Forward-Looking Information

The Company may from time to time make written or oral "forward-looking statements" including statements contained in this report and in other communications by the Company, which are made in good faith pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on our beliefs as well as assumptions made by and information currently available to us. When used in this document, words like "may," "might," "will," "except," "anticipate," "believe," "potential," and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from our current expectations.



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Forward-looking statements in this report, including without limitation, statements related to the Company's plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties including, without limitation, the following: (i) changes in the Company's plans, strategies, objectives, expectations and intentions, which may be made at any time at the discretion of the Company; (ii) the impact of uncertainties in global economic conditions, including the impact on the Company's suppliers and customers; (iii) changes in client needs and consumer spending habits; (iv) the impact of competition and technological changes on the Company; (v) the Company's ability to manage its growth effectively, including its ability to successfully integrate any business it might acquire; (vi) currency fluctuations; (vii) increases in the cost of borrowings resulting from rising interest rates; (viii) international trade policies and their impact on demand for our products and our competitive position, including the imposition of new tariffs or changes in existing tariff rates; and (ix) other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission. For a more detailed discussion of these and other factors affecting the Company, see the Risk Factors set forth above in Item 1A of this Annual Report on Form 10-K.

OVERVIEW

Throughout the year ended December 31, 2019, the Company continued its marketing and sales efforts with respect to agreements and relationships established during the first three quarters of 2019. It focused on establishing additional relationships within its existing market (referrals from occupational healthcare clinics) and establishing a foothold in other markets, such as national labor unions and third-party payor accounts.

The Company's revenue, however, in 2019, decreased from its revenue in 2018. This decrease occurred primarily as a result of the acquisition of the Company's largest account by another account with whom the Company also had a contract, but had not yet had time to implement. In 2018, the Company had existing contracts with two of the nation's largest clinic chains servicing the interstate commercial trucking industry -- Concentra and U.S. Healthworks (USHW). Although the Company had contractual relationships with both accounts, at the time of the acquisition of USHW by Concentra, the Company's principal relationship from a revenue perspective was with USHW. Prior to the acquisition, the Company's national account representatives would regularly visit select USHW clinic facilities. In 2019, we were asked to suspend our visit activities so as to not disrupt Concentra's efforts to integrate the two corporate cultures into one. The Company immediately ceased these visits and turned its attention to diversifying its client base, focusing more heavily on national labor unions and other third-party payors. The Company's intent was to broaden its client base while still retaining its existing client base with a now much larger Concentra.

During 2019, and into 2020, the Company successfully materially expanded its customer base. In October 2019, we entered into an exclusive three-year contract with Pinnacle National, a leading Third Party Administrator servicing approximately 1.2 million union employees and their dependents. All costs will be borne by Pinnacle National. We expect the program to launch in the first half of 2020.

In February 2020, we entered into an exclusive three-year agreement with CoreChoice, a third party payor who added our sleep apnea detection and treatment program to their portfolio of covered programs. CoreChoice has approximately 1 million union members who, along with their dependents, total approximately 2.5 million covered lives. We begin servicing this account in March 2020.



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In the first part of 2020, we entered into a three-year, exclusive, worldwide cooperation agreement with Sleep Cycle AB (Sleep Cycle). The Sleep Cycle app is devoted to the single issue of sleep -- how one sleeps, the best time to wake up, snoring, etc. It claims to be the single largest selling app in the world with over 25 million active users. We began working with Sleep Cycle during the latter part of 2019. In January 2020, we began beta testing in select U.S. market areas to determine how to effectively incorporate our SleepMaster Solutions™ program into their database such that we could most accurately identify which of their app users, if tested, would most likely test positive for obstructive sleep apnea (OSA). Although the Beta testing is still in the early stages, 100% of all app users tested so far have tested positive.

We have also now established relations with the United States Postal Service in Indianapolis, Indiana; The Pacific Gas & Electric Power Company (PG&E) in California; a West Coast-based Workers' Compensation organization with substantial national accounts; and, a significant number of third party payor labor organizations servicing both active and retired union members. Patient referrals have commenced from all but one of these new accounts.

Additionally, the Company believes that the integration of USHW into Concentra is essentially complete, and the Company's revenue from this account has shown a material increase. In the first quarter of 2020, we had an overall increase in sales in January 2020 of almost 74% compared to sales in January 2019; and comparative sales in February 2020 to February 2019 increased over 101%. Overall sales for the period of January-February 2020 compared to 2019 are up an aggregate of 86.41%. This was primarily due to increased patient flow from Concentra clinics. We expect that our relationship with Concentra coupled with the new business relationships established primarily during the third and fourth quarters of 2019 and the first quarter of 2020, and particularly our relationships with certain third-party, union-based payors, will result in a material increase in revenue to the Company in 2020 without a concomitant increase in expenses. The Company believes it has adequately prepared for the anticipated increase in its business and the systems and staffing burden this may place on the Company.

SOURCES OF REVENUE



A quantitative summary of our revenues by source category for 2019 and 2018 as
follows:

                     2019          2018          Change

  OSA-related     $ 300,098     $ 524,172     $ (224,074 )


Results of Operations

2019 vs. 2018

Revenues and Costs of Goods sold

Revenues For the year ended December 31, 2019, were $300,098 compared to revenues of $524,172 for the comparable period ending December 31, 2018.

OSA-related

OSA services decreased to $300,098 in 2019 from $524,172 in 2018. The Company's sales in 2019 decreased from 2018 while the Company worked on new contracts that will take effect in 2020



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Cost of revenues decreased to $145,254 from $261,170. The difference in amounts is a result of the sales decreasing. The cost of revenue decreased at the same percentage rate as the sales decrease.

Selling, general and administrative expense

Selling, general and administrative expense in total was as follows:



                          2019                  $ 2,092,806
                          2018                    1,745,094
                          Change                $   347,712
                          Percentage Change           19.93 %

We evaluate selling, general and administrative expenses at the Parent company level as well as at our PVMS subsidiary. Selling, general, and administrative expenses at the Parent company level include overhead and the cost of being a public entity. Selling, general, and administrative expenses at PVMS are solely related to the OSA services segment. A breakdown of these expenses is as follows:





                                                2019            2018          Change

Parent                                          870,305         533,933     $ 336,372
PVMS                                          1,222,501       1,211,161        11,340

Total selling, general and administrative $ 2,092,806 $ 1,745,094 $ 347,712






                               Parent Company level

                                               2019          2018         Change

Travel expense                              $   3,993     $    (413 )   $   4,406
Professional fees                             566,206       223,314       342,892
Board of Directors fees                       150,000       150,000            -
Rent expense                                   97,860        99,485        (1,625 )
Other                                          52,246        61,547        (9,301 )

Total selling, general and administrative $ 870,305 $ 533,933 $ 336,372

Explanations of variations by line item follow:

Travel expense increased by $4,406. Travel was relatively the same between 2018 and 2019.

Professional Fees increased by $342,892. Part of the increase was attributable to an increase of $135,442 in legal fees and an increase of $71,757 in audit-related fees. Legal fees increased in order to continue with various lawsuits.

Board of Directors Fees accrue at the rate of $150,000 each year



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                                    PVMS Subsidiary

                                                 2019            2018          Change

Executive compensation and payroll related   $   512,844     $   542,578     $ (29,734 )
Travel expense                                   254,289         258,469        (4,180 )
Professional fees                                177,449         123,606        53,843
Advertising                                       50,562          50,811          (249 )
Other                                            227,357         235,697        (8,340 )

Total selling, general and administrative $ 1,222,501 $ 1,211,161 $ 11,340

Payroll related expenses decreased by $29,734. The company had 1 less commissioned sales person for part of the year.

Travel expense was $4,180 lower. Travel expense was relatively the same from 2018 to 2019.

Professional Fees increased $53,843. In February 2018, PVMS hired an outside accountant for the Company as a whole whom we pay $7,000 per month. We also pay the outside accountant additional fees for special projects. In 2019, the outside accountant was paid for the full year. In 2019 we hired a consultant to help bring in additional business. Legal fees increased by approximately $22,000 due to increased litigation expenses.

Advertising decreased $249. Advertising expense was relatively the same from 2018 to 2019.

Other Expense decreased by $8,340. Other expense was relatively the same from 2018 to 2019

Interest Expense

Interest expense between 2019 and 2018 was as follows



                          2019                  $ 1,428,671
                          2018                    1,436,974
                          Change                $    (8,303 )
                          Percentage change           (0.58 )%




A breakdown of the interest expense for the years ended December 31, 2019 and
2018 is as follows:

                 2019            2018           Change

  Parent     $   648,879     $   935,849     $ (286,970 )
  PVMS           779,792         501,125        278,667

  Total      $ 1,428,671     $ 1,436,974     $   (8,303 )






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Interest expense stayed consistent with the interest expense in 2018.

Liquidity and Capital Resources

During the year ended December 31, 2019, 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.

Subsequent to 2019, we issued $182,000 of promissory notes through April 9, 2020.

ACCOUNTING POLICIES AND ESTIMATES

Preparation of our consolidated financial statements requires us to make significant estimates and judgments to develop the amounts reflected and disclosed in the consolidated financial statements. On an on-going basis, we evaluate the appropriateness of our estimates and we maintain a thorough process to review the application of our accounting policies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Revenue recognition. The Company is on an accrual basis and revenue is recognized when billed, which is approximately when the testing service is performed or CPAP machine is shipped.

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 16 to the consolidated financial statements.

Stock-based compensation. We issue various stock-based compensation awards to our employees and members of our Board of Directors. We account for the awards in accordance with ASC 718 "Compensation - Stock Compensation" and measure compensation cost for stock options at fair value on the grant date and recognize compensation cost on a straight-line basis over the service period for those options expected to vest. We use the Black-Scholes option pricing model, which requires us to use certain variable assumptions for input, to calculate the fair value of a stock award on the grant date. These assumptions, which are set forth in Note 2 to our consolidated financial statements variables include the expected volatility of our stock price, award exercise behaviors, the risk-free interest rate, and expected dividends. We use significant judgment in estimating expected volatility of the stock, exercise behavior and forfeiture rates developing our assumptions as follows:

Expected Volatility

We estimate the volatility of the share price by using historical data of our traded stock in combination with our expectation of the extent of fluctuation in future stock prices. We believe our historical volatility is more representative of future stock price volatility and as such it has been given greater weight in estimating future volatility.



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 Expected Term

A variety of factors are considered in determining the expected term of options granted. Options granted are grouped by their homogeneity based on the optionees' position, whether managerial or clerical, and length of service and turnover rate. Where possible, we analyze exercise and post-vesting termination behavior. For any group without sufficient information, we estimate the expected term of the options granted by averaging the vesting term and the contractual term of the options.

Expected Forfeiture Rate

We generally separate our option awards into two groups: employee and non-employee awards. The historical data of each group are analyzed independently to estimate the forfeiture rate of options at the time of grant. These estimates are revised in subsequent periods if actual forfeitures differ from estimated forfeitures.

Risk-free Interest Rate

We estimate the risk-free interest rate by reference to the interest rate for a U.S. Treasury constant maturity security with the same estimated term as the stock-based award being issued.

Expected Dividends

No dividends are expected to be paid for the expected life of the instruments; therefore, we assume a dividend rate of zero.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent Accounting Standards Update - Recently various new ASUs were issued by the Financial Accounting Standards Board (FASB). Management has determined based on their review that the following ASU issued will be applicable to the Company. As new ASU are released, Management will assess if they are applicable and, if they are applicable, the effect will be included in the notes to the consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, "Leases," which significantly changes the accounting for a lessee. Under previous guidance, lessees did not have to record a lease it designated as operating on its balance sheet. Under the new guidance, a lessee must record a liability for lease payments (referred to as the lease liability) and an asset for the right to use the leased asset during the lease term (referred to as the right of use asset) for all leases, regardless of whether they are designated as finance or operating leases. If a lessee has a lease with a term of 12 months of less, it may make an accounting policy election (by leased asset class) not to recognize lease assets or lease liabilities. This election generally requires the lessee to recognize lease expense on a straight-line basis over the lease term. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018 for public entities, not-for-profit entities that have issued (including conduit bond obligors) securities that are traded, listed, or quoted on an exchange or an over-the-counter market, and employee benefit plans that file financial statements with the United States Securities and Exchange Commission (SEC). All other entities must apply the ASU to annual periods beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Any entity may early adopt the ASU. Management has determined this ASU will have an impact on the Company and has implemented this ASU.

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