Discontinued Operations |
Note
14 – Discontinued Operations
Sale
of HTS and AMSG
In
2017, the Company announced plans to spin off or sell its wholly-owned subsidiaries, HTS and AMSG. On June 25, 2021, the Company sold
the shares of stock of HTS and AMSG to VisualMED. HTS and AMSG held Rennova’s software and genetic testing interpretation divisions.
The terms of the sale are discussed in Note 1.
EPIC
Reference Labs, Inc.
During
the three months ended September 30, 2020, the Company made a decision to sell its last clinical laboratory, EPIC Reference Labs, Inc.,
and it made a decision to discontinue several other non-operating subsidiaries, and as a result, EPIC Reference Labs, Inc.’s operations
and the other non-operating subsidiaries have been included in discontinued operations for all periods presented. The Company has been
unable to find a buyer for EPIC Reference Labs, Inc. and, therefore, effective June 30, 2021, it has ceased all efforts to sell the company.
Carrying
amounts of major classes of assets and liabilities sold or included as part of discontinued operations in the consolidated balance sheets
as of June 30, 2021 and December 31, 2020 consisted of the following:
Schedule of Discontinued Operation of Balance Sheet and Operation Statement
HTS
and AMSG Assets and Liabilities:
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
|
|
|
(unaudited) |
|
|
|
|
|
Cash |
|
$ |
- |
|
|
$ |
31,294 |
|
Accounts receivable, net |
|
|
- |
|
|
|
151,363 |
|
Prepaid expenses and other current assets |
|
|
- |
|
|
|
1,717 |
|
Current assets classified as held for sale |
|
$ |
- |
|
|
$ |
184,374 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
- |
|
|
$ |
685 |
|
Deposits |
|
|
- |
|
|
|
- |
|
Right-of-use assets |
|
|
- |
|
|
|
- |
|
Non-current assets classified as held for sale |
|
$ |
- |
|
|
$ |
685 |
|
|
|
|
|
|
|
|
|
|
Accounts payable and checks issued in excess of bank balance |
|
$ |
- |
|
|
$ |
726,220 |
|
Accrued expenses |
|
|
- |
|
|
|
1,308,283 |
|
Current portion of right-of-use operating lease obligation |
|
|
- |
|
|
|
- |
|
Current portion of notes payable |
|
|
- |
|
|
|
168,751 |
|
Current liabilities classified as held for sale |
|
$ |
- |
|
|
$ |
2,203,254 |
|
|
|
|
|
|
|
|
|
|
Note payable |
|
$ |
- |
|
|
$ |
69,267 |
|
Right-of-use operating lease obligation |
|
|
- |
|
|
|
- |
|
Non-current liabilities classified as held for sale |
|
$ |
- |
|
|
$ |
69,267 |
|
EPIC
Reference Labs, Inc. and Other Subsidiaries Assets and Liabilities:
|
|
June
30, 2021 |
|
|
December
31, 2020 |
|
|
|
(unaudited) |
|
|
|
|
Cash |
|
$ |
- |
|
|
$ |
136 |
|
Accounts
receivable, net |
|
|
- |
|
|
|
- |
|
Prepaid
expenses and other current assets |
|
|
- |
|
|
|
- |
|
Current
assets classified as held for sale |
|
$ |
- |
|
|
$ |
136 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net |
|
$ |
- |
|
|
$ |
- |
|
Deposits |
|
|
100,014 |
|
|
|
100,014 |
|
Right-of-use
assets |
|
|
52,284 |
|
|
|
100,116 |
|
Non-current
assets classified as held for sale |
|
$ |
152,298 |
|
|
$ |
200,130 |
|
|
|
|
|
|
|
|
|
|
Accounts
payable and checks in excess of bank balance |
|
$ |
1,144,088 |
|
|
$ |
1,185,158 |
|
Accrued
expenses |
|
|
336,410 |
|
|
|
334,667 |
|
Current
portion of right-of-use operating lease obligation |
|
|
52,284 |
|
|
|
91,166 |
|
Current
portion of notes payable |
|
|
- |
|
|
|
- |
|
Current
liabilities classified as held for sale |
|
$ |
1,532,782 |
|
|
$ |
1,610,991 |
|
|
|
|
|
|
|
|
|
|
Note
payable |
|
$ |
- |
|
|
$ |
- |
|
Right-of-use
operating lease obligation |
|
|
- |
|
|
|
8,950 |
|
Non-current
liabilities classified as held for sale |
|
$ |
- |
|
|
$ |
8,950 |
|
Consolidated
Discontinued Operations Assets and Liabilities:
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
|
|
|
(unaudited) |
|
|
|
|
|
Cash |
|
$ |
- |
|
|
$ |
31,430 |
|
Accounts receivable, net |
|
|
- |
|
|
|
151,363 |
|
Prepaid expenses and other current assets |
|
|
- |
|
|
|
1,717 |
|
Current assets classified as held for sale |
|
$ |
- |
|
|
$ |
184,510 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
- |
|
|
$ |
685 |
|
Deposits |
|
|
100,014 |
|
|
|
100,014 |
|
Right-of-use assets |
|
|
52,284 |
|
|
|
100,116 |
|
Non-current assets classified as held for sale |
|
$ |
152,298 |
|
|
$ |
200,815 |
|
|
|
|
|
|
|
|
|
|
Accounts payable and checks issued in excess of bank balance |
|
$ |
1,144,088 |
|
|
$ |
1,911,378 |
|
Accrued expenses |
|
|
336,410 |
|
|
|
1,642,950 |
|
Current portion of right-of-use operating lease obligation |
|
|
52,284 |
|
|
|
91,166 |
|
Current portion of notes payable |
|
|
- |
|
|
|
168,751 |
|
Current liabilities classified as held for sale |
|
$ |
1,532,782 |
|
|
$ |
3,814,245 |
|
|
|
|
|
|
|
|
|
|
Note payable |
|
$ |
- |
|
|
$ |
69,267 |
|
Right-of-use operating lease obligation |
|
|
- |
|
|
|
8,950 |
|
Non-current liabilities classified as held for sale |
|
$ |
- |
|
|
$ |
78,217 |
|
Major
line items constituting income (loss) from discontinued operations in the consolidated statements of operations for the three
and six months ended June 30, 2021 and 2020 consisted of the following (unaudited):
HTS
and AMSG Income (Loss) from Discontinued Operations:
|
|
Three
Months Ended June 30, 2021 |
|
|
Three
Months
Ended June
30, 2020
|
|
|
Six
Months Ended June 30, 2021 |
|
|
Six
Months Ended June 30, 2020 |
|
Revenue from services |
|
$ |
98,725 |
|
|
$ |
103,110 |
|
|
$ |
216,941 |
|
|
$ |
262,177 |
|
Cost of services |
|
|
1,996 |
|
|
|
2,212 |
|
|
|
2,386 |
|
|
|
10,989 |
|
Gross profit |
|
|
96,729 |
|
|
|
100,898 |
|
|
|
214,555 |
|
|
|
251,188 |
|
Operating expenses |
|
|
(267,796 |
) |
|
|
(67,366 |
) |
|
|
(551,296 |
) |
|
|
(251,734 |
) |
Other income (expense) |
|
|
213 |
|
|
|
(25,500 |
) |
|
|
(9,577 |
) |
|
|
(51,431 |
) |
Gain on sale |
|
|
10,727,152 |
|
|
|
- |
|
|
|
10,727,152 |
|
|
|
- |
|
Provision for income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Income (loss) from discontinued operations |
|
$ |
10,556,298 |
|
|
$ |
8,032 |
|
|
$ |
10,380,834 |
|
|
$ |
(51,977 |
) |
As
presented in the table above, the Company recorded a gain on the sale of HTS and AMSG of $10.7 million of which $8.5 million resulted
from the value of the VisualMED Series B Preferred Stock received per the terms of the sale and $2.2 million resulted from the transfer
to VisualMED of the net liabilities of HTS and AMSG. The sale is more fully discussed in Note 1. The fair value of the VisualMED Series
B Preferred Stock that the Company received as consideration for the sale of $8.5 million was based on a third-party valuation using the Option Price Method (the “OPM”)
The OPM treats common and preferred interests as call options on the equity value of the subject company, with exercise prices based
on the liquidation preference of the preferred interests and participation thresholds for subordinated classes. The common interest is
modeled as a call option that gives its owner the right but not the obligation to buy the enterprise value at a predetermined or exercise
price. In the model, the exercise price is based on a comparison with the enterprise value rather than, as in the case of a “regular”
call option, a comparison with a per share stock price. Thus, the common interest is considered to be a call option with a claim on the
enterprise at an exercise price equal to the remaining value immediately after the preferred interests are liquidated. The Black Scholes
model was used to price the call options. The assumptions used were: risk free rate of 0.84%; volatility of 250.0%; and exit period of
5 years. Lastly, a discount rate of 35% was applied due to the lack of marketability of the VisualMED Series B Preferred Stock and the
underlying liquidity of VisualMED’s common stock.
EPIC
Reference Labs, Inc. and Other Subsidiaries (Loss) Income from Discontinued Operations:
|
|
Three
Months Ended June 30, 2021 |
|
|
Three
Months
Ended June
30, 2020
|
|
|
Six
Months Ended June 30, 2021 |
|
|
Six
Months Ended June 30, 2020 |
|
Revenue from services |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
442 |
|
Cost of services |
|
|
- |
|
|
|
110,257 |
|
|
|
- |
|
|
|
- |
|
Gross profit |
|
|
- |
|
|
|
(110,257 |
) |
|
|
- |
|
|
|
442 |
|
Operating expenses |
|
|
(46,759 |
) |
|
|
(22,537 |
) |
|
|
(94,856 |
) |
|
|
(51,653 |
) |
Other income (expense) |
|
|
51,876 |
|
|
|
93,035 |
|
|
|
48,771 |
|
|
|
90,392 |
|
Gain on sale |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Provision for income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Income (loss) from discontinued operations |
|
$ |
5,117 |
|
|
$ |
(39,759 |
) |
|
$ |
(46,085 |
) |
|
$ |
39,181 |
|
Consolidated (Loss) Income from Discontinued Operations:
|
|
Three
Months Ended June 30, 2021 |
|
|
Three
Months
Ended June
30, 2020
|
|
|
Six
Months Ended June 30, 2021 |
|
|
Six
Months Ended June 30, 2020 |
|
Revenue from services |
|
$ |
98,725 |
|
|
$ |
103,110 |
|
|
$ |
216,941 |
|
|
$ |
262,619 |
|
Cost of services |
|
|
1,996 |
|
|
|
112,469 |
|
|
|
2,386 |
|
|
|
10,989 |
|
Gross profit |
|
|
96,729 |
|
|
|
(9,359 |
) |
|
|
214,555 |
|
|
|
251,630 |
|
Operating expenses |
|
|
(314,555 |
) |
|
|
(89,903 |
) |
|
|
(646,152 |
) |
|
|
(303,387 |
) |
Other income (expense) |
|
|
52,089 |
|
|
|
67,535 |
|
|
|
39,194 |
|
|
|
38,961 |
|
Gain on sale |
|
|
10,727,152 |
|
|
|
- |
|
|
|
10,727,152 |
|
|
|
- |
|
Provision for income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Income (loss) from discontinued operations |
|
$ |
10,561,415 |
|
|
$ |
(31,727 |
) |
|
$ |
10,334,749 |
|
|
$ |
(12,796 |
) |
|