UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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Indicate
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RENNOVA HEALTH, INC. AND SUBSIDIARIES
FORM 10-Q
June 30, 2021
TABLE OF CONTENTS
| 2 |
RENNOVA HEALTH, INC.
PART I - FINANCIAL INFORMATION
Part 1. Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | - | |||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Income tax refunds receivable | ||||||||
| Current assets of discontinued operations | - | |||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangibles, net | ||||||||
| Investments | - | |||||||
| Deposits | ||||||||
| Right-of-use assets | ||||||||
| Non-current assets of discontinued operations | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable (includes related party amounts of $ | $ | $ | ||||||
| Checks issued in excess of bank account balance | ||||||||
| Accrued expenses (includes related party amounts of $ | ||||||||
| Income taxes payable | ||||||||
| Current portion of notes payable | ||||||||
| Current portion of note payable, related party | ||||||||
| Current portion of finance lease obligations | ||||||||
| Current portion of debentures | ||||||||
| Current portion of right-of-use operating lease obligations | ||||||||
| Derivative liabilities | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Other liabilities: | ||||||||
| Notes payable, net of current portion | ||||||||
| Right-of-use operating lease obligations, net of current portion | ||||||||
| Non-current liabilities of discontinued operations | - | |||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit: | ||||||||
| Series H preferred stock, $ par value, shares authorized, shares issued and outstanding | - | - | ||||||
| Series F preferred stock, $ par value, shares authorized, shares issued and outstanding | ||||||||
| Series L preferred stock, $ par value, shares authorized, shares issued and outstanding | ||||||||
| Series M preferred stock, $ par value, shares authorized, and shares issued and outstanding, respectively | ||||||||
| Series N preferred stock, $ par value, shares authorized, and shares issued and outstanding, respectively | ||||||||
| Series O preferred stock, $ par value, shares authorized, and shares issued and outstanding, respectively | - | |||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
RENNOVA HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Direct costs of revenues | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from continuing operations before other income (expense) and income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Other income/expense, net | ||||||||||||||||
| Gain from legal settlements, net | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense), net | ||||||||||||||||
| Net income (loss) from continuing operations before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Benefit from income taxes | - | - | - | ( | ) | |||||||||||
| Net income (loss) from continuing operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss from discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on sale | - | - | ||||||||||||||
| Total income (loss) from discontinued operations | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| Deemed dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss available to common stockholders | $ | ( | ) | $ | ( | ) | $ |
( | ) | $ | ( | ) | ||||
| Net loss per share of common stock available to common stockholders- basic and diluted: | ||||||||||||||||
| Continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Discontinued operations | ( | ) | ( | ) | ||||||||||||
| Total basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares of common stock outstanding during the period: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
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 June 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 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Conversion of Series N Preferred Stock into common stock | ( | ) | ( | ) | ( | ) | - | - | ||||||||||||||||||||
| Deemed dividends | ( | ) | - | |||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Conversion of Series M Preferred Stock into common stock | ( | ) | ( | ) | ( | ) | - | - | ||||||||||||||||||||
| Conversion of Series N Preferred Stock into common stock | ( | ) | ( | ) | ( | ) | - | - | ||||||||||||||||||||
| Issuance of Series O Preferred Stock | - | - | ||||||||||||||||||||||||||
| Deemed dividends | ( | ) | - | |||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
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 June 30, 2020
(unaudited)
| Preferred Stock | Common Stock | Additional paid-in- | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | Deficit |
Deficit | ||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Conversion of Series I-2 Preferred Stock into common stock | - | - | - | |||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Exchange of Series K Preferred Stock for Series L Preferred Stock | ( | ) | ( | ) | - | - | - | ( | ) | |||||||||||||||||||
| Issuance of Series L Preferred Stock | - | - | - | |||||||||||||||||||||||||
| Issuance of Series M Preferred Stock in exchange for related party loans and accrued interest | - | - | ||||||||||||||||||||||||||
| Deemed dividend from issuance of Series M Preferred Stock | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
RENNOVA HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operations: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | ||||||||
| Net gain from legal settlements | ( | ) | ( | ) | ||||
| Other income from federal government provider relief funds | ( | ) | ( | ) | ||||
| Loss on sales of accounts receivable under sale agreements | - | |||||||
| Income (loss) from discontinued operations | ( | ) | ||||||
| Gain on sale of discontinued operations | ( | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Security deposits | ( | ) | ||||||
| Change in right-of-use assets | ( | ) | ||||||
| Accounts payable and checks issued in excess of bank balances | ( | ) | ||||||
| Accrued expenses | ||||||||
| Change in right-of-use operating lease obligations | ( | ) | ||||||
| Income tax assets and liabilities | - | ( | ) | |||||
| Net cash used in operating activities of continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities of discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities of continuing operations | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of related party note payable and advances | ||||||||
| Payment on related party note payable and advances | ( | ) | ( | ) | ||||
| Payments of debentures | - | ( | ) | |||||
| Proceeds from issuances of notes payable | ||||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Proceeds from sale of accounts receivable under sales agreement | - | |||||||
| Receivables paid under accounts receivable sales agreements | ( | ) | ( | ) | ||||
| Proceeds from issuance of Series O Preferred Stock | - | |||||||
| Federal government provider relief funds | - | |||||||
| Proceeds from Paycheck Protection Program notes payable | - | |||||||
| Payments on capital lease obligations | - | ( | ) | |||||
| Net cash provided by financing activities of continuing operations | ||||||||
| Net cash provided by (used in) financing activities of discontinued operations | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ||||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
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 Six Months Ended June 30, 2021 and 2020
(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” 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’s office in Jamestown, Tennessee that it plans to reopen and a rural clinic in Kentucky. The Company’s operations consist of only one business segment.
Basis of Presentation
The accompanying 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, 2020. 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 June 30, 2021, the results of its operations and changes in stockholders’ deficit for the three and six months ended June 30, 2021 and 2020 and its cash flows for the six months ended June 30, 2021 and 2020. Such adjustments are of a normal recurring nature. The results of operations for the six months ended June 30, 2021 may not be indicative of results for the year ending December 31, 2021.
Principles of Consolidation
The accompanying 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
During the three and six months ended June 30, 2021 and 2020, comprehensive loss was equal to the net loss amounts presented in the accompanying unaudited condensed consolidated statements of operations.
Reclassifications
Certain items in the statement of operations for the six months ended June 30, 2021 were reclassified for comparison purposes.
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 financial statements, and the reported amounts of 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, including hospital acquisitions, the fair values of consideration received from the sale of subsidiaries, reserves and write-downs related to receivables and inventories, the recoverability of long-lived assets, the valuation allowance relating to the Company’s deferred tax assets, the valuation of equity and derivative instruments, deemed dividends and debt discounts, among others. Actual results could differ from those estimates and would impact future results of operations and cash flows.
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 22, 2020, the Company’s Board of Directors approved an amendment to the Company’s Certificate of Incorporation to effect
a
The par value and other terms of the common stock were not affected by the Reverse Stock Splits. The authorized capital of the Company of shares of common stock and shares of preferred stock were also unaffected 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.
Sale of Health Technology Solutions, Inc. and Advanced Molecular Services, Inc.
On June 25, 2021, the Company sold its subsidiaries, Health Technology Solutions, Inc. (“HTS”) and Advanced Molecular Services, Inc. (“AMSG”), including their subsidiaries, to VisualMED Clinical Solutions Corp. (“VisualMED”). 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, VisualMED issued
the Company shares of its Series B Non-Voting Convertible
Preferred Stock (the “VisualMED Series B Preferred Stock”). The number of shares of VisualMED Series B Preferred Stock will
be subject to a post-closing adjustment. Each share of VisualMED Series B Preferred Stock has a stated value of $and is convertible into that number of shares
of VisualMED common stock equal to the stated value divided by
As
a result of the sale, the Company has recorded the VisualMED Series B Preferred Stock as a long-term asset valued at $
The financial results of HTS and AMSG, including the gain on sale, are reflected as discontinued operations in the Company’s consolidated financial statements. See Note 14.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606),” including subsequently issued updates. This series of comprehensive guidance has replaced all existing revenue recognition guidance. There is a five-step approach outlined in the standard. In determining revenue, we first identify the contract according to the scope of ASU Topic 606 with the following criteria:
| ● | The parties have approved the contract either in writing; orally by acknowledgement; or implicitly, based on customary business practices. | |
| ● | Each party’s rights and the contract’s payment terms are identified. | |
| ● | The contract has commercial substance. | |
| ● | Collection is probable. |
| 9 |
We review our calculations for the realizability of gross revenues monthly to make certain that we are properly allowing for the uncollectable portion of our gross billings and that our estimates remain sensitive to variances and changes within our payer groups and within our service offerings. The contractual allowance calculation is made based on historical allowance rates for the various specific payer groups monthly with a greater weight being given to the most recent trends; this process is adjusted based on recent changes in underlying contract provisions. This calculation is routinely analyzed by us based on actual allowances issued by payers and the actual payments made to determine what adjustments, if any, are needed.
Our revenues generally 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 that average approximately five days, and revenues are recognized based on charges incurred in relation to total expected charges. Our performance obligations for outpatient 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 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 generally pays for inpatient and outpatient services at prospectively determined rates based on clinical, diagnostic and other factors. 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. Net 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). There were no adjustments to estimated Medicare and Medicaid reimbursement amounts and disproportionate-share funds related primarily to cost reports filed during the three and six months ended June 30, 2021 and 2020.
The Emergency Medical Treatment and Labor Act (“EMTALA”) requires any hospital participating in the Medicare program to conduct an appropriate medical screening examination of every person who presents to the hospital’s emergency room for treatment and, if the individual is suffering from an emergency medical condition, to either stabilize the condition or make an appropriate transfer of the individual to a facility able to handle the condition. The obligation to screen and stabilize emergency medical conditions exists regardless of an individual’s ability to pay for treatment. Federal and state laws and regulations require, and our commitment to providing quality patient care encourages, us to provide services to patients who are financially unable to pay for the health care services they receive. The federal poverty level is established by the federal government and is based on income and family size. The Company considers the poverty level in determining whether patients qualify for free or reduced cost of care. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in net revenues. We provide discounts to uninsured patients who do not qualify for Medicaid or charity care. In implementing the uninsured discount policy, we may first attempt to provide assistance to uninsured patients to help determine whether they may qualify for Medicaid, other federal or state assistance, or charity care. If an uninsured patient does not qualify for these programs, the uninsured discount is applied.
The
collection of outstanding receivables for Medicare, Medicaid, managed care payers, other third-party payers and patients is our primary
source of 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.
We perform the hindsight analysis quarterly, utilizing rolling accounts receivable collection and write off data. We believe our quarterly
updates to the estimated contractual allowance amounts and to the estimated implicit price concessions at each of our facilities
provide reasonable estimates of our net revenues and valuation of our accounts receivable. For the three months ended June 30, 2021 and
2020, we recorded estimated contractual allowances of $
| 10 |
Contractual Allowances and Doubtful Accounts Policy
Accounts
receivable are reported at realizable value, net of 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 allowances
for 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. As required by Topic 606, after estimated implicit price concessions and contractual and related allowance adjustments to
revenues of $
Leases in Accordance with ASU No. 2016-02
We account for leases in accordance with ASU No. 2016-02, Leases (Topic 842) as updated, 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 operating and finance leases are more fully discussed in Note 9.
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 six months ended June 30, 2021 and 2020.
| 11 |
Fair Value Measurements
We define fair value 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, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk. We apply the following fair value 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 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
We applied the Level 3 fair value hierarchy in determining the fair value of the VisualMed Series B Preferred Stock on June 30, 2021 as more fully discussed in Note 14.
Derivative Financial Instruments, Including the Adoption of ASU 2017-11
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).
When
the down round feature is included in an equity-classified freestanding financial instrument, the value of the effect of the down round
feature is treated as a dividend when it is triggered and as a numerator adjustment in the EPS calculation. This reflects the occurrence
of an economic transfer of value to the holder of the instrument, while alleviating the complexity and income statement volatility associated
with fair value measurement on an ongoing basis. The incremental value of warrants as a result of the down round provisions of $
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.
| 12 |
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 June 30, 2021 and December 31, 2020.
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 stock options and warrants outstanding for the period as 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. Therefore, basic and diluted net loss per share applicable to common stockholders is the same for periods with a net loss available to common stockholders. See Note 3 for the computation of the loss per share for the three and six months ended June 30, 2021 and 2020.
Note 2 – Liquidity and Financial Condition
Jamestown Regional Medical Center
Following an inspection at Jamestown Regional Medical Center it was determined that several conditions of participation in its Medicare agreement were deficient and the hospital failed to adequately correct the deficiencies. As a result, on June 12, 2019, Jamestown Regional Medical Center’s Medicare agreement was terminated. A significant percentage of patients at Jamestown Regional Medical Center are covered by Medicare and without any ability to get paid for these services the Company suspended operations at the hospital. The Company plans to reopen the hospital upon securing adequate capital to do so. The reopening plans have also been disrupted by the coronavirus (“COVID-19”) pandemic and the timing of the reopening has been delayed and is now intended that the re-opening process will be initiated in before the end of 2021.
Jellico Community Hospital
Effective March 5, 2019, the Company acquired certain assets related to Jellico Community Hospital. 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. The closure reduced operating losses and the monthly cash deficit for the Company. The collections of receivables for the hospital have been negatively impacted by the closure and mean a significant shortfall in the amount required to satisfy liabilities at the facility.
Impact of the Pandemic
COVID-19 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 and we have taken steps intended to minimize the risk to our employees and patients. These steps have increased our costs and our revenues have been significantly adversely affected. Demand for hospital services has substantially decreased. As more fully discussed in Note 6, we have received Paycheck Protection Program (“PPP”) loans. We have also received Health and Human Services (“HHS”) Provider Relief Funds 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. The nature and effect of the COVID-19 pandemic on our balance sheet and results of operations will depend on the severity and length of the pandemic in our service areas; government activities to mitigate the pandemic’s effect; regulatory changes in response to the pandemic, especially those affecting rural hospitals; and existing and potential government assistance that may be provided.
| 13 |
HHS Provider Relief Funds
The
Company received Provider Relief Funds from the United States Department of HHS provided to eligible healthcare providers out of the
$
On September 19, 2020, HHS issued a Post-Payment Notice of Reporting Requirements (the “September 19, 2020 Notice”), which indicates that providers may recognize reimbursement for healthcare-related expenses, as defined therein, attributable to coronavirus that another source has not reimbursed and is not obligated to reimburse. Additionally, amounts received from HHS that are not fully expended on eligible healthcare-related expenses may be recognized as reimbursement for lost revenues, represented as a negative change in year-over-year net patient care operating income. Providers may apply payments to lost revenues up to the amount of the 2019 net gain from healthcare-related sources or, for entities that reported a negative net operating gain in 2019, receipts from HHS may be recognized up to a net zero gain/loss in 2020. On October 22, 2020, HHS issued an updated Post-Payment Notice of Reporting Requirements and a Reporting Requirements Policy Update (together, the “October 22, 2020 Notice”), which includes two primary changes: (1) the definition of lost revenue is changed to refer to the negative year-over-year difference in 2019 and 2020 actual revenue from patient care related sources as opposed to the negative year-over-year change in net patient care operating income, and (2) the definition of reporting entities is broadened to include the parent of one or more subsidiary tax identification numbers that received general distribution payments, entities having providers associated with it that provide diagnoses, testing or treatment for cases of COVID-19, or entities that can otherwise attest to the terms and conditions. As codified in the October 22, 2020 Notice, the Company’s estimate of pandemic relief funds as of June 30, 2021 includes the allocation of certain general funds among subsidiaries. Regarding the amended definition of lost revenues, such change served to increase amounts eligible to be recognized as income, as compared to the September 19, 2020 Notice. As evidenced by the October 22, 2020 Notice, HHS’ interpretation of the underlying terms and conditions of such payments, including auditing and reporting requirements, continues to evolve. On January 15, 2021, the government issued “General and Targeted Distribution Post-Payment Notice of Reporting Requirements,” (the “January 15, 2021 Notice”), which again provides guidance on reporting instructions and use of funds. 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 previously recognized, which may be material.
As
of June 30, 2021, the Company’s estimate of the amount for which it is reasonably assured of meeting the underlying terms and conditions
was updated based on, among other things, the September 19, 2020 Notice, the October 22, 2020 Notice, the January 15, 2021 Notice and
the Company’s results of operations during 2020 and the six months ended June 30, 2021. The Company believes that it was appropriate
to recognize as income the full amount of the funds received, which were $
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.
As
reflected in the unaudited condensed consolidated financial statements, the Company had a working capital deficit and an accumulated
deficit of $
| 14 |
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.
As more fully discussed in Note 1, on June 25, 2021, the Company sold HTS and AMSG to VisualMED and the Company received VisualMED’s
Series B Preferred Stock valued at $
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 had been operating at a loss since it was acquired by the Company in March 2019. The Company’s core operating businesses are now a rural hospital and CarePlus Center and a hospital and physician’s office that it plans to reopen and operate. Rural hospitals are a specialized marketplace with a requirement for capable and knowledgeable management. The Company’s current financial condition may make it difficult to attract and maintain adequate expertise in its management team to successfully operate these businesses.
There can be no assurance that the Company will be able to achieve its business plan, which is to acquire and operate clusters of rural hospitals, 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 revenues, and eventually regain 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.
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 six months ended June 30, 2021 and 2020, basic loss per share is the same as diluted loss per share.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Numerator | ||||||||||||||||
| Net income (loss) from continuing operations | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Deemed dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss available to common stockholders, continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) from discontinued operations | ( | ) | ( | ) | ||||||||||||
| Net loss available to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator | ||||||||||||||||
| Basic and diluted weighted average shares of common stock outstanding | ||||||||||||||||
| Loss per share available to common stockholders, basic and diluted: | ||||||||||||||||
| Continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Discontinued operations | ( | ) | ( | ) | ||||||||||||
| Total basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 15 |
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Warrants | ||||||||
| Convertible preferred stock | ||||||||
| Convertible debentures | ||||||||
| Stock options | ||||||||
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 a floor 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 equity-based 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 7, 11 and 12). 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 billion at August 11, 2021, as more fully discussed in Note 16. See Note 11 regarding a discussion of the number of shares of the Company’s authorized common stock.
Note 4 – Accounts Receivable and Income Tax Refunds Receivable
Accounts receivables at June 30, 2021 (unaudited) and December 31, 2020 consisted of the following:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: | ||||||||
| Allowance for contractual obligations | ( | ) | ( | ) | ||||
| Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable owed under sales agreements | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
The
allowance for contractual obligations reflected in the table above decreased as a percentage of accounts receivable to
Estimated
implicit price concessions deducted from revenues for the three months ended June 30, 2021 and 2020 were $
Accounts Receivable Sales Agreements
During
the year ended December 31, 2020, the Company entered into six accounts receivable sales agreements under which the Company sold an
aggregate of $
| 16 |
On
January 29, 2020, the Company entered into a secured installment promissory note (the “Ponte Note”) in the principal amount
of $
Income Tax Refunds Receivable
As
of June 30, 2021 and December 31, 2020, the Company had $
Note 5 – Accrued Expenses
Accrued expenses at June 30, 2021 (unaudited) and December 31, 2020 consisted of the following:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Accrued payroll and related liabilities | $ | $ | ||||||
| HHS Provider Relief Funds (See Note 2) | ||||||||
| Accrued interest | ||||||||
| Accrued legal | ||||||||
| Amounts owed under accounts receivable sales agreements in excess of accounts receivable (See Note 4) | - | |||||||
| Other accrued expenses | ||||||||
| Accrued expenses | $ | $ | ||||||
Accrued
payroll and related liabilities at June 30, 2021 and December 31, 2020 included approximately $
Note 6 – Notes Payable
The Company and its subsidiaries are party to a number of loans with third parties and affiliates. At June 30, 2021 (unaudited) and December 31, 2020, notes payable consisted of the following:
| 17 |
Notes Payable – Third Parties
| June 30, 2021 | December 31, 2020 | |||||||
| Loan payable to TCA Global Master Fund, L.P. (“TCA”) in the original principal amount of $ | $ | $ | ||||||
| Notes payable to CommerceNet and Jay Tenenbaum in the original principal amount of $ | ||||||||
| Note payable to Anthony O’Killough dated September 27, 2019 in the original principal amount of $ | ||||||||
| Notes payable under the Paycheck Protection Program (“PPP) issued on April 20, 2020 through May 1, 2020 bearing interest at a rate of | ||||||||
| The Ponte Note dated January 29, 2020, less original issue discount of $ | ||||||||
| Notes payable dated January 31, 2021 and February 16, 2021 due six months from the date of issuance bearing interest at | ||||||||
| Warrant pre-payment promissory notes dated February 25, 2021, April 9, 2021, April 16, 2021 and April 22, 2021, non-interest bearing, $ | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Notes payable - third parties, net of current portion | $ | $ | ||||||
The Company did not make the required monthly principal and interest payments due under the TCA Debenture for the period from October 2016 through March 2017. In addition, TCA entered into an inter-creditor agreement with the purchasers of the convertible debentures (see Note 7), which sets forth rights, preferences and priorities with respect to the security interests in the Company’s assets. On September 19, 2017, the Company entered into a new agreement with TCA, which extended the repayment schedule through December 31, 2017. The remaining debt to TCA remains outstanding and TCA has made a demand for payment. In May 2020, the SEC appointed a Receiver to close down the TCA Global Master Fund, L.P. over allegations of accounting fraud. The amount recorded by the Company as being owed to TCA was based on TCA’s application of prior payments made by the Company. The Company believes that prior payments of principal and interest may have been applied to unenforceable investment banking and other fees and charges. It is the Company’s position that the amount owed to TCA is less than the amount set forth above.
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 $
On
September 27, 2019, the Company issued a promissory note to a lender in the principal amount of $
| 18 |
As
of April 20, 2020 and through May 1, 2020, the Company and its subsidiaries received PPP loan proceeds in the form of promissory notes
(the “PPP Notes”) in the aggregate amount of approximately $
On
January 29, 2020, the Company entered into the Ponte Note in the principal amount of $
On
each of February 25, 2021, April 9, 2021, April 16, 2021 and April 22, 2021, the Company entered into agreements with certain institutional
investors for warrant prepayment promissory notes with an aggregate principal amount of $
Note Payable – Related Party
| June 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| Note payable to Christopher Diamantis due on demand and bearing interest at | $ | $ | ||||||
| Total note payable, related party | ||||||||
| Less current portion of note payable, related party | ( | ) | ( | ) | ||||
| Total note payable, related party, net of current portion | $ | $ | ||||||
During
the six months ended June 30, 2021 and 2020, Mr. Christopher Diamantis, a former member of our Board of Directors, loaned the Company
$
During
the three months ended June 30, 2021 and 2020, the Company accrued interest of $
| 19 |
Note 7 – Debentures
The carrying amount of all outstanding debentures as of June 30, 2021and December 31, 2020 is as follows:
| June 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| Debentures | $ | $ | ||||||
| Less current portion | ( | ) | ( | ) | ||||
| Debentures, net of current portion | $ | $ | ||||||
Payment
of all outstanding debentures totaling $
The
Company accrued interest expense on outstanding debentures during the three months ended June 30, 2021 and 2020 of $
On
June 30, 2021, as adjusted for the Reverse Stock Splits, $
See Notes 3 and 11 for a discussion of the dilutive effect of the outstanding convertible debentures and warrants as of June 30, 2021 and Note 16 for the dilutive effect of outstanding convertible debentures and warrants as of August 11, 2021.
Note 8 – Related Party Transaction
Alcimede
LLC (“Alcimede”) billed $
The terms of the foregoing transaction and the transactions discussed in Note 6 and 11 are not necessarily indicative of those that would have been agreed to with unrelated parties for similar transactions.
Note 9 – 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.
| 20 |
| Balance Sheet Classification | June 30, 2021 | December 31, 2020 | ||||||||
| Assets: | ||||||||||
| Operating leases | Right-of-use operating lease assets | $ | $ | |||||||
| Finance leases | Property and equipment, net | |||||||||
| Total lease assets | $ | $ | ||||||||
| Liabilities: | ||||||||||
| Current: | ||||||||||
| Operating leases | Right-of-use operating lease obligations | $ | $ | |||||||
| Finance leases | Current liabilities | |||||||||
| Noncurrent: | ||||||||||
| Operating leases | Right-of-use operating lease obligations | |||||||||
| Total lease liabilities | $ | $ | ||||||||
| Weighted-average remaining term: | ||||||||||
| Operating leases | ||||||||||
| Finance leases | years | years | ||||||||
| Weighted-average discount rate: | ||||||||||
| Operating leases | % | % | ||||||||
| Finance leases | % | % | ||||||||
The following table presents certain information related to lease expense for finance and operating leases for the three months and six months ended June 30, 2021 and 2020:
| Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |||||||||||||
| Finance lease expense: | ||||||||||||||||
| Depreciation/amortization of leased assets | $ | $ | $ | $ | ||||||||||||
| Interest on lease liabilities | ||||||||||||||||
| Operating leases: | ||||||||||||||||
| Short-term lease expense (1) | ||||||||||||||||
| Total lease expense | $ | $ | $ | $ |
| (1) |
Other Information
The following table presents supplemental cash flow information for the six months ended June 30, 2021 and 2020:
| Six
Months Ended June 30, 2021 | Six
Months Ended June 30, 2020 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows for operating leases | $ | $ | ||||||
| Operating cash flows for finance leases | - | |||||||
| Financing cash flows for finance leases payments | ||||||||
| 21 |
Aggregate future minimum lease payments under right-of-use operating and finance leases are as follows:
| Right-of-Use Operating Leases | Finance Leases | |||||||
| Twelve months ended June 30, 2022 | $ | $ | ||||||
| Twelve months ended June 30, 2023 | ||||||||
| Twelve months ended June 30, 2024 | ||||||||
| Twelve months ended June 30, 2025 | ||||||||
| Twelve months ended June 30, 2026 | ||||||||
| Thereafter | ||||||||
| Total | ||||||||
| Less interest | ( | ) | ( | ) | ||||
| Present value of minimum lease payments | $ | $ | ||||||
| Less current portion of lease obligations | ( | ) | ( | ) | ||||
| Lease obligations, net of current portion | $ | $ | ||||||
As
of June 30, 2021, the Company was in default under its finance lease obligations, therefore, the aggregate future minimum lease payments
and accrued interest under this finance lease totaling approximately $
Note 10 – Fair Value Measurements
Fair Value Measurements
We define fair value 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, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.
We apply the following fair value 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 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
The estimated fair value of financial instruments was determined by the Company using available market information and valuation methodologies considered to be appropriate. At June 30, 2021 and December 31, 2020, the carrying value of the Company’s accounts receivable, accounts payable and accrued expenses approximated their fair values due to their short-term nature.
| 22 |
The following table sets forth the financial assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2021 and December 31, 2020:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| As of December 31, 2020: | ||||||||||||||||
VisualMED Series B Preferred Stock | $ | $ | $ | $ | ||||||||||||
| Embedded conversion option of debenture | $ | $ | $ | |||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| As of June 30, 2021: | ||||||||||||||||
| VisualMED Series B Preferred Stock | $ | $ | $ | $ | ||||||||||||
| Embedded conversion option of debenture | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The fair value of the VisualMED Series B Preferred
Stock of $
The
Company utilized the following method to value its derivative liability as of June 30, 2021 and December 31, 2020 for an embedded conversion
option related to an outstanding debenture valued at $
During
the three and six months ended June 30, 2021, the conversions of preferred stock triggered a further reduction in the exercise prices
of warrants containing ratchet features that had not already ratcheted down to their floor. In accordance with U.S. GAAP, the incremental
fair value of the debentures and warrants as a result of the decreases in the conversion/exercise prices was measured using Black Scholes.
The following assumptions were utilized in the Black Scholes valuation models for the three months ended June 30, 2021: risk free rates
ranging from % to %, volatility ranging from % to % and terms ranging from
Note 11 – Stockholders’ Deficit
Authorized Capital
The Company has authorized shares of Common Stock at $ par value and authorized shares of Preferred Stock at a par value of $.
Preferred Stock
The Company has 5,000,000 shares, par value $0.01, of preferred stock authorized. As of June 30, 2021, the Company had outstanding shares of preferred stock consisting of shares of its Series F Convertible Preferred Stock convertible into one share of the Company’s common stock, shares of its Series H Convertible Preferred Stock convertible into 0.5 million shares of the Company’s common stock, shares of its Series L Convertible Preferred Stock (the “Series L Preferred Stock”), .35 shares of its Series M Preferred Stock, shares of its Series N Convertible Redeemable Preferred Stock (the “Series N Preferred Stock”), and shares of its Series O Convertible Redeemable Preferred Stock (the “Series O Preferred Stock”). The Series L Preferred Stock, the Series M Preferred Stock, the Series N Preferred Stock and the Series O Preferred Stock are more fully described below.
| 23 |
Series L 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
Series M Preferred Stock
The
Company’s Board of Directors has designated shares of the 5,000,000 shares of authorized preferred stock as the Series M
Preferred Stock. Each share of Series M Preferred Stock has a stated value of $. On June 30, 2020, the Company and Mr. Diamantis
entered into an exchange agreement wherein Mr. Diamantis agreed to the extinguishment of the Company’s indebtedness to Mr. Diamantis
totaling $
During
the six months ended June 30, 2021, the holder converted shares of his Series M Preferred Stock,
with a stated value of $
On August 13, 2020, Mr. Diamantis entered into a Voting Agreement and Irrevocable Proxy with the Company, Mr. Lagan and Alcimede (of which Mr. Lagan is the sole manager) pursuant to which Mr. Diamantis granted an irrevocable proxy to Mr. Lagan to vote the Series M Preferred Stock held by Mr. Diamantis, Mr. Diamantis has retained all other rights under the Series M Preferred Stock.
Series N Preferred Stock
On August 31, 2020, the Company and its debenture holders exchanged, under the terms of the Exchange and Redemption Agreement, certain outstanding debentures and all of the outstanding shares of the Company’s Series I-1 Convertible Preferred Stock (the “Series I-1 Preferred Stock”) and Series I-2 Convertible Preferred Stock (the “Series I-2 Preferred Stock”) for shares of the Company’s Series N Preferred Stock. The terms of the Series N Preferred Stock were set forth in the Company’s Current Report on Form 8-K filed with the SEC on September 1, 2020.
During
the year ended December 31, 2020, the holders converted shares of their Series N Preferred Stock, with a stated value of $
Series O Preferred Stock
On
May 10, 2021, the Company closed an offering of shares of its newly-authorized Series O Preferred Stock. The offering was pursuant to
the terms of the Securities Purchase Agreement, dated as of May 10, 2021 (the “Purchase Agreement”), between the Company
and certain existing institutional investors of the Company. The Purchase Agreement provides for the issuance of up to shares of
Series O Preferred Stock at four closings of shares each. If all such shares of Series O Preferred Stock are issued, the Company
will receive proceeds of $
| 24 |
The
first closing occurred on May 10, 2021, the second closing occurred on May 18, 2021 and one-half of the third closing was funded on June
29, 2021. As of June 30, 2021, Company issued an aggregate of shares of its Series O Preferred Stock and received total proceeds
of $
The Series O Preferred Stock, which has been issued for cash, does not contain mandatory redemption or other features that would require it to be presented on the balance sheet outside of equity and, therefore, it qualifies 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, derivative liabilities or deemed dividends have been recorded in connection with the issuances of the stock.
The terms of the Series O Preferred Stock were set forth in the Company’s Current Report on Form 8-K filed with the SEC on May 11, 2021, in particular:
General. The Company’s Board of Directors has designated shares of the authorized shares of preferred stock as the Series O Preferred Stock. Each share of the Series O Preferred Stock has a stated value of $.
Voting Rights. Except as provided below or by law, the Series O Preferred Stock shall have no voting rights. However, as long as any shares of Series O Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series O Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series O Preferred Stock or alter or amend the Certificate of Designation, (b) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders, (c) increase the number of authorized shares of the Series O Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.
Dividends.
Dividends at the rate per annum of
Rank. The Series O Preferred Stock ranks with respect to dividends or a liquidation, (i) on parity with the common stock, the Company’s Series H Preferred Stock, the Company’s Series L Preferred Stock, the Company’s Series M Preferred Stock and the Company’s Series N Preferred Stock, (ii) senior to the Company’s Series F Preferred Stock, and (iii) junior to any other class or series of preferred stock of the Company afterwards created and ranking by its terms senior to the Series O Preferred Stock.
Conversion.
Each share of the Series O Preferred Stock is convertible into shares of the Company’s common stock, at any time and from time
to time, at the option of the holder, into that number of shares of common stock determined by dividing the stated value of such share
of Series O Preferred Stock, plus any accrued declared and unpaid dividends, by the conversion price.
Liquidation Preference. Upon any liquidation, dissolution or winding up of the Company, the holders of the Series O Preferred Stock shall be entitled to receive an amount equal to the stated value of the Series O Preferred Stock, plus any accrued declared and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon, for each share of the Series O Preferred Stock before any distribution or payment shall be made on any junior securities.
Redemption. At any time the Company shall have the right to redeem all, or any part, of the Series O Preferred Stock then outstanding. The Series O Preferred Stock subject to redemption shall be redeemed by the Company in cash in an amount equal to the stated value of the shares of the Series O Preferred Stock being redeemed plus all accrued declared and unpaid dividends.
Common Stock
The Company had and shares of its common stock issued and outstanding at June 30, 2021 and December 31, 2020, respectively. During the six months ended June 30, 2021, the Company issued shares of its common stock upon the conversion of shares of its Series M Preferred Stock and shares of its common stock upon the conversion of shares of its Series N Preferred Stock. During the six months ended June 30, 2020, the Company issued shares of its common stock upon the conversion of shares of its Series I-2 Preferred Stock.
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The Company has outstanding options, warrants, convertible preferred stock and convertible debentures. Exercise of the options and warrants, and conversions of the convertible preferred stock and debentures could result in substantial dilution of the Company’s common stock and a decline in the market price of the common stock. In addition, 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 a floor 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. These provisions, as well as the issuances of debentures and preferred stock with conversion prices that vary based upon the price of our common stock on the date of conversion, have resulted in significant dilution of the Company’s common stock and have given rise to reverse splits of its common stock, including the reverse stock split effected on July 16, 2021, which is more fully discussed in Note 1. See Note 16 for a discussion of the number of shares of the Company’s common stock and common stock equivalents outstanding as of August 11, 2021.
On August 13, 2020, Mr. Diamantis entered into the Voting Agreement with the Company, Mr. Lagan and Alcimede (of which Mr. Lagan is the sole manager) pursuant to which Mr. Diamantis granted an irrevocable proxy to Mr. Lagan to vote the Series M Preferred Stock held by Mr. Diamantis. Mr. Diamantis has retained all other rights under the Series M Preferred Stock. Regardless of the number of shares of Series M Preferred Stock outstanding and so long as at least one share of Series M Preferred Stock is outstanding, the outstanding shares of Series M Preferred Stock shall have the number of votes, in the aggregate, equal to 51% of all votes entitled to be voted at any meeting of stockholders or action by written consent. This means that the holders of Series M Preferred Stock have sufficient votes, by themselves, to approve or defeat any proposal voted on by the Company’s stockholders, unless there is a supermajority required under applicable law or by agreement. As a result of the Voting Agreement, as of the date of filing this report, the Company believes that it has the ability to ensure that it has and or can obtain sufficient authorized shares of its common stock to cover all potentially dilutive common shares outstanding.
Stock Options
The Company maintained and sponsored the Tegal Corporation 2007 Incentive Award Equity Plan (the “2007 Equity Plan”). Tegal Corporation is the prior name of the Company. The 2007 Equity Plan, as amended, provided for the issuance of stock options and other equity awards to the Company’s officers, directors, employees and consultants. The 2007 Equity Plan terminated pursuant to its terms in September 2017. As of June 30, 2021, options were outstanding and exercisable with a weighted average exercise price of $per share. No options were issued, forfeited or expired during the six months ended June 30, 2021. The remaining weighted average contractual term is years. The intrinsic value of the options exercisable at each of June 30, 2021 and December 31, 2020 was $. No compensation expense was recorded in the three and six months ended June 30, 2021 and 2020 as all of the options were fully vested as of December 31, 2019.
Warrants
The Company, as part of various debt and equity financing transactions, has issued warrants to purchase shares of the Company’s common stock totaling million at June 30, 2021. During the six months ended June 30, 2021, as a result of the anti-dilution provisions of outstanding warrants, the exercise prices of certain warrants decreased and they became exercisable into an additional million shares of the Company’s common stock. Certain of these warrants were issued in connection with the issuances of the debentures. Debentures are more fully discussed in Note 7.
Included
in the warrants outstanding at June 30, 2021, were warrants issued in connection with the debentures issued in March 2017. The Company
issued these warrants to purchase shares of the Company’s common stock to several accredited investors (the “March Warrants”).
At June 30, 2021, these warrants were exercisable into an aggregate of approximately
The number of warrants issued and outstanding as well as the exercise prices of the warrants reflected in the table below have been adjusted to reflect the full ratchet and other dilutive and down round provisions pursuant to the warrant agreements. As a result of the full ratchet provisions of the majority of the outstanding warrants (subject to a floor in some cases), subsequent issuances of the Company’s common stock or common stock equivalents at prices below the then current exercise prices of the warrants have resulted in increases in the number of shares issuable pursuant to the warrants and decreases in the exercise prices of the warrants.
| 26 |
The following summarizes the information related to the number of shares of common stock issuable under outstanding warrants during the six months ended June 30, 2021:
Number of Shares of Common Stock Issuable for Warrants | Weighted average exercise price | |||||||
| Balance at December 31, 2020 | $ | |||||||
Increase in number of shares of common stock issuable under warrants during the period as a result of down round provisions | ||||||||
| Balance at June 30, 2021 | $ | |||||||
See above and Notes 1, 3, 10, 11 and 16 for a discussion of the dilutive effect on the Company’s common stock as a result of the outstanding warrants.
Note 12 – Supplemental Disclosure of Cash Flow Information
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Preferred stock of VisualMED received from the sale of HTS and AMSG | $ | $ | ||||||
| Net liabilities of HTS and AMSG transferred to VisualMED | - | |||||||
| Series I-2 Preferred Stock converted into common stock | - | |||||||
| Exchange of Series K Preferred Stock for Series L Preferred Stock | - | ( | ) | |||||
| Issuance of Series L Preferred Stock | - | |||||||
| Issuance of Series M Preferred Stock in exchange for related party loans and accrued interest | - | |||||||
| Loans and accrued interest exchanged for Series M Preferred Stock | - | |||||||
| Deemed dividend from exchange of loans and accrued interest for Series M Preferred Stock | - | |||||||
| Series M Preferred Stock converted into common stock | - | |||||||
| Series N Preferred Stock converted into common stock | - | |||||||
| Deemed dividends for trigger of down round provisions | - | |||||||
| Original issue discounts on debt | ||||||||
Note 13 – 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 accounts receivable. The Company has receivable balances with government payers and various insurance carriers. The Company does not require collateral or other security to support customer receivables. However, the Company continually monitors and evaluates its 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 hospitals. Depending upon the nature of regulatory action, and the content of legislation, the Company could experience a significant decrease in 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.
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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 Corporation.
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”) 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 Reference Labs, Inc. filed suit against CIGNA Health for failure to pay claims for laboratory services provided. Cigna Health, in turn, sued for improper billing practices. CIGNA’s case against the Company was dismissed on June 22, 2020. The suit remains ongoing but 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 Christopher Diamantis for his continued financial support to the Company and assumption of all costs to carry the cost to conclusion.
In November of 2016, the IRS commenced an audit
of the Company’s 2015 Federal tax return. Based upon the audit results, the Company made provisions of approximately $
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 $
In December of 2016, DeLage Landen Financial Services,
Inc. (“DeLage”), filed suit against the Company for failure to make the required payments under an equipment leasing contract
that the Company had with DeLage (see Note 9). On January 24, 2017, DeLage received a default judgment against the Company in the approximate
amount of $
On December 7, 2016, the holders of the Tegal
Notes (see Note 6) filed suit against the Company seeking payment for the amounts due under the notes in the aggregate of the principal
of $
The Company, as well as many of its subsidiaries,
are defendants in a case filed in Broward County Circuit Court by TCA Global Credit Master Fund, L.P. The plaintiff alleges a breach
by Medytox Solutions, Inc. of its obligations under a debenture and claims damages of approximately $
On September 13, 2018, Laboratory Corporation
of America sued EPIC Reference Labs, Inc., a subsidiary of the Company, in Palm Beach County Circuit Court for amounts claimed to be
owed. The court awarded a judgment against EPIC Reference Labs, Inc. in May 2019 for approximately $
In February 2020, Anthony O. Killough sued
the Company and Mr. Diamantis, as guarantor, in New York State Supreme Court for the County of New York, for approximately $
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In February 2021, a supplier to the Company’s hospitals, Shared Medical Services, Inc., filed suit in Palm Beach County Circuit Court for approximately $ by virtue of default and for breach of contract and charges totaling approximately another $. The Company disputes that it has any liability or responsibility under the agreements and has filed an initial response in the matter. A mediation is being scheduled for September 2021.
Following the Company’s decision to suspend operations at Jamestown Regional Medical Center in June 2019 a number of vendors remain unpaid. A number have initiated or threatened legal actions. The Company believes it will come to satisfactory arrangements with these parties as it works toward reopening the hospital. The Company has accrued the amounts that it expects to owe in its financial statements. The Company is planning to reopen the hospital upon securing adequate capital to do so. The reopening plans and timing thereof have also been disrupted by the current pandemic.
Two former employees of Jamestown Regional Medical Center filed suit alleging violations of the federal Worker Adjustment and Retraining Notification Act (“WARN”). The Court entered a default against the Company on August 14, 2019. The parties disagreed to the amount of damages, specifically to whether part-time employees are entitled to WARN act damages. The parties have agreed to a confidential settlement agreement, which was concluded in the second quarter of 2021. The Company has accrued the estimated settlement amount.
In June 2019, CHSPSC, the former owners of Jamestown
Regional Medical Center, obtained a judgment against the Company in the amount of $
In August 2019, Morrison Management Specialists,
Inc. obtained a judgment against Jamestown Regional Medical Center and the Company in Fentress County, Tennessee in the amount of $
In November 2019, Newstat, PLLC obtained a judgment
against Big South Fork Medical Center in Knox County, Tennessee in the amount of $
On April 30 2021, Ponte Investments, LLC obtained
a default judgment for $
On June 28, 2021, Jellico Community Hospital and
Big South Fork Medical Center entered into a settlement agreement with Maxim Healthcare Staffing Services, Inc. wherein Jellico Community
Hospital and Big South Fork Medical Center agreed to pay Maxim $
On June 30, 2021, the Company entered into a settlement
agreement with the Tennessee Bureau of Workers’ Compensation. Per the terms of the settlement agreement, the Company has recorded
a liability of $
In July 2021, WG Fund, Queen Funding and Diesel
Funding filed legal actions in New York State Supreme Court for Kings County to recover amounts claimed to be outstanding on accounts
receivable sales agreements entered into in 2020. The Company has recorded the contingent obligations (based on collections from accounts receivable) in the amount of $
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.
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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:
HTS and AMSG Assets and Liabilities:
| June 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Current assets classified as held for sale | $ | $ | ||||||
| Property and equipment, net | $ | $ | ||||||
| Deposits | ||||||||
| Right-of-use assets | ||||||||
| Non-current assets classified as held for sale | $ | $ | ||||||
| Accounts payable and checks issued in excess of bank balance | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of right-of-use operating lease obligation | ||||||||
| Current portion of notes payable | ||||||||
| Current liabilities classified as held for sale | $ | $ | ||||||
| Note payable | $ | $ | ||||||
| Right-of-use operating lease obligation | ||||||||
| Non-current liabilities classified as held for sale | $ | $ | ||||||
EPIC Reference Labs, Inc. and Other Subsidiaries Assets and Liabilities:
| June 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| Cash | $ | - | $ | |||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Current assets classified as held for sale | $ | $ | ||||||
| Property and equipment, net | $ | $ | ||||||
| Deposits | ||||||||
| Right-of-use assets | ||||||||
| Non-current assets classified as held for sale | $ | $ | ||||||
| Accounts payable and checks in excess of bank balance | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of right-of-use operating lease obligation | ||||||||
| Current portion of notes payable | ||||||||
| Current liabilities classified as held for sale | $ | $ | ||||||
| Note payable | $ | $ | ||||||
| Right-of-use operating lease obligation | ||||||||
| Non-current liabilities classified as held for sale | $ | $ | ||||||
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Consolidated Discontinued Operations Assets and Liabilities:
| June 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Current assets classified as held for sale | $ | $ | ||||||
| Property and equipment, net | $ | $ | ||||||
| Deposits | ||||||||
| Right-of-use assets | ||||||||
| Non-current assets classified as held for sale | $ | $ | ||||||
| Accounts payable and checks issued in excess of bank balance | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of right-of-use operating lease obligation | ||||||||
| Current portion of notes payable | ||||||||
| Current liabilities classified as held for sale | $ | $ | ||||||
| Note payable | $ | $ | ||||||
| Right-of-use operating lease obligation | ||||||||
| Non-current liabilities classified as held for sale | $ | $ | ||||||
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):
| 31 |
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 | $ | $ | $ | $ | ||||||||||||
| Cost of services | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain on sale | - | - | ||||||||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Income (loss) from discontinued operations | $ | $ | $ | $ | ( | ) | ||||||||||
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 | $ | $ | $ | $ | ||||||||||||
| Cost of services | - | - | - | |||||||||||||
| Gross profit | - | ( | ) | - | ||||||||||||
| Operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Gain on sale | - | - | - | - | ||||||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Income (loss) from discontinued operations | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
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 | $ | $ | $ | $ | ||||||||||||
| Cost of services | ||||||||||||||||
| Gross profit | ( | ) | ||||||||||||||
| Operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Gain on sale | - | - | ||||||||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Income (loss) from discontinued operations | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| 32 |
Note 15 – Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Under this standard customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. The adoption of this new guidance prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and additional quantitative and qualitative disclosures. This ASU became effective for us on January 1, 2021. The adoption of this ASU did not have a material impact on our results of operations, financial position and cash flows.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplifies areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. This standard became effective for us on January 1, 2021. The adoption of this ASU did not have a material impact on our consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).The new guidance provides accounting for convertible instruments and contracts in an entity’s own equity. The FASB issued this Update to address issues identified as a result of the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. The Board focused on amending the guidance on convertible instruments and the guidance on the derivatives scope exception for contracts in an entity’s own equity. This standard will be effective for us for annual periods beginning on January 1, 2024, including interim periods within those fiscal years. Early adoption of this standard is not permitted for us because we have already adopted ASU 2017-11 “Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815).” We have not yet determined the impact of adopting this new accounting guidance on our consolidated financial statements.
| 33 |
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 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. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments in this Update in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. We have not yet determined the impact of adopting this new accounting guidance on our consolidated financial statements.
Other recent accounting standards issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
Note 16 – Subsequent Events
Issuances of Common Stock
Subsequent
to June 30, 2021 and through August 11, 2021, the Company issued shares of its common stock upon conversions of shares
of its Series N Preferred Stock with a stated value of $
Issuances of Series O Preferred Stock
Subsequent
to June 30, 2021, the Company issued shares of its Series O Preferred Stock with a stated value of $
Reverse Stock Split
On
July 16, 2021, the Company effected a
Potential Common Stock as of August 11, 2021
| August 11, 2021 | ||||
Shares of common stock outstanding |
||||
| Dilutive potential shares: | ||||
| Convertible preferred stock | ||||
| Warrants | ||||
| Convertible debt | ||||
| Stock options | ||||
| Total dilutive potential shares of common stock, including outstanding common stock | ||||
On
August 13, 2020,
| 34 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements made in this Form 10-Q are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company’s plans and objectives are based, in part, on assumptions involving its continued business operations. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate and, therefore, there can be no assurance the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.
The forward-looking statements included in this Form 10-Q and referred to elsewhere are related to future events or our strategies or future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “believe,” “anticipate,” “future,” “potential,” “estimate,” “expect,” “intend,” “plan,” or the negative of such terms or comparable terminology. All forward-looking statements included in this Form 10-Q are based on information available to us as of the filing date of this report, and the Company assumes no obligation to update any such forward-looking statements, except as required by law. Our actual results could differ materially from the forward-looking statements.
Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 Form 10-K”) and in our subsequent filings with the Securities and Exchange Commission. The following discussion of our results of operations should be read in conjunction with the audited financial statements contained within the 2020 Form 10-K and with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this report.
COMPANY OVERVIEW
Our Services
Our hospital operations began with the opening of our Big South Fork Medical Center on August 8, 2017, following the receipt of the required licenses and regulatory approvals. Big South Fork Medical Center is classified as a Critical Access Hospital (rural) with 25 beds, a 24/7 emergency department, operating rooms and a laboratory that provides a range of diagnostic services. On January 31, 2018, we entered into an asset purchase agreement to acquire an acute care hospital located in Jamestown, Tennessee, referred to as Jamestown Regional Medical Center. The acquisition also included a separate physician practice, known as Mountain View Physician Practice, Inc. Jamestown is located 38 miles west of Big South Fork Medical Center. In addition, on March 5, 2019, we closed an asset purchase agreement whereby we acquired certain assets related to an acute care hospital located in Jellico, Tennessee, known as Jellico Community Hospital, and an outpatient clinic located in Williamsburg, Kentucky, known as CarePlus.
We suspended operations at Jamestown Regional Medical Center in June 2019, as a result of the termination of its Medicare agreement. We plan to reopen the hospital upon securing adequate capital to do so. The reopening plans have also been disrupted by the coronavirus (“COVID-19”) pandemic and the timing of the reopening has been delayed. It is now intended that the re-opening process will be initiated in before the end of 2021.
On March 1, 2021, we closed Jellico Community Hospital, after the city of Jellico issued a 30-day termination notice for the lease of the building. We do not expect this closure to have an adverse effect on our business strategy as we believe it will have a positive impact from a reduced cash requirement in the immediate future.
Discontinued Operations
Sale of Health Technology Solutions, Inc. and Advanced Molecular Services, Inc.
In 2017, we announced plans to spin off or sell our wholly-owned subsidiaries Advanced Molecular Services Group (“AMSG”) and Health Technology Solutions, Inc. (“HTS”). On June 25, 2021, the Company sold the shares of stock of HTS and AMSG to VisualMED Clinical Solutions Corp. (“VisualMED”). 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 inter-company debt between the Company and HTS and AMSG, VisualMED issued the Company 14,000 shares of its Series B Non-Voting Convertible Preferred Stock (the “VisualMED Series B Preferred Stock”). The number of shares of Series B Preferred Stock will be subject to a post-closing adjustment. Each share of Series B Preferred Stock has a stated value of $1,000 and is convertible into that number of shares of VisualMED common stock equal to the stated value divided by 90% of the average closing price of the VisualMED common stock during the 10 trading days immediately prior to the conversion date. Conversion of the 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 Series B Preferred Stock) in the common stock of VisualMED would exceed 4.99%. The shares of Series B Preferred Stock may be redeemed by VisualMED upon payment of the stated value of the shares plus any accrued declared and unpaid dividends.
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As a result of the sale, the Company has recorded the Series B Preferred Stock of VisualMED as a long-term asset valued at $8.5 million at June 30, 2021 and a gain on the sale of HTS and AMSG of $10.7 million in the three and six months ended June 30, 2021, of which $8.5 million resulted from the value of the VisualMED Series B Preferred Stock and $2.2 million resulted from the transfer to VisualMED of the net liabilities of HTS and AMSG.
We have reflected the amounts relating to HTS and AMSG, including the gain on sale, as a disposal group classified as held for sale and included in discontinued operations in our accompanying unaudited condensed consolidated financial statements.
EPIC Reference Labs, Inc.
During the third quarter of 2020, we announced that we had decided to sell EPIC Reference Labs, Inc., and as a result, EPIC Reference Labs, Inc.’s operations have been included in discontinued operations in the accompanying unaudited condensed consolidated financial statements. 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.
Outlook
We believe that the transition of our business model from health information technology and diagnostics to ownership and operation of rural hospitals is now complete and once stabilized will create more predictable and stable revenue. Rural hospitals provide a much-needed service to their local communities and reduce our reliance on commission-based sales employees to generate sales. We currently operate one hospital and a rural clinic in the same general geographic location and we own another hospital and physician’s office at which operations are currently suspended. Owning a number of facilities in the same geographic location will create numerous efficiencies in purchasing and staffing and will enable the provision of additional, specialized and more valuable services that are needed by rural communities but cannot be sustained by a standalone rural hospital. We remain confident that this is a sustainable model we can continue to grow through acquisition and development and believe that we can benefit from the compliance and IT and software capabilities we already have in place. The progress of the COVID-19 pandemic, which is more fully discussed below, has severely affected our operations and may cause such expectations not to be achieved or, even if achieved, not to be done in the expected timeframe.
Impact of the Pandemic
The 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 and we have taken steps intended to minimize the risk to our employees and patients. These steps have increased our costs and our revenues have been significantly adversely affected. Demand for hospital services has substantially decreased. As noted in Notes 2 and 6 to the accompanying unaudited condensed consolidated financial statements, we have received Paycheck Protection Program loans (“PPP Notes”) as well as Health and Human Services (“HHS”) Provider Relief Funds from the federal government. 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, we are unable to determine the extent to which the COVID-19 pandemic will continue to affect our business. The nature and effect of the COVID-19 pandemic on our balance sheet and results of operations will depend on the severity and length of the pandemic in our service areas; government activities to mitigate the pandemic’s effect; regulatory changes in response to the pandemic, especially those affecting rural hospitals; and existing and potential government assistance that may be provided.
The COVID-19 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.
Hospitalizations in Tennessee for COVID-19 increased throughout 2020 and appear, until recently, to have peaked in December 2020. From third party information, there have been 891,331 cases and 12,730 deaths as of July 29, 2021. Unfortunately, current indications as of the date of this report show a resurgence of COVID-19. According to a recent Tennessee state profile report from the White House, as of August 6, 2021, Tennessee saw a 78% increases in cases per 100,000 persons compared to the previous week, averaging 276 cases per 100,000 persons. Hospitalizations and deaths from COVID-19 have also jumped by 65% and 24%, respectively. One concern previously cited in the report and shared by health leaders is low vaccination rates in the state combined with a surge in cases. Tennessee is the 9th-worst in population of fully vaccinated individuals per the report and 10th in new cases per 100,000 persons.
It is hoped that the continued roll out of vaccinations will significantly reduce the risk of death and reduce transmission of the virus so that a return to more normal expectations occurs throughout the remainder of 2021. These developments have had, and may continue to have, a material adverse effect on us and the operations of our hospitals. Our plans to reopen our Jamestown Regional Medical Center, whose operations were suspended in June 2019, have been disrupted by the pandemic and the timing of the reopening has been delayed.
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Three months ended June 30, 2021 compared to the three months ended June 30, 2020
The following table summarizes the results of our consolidated continuing operations for the three months ended June 30, 2021 and 2020:
| Three Months Ended June 30, | ||||||||||||||||
| 2021 | 2020 | |||||||||||||||
| % | % | |||||||||||||||
| Net revenues | $ | 928,849 | 100.0 | % | $ | 2,069,019 | 100.0 | % | ||||||||
| Operating expenses: | ||||||||||||||||
| Direct costs of revenues | 1,269,302 | 136.7 | % | 2,669,112 | 129.0 | % | ||||||||||
| General and administrative expenses | 2,105,888 | 226.7 | % | 2,399,391 | 116.0 | % | ||||||||||
| Depreciation and amortization | 193,640 | 20.8 | % | 181,091 | 8.8 | % | ||||||||||
| Loss from continuing operations before other income (expense) and income taxes | (2,639,981 | ) | -284.2 | % | (3,180,575 | ) | -153.7 | % | ||||||||
| Other income (expense), net | 2,008,597 | 216.2 | % | 6,895,827 | 333.3 | % | ||||||||||
| Net gain from legal settlements | 31,050 | 3.3 | % | 1,096,613 | 53.0 | % | ||||||||||
| Interest expense | (889,763 | ) | -95.8 | % | (2,658,510 | ) | -128.5 | % | ||||||||
| Benefit from income taxes | - | 0.0 | % | - | 0.0 | % | ||||||||||
| Net income (loss) from continuing operations | $ | (1,490,097 | ) | -160.4 | % | $ | 2,153,355 | 104.1 | % | |||||||
Net Revenues
Consolidated net revenues were $0.9 million for the three months ended June 30, 2021, as compared to consolidated net revenues of $2.1 million for the three months ended June 30, 2020, a decrease of $1.2 million. Net revenues in the three months ended June 30, 2021 from Jellico Community Hospital and CarePlus Center decreased by approximately $0.8 million and from Big South Fork Medical Center decreased by approximately $0.4 million. We closed Jellico Community Hospital on March 1, 2021 after the city of Jellico issued a 30-day termination notice for the lease of the building. We attribute the decrease in net revenues from Big South Fork Medical Center to pandemic related difficulties, including the closure of inpatient services for the first four months of 2021.
Net revenues for the three months ended June 30, 2021 and 2020 included estimated implicit price concessions of $1.3 million and $2.7 million, respectively, for doubtful accounts and $4.0 million and $8.4 million, respectively, for contractual allowances.
Direct Costs of Revenues
Direct costs of revenues decreased by $1.4 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. We attribute the decrease primarily to the closure of Jellico Community Hospital on March 1, 2021. As a percentage of net revenues, direct costs increased to 136.7% in the three months ended June 30, 2021 compared to 129.0% in the comparable 2020 period. We attribute the increase in the direct costs as a percentage of net revenues to the decrease in the number of patients served. While the number of patients served decreased, certain fixed costs of revenues remained.
General and Administrative Expenses
General and administrative expenses decreased by $0.3 million, or 12.2%, compared to the same period a year ago. We attribute the decrease to the reduction of general and administrative expenses for our hospitals. Our corporate related expenses remained constant at approximately $0.7 million for both the three month periods ended June 30, 2021 and 2020.
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Depreciation and Amortization Expense
Depreciation and amortization expense remained relatively stable at $0.2 million for both the three months ended June 30, 2021 and 2020.
Loss from Continuing Operations Before Other Income (Expense) and Income Taxes
Our loss from continuing operations before other income (expense) and income taxes for the three months ended June 30, 2021 was $2.6 million compared to a loss of $3.2 million for the three months ended June 30, 2020. We attribute the decrease in the operating loss primarily to a reduction in costs associated with Jellico Community Hospital.
Other Income (Expense), net
Other income (expense), net for the three months ended June 30, 2021 of $2.0 million included $1.9 million of HHS Provider Relief Funds from the federal government. Other income (expense), net for the three months ended June 30, 2020 of $6.8 million included $7.4 million of HHS Provider Relief Funds, partially offset by $0.4 million in penalties and interest associated with non-payment of payroll taxes and $0.2 million of loss on the sale of accounts receivable under a sales agreement.
Gain from Legal Settlements
The gain from legal settlements was $31,050 and $1.1 million for the three months ended June 30, 2021 and 2020, respectively. The settlement of obligations under a financing lease for property and equipment resulted in $0.9 million of the gain for the 2020 period.
Interest Expense
Interest expense for the three months ended June 30, 2021 was $0.9 million compared to $2.7 million for the three months ended June 30, 2020. Interest expense for the three months ended June 30, 2021 was for interest expense on debentures and notes payable and included $36,000 of interest expense on loans from Mr. Diamantis, a former member of our Board of Directors. Interest expense for the three months ended June 30, 2020 included $2.0 million for interest on debentures and note payable, $0.3 million for interest incurred by Mr. Diamantis on borrowings he procured in order to lend funds to the Company and $0.2 million of interest on loans from Mr. Diamantis. The decrease in interest expense in the three months ended June 30, 2021 as compared to the 2020 period was due primarily to the exchange of loans from Mr. Diamantis on June 30, 2020 for preferred stock and the exchange of debentures in the third quarter of 2020 for preferred stock.
Net Loss from Continuing Operations
Our net loss from continuing operations for the three months ended June 30, 2021 was $1.5 million compared to net income from continuing operations of $2.2 million for the three months ended June 30, 2020. The change was due primarily to a reduction in income of $5.5 million from HHS Provider Relief Funds and a $1.1 million gain from legal settlements in the 2020 period, partially offset by a reduction in the loss from continuing operations before other income (expense) and income taxes of $0.5 million and a decrease in interest expense of $1.8 million.
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Six months ended June 30, 2021 compared to the six months ended June 30, 2020
The following table summarizes the results of our consolidated continuing operations for the six months ended June 30, 2021 and 2020:
| Six Months Ended June 30, | ||||||||||||||||
| 2021 | 2020 | |||||||||||||||
| % | % | |||||||||||||||
| Net revenues | $ | 278,157 | 100.0 | % | $ | 3,910,109 | 100.0 | % | ||||||||
| Operating expenses: | ||||||||||||||||
| Direct costs of revenues | 2,866,400 | NM | % | 5,345,649 | 136.7 | % | ||||||||||
| General and administrative expenses | 4,896,367 | NM | % | 5,332,405 | 136.4 | % | ||||||||||
| Depreciation and amortization | 378,864 | 136.2 | % | 345,798 | 8.8 | % | ||||||||||
| Loss from continuing operations before income (expense) and income taxes | (7,863,474 | ) | NM | % | (7,113,743 | ) | -181.9 | % | ||||||||
| Other income (expense), net | 4,486,246 | NM | % | 6,790,061 | 173.7 | % | ||||||||||
| Net gain from legal settlements | 22,190 | 8.0 | % | 1,096,613 | 28.0 | % | ||||||||||
| Interest expense | (1,802,387 | ) | -648.0 | % | (5,548,770 | ) | -141.9 | % | ||||||||
| Benefit from income taxes | - | 0.0 | % | 1,118,485 | 28.6 | % | ||||||||||
| Net loss from continuing operations | $ | (5,157,425 | ) | NM | % | $ | (3,657,354 | ) | -93.5 | % | ||||||
NM – Not Meaningful.
Net Revenues
Consolidated net revenues were $0.3 million for the six months ended June 30, 2021, as compared to $3.9 million for the six months ended June 30, 2020, a decrease of $3.6 million. Net revenues in the six months ended June 30, 2021 from Jellico Community Hospital and CarePlus Center decreased by $1.0 million and from Big South Fork Medical Center decreased by $2.6 million. We closed Jellico Community Hospital on March 1, 2021, after the city of Jellico issued a 30-day termination notice for the lease of the building. Also, as a result of the COVID-19 pandemic, we believe the demand for our services was reduced as we served less patients during the six months ended June 30, 2021 compared to the 2020 period.
Net revenues for the six months ended June 30, 2021 and 2020 included estimated implicit price concessions of $4.3 million and $4.0 million, respectively, for doubtful accounts and $9.5 million and $18.9 million, respectively, for contractual allowances. The increase in estimated implicit price concessions of $0.3 million for the six months ended June 30, 2021 as compared to the 2020 period was due to serving only emergency room patients during the first four months of 2021. Inpatient serves typically deliver higher collection rates and the absence of inpatient services in the first four months of 2021 meant that the Company was dependent on revenue from emergency room services, which is typically at a lower percentage of gross revenue. Inpatient services reopened in May 2021.
Direct Costs of Revenues
Direct costs of revenue decreased by $2.5 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. We attribute the decrease to the reduction in the number of patients served at Jellico Community Hospital, CarePlus Center and Big South Fork Medical Center.
General and Administrative Expenses
General and administrative expenses decreased by $0.4 million, or 8.2%, compared to the same period a year ago. We attribute the decrease to the reduction of general and administrative expenses for our hospitals. Our corporate related expenses remained constant at approximately $1.3 million for both the six month periods ended June 30, 2021 and 2020.
Depreciation and Amortization Expense
Depreciation and amortization expense was $0.4 million and $0.3 million for the six months ended June 30, 2021 and 2020, respectively. The increase in the six months ended June 30, 2021 was due to depreciation expense associated with the purchases of medical equipment.
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Loss from Continuing Operations Before Other Income (Expense) and Income Taxes
Our loss from continuing operations before other income (expense) and income taxes for the six months ended June 30, 2021 was $7.9 million compared to a loss of $7.1 million for the six months ended June 30, 2020. We attribute the increase in the operating loss primarily to the reduction in the number of patients served in the 2021 period.
Other Income (Expense), net
Other income (expense), net of $4.5 million for the six months ended June 30, 2021 included $4.4 million of income from HHS Provider Relief Funds. Other income (expense), net of $6.8 million for the six months ended June 30, 2020 included $7.4 million of income from HHS Provider Relief Funds, partially offset by $0.6 million in penalties and interest associated with non-payment of payroll taxes and $0.2 million of loss on the sale of accounts receivable under a sales agreement.
Gain from Legal Settlements
The gain from legal settlements was $22,190 and $1.1 million for the six months ended June 30, 2021 and 2020, respectively. The settlement of obligations under a financing lease for property and equipment resulted in $0.9 million of the gain for the 2020 period.
Interest Expense
Interest expense for the six months ended June 30, 2021 was $1.8 million, as compared to $5.5 million for the six months ended June 30, 2020. Interest expense for the six months ended June 30, 2021 included $1.7 million for interest on debentures and notes payable and $0.1 million for interest on loans from Mr. Diamantis. Interest expense for the six months ended June 30, 2020 included $4.0 million for interest on debentures and note payable, $0.7 million for interest incurred by Mr. Diamantis, on borrowings he procured in order to lend funds to the Company and $0.5 million of interest on loans from Mr. Diamantis. The decrease in interest expense in the six months ended June 30, 2021 as compared to the 2020 period was due primarily to the exchange of loans from Mr. Diamantis on June 30, 2020 for non-interest bearing preferred stock and the exchange of debentures in the third quarter of 2020 for non-interest bearing preferred stock.
Benefit from Income Taxes
During the six months ended June 30, 2020, the U.S. Congress approved the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act allows a five-year carryback privilege for federal net operating tax losses that arose in a tax year beginning in 2018 and through the current tax year, that is, 2020. As a result, during the six months ended June 30, 2020, we recorded approximately $1.1 million in refunds from the carryback of certain of our federal net operating losses.
Net Loss from Continuing Operations
Our net loss from continuing operations for the six months ended June 30, 2021 was $5.2 million compared to a net loss from continuing operations of $3.7 million for the six months ended June 30, 2020. The increase in the net loss in the 2021 period was primarily due to the increase in the loss from continuing operations before other income (expense) and income taxes of $0.7 million, a reduction in income of $3.0 million from HHS Provider Relief Funds in the 2021 period, and the $1.1 million gain from legal settlements in the 2020 period. Partially offsetting the increase in the net loss in the 2020 period was a reduction in interest expense of $3.7 million.
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LIQUIDITY AND CAPITAL RESOURCES
For the three and six months ended June 30 2021 and the year ended December 31, 2020, we financed our operations from the issuances of equity, notes payable, loans from Christopher Diamantis, a former member of our Board of Directors, and the sale of accounts receivable under sales agreements. Also, during the year ended December 31, 2020 we received approximately $2.4 million from PPP Notes and our continuing operations received approximately $12.4 million from HHS Provider Relief Funds, of which $8.0 million was recognized as other income in the second and third quarters of 2020 and $4.4 million was recognized as income in the six months ended June 30, 2021. The PPP Notes 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. The Company is in the process of applying for forgiveness for the PPP Notes and accrued interest. The HHS Provider Relief Funds 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 as more fully discussed in Note 2 to the accompanying unaudited condensed consolidated financial statements. We received approximately $1.2 million in cash from the issuances of promissory notes during the six months ended June 30, 2021 and $2.5 million from the issuance of our Series O Convertible Redeemable Preferred Stock (“Series O Preferred Stock”). During the six months ended June 30, 2021, Mr. Diamantis loaned the Company $0.9 million and during the year ended December 31, 2020, Mr. Diamantis loaned the Company $7.6 million, the majority of which was used for working capital purposes. Subsequent to June 30, 2021 and through August 11, 2021, we received $0.3 million in loans from Mr. Diamantis and $1.5 million from the issuances of our Series O Preferred Stock. These financing transactions are more fully discussed in Notes 2, 4, 5, 6, 11 and 16 to our accompanying unaudited condensed consolidated financial statements.
As more fully discussed above, on June 25, 2021, the Company sold HTS and AMSG to VisualMED and the Company received shares of VisualMED’s Series B Preferred Stock valued at $8.5 million as consideration for the sale (subject to post-closing adjustments). In addition, $2.2 million of net liabilities of HTS and AMSG were transferred to VisualMED.
Going Concern and Liquidity
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 requirement of ASC 205-40.
As reflected in the accompanying unaudited condensed consolidated financial statements, the Company had a working capital deficit and an accumulated deficit of $57.5 million and $1.0 billion, respectively, at June 30, 2021. The Company had a loss from continuing operations before other income (expense) and income taxes of approximately $2.6 million and $3.2 million for the three months ended June 30, 2021 and 2020, respectively, and a loss from continuing operations before other income (expense) and income taxes of $7.9 million and $7.1 million, for the six months ended June 30, 2021 and 2020, respectively. In addition, cash used in operating activities was $3.7 million and $9.1 million for the six months ended June 30, 2021 and 2020, 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 the payment defaults under the terms of outstanding notes payable and debentures as more discussed in Notes 6 and 7 to the accompanying unaudited condensed consolidated financial statements, raise substantial doubt about the Company’s ability to continue as a going concern for 12 months from the filing date of this report. Our fixed operating expenses include payroll, rent, finance lease payments and other fixed expenses, as well as the costs required to operate our Hospital Operations.
The Company’s accompanying 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. As more fully discussed in Note 1 to the accompanying unaudited condensed consolidated financial statements, on June 25, 2021, the Company sold HTS and AMSG to VisualMED and the Company received VisualMED’s Series B Preferred Stock valued at $8.5 million as consideration for the sale (subject to post-closing adjustments). In addition, $2.2 million of net liabilities of HTS and AMSG were transferred to VisualMED. The Company has reflected the assets and liabilities relating to HTS and AMSG held prior to the sale as part of discontinued operations. In addition, during 2020, the Company announced plans to sell its last clinical laboratory, EPIC Reference Labs, Inc., and as a result, EPIC Reference Labs, Inc.’s operations 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.
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 had been operating at a loss since it was acquired by the Company in March 2019. The Company’s core operating businesses are now a rural hospital, a CarePlus Center and a hospital and physician’s office that it plans to reopen and operate. Rural hospitals are a specialized marketplace with a requirement for capable and knowledgeable management. The Company’s current financial condition may make it difficult to attract and maintain adequate expertise in its management team to successfully operate these businesses.
We need to raise additional funds immediately and will continue to do so until we begin to realize positive cash flow from operations. There can be no assurance that we will be able to achieve our business plan, which is to acquire and operate clusters of rural hospitals, raise any additional capital or secure the additional financing necessary to implement our current operating plan. Our ability to continue as a going concern is dependent upon our ability to significantly reduce our operating costs, increase our revenues and eventually achieve profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
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As of June 30, 2021, we were party to legal proceedings, which are presented in Note 13 to the accompanying unaudited condensed consolidated financial statements.
The following table presents our capital resources as of June 30, 2021 and December 31, 2020:
| June 30, | December 31, | |||||||||||
| 2021 | 2020 | Change | ||||||||||
| Cash | $ | 199,632 | $ | 25,353 | $ | 174,279 | ||||||
| Working capital deficit | (57,470,964 | ) | (56,454,545 | ) | (1,016,419 | ) | ||||||
| Total debt, exclusive of debt discounts | 22,581,913 | 20,770,771 | 1,811,142 | |||||||||
| Finance lease obligations | 249,985 | 249,985 | - | |||||||||
| Stockholders’ deficit | (41,340,428 | ) | (49,017,752 | ) | 7,677,324 | |||||||
The following table presents the major sources and uses of cash for the six months ended June 30, 2021 and 2020:
| Six Months Ended June 30, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Net cash used in operations | $ | (3,732,497 | ) | $ | (9,123,430 | ) | $ | 5,390,933 | ||||
| Net cash used in investing activities | (80,132 | ) | (10,435 | ) | (69,697 | ) | ||||||
| Net cash provided by financing activities | 3,986,908 | 9,927,780 | (5,940,872 | ) | ||||||||
| Net change in cash | 174,279 | 793,915 | (619,636 | ) | ||||||||
| Cash and cash equivalents, beginning of the year | 25,353 | 16,933 | 8,420 | |||||||||
| Cash and cash equivalents, end of the period | $ | 199,632 | $ | 810,848 | $ | (611,216 | ) | |||||
The components of cash used in operations for the six months ended June 30, 2021 and 2020 are presented in the following table:
| Six Months Ended June 30, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Net loss from continuing operations | $ | (5,157,425 | ) | $ | (3,657,354 | ) | $ | (1,500,071 | ) | |||
| Non-cash adjustments to net income (loss) | (14,742,848 | ) | (7,921,450 | ) | (6,821,398 | ) | ||||||
| Accounts receivable | 920,577 | 1,328,369 | (407,792 | ) | ||||||||
| Inventory | (45,573 | ) | (75,732 | ) | 30,159 | |||||||
| Accounts payable, checks issued in excess of bank balance and accrued expenses | 4,963,107 | 2,518,916 | 2,444,191 | |||||||||
| Income (loss) from discontinued operations | 10,334,749 | (12,796 | ) | 10,347,545 | ||||||||
| Income tax assets and liabilities | - | (999,586 | ) | 999,586 | ||||||||
| Other | (45,182 | ) | (167,484 | ) | 122,302 | |||||||
| Net cash used in operating activities | (3,772,595 | ) | (8,987,117 | ) | 5,214,522 | |||||||
| Net cash provided by (used in) discontinued operations | 40,098 | (136,313 | ) | 176,411 | ||||||||
| Net cash used in operations | $ | (3,732,497 | ) | $ | (9,123,430 | ) | $ | 5,390,933 | ||||
Cash of $0.1 million and $10,435 was used by investing activities during the six months ended June 30, 2021 and 2020, respectively. The cash used in both periods was for purchases of hospital equipment.
Cash provided by financing activities for the six months ended June 30, 2021 of $4.0 million included primarily $2.5 million in proceeds from the issuance of our Series O Preferred Stock, $0.9 million in loans from a former member of our Board of Directors and $1.2 million from the issuances of notes payable, partially offset by $0.4 million in payments of loans from to a former member of our Board of Directors, $0.1 million in payments of notes payable and $0.2 million in payments of accounts receivable under sales agreements. Cash provided by financing activities for the six months ended June 30, 2020 of $9.9 million included primarily $4.6 million in loans from a former member of our Board of Directors, $2.4 million from PPP Notes, $7.5 million from HHS Provider Relief Funds, $0.5 million from the sale of accounts receivable and $1.1 million from the issuance of an installment note payable. Partially offsetting these cash receipts were $0.7 million in payments of debentures, $0.8 million of notes payable payments, $3.3 million in payments of loans from a former member of our Board of Directors and $0.1 million of finance lease obligation payments.
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The Company had 10,000,000 and 39,648 shares of common stock issued and outstanding at June 30, 2021 and December 31, 2020, respectively. During the six months ended June 30, 2021, the Company issued an aggregate of 450,000 shares of its common stock upon conversion of $0.6 million of stated value of its Series M Preferred Stock and 9,510,352 shares of its common stock upon conversions of $13.1 million of stated value of shares of its Series N Preferred Stock. During the six months ended June 30, 2020, the Company issued an aggregate of 25 shares of its common stock upon conversion of $25,000 of value of its Series I-2 Convertible Preferred Stock.
The terms of certain of the outstanding 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 a floor 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 price of the outstanding warrants, preferred stock or debentures, as the case may be. In addition, the majority of these equity-based securities contain exercise/conversion prices that vary based upon the price of the Company’s common stock on the date of exercise/conversion (see Notes 7, 11 and 16 to the accompanying unaudited condensed consolidated financial statements). These provisions have resulted in significant dilution of the Company’s common stock and have given rise to reverse splits of the Company’s common stock, including a 1-for-1,000 reverse stock split effected on July 16, 2021. As a result of these down round provisions, the potential common stock equivalents, as adjusted for the July 16, 2021 reverse stock split, totaled 214.2 million at June 30, 2021 and 4.7 billion at August 11, 2021.
On August 13, 2020, Mr. Diamantis entered into the Voting Agreement with the Company, Mr. Lagan and Alcimede LLC (of which Mr. Lagan, the Company’s Chief Executive Officer, is the sole manager) pursuant to which Mr. Diamantis granted an irrevocable proxy to Mr. Lagan to vote the Series M Preferred Stock held by Mr. Diamantis. Mr. Diamantis has retained all other rights under the Series M Preferred Stock. Regardless of the number of shares of Series M Preferred Stock outstanding and so long as at least one share of Series M Preferred Stock is outstanding, the outstanding shares of Series M Preferred Stock shall have the number of votes, in the aggregate, equal to 51% of all votes entitled to be voted at any meeting of stockholders or action by written consent. This means that the holders of Series M Preferred Stock have sufficient votes, by themselves, to approve or defeat any proposal voted on by the Company’s stockholders, unless there is a supermajority required under applicable law or by agreement. As a result of the Voting Agreement, as of the date of filing this report, the Company believes that it has the ability to ensure that it has and or can obtain sufficient authorized shares of its common stock to cover all potentially dilutive common shares outstanding.
OTHER MATTERS
Inflation
We do not believe inflation has a significant effect on the Company’s operations at this time.
Off Balance Sheet Arrangements
Under SEC regulations, we are required to disclose the Company’s off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Off-balance sheet arrangements consist of transactions, agreements or contractual arrangements to which any entity that is not consolidated with us is a party, under which we have:
| ● | Any obligation under certain guarantee contracts. | |
| ● | Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets. | |
| ● | Any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to the Company’s stock and classified in stockholder’s equity in the Company’s statement of financial position. | |
| ● | Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us. |
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As of June 30, 2021, the Company had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable
Item 4. Controls and Procedures.
| (a) | Evaluation of Disclosure Controls and Procedures |
We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including our Chief Executive Officer, who also serves as our Interim Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures. Based on the foregoing evaluation, our management concluded that, as of June 30, 2021, our disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer (Principal Executive Officer), who also serves as our Interim Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
In our Annual Report on Form 10-K for the year ended December 31, 2020, we identified material weaknesses in our internal control over financial reporting. Insufficient staffing, accounting processes and procedures led to a lack of contemporaneous documentation supporting the accounting for certain transactions and the approval of certain cash disbursements. With the acquisitions of our hospitals, there are risks related to the timing and accuracy of the integration of information from various accounting systems whereby the Company has experienced delays in receiving information in a timely manner from its subsidiaries. Based on these material weaknesses in internal control over financial reporting, management concluded the Company did not maintain effective internal control over financial reporting as of December 31, 2020. As of June 30, 2021, we concluded that these material weaknesses continued to exist.
The Company expects improvements to be made on the integration of information issues during 2021 as we plan to move towards securing a prompt and accurate reporting system. The Company is continuing to further remediate the material weaknesses identified above as its resources permit. The Company is in the process of taking the following steps to remediate these material weaknesses: (i) increasing the staffing of its internal finance department, including hiring a chief financial officer; (ii) continuing the process of converting to a new integrated accounting system to enhance controls and procedures for recording accounting transactions; and (iii) implementing enhanced documentation procedures to be followed by the internal finance department, including independent review of material cash disbursements.
Notwithstanding such material weakness, management believes that the unaudited condensed consolidated financial statements included in this Form 10-Q fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods and dates presented.
| (b) | Changes in Internal Control over Financial Reporting |
During the six months ended June 30, 2021, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting except as disclosed above.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
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. Management, in consultation with legal counsel, has addressed known assertions and predicted unasserted claims, which are presented in Note 13 to the accompanying unaudited condensed consolidated financial statements.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A of the 2020 Form 10-K which could materially affect our business, financial condition, or future results. There have been no material changes to the risk factors previously disclosed in our 2020 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
| 3.26 | |
| 10.1 | |
| 31.1 | Rule 13a-14(a) Certification by the Principal Executive Officer. |
| 31.2 | Rule 13a-14(a) Certification by the Principal Financial Officer. |
| 32.1 | Certification by the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| 32.2 | Certification by the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Schema Document |
| 101.CAL | XBRL Calculation Link base Document |
| 101.DEF | XBRL Definition Link base Document |
| 101.LAB | XBRL Label Link base Document |
| 101.PRE | XBRL Presentation Link base Document |
*Furnished herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| RENNOVA HEALTH, INC. | ||
| Date: August 16, 2021 | By: | /s/ Seamus Lagan |
| Seamus Lagan | ||
Chief Executive Officer, President and Interim Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) | ||
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