Note 21 – Subsequent Events

IRS Payments

Subsequent to December 31, 2019 and through May 31, 2020, the Company paid the IRS $1.1 million toward satisfy payroll taxes owed which included amounts that were past due.

Secured Installment Promissory Note

On January 29, 2020, the Company entered into a Secured Installment Promissory Note (the “Installment Note”) in the principal amount of $1.2 million. The Company used the proceeds to satisfy in full the amounts due under accounts receivable factoring agreements. The factoring agreements are more fully discussed in Note 4. Pursuant to the Installment Note, weekly installment payments ranging from $22,500 to $34,000 are due on or before February 5, 2020 through on or before October 21, 2020, the maturity date. The Installment Note is non-interest bearing and subject to late-payment fees of 10%.

Loans From Mr. Diamantis and Resignation from Board of Directors

Subsequent to December 31, 2019 and through May 31, 2020, Mr. Diamantis advanced the Company $2.0 million for working capital purposes. The Company incurred interest of $0.5 million on the advances. On February 26, 2020, Mr. Diamantis resigned as a director of the Company. In submitting his resignation, Mr. Diamantis did not express any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. Mr. Diamantis had served as a director since November 2, 2015 and previously, Mr. Diamantis served as a director of Medytox from April 24, 2013 to November 5, 2015.

Series M Convertible Preferred Stock

On June 9, 2020, the Company filed a certificate of designation to authorize 30,000 shares of Series M Convertible Preferred Stock with a stated value of $1,000 per share.

Paycheck Protection Loan

As of May 7, 2020, the Company and its subsidiaries have received loan proceeds in the aggregate amount of approximately $2.4 million under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses. A portion of the loans and accrued interest are forgivable as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries. No collateral or guarantees were provided in connection with the PPP loans.

The unforgiven portion of the PPP loans is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loans, we cannot assure you that we will not take actions that could cause the Company to be ineligible for forgiveness of the loans, in whole or in part.

HHS Provider Relief Funds

The coronavirus pandemic and the steps taken by governments to seek to reduce its spread have severely impacted the economy and the health care industry in particular. Hospitals have especially been affected. Small rural hospitals, such as ours, may be overwhelmed by patients if conditions worsen in their local areas. Staffing costs, and concerns due to the potential exposure to infections, may increase, as may the costs of needed medical supplies necessary to keep the hospitals open. Doctors and patients may defer elective procedures and other health care services. Travel bans, social distancing and quarantines may limit access to our facilities. Business closings and layoffs in our local areas may result in the loss of insurance and adversely affect demand for our services, as well as the ability of patients and other payers to pay for services as rendered.

The Company received Provider Relief Funds from the United States Department of Health and Human Services (“HHS”) 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 funds are allocated to eligible healthcare providers for expenses and lost revenue attributable to the COVID-19 pandemic. The funds are being released in tranches, and HHS partnered with UnitedHealth Group to distribute the initial $30 billion in funds by direct deposit to providers. Company-owned facilities have received approximately $7,400,000 in relief funds. The fund payments are grants, not loans, and HHS will not require repayment, but providers are restricted and the funds must be used only for grant approved purposes.

Issuance of Series L Convertible Preferred Stock

On May 4, 2020, the Company filed a Certificate of Designation with the Secretary of State of the State of Delaware to authorize the issuance of up to 250,000 shares of its Series L Convertible Preferred Stock (the “ Series L Preferred Stock” ). On May 5, 2020, the Company entered into a second exchange agreement with Alcimede LLC. Pursuant to the second exchange agreement, the Company issued to Alcimede 250,000 shares of its Series L Preferred Stock in exchange for the 250,000 shares of the Company’s Series K Preferred Stock held by Alcimede. The Series K Preferred Stock had been issued to Alcimede on December 23, 2019 and upon the issuance of the Series L Preferred Stock to Alcimede, the shares of Series K Preferred Stock were cancelled. Shares of the Series K Preferred Stock were convertible immediately into common stock and were entitled to receive, when and as declared by the Board of Directors, dividends equal (on an as if converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock. The Series L Preferred Stock is not convertible into common stock prior to December 1, 2020 and is not entitled to receive any dividends.

Shareholder Proposal Approval

On May 7, 2020, Mr. Lagan and Alcimede LLC, the holders of an aggregate of 53,368 shares of common stock and 250,000 shares of Series L Preferred Stock, which votes with the common stock and the Series F Preferred Stock, with each share of Series L Preferred Stock having 40,000 votes, representing 50.25% of the total voting power of the Company’s voting securities, approved by written consent in lieu of a special meeting of stockholders the following proposal, which had previously been approved and recommended to be approved by the stockholders by the Board of Directors of the Company.

Proposal 1: To approve an amendment to our Certificate of Incorporation, as amended, to effect a reverse stock split of all of the outstanding shares of our common stock, at a specific ratio from 1-for-100 to 1-for-10,000, and grant authorization to our Board of Directors to determine, in its discretion, the specific ratio and timing of the reverse split at any time on or before December 31, 2020, subject to the Board of Directors’ discretion to abandon such amendment.

The stockholder approval of the above proposal became effective on June 9, 2020.

Potential Common Stock as of May 31, 2020

The following table presents the dilutive effect of our various potential common shares as of May 31, 2020:

As a result of the authorization of the discretionary reverse stock split discussed above under the heading “Shareholder Proposal Approval,” as of the date of filing this report, the Company believes that it has the ability to have sufficient authorized shares of its common stock to cover all potentially dilutive common shares outstanding.

Agreement to separate software and genetic diagnostics interpretation divisions

On June 10, 2020 the Company signed an agreement with TPT Global Tech, Inc. (OTC: TPTW), a California based public company, to merge its software and genetic testing interpretation divisions, Health Technology Solutions, Inc. (HTS) and Advanced Molecular Services Group, Inc., (AMSG) into a public company (target) after TPT completes a merger of its wholly owned subsidiary, InnovaQor, Inc. with this target.

Completion of the agreement is subject to a number of approvals and consents which need to be secured to complete the transaction. Subject to the relevant SEC approvals it is intended that TPT shareholders will receive approximately 2,500,000 common shares in InnovaQor, with TPT receiving and retaining directly an additional 2,500,000 common shares (total 5,000,000 common shares) and Rennova receiving approximately $22 million of preferred shares, $5 million of which will be converted to common shares and distributed to Rennova Shareholders upon completion of the relevant registration/approvals with the SEC, and with the remaining approximately $17 million of preferred shares held by Rennova as an investment in InnovaQor and convertible to common shares on achievement of certain milestones going forward. Rennova will be responsible to appoint management to the project. It is intended that 1 million common shares will vest to management. There can be no assurance that the transaction as described will be consumated or that terms including numbers or values for consideration shares will not change significantly before closing.