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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark one)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to ______.

 

Commission File Number: 001-35141

 

RENNOVA HEALTH, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   68-0370244

(State or other jurisdiction

of incorporation or organization)

 

(IRS Employer

Identification No.)

     

400 S. Australian Avenue, Suite 800

West Palm Beach, FL

  33401
(Address of principal executive offices)   (Zip Code)

 

(561) 855-1626

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Act:

 

Title of Each Class   Trading Symbol(s)   Name of each exchange on which registered
None   None   None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, $0.0001 Par Value

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of November 10, 2022, the registrant had 29,084,322,257 shares of its Common Stock, $0.0001 par value, outstanding.

 

 

 

 
 

 

RENNOVA HEALTH, INC. AND SUBSIDIARIES

FORM 10-Q

 

September 30, 2022

TABLE OF CONTENTS

 

    Page No.
PART I – FINANCIAL INFORMATION   3
       
Item 1. Financial Statements  
  Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021   3
  Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited)   4
  Condensed Consolidated Statements of Changes in Stockholders’ Deficit for each of the quarters in the periods ended September 30, 2022 and 2021 (unaudited)   5
  Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)   7
  Notes to Condensed Consolidated Financial Statements (unaudited)   8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   35
Item 3. Quantitative and Qualitative Disclosures About Market Risk   47
Item 4. Controls and Procedures   47
       
PART II – OTHER INFORMATION   48
       
Item 1. Legal Proceedings   48
Item 1A. Risk Factors   48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   48
Item 3. Defaults Upon Senior Securities   48
Item 4. Mine Safety Disclosures   48
Item 5. Other Information   48
Item 6. Exhibits   48
       
SIGNATURES   49

 

2
 

 

RENNOVA HEALTH, INC.

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30,   December 31, 
   2022   2021 
    (unaudited)      
ASSETS          
Current assets:          
Cash  $10,958   $724,524 
Accounts receivable, net   3,330,734    2,079,288 
Note receivable / receivable from related party   961,169    374,473 
Inventory   273,644    280,513 
Prepaid expenses and other current assets   116,848    121,879 
Income tax refunds receivable   1,139,226    1,139,226 
Total current assets   5,832,579    4,719,903 
           
Property and equipment, net   4,312,188    4,630,090 
Intangible asset   259,443    259,443 
Investment   9,016,072    9,016,072 
Deposits   227,814    187,814 
Right-of-use assets   640,386    821,274 
           
Total assets  $20,288,482   $19,634,596 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current liabilities:          
Accounts payable (includes related party amounts of $0.3 million and $0.3 million, respectively)  $12,380,408   $12,135,237 
Accrued expenses (includes related party amounts of $0.1 million and $0.3 million, respectively)   19,352,488    15,499,935 
Income taxes payable   1,337,342    1,337,342 
Current portion of notes payable   3,119,505    4,667,819 
Current portion of loan payable, related party   3,027,000    2,127,000 
Current portion of debentures   8,222,240    8,222,240 
Current portion of right-of-use operating lease obligations   239,449    247,017 
Current portion of finance lease obligation   220,461    220,461 
Derivative liabilities   455,336    455,336 
Current liabilities of discontinued operations   1,447,762    1,449,476 
Total current liabilities   49,801,991    46,361,863 
           
Right-of-use operating lease obligations, net of current portion   400,937    574,257 
Total liabilities   50,202,928    46,936,120 
           
Commitments and contingencies   -    - 
           
Stockholders’ deficit:          
Series F preferred stock, $0.01 par value, $1.00 stated value per share, 1,750,000 shares authorized, 0 and 1,750,000 shares issued and outstanding, respectively   -    17,500 
Series H preferred stock, $0.01 par value, $1,000 stated value per share, 14,202 shares authorized, 10 shares issued and outstanding   -    - 
Series L preferred stock, $0.01 par value, $1.00 stated value per share, 250,000 shares authorized, 250,000 shares issued and outstanding   2,500    2,500 
Series M preferred stock, $0.01 par value, $1,000 stated value per share, 30,000 shares authorized, 20,810 shares issued and outstanding   208    208 
Series N preferred stock, $0.01 par value, $1,000 stated value per share, 50,000 shares authorized, 3,583 and 5,936 shares issued and outstanding, respectively   36    59 
Series O preferred stock, $0.01 par value, $1,000 stated value per share, 10,000 shares authorized, 9,262 and 9,900 shares issued and outstanding, respectively   92    99 
Series P preferred stock, $0.01 par value, $1,000 stated value per share, 30,000 shares authorized, 10,195 and 8,545 shares issued and outstanding, respectively   102    85 
Common stock, $0.0001 par value, 250,000,000,000 shares authorized, 15,094,322,257 and 4,244,700 shares issued and outstanding, respectively   1,509,432    424 
Additional paid-in-capital   1,672,970,822    1,342,085,957 
Accumulated deficit   (1,704,397,638)   (1,369,408,356)
Total stockholders’ deficit   (29,914,446)   (27,301,524)
Total liabilities and stockholders’ deficit  $20,288,482   $19,634,596 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3
 

 

RENNOVA HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   2022   2021   2022   2021 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2022   2021   2022   2021 
                 
Net revenues  $2,825,937   $1,010,245   $7,576,693   $1,288,402 
                     
Operating expenses:                    
Direct costs of revenues   1,823,473    1,207,749    4,769,789    4,074,149 
General and administrative expenses   1,809,835    2,019,086    5,262,338    6,915,453 
Depreciation and amortization   117,441    135,065    351,481    513,929 
Total operating expenses   3,750,749    3,361,900    10,383,608    11,503,531 
                     
Loss from continuing operations before other income (expense) and income taxes   (924,812)   (2,351,655)   (2,806,915)   (10,215,129)
                     
Other income (expense):                    
Other income (expense), net   129,451    (346,197)   87,170    4,140,049 
Gain from forgiveness of debt   -    1,027,000    334,819    1,027,000 
Gain (loss) from legal settlements, net   60,808    3,157,203    (15,410)   3,179,393 
Interest expense   (605,312)   (700,786)   (1,705,502)   (2,503,173)
Total other income (expense), net   (415,053)   3,137,220    (1,298,923)   5,843,269 
                     
Net (loss) income from continuing operations before income taxes   (1,339,865)   785,565    (4,105,838)   (4,371,860)
                     
Provision for income taxes   -    -    -    - 
                     
Net (loss) income from continuing operations   (1,339,865)   785,565    (4,105,838)   (4,371,860)
Loss from discontinued operations   (1,696)   (31,388)   (7,075)   (423,791)
Gain from sale   -    576,787    -    11,303,939 
                     
Net (loss) income from discontinued operations   (1,696)   545,399    (7,075)   10,880,148 
Net (loss) income   (1,341,561)   1,330,964    (4,112,913)   6,508,288 
Deemed dividends   -    (259,530,999)   (330,876,369)   (409,142,478)
Net loss available to common stockholders  $(1,341,561)  $(258,200,035)  $(334,989,282)  $(402,634,190)
                     
Net loss per share of common stock available to common stockholders - basic and diluted:                    
Continuing operations  $(0.00)  $(5,893.97)  $(0.08)  $(27,483.34)
Discontinued operations   (0.00)   12.42    (0.00)   723.13 
Total basic and diluted  $(0.00)  $(5,881.55)  $(0.08)  $(26,760.21)
Weighted average number of shares of common stock outstanding during the period:                    
Basic and diluted   10,569,572,256    43,900    4,130,876,898    15,046 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4
 

 

RENNOVA HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For each of the quarters in the period ended September 30, 2022

(unaudited)

 

   Shares   Amount   Shares   Amount   capital   Deficit   Deficit 
   Preferred Stock   Common Stock   Additional paid-in-   Accumulated   Total Stockholders’ 
   Shares   Amount   Shares   Amount   capital   Deficit   Deficit 
Balance at December 31, 2021   2,045,201   $20,451    4,244,700   $424   $1,342,085,957   $(1,369,408,356)  $(27,301,524)
Conversion of Series N Preferred Stock into common stock   (593)   (6)   12,932,500    1,293    (1,287)   -    - 
Issuance of Series P Preferred Stock   1,100    11    -    -    999,989    -    1,000,000 
Deemed dividends from issuance of Series P Preferred Stock   -    -    -    -    222,222    (222,222)   - 
Payment of cash in lieu of fractional shares   -    -    (10)   -    (9)   -    (9)
Deemed dividends from triggers of down round provisions   -    -    -    -    135,702,523    (135,702,523)   - 
Net loss   -    -    -    -    -    (2,267,566)   (2,267,566)
Balance at March 31, 2022   2,045,708   $20,456    17,177,190   $1,717   $1,479,009,395   $(1,507,600,667)  $(28,569,099)
Conversion of Series N Preferred Stock into common stock   (1,240)   (12)   2,627,145,066    262,715    (262,703)   -    - 
Conversion of Series O Preferred Stock into common stock   (179)   (2)   1,581,000,000    158,100    (158,098)   -    - 
Issuance of Series P Preferred Stock   550    6    -    -    499,994    -    500,000 
Deemed dividends from issuance of Series P Preferred Stock   -    -    -    -    111,111    (111,111)   - 
Deemed dividends from triggers of down round provisions   -    -    -    -    194,840,513    (194,840,513)   - 
Net loss   -    -    -    -    -    (503,786)   (503,786)
Balance at June 30, 2022     2,044,838   $20,448    4,225,322,256   $422,532   $1,674,040,212   $(1,703,056,077)  $(28,572,885)
                                    
Conversion of Series F Preferred Stock into common stock   (1,750,000)   (17,500)   1    -    (17,500)   -    - 
Conversion of Series N Preferred Stock into common stock   (519)   (5)   5,769,000,000    576,900    (576,895)   -    - 
Conversion of Series O Preferred Stock into common stock   (459)   (5)   5,100,000,000    510,000    (509,995)   -    - 
Net loss   -    -    -    -    -    (1,341,561)   (1,341,561)
Balance at September 30, 2022   293,860   $2,938      15,094,322,257   $  1,509,432   $  1,672,970,822   $  (1,704,397,638)  $(29,914,446)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5
 

 

RENNOVA HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For each of the quarters in the period ended September 30, 2021

(unaudited)

 

   Preferred Stock   Common Stock   Additional paid-in-   Accumulated   Total Stockholders’ 
   Shares   Amount   Shares   Amount   capital   Deficit   Deficit 
Balance at December 31, 2020   2,051,444   $20,514    4   $    -   $819,498,240   $(868,536,506)  $(49,017,752)
Conversion of Series N Preferred Stock into common stock   (4,177)   (42)   44    -    42    -    - 
Deemed dividends from triggers of down round provisions   -    -    -    -    50,358,149    (50,358,149)   - 
Net loss   -    -    -    -    -    (3,893,994)   (3,893,994)
Balance at March 31, 2021   2,047,267   $20,472    48   $-   $869,856,431   $(922,788,649)  $(52,911,746)
Conversion of Series M Preferred Stock into common stock   (620)   (6)   45    -    6    -    - 
Conversion of Series N Preferred Stock into common stock   (8,888)   (89)   907    -    89    -    - 
Issuance of Series O Preferred Stock   2,750    28    -    -    2,499,972    -    2,500,000 
Deemed dividends from triggers of down round provisions   -    -    -    -    99,253,330    (99,253,330)   - 
Net income   -    -    -    -    -    9,071,318    9,071,318 
Balance at June 30, 2021   2,040,509   $20,405    1,000   $-   $971,609,828   $(1,012,970,661)  $(41,340,428)
Exchange of Series M Preferred Stock for common stock   (570)   (6)   9,500    -    6    -    - 
Conversion of Series N Preferred Stock into common stock   (5,285)   (53)   467,235    5    48    -    - 
Deemed dividends from extensions of warrants   -    -    -    -    291,592    (291,592)   - 
Issuance of Series O Preferred Stock   2,750    28    -    -    2,499,972    -    2,500,000 
Deemed dividends from issuance of warrants under exchange agreement   -    -    -    -    341,525    (341,525)   - 
Payment of cash in lieu of fractional shares   -    -    -    -    (244)   -    (244)
Deemed dividends from triggers of down round provisions   -    -    -    -    258,897,882    (258,897,882)   - 
Net income   -    -    -    -    -    1,330,964    1,330,964 
Balance at September 30, 2021     2,037,404   $  20,374      477,735   $5   $  1,233,640,501   $  (1,271,170,696)  $  (37,509,708)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6
 

 

RENNOVA HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

  2022  2021
  Nine Months Ended September 30,
  2022  2021
         
Cash flows from operating activities:          
Net loss from continuing operations  $(4,105,838)  $(4,371,860)
Adjustments to reconcile net loss to net cash used in operations:          
Depreciation and amortization   351,481    513,929 
Non-cash interest (income) expense   (80,156)   113,552 
Other income from forgiveness of PPP notes payable   (334,819)   (1,027,000)
Loss (gain) from legal settlements   15,410    (3,179,393)
Loss on disposal of equipment   1,215    274,468 
Loss (income) from federal government provider relief funds   267,758    (4,400,000)
Gain on sale of discontinued operations   -    (11,303,939)
(Loss) income from discontinued operations   (7,075)   10,880,148 
Changes in operating assets and liabilities:          
Accounts receivable   (774,975)   377,088 
Inventory   6,869    164,653 
Prepaid expenses and other current assets   5,031    (3,416)
Security deposits   (40,000)   42,558 
Change in right-of-use assets   180,888    122,860 
Accounts payable   808,097    1,918,004 
Accrued expenses   2,722,120    4,208,698 
Change in right-of-use operating lease obligations   (180,888)   (122,860)
Net cash used in operating activities of continuing operations   (1,164,882)   (5,792,510)
Net cash (used in) provided by operating activities of discontinued operations   (1,714)   102,567 
Net cash used in operating activities   (1,166,596)   (5,689,943)
           
Cash flows from investing activities:          
Purchases of equipment   (34,794)   - 
Note receivable/receivable from related party   (506,540)   (158,118)
Net cash used in investing activities of continuing operations   (541,334)   (158,118)
Net cash (used in) provided by investing activities of discontinued operations   -    - 
Net cash used in investing activities   (541,334)   (158,118)
Cash flows from financing activities:          
Proceeds from the issuances of notes payable   -    1,245,000 
Proceeds from issuance of related party loan   900,000    890,000 
Payments on related party loan   -    (360,000)
Payments on notes payable   (1,213,495)   (350,508)
Receivables paid under accounts receivable sales agreements   (476,471)   (300,927)
Federal government provider relief funds   284,339    - 
Proceeds from issuance of Series O Preferred Stock   -    5,000,000 
Proceeds from issuances of Series P Preferred Stock   1,500,000    - 
Payment on finance lease obligation   -    (29,524)
Cash paid for fractional shares in connection with reverse stock splits   (9)   (244)
Net cash provided by financing activities of continuing operations   994,364    6,093,797 
Net cash provided by financing activities of discontinued operations   -    60,402 
Net cash provided by financing activities   994,364    6,154,199 
           
Net change in cash   (713,566)   306,138 
           
Cash at beginning of period   724,524    25,353 
           
Cash at end of period  $10,958   $331,491 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7
 

 

RENNOVA HEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Nine Months Ended September 30, 2022 and 2021

(unaudited)

 

Note 1 – Organization and Summary of Significant Accounting Policies

 

Description of Business

 

Rennova Health, Inc. (“Rennova”, together with its subsidiaries, the “Company”, “we”, “us”, “its” or “our”) is a provider of health care services. The Company owns one operating hospital in Oneida, Tennessee, a hospital located in Jamestown, Tennessee that it plans to reopen and operate, a physician practice in Jamestown, Tennessee that it plans to reopen and operate and a rural health clinic in Kentucky. We operate in one business segment.

 

Basis of Presentation

 

The unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read in conjunction with the consolidated financial statements as filed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments necessary to present fairly the Company’s consolidated financial position as of September 30, 2022, and the results of its operations and changes in stockholders’ deficit for the three and nine months ended September 30, 2022 and 2021 and its cash flows for the nine months ended September 30, 2022 and 2021. Such adjustments are of a normal recurring nature. The results of operations for the three and nine months ended September 30, 2022 may not be indicative of results for the year ending December 31, 2022.

 

Principles of Consolidation

 

The unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), include the accounts of Rennova and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in the consolidation.

 

Comprehensive (Loss) Income

 

During the three and nine months ended September 30, 2022 and 2021, comprehensive (loss) income was equal to the net (loss) income amounts presented in the unaudited condensed consolidated statements of operations.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the condensed consolidated financial statements, and the reported amounts of net revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions include the estimates of fair values of assets acquired and liabilities assumed in business combinations, contractual allowances and bad debt reserves, the recoverability of long-lived assets, the valuation allowance relating to the Company’s deferred tax assets, the valuations of investments, equity and derivative instruments, income from HHS Provider Relief Funds and deemed dividends, litigation and related reserves, among others. Actual results could differ from those estimates and would impact future results of operations and cash flows.

 

Reclassifications

 

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

 

Cash and Cash Equivalents

 

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents.

 

8
 

 

Reverse Stock Splits

 

On July 16, 2021 and March 15, 2022, the Company effected a 1-for-1,000 reverse stock split and a 1-for-10,000 reverse stock split, respectively (the “Reverse Stock Splits”).

 

As a result of the Reverse Stock Splits, every 1,000 shares of the Company’s then outstanding common stock was combined and automatically converted into one share of the Company’s common stock on July 16, 2021 and every 10,000 shares of the Company’s common stock then outstanding was combined and automatically converted into one share of the Company’s common stock on March 15, 2022. The conversion and exercise prices of all of the Company’s outstanding convertible preferred stock, common stock purchase warrants, stock options and convertible debentures were proportionately adjusted at the applicable reverse split ratio in accordance with the terms of such instruments. The par value and other terms of the common stock were not affected by the Reverse Stock Splits. All share, per share and capital stock amounts and common stock equivalents presented herein have been restated where appropriate to give effect to the Reverse Stock Splits.

 

Amendment to Certificate of Incorporation, as Amended

 

Effective November 5, 2021, the Company filed an Amendment to its Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware to provide that the number of authorized shares of the Company’s common stock or preferred stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Company entitled to vote generally in the election of directors, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware (or any successor provision thereto), voting together as a single class, without a separate vote of the holders of the class or classes the number of authorized shares of which are being increased or decreased unless a vote by any holders of one or more series of preferred stock is required by the express terms of any series of preferred stock pursuant to the terms thereof.

 

Increases in Authorized Shares of Common Stock

 

Effective November 5, 2021, the Company increased the authorized shares of common stock from 10 billion to 50 billion and, effective March 15, 2022, the Company increased the authorized shares of its common stock from 50 billion to 250 billion.

 

Discontinued Operations

 

On June 25, 2021, the Company sold its subsidiaries, Health Technology Solutions, Inc. (“HTS”) and Advanced Molecular Services Group, Inc. (“AMSG”), including their subsidiaries, to InnovaQor, Inc. (“InnovaQor”), formerly known as VisualMED Clinical Solutions Corporation. HTS and AMSG held Rennova’s software and genetic testing interpretation divisions. The financial results of HTS and AMSG prior to the sale are reflected herein as discontinued operations. The sale is more fully discussed in Note 13. During the third quarter of 2020, we announced that we had decided to sell our last clinical laboratory, EPIC Reference Labs, Inc. (“EPIC”), and as a result, EPIC’s operations have been included in discontinued operations for all periods presented. The Company was unable to find a buyer for EPIC and, therefore, ceased all efforts to sell EPIC and closed down its operations.

 

Revenue Recognition

 

We recognize revenue in accordance with Accounting Standard Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606),” including subsequently issued updates. Under the accounting guidance, we no longer present the provision for doubtful accounts as a separate line item and our revenues are presented net of estimated contractual allowances and estimated implicit price concessions. We also do not present “allowances for doubtful accounts” on our balance sheets.

 

9
 

 

Our revenues relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods averaging approximately three days, and revenues are recognized based on charges incurred. Our performance obligations for outpatient services, including emergency room-related services, are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges. Medicare, because of the Big South Fork Medical Center’s designation as a Critical Access Hospital, generally pays for inpatient and outpatient services at rates related to the hospital’s costs. Services provided to patients having Medicaid coverage are generally paid at prospectively determined rates per discharge, per identified service or per covered member. Agreements with commercial insurance carriers, managed care and preferred provider organizations generally provide for payments based upon predetermined rates per diagnosis, per diem rates or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals. Our net revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual allowances under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record self-pay revenues at the estimated amounts we expect to collect.

 

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Estimated reimbursement amounts are adjusted in subsequent periods as cost reports are prepared and filed and as final settlements are determined (in relation to certain government programs, primarily Medicare, this is generally referred to as the “cost report” filing and settlement process). Subsequent to September 30, 2022, the Company’s Big South Fork Medical Center received a communication from its fiscal intermediary stating that its Medicare cost report for the six months ending December 31, 2021 has been accepted and the fiscal intermediary has computed a tentative retroactive adjustment reflecting an overpayment by the fiscal intermediary in the amount of $1.9 million. The Company is working with the fiscal intermediary to file an amended cost report, which we expect to result in a smaller overpayment and is seeking an extended repayment schedule for any such overpayment. There is no assurance that the Medicare overpayment will be reduced or a repayment schedule agreed upon. Furthermore, the tentative retroactive adjustment is subject to a final cost report settlement. The Company has reserved $1.6 million as a liability and reduced net revenues by the same amount in its financial statements for the three and nine months ended September 30, 2022 as the estimated overpayment.

 

The collection of outstanding receivables for Medicare, Medicaid, managed care payers, other third-party payers and patients is our primary source of operating cash and is critical to our operating performance. The primary collection risks relate to uninsured patient accounts, including patient accounts for which the primary insurance carrier has paid the amounts covered by the applicable agreement, but patient responsibility amounts (deductibles and copayments) remain outstanding. Implicit price concessions relate primarily to amounts due directly from patients. Estimated implicit price concessions are recorded for all uninsured accounts, regardless of the aging of those accounts. Accounts are written off when all reasonable internal and external collection efforts have been performed. The estimates for implicit price concessions are based upon management’s assessment of historical write offs and expected net collections, business and economic conditions, trends in federal, state and private employer health care coverage and other collection indicators. Management relies on the results of detailed reviews of historical write-offs and collections at facilities that represent a majority of our revenues and accounts receivable (the “hindsight analysis”) as a primary source of information in estimating the collectability of our accounts receivable.

 

Contractual Allowances and Doubtful Accounts Policy

 

Accounts receivable are reported at realizable value, net of estimated contractual allowances and estimated implicit price concessions (also referred to as doubtful accounts), which are estimated and recorded in the period the related revenue is recorded. The Company has a standardized approach to estimating and reviewing the collectability of its receivables based on a number of factors, including the period they have been outstanding. Historical collection and payer reimbursement experience is an integral part of the estimation process related to contractual allowances and doubtful accounts. In addition, the Company regularly assesses the state of its billing operations in order to identify issues which may impact the receivables or reserve estimates. Receivables deemed to be uncollectible are charged against the allowance for doubtful accounts at the time such receivables are written-off. Recoveries of receivables previously written-off are recorded as credits to the allowance for doubtful accounts. Revisions to the allowances for doubtful accounts are recorded as an adjustment to revenues.

 

10
 

 

During the three months ended September 30, 2022 and 2021, estimated contractual allowances of $10.2 million and $6.8 million, respectively, and estimated implicit price concessions of $1.6 million and $1.9 million, respectively, have been recorded as reductions to our revenues and accounts receivable balances to enable us to record our revenues and accounts receivable at the estimated amounts we expect to collect. As required by Topic 606, for the three months ended September 30, 2022 and 2021, after estimated implicit price concessions and contractual and related allowance adjustments to revenues of $11.8 million and $8.7 million, respectively, we reported net revenues of $2.8 million (inclusive of the $1.6 million tentative retroactive Medicare cost report adjustment) and $1.0 million, respectively.

 

During the nine months ended September 30, 2022 and 2021, estimated contractual allowances of $23.4 million and $16.2 million, respectively, and estimated implicit price concessions of $5.7 million and $6.2 million, respectively, have been recorded as reductions to our revenues and accounts receivable balances to enable us to record our revenues and accounts receivable at the estimated amounts we expect to collect. As required by Topic 606, for the nine months ended September 30, 2022 and 2021, after estimated implicit price concessions and contractual and related allowance adjustments to revenues of $29.1 million and $22.4 million, respectively, we reported net revenues of $7.6 million and $1.3 million, respectively.

 

Impairment or Disposal of Long-Lived Assets

 

We account for the impairment or disposal of long-lived assets according to the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 360, Property, Plant and Equipment (“ASC 360”). ASC 360 clarifies the accounting for the impairment of long-lived assets and for long-lived assets to be disposed of, including the disposal of business segments and major lines of business. Long-lived assets are reviewed when facts and circumstances indicate that the carrying value of the asset may not be recoverable. When necessary, impaired assets are written down to estimated fair value based on the best information available. Estimated fair value is generally based on either appraised value or measured by discounting estimated future cash flows. Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. The Company did not record an asset impairment charge during the three and nine months ended September 30, 2022 and 2021.

 

Leases in Accordance with ASU No. 2016-02

 

We account for leases in accordance with ASU No. 2016-02, Leases (Topic 842), which requires leases with durations greater than 12 months to be recognized on the balance sheet. Upon adoption in 2019, we elected the package of transition provisions available which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related right-of-use assets and right-of-use obligations at the present value of lease payments over the term. We do not separate lease and non-lease components of contracts. Our finance and operating leases are more fully discussed in Note 8.

 

Fair Value Measurements

 

In accordance with ASC 820, “Fair Value Measurements and Disclosures,” the Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

 

  Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
     
  Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets; or quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets).
     
  Level 3 applies to assets or liabilities for which fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including our own assumptions.

 

11
 

 

On September 30, 2022 and December 31, 2021, we applied the Level 3 fair value hierarchy in determining the fair value of the InnovaQor Series B-1 Preferred Stock, which is reflected on our condensed consolidated balance sheets as an investment, as more fully discussed in Notes 9 and 13. Also, on September 30, 2022 and December 31, 2021, we applied the Level 3 fair value hierarchy in determining the fair value of a derivative liability for an embedded conversion option of an outstanding convertible debenture, as more fully discussed in Note 9.

 

Derivative Financial Instruments and Fair Value, Including ASU 2017-11 and ASU 2021-04

 

In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815).” The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no 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 (loss) 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 stockholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260).

 

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The FASB issued this update to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The guidance clarifies whether an issuer should account for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity (that is, deemed dividends) and, if so, the related earnings per share (EPS) effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. We adopted this new accounting guidance on January 1, 2022. Under the new guidance, the FASB decided not to include convertible debt instruments in the guidance because ASU No 2016-01, Financial Instruments – Overall (Subtopic 825-10) requires that an entity capture the impact of changes in down round provision features of convertible debt within the fair value of the instruments. During the three and nine months ended September 30, 2022, there were no changes in the fair values of the Company’s convertible debentures with down round provision features as these debentures have floors that were not in-the-money at September 30, 2022. Prior to the adoption of the guidance in ASU No 2016-01, Financial Instruments – Overall (Subtopic 825-10), in the three and nine months ended September 30, 2021, we recorded deemed dividends for changes in down round provisions of debentures of $5.4 million in both periods. Debentures are more fully discussed in Note 6. There were no triggers of down round provisions to warrants during the three months ended September 30, 2022. The incremental value of modifications to warrants as a result of the trigger of down round provisions of $253.5 million were recorded as deemed dividends for the three months ended September 30, 2021. The incremental value of modifications to warrants as a result of the trigger of down round provisions of $330.6 million and $403.1 million were recorded as deemed dividends for the nine months ended September 30, 2022 and 2021, respectively.

 

In addition, we recorded deemed dividends of approximately $0.3 million during the nine months ended September 30, 2022 as a result of the issuances of shares of our Series P Convertible Redeemable Preferred Stock (the “Series P Preferred Stock”), which is more fully discussed in Note 10. In addition, we recorded deemed dividends of $0.3 million in both the three and nine months ended September 30, 2021 as a result of the extension of certain common stock warrants and $0.3 million and $0.3 million in both the three and nine months ended September 31, 2021 in connection with an exchange agreement. The extension of the warrants and the exchange agreement are more fully discussed in Note 10. See Note 9 for an additional discussion of derivative financial instruments and deemed dividends.

 

12
 

 

Income Taxes

 

Income taxes are accounted for under the liability method of accounting for income taxes. Under the liability method, future tax liabilities and assets are recognized for the estimated future tax consequences attributable to differences between the amounts reported in the financial statement carrying amounts of assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantially enacted income tax rates expected to apply when the asset is realized or the liability settled. The effect of a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs. Future income tax assets are recognized to the extent that they are considered more likely than not to be realized. When projected future taxable income is insufficient to provide for the realization of deferred tax assets, the Company recognizes a valuation allowance.

 

In accordance with U.S. GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Derecognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets. Based on its analysis, the Company has determined that it has not incurred any liability for unrecognized tax benefits as of September 30, 2022 and December 31, 2021.

 

Earnings (Loss) Per Share

 

The Company reports earnings (loss) per share in accordance with ASC Topic 260, “Earnings Per Share,” which establishes standards for computing and presenting earnings (loss) per share. Basic earnings (loss) per share of common stock is calculated by dividing net earnings (loss) available to common stockholders by the weighted-average shares of common stock outstanding during the period, without consideration of common stock equivalents. Diluted earnings (loss) per share is calculated by adjusting the weighted-average shares of common stock outstanding for the dilutive effect of common stock equivalents, including preferred stock, convertible debt, stock options and warrants outstanding for the period, with options and warrants determined using the treasury stock method. For purposes of the diluted net loss per share calculation, common stock equivalents are excluded from the calculation when their effect would be anti-dilutive. See Note 3 for the computation of loss per share for the three and nine months ended September 30, 2022 and 2021.

 

Note 2 – Liquidity and Financial Condition

 

Big South Fork Medical Center

  

On January 13, 2017, we acquired certain assets related to Scott County Community Hospital, based in Oneida, Tennessee (the “Oneida Assets”). The Oneida Assets include a 52,000 square foot hospital building and a 6,300 square foot professional building on approximately 4.3 acres. Scott County Community Hospital has 25 beds, a 24/7 emergency department and a laboratory that provides a range of diagnostic services. Scott County Community Hospital closed in July 2016 in connection with the bankruptcy filing of its parent company, Pioneer Health Services, Inc. We acquired the Oneida Assets out of bankruptcy for a purchase price of $1.0 million. The hospital, which has since been renamed Big South Fork Medical Center, became operational on August 8, 2017. The hospital became certified as a Critical Access Hospital (rural) hospital in December 2021, retroactive to June 30, 2021.

 

Jamestown Regional Medical Center and Mountain View Physician Practice

 

On June 1, 2018, the Company acquired from Community Health Systems, Inc. certain assets related to an acute care hospital located in Jamestown, Tennessee, referred to as Jamestown Regional Medical Center, for a purchase price of $0.7 million. The hospital is an 85-bed facility of approximately 90,000 square feet on over eight acres of land, which offered a 24-hour emergency department with two trauma bays and seven private exam rooms, inpatient and outpatient medical services and a progressive care unit which provided telemetry services. The acquisition also included a separate physician practice known as Mountain View Physician Practice, Inc.

 

The Company suspended operations at the hospital and physician practice in June 2019, as a result of the termination of the hospital’s Medicare agreement and other factors. The Company is evaluating whether to reopen the facility as an acute care hospital or as another type of healthcare facility. Jamestown is located 38 miles west of Big South Fork Medical Center.

 

13
 

 

Jellico Community Hospital and CarePlus Rural Health Clinic

 

On March 5, 2019, we acquired certain assets related to a 54-bed acute care hospital that offered comprehensive services located in Jellico, Tennessee known as Jellico Community Hospital and an outpatient clinic located in Williamsburg, Kentucky known as CarePlus Clinic. The hospital and the clinic and their associated assets were acquired from Jellico Community Hospital, Inc. and CarePlus Rural Health Clinic, LLC, respectively. On March 1, 2021, the Company closed Jellico Community Hospital, after the City of Jellico issued a 30-day termination notice for the lease of the building. Jellico Community Hospital was located 33 miles east of our Big South Fork Medical Center.

 

The CarePlus Clinic offers compassionate care in a patient-friendly facility. The CarePlus Clinic is located 32 miles northeast of our Big South Fork Medical Center.

 

Impact of the Pandemic

 

The coronavirus (“COVID-19”) pandemic was declared a global pandemic by the World Health Organization on March 11, 2020. We have been closely monitoring the COVID-19 pandemic and its impact on our operations. As more fully discussed in Note 6, we have received Paycheck Protection Program (“PPP”) loans. We have also received Department of Health and Human Services (“HHS”) Provider Relief Funds and employee retention credits from the federal government as more fully discussed below. If the COVID-19 pandemic continues for a further extended period, we expect to incur significant losses and additional financial assistance may be required. Going forward, the Company is unable to determine the extent to which the COVID-19 pandemic will continue to affect its business.

 

HHS Provider Relief Funds

 

The Company received HHS Provider Relief Funds, which were provided to eligible healthcare providers out of the $100 billion Public Health and Social Services Emergency Fund provided for in the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The funds were allocated to eligible healthcare providers for expenses and lost revenue attributable to the COVID-19 pandemic. As of September 30, 2022, our facilities have received approximately $13.5 million in relief funds. The fund payments are grants, not loans, and HHS will not require repayment, but the funds must be used only for grant approved purposes. Based on an analysis of the compliance and reporting requirements of the Provider Relief Funds and the impact of the pandemic on our operating results through September 30, 2022, we have recognized a net of $12.1 million of these funds as income of which $4.4 million was recognized as income during the nine months ended September 30, 2021 and $8.0 million was recognized as income in 2020, offset by a reduction of income of $0.3 million during the three and nine months ended September 30, 2022, based on a review and further analysis of the amount of income previously recorded. Accordingly, $1.4 million of relief funds received as of September 30, 2022 are included on our unaudited condensed consolidated balance sheet in accrued expenses as more fully discussed in Note 5.

 

As of September 30, 2022, the Company’s estimate of the amount for which it is reasonably assured of meeting the underlying terms and conditions was based on, among other things, the various notices issued by HHS in September 19, 2020, October 22, 2020, and January 15, 2021 and the Company’s results of operations during the years ended December 31, 2020 and 2021 and the three and nine months ended September 30, 2022. The Company believes that it was appropriate to recognize a net of $12.1 million of the HHS Provider Relief Funds as income in various periods, as discussed in the paragraph above. Accordingly, the $12.1 million is not recognized as a liability at September 30, 2022. Additional guidance or new and amended interpretations of existing guidance on the terms and conditions of such payments may result in changes in the Company’s estimate of amounts for which the terms and conditions are reasonably assured of being met, and any such changes may be material. Additionally, any such changes may result in derecognition of amounts of income previously recognized, which may be material. If we are unable to attest to or comply with current or future terms and conditions, and there is no assurance we will be able to do so, our ability to retain some or all of the funds received may be impacted.

 

Federal Employee Retention Credits

 

The CARES Act, passed by Congress on March 27, 2020, contained the employee retention credit, a refundable payroll tax credit to employers that have experienced hardship in their operations due to COVID-19. The CARES Act was amended and extended on December 27, 2020 by the Consolidated Appropriations Act, 2021 (the “CAA”) and in March 2021, the Internal Revenue Code was amended by the American Rescue Plan Act of 2021 to provide new employee retention credit provisions designed to promote employee retention and hiring. As a result, the Company received $1.5 million in employee retention credits during the year ended December 31, 2021, which the Company recognized as other income and applied to its outstanding past-due payroll tax liabilities. See Note 5 for an additional discussion of the employee retention credit.

 

14
 

 

Going Concern

 

Under ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued. Management has assessed the Company’s ability to continue as a going concern in accordance with the requirements of ASC 205-40.

 

At September 30, 2022, the Company had a working capital deficit and a stockholders’ deficit of $44.0 million and $29.9 million, respectively. In addition, the Company had a loss from continuing operations of approximately $4.1 million and $4.4 million for the nine months ended September 30, 2022 and 2021, respectively, and cash used in operating activities was $1.2 million and $5.7 million for the nine months ended September 30, 2022 and 2021, respectively. As of the date of this report, our cash is deficient and payments for our operations in the ordinary course are not being made. The continued losses and other related factors, including past due accounts payable and payroll taxes, as well as payment defaults under the terms of certain outstanding notes payable and debentures, raise substantial doubt about the Company’s ability to continue as a going concern for 12 months from the filing date of this report.

 

The Company’s unaudited condensed consolidated financial statements are prepared assuming the Company can continue as a going concern, which contemplates continuity of operations through realization of assets, and the settling of liabilities in the normal course of business. The Company’s current financial condition may make it difficult to attract and maintain adequate expertise in its management team to successfully operate its remaining healthcare facilities.

 

There can be no assurance that the Company will be able to achieve its business plan, raise any additional capital or secure the additional financing necessary to implement its current operating plan. The ability of the Company to continue as a going concern is dependent upon its ability to raise adequate capital to fund its operations and repay its outstanding debt and other past due obligations, fully align its operating costs, increase its net revenues, and eventually gain profitable operations. The unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Note 3 – Loss Per Share

 

Basic loss per share is computed by dividing the loss available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Basic loss per share excludes potential dilution of securities or other contracts to issue shares of common stock. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income of the Company. For each of the three and nine months ended September 30, 2022 and 2021, basic loss per share is the same as diluted loss per share.

 

The following table sets forth the computation of the Company’s basic and diluted net loss per share (unaudited) during the three and nine months ended September 30, 2022 and 2021:

  

                     
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2022   2021   2022   2021 
Numerator                    
Net (loss) income from continuing operations  $(1,339,865)  $785,565   $(4,105,838)  $(4,371,860)
Deemed dividends   -    (259,530,999)   (330,876,369)   (409,142,478)
Net loss available to common stockholders, continuing operations   (1,339,865)   (258,745,434)   (334,982,207)   (413,514,338)
Net (loss) income from discontinued operations   (1,696)   545,399    (7,075)   10,880,148 
Net loss available to common stockholders  $(1,341,561)  $(258,200,035)  $(334,989,282)  $(402,634,190)
                     
Denominator                    
Weighted average number of shares of common stock outstanding during the period - basic and diluted   10,569,572,256    43,900    4,130,876,898    15,046 
                     
Net loss per share of common stock available to common stockholders - basic and diluted:                    
Continuing operations  $(0.00)  $(5,893.97)  $(0.08)  $(27,483.34)
Discontinued operations   (0.00)   12.42    (0.00)   723.13 
Total basic and diluted  $(0.00)  $(5,881.55)  $(0.08)  $(26,760.21)

 

15
 

 

Diluted loss per share excludes all dilutive potential shares if their effect is anti-dilutive. As of September 30, 2022 and 2021, the following potential common stock equivalents were excluded from the calculation of diluted loss per share as their effect was anti-dilutive:

  

   Nine Months September 30, 
   2022   2021 
Warrants   511,333,351,092    18,266,394 
Convertible preferred stock   466,707,633,333    8,977,081 
Convertible debentures   28,777,833,333    966,494 
Stock options   26    26 
    1,006,818,817,784    28,209,995 

 

The terms of certain of the warrants, convertible preferred stock and convertible debentures issued by the Company provide for reductions in the per share exercise prices of the warrants and the per share conversion prices of the debentures and preferred stock (if applicable and subject to floors in certain cases) in the event that the Company issues common stock or common stock equivalents (as that term is defined in the agreements) at an effective exercise/conversion price that is less than the then exercise/conversion prices of the outstanding warrants, preferred stock or debentures, as the case may be. In addition, many of these securities contain exercise or conversion prices that vary based upon the price of the Company’s common stock on the date of exercise/conversion (see Notes 6, 9, 10 and 15). These provisions have resulted in significant dilution of the Company’s common stock.

 

As a result of these down round provisions, the potential common stock and common stock equivalents totaled 1.0 trillion at November 10, 2022, as more fully discussed in Note 15. See Note 10 regarding a discussion of the number of shares of the Company’s authorized common and preferred stock.

 

Note 4 – Accounts Receivable

 

Accounts receivable at September 30, 2022 (unaudited) and December 31, 2021 consisted of the following:

  

           
   September 30,   December 31, 
   2022   2021 
         
Accounts receivable  $13,393,254   $12,961,817 
Less:          
Allowance for contractual obligations   (8,125,400)   (8,737,502)
Allowance for doubtful accounts   (1,725,356)   (1,456,791)
Accounts receivable owed under settlements/sales agreements   (211,764)   (688,236)
Accounts receivable, net  $3,330,734   $2,079,288 

 

16
 

 

Note 5 – Accrued Expenses

 

Accrued expenses at September 30, 2022 (unaudited) and December 31, 2021 consisted of the following:

 

           
   September 30,   December 31, 
   2022   2021 
Accrued payroll and related liabilities  $7,833,193   $7,528,464 
HHS Provider Relief Funds   1,415,549    863,452 
Accrued interest   5,413,828    5,027,459 
Accrued legal expenses and settlements   454,486    632,318 
Medicare overpayment reserve   1,600,000    - 
Other accrued expenses   2,635,432    1,448,242 
Accrued expenses  $19,352,488   $15,499,935 

 

Payroll and related liabilities at September 30, 2022 and December 31, 2021 included approximately $2.6 million and $2.3 million, respectively, for penalties associated with approximately $4.1 million and $3.9 million of accrued past due payroll taxes as of September 30, 2022 and December 31, 2021, respectively. This liability account at September 30, 2022 and December 31, 2021 is net of employee retention credits totaling $1.5 million and $1.5 million, respectively. Employee retention credits are also discussed in Note 2.

 

As of September 30, 2022 and December 31, 2021, the Company has accrued $1.4 million and $0.9 million, respectively, of HHS Provider Relief Funds. These funds are more fully discussed in Note 2.

 

Accrued interest at September 30, 2022 and December 31, 2021 included accrued interest of $0.1 million and $0.3 million, respectively, on loans made to the Company by Christopher Diamantis, a former member of the Company’s Board of Directors. The loans from Mr. Diamantis are more fully discussed in Note 6.

 

Subsequent to September 30, 2022, the Company’s Big South Fork Medical Center received a communication from its fiscal intermediary stating that its Medicare cost report for the six months ending December 31, 2021 has been accepted and there was an overpayment by the fiscal intermediary as more fully discussed in Notes 1 and 15. As a result of the communication, during the three and nine months ended September, 30, 2022, the Company recorded a $1.6 million reduction in net revenues and a corresponding Medicare overpayment reserve.

 

Note 6 – Debt

 

At September 30, 2022 (unaudited) and December 31, 2021, debt consisted of the following:

  

September 30,

2022

  

December 31,

2021

 
         
Notes payable- third parties  $3,119,505   $4,667,819 
Loan payable – related party   3,027,000    2,127,000 
Debentures   8,222,240    8,222,240 
Total debt   14,368,745    15,017,059 
Less current portion of debt   (14,368,745)   (15,017,059)
Total debt, net of current portion  $-   $- 

 

17
 

 

At September 30, 2022 (unaudited) and December 31, 2021, notes payable with third parties consisted of the following:

 

Notes Payable – Third Parties

  

September 30,

2022

  

December 31,

2021

 
         
         
   -   250,000 
Settlement amount/loan payable to TCA Global Credit Master Fund, L.P. (“TCA”) in the original principal amount of $3 million. Settled on September 30, 2021 for $500,000 pursuant to a payment plan as discussed below.  $-   $250,000 
           
Notes payable to CommerceNet and Jay Tenenbaum in the original principal amount of $500,000 (the “Tegal Notes”).   291,557    291,557 
           
Note payable to Anthony O’Killough dated September 27, 2019 in the original principal amount of $1.9 million. Interest is due only upon event of default. Issued net of $0.3 million of debt discount and $0.1 million of financing fees. Payment due in installments through November 2020.   1,339,495    1,450,000 
           
Notes payable under the PPP loans issued on April 20, 2020 through May 1, 2020.   -    400,800 
           
Notes payable dated January 31, 2021 and February 16, 2021 in the original aggregate amount of $245,000 due six months from the date of issuance. The notes bore interest at 10% for the period outstanding. Under the terms of the notes, the holder received 100 shares of InnovaQor’s Series B-1 Preferred Stock held by the Company (see Note 13).   -    122,500 
           
Notes payable to Western Healthcare, LLC dated August 10, 2021, in the aggregate principal amount of $2.4 million, bearing interest at 18% per annum, payable in monthly installments aggregating $0.2 million, due August 30, 2022.   1,488,453    2,152,962 
           
Note payable   3,119,505    4,667,819 
Less current portion   (3,119,505)   (4,667,819)
Notes payable - third parties, net of current portion  $-   $- 

 

In May 2020, the SEC appointed a Receiver to close down the TCA Global Credit Master Fund, L.P. The Company and the Receiver entered into a settlement agreement dated effective as of September 30, 2021, under which the Company agreed to pay $500,000 as full and final settlement of principal and accrued interest, of which $250,000 was paid during 2021 and $250,000 was paid during the nine months ended September 30, 2022. As a result of the settlement, in the three and nine months ended September 30, 2021 the Company recorded a gain from legal settlement, resulting from the adjustments of principal and accrued interest, of $2.2 million.

 

The Company did not make the second annual principal payment under the Tegal Notes that was due on July 12, 2016. On November 3, 2016, the Company received a default notice from the holders of the Tegal Notes demanding immediate repayment of the outstanding principal at that time of $341,612 and accrued interest of $43,000. On December 7, 2016, the Company received a breach of contract complaint with a request for the entry of a default judgment (see Note 12). On April 23, 2018, the holders of the Tegal Notes received a judgment against the Company. As of September 30, 2022, the Company has paid $50,055 of the principal amount of these notes.

 

18
 

 

On September 27, 2019, the Company issued a promissory note payable to Anthony O’Killough in the principal amount of $1.9 million and received proceeds of $1.5 million, which was net of a $0.3 million original issue discount and $0.1 million of financing fees. The first principal payment of $1.0 million was due on November 8, 2019 and the remaining $0.9 million was due on December 26, 2019. These payments were not made. In February 2020, Mr. O’Killough sued the Company and Mr. Diamantis, as guarantor, in New York State Supreme Court for the County of New York, for approximately $2.2 million for non-payment of the promissory note. In May 2020, the Company, Mr. Diamantis, as guarantor, and Mr. O’Killough entered into a Stipulation providing for a payment of a total of $2.2 million (which included accrued “penalty” interest as of that date) in installments through November 1, 2020. The Company made payments totaling $450,000 in 2020. On January 18, 2022, Mr. Diamantis paid $750,000 and the remaining balance was due 120 days thereafter. Mr. O’Killough agreed to forebear from any further enforcement action until then. The Company is obligated to repay Mr. Diamantis the $750,000 payment, plus interest, as well as any further payments that may be made by him. On May 16, 2022, the Company paid $250,000 to Mr. Diamantis for further payment to Mr. O’Killough and on July 18, 2022, Mr. Diamantis paid a further $150,000 to Mr. O’Killough. As a result of the $750,000 payment to Mr. O’Killough made by Mr. Diamantis on January 18, 2022 and the additional $400,000 in payments made to Mr. O’Killough on May 16, 2022 and July 18, 2022, the past due balance owed to Mr. O’Killough was $1.3 million on September 30, 2022. The promissory note and forbearance agreement are also discussed in Note 12.

 

The Company, including its subsidiaries, received PPP loan proceeds in the aggregate amount of approximately $2.4 million (the “PPP Notes”). The PPP Notes and accrued interest were forgivable as long as the borrower used the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities. As of September 30, 2022, $2.3 million of the principal balance of the PPP Notes was forgiven of which $0.3 million was forgiven in the nine months ended September 30, 2022, $1.0 million was forgiven in the three months ended September 30, 2021 and $1.0 million was forgiven in the three months ended December 31, 2021. During the nine months ended September 30, 2022, the remaining principal balance was repaid.

 

On August 10, 2021, the Company entered into two notes payable with Western Healthcare, LLC in the aggregate principal amount of $2.4 million. The notes were issued under the terms of a settlement agreement related to agreements that the Company had previously entered into for medical staffing services. The notes bear interest at a rate of 18% per annum and payments consisting of principal and interest are due no later than August 30, 2022. The Company paid $0.2 million to the note holders upon issuance of the notes. The Company has not made all of the monthly installments due under the notes.

 

Loan Payable – Related Party

 

At September 30, 2022 (unaudited) and December 31, 2021, loan payable - related party consisted of the following:

 

  

September 30,

2022

  

December 31,

2021

 
         
Loan payable to Christopher Diamantis  $3,027,000   $2,127,000 
Less current portion of loan payable, related party   (3,027,000)   (2,127,000)
Total loan payable, related party, net of current portion  $   $ 

 

Mr. Diamantis was a member of the Company’s Board of Directors until his resignation on February 26, 2020. During the nine months ended September 30, 2022, Mr. Diamantis loaned the Company $0.9 million, which was used to pay principal and accrued interest due under the note payable to Mr. O’Killough. The note payable to Mr. O’Killough, including payments made in the nine months ended September 30, 2002, is more fully discussed above under the heading Notes Payable –Third Parties. During the nine months ended September 30, 2021, Mr. Diamantis loaned the Company $0.9 million, which was used for working capital purposes and the Company repaid Mr. Diamantis $0.4 million. In November 2021, Mr. Diamantis requested the Company repay the outstanding note payable to him, which was $3.0 million at September 30, 2022, and facilitate repayment of the note payable to Mr. O’Killough for which he is a guarantor.

 

During the three months ended September 30, 2022 and 2021, the Company incurred interest expense of $15,000 and $0, respectively, on the loans from Mr. Diamantis and during the nine months ended September 30, 2022 and 2021, the Company incurred interest expense of $0.1 million and $0.1 million, respectively. During the three and nine months ended September 30, 2022, the Company paid $0.2 million and $0.3 million, respectively, of accrued interest owed to Mr. Diamantis. As of September 30, 2022 and December 31, 2021, accrued interest on the loans from Mr. Diamantis totaled approximately $0.1 million and $0.3 million, respectively. Interest accrues on loans from Mr. Diamantis at a rate of 10% on the majority of the amounts loaned. In addition, the Company incurs interest expense related to the amounts Mr. Diamantis borrows from third-parties to loan to the Company.

 

19
 

 

Debentures

 

The carrying amount of all outstanding debentures with institutional investors as of September 30, 2022 (unaudited) and December 31, 2021 was as follows:

 

  

September 30,

2022

  

December 31,

2021

 
         
Debentures  $8,222,240   $8,222,240 
           
Less current portion   (8,222,240)   (8,222,240)
Debentures, net of current portion  $-   $- 

 

Payment of all outstanding debentures with institutional investors totaling $8.2 million at both September 30, 2022 and December 31, 2021 was past due by the debentures’ original terms. A 30% late payment penalty was added to the principal amount of each debenture. Included in the outstanding debentures as of September 30, 2022 and December 31, 2021 were late payment penalties of $1.9 million. The debentures bear default interest at the rate of 18% per annum and are secured by a first priority lien on all of the Company’s assets. During the three months ended September 30, 2022 and 2021, the Company incurred default interest expense on debentures of $0.4 million and $0.6 million, respectively, and during the nine months ended September 30, 2022 and 2021, the Company incurred default interest expense on debentures of $1.1 million and $1.7 million, respectively. At September 30, 2022 and December 31, 2021, accrued interest on debentures was $4.7 million and $3.6 million, respectively. The debentures include the March 2017 Debenture and the 2018 Debentures, as described below.

 

March 2017 Debenture

 

In March 2017, the Company issued a debenture due in March 2019 (the “March 2017 Debenture”) with a principal balance of $2.6 million at both September 30, 2022 and December 31, 2021, including a 30% late-payment penalty. The March 2017 Debenture is convertible into shares of the Company’s common stock, at a conversion price which has been adjusted pursuant to the terms of the March 2017 Debenture to $0.00009 per share on September 30, 2022, or 28.7 billion shares of common stock. The conversion price is subject to reset in the event of offerings or other issuances of common stock, or rights to purchase common stock, at a price below the then conversion price, as well as other customary anti-dilution protections.

 

The March 2017 Debenture was issued with warrants exercisable into shares of the Company’s common stock. Outstanding warrants are more fully discussed in Note 10.

 

2018 Debentures

 

During 2018, the Company closed various offerings of the 2018 Debentures with principal balances aggregating $14.5 million, including late-payment penalties, due in September 2019. The conversion terms of the 2018 Debentures are the same as those of the March 2017 Debenture, as more fully described above, with the exception of the conversion price, which was $0.052 per share at September 30, 2022 and is subject to a floor of $0.052 per share. At both September 30, 2022 and December 31, 2021, the outstanding principal balance of the 2018 Debentures, including late-payment penalties, was $5.6 million and the debentures were convertible into 108.5 million shares of the Company’s common stock on September 30, 2022.

 

Note 7 – Related Party Transactions

 

In addition to the transactions discussed in Notes 6 and 10, the Company had the following related party activity during the three and nine months ended September 30, 2022 and 2021:

 

Alcimede LLC and Alcimede Limited

 

On November 1, 2021, the Company and Alcimede Limited entered into a new Consulting Agreement that replaced the agreement between the Company and Alcimede LLC. Pursuant to the respective consulting agreements, Alcimede Limited billed $0.1 million and $0.3 million for services for the three and nine months ended September 30, 2022, respectively, and Alcimede LLC billed $0.1 million and $0.3 million for services for the three and nine months ended September 30, 2021, respectively. Seamus Lagan, the Company’s President and Chief Executive Officer, is the sole manager of Alcimede LLC and the Managing Director of Alcimede Limited (also see Note 10).

 

20
 

 

InnovaQor

 

In addition to the investment in InnovaQor’s Series B-1 Preferred Stock resulting from the sale of HTS and AMSG to InnovaQor in June 2021 (see Notes 1 and 13), at September 30, 2022 and December 31, 2021, the Company had a note receivable/related party receivable resulting from working capital advances to InnovaQor of approximately $1.0 million and $0.4 million, respectively. The balance at September 30, 2022 of $1.0 million includes amounts due under a note receivable as discussed below.

 

As of July 1, 2022, the Company had an outstanding receivable from InnovaQor of $803,416. InnovaQor signed a promissory note, dated July 1, 2022, in favor of the Company that provides that InnovaQor will repay the Company $883,757 on December 31, 2022. That amount represents a 10% original issue discount above the loan amount outstanding on July 1, 2022. The Note, in the event of default, bears interest at 18% per annum. During the three and nine months ended September 30, 2022, the Company recognized $80,156 of the original issue discount as interest income.

 

During the three and nine months ended September 30, 2022, the Company contracted with InnovaQor to provide ongoing health information technology-related services totaling approximately $53,555 and $133,841, respectively. During the three and nine months ended September 30, 2021, the Company contracted with InnovaQor to provide ongoing health information technology-related services totaling $51,229. In addition, InnovaQor currently subleases office space from the Company on a month to month term at a cost of approximately $9,700 per month for rent and utilities.

 

The terms of the foregoing activities, and those discussed in Notes 6 and 10, are not necessarily indicative of those that would have been agreed to with unrelated parties for similar transactions.

 

Note 8 – Finance and Operating Lease Obligations

 

We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related right-of-use assets and right-of-use obligations at the present value of lease payments over the term. We do not separate lease and non-lease components of contracts.

 

Generally, we use our most recent agreed upon borrowing interest rate at lease commencement as our interest rate, as most of our operating leases do not provide a readily determinable implicit interest rate.

 

The following table presents our lease-related assets and liabilities at September 30, 2022 (unaudited) and December 31, 2021:

 

   Balance Sheet Classification 

September 30,

2022

  

December 31,

2021

 
            
Assets:             
Operating leases  Right-of-use operating lease assets  $640,386   $821,274 
Finance lease  Property and equipment, net   220,461    220,461 
              
Total lease assets     $860,847   $1,041,735 
              
Liabilities:             
Current:             
Operating leases  Right-of-use operating lease obligations  $239,449   $247,017 
Finance lease  Current liabilities   220,461    220,461 
Noncurrent:             
Operating leases  Right-of-use operating lease obligations   400,937    574,257 
              
Total lease liabilities     $860,847   $1,041,735 
              
Weighted-average remaining term:             
Operating leases      2.68 years    3.57 years 
Finance lease (1)      0 years    0 years 
Weighted-average discount rate:             
Operating leases      13.0%   13.0%
Finance leases      4.9%   4.9%

 

21
 

 

The following table presents certain information related to lease expense for finance and operating leases for the three and nine months ended September 30, 2022 and 2021 (unaudited):

  

   Three Months Ended
September 30, 2022
   Three Months Ended
September 30, 2021
   Nine Months Ended
September 30, 2022
   Nine Months Ended
September 30, 2021
 
Finance lease expense:                
Depreciation/amortization of lease assets  $-   $-   $-   $- 
Interest on lease liabilities   -    -    -    - 
Operating leases:                    
Short-term lease expense (2)   83,211    44,342    248,250    151,025 
Total lease expense  $ 83,211  $44,342   $ 248,250  $151,025 

 

  (1) As of September 30, 2022 and December 31, 2021, the Company was in default under its finance lease obligation, therefore, the aggregate future minimum lease payments and accrued interest under this finance lease in the amount of $0.2 million are deemed to be immediately due.
     
  (2) Expenses are included in general and administrative expenses in the unaudited condensed consolidated statements of operations.

 

Other Information

 

The following table presents supplemental cash flow information for the nine months ended September 30, 2022 and 2021 (unaudited):

 

   Nine Months Ended
September 30, 2022
   Nine Months Ended
September 30, 2021
 
Cash paid for amounts included in the measurement of lease liabilities:          
Operating cash flows for operating leases obligations  $ 218,846  $168,923 
Operating cash flows for finance lease  $-   $- 
Financing cash flows for finance lease payments  $-   $29,524 

 

Aggregate future minimum lease payments under right-of-use operating and finance leases are as follows (unaudited):

 

   Right-of-Use Operating Leases   Finance Lease 
Twelve months ending September 30:          
2023  $307,082   $224,252 
2024   217,839    - 
2025   223,795    - 
2026   18,650    - 
2027   -    - 
Thereafter   -    - 
Total   767,366    224,252 
           
Less interest   

(126,980

)   (3,791)
Present value of minimum lease payments   640,386    220,461 
           
Less current portion of lease obligations    (239,449 )   (220,461)
Lease obligations, net of current portion  $

400,937

   $-

 

22
 

 

Note 9 – Derivative Financial Instruments, Fair Value and Deemed Dividends

 

Fair Value Measurements

 

The estimated fair value of financial instruments was determined by the Company using available market information and valuation methodologies considered to be appropriate. The fair value measurements accounting guidance is more fully discussed in Note 1. At September 30, 2022 and December 31, 2021, the carrying value of the Company’s accounts receivable, accounts payable and accrued expenses approximated their fair values due to their short-term nature.

 

The following table sets forth the financial assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2022 (unaudited) and December 31, 2021:

 

   Level 1   Level 2   Level 3   Total 
                 
As of September 30, 2022:                    
Asset - InnovaQor Series B-1 Preferred Stock  $-   $-   $9,016,072   $9,016,072 
Liability - Embedded conversion option of debenture   -    -    455,336    455,336 
                     
As of December 31, 2021:                    
Asset - InnovaQor Series B-1 Preferred Stock  $-   $-   $9,016,072   $9,016,072 
Liability - Embedded conversion option of debenture         -           -    455,336    455,336 

 

The fair value of the InnovaQor Series B-1 Preferred Stock of $9.0 million as of September 30, 2022 and December 31, 2021 is more fully discussed in Note 13.

 

The Company utilized the following method to value its derivative liability as of September 30, 2022 and December 31, 2021 for an embedded conversion option related to an outstanding convertible debenture valued at $455,336. The Company determined the fair value by comparing the conversion price per share, which based on the conversion terms is 85% of the market price of the Company’s common stock, multiplied by the number of shares issuable at the balance sheet dates to the actual price per share of the Company’s common stock multiplied by the number of shares issuable at that date with the difference in value recorded as a liability. There was no change in the value of the embedded conversion option in the three and nine months ended September 30, 2022 and 2021 and the year ended December 31, 2021 as there was no change in the conversion price terms during the periods.

 

Deemed Dividends

 

During the nine months ended September 30, 2022 and during the three and nine months ended September 30, 2021, the conversions of preferred stock triggered a further reduction in the exercise prices of warrants (and conversion prices of debentures in the 2021 periods) containing down round provisions. In accordance with U.S. GAAP, the incremental fair value of the warrants, as a result of the decreases in the exercise/conversion prices, was measured using Black Scholes valuation models. The following assumptions were utilized in the Black Scholes valuation models for the three and nine months ended September 30, 2021: risk free rates ranging from 0.04% to 0.55%, volatility ranging from 25.0% to 574.0% and terms ranging from one day to three years. The following assumptions were utilized in the Black Scholes valuation models for the nine months ended September 30, 2022: risk free rates ranging from 0.0% to 2.73%, volatility ranging from 1.94% to 1,564% and terms ranging from 0.01 to 2.45 years. Based on the Black Scholes valuations, the incremental value of modifications to warrants (and debentures in the 2021 periods) as a result of the down round provisions of $258.9 million were recorded as deemed dividends during the three months ended September 30, 2021 and $330.5 million and $408.5 million were recorded during the nine months ended September 30, 2022 and 2021, respectively.

 

23
 

 

In addition, deemed dividends of $0.1 million and $0.3 million were recorded in the three and nine months ended September 30, 2022, respectively, as a result of the issuances of shares of our Series P Preferred Stock, as more fully discussed in Note 10. Deemed dividends of $0.3 million were recorded in both the three and nine months ended September 30, 2021 as a result of the issuance of warrants to acquire 4,750 shares of the Company’s common stock and deemed dividends of $0.3 million were recorded in both the three and nine months ended September 2021 as a result of the extension of warrants. These deemed dividends are more fully discussed in Note 10. Deemed dividends are also discussed in Notes 1 and 3.

 

Note 10 – Stockholders’ Deficit

 

Authorized Capital

 

The Company has 250,000,000,000 authorized shares of Common Stock at a par value of $0.0001 per share and 5,000,000 authorized shares of Preferred Stock at a par value of $0.01 per share.

 

Preferred Stock

 

As of September 30, 2022, the Company had outstanding shares of preferred stock consisting of 10 shares of its Series H Convertible Preferred Stock (the “Series H Preferred Stock”), 250,000 shares of its Series L Convertible Preferred Stock (the “Series L Preferred Stock”), 20,810.35 shares of its Series M Convertible Redeemable Preferred Stock (the “Series M Preferred Stock”), 3,582.96 shares of its Series N Preferred Stock, 9,261.54 shares of its Series O Convertible Redeemable Preferred Stock (the “Series O Preferred Stock”) and 10,194.87 shares of its Series P Preferred Stock. The Company’s outstanding shares of preferred stock do not contain mandatory redemption or other features that would require them to be presented on the balance sheet outside of equity and, therefore, they qualify for equity accounting treatment. As a result of the equity accounting treatment, fair value accounting is not required in connection with the issuances of the stock and no gains, losses or derivative liabilities have been recorded in connection with the preferred stock.

 

Series F Preferred Stock