|9 Months Ended
Sep. 30, 2021
|Discontinued Operations and Disposal Groups [Abstract]
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 InnovaQor. HTS and AMSG held Rennova’s software and genetic testing interpretation divisions. In consideration for the shares of HTS and AMSG and the elimination of intercompany debt among the Company and HTS and AMSG, InnovaQor issued the Company 90% of the average closing price of the InnovaQor common stock during the 10 trading days immediately prior to the conversion date. Conversion of the InnovaQor Series B Preferred Stock, however, is subject to the limitation that no conversion can be made to the extent the holder’s beneficial interest (as defined pursuant to the terms of the InnovaQor Series B Preferred Stock) in the common stock of InnovaQor would exceed 4.99%. The shares of the InnovaQor Series B Preferred Stock may be redeemed by InnovaQor upon payment of the stated value of the shares plus any accrued declared and unpaid dividends. shares of its Series B Non-Voting Convertible Preferred Stock (the “InnovaQor Series B Preferred Stock”), of the shares were issued on June 25, 2021 and of the shares were issued in the three months ended September 30, 2021 as a result of a post-closing adjustment. Each share of InnovaQor Series B Preferred Stock has a stated value of and is convertible into that number of shares of InnovaQor common stock equal to the stated value divided by
As a result of the sale, the Company recorded the InnovaQor Series B Preferred Stock as a long-term asset valued at $9.1 million at September 30, 2021 and a gain on the sale of HTS and AMSG of $0.6 million in the three months ended September 30, 2021, which resulted from the value of the shares of InnovaQor Series B Preferred Stock received as a result of a post-closing adjustment, and a gain on the sale of HTS and AMSG of $11.3 million in the nine months ended September 30, 2021, of which $9.1 million resulted from the value of the InnovaQor Series B Preferred Stock and $2.2 million resulted from the transfer to InnovaQor of the net liabilities of HTS and AMSG. A discussion of the assumptions used in the valuation of the InnovaQor Series B Preferred Stock is presented below. During the three and nine months ended September 30, 2021, shares of InnovaQor Series B Preferred Stock valued at $60,714 were used to settle accrued interest that was due under the terms of notes payable dated January 31, 2021 and February 16, 2021. The notes payable are more fully discussed in Note 6.
See Note 8 for a discussion of related party transactions between the Company and InnovaQor.
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, it has ceased all efforts to sell the company and closed down its operations.
Carrying amounts of major classes of assets and liabilities sold or included as part of discontinued operations in the consolidated balance sheets as of September 30, 2021 and December 31, 2020 consisted of the following:
HTS and AMSG Assets and Liabilities:
EPIC Reference Labs, Inc. and Other Subsidiaries Assets and Liabilities:
Consolidated Discontinued Operations Assets and Liabilities:
Major line items constituting income (loss) from discontinued operations in the consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 consisted of the following (unaudited):
HTS and AMSG Income (Loss) from Discontinued Operations (unaudited):
The fair value of the InnovaQor Series B Preferred Stock that the Company received as consideration for the sale of $9.1 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 InnovaQor Series B Preferred Stock and the underlying liquidity of InnovaQor’s common stock.
EPIC Reference Labs, Inc. and Other Subsidiaries Income (Loss) from Discontinued Operations (unaudited):
Consolidated Income (Loss) from Discontinued Operations (unaudited):