2.	Summary of Significant Accounting Policies and Recently Issued Accounting Standards

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most sensitive accounting estimates affecting the financial statements are revenue recognition, the allowance for doubtful accounts, depreciation of long lived assets, income taxes and associated deferrals and valuation allowances, commitments and contingencies and measurement of derivative liabilities.

Accounts Receivable, Net

Accounts receivable represent customer obligations due under normal trade terms, net of allowance for doubtful accounts. The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience and other currently available evidence. The allowance for doubtful accounts was approximately

$942,000

and

$984,000

as of

June 30, 2018

and

2017,

respectively.

Fair Value Measurements

The Company follows Accounting Standards Codification (“ASC)

820

“

Fair Value Measurements and Disclosures

”, of the FASB to measure the fair value of its financial statements and disclosures about fair value of its financial instruments. ASU

820

establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC

820

establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into

three

broad levels. The

three

levels of fair value hierarchy defined by ASC

820

are described below:

Level

Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

Level

Pricing inputs other than quoted prices in active markets included in Level

which are either directly or indirectly observable as of the reporting date.

Level

Pricing inputs that are generally unobservable input and

not

corroborated by market data.

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lower priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than

one

level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The Company’s warrant liabilities and certain conversion features underlying the convertible debt are categorized as Level

Revenue Recognition

The Company provides laboratory testing services, web-based hosted software services, telehealth products and post contract customer support services.

In accordance with Financial Accounting Standards Board (“FASB”) ASC-

605

“Revenue Recognition”,

the Company recognizes revenues when there is a persuasive evidence of an arrangement, title and risk of loss have passed, the product was shipped or services have been rendered, sales price is fixed or determinable and collection of the related receivable is reasonably assured. Billings for laboratory testing services are reimbursed by

third

-party payors net of allowance for differences between amounts billed and the cash receipts.

Revenue from laboratory testing services are recognized at the time test results are delivered, net of estimated contractual allowances. Revenues for services paid by

third

-party payers, including Medicare and Medicaid, are recorded as revenues net of allowances for differences between amounts bill and the estimated receipts from such payers. Adjustments to the allowances, based on actual receipts from the

third

-party payers, are recorded upon settlement.

Revenue for hosted software services, telehealth products, and customer support services are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed, and collectability is reasonably assured.

Concentration and Credit Risk

The Company maintains its cash in bank deposit accounts which, at times,

may

exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. The Company had approximately

$473,000

and

$871,000

over FDIC-insured limits as of

June 30, 2018

and

2017,

respectively. The Company has

not

experienced any losses in such accounts.

June 30, 2018,

one

customer had an accounts receivable balance of approximately

$1,270,000.

This customer had a minimal balance at

June 30, 2017.

This customer’s accounts receivable balance comprises

37%

of gross accounts receivable at

June 30, 2018.

Income Taxes

The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

Prior to the reverse merger, AEON elected to be taxed as an S Corporation for federal and certain state income tax purposes. Under this election substantially all the profits, losses, credits and deductions of the Company are passed through to the individual shareholders. Therefore prior to the reverse merger

provision or liability for income taxes has been included in these consolidated financial statements except for state and localities where the S Corporation status has

not

been recognized.

Prior to the reverse merger, AGHC tax benefits were fully offset by a valuation allowance due to the uncertainty that the deferred tax assets would be realized. Due to the reverse merger a deferred tax asset was recorded since it was determined the realization of some of these assets is more likely than

not,

due to consolidated earnings resulting in the expected usage of net operating loss carryforwards.

June 30, 2018,

the Company concluded that a significant portion of the deferred tax assets would

not

be realized. An increase to the valuation allowance was added in fiscal year

2018

$6,031,702

resulting in a deferred tax asset of

$5,816,315

June 30, 2018

versus

$11,848,017

June 30, 2017.

The valuation allowance was increased in

December 2017

due to the change in the Tax Cuts and Jobs Act. The remaining increase was the result of the Company’s expiration of net operating losses, which caused a portion of the DTA to be unusable.

Under income tax regulations in the United States AGHC is the acquirer of AEON. As such the Company must file a consolidated return for both AGHC and AEON for the year ending

June 30, 2016.

The return will include the operating results of AGHC from

July 1, 2015

through

June 30, 2016,

and AEON’s results from

January 27, 2016

through

June 30, 2016.

The Company is in the process of finalizing its

2016

and

2017

tax returns. When filed, both returns will be subject to audit by the Internal Revenue Service.

Management considers the likelihood of changes by taxing authorities in its filed income tax returns and recognizes a liability for or discloses potential changes that management believes are more likely than

not

to occur upon examination by tax authorities. Management has

not

identified any uncertain tax positions in previously filed

2015

income tax returns that require recognition or disclosure in the accompanying consolidated financial statements.

The Company’s policy is to include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements

May 2014,

the FASB issued ASU

2014

09,

“Revenue from Contracts with Customers

”

(Topic

606

). This accounting standard outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. This standard supersedes existing revenue recognition requirements and eliminates most industry specific guidance from GAAP. The core principle of the revenue recognition standard is to require an entity to recognize as revenue the amount that reflects the consideration to which it expects to be entitled in exchange for goods or services as it transfers control to its customers. As of the date of this report, management has substantially completed the analysis related to the impact of adopting this standard. Accordingly, the Company will report uncollectible balances associated with customer responsibility as a reduction of the transaction price and a reduction in net revenues. In addition, the adoption of this new accounting standard will likely result in increased disclosure, including qualitative and quantitative disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company has adopted this ASU effective

July 1, 2018,

and this adoption will have an immaterial impact on the financial statements; however, adoption of this new ASU will require significantly enhanced disclosures for the Company.

The Company plans to use the modified retrospective method for implementation.

February 2016,

FASB issued ASU

2016

02,

Leases, which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The guidance will be effective for annual reporting periods beginning after

December 15, 2018

and interim periods within those fiscal years with early adoption permitted. The guidance will be applied on a modified retrospective basis with the earliest period presented. Based on the effective date, this guidance would apply beginning

July 2019

which is when we plan to adopt this ASU. While we are still in the process of evaluating the effect of adoption on our consolidated financial statements and are currently assessing our leases, we do

not

expect the adoption will lead to a material increase in the assets and liabilities recorded on our consolidated balance sheet.

August 2016,

the FASB issued ASU

2016

15,

“Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments,”

which clarifies how certain cash receipts and payments are to be presented in the statement of cash flows. The guidance is effective for the Company on

July 1, 2018

and early adoption is permitted.

May 2017,

the FASB issued ASU

2017

09,

“Compensation-Stock Compensation (Topic

718

): Scope of Modification Accounting”

, which amends the scope of modification accounting for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions or share-based payment awards to which an entity would be required to apply modification accounting. The ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after

December 15, 2017.

The Company has adopted this ASU, and it does

not

expect it to have a material impact on the fiscal year

2019

financial statements.

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

); Part I. Accounting for Certain Financial Instruments with Down Round Features and Part 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”,

which states that when determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature

longer precludes equity classification when assessing whether the instrument is indexed to the Company’s own stock. As a result, a freestanding equity-linked financial instrument (or embedded conversion option)

longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic

260

to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. The Company is evaluating the provisions of this ASU and plans to adopt this ASU effective

July

1,2019.

December 2017,

the Securities and Exchange Commission issued Staff Accounting Bulletin

No.

118,

which is an application of ASC Topic

740,

Income Taxes

, in the reporting period that includes

December 22, 2017,

the date on which the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act changes existing United States tax law and includes numerous provisions that will affect business. Staff Accounting Bulletin

No.

118

implies that if a reasonable estimate can be made of the Act’s effects on the Company’s financial statements, the reasonable estimate should be reported in the period ending after

December 22, 2017.

The Company has implemented Staff Accounting Bulletin

No.

118

during fiscal year

2018

by revaluing its deferred tax asset for the lower tax rates.

August 2018,

the FASB issued ASU

2018

13,

“

Fair Value Measurement (Topic

820

): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement

”, which adds disclosure requirements to Topic

820

for the range and weighted average of significant unobservable inputs used to develop Level

fair value measurements. The Company is evaluating the provisions of this ASU and plans to adopt this ASU effective

July 1, 2020.