Note 14 – Commitments and Contingencies

Concentration of Credit Risk

Credit risk with respect to accounts receivable is generally diversified due to the large number of patients comprising the client base. The Company does have significant receivable balances with government payers and various insurance carriers. Generally, the Company does not require collateral or other security to support customer receivables. However, the Company continually monitors and evaluates its client acceptance and collection procedures to minimize potential credit risks associated with its accounts receivable and establishes an allowance for uncollectible accounts and as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is not material to the financial statements.

A number of proposals for legislation continue to be under discussion which could substantially reduce Medicare and Medicaid reimbursements to providers. Depending upon the nature of regulatory action, and the content of legislation, the Company could experience a significant decrease in net revenues from Medicare and Medicaid, which could have a material adverse effect on the Company. The Company is unable to predict, however, the extent to which such actions will be taken.

The Company maintains its cash balances in high credit quality financial institutions. The Company’s cash balances may, at times, exceed the deposit insurance limits provided by the Federal Deposit Insurance Corp.

Legal Matters

From time to time, the Company may be involved in a variety of claims, lawsuits, investigations and proceedings related to contractual disputes, employment matters, regulatory and compliance matters, intellectual property rights and other litigation arising in the ordinary course of business. The Company operates in a highly regulated industry which may inherently lend itself to legal matters. Management is aware that litigation has associated costs and that results of adverse litigation verdicts could have a material effect on the Company’s financial position or results of operations. The Company’s policy is to expense legal fees and expenses incurred in connection with the legal proceedings in the period in which the expense is incurred. Management, in consultation with legal counsel, has addressed known assertions and predicted unasserted claims below.

Biohealth Medical Laboratory, Inc. and PB Laboratories, LLC (the “Companies”), subsidiaries of Rennova, filed suit against CIGNA Health in 2015 alleging that CIGNA failed to pay claims for laboratory services the Companies provided to patients pursuant to CIGNA-issued and CIGNA-administered plans. In 2016, the U.S. District Court dismissed part of the Companies’ claims for lack of standing. The Companies appealed that decision to the Eleventh Circuit Court of Appeals, which in late 2017 reversed the District Court’s decision and found that the Companies have standing to raise claims arising out of traditional insurance plans, as well as self-funded plans. In July 2019, the Companies and EPIC filed suit against CIGNA Health for failure to pay claims for laboratory services provided. Cigna Health, in turn, sued for alleged improper billing practices. Because the Company did not have the financial resources to see the legal action to conclusion it assigned the benefit, if any, from the suit to Chris Diamantis, a former member of Rennova’s Board of Directors, for his financial support to the Company and assumption of all costs to carry the case to conclusion.

On November 4, 2024, a jury in the United States District Court for the District of Connecticut awarded no amounts to the Companies and EPIC in connection with the lawsuit and an aggregate of $7.3 million to Cigna Health in connection with the lawsuit brought by Cigna Health against the Companies and EPIC. The Companies and EPIC are currently considering their options which may include motions to the court, appeals and/or other legal remedies available to them. The Companies and EPIC are non-operating subsidiaries of Rennova. Management believes the likelihood of collection of such verdict is remote and, therefore, the verdict is likely not material to the current and future operations or financial condition of Rennova, but there can be no assurances that the verdict, or a portion thereof, will not be paid at some point. Any payments could be materially adverse to the financial condition of Rennova.  The above amount has been recognized as a liability in the consolidated financial statements of the Company.

On September 27, 2016, a tax warrant was issued against the Company by the Florida Department of Revenue (the “DOR”) for unpaid 2014 state income taxes in the approximate amount of $0.9 million, including penalties and interest. The Company entered into a Stipulation Agreement with the DOR allowing the Company to make monthly installments until July 2019. The Company made payments to reduce the amount owed but did not discharge the liability in full. In March 2024, the Company entered into a Stipulation Agreement with the DOR. Under the terms of the agreement, the Company agreed to pay $645,909 in 11 monthly payments of $15,000 beginning in March 2024 with a final payment of $480,909 due on February 18, 2025. The Company has not made the required payments to discharge this liability and has accrued $0.6 million for this liability as of December 31, 2023.

On December 7, 2016, the holders of the Tegal Notes filed suit against the Company seeking payment for the amounts due under the notes and accrued interest. On April 23, 2018, the holders of the Tegal Notes received a judgment against the Company in the amount of $384,384 plus post-judgment interest. On June 1, 2023, the Company and the holders of the Tegal Notes agreed to settle all amounts owed pursuant to the judgment for a total of $462,500 comprised of an initial payment of $200,000 followed by six monthly payments of $43,750. The Company has made all required payments and as of December 31, 2023, it has discharged this liability in full.

In July 2019, CHSPSC, the former owners of Jamestown Regional Medical Center, obtained judgments against the Company of $1.3 million. The Company has recorded these judgments as liabilities as of December 31, 2023. On February 6, 2024, the Company and CHSPSC entered into a settlement agreement whereby the Company agreed to make periodic payments totaling $705,000 through September 2026 in full satisfaction of such judgments. The Company agreed to make an initial payment of $100,000 in February 2024 and monthly payments of $15,000 through September 2026 with additional payments of $85,000 in February 2025 and $55,000 in February 2026. To date, all required payments have not been made.

A sealed qui tam lawsuit in the US District Court for the Southern District of Florida against the Company was filed in July 2021. This lawsuit was unsealed in November 2022 and Clifford Barron disclosed as the Plaintiff-Relator (whistleblower) who asserted violations of the False Claims Act. Clifford Barron was an employee of CollabRx, Inc. (a San Francisco based, wholly owned subsidiary of the Company) until early 2018. Following his resignation on January 17, 2018, Clifford Barron sought and received a judgment against the Company for approximately $253,000 he claimed was owed to him by the CollabRx subsidiary for severance and payment of COBRA. On receiving the judgment, he collected all monies owed to him under this judgment, including from the Company’s rural healthcare operations in Tennessee with which he was not involved. Payments included approximately $164,000 secured from hospital operating and other bank accounts by garnishments initiated by Jonathan Swann Taylor of Taylor & Knight, GP, Knoxville Tennessee, on behalf of Clifford Barron in May 2022. Clifford Barron has not been an employee of any subsidiary of the Company since January 2018, is not involved with the Company and has no knowledge of the Company’s operations, financial status, or controls. On November 21, 2022, the Company was advised that the U.S. Department of Justice was intervening in the action filed by the Plaintiff-Relator, Clifford Barron and requested repayment of HHS Provider Relief Funds that certain subsidiaries of the Company obtained and other relief. The Company retained the services of a specialist third-party accounting firm to complete a forensic review of the expenditure of all monies expended since the receipt of HHS Provider Relief Funds. It was discovered that certain filing requirements of the Company’s operating subsidiaries were incomplete or contained errors that did not accurately reflect the expenditure of HHS Provider Relief Funds received. The Company disputed the allegations made in the False Claims Act complaint and believes that the forensic review of funds expended addressed the lawsuit and demonstrated adherence with the applicable rules for use of HHS Provider Relief Funds. The Company completed a court ordered mediation with the Department of Justice in October 2024 and completed a settlement agreement in January 2025. The defendants, Jamestown TN Medical Center, Jellico Medical Center and the Company agreed to pay to the United States a total of $1,200,000 to resolve all claims raised by the United States related to the payments received. The settlement agreement is neither an admission of liability by the defendants nor a concession by the United States that its claims were not well founded. The settlement payment will be made over four years. In settling the claims the Company considered the cost and risk of continued litigation and trial and believes that settlement as agreed was a good business decision for the defendants.