| Summary of Significant Accounting Policies | Note
3 Summary of Significant Accounting Policies Principles
of Consolidation The
condensed consolidated financial statements include the accounts of Progressive and its wholly-owned subsidiaries as described in Note
1. All inter-company accounts and transactions have been eliminated in consolidation. Emerging
Growth Company The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our
Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required
to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously
approved. Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do
not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected to opt out of such
extended transition period. Use
of Estimates The
preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the
condensed consolidated financial statements and accompanying notes. Such estimates and assumptions impact both assets and liabilities,
including but not limited to net realizable value of accounts receivable and inventories, estimated useful lives and potential impairment
of property and equipment, estimated fair value of derivative liabilities using the Monte Carlo simulation model, fair value of assets
acquired and liabilities assumed in business combinations, and estimates of current and deferred tax assets and liabilities. Making
estimates requires management to exercise significant judgment. The full extent to which the COVID-19 pandemic will directly or indirectly
impact our business, results of operations and financial condition, including sales, expenses, and reserves and allowances, will depend
on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the
actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, and national customers and markets.
We have made estimates of the impact of COVID-19 within our condensed consolidated financial statements and there may be changes to those
estimates in future periods. Actual results may differ from these estimates. Reclassifications Certain
reclassifications have been made to the 2021 financial statement presentation to conform to that of the current period. Total equity
and net income (loss) are unchanged due to these reclassifications. Cash The
Company maintains its cash in bank deposit accounts at several financial institutions, which are insured by the Federal Deposit Insurance
Corporation (“FDIC”) and at times may exceed federally insured limits. The Company had approximately $ 6.1 Cash
Equivalents The
Company considers all highly liquid investments purchased with an original maturities of three months or less to be cash equivalents.
The Company had no Accounts
Receivable and Allowance for Doubtful Accounts Trade
accounts receivable are stated at the invoiced amount. Trade accounts receivable primarily include amounts from third-party pharmacy
benefit managers and insurance providers and are based on contracted prices. Trade accounts receivable are unsecured and require no collateral.
The Company records an allowance for doubtful accounts for estimated differences between the expected and actual payment of accounts
receivable. These reductions were made based upon reasonable and reliable estimates that were determined by reference to historical experience,
contractual terms, and current conditions. Each quarter, the Company reevaluates its estimates to assess the adequacy of its allowance
and adjusts the amounts as necessary. Account balances are charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote. Risks
and Uncertainties The
Company’s operations are subject to intense competition, risk and uncertainties including financial, operational, regulatory and
other risks including the potential risk of business failure. Billing
Concentrations The
Company’s trade receivables are primarily from prescription medications billed to various insurance providers. Ultimately, the
insured is responsible for payment should the insurance company not reimburse the Company. The Company generated reimbursements from
three significant insurance providers for the nine months ended September 30, 2022: Schedule
of Billing Concentrations
Payors
A 23 %
B 23 %
C 19 % Reimbursement
percentage The
Company generated reimbursements from three significant pharmacy benefit managers (PBMs) for the nine months ended September 30, 2022:
PBMs
A 52 %
B 23 %
C 11 % Inventory Inventory
is valued on a lower of first-in, first-out (FIFO) cost or net realizable value basis. Inventory primarily consists of prescription medications,
pharmacy and testing supplies, and retail items. The Company provides a valuation allowance for obsolescence and slow-moving items. The
Company recorded an allowance for obsolescence of $ 40,000 Property
and Equipment Property
and equipment are recorded at cost or fair value if acquired as part of a business combination. Property and equipment are depreciated
or amortized using the straight-line method over their estimated useful lives. Upon the retirement or disposition of property and equipment,
the related cost and accumulated depreciation or amortization are removed, and a gain or loss is recorded, when appropriate. Expenditures
for maintenance and repairs are charged to expense as incurred. Estimated useful lives of property and equipment are as follows: Schedule
of Estimated Useful Lives of Property and Equipment
Description Estimated
Useful Life
Building 40
Building improvements Remaining life of the building
Leasehold
improvements and fixtures Lesser
of estimated useful life or life of lease
Furniture
and equipment 5
Computer
equipment and software 3
Vehicles 3 5 Property
and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. There were no impairment charges during the nine months ended September 30, 2022 and 2021, respectively. Business
acquisitions The
Company records business acquisitions using the acquisition method of accounting. All of the assets acquired, liabilities assumed, and
contractual contingencies are recognized at their fair value on the acquisition date. The application of the acquisition method of accounting
for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of
assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated
and amortized and goodwill. The excess of the fair value of purchase consideration over the fair values of these identifiable assets
and liabilities is recorded as goodwill. Acquisition-related expenses and restructuring costs are recognized separately from the business
combination and are expensed as incurred. Goodwill Goodwill
represents the excess of the purchase price of FPRX and PharmCo 1002 over the value assigned to their net tangible and identifiable intangible
assets. FPRX and PharmCo 1002 are considered to be the reporting units for goodwill. Acquired intangible assets other than goodwill are
amortized over their useful lives unless the lives are determined to be indefinite. For intangible assets purchased in a business combination,
the estimated fair values of the assets received are used to establish their recorded values. Valuation techniques consistent with the
market approach, income approach, and/or cost approach are used to measure fair value. Goodwill and other indefinite-lived intangible
assets are assessed annually for impairment in the fourth fiscal quarter and in interim periods if events or changes in circumstances
indicate that the assets may be impaired. Intangible
Assets Identifiable
intangible assets subject to amortization generally represent the cost of client relationships and tradenames acquired, as well as non-compete
agreements to which the Company is a party. In valuing these assets, the Company makes assumptions regarding useful lives and projected
growth rates, and significant judgment is required. The Company periodically reviews its identifiable intangible assets for impairment
as events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amounts
of those assets exceed their respective fair values, additional impairment tests are performed to measure the amount of the impairment
losses, if any. Fair
Value Measurements Financial
Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 820 establishes a framework for measuring
fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to
valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value
measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the
fair value hierarchy are as follows: Level
1: Unadjusted quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity
securities (both common stock and preferred stock) that are traded in an active exchange market, as well as U.S. Treasury securities. Level
2: Unadjusted observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for the assets or
liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than
exchange-traded instruments. This category generally includes certain U.S. Government, agency mortgage-backed debt securities,
non-agency structured securities, corporate debt securities and preferred stocks. Level
3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and
liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable
inputs. The
following tables presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring
basis as of: Schedule
of Fair Value of Financial Assets and Liabilities Measured on Recurring Basis
Description Level 1 Level 2 Level 3 Balance at September 30,
Derivative Liabilities $ - $ - $ 15,854,000 $ 15,854,000
Description Level 1 Level 2 Level 3 Balance at December 31, 2021
Derivative Liabilities $ - $ - $ 221,900 $ 221,900
The
following table is a roll forward from December 31, 2021 to September 30, 2022 of the opening and closing balances for assets and liabilities
measured at fair value on a recurring basis using significant unobservable inputs (Level 3). Schedule
Fair Value Assets and Liabilities Recurring Basis Using Significant Unobservable Inputs Level 3
Derivative Liabilities
Opening balance December 31, 2021 $ 221,900
Total losses for the period:
Included in net (loss) income for the period 9,067,500
New derivatives 8,042,000
Transfers out (1,477,400 )
Closing balance September 30, 2022 $ 15,854,000 Change
in fair value of derivative for the three and nine months ended September 30, 2022 was included in net income (loss) for the
period. Fair
Value of Financial Instruments The
Company’s financial instruments consisted of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities,
lease liabilities, and notes payable. The carrying amounts of the Company’s financial instruments other than notes payable and
lease liabilities generally approximate their fair values at September 30, 2022 and December 31, 2021 due to the short-term nature of
these instruments. The carrying amount of notes payable approximated fair value due to variable interest rates at customary terms and
rates the Company could obtain in current financing. The carrying value of lease liabilities approximate fair value due to the implicit
rate in the lease in relation to the Company’s borrowing rate and the duration of the leases. Derivative
Liabilities The Company evaluates its convertible debt, warrants
or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted
for in accordance with paragraph 810-10-05-4 of the FASB Accounting Standards Codification and paragraph 815-40-25 of the FASB Accounting
Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market
each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value
is recorded in the Condensed Consolidated Statements of Operations as other income or expense. Upon registration, conversion or exercise,
as applicable, of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified
to equity. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially
classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the
reclassification date. Derivative instrument liabilities will be classified in the Condensed Consolidated Balance Sheets as current or
non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months after the balance sheet
date. The
fair value of these derivative instruments is determined using the Monte Carlo Simulation Model. Revenue
Recognition The
Company recognizes pharmacy revenue from dispensing prescription drugs at the time the drugs are physically delivered to a customer or
when a customer picks up their prescription or purchases merchandise at the store, which is the point in time when control transfers
to the customer. Each prescription claim is considered an arrangement with the customer and is a separate performance obligation. Payments
are received directly from the customer at the point of sale, or the customers’ insurance provider is billed electronically. For
third party medical insurance and other claims, authorization to ensure payment is obtained from the customer’s insurance provider
before the medication is dispensed to the customer. Authorization is obtained for these sales electronically and a corresponding authorization
number is issued by the customers’ insurance provider. The
Company recognizes testing revenue when the tests are performed, and results are delivered to the customer. Each test is considered an
arrangement with the customer and is a separate performance obligation. Payment is generally received in advance from the customer. Billings
for most prescription orders are with third-party payers, including Medicare, Medicaid, and insurance carriers. Customer returns are
nominal. Prescription revenues were 93 83 90 86 The
Company accrues an estimate of fees, including direct and indirect remuneration fees (“DIR fees”), which are assessed or
expected to be assessed by payers at some point after adjudication of a claim, as a reduction of revenue at the time revenue is recognized.
Changes in the estimate of such fees are recorded as an adjustment to revenue when the change becomes known. The
following table disaggregates net revenue by categories for the three and nine months ended September 30: Schedule of
Disaggregates Net Revenue by Categories
For the Three Months Ended
2022 2021
Prescription revenue $ 9,397,483 $ 8,125,854
340B contract revenue 1,154,166 670,880
Testing revenue 235,221 1,315,946
Other revenue 903 250
Sub total 10,787,773 10,112,930
PBM Fees (643,892 ) (315,142 )
Sales returns - (265 )
Revenues, net $ 10,143,881 $ 9,797,523
For the Nine Months Ended
2022 2021
Prescription revenue $ 27,279,141 $ 24,929,722
340B contract revenue 2,248,223 2,120,701
Testing revenue 1,894,434 2,926,452
Other revenue 2,560 1,575
Sub total 31,424,358 29,978,450
PBM Fees (1,255,898 ) (976,127 )
Sales returns - (3,201 )
Revenues, net $ 30,168,460 $ 28,999,122 Grant
Revenue Under
the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Company is eligible for refundable employee
retention credits (“ERCs”) subject to certain conditions which were met during the nine months ended September 30, 2022.
In connection with the ERCs, the Company adopted a policy to recognize the ERCs when earned and report the amounts as grant revenue in
accordance with FASB ASC 958-605. Accordingly, the Company recorded approximately $ 2.1 0.4 1.7 Cost
of Revenue Cost
of pharmacy revenue is derived based upon vendor purchases relating to prescriptions sold, cost of testing supplies for tests administered
to patients, and point-of-sale scanning information for non-prescription sales and is adjusted based on periodic inventories. All other
costs related to revenues are expensed as incurred. DIR
Fees The
Company reports Direct and Indirect Remuneration (“DIR”) fees as a reduction of revenue on the accompanying Condensed Consolidated
Statements of Operations. DIR Fees are fees charged by Pharmacy Benefit Managers (“PBMs”) to pharmacies for network participation
as well as periodic reimbursement reconciliations. For some PBMs, DIR fees are charged at the time of the settlement of a pharmacy claim.
Other PBMs do not determine DIR fees at the claim settlement date, and therefore DIR fees are collected from pharmacies after claim settlement,
often as clawbacks of reimbursements based on factors that vary from plan to plan. For example, two PBMs calculate DIR fees on a trimester
basis and charge the Company for these fees as reductions of reimbursements paid to the Company 2-3 months after the end of the trimester
(e.g., DIR fees for January – April 2022 claims were charged by these PBMs in July – August 2022). For DIR fees that are
not collected at the time of claim settlement, the Company records an accrued liability at each reporting date for estimated DIR fees
that are expected to be collected by the PBMs in a future period. The estimated liability for these fees is highly subjective and the
actual amount collected may differ from the accrued liability. The uncertainty of management’s estimates is due to inadequate disclosure
to the Company by the PBMs as to exactly how these fees are calculated either at the time the DIR fees are actually assessed and reported
to the Company. The detail level of the disclosure of assessed DIR fees varies based on the information provided by the PBM. Vendor
Concentrations For
the nine months ended September 30, 2022 and 2021, the Company had significant concentrations with one vendor. The purchases from
this significant vendor were 95 95 Selling,
General and Administrative Expenses Selling
expenses primarily consist of store salaries, contract labor, occupancy costs, and expenses directly related to the stores. General and
administrative costs include advertising, insurance, professional fees, and depreciation and amortization. Advertising Costs
incurred for producing and communicating advertising for the Company are charged to operations as incurred. Advertising expense was approximately
$ 85,000 60,000 262,000 177,000 Stock-Based
Compensation Stock-based
compensation expense is recognized for stock options and restricted stock awards issued to employees, based on the fair value of these
awards at the date of grant. The Company uses the Black-Scholes and Monte Carlo Simulation models to estimate the fair value of stock
options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. Stock
compensation expense is recognized over the required service period, generally defined as the vesting period. For awards with graded
vesting, compensation expense is recognized on a straight-line basis over the requisite service period for the entire award. The Company’s
policy is to recognize forfeitures as they occur. Stock
Warrants The
Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s
specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity Derivatives and Hedging For
issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a
component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria
for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of
issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash
gain or loss on the Condensed Consolidated Statements of Operations. The fair value of the warrants issued in the Private Placement
transaction was estimated using a Monte Carlo simulation approach (see Note 14). Offering
Costs Associated with the Public Offering The
Company complies with the requirements of ASC 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A – Expenses of Offering Company’s planned underwritten
public offering generally are deferred and reclassified
as a charge to APIC upon the sale of securities. Deferred costs for an abandoned offering are expensed. Income
Taxes Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Progressive
Care Inc., RXMD Therapeutics and PharmCoRx 1103 are taxed as C corporations. PharmCo 901 and PharmCo 1002 are taxed as partnerships,
wherein each member is responsible for the tax liability, if any, related to its proportionate share of PharmCo 901 and PharmCo 1002’s
taxable income. Progressive Care Inc. has a 100 The
provision for income taxes for the nine months ended September 30, 2022 and 2021 on the Condensed Consolidated Statements of
Operations represents the minimum state corporate tax payments. There was no current tax provision for the nine months ended
September 30, 2022 and 2021 because the Company did not have taxable income during those periods. Total available net operating
losses to be carried forward to future taxable years was approximately $ 14.8 6 expire
in various years through 2038 100 1.5 million The
Company accounts for uncertainty in income taxes by recognizing a tax position in the condensed consolidated financial statements only
after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions
meeting the more likely than not threshold, the amount recognized in the condensed consolidated financial statements is the largest benefit
that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company
records interest and penalties related to tax uncertainties, if any, as income tax expense. Based on management’s evaluation, the
Company does not believe it has any uncertain tax positions for the nine months ended September 30, 2022 and 2021. (Loss)
Income per Share Basic
loss per share (“EPS”) is computed by dividing net loss available to common shareholders by the weighted average number of
common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to
all dilutive potential of shares of common stock outstanding during the period including stock warrants, using the treasury stock method
(by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock
warrants), and convertible debt, using the if converted method. Diluted EPS excludes all dilutive potential of shares of common stock
if their effect is anti-dilutive. The
following are dilutive common stock equivalents during the periods ended: Schedule of Dilutive Common Stock Equivalents
September 30, 2022 September 30, 2021
Convertible Debt 140,136,867 88,367,068
Stock Warrants 117,886,707 -
Total 258,023,574 88,367,068 Paycheck
Protection Program Loan The
Company records Paycheck Protection Program (“PPP”) loan proceeds in accordance with Accounting Standards Codification (“ASC”)
470, Debt. The Company treats the PPP loan as indebtedness, which is extinguished and recorded as a gain on debt extinguishment when
legally released by the primary obligor. Recently
Adopted Accounting Standards Debt In
August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,
which among other things, simplifies the accounting models for the allocation of proceeds attributable to the issuance of a convertible
debt instrument. As a result, after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion
feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock
wholly as preferred stock (i.e., as a single unit of account), unless (i) a convertible instrument contains features that require bifurcation
as a derivative under ASC 815 or (ii) a convertible debt instrument was issued at a substantial premium. The standard became effective
for the Company in the first quarter of 2022 and did not have a material effect on the Company’s condensed consolidated financial
statements. Accounting
Pronouncements Issued but not yet Adopted Income
Taxes In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)—simplifying the Accounting for Income Taxes, which removes
certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12
is required to be adopted for annual periods beginning after December 15, 2021, and interim periods within fiscal years beginning after
December 15, 2022. Early adoption is permitted. Management is currently evaluating the impact of the adoption of this guidance on the
Company’s condensed consolidated financial statements. Credit
Losses In
June 2016, the FASB issued ASU 2016-13, “Current Expected Credit Losses” (“ASU 2016-13”), which introduces an
impairment model based on expected, rather than incurred, losses. Additionally, it requires expanded disclosures regarding (a) credit
risk inherent in a portfolio and how management monitors the portfolio’s credit quality; (b) management’s estimate of expected
credit losses; and (c) changes in estimates of expected credit losses that have taken place during the period. ASU 2016-13 is effective
for fiscal years beginning after December 15, 2022. The Company has not yet quantified the impact of ASU 2016-13 on its condensed consolidated
financial statements. However, it is not expected to have a material effect on the Company’s condensed consolidated financial statements. Management
has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant
impact on the Company’s condensed consolidated financial statements. Subsequent Events Management has evaluated subsequent events and transactions
for potential recognition or disclosure in the condensed consolidated financial statements through November 14, 2022, the date the condensed
consolidated financial statements were available to be issued. |
