capitalization of implementation costs related to hosted software with the existing internal-use software guidance. The effective date for ASU 2018-15 is for annual and interim periods beginning after December 15, 2019. The Company early adopted this ASU on October 1, 2018 on a prospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11—Earnings Per Share (Topic 260), Distinguishing Liabilities From Equity (Topic 480), and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. ASU 2017-11 eliminates the requirement that a down round feature precludes equity classification when assessing whether an instrument is indexed to an entity’s own stock. A freestanding equity-linked financial instrument no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The Company adopted the new standard on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09—Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 modifies when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The effective date for ASU 2017-09 is for annual or any interim periods beginning after December 15, 2017. The Company adopted this ASU on January 1, 2018. The adoption of this standard did not materially impact the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18—Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The effective date for ASU 2016-18 is for annual or any interim periods beginning after December 15, 2017. The Company adopted this ASU on January 1, 2018. The adoption of this standard did not materially impact the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15—Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for eight specific cash flow issues with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The effective date for ASU 2016-15 is for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted this ASU on January 1, 2018. The adoption of this standard did not materially impact the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606). The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and replaced most of the existing revenue recognition guidance in U.S. GAAP. On January 1, 2018, we adopted ASC 606 using the modified retrospective transition method which allowed for the application of the new guidance only to contracts that were not completed at the adoption date. Prior periods have not been restated and continue to be reported under accounting standards that were in place at the time. Prior to the adoption of ASC 606, estimates of implicit price concessions and retroactive price adjustments were recorded as bad debt expense and a related allowance for doubtful accounts was established. Subsequent to the adoption of ASC 606, accounts receivable are recorded net of estimated implicit price concessions and retroactive price adjustments and an allowance for doubtful accounts is established only as a result of an adverse change in the Company’s payors’ ability to pay outstanding billings. Upon adoption, the Company concluded that the allowance for doubtful accounts at December 31, 2017 consisted entirely of estimated implicit price concessions and retroactive price adjustments. As a result, the allowance for doubtful accounts was eliminated and accounts receivable were restated net of estimated implicit price concessions and retroactive price adjustments as of January 1, 2018. Adoption of ASC 606 did not result in an opening accumulated deficit adjustment.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13— Fair Value Measurement (Topic 820): Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurements. ASU 2018-13 modifies fair value measurement disclosure requirements. The effective date for ASU 2018-13 is for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s disclosures to the consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13—Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held. The amendments in ASU 2016-13 eliminate the probable threshold for initial recognition of a credit loss in current GAAP and reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 is effective for interim and annual reporting periods beginning January 1, 2020, and is to be applied using a modified retrospective transition method. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2016, FASB issued ASU 2016-02, Leases (“ASU 2016-02”) and issued additional clarifications and improvements throughout 2018. The pronouncement requires lessees to recognize a liability for lease obligations, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet. The guidance requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ability to assess the amount, timing, and potential uncertainty of cash flows related to leases. ASU 2016-02 is effective for interim and annual reporting periods beginning January 1, 2019. We will elect the optional transition method to apply the standard as of the effective date and therefore, we will not apply the standard to the comparative periods presented in our financial statements. We will elect the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. We will not elect the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of right-of-use assets. Further, we will elect a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets. We are finalizing the impact of the standard to our accounting policies, processes, disclosures, and internal control over financial reporting and have implemented necessary upgrades to our existing lease system.