UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

[X]☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 20202021

OR

[  ]☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______.

Commission File Number: 001-35141

RENNOVA HEALTH, INC.

(Exact name of registrant as specified in its charter)

Delaware68-0370244

(State or other jurisdiction

of incorporation or organization)

(IRS Employer

Identification No.)

400 S. Australian Avenue, Suite 800

West Palm Beach, FL

33401
(Address of principal executive offices)(Zip Code)

(561)855-1626

(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Act:

Title of Each Class

Trading

Symbol(s)

Name of each exchange on which

registered

NoneNoneNone

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.0001 Par Value

Warrants to Purchase Common Stock, $0.0001 Par Value

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] ☒ No [  ]☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] ☒ No [  ]☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer [  ]☐Accelerated filer [  ]☐
Non-accelerated filer [X] ☒Smaller reporting company [X]☒
Emerging growth company [  ]☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] ☐ No [X] ☒

As of November 12, 2020,10, 2021, the registrant had 3,943,67913,491,000,000 shares of its Common Stock, $0.0001 par value, outstanding.

 

 

 

 

RENNOVA HEALTH, INC. AND SUBSIDIARIES

FORM 10-Q

September 30, 20202021

TABLE OF CONTENTS

Page
No.
PART I – FINANCIAL INFORMATION3
Item 1.Financial Statements3
Condensed Consolidated Balance Sheets as of September 30, 20202021 (unaudited) and December 31, 201920203
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 and 2019 (unaudited)4
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for each of the quarters in the periods ended September 30, 2021 and 2020 and 2019 (unaudited)5-65
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 and 2019 (unaudited)7
Notes to Condensed Consolidated Financial Statements (unaudited)8
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations3839
Item 3.Quantitative and Qualitative Disclosures About Market Risk50
Item 4.Controls and Procedures50
PART II – OTHER INFORMATION
Item 1.Legal Proceedings51
Item 1A.1.Risk FactorsLegal Proceedings51
Item 1A.Risk Factors51
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds51
Item 3.Defaults Upon Senior Securities51
Item 4.Mine Safety Disclosures51
Item 5.Other Information51
Item 6.Exhibits5251
SIGNATURES53

2

 

RENNOVA HEALTH, INC.

PART I - FINANCIAL INFORMATION

Item 1. 1. Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS

 September 30, December 31,  September 30, December 31, 
 2020  2019  2021  2020 
 (unaudited)     (unaudited)    
ASSETS                
Current assets:                
Cash $220,343  $16,933  $331,491  $25,353 
Accounts receivable, net  2,431,715   3,565,447   998,759   499,454 
Receivable from related party  158,118   - 
Inventory  690,409   614,344   280,762   445,415 
Prepaid expenses and other current assets  225,220   487   151,938   148,522 
Income tax refunds receivable  1,165,388   642,503   1,139,226   1,420,251 
Current assets of discontinued operations classified as held for sale  186,282   505,389 
Current assets of discontinued operations  -   184,510 
Total current assets  4,919,357   5,345,103   3,060,294   2,723,505 
                
Property and equipment, net  8,116,050   8,231,830   7,060,539   7,814,435 
Intangibles, net  509,443   509,443   259,443   259,443 
Investments  9,016,072   - 
Deposits  293,621   237,139   221,063   263,621 
Right-of-use assets  1,030,021   88,905   877,412   1,000,272 
Non-current assets of discontinued operations classified as held for sale  224,080   295,239 
Non-current assets of discontinued operations  5,014   200,815 
                
Total assets $15,092,572  $14,707,659  $20,499,837  $12,262,091 
                
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current liabilities:                
Accounts payable (includes related parties amount of $0.4 million and $0.6 million, respectively) $11,640,733  $12,809,723 
Accounts payable (includes related party amounts of $0.5 million and $0.3 million, respectively) $13,960,059  $14,251,851 
Checks issued in excess of bank account balance  95,521   275,124   79,518   84,760 
Accrued expenses (includes related parties amount of $0 and $2.0 million, respectively)  16,475,148   14,245,292 
Accrued expenses (includes related party amounts of $0.3 million and $0.2 million, respectively)  17,442,164   19,135,569 
Income taxes payable  1,373,669   1,373,669   1,157,812   1,438,837 
Current portion of notes payable  3,776,294   3,977,710   7,051,278   4,786,976 
Notes payable, related party  278,000   15,159,455 
Current portion of note payable, related party  2,627,000   2,097,000 
Current portion of finance lease obligations  249,985   1,119,418   220,461   249,985 
Current portion of debentures  14,341,713   29,873,740   12,690,539   12,690,539 
Current portion of right-of-use operating lease obligations  152,609   30,311   237,026   172,952 
Derivative liabilities  455,336   455,336   455,336   455,336 
Current liabilities of discontinued operations classified as held for sale  3,669,119   4,098,417 
Current liabilities of discontinued operations  1,447,967   3,814,245 
Total current liabilities  52,508,127   83,418,195   57,369,160   59,178,050 
                
Other liabilities:                
Note payable, net of current portion  

2,220,662

   - 
Notes payable, net of current portion  -   1,196,256 
Right-of-use operating lease obligations, net of current portion  877,412   58,594   640,386   827,320 
Non-current liabilities of discontinued operations classified as held for sale  26,564   100,116 
Non-current liabilities of discontinued operations  -   78,217 
Total liabilities  55,632,765   83,576,905   58,009,546   61,279,843 
                
Commitments and contingencies          -     
                
Redeemable Preferred Stock - Series I-1  -   5,835,294 
Redeemable Preferred Stock - Series I-2  -   1,815,181 
        
Stockholders’ deficit:                
Series H preferred stock, $0.01 par value, 14,202 shares authorized, 10 shares issued and outstanding  -   - 
Series F preferred stock, $0.01 par value, 1,750,000 shares authorized, 1,750,000 shares issued and outstanding  17,500   17,500 
Series K preferred stock, $0.01 par value, 250,000 shares authorized, 0 and 250,000 shares issued and outstanding  -   2,500 
Series L preferred stock, $0.01 par value, 250,000 shares authorized, 250,000 and 0 shares issued and outstanding  2,500   - 
Series M preferred stock, $0.01 par value, 30,000 shares authorized, 22,000 and 0 shares issued and outstanding  220   - 
Series N preferred stock, $0.01 par value, 50,000 shares authorized, 30,304 and 0 shares issued and outstanding  303   - 
Common stock, $0.0001 par value, 10,000,000,000 shares authorized, 1,866,929 and 964,894 shares issued and outstanding  187   96 
Series H preferred stock, $0.01 par value, 14,202 shares authorized, 10 shares issued and outstanding  -   - 
Series F preferred stock, $0.01 par value, 1,750,000 shares authorized, 1,750,000 shares issued and outstanding  17,500   17,500 
Series L preferred stock, $0.01 par value, 250,000 shares authorized, 250,000 shares issued and outstanding  2,500   2,500 
Series M preferred stock, $0.01 par value, 30,000 shares authorized, 20,810 and 22,000 shares issued and outstanding, respectively  208   220 
Series N preferred stock, $0.01 par value, 50,000 shares authorized, 11,084 and 29,434 shares issued and outstanding, respectively  110   294 
Series O preferred stock, $0.01 par value, 10,000 shares authorized, 5,500 and 0 shares issued and outstanding, respectively  55   - 
Common stock, $0.0001 par value, 10,000,000,000 shares authorized, 4,777,350,000 and 39,648 shares issued and outstanding, respectively  477,735   4 
Additional paid-in-capital  622,938,644   510,402,197   1,233,162,879   819,498,236 
Accumulated deficit  (663,499,547)  (586,942,014)  (1,271,170,696)  (868,536,506)
Total stockholders’ deficit  (40,540,193)  (76,519,721)  (37,509,709)  (49,017,752)
Total liabilities and stockholders’ deficit $15,092,572  $14,707,659  $20,499,837  $12,262,091 

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  Nine Months Ended 
  September 30,  September 30, 
  2020  2019  2020  2019 
             
Net revenues $1,950,698  $3,920,607  $5,860,807  $13,155,882 
                 
Operating expenses:                
Direct costs of revenue  2,805,829   3,227,709   8,151,478   12,068,460 
General and administrative  3,274,508   3,074,522   8,593,756   12,277,416 
Depreciation and amortization  53,579   199,996   399,377   609,818 
Total operating expenses  6,133,916   6,502,227   17,144,611   24,955,694 
                 
Loss from continuing operations before other income (expense) and income taxes  (4,183,218)  (2,581,620)  (11,283,804)  (11,799,812)
                 
Other income (expense), net:                
Other income (expense), net  169,101   (5,784,873)  6,907,670   (6,981,116)
Gain (loss) from legal settlements  (23,652)  -   1,096,613   - 
Gain on extinguishment of debt  389,864   -   389,864   - 
Gain on bargain purchase  -   -   -   250,000 
Change in fair value of derivative instrument  -   -   -   (105,075)
Interest expense  (2,377,980)  (3,637,467)  (7,926,750)  (19,229,233)
Total other income (expense), net  (1,842,667)  (9,422,340)  467,397   (26,065,424)
                 
Net loss from continuing operations before income taxes  (6,025,885)  (12,003,960)  (10,816,407)  (37,865,236)
Benefit from income taxes  -   -   (1,118,485)  - 
                 
Net loss from continuing operations  (6,025,885)  (12,003,960)  (9,697,922)  (37,865,236)
                 
Net loss from discontinued operations  (166,180)  (261,808)  (164,293)  (1,266,764)
Net loss  (6,192,065)  (12,265,768)  (9,862,215)  (39,132,000)
Deemed dividends  (63,544,950)  -   (66,695,318)  (123,861,587)
Net loss available to common stockholders $(69,737,015) $(12,265,768) $(76,557,533) $(162,993,587)
                 
Net loss per common share:                
Basic net loss available to common stockholders $(54.33) $(18.49) $(70.52) $(365.30)
Diluted net loss available to common stockholders $(54.33) $(18.49) $(70.52) $(365.30)
Weighted average number of common shares outstanding during the period:                
Basic  1,283,559   663,405   1,085,650   446,192 
Diluted  1,283,559   663,405   1,085,650   446,192 
             
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2021  2020  2021  2020 
             
Net revenues $1,010,245  $1,950,698  $1,288,402  $5,860,807 
                 
Operating expenses:                
Direct costs of revenues  1,207,749   2,805,829   4,074,149   8,151,478 
General and administrative expenses  2,019,086   3,274,508   6,915,453   8,593,756 
Depreciation and amortization  135,065   53,579   513,929   399,377 
Total operating expenses  3,361,900   6,133,916   11,503,531   17,144,611 
                 
Loss from continuing operations before other income (expense) and income taxes  (2,351,655)  (4,183,218)  (10,215,129)  (11,283,804)
                 
Other income (expense):                
Other income (expense), net  (346,197)  169,101   4,140,049   6,907,670 
Gain from extinguishment of debt  1,027,000   389,864   1,027,000   389,864 
Gain (loss) from legal settlements  3,157,203   (23,652)  3,179,393   1,096,613 
Interest expense  (700,786)  (2,377,980)  (2,503,173)  (7,926,750)
Total other income (expense), net  3,137,220   (1,842,667)  5,843,269   467,397 
                 
Net income (loss) from continuing operations before income taxes  785,565   (6,025,885)  (4,371,860)  (10,816,407)
                 
Benefit from income taxes  -   -   -   (1,118,485)
                 
Net income (loss) from continuing operations  785,565   (6,025,885)  (4,371,860)  (9,697,922)
                 
Loss from discontinued operations  (31,388)  (166,180)  (423,791)  (164,293)
Gain on sale  576,787   -   11,303,939   - 
Total income (loss) from discontinued operations  545,399   (166,180)  10,880,148   (164,293)
                 
Net income (loss)  1,330,964   (6,192,065)  6,508,288   (9,862,215)
Deemed dividends  (259,530,999)  (63,544,950)  (409,142,478)  (66,695,318)
Net loss available to common stockholders $(258,200,035) $(69,737,015) $(402,634,190) $(76,557,533)
                 
Net loss per share of common stock available to common stockholders- basic and diluted:                
Continuing operations $(0.59) $(54,182.89) $(2.75) $(70,343.68)
Discontinued operations $0.00  $(129.42) $0.07  $(151.28)
Total basic and diluted $(0.59) $(54,312.31) $(2.68) $(70,494.96)
Weighted average number of shares of common stock outstanding during the period:                
Basic and diluted  438,998,913   1,284   150,459,817   1,086 

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 SEPTEMBERFor each of the quarters in the period ended September 30, 20202021

(unaudited)

 Preferred Stock  Common Stock  Additional paid-in-  Accumulated  Total Stockholders’  Shares Amount Shares Amount capital Deficit Deficit 
 Shares  Amount  Shares  Amount  capital  Deficit  Deficit  Preferred Stock Common Stock 

Additional

paid-in-

 Accumulated  Total
Stockholders’		 
Balance at December 31, 2019  2,000,010  $20,000   964,894  $96  $510,402,197  $(586,942,014) $(76,519,721)
Conversion of Series I-2 Preferred Stock into common stock  -   -   25,000   3   24,997   -   25,000 
Net loss  -   -   -   -   -   (5,791,778)  (5,791,778)
Balance at March 31, 2020  2,000,010  20,000   989,894  99  510,427,194  (592,733,792) (82,286,499)
Exchange of Series K Preferred Stock for Series L Preferred Stock  (250,000)  (2,500)  -   -   -   -   (2,500)
Issuance of Series L Preferred Stock  250,000   2,500   -   -   -   -   2,500 
Issuance of Series M Preferred Stock in exchange for related party loans and accrued interest  22,000   220   -   -   21,999,780   -   22,000,000 
Deemed dividend from issuance of Series M Preferred Stock  -   -   -   -   -   (3,150,368)  (3,150,368)
Net income  -   -   -   -   -   2,121,628   2,121,628 
Balance at June 30, 2020  2,022,010  20,220   989,894  99  532,426,974  (593,762,532) (61,315,239)
Conversions of Series I-2 Preferred Stock into common stock  -   -   288,000  30  252,964   -   252,994 
Issuance of Series N Preferred Stock  30,435   304   -   -   30,435,215   -   30,435,519 
Conversions of Series N Preferred Stock into common stock  (131)  (1)  589,500   58   (57)  -   - 
 Shares Amount Shares Amount capital Deficit Deficit 
Balance at December 31, 2020  2,051,444  $20,514   39,648  $4  $819,498,236  $(868,536,506) $   (49,017,752)
Conversion of Series M Preferred Stock into common stock                            
Conversion of Series M Preferred Stock into common stock, shares                            
Conversion of Series N Preferred Stock into common stock  (4,177)  (42)  435,082   44   (2)  -   - 
Issuance of Series O Preferred Stock                            
Issuance of Series O Preferred Stock, shares                            
Payment of cash in lieu of fractional shares  -   -   (465)  -   (684)  -   (684)                            
Deemed dividends from issuance of Series N Preferred Stock  -   -   -   -   -   (3,720,718)  (3,720,718)                            
Deemed dividends from issuance of warrants under exchange agreement                            
Deemed dividends from extension of warrants                            
Deemed dividends from trigger of down round provision features  -   -   -   -   59,824,232   (59,824,232)  -                             
Deemed dividends                  50,358,149   (50,358,149)  - 
Conversion of Series I-2 Preferred Stock into common stock                            
Conversion of Series I-2 Preferred Stock into common stock, shares                            
Issuance of Series N Preferred Stock                            
Issuance of Series N Preferred Stock, shares                            
Exchange of Series K Preferred Stock for Series L Preferred Stock                            
Exchange of Series K Preferred Stock for Series L Preferred Stock , shares                            
Issuance of Series L Preferred Stock                            
Issuance of Series L Preferred Stock, shares                            
Issuance of Series M Preferred Stock in exchange for related party loans and accrued interest                            
Issuance of Series M Preferred Stock in exchange for related party loans and accrued interest , shares                            
Deemed dividend from issuance of Series M Preferred Stock                            
Net loss  -   -   -   -   -   (6,192,065)  (6,192,065)  -   -   -   -   -   (3,893,994)  (3,893,994)
Balance at September 30, 2020  2,052,314  $20,523   1,866,929  $187  $622,938,644  $(663,499,547) $(40,540,193)
Balance at March 31, 2021  2,047,267  $20,472   474,730  $48  $869,856,383  $(922,788,649) $(52,911,746)
Conversion of Series M Preferred Stock into common stock  (620)  (6)  450,000   45   (39)  -   - 
Conversion of Series N Preferred Stock into common stock  (8,888)  (89)  9,075,270   907   (818)  -   - 
Issuance of Series O Preferred Stock  2,750   28   -   -   2,499,972   -   2,500,000 
Deemed dividends from trigger of down round provision features                  99,253,330   (99,253,330)  - 
Net income  -   -   -   -   -   9,071,318   9,071,318 
Balance at June 30, 2021  2,040,509  $20,405   10,000,000  $1,000  $971,608,828  $(1,012,970,661) $(41,340,429)
Exchange of Series M Preferred Stock into common stock  (570)  (6)  95,000,000   9,500   (9,494)  -   - 
Conversion of Series N Preferred Stock into common stock  (5,285)  (53)  4,672,350,000   467,235   (467,182)  -   - 
Issuance of Series O Preferred Stock  2,750   28   -   -   2,499,972   -   2,500,000 
Payment of cash in lieu of fractional shares  -   -   -   -   (244)  -   (244)
Deemed dividends from issuance of warrants under exchange agreement  -   -   -   -   341,525   (341,525)  - 
Deemed dividends from extension of warrants  -   -   -   -   291,592   (291,592)  - 
Deemed dividends from trigger of down round provision features  -   -   -   -   258,897,882   (258,897,882)  - 
Net income  -   -   -   -   -   1,330,964   1,330,964 
Balance at September 30, 2021  2,037,404  $20,374   4,777,350,000  $  477,735  $1,233,162,879  $  (1,271,170,696) $(37,509,709)

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 SEPTEMBERFor each of the quarters in the period ended September 30, 20192020

(unaudited)

  Preferred Stock  Common Stock  Additional paid-in  Accumulated  Total Stockholders’ 
  Shares  Amount  Shares  Amount  capital  Deficit  Deficit 
Balance at December 31, 2018  2,000,225  $20,002   12,857  $1  $375,858,739  $(415,046,606) $(39,167,864)
Conversion of Series I-2 Preferred Stock into common stock  -   -   325,570   33   643,847   -   643,880 
Common stock issued in cashless exercise of warrants  -   -   11,962   1   (1)  -   - 
Stock-based compensation  -   -   -   -   8,650   -   8,650 
Deemed dividend from trigger of down round provision feature  -   -   -   -   123,861,587   (123,861,587)  - 
Modification of warrants  -   -   -   -   4,056,425   -   4,056,425 
Net loss  -   -   -   -   -   (13,441,404)  (13,441,404)
Balance at March 31, 2019  2,000,225   20,002   350,389   350   504,429,247   (552,349,597)  (47,900,313)
Conversion of Series I-2 Preferred Stock into common stock  -   -   250,505   25   261,068   -   261,093 
Stock-based compensation  -   -   -   -   8,650  ��-   8,650 
Modification of warrants  -   -   -   -   5,408,566   -   5,408,566 
Net loss  -   -   -   -   -   (13,424,827)  (13,424,827)
Balance at June 30, 2019  2,000,225   20,002   6,00,894   60   510,107,531   (565,774,424)  (55,646,831)
Conversion of Series I-2 Preferred Stock into common stock  -   -   239,000   23   238,977   -   239,000 
Stock-based compensation  -   -   -   -   8,650   -   8,650 
Net loss  -   -   -   -   -   (12,265,768)  (12,265,768)
Balance at September 30, 2019  2,000,225  $20,002   839,894  $83  $510,355,158  $(578,040,192) $(67,664,949)
  Preferred Stock  Common Stock  

Additional

paid-in-

  Accumulated  

Total

Stockholders’

 
  Shares  Amount  Shares  Amount  capital  Deficit  Deficit 
Balance at December 31, 2019  2,000,010  $20,000   965  $  -  $510,402,293  $(586,942,014) $  (76,519,721)
Conversion of Series I-2 Preferred Stock into common stock  -   -   25   -   25,000   -   25,000 
Net loss  -   -   -   -   -   (5,791,778)  (5,791,778)
Balance at March 31, 2020  2,000,010  $20,000   990  $-  $510,427,293  $  (592,733,792) $(82,286,499)
Exchange of Series K Preferred Stock for Series L Preferred Stock  (250,000)  (2,500)  -   -   -   -   (2,500)
Issuance of Series L Preferred Stock  250,000   2,500   -   -   -   -   2,500 
Issuance of Series M Preferred Stock in exchange for related party loans and accrued interest  22,000   220   -   -   21,999,780   -   22,000,000 
Deemed dividend from issuance of Series M Preferred Stock  -   -   -   -   -   (3,150,368)  (3,150,368)
Net income  -   -   -   -   -   2,121,628   2,121,628 
Balance at June 30, 2020  2,022,010  $20,220   990  $-  $532,427,073  $(593,762,532) $(61,315,239)
Conversions of Series I-2 Preferred Stock into common stock  -   -   288   -   252,964   -   252,994 
Issuance of Series N Preferred Stock  30,435   304   -   -   30,435,215   -   30,435,519 
Conversions of Series N Preferred Stock into common stock  (131)  (1)  589   -   1   -   - 
Payment of cash in lieu of fractional shares  -   -   -   -   (684)  -   (684)
Deemed dividends from issuance of Series N Preferred Stock  -   -   -   -   -   (3,720,718)  (3,720,718)
Deemed dividends from trigger of down round provision features  -   -   -   -   59,824,232   (59,824,232)  - 
Net loss  -   -   -   -   -   (6,192,065)  (6,192,065)
Net income (loss)  -   -   -   -   -   (6,192,065)  (6,192,065)
Balance at September 30, 2020  2,052,314  $20,523   1,867  $-  $  622,938,831  $(663,499,547) $(40,540,193)

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

RENNOVA HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

  

Nine Months Ended

September 30,

 
  2020  2019 
       
Cash flows from operating activities:        
Net loss from continuing operations $(9,697,922) $(37,865,236)
Adjustments to reconcile net loss to net cash (used in) provided by operations:        
Depreciation and amortization  399,377   609,818 
Stock-based compensation  -   25,950 
Amortization of debt discount  108,958   6,386,305 
Modification of warrants  -   9,464,991 
Gain on extinguishment of debt  (389,864)  - 
Gain from legal settlements  (1,096,613)  - 
Other income from federal government relief funds  (8,020,969)  - 
Penalty for non-payment of debentures  -   5,710,440 
Change in fair value of derivative instrument  -   105,076 
Loss on disposal of property and equipment  87,293   - 
Loss on sale of accounts receivable under sales agreements  591,563   1,361,053 
Bargain purchase gain for hospital and medical center  -   (250,000)
Loss from discontinued operations  (164,293)  (1,266,764)
Changes in operating assets and liabilities:        
Accounts receivable  1,241,398   (3,564,790)
Inventory  (76,065)  1,174 
Prepaid expenses and other current assets  (224,733)  81,751 
Security deposits  (56,482)  (34,659)
Accounts payable and checks issued in excess of bank balance  (1,065,570)  4,974,361 
Accrued expenses  5,563,232   (371,438)
Income tax assets and liabilities  (522,885)  (45,000)
Net cash used in operating activities of continuing operations  (13,323,575)  (14,676,968)
Net cash (used in) provided by operating activities of discontinued operations  (100,685)  302,755 
Net cash used in operating activities  (13,424,260)  (14,374,213)
         
Cash flows from investing activities:        
Purchase of hospital and medical center  -   (658,537)
Purchase of property and equipment  (370,890)  (50,801)
Net cash used in investing activities of continuing operations  (370,890)  (709,338)
Net cash from investing activities of discontinued operations  -   - 
Net cash used in investing activities  (370,890)  (709,338)
         
Cash flows from financing activities:        
Proceeds from issuance of related party notes payable and advances  5,809,553   16,478,104 
Payments on related party notes payable and advances  (4,187,387)  (2,310,000)
Proceeds from issuance of debentures  -   3,845,000 
Proceeds from notes payable  1,198,835   1,500,000 
Payments on notes payable  (1,522,748)  (5,005,794)
Payments on debentures  (920,000)  - 
Proceeds from accounts receivable sales agreements  841,700   2,650,000 
Payments on right-to-use liabilities  (98,374)  (41,953)
Proceeds from Paycheck Protection Program notes payable  2,264,201   - 
HHS Provider Relief Funds  12,542,691   - 
Cash paid for fractional shares in connection with reverse stock split  (684)  - 
Payments of accounts receivable under sales agreements  (1,540,929)  (1,782,614)
Payments on finance lease obligations  (200,709)  (143,930)
Net cash provided by financing activities of continuing operations  14,156,149   15,188,813 
Net cash used in financing activities of discontinued operations  (157,589)  - 
Net cash provided by financing activities  13,998,560   15,188,813 
         
Net increase in cash  203,410   105,262 
         
Cash at beginning of period  16,933   2,209 
         
Cash at end of period $220,343  $107,471 
       
  

Nine Months Ended

September 30,

 
  2021  2020 
       
Cash flows from operating activities:        
Net loss from continuing operations $(4,371,860) $(9,697,922)
Adjustments to reconcile net loss to net cash used in operations:        
Depreciation and amortization  513,929   399,377 
Amortization of debt discount and non-cash interest expense  113,552   108,958 
Gain from extinguishment of debt  (1,027,000)  (389,864)
Loss on disposal of equipment  274,468   87,293 
Net gain from legal settlements  (3,179,393)  (1,096,613)
Other income from federal government provider relief funds  (4,400,000)  (8,020,969)
Loss on sales of accounts receivable under sale agreements  -   591,563 
Gain on sale of discontinued operations  (11,303,939)  - 
Income (loss) from discontinued operations  10,880,148   (164,293)
Changes in operating assets and liabilities:        
Accounts receivable  377,088   1,241,398 
Inventory  164,653   (76,065)
Prepaid expenses and other current assets  (3,416)  (224,733)
Security deposits  42,558   (56,482)
Change in right-of-use assets  122,860   (941,116)
Accounts payable and checks issued in excess of bank balances  1,918,004   (1,163,944)
Accrued expenses  4,208,698   5,563,232 
Change in right-of-use operating lease obligations  (122,860)  941,116 
Income tax assets and liabilities  -   (522,885)
Net cash used in operating activities of continuing operations  (5,792,510)  (13,421,949)
Net cash provided by (used in) operating activities of discontinued operations  102,567   (100,685)
Net cash used in operating activities  (5,689,943)  (13,522,634)
         
Cash flows from investing activities:        
Purchase of property and equipment  -   (370,890)
Net cash used in investing activities of continuing operations  -   (370,890)
Net cash used in investing activities of discontinued operations  -   - 
Net cash used in investing activities  -   (370,890)
         
Cash flows from financing activities:        
Proceeds from issuance of related party note payable and advances  890,000   5,809,553 
Payments on related party note payable and advances  (360,000)  (4,187,387)
Payments of debentures  -   (920,000)
Proceeds from issuances of notes payable  1,245,000   1,198,835 
Payments on notes payable  (350,508)  (1,552,748)
Receivable from related party  (158,118)  - 
Proceeds from sale of accounts receivable under sales agreements  -   841,700 
Receivables paid under accounts receivable sales agreements  (300,927)  (1,540,929)
Proceeds from issuance of Series O Preferred Stock  5,000,000   - 
Federal government provider relief funds  -   12,542,691 
Proceeds from Paycheck Protection Program notes payable  -   2,264,201 
Cash paid for fractional shares in connection with reverse stock splits  (244)  (684)
Payments on capital lease obligations  (29,524)  (200,709)
Net cash provided by financing activities of continuing operations  5,935,679   14,254,523 
Net cash provided by (used in) financing activities of discontinued operations  60,402   (157,589)
Net cash provided by financing activities  5,996,081   14,096,934 
         
Net change in cash  306,138   203,410 
         
Cash at beginning of period  25,353   16,933 
         
Cash at end of period $331,491  $220,343 

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 Three and Nine Months Ended September 30, 20202021 and 20192020

(unaudited)

Note 1 – Organization and Summary of Significant Accounting Policies

Description of Business

Rennova Health, Inc. (“Rennova”), together with its subsidiaries, (thethe “Company”, “we”, “us” or “our”) is a provider of health care services for healthcare providers, patients and individuals. In late 2016, the Company decided to pursue the opportunity to acquire and operate clusters of rural hospitals and is currently focused on implementing this business model.services. The Company now owns three hospitals,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. During the three months ended September 30, 2020, the Company’s announced that it had reached an agreement to sell its last clinical laboratory, EPIC Reference Labs, Inc., and as a result, EPIC Reference Labs, Inc.’s operations have been classified as held for sale and included in discontinued operations for all periods presented. The Company’s operations now consist of only one business segment, Hospital Operations.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, 2019, filed with the Securities and Exchange Commission (“SEC”) on June 29, 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 September 30, 2020, and2021, the results of its operations and changes in stockholders’ deficit and cash flows for the three and nine months ended September 30, 2021 and 2020 and 2019.its cash flows for the nine months ended September 30, 2021 and 2020. Such adjustments are of a normal recurring nature. The results of operations for the three and nine months ended September 30, 20202021 may not be indicative of results for the entire year ending December 31, 2020.2021.

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.

Reverse Stock SplitComprehensive Income (Loss)

On July 22,During the three and nine months ended September 30, 2021 and 2020, the Company’s Board of Directors approved an amendmentcomprehensive income (loss) was equal to the Company’s Certificatenet income (loss) amounts presented in the accompanying unaudited condensed consolidated statements of Incorporation to effect a 1-for-10,000 reverse stock split effective July 31, 2020 (the “Reverse Stock Split”). On May 7, 2020,operations.

Reclassifications

Certain items in the holders of a majority of the total voting power of the Company’s securities approved an amendment to the Company’s Certificate of Incorporation to effect a reverse split of all of the Company’s shares of common stock at a specific ratio within a range from 1-for-100 to 1-for-10,000, and granted authorization to the Board of Directors to determine in its discretion the specific ratio and timing of the reverse split on or prior to December 31, 2020.

As a result of the Reverse Stock Split, every 10,000 shares of the Company’s common stock was combined and automatically converted into one share of the Company’s common stock on July 31, 2020. In addition, the conversion and exercise prices of all of the Company’s outstanding preferred stock, common stock purchase warrants, stock options, equity incentive plans and convertible debentures were proportionately adjusted at the applicable reverse split ratio in accordance with the terms of such instruments. In addition, proportionate voting rights and other rights of common stockholders were not affected by the Reverse Stock Split, other than as a result of the payment of cash in lieu of fractional shares as no fractional shares were issued in connection with the Reverse Stock Split.

All share, per share and capital stock amounts and common stock equivalents as of andfinancial statements for the three and nine months ended September 30, 2020 and 2019 presented herein have been restated to give effect to the Reverse Stock Split.were reclassified for comparison purposes.

Reclassification

Cash payment amounts related to the right-of-use liabilities for the nine months ended September 30, 2019 have been reclassified on the statements of cash flows and in Note 10 for comparative purposes.

Comprehensive Loss

During the three and nine months ended September 30, 2020 and 2019, comprehensive loss was equal to the net loss amounts presented in the accompanying unaudited condensed consolidated statements of operations.

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 consolidated financial statements, and the reported amounts of net 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, stock based compensation, the valuation allowance relating to the Company’s deferred tax assets, deferred liabilities,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.

8

 

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.

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 1-for-10,000 reverse stock split effective July 31, 2020 and on July 8, 2021, the Company’s Board of Directors approved an amendment to the Company’s Certificate of Incorporation to effect a 1-for-1,000 reverse stock split effective July 16, 2021 (the “Reverse Stock Splits”).

As a result of the Reverse Stock Splits, every 10,000 shares of the Company’s common stock then outstanding was combined and automatically converted into one share of the Company’s common stock on July 31, 2020 and every 1,000 shares of the Company’s then outstanding common stock was combined and automatically converted into one share of the Company’s common stock on July 16, 2021. The conversion and exercise prices of all of the Company’s outstanding convertible preferred stock, common stock purchase warrants, stock options and convertible debentures were proportionately adjusted at the applicable reverse split ratio in accordance with the terms of such instruments.

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 10,000,000,000 shares of common stock and 5,000,000 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.

Effective November 5, 2021, the Company increased the authorized shares of its common stock from 10,000,000,000 to 50,000,000,000 as more fully discussed in Note 16.

Sale of Health Technology Solutions, Inc. and Advanced Molecular Services Group, Inc.

On June 25, 2021, the Company sold its subsidiaries, Health Technology Solutions, Inc. (“HTS”) and Advanced Molecular Services Group, Inc. (“AMSG”), including their subsidiaries, to InnovaQor, Inc. (“InnovaQor”), formerly known as VisualMED Clinical Solutions Corp. HTS and AMSG held Rennova’s software and genetic testing interpretation divisions. The financial results of HTS and AMSG, including the gain on sale, are reflected herein as discontinued operations. The sale is more fully discussed in 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

 

Revenue Recognition

We review our calculations for the realizability of gross service 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.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.provisions, if any. 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 transaction 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 and 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. RevenuesNet 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 nine months ended September 30, 20202021 and 2019.2020.

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 twelve-months 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 hospital facilities provide reasonable estimates of our net revenues and valuationsvaluation of our accounts receivable. At

10

For the three months ended September 30, 2021 and 2020, and December 31, 2019,we recorded estimated contractual allowances of $14.2$6.8 million and $16.8$14.0 million, respectively, hadand estimated implicit price concessions of $1.9 million and $2.2 million, respectively. For the nine months ended September 30, 2021 and 2020, we recorded estimated contractual allowances of $16.2 million and $32.9 million, respectively, and estimated implicit price concessions of $6.2 million and $6.2 million, respectively. These amounts have been recorded as reductions to our accounts receivable balances to enable us to record our net revenues and accounts receivable at the estimated amounts we expect to collect.

Contractual Allowances forand Doubtful Accounts Policy

Accounts receivable are reported at realizable value, net of contractual allowances for credits and estimated implicit price concessions (also referred to as doubtful accounts,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 creditsallowances and doubtful accounts. In addition, the Company regularly assesses the state of its billing operations in order to identify issues which may impact the collectability of these 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 estimates are recorded as an adjustment to provision for bad debts.

Total gross revenues were reducedrevenues. As required by approximately $2.2 million and $0.9 million for bad debt for the three months ended September 30, 2020 and 2019, respectively. After bad debtTopic 606, after estimated implicit price concessions and contractual and related allowance adjustments to revenues of $16.2 $8.7million and $21.9 $16.2million, respectively, for the three months ended September 30, 20202021 and 2019, respectively,2020, we reported net revenues of $2.0 $1.0 million and $3.9 million.

Total gross revenues were reduced by approximately $6.2 $2.0 million, and $4.8 million for bad debt for the nine months ended September 30, 2020 and 2019, respectively. After bad debtestimated implicit price concessions and contractual and related allowance adjustments to revenues of $39.1 $22.4 million and $86.7 $39.1 million, respectively, for the nine months ended September 30, 20202021 and 2019, respectively,2020, we reported net revenues of $5.9 $1.3 million and $13.2 million.$5.9 million, respectively. We continue to review the provisionprovisions for bad debtimplicit price concessions and contractual allowances. See Note 4 – Accounts Receivable and related allowances. Accounts receivable are presentedIncome Tax Refunds Receivable.

Leases in Note 4.Accordance with ASU No. 2016-02

Derivative Financial Instruments and Fair Value, Including the Adoption of ASU 2017-11

We account for warrants issued in conjunction with the issuance of common stock and certain convertible debt instrumentsleases 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 guidance containedbalance 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 finance and operating 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 815, Derivatives360, Property, Plant and Hedging (“Equipment (“ASC 815”) and ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”360”). For warrant instrumentsASC 360 clarifies the accounting for the impairment of long-lived assets and conversion options embeddedfor 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 nine months ended September 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 promissory notesan 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 not deemed toobservable or can be indexed tocorroborated by observable market data for substantially the Company’s own stock, we classified such instruments as liabilities at their fair values atfull term of the timeassets or liabilities.

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimates of issuance and adjustedassumptions that market participants would use in pricing the instruments toasset or liability.

We applied the Level 3 fair value at each reporting period. These liabilities were subject to re-measurement at each balance sheet date until extinguished either through repayment, conversion or exercise, and any changehierarchy in determining the fair value was recognizedof the InnovaQor Series B Preferred Stock on September 30, 2021 as more fully discussed in our statementNote 14.

Derivative Financial Instruments, Including the Adoption of operations. The fair values of these derivative and other financial instruments had been estimated using a Black-Scholes model and other valuation techniques.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 shareholdersstockholders 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).

WhenDeemed dividends represent 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 basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holderholders of equity-classified freestanding financial instruments when certain down round features (commonly referred to as “ratchets”) are present. The deemed dividends are presented as a reduction in net income or an increase in net loss available to common stockholders and a corresponding increase to additional paid-in-capital resulting in no change to stockholders’ equity/deficit. The incremental value of convertible debentures and warrants as a result of the instrument, while alleviating the complexitydown round provision features of $258.9million and income statement volatility associated with fair value measurement on an ongoing basis. Deemed dividends of $59.8 $59.8 million were recorded during bothas deemed dividends for the three months ended September 30, 2021 and 2020, respectively. The incremental value of convertible debentures and warrants as a result of the down round provision features of $408.5 million and $59.8 million were recorded as deemed dividends for the nine months ended September 30, 2021 and 2020, respectively.

In addition, we recorded deemed dividends during the three and nine months ended September 30, 20202021 and $123.9 million was recorded during the nine months ended September 30, 2019,2020 as a result of: (i) the issuance of down round provision features. We did not record deemed dividendsour Series M Convertible Redeemable Preferred Stock (the “Series M Preferred Stock”) on June 30, 2020; (ii) the issuance of warrants on August 27, 2021 in connection with the conversion of a portion of our Series M Preferred Stock; (iii) the issuance of our Series N Convertible Redeemable Preferred Stock (the “Series N Preferred Stock”) on August 31, 2020; and (iv) the extension of certain warrants during the three months ended September 30, 2019.2021. Each of these transactions is more fully discussed in Note 11. See Note 1110 for an additional discussion of derivative financial instruments.

12

 

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.

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 September 30, 2021 and December 31, 2020.

Earnings (Loss)Earnings Per Share

The Company reports earnings (loss) earnings 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) earnings 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) earnings per share is calculated by adjusting the weighted-average shares of common stock outstanding for the dilutive effect of common stock equivalents, including preferred stock, convertible debt, 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 loss per share applicable to common stockholders is the same for periods with a net loss. See Note 3 for the computation of (loss) earningsthe loss per share for the three and nine months ended September 30, 20202021 and 2019.2020.

11

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 2022.

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 accounts receivable for the hospital were negatively impacted by the closure and resulted in a significant shortfall in the funds available to satisfy liabilities at the facility.

13

 

Impact of the Pandemic

A novel strain of coronavirus (“COVID-19”)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 7,6, 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.

Hospitalizations in Tennessee for COVID-19 have been increasing.  In particular, infection levels in each of the three counties in which the Company owns hospitals are at the highest levels to date.  These developments may have a material adverse effect on the Company 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 opening has been delayed.

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 $100 $100 billion Public Health and Social Services Emergency Fund provided for in the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The funds arewere allocated to eligible healthcare providers for expenses and lost revenue attributable to the COVID-19 pandemic. The funds are being released in tranches, and HHS partnered with UnitedHealth Group to distribute the initial $30 billion in funds by direct deposit to providers. As of September 30, 2020, Company-owned2021, our facilities have received approximately $12.5 $12.5million in relief funds. The fund payments are grants, not loans, and HHS will not require repayment, but providers are restricted and the funds must be used only for grant approved purposes. Based on an analysis of the compliance and reporting requirements of the Provider Relief Funds and the impact of the pandemic on our operating results through the end of the third quarter,September 30, 2021, we have recognized $0.6 million and $8.0 $12.4 million of these paymentsfunds as income as of September 30, 2021 of which $7.5million and $0.5million was recognized during the second and third quarters of 2020, respectively, and $2.5 million and $1.9 million was recognized as income during the first and second quarters of 2021, respectively. The remaining $0.1 million is included with PPP loans in the three and nine months ended September 30, 2020, respectively. The income has been recorded under the caption “Other income (expense)” and the unrecognized portion has been recorded in accrued liabilities in our unaudited condensed consolidated statements of operations. The Company’s assessment of whether the terms and conditions for amounts received have been met considers all frequently asked questions and other interpretive guidance issued by HHS. accompanying balance sheets.

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 the 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 the HHS may be recognized up to a net zero gain/loss in 2020. During the three months ended September 30, 2020, 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 Company’s results of operations during such period and the receipt of additional payments during such period. Taking into account these countervailing factors, the Company believes that the amount recognized as of June 30, 2020 of approximately $7.4 million remains an appropriate estimate as of September 30, 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 among other changes, effectively reinstatesincludes two primary changes: (1) the definition of lost revenuesrevenue 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 wasreceived 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 basis forterms and conditions. As codified in the $7.4 millionOctober 22, 2020 Notice, the Company’s estimate of pandemic relief funds recognized duringthat do not have to be reimbursed includes the three and six months ended June 30, 2020. As a non-recognizable subsequent event,allocation of certain general funds among subsidiaries. Regarding the Company’s estimate asamended definition of September 30, 2020, as set forth above, has not been updated for the October 22, 2020 Notice; additional information is included in Note 18.

Provider Relief Funds received through HHS that have not yet been recognized as income or otherwise have not been refundedlost revenues, such change served to HHS as of September 30, 2020, are reflected within accrued liabilities in the unaudited condensed consolidated balance sheet, and such unrecognizedincrease amounts mayeligible to be recognized as income, in future periods ifas compared to the underlying conditions for recognition are met.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 the Company’s inability to recognize additional Provider Relief Fund payments or may result in the derecognition of amounts previously recognized, which (in any such case) may be material.

As of September 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 nine months ended September 30, 2021. The Company believes that it was appropriate to recognize as income $8.0 million of the HHS relief funds in 2020 and $4.4 million of the HHS relief funds in the nine months ended September 30, 2021.

14

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 requirementrequirements of ASC 205-40.

As reflected in the unaudited condensed consolidated financial statements, the Company had a working capital deficit and an accumulateda stockholders’ deficit of $47.6$54.3 million and $663.5$37.5 million, respectively, at September 30, 2020.2021. In addition, the Company had a loss from continuing operations before other income (expense) and income taxes of approximately $9.7$2.4 million and cash used in operating activities$4.2 million for the three months ended September 30, 2021 and 2020, respectively, and a loss from continuing operations before other income (expense) and income taxes of $13.4approximately $10.2 million and $11.3 million, for the nine months ended September 30, 2020.2021 and 2020, respectively. Cash used in operating activities was $5.7 million and $13.5 million for the nine months ended September 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 debenturesnotes payable and notes payabledebentures as more discussed in Notes 76 and 8,7, raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the filing date of this report.

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. TheAs more fully discussed in Note 14, on June 25, 2021, the Company planssold HTS and AMSG to separate out its Advanced Molecular Services Group (“AMSG”)InnovaQor and Health Technology Solutions, Inc. (“HTS”),the Company received InnovaQor’s Series B Preferred Stock valued at $9.1 million as independent publicly traded companies in either a spin off or transaction with a publicly quoted company.consideration for the sale. In addition, $2.2 million of net liabilities of HTS and AMSG were transferred to InnovaQor. The separations are subject to numerous conditions, including effectiveness of Registration Statements that may need to be filed with the SEC and consents, including under various funding agreements previously entered into by the Company. The intent of the separation of AMSG and HTS is to create separate public companies, each of which can focus on its own strengths and operational plans. In accordance with ASC 205-20 and having met the criteria for “held for sale”, the Company has reflected amountsthe assets and liabilities relating to HTS and AMSG and HTS as disposal groups classified as held forprior to the sale and included as part of discontinued operations. AMSG and HTS are no longer included in the segment reporting following the reclassification to discontinued operations. The discontinued operations of AMSG and HTS are described further in Note 16. On June 10, 2020, the Company signed an agreement with TPT Global Tech, Inc. (OTC: TPTW), a California-based public company, to merge HTS and AMSG into a public company (target) after TPT completes a merger of its wholly-owned subsidiary, InnovaQor, Inc. with this target. Completion of the agreement is subject to a number of approvals and consents which need to be secured to complete the transaction as more fully discussed in Note 16.

In addition, during the third quarter of 2020, the Company’s announced that it had reached an agreement to sell its last clinical laboratory, EPIC Reference Labs, Inc., and as a result, EPIC Reference Labs, Inc.’s operations have been classified as held for sale and included in discontinued operations for all periods presented.

The Company’s core business is now rural hospitals, which is 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 the Company’s hospitals.

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 and related healthcare service providers, 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 debenturesdebt and other past due obligations, fully align its operating costs, increase its revenues, and eventually regain profitable operations. The accompanying 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.

Note 3 – Loss Per Share Available to Common Stockholders

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 nine months ended September 30, 2021 and 2020, and 2019, basic net loss per share available to common stockholders is the same as diluted loss per share.

15

The following table sets forth the computation of the Company’s basic and diluted net loss per share available to common stockholders during the three and nine months ended September 30, 2021 and 2020 and 2019:(unaudited):

Schedule of Earnings Per Share Available to Common stockholders

  2021  2020  2021  2020 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  2021  2020  2021  2020 
Numerator                
Net income (loss) from continuing operations $785,565  $(6,025,885) $(4,371,860) $(9,697,922)
Deemed dividends  (259,530,999)  (63,544,950)  (409,142,478)  (66,695,318)
Net loss available to common stockholders, continuing operations  (258,745,434)  (69,570,835)  (413,514,338)  (76,393,240)
Net income (loss) from discontinued operations  545,399   (166,180)  10,880,148   (164,293)
Net loss available to common stockholders $(258,200,035) $(69,737,015) $(402,634,190) $(76,557,533)
                 
Denominator                
Basic and diluted weighted average shares of common stock outstanding  438,998,913   1,284   150,459,817   1,086 
                 
Loss per share available to common stockholders- basic and diluted:                
Continuing operations $(0.59) $(54,182.89) $(2.75) $(70,343.68)
Discontinued operations $0.00  $(129.42) $0.07  $(151.28)
Total basic and diluted $(0.59) $(54,312.31) $(2.68) $(70,494.96)

  Three Months Ended September 30,  Nine Months Ended September 30, 
  2020  2019  2020  2019 
Numerator            
Net loss from continuing operations $(6,025,885) $(12,003,960) $(9,697,922) $(37,865,236)
Deemed dividends  (63,544,950)  -   (66,695,318)  (123,861,587)
Net loss available to common stockholders, continuing operations $(69,570,835) $(12,003,960) $(76,393,240) $(161,726,823)
Net loss from discontinued operations  (166,180)  (261,808)  (164,293)  (1,266,764)
Net loss available to common stockholders $(69,737,015) $(12,265,768) $(76,557,533) $(162,993,587)
                 
Denominator                
Basic and diluted weighted average common shares outstanding  1,283,559   663,405   1,085,650   446,192 
                 
Loss per share, basic and diluted                
Basic and diluted, continuing operations $(54.20) $(18.10) $(70.37) $(362.46)
Basic and diluted, discontinued operations $(0.13) $(0.39) $(0.15) $(2.84)
Total basic and diluted $(54.33) $(18.49) $(70.52) $(365.30)

Diluted loss per share excludes all dilutive potential shares if their effect is anti-dilutive. As of September 30, 20202021 and 2019,2020, the following potential common stock equivalents were excluded from the calculation of diluted loss per share as their effect was anti-dilutive:

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share 

 2021  2020 
 September 30,  September 30, 
 2020  2019  2021  2020 
Warrants  335,446,218   63,452,563   182,663,835,039   335,461 
Convertible preferred stock  313,807,465   8,290,179   89,770,798,934   313,808 
Convertible debentures  51,133,333   3,063,478   9,664,944,444   51,133 
Stock options  26   30   26   26 
  700,387,042   74,806,250 
Dilutive potential shares  282,099,578,443   700,428 

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 floorfloors 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 12 and 13)12). These provisions have resulted in significant dilution of the Company’s common stock and have given rise to reverse splitsstock.

As a result of these down round provisions, the Company’spotential common stock equivalents, including the Reverse Stock Split effected on July 31, 2020, which isoutstanding common stock, totaled 476.2 billion at November 10, 2021, as more fully discussed in Note 1.16. See Notes 11 and 16 regarding a discussion of the number of shares of the Company’s authorized common stock.

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Note 4 – Accounts Receivable and Income Tax Refunds Receivable

Accounts receivable at September 30, 20202021 (unaudited) and December 31, 20192020 consisted of the following:

Schedule of Accounts Receivable

 September 30, December 31, 
 September 30, December 31,  September 30, December 31, 
 2020  2019  2021  2020 
          
Accounts receivable $21,920,386  $26,687,028  $9,626,490  $16,922,576 
Less:                
Allowance for discounts  (14,190,812)  (16,801,910)
Allowance for bad debts  (4,331,671)  (5,245,817)
Accounts receivable owed under sales agreements  (966,188)  (1,073,854)
Allowance for contractual obligations  (6,788,342)  (13,185,843)
Allowance for doubtful accounts  (992,330)  (1,513,827)
Accounts receivable owed under settlement/sales agreements  (847,059)  (1,723,452)
Accounts receivable, net $2,431,715  $3,565,447  $998,759  $499,454 

The allowance for discountsallowances reflected in the table above increaseddecreased as a percentage of accounts receivable to 64.7%80.8% at September 30, 20202021 compared to 63.0%86.9% at December 31, 2019. The allowance2020.

Estimated implicit price concessions deducted from revenues for discounts varies based on changes in historical contractual allowance rates.

For the three months ended September 30, 2021 and 2020 and 2019, bad debt expense was $2.2 were $1.9 million and $0.9 $2.2 million, respectively. Forrespectively, and for the nine months ended September 30, 2021 and 2020 and 2019, bad debt expense was $6.2 were $6.2 million and $4.8 $6.2 million, respectively. The allowance for bad debts decreased by $0.9 doubtful accounts deducted from accounts receivable was $1.0 million at September 30, 20202021 compared to the balance$1.5 million at December 31, 2019.2020, a decrease of $0.5 million. The decrease was due to lower implicit price concessions in the three months ended September 30, 2021 and to write offs of past due accounts receivable. The Company’s policy is to write off accounts receivable balances against the allowance for bad debtsimplicit price concessions once an accounts receivable ages past a specified number of days.

Accounts Receivable Sales Agreements and Installment Promissory Note

During the year ended December 31, 2019, the Company entered into five accounts receivable sales agreements. The aggregate amount of accounts receivable sold on a non-recourse basis during the year ended December 31, 2019 was $3.9 million. The aggregate purchase price paid to the Company was $2.7 million, less $0.1 million of origination fees. As of December 31, 2019, $1.1 million was outstanding and owed under these accounts receivable sales agreements. On January 29, 2020, the Company entered into a Secured Installment Promissory Note (the “Installment Note”) in the principal amount of $1.2 million, less $0.1 million in origination fees, the proceeds of which were used to satisfy in full the amounts due under accounts receivable sales agreements. The Installment Note is more fully discussed in Note 7.

During the nine months ended September 30, 2020, the Company entered into threesix accounts receivable sales agreements under which the Company sold $1.9an aggregate of $3.3 million of accounts receivable on a non-recourse basis for aan aggregate purchase price paid to the Company of $1.3$2.2 million, less $0.1 million of origination fees. Accordingly, the Company recorded a loss on the salesales of $0.3$1.2 million during the year ended December 31, 2020. As of December 31, 2020, $1.7 million was outstanding and $0.6owed to three funding parties under three accounts receivable sales agreements. On September 14, 2021, the Company entered into separate settlement agreements with the three funding parties under which the Company agreed to repay an aggregate of $0.9 million duringin full settlement of the sales agreements. Per the settlement agreements, the Company is required to make equal monthly payments totaling $52,941 through January 1, 2023. As a result of the settlements, the Company recorded a gain from legal settlements of $0.6 million in the three and nine months ended September 30, 2020, respectively. As of September 30, 2020, $1.0 million was outstanding and owed under the accounts receivable sales agreements.2021.

Income Tax Refunds Receivable

As of September 30, 2021 and December 31, 2020, the Company had $1.2$1.1 million and $1.4 million, respectively, of income tax refunds receivable. During the three and nine months ended September 30, 2020, the Company received $0.6 million of income tax refunds. During the first quarter of 2020, the U.S. Congress approved the CARES Act, which allowsallowed 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 nine monthsyear ended September 30,December 31, 2020, the Company recorded approximately $1.1$1.1 million in refunds from the carryback of certain of its federal net operating losses. In addition, during the year ended December 31, 2020, the Company recorded $0.3 million in refunds related to other net operating loss carryback adjustments. During the nine months ended September 30, 2021, the Company received income tax refunds of $0.3 million, which represented refunds associated with the CARES Act. NaN refunds were received during the nine months ended September 30, 2020. The Company used the $0.3 million of refunds that it received in the nine months ended September 30, 2021 to repay a portion of the amount that it owes for federal income tax liabilities that arose from an audit of the Company’s 2015 Federal tax return as more fully discussed in Note 13. The Company’s federal net operating lossesincome taxes are more fully discussed in Note 15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.

Note 5 – Acquisition

Purchase Agreement re Jellico Community Hospital and CarePlus Center

Effective March 5, 2019, the Company acquired certain assets related to Jellico Community Hospital and CarePlus Center. Jellico Community Hospital is a fully operational 54-bed acute care facility that offers comprehensive services, including diagnostic imaging, radiology, surgery (general, gynecological and vascular), nuclear medicine, wound care and hyperbaric medicine, intensive care, emergency care and physical therapy. The CarePlus Center offers sophisticated testing capabilities and compassionate care, all in a modern, patient-friendly environment. Services include diagnostic imaging services, x-ray, mammography, bone densitometry, computed tomography (CT), ultrasound, physical therapy and laboratory services on a walk-in basis.

The purchase price for Jellico Community Hospital and CarePlus Center was $658,537. This purchase price was made available by Mr. Diamantis, a former member of the Company’s Board of Directors. The total cost of the acquisition was approximately $908,537, including $250,000 of diligence, legal and other costs associated with the acquisition. The acquisition costs were fully expensed in 2019.

The fair value of the purchase consideration paid to the sellers was allocated to the net tangible and intangible assets acquired. The Company accounted for the acquisition as a business combination under U.S. GAAP. In accordance with the acquisition method of accounting under ASC 805 the assets acquired, and liabilities assumed were recorded as of the acquisition date, at their respective fair values and consolidated with those of the Company.

The fair value of the assets acquired, net of the liabilities assumed, was $0.9 million. The excess of the aggregate fair value of the net tangible assets acquired over the purchase price was $250,000 and has been treated as a gain on bargain purchase in accordance with ASC 805. The gain was primarily due to the value of the intangible assets acquired. In addition, after evaluation, the Company has made no material adjustments to its preliminary allocation as set forth below. The purchase price allocation was based, in part, on management’s knowledge of hospital operations.

The following table shows the allocation of the purchase price of Jellico Community Hospital and CarePlus Center to the acquired identifiable assets acquired, and liabilities assumed:

Total purchase price $658,537 
Tangible and intangible assets acquired, and liabilities assumed at estimated fair value:    
Inventories $317,427 
Property and equipment  500,000 
Intangible asset- certificate of need  250,000 
Accrued expenses  (158,890)
Net tangible and intangible assets acquired $908,537 
Gain on bargain purchase $250,000 

The following presents the unaudited pro-forma combined results of operations of the Company and Jellico Community Hospital and CarePlus Center as if the acquisition had occurred on January 1, 2019. The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2019 or to project potential operating results as of any future date or for any future periods.

  Nine months Ended 
  September 30, 2019 
    
Net revenue $14,873,502 
Net loss from continuing operations  (38,062,595)
Deemed dividends from trigger of down round provisions  (123,861,587)
Net loss from discontinued operations  (1,266,764)
Net loss available to common stockholders $(163,190,946)
     
Net loss per common share:    
Basic and diluted net loss from continuing operations available to common stockholders $(362.90)
Basic and diluted net loss available to common stockholders $(365.74)

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Note 65 – Accrued Expenses

Accrued expenses at September 30, 20202021 (unaudited) and December 31, 20192020 consisted of the following:

Schedule of Accrued Expenses 

 September 30, December 31,  September 30, December 31, 
 2020  2019  2021  2020 
Accrued payroll and related liabilities $7,357,041  $7,603,077  $9,152,027  $8,263,940 
Deferred HHS Provider Relief Funds  4,400,000   - 
HHS Provider Relief Funds (See Note 2)  -   4,400,000 
Accrued interest  3,373,430   4,905,749   5,989,653   4,728,942 
Accrued legal  770,019   1,226,997   1,097,318   1,097,318 
Other accrued expenses  574,658   509,469   1,203,166   645,369 
Accrued expenses $16,475,148  $14,245,292  $17,442,164  $19,135,569 

Accrued payroll and related liabilities at September 30, 2021 and December 31, 2020 included approximately $1.8$2.7 million and $2.5 million, respectively, for penalties associated with approximately $5.0 $5.0 million and $4.4 million of accrued past due payroll taxes.

Astaxes as of September 30, 2020, we have deferred $4.4 million of HHS Provider Relief funds as more fully discussed in Note 1.

Accrued interest decreased by $1.5 million at September 30, 2020 as compared to2021 and December 31, 2019. On June 30, 2020, the Company exchanged loans and the related accrued interest owed to Mr. Diamantis, a former member of our Board of Directors, outstanding as of that date for shares of the Company’s newly-issued Series M Convertible Preferred Stock (the “Series M Preferred Stock”) as more fully discussed in Notes 7 and 13. On August 31, 2020, the Company exchanged certain debentures and associated accrued interest outstanding as of that date for shares of its newly-issued Series N Convertible Redeemable Preferred Stock (the “Series N Preferred Stock”) and the interest accrued on certain outstanding debentures was reduced as more fully discussed in respectively.

Note 8. Accrued interest at December 31, 2019 included accrued interest of $1.9 million on loans made to the Company by Mr. Diamantis. No accrued interest was owed to Mr. Diamantis at September 30, 2020.

Note 76 – Notes Payable

The Company and its subsidiaries are party to a number of loans with unrelatedthird parties and related parties. At September 30, 20202021 (unaudited) and December 31, 2019,2020, notes payable consisted of the following:

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Schedule of Notes Payable

Notes Payable – Third Parties

  September 30,
2021		  December 31,
2020		 
       
Loan payable to TCA Global Master Fund, L.P. (“TCA”) in the original principal amount of $3 million at 16% interest (the “TCA Debenture”). Payable in various installments through May 4, 2022 (balance at September 30, 2021 as per settlement agreement – See Note 13) $500,000  $1,741,893 
         
Notes payable to CommerceNet and Jay Tenenbaum in the original principal amount of $500,000, bearing interest at 6% per annum (the “Tegal Notes”). Principal and interest payments due annually from July 12, 2015 through July 12, 2017  291,557   297,068 
         
Note payable to Anthony O’Killough dated September 27, 2019 in the original principal amount of $1.9 million. Interest is due only upon event of default. Issued net of $0.3 million of debt discount and $0.1 million of financing fees. Payment due in installments through November 2020.  1,450,000   1,450,000 
         
Notes payable under the PPP loans issued on April 20, 2020 through May 1, 2020 bearing interest at a rate of 1% per annum. To the extent not forgiven, principal and interest payments are due monthly beginning sixteen months from the date of issuance and the notes mature 40 months from the date of issuance.  1,358,923   2,385,921 
         
Installment promissory note dated January 29, 2020, less original issue discount of $0.1 million, non-interest bearing, payable in weekly installment payments ranging from $22,500 to $34,000 due on or before February 5, 2020 through on or before October 21, 2020, the maturity date.  -   108,350 
         
Notes payable dated January 31, 2021 and February 16, 2021 due six months from the date of issuance. The notes bear interest at 10% for the period outstanding. Under the terms of the notes, the holder is to receive a total of 100 shares of InnovaQor’s Series B Preferred Stock held by the Company.  245,000   - 
         
Notes payable to Western Healthcare, LLC dated August 10, 2021, in the aggregate principal amount of $2.4 million, bearing interest at 18% per annum, payable in monthly installments aggregating $0.2 million, due August 30, 2022.  2,152,961   - 
         
Warrant pre-payment promissory notes dated February 25, 2021, April 9, 2021, April 16, 2021 and April 22, 2021, non-interest bearing, $1,100,000 aggregate principal amount, issued with $100,000 of original issue discounts and each payable 12 months from the date of issuance  1,052,837   - 
         
Note payable  7,051,278   5,983,232 
Less current portion  (7,051,278)  (4,786,976)
Notes payable - third parties, net of current portion $-  $1,196,256 

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September 30,

2020

  

December 31,

2019

 
  (unaudited)    
Loan payable to TCA Global Credit Master Fund, LP (“TCA”) in the original principal amount of $3 million at 16% interest (the “TCA Debenture”). Principal and interest payments due in various installments through December 31, 2017 $1,741,893  $1,741,893 
         
Notes payable to CommerceNet and Jay Tenenbaum in the original principal amount of $500,000, bearing interest at 6% per annum (the “Tegal Notes”). Principal and interest payments due annually from July 12, 2015 through July 12, 2017  297,068   335,817 
         
Note payable to Anthony O’Killough dated September 27, 2019 in the original principal amount of $1.9 million. Interest is due only upon event of default. Issued net of $0.3 million of debt discount and $0.1 million of financing fees. Payment is due in installments through November 2020.  1,450,000   1,900,000 
         
Notes payable under the Paycheck Protection Program (“PPP) issued on April 20, 2020 through May 1, 2020 bearing interest at a rate of 1% per annum. To the extent not forgiven, principal and interest payments are due monthly beginning sixteen months from the date of issuance and the notes mature 40 months from the date of issuance.  2,385,921   - 
         
Installment note payable to Ponte Investments, LLC dated January 29, 2020, in the original principal amount of $1.2 million less original issue discount of $0.1 million, non-interest bearing, payable in weekly installment payments ranging from $22,500 to $34,000 due on or before February 5, 2020 through on or before October 21, 2020, the maturity date.  122,074   - 
         
   5,996,956   3,977,710 
Less current portion  (3,776,294)  (3,977,710)
Notes payable - third parties, net of current portion $2,220,662  $- 

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. On February 2, 2017, the Company made a payment to TCA in the amount of $0.4 million, which was applied to accrued and unpaid interest and fees, including default interest, as of the date of payment. On March 21, 2017, the Company made a payment to TCA in the amount of $0.75 million, of which approximately $0.1 million was applied to accrued and unpaid interest and fees under the TCA Debenture. Also on March 21, 2017, the Company entered into a letter agreement with TCA, which (i) waived any payment defaults through March 21, 2017; (ii) provided for the $0.75 million payment discussed above; (iii) set forth a revised repayment schedule whereby the remaining principal plus interest aggregating to approximately $2.6 million was to be repaid in various monthly installments from April of 2017 through September of 2017; and (iv) provided for payment of an additional service fee in the amount of $150,000, which was due on June 27, 2017, the day after the effective date of the registration statement filed by the Company; which amount was reflected in accrued expenses at September 30, 2020. In addition, TCA entered into an inter-creditor agreement with the purchasers of the convertible debentures (see Note 8) 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 Credit Master Fund, L.P. over allegations of accounting fraud. The amount recorded by the Company as being owed to TCA as of December 31, 2020 was based on TCA’s application of prior payments made by the Company. The Company believes that prior paymentsand TCA entered into a settlement agreement dated effective as of September 30, 2021, under which the Company agreed to pay TCA a total of $500,000 as full and final settlement of principal and accrued interest, may have been applied to unenforceable investment bankingof which $200,000 was paid on November 4, 2021 and other feesthe remaining $300,000 is due in six consecutive monthly installments of $50,000 payable on or before the fifth day of each month beginning December 2021. As a result of the settlement, in the three and charges. It isnine months ended September 30, 2021, the Company’s position thatCompany recorded a gain from legal settlement, resulting from the amount owed to TCA is less than the amount set forth above.adjustments of principal and accrued interest, of $2.2 million.

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 $341,612$341,612 and accrued interest of $43,000.$43,000. On December 7, 2016, the Company received a breach of contract complaint with a request for the entry of a default judgment (see Note 15)13). On April 23, 2018, the holders of the Tegal Notes received a judgment against the Company. As of September 30, 2020,2021, the Company has paid $38,749$50,055 of the principal onamount of these notes.

On September 27, 2019, the Company issued a promissory note payable to a lenderAnthony O’Killough in the principal amount of $1.9$1.9 million and received proceeds of $1.5$1.5 million, which was net of a $0.3$0.3 million original issue discount and $0.1$0.1 million in financing fees. The first principal payment of $1.0$1.0 million was due on November 8, 2019 and the remaining $0.9$0.9 million was due on December 26, 2019.2019. These payments were not made. In February 2020, the note holderMr. O’Killough sued the Company and Mr. Diamantis, as guarantor, in New York State Supreme Court for the County of New York, for approximately $2.2$2.2 million for non-payment of the promissory note. AsMr. Diamantis was a resultformer member of the payment default, the Company accrued “penalty” interest in the amountCompany’s Board of approximately $0.3 million.Directors. In May 2020, the Company, Mr. Diamantis, as guarantor, and the note holderMr. O’Killough entered into a Stipulation providing for a payment of a total of $2.2$2.2 million (which included accrued interest)“penalty” interest as of that date) in installments through November 1, 2020. As of September 30, 2020, $450,0002021, $450,000 has been paid which is $150,000 less than the required amount through that date.in cash and $2.2 million ($1.5 million of principal and $0.7 million of accrued penalty interest), remains past due. The Stipulation is more fully discussed in Note 15.13.

On January 29, 2020, the Company entered into the Installment Note in the principal amount of $1.2 million. The Company used the proceeds to satisfy in full the amounts due under accounts receivable sales agreements. These sales agreements are more fully discussed in Note 4. Pursuant to the Installment Note, weekly installment payments ranging from $22,500 to $34,000 are due on or before February 5, 2020 through on or before October 21, 2020, the maturity date. Accordingly, the Company made payments totaling $1.1 million during the nine months ended September 30, 2020. The Installment Note, which was issued with an original issue discount in the amount of approximately $0.1 million, is non-interest bearing and subject to late-payment fees of 10%.

As of April 20, 2020 and through May 1, 2020, the Company and its subsidiaries entered intoreceived PPP loan proceeds in the form of promissory notes (the “PPP Notes”) and received PPP loan proceeds in the aggregate amount of approximately $2.3 $2.4 million. A portion of theThe 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. No collateral or guarantees were provided in connection with the PPP Notes. The unforgiven portion of the PPP Notes areis payable over two yearsat an interest rate of 1.0%1.0% per annum, with a deferral of payments for the first sixteen months. Beginning sixteen months from the dates of issuance, the Company is required (if not forgiven) to make monthly payments of principal and interest to the lenders. The aggregate monthly paymentAs of allSeptember 30, 2021, $1.0 million of the principal balance of the PPP Notes ishas been forgiven and approximately $0.1 million. As $15,000 of September 30,accrued interest has been reversed. On November 3, 2021, an additional $0.8 million of principal balance was forgiven.

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On January 29, 2020, the Company hasentered into a secured installment promissory note (the “Ponte Note”) in the principal amount of $1.2 million, the proceeds of which were used to satisfy in full the amounts due under accounts receivable sales agreements entered into during 2019. Pursuant to the Ponte Note, weekly installment payments ranging from $22,500 to $34,000 were due on or before February 5, 2020 through on or before October 21, 2020, the maturity date. The Ponte Note, which was issued with an original issue discount in the amount of approximately $0.1 million, was non-interest bearing and subject to a portionlate-payment fee of 10%. The Company did not make certain installment payments due under the note and intendsaccordingly it recorded a $9,850 late payment penalty and incurred certain legal fees in connection with the payment default. On May 5, 2021, the Company entered into a settlement agreement with the holder under which the Company agreed to use allpay $125,000 in full satisfaction of the proceeds for purposes consistent with the PPP. Whilenote, which has been paid in full.

On August 10, 2021, the Company currently believesentered into two notes payable with Western Healthcare, LLC in the aggregate principal amount of $2.4 million. The notes were issued under the terms of a settlement agreement related to professional medical staffing services agreements that its usethe Company had previously entered into for medical staffing services. The notes bear interest at a rate of 18% per annum and are due no later than August 30, 2022. The Company paid $0.2 million to the note holders upon issuance of the loan proceeds will meet the conditions for forgivenessnotes. Monthly installments aggregating $0.2 million are due beginning August 31, 2021.

On each of the loans, we cannot assure you that we will not take actions that could causeFebruary 25, 2021, April 9, 2021, April 16, 2021 and April 22, 2021, the Company toentered into agreements with certain institutional investors for warrant prepayment promissory notes with an aggregate principal amount of $1.1 million. The Company received proceeds of $1.0 million from the investors and, accordingly, it recorded a total of $0.1 million in original issue discount of which $25,205 and $52,836 was amortized in the three and nine months ended September 30, 2021, respectively. The notes did not bear interest but an interest rate of 18% would be ineligibleapplied in the event of default that resulted in their acceleration. On November 7, 2021, these notes were exchanged for forgiveness of the loans,Company’s Series P Convertible Redeemable Preferred Stock (the “Series P Preferred Stock”) as more fully discussed in whole or in part.Note 16.

NotesNote Payable – Related Party

Schedule of Notes Payable - Related Parties

  September 30,
2021		  December 31,
2020		 
  (unaudited)    
       
Note payable to Christopher Diamantis due on demand and bearing interest at 10% on the majority of amounts loaned $2,627,000  $2,097,000 
         
Total note payable, related party  2,627,000   2,097,000 
         
Less current portion of note payable, related party  (2,627,000)  (2,097,000)
Total note payable, related party, net of current portion $-  $- 

At September 30, 2020 (unaudited) and December 31, 2019, related party loans consisted of the following:

  September 30, 2020  December 31, 2019 
  (unaudited)    
Loans payable to Christopher Diamantis $278,000  $15,159,455 
         
Total notes payable, related party  278,000   15,159,455 
         
Less current portion of notes payable, related party  (278,000)  (15,159,455)
Total notes payable, related party, net of current portion $—  $— 

During the threenine months ended September 30, 2021 and 2020, Mr. Christopher Diamantis, a former member of our Board of Directors, loaned the Company $1.2$0.9 million and the Company repaid Mr. Diamantis $0.9 million. During the six months ended June 30, 2020, Mr. Diamantis loaned the Company $4.6$4.6 million, respectively, the majority of which was for working capital purposes. During the nine months ended September 30, 2019,2021 and 2020, the Company repaid in cash $0.4 million and $4.2 million of the loans from Mr. Diamantis, advanced the Company $9.1 million which was used for the settlement of a prepaid forward purchase contract, $0.7 million for the purchase of Jellico Community Hospital and CarePlus Center as more fully discussed in Note 5 and $6.7 million that was used primarily for working capital purposes. Onrespectively. In addition, on June 30, 2020, wethe Company exchanged the total amount owed to Mr. Diamantis on that date for outstanding loans and accrued interest, net of repayments, ofwhich totaled approximately $18.8$18.8 million, for shares of the Company’s Series M Preferred Stock. The Series M Preferred Stock is more fully discussed in Note 13.11. On August 27, 2021, Mr. Diamantis was issued warrants to acquire shares of the Company’s common stock as more fully discussed in Note 11.

During the three months ended September 30, 2021 and 2020, and 2019, wethe Company accrued interest of $55,000$0 and $0.6 million,$55,000, respectively, on the loans from Mr. Diamantis and during the nine months ended September 30, 2021 and 2020, and 2019, weit accrued interest of $0.5$0.1 million and $1.5$0.5 million, respectively, on the loans from Mr. Diamantis. As of September 30, 2021 and December 31, 2020, accrued interest on the loans from Mr. Diamantis totaled $0.3 million and $0.2 million, respectively. Interest accruedaccrues on loans from Mr. Diamantis at a rate of 10%10% on the majority of the amounts loaned. In addition, Mr. Diamantis incurs interest expenses as a result of borrowing money from third parties to lend to the Company. Therefore, the Company reimburses Mr. Diamantis for a certain portion of the third-party interest he incurs.

20

 

Note 87 – Debentures

The carrying amount of all outstanding debentures as of September 30, 2020 (unaudited),2021 and December 31, 20192020 is as follows:

Schedule of Debentures

  September 30, 2021  December 31, 2020 
  (unaudited)    
Debentures $12,690,539  $12,690,539 
Less current portion  (12,690,539)  (12,690,539)
Debentures, net of current portion $-  $- 

Payment of all outstanding debentures totaling $12.7 million, including late-payment penalties, at December 31, 2020 was as follows:

  September 30, 2020  December 31, 2019 
  (unaudited)    
Debentures $14,341,713  $29,873,740 
   14,341,713   29,873,740 
Less current portion  (14,341,713)  (29,873,740)
Debentures, long-term $-  $- 

past due by the debentures’ original terms. The originaldebentures bear interest at the rate of 18% per annum and are secured by a first priority lien on all of the Company’s assets. The terms of the outstanding debentures at September 30, 2020 andas of December 31, 2019, which were issued during the years ending December 31, 2017, 2018 and 2019,2020 are more fully described in Note 9 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2019.2020. Certain of these debentures were issued with warrants to purchase shares of the Company’s common stock. Outstanding warrants are more fully discussed in Note 13.11.

During the nine months ended September 30, 2019, theThe Company realized a total of $3.8 million in proceeds from issuances of debentures. No debentures were issued during the nine months ended September 30, 2020. During the three and nine months ended September 30, 2019, the Company recorded approximately $1.4 million and $15.9 million, respectively, of non-cash interest and amortization of debt discount expense primarily in connection with the debentures and warrants. Theaccrued interest expense for the nine months ended September 30, 2019 included $9.5 million of expense due to the modifications of warrants during the period. The modifications are more fully discussed in Notes 11 and 13. These discounts were fully amortized as of September 30, 2019 and, accordingly, no amortization associated with theon outstanding debentures was recorded in the three and nine months ended September 30, 2020.

In addition to the non-cash interest expense and amortization of debt discount recorded during the three and nine months ended September 30, 2019 discussed in the paragraph above, during the three months ended September 30, 2021 and 2020 and 2019, the Company accrued interest expense on outstanding debentures of $1.5$0.6 million and $0.2$1.5 million, respectively, and during the nine months ended September 30, 2021 and 2020 and 2019, the Company accrued interest expense on outstanding debentures of $5.4$1.7 million and $0.4$5.4 million, respectively.

Payment of all outstanding debentures totaling $14.3 million at September 30, 2020 was past due by the debentures’ original terms and the Company recorded approximately $6.6 million of non-payment penalties, of which $5.7 million was recorded in the nine months ended September 30, 2019, as a result of the payment defaults. In January 2020, the Company and Mr. Diamantis entered into a Forbearance Agreement with certain debenture holders under which Mr. Diamantis paid the debenture holders $50,000 for legal fees and $220,000 in principal payments on debentures that were issued in February 2019. In addition, Mr. Diamantis, who had guaranteed certainCertain of the debentures agreed to grantare convertible into shares of the debenture holders security interests in certain potential legal settlements funds that may become due to Mr. Diamantis. The Forbearance Agreement, which terminated on March 15, 2020, required the Company and Mr. Diamantis to repay the debenture holders a total of $4.9 million on or before the termination date, of which $4.7 million was not repaid. During May 2020, the Company repaid $0.5 Company’s common stock. On September 30, 2021, $2.6 million of the debentures. On June 30, 2020, the Company received a formal noticeprincipal amount of default and demand for full paymentoutstanding debentures were convertible into 9.6 billion shares of the $29.2 Company’s common stock at a price of $0.00027 per share and $5.6 million of outstanding debentures were convertible on that date plus accrued interest. The Company repaid $0.2 into 108.5 million shares of the Company’s common stock at a conversion price of $0.052. The remaining outstanding debentures in July 2020.of $4.5 million are non-convertible.

On August 31, 2020,See Notes 3 and 11 for a discussion of the Companydilutive effect of the outstanding convertible debentures and the debenture holders entered into the Exchange, Redemption and Forbearance Agreements (the “Exchange and Redemption Agreements”) wherein they agreed to:

1)Exchange outstanding 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” and, collectively, with the Series I-1 Preferred Stock, the “Series I-1 and I-2 Preferred Stock”) for shares of Series N Preferred Stock at the face value of the Series I-1 and I-2 Preferred Stock, which was $6,257,616. The Series I-1 and I-2 Preferred Stock are more fully discussed in Note 13 and the Series N Preferred Stock is more fully discussed in Notes 13 and 14;
2)Exchange on August 31, 2020 outstanding debentures totaling $19.3 million, which included principal and penalties of $16.5 million and accrued interest of $2.8 million for Series N Preferred Stock with a face value (and determined to be fair value) of $24.2 million;
3)Provide for the repayment of outstanding debentures and accrued interest of approximately $9.8 million at August 31, 2020, for a payment of $10.0 million in cash any time on or before November 29, 2020, however, if the payment is not made timely, a “potential exchange premium” of $1.65 million will also become due for these debentures;
4)Provide, if the payment in Number 3 above is made timely, to allow for the exchange of outstanding non-convertible debentures, with a carrying value on Rennova’s books of $4.8 million at August 31, 2020, including penalties at 30% of the original principal balance and penalty interest calculated at 18% per annum, into Series N Preferred Stock with a face value of $4.9 million. Under this provision, the penalty interest is accrued at the rate of 18% per annum and not the original interest terms, which were 5% per month and 24% per annum on late payment of penalty interest, as a concession and to offset the premium paid for the exchange of the debentures noted in Number 2 above. This interest rate concession, which totaled $2.3 million at August 31, 2020, is permanent and will not be reversed in any event, including non-payment of the $10.0 million by November 29, 2020;
5)Provide that if the $10.0 million cash payment is made timely, no interest will accrue or be due under the outstanding debentures for the periods subsequent to August 31, 2020, however, interest will again accrue on these outstanding debentures at a rate of 18% per annum subsequent to August 31, 2020 if the $10.0 million cash payment is not made timely;
6)During the 90-day redemption period (or until the occurrence of certain specified events, if earlier), the investors will forbear from exercising any remedies against the Company or Mr. Diamantis as a result of any existing defaults under the outstanding securities; and
7)Provide that the embedded conversion options of the outstanding debentures noted in Number 3 above have been suspendedwarrants as of August 31, 2020 and that the conversion terms will only be reinstated to their original terms after November 29, 2020 if the $10.0 million cash payment is not made.

During the three and nine months ended September 30, 2020,2021 and Note 16 for the dilutive effect of outstanding convertible debentures and warrants as of November 10, 2021.

See Note 11 for a result of the Exchange and Redemption Agreements, the Company recorded (i) a $0.4 million gain on the extinguishment of debt, which included the potential exchange premium of $1.65 million, and a $0.3 million fair value adjustment to the debenture principal, partially offset by the reduction in interest expense of $2.3 million; and (ii) deemed dividends of $3.7 million as a resultdiscussion of the exchange of thecertain debentures and Series I-1 and I-2 Preferred Stock for shares of the Company’s Series N Preferred Stock. The Company recorded the $1.65 million potential exchange premium as of September 30,Stock on August 31, 2020 because its ability to raise sufficient capital to make the $10 million cash payment on or before November 29, 2020 is uncertain at this time.

In addition, during the three and nine months ended September 30, 2020, the Company recorded $59.8 million of deemed dividends asNote 16 for a resultdiscussion of the down round provisionsexchange of certain debentures and warrants. See Notes 11 and 13.for shares of the Company’s Series P Preferred Stock.

Note 98 – Related Party Transactions

Alcimede LLC

Alcimede LLC (“Alcimede”) billed $0.2$0.1 million and $0.1$0.1 million for consulting fees for the three months ended September 30, 20202021 and 2019,2020, respectively, and $0.4$0.3 million and $0.3$0.3 million for consulting fees for the nine months ended September 30, 20202021 and 2019,2020, respectively. Seamus Lagan, the Company’s President and Chief Executive Officer, is the sole manager of Alcimede (also see Note 11).

InnovaQor

In addition to the investment in InnovaQor’s Series B Preferred Stock (see Note 13).

See Notes 51 and 7 for discussions of transactions between14), at September 30, 2021, the Company had a receivable from related party resulting from working capital advances to InnovaQor of approximately $0.2 million during the three months ended September 30, 2021. During the three and Mr. Diamantis.nine months ended September 30, 2021, the Company contracted with InnovaQor to provide ongoing health information technology-related services totaling $51,229.

The terms of the foregoing transactions including thoseand the transactions discussed in Notes 5, 71, 6, 11 and 13,14 are not necessarily indicative of those that would have been agreed to with unrelated parties for similar transactions.

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Note 109 – Finance and Operating Lease Obligations

We adopted ASU No. 2016-02, Leases (Topic 842), which requires leases with durations greater than 12 months to be recognized on the balance sheet, effective January 1, 2019, using the modified retrospective approach. 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.

Generally, we use our estimated weighted average cost of capitalmost 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.

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The following table presents our lease-related assets and liabilities at September 30, 20202021 (unaudited) and December 31, 2019:2020:

Schedule of Lease-related Assets and Liabilities

 Balance Sheet Classification September 30, 2020  December 31, 2019  Balance Sheet Classification 

September 30,

2021

 

December 31,

2020

 
  (unaudited)         
Assets:                
Operating leases Right-of-use operating lease assets $1,030,021  $88,905  Right-of-use operating lease assets $877,412  $1,000,272 
Finance leases Property and equipment, net  249,985   1,119,418  Property and equipment, net  220,461   249,985 
                
Total lease assets $1,280,006  $1,208,323  $1,097,873  $1,250,257 
                
Liabilities:                
Current:                
Operating leases Right-of-use operating lease obligations $152,609  $30,311  Right-of-use operating lease obligations $237,026  $172,952 
Finance leases Current liabilities  249,985   1,119,418  Current liabilities  220,461   249,985 
Noncurrent:                
Operating leases Right-of-use operating lease obligations  877,412   58,594  Right-of-use operating lease obligations  640,386   827,320 
                
Total lease liabilities $1,280,006  $1,208,323  $1,097,873  $1,250,257 
                
Weighted-average remaining term:                
Operating leases  4.39 years    2.96 years   3.50 years   4.17 years 
Finance leases  0 years   0.08 years   0 years   0 years 
Weighted-average discount rate:                
Operating leases  13.0%  13.0%  13.0%  13.0%
Finance leases  4.9%  5.1%  4.9%  4.9%

The following table presents certain information related to lease expense for finance and operating leases for the three months and nine months ended September 30, 20202021 and 2019:2020:

Schedule of Information Related to Lease Expense for Finance and Operating Leases 

 Three Months Ended September 30, 2020  Three Months Ended September 30, 2019  Nine Months Ended September 30, 2020  Nine Months Ended September 30, 2019   

Three Months

Ended

September 30,

2021

  

Three Months

Ended

September 30,

2020

  

Nine Months

Ended

September 30,

2021

  

Nine Months

Ended

September 30,

2020

 
Finance lease expense:                         
Depreciation/amortization of leased assets (1) $-  $15,004  $26,349  $(30,055) $- $- $- $26,349 
Interest on lease liabilities  -   704   9,455   5,804  - - - 9,455 
Operating leases:                         
Short-term lease expense (2)(1)  49,196   42,221   219,138   178,795  44,342 49,196 151,025 219,138 
            
Total lease expense $49,196  $57,929  $254,942  $154,544  $44,342 $49,196 $151,025 $254,942 

(1)Adjusts depreciation recorded in the nine months ended September 30, 2019.
(2)Expenses are included in general and administrative expenses in our unaudited condensedthe consolidated statements of operations.

 

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Other Information

The following table presents supplemental cash flow information for the nine months ended September 30, 20202021 and 2019:2020:

Schedule of Supplemental Cash Flow Information

 Nine Months Ended September 30, 2020  Nine Months Ended September 30, 2019  

Nine Months

Ended

September 30,

2021

  

Nine Months

Ended

September 30,

2020

 
Cash paid for amounts included in the measurement of lease liabilities:                
Operating cash flows for operating leases $-  $118,512  $168,923  $98,374 
Financing cash flows for operating leases $98,374  $41,953 
Operating cash flows for finance leases $9,455  $5,800   -   9,455 
Financing cash flows for finance leases payments $200,709  $143,930 
Financing cash flows for finance lease payments  29,524   200,709 

Aggregate future minimum lease payments under right-of-use operating and finance leases are as follows:

Schedule of Future Minimum Rentals Under Right-to-use Operating and Finance Leases 

 Right-of-Use Operating Leases  Finance Leases  

Right-of-Use

Operating

Leases

  

Finance

Leases

 
October 1, 2020 to September 30, 2021 $277,940  $253,776 
October 1, 2021 to September 30, 2022  337,357   - 
October 1, 2022 to September 30, 2023  307,082   - 
October 1, 2023 to September 30, 2024  217,839   - 
October 1, 2024 to September 30, 2025  223,795   - 
Twelve months ended September 30, 2022 $337,357  $224,252 
Twelve months ended September 30, 2023  307,082   - 
Twelve months ended September 30, 2024  217,839   - 
Twelve months ended September 30, 2025  223,795   - 
Twelve months ended September 30, 2026  18,650   - 
Thereafter  18,650       -   - 
Total  1,382,663   253,776   1,104,723   224,252 
                
Less interest  (352,642)  (3,791)  -   - 
Present value of minimum lease payments $1,030,021  $249,985  $1,104,723  $224,252 
                
Less current portion of lease obligations  (152,609)  (249,985)  (227,311)  (3,791)
Lease obligations, net of current portion $877,412  $-  $877,412  $220,461 

As of September 30, 2020,2021, the Company was in default under its finance lease obligations,obligation, therefore, the aggregate future minimum lease payments and accrued interest under this finance lease in the amount of $0.2totaling approximately $0.2 million areis deemed to be immediately due. In July 2020,

Note 10 – Fair Value Measurements

Fair Value Measurements

We define fair value as the Company enteredprice 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 a settlement withthree levels and bases the holdercategorization within the hierarchy upon the lowest level of oneinput 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 finance leases and paid $0.1 million as full and final settlement of the obligation as more fully discussed in Note 15.assets or liabilities.

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Note 11

Level 3 – Derivative Financial InstrumentsInputs that are generally unobservable and Fair Valuetypically 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 September 30, 20202021 and December 31, 2019,2020, the carrying value of the Company’s accounts receivable, accounts payable and accrued expenses approximated their fair values due to their short-term nature.

The following table sets forth the financial assets and liabilities carried at fair value measured on a recurring basis as of September 30, 20202021 and December 31, 2019:2020:

Schedule of Fair Value of Assets and Liabilities Measured on Recurring Basis

  Level 1  Level 2  Level 3  Total 
             
As of December 31, 2019:                
Embedded conversion options $-  $-  $455,336  $455,336 
Total $-  $-  $455,336  $455,336 
                 
As of September 30, 2020:                
Embedded conversion options $-  $-  $455,336  $455,336 
Total $-  $-  $455,336  $455,336 
  Level 1  Level 2  Level 3  Total 
        (unaudited)    
As of December 31, 2020:                
                 
InnovaQor Series B Preferred Stock $-  $-  $-  $- 
Embedded conversion option of debenture  -  $-  $455,336  $455,336 
Total $-  $-  $455,336  $455,336 
                 
As of September 30, 2021:                
InnovaQor Series B Preferred Stock $-  $-  $9,016,072  $9,016,072 
Embedded conversion option of debenture  -   -   455,336   455,336 
Total $-  $-  $9,471,408  $9,471,408 

The fair value of the InnovaQor Series B Preferred Stock of $9.1 million as of September 30, 2021 is more fully discussed in Note 14.

The Company utilized the following methodsmethod to value its derivative liabilitiesliability as of September 30, 20202021 and December 31, 20192020 for an embedded conversion options that wereoption related to an outstanding convertible debenture valued at $455,336.$455,336. The Company determined the fair value by comparing the discounted conversion price per share (85%(85% of market price subject to a floor in certain cases)of the Company’ common stock) multiplied by the number of shares issuable at the balance sheet datedates to the actual price per share of the Company’s common stock multiplied by the number of shares issuable at that date with the difference in value recorded as a liability. There was 0 change in the value of the embedded conversion option in the three and nine months ended September 30, 2021 and 2020 as there was 0 change in the conversion price terms during the periods.

During the three and nine months ended September 30, 2021 and 2020, the conversions of preferred stock triggered a further reduction in the exercise prices of any debentures and 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 ignoring the down round provision, using Black Scholes. The following assumptions were utilized in the Black Scholes valuation models:models for the three months ended September 30, 2021: risk free rates ranging from 0.09%0.04% to 0.12%0.55%, volatility ranging from 134.3%25.0% to 208.2%574.0% and terms ranging from one day to three years. The following assumptions were utilized in the Black Scholes valuation models for the nine months ended September 30, 2021: risk free rates ranging from 0.04% to 0.55%, volatility ranging from 25.0% to 574.0% and terms ranging from one day to three years. The incremental fair value of $259.2 million $408.5 million was recorded as deemed dividends for the three and nine months ended September 30, 2021, respectively. The following assumptions were utilized in the Black Scholes valuation models for the three and nine months ended September 30, 2020: risk free rates ranging from 0.09% to 0.12%, volatility ranging from 134.3% to 208.2% and weighted average lives ranging from .25 to 1.49 years. The incremental value of $59.8 $59.8 million was recorded as deemed dividends in both the three and nine months ended September 30, 2020, respectively.

 

24

During

In addition, deemed dividends of $0.3 million were recorded in both the three and nine months ended September 30, 2021 as a result of the issuance of warrants to acquire 47.5 million shares of the Company’s common stock and deemed dividends of $0.3 million were recorded in both the three and nine months ended September 2021 as a result of the extension of warrants. These deemed dividends are more fully discussed in Note 11. Deemed dividends of $3.2 million were recorded in the nine months ended September 30, 2019,2020 as a result of the conversionsissuance of preferred stock triggered a further reductionthe Series M Preferred Stock as more fully discussed in Note 11 and deemed dividends of $3.7 million were recorded in the exercise prices of any debenturesthree and 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 was measured, ignoring the down round provision, using Black Scholes. The following assumptions were utilized in the Black Scholes valuation models: risk free rates ranging from 2.4% to 2.6%, volatility ranging from 189.5% to 273.1% and weighted average lives ranging from 0.3 to 3.2 years. The incremental value of $123.9 million was recorded as a deemed dividend for the nine months ended September 30, 2019.2020 as a result of the issuance of our Series N Preferred Stock as more fully discussed in Note 11. Deemed dividends are also discussed in Notes 1 and 3.

During the nine months ended September 30, 2019, the Company recorded interest expense of $9.5 million, which represented the fair value of the modification of warrants during the periods as more fully discussed in Note 13. The Company used the Black Scholes model to calculate the fair value of the warrants as of the modification dates. Using the pre-modification terms and related assumptions of risk free rates ranging from 2.44% to 2.46%, volatility ranging from 182.9% to 204.4% and weighted average remaining lives of .24 years to .36 years, and the post-modification terms and related assumptions of risk free rates ranging from 2.23% to 2.49%, volatility ranging from 198.3% to 259.4% and weighted average remaining lives ranging from .48 years to 2.89 years, the changes in the fair value of the warrant instruments as a result of the modifications were estimated.

Note 12 – Redeemable Preferred Stock

The Company has 5,000,000 authorized shares of Preferred Stock at a par value of $0.01. Issuances of the Company’s Preferred Stock included as part of stockholders’ deficit are discussed in Note 13. The following is a summary of the issuances of the Company’s Redeemable Preferred Stock.

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Series I-1 Convertible Preferred Stock and Series I-2 Convertible Preferred Stock

On October 30, 2017, the Company closed an offering of $4,960,000 stated value of 4,960 shares of Series I-1 Preferred Stock. Each share of Series I-1 Preferred Stock had a stated value of $1,000. The offering was pursuant to the terms of the Securities Purchase Agreement, dated as of October 30, 2017 (the “Purchase Agreement”), between the Company and certain existing institutional investors of the Company. The Company received proceeds of $4.0 million from the offering. Each share of Series I-1 Preferred Stock was convertible into shares of the Company’s common stock at any time at the option of the holder at a conversion price equal to 85% of the lesser of the volume weighted average market price of the common stock on the day prior to conversion or on the day of conversion. The conversion price was subject to “full ratchet” and other customary anti-dilution protections.

On October 30, 2017, the Company entered into Exchange Agreements with the holders of debentures that were issued in September 2017 (the “September Debentures”) to provide that the holders could, from time to time, exchange their September Debentures for shares of a Series I-2 Preferred Stock. The Exchange Agreements permitted the holders of the September Debentures to exchange specified principal amounts of the September Debentures on various closing dates starting on December 2, 2017 (debentures are more fully discussed in Note 8). At the holder’s option each holder could reduce the principal amount of September Debentures exchanged on any particular closing date, or elect not to exchange any September Debentures at all on a closing date. If a holder chose to exchange less principal amount of September Debentures or none at all, it could carry forward such lesser amount to a future closing date and then exchange more than the originally specified principal amount for that later closing date. For each $0.80 of principal amount of the debenture surrendered to the Company at any closing date, the Company would issue to the holder a share of Series I-2 Preferred Stock with a stated value of $1.00. From December 2, 2017 through March 1, 2018, any exchange under the Exchange Agreements was at the option of the holder. Subsequent to March 2018, any exchange was at the option of the Company. Each share of Series I-2 Preferred Stock was convertible into shares of the Company’s common stock at any time at the option of the holder at a conversion price equal to 85% of the lesser of the volume weighted average market price of the common stock on the day prior to conversion or on the day of conversion. The conversion price was subject to “full ratchet” and other customary anti-dilution protections.

The Company’s Board of Directors designated up to 21,346 shares of the 5,000,000 authorized shares of preferred stock as the Series I-2 Preferred Stock and the Company issued 3,907.67 shares of its Series I-2 Preferred Stock. Each share of Series I-2 Preferred Stock had a stated value of $1,000.

During the nine months ended September 30, 2020, the holder converted 236.30 shares of Series I-2 Preferred Stock into 313,000 shares of the Company’s common stock and during the nine months ended September 30, 2019, the holder converted 982.101 shares of Series I-2 Preferred Stock into 815,075 shares of the Company’s common stock.

On August 31, 2020, 6,257.62 shares of the Series I-1 and Series I-2 Preferred Stock were exchanged for the Company’s Series N Preferred Stock as more fully discussed below and in Note 8.

On August 31, 2020, the Company entered into the Exchange and Redemption Agreements with certain institutional investors in the Company wherein, the investors agreed to reduce their holdings of the Company’s debentures, which are more fully discussed in Note 8, by approximately $19.3 million (including accrued interest and penalties) by exchanging the debentures and all of the outstanding shares of the Company’s Series I-1 Preferred Stock and Series I-2 Preferred Stock for 30,435.52 shares of the Company’s Series N Preferred Stock. Mr. Diamantis is also a party to the Agreements as he continues to be a guarantor of a portion of the remaining debentures. The Exchange and Redemption Agreements are more fully discussed in Note 8. The Series N Preferred Stock is more fully discussed in Note 13.

Note 1311 – Stockholders’ Deficit

Authorized Capital

TheAs of September 30, 2021, the Company has had 10,000,000,000 authorized shares of Common Stockcommon stock at $0.0001$0.0001 par value and 5,000,000 authorized shares of Preferred Stock at a par value of $0.01.$0.01. Effective November 5, 2021, the Company increased its authorized shares of common stock to 50,000,000,000 as more fully discussed in Note 16. No change was made to the authorized shares of preferred stock.

Preferred Stock

The Company has 5,000,000shares, par value $0.01,$0.01, of preferred stock authorized. As of September 30, 2020,2021, the Company had outstanding shares of preferred stock consisting of 1,750,000 shares of its Series NF Convertible Preferred Stock, (which are more fully discussed in Note 12), 10 shares of its Series H Convertible Preferred Stock, (the “Series H Preferred Stock”), 1,750,000 shares of its Series F Convertible Preferred Stock (the “Series F Preferred Stock”), 250,000 shares of its Series L Convertible Preferred Stock 22,000(the “Series L Preferred Stock”), 20,810.35 shares of its Series M Preferred Stock, and 30,304 11,084 shares of its Series N Preferred Stock.

TheStock, and 5,500 shares of its Series O Convertible Redeemable Preferred Stock (the “Series O Preferred Stock”). As of September 30, 2021, the Series F Convertible Preferred Stock is convertible into 1share of the Company’s common stock and the Series H Convertible Preferred Stock has a stated value of $1,000 per share and is convertible into37 million shares of the Company’s common stock at a conversion price of 85% ofstock. The Series L Preferred Stock, the volume weighted average price ofSeries M Preferred Stock, the Company’s common stock atSeries N Preferred Stock and the time of conversion.

Series O Preferred Stock are more fully described below. In September 2017,addition, on November 7, 2021, the Company issued 1,750,000 shares of its Series FP Preferred Stock, valued at $174,097 in connection with the acquisition of Genomas Inc. Genomas Inc.which is included in the Company’s discontinued operations, which are discussedmore fully described in Note 17. As a result of the Reverse Stock Split, the maximum number of shares of common stock issuable upon the conversion of the 16.

Series FL Preferred Stock is one. Any shares of Series F Preferred Stock outstanding on the fifth anniversary of the issuance date will be mandatorily converted into common stock at the applicable conversion price on such date. The Series F Preferred Stock has voting rights. Each share of Series F Preferred Stock has one vote, and the holders of the Series F Preferred Stock shall vote together with the holders of the Company’s common stock as a single class.

On December 23, 2019, the Company entered into an Exchange Agreement (the “Agreement”) with Alcimede LLC (“Alcimede”), of which Seamus Lagan, our Chief Executive Officer, is the sole manager as previously stated. Pursuant to the Agreement, the Company issued to Alcimede 250,000 shares of its Series K Convertible Preferred Stock (the “Series K Preferred Stock”) in exchange for the 250,000 shares of the Company’s Series J Convertible Preferred Stock (the “Series J Preferred Stock”) held by Alcimede. The holder of the Series J Preferred Stock was entitled to receive, when and as declared by the Board of Directors of the Company, but only out of funds that were legally available therefor, cumulative cash dividends at the rate of 8% of the stated value per annum on each share of Series J Preferred Stock. The Series J Preferred Stock had been issued to Alcimede on July 23, 2018 and upon the issuance of the Series K Preferred Stock to Alcimede, the shares of Series J Preferred Stock were cancelled. Under the Agreement, Alcimede relinquished all rights to any cumulative dividends on the Series J Preferred Stock. The terms of the Series K Preferred Stock did not provide for cumulative dividends.

On May 4, 2020, the Company filed a Certificate of Designation with the Secretary of State of the State of Delaware to authorize the issuance of up to 250,000 shares of its Series L Preferred Stock. On May 5, 2020, the Company entered into an exchange agreement with Alcimede. Pursuant to the exchange agreement, the Company issued to Alcimede 250,000 shares of its Series L Preferred Stock in exchange for the 250,000 shares of the Company’s Series K Preferred Stock held by Alcimede. Upon the issuance of the Series L Preferred Stock to Alcimede, the shares of Series K Preferred Stock were cancelled. The Series L Preferred Stock is not convertible into common stock prior to December 1, 2020 and is not entitled to receive any dividends. Each share of the Series L Preferred Stock is convertible into shares of the Company’s common stock at a conversion price equal to the average closing price of the Company’s common stock on the ten trading days immediately prior to the conversion date.

Series M Convertible Preferred Stock Exchanged for Loans from Mr. Diamantis

On June 9, 2020, the Company filed a certificateThe Company’s Board of designation to authorize Directors has designated 30,000 shares of itsthe 5,000,000 shares of authorized preferred stock as the Series M Preferred Stock. Each share of Series M Preferred Stock withhas a stated value of $1,000 per share.$1,000. 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 $18.8$18.8 million, including accrued interest, on that date in exchange for 22,000 shares of the Company’s Series M Preferred Stock with a par value of $0.01$0.01 per share. As a result of the exchange, the Company recorded a deemed dividend of approximately $3.2 million in the nine months ended September 30, 2020, which represented the difference between the $18.8$18.8 million of debt and accrued interest exchanged and the value of the Series M Preferred Stock of $22.0$22.0 million. See Note 76 for a discussion of the Company’s formercurrent indebtedness to Mr. Diamantis.

The terms of the Series M Preferred Stock were set forth in the Company’s Current Report on Form 8-K filed with the SEC on June 16, 2020. In particular: (i) each holder

On August 27, 2021, the Company entered into an exchange agreement with Mr. Diamantis. Pursuant to the exchange agreement, Mr. Diamantis exchanged 570 shares of thehis Series M Preferred Stock shall be entitledfor 95,000,000 shares of common stock and warrants to vote on all matters submitted to a vote of the holderspurchase 47.5 million shares of the Company’s common stock. Regardlessstock at an exercise price of $.007 per share. The warrants have a three-year term and, as of September 30, 2021, are exercisable into 1.2 billion shares of the numberCompany’s common stock at an exercise price of shares$0.00027 per share as a result of Series M Preferred Stock outstanding and so long as at least one share of Series M Preferred Stock is outstanding,down-round provision features. The Company recorded 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. Each outstanding shareinitial fair value of the Series M Preferred Stock shall represent its proportionate sharewarrants as deemed dividends of $0.3 million during the 51% allocated tothree and nine months ended September 30, 2021. The initial fair value was calculated using the outstanding sharesBlack Scholes valuation model using the following assumptions: risk free rate of Series M Preferred Stock in the aggregate. The Series M Preferred Stock shall vote with the common stock0.41%, volatility of 364% and any other voting securities as if they were a single classterm of securities; (ii) eachthree years.

25

Each share of the Series M Preferred Stock is convertible into shares of the Company’s common stock at a conversion price equal to 90% of the average closing price of the Company’s common stock on the ten trading days immediately prior to the conversion date but in any event not less than the par value of the Company’s common stock; and (iii) dividends atstock. During the rate per annumnine months ended September 30, 2021, Mr. Diamantis converted a total of ten percent (10%)610.65 shares of the stated value per share shall accrue on each outstanding share ofhis Series M Preferred Stock from and after the datewith a stated value of $0.6 million into 450,000 shares of the original issuanceCompany’s common stock and, as discussed above, he exchanged 570 shares of such share ofhis Series M Preferred Stock, (subject to appropriate adjustment in the eventwith a stated value of any stock dividend, stock split, combination or other similar recapitalization). The dividends shall accrue from day to day, whether or not declared, and shall be cumulative and non-compounding; provided, however, that such dividend shall be payable only when, as, and if declared by the Board$0.6 million, into 95,000,000 shares of Directors and the Company shall be under no obligation to pay such dividends. No cash dividends shall be paid on the Company’s common stock unless the dividends are paid on the Series M Preferred Stock.stock.

On August 13, 2020, Mr. Diamantis entered into a Voting Agreement and Irrevocable Proxy with the Company, Mr. Lagan and Alcimede LLC (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 Convertible Preferred Stock Exchanged for Series I-1 and Series I-2 Preferred Stock and Debentures

On August 31, 2020, the Company filed a certificate of designation to authorize 50,000 shares of its newly-authorized Series N Preferred Stock with a stated value of $1,000 per share.

On August 31, 2020, the Company and its debenture holders exchanged, under the terms of the Exchange, Redemption and Forbearance Agreements (the “Exchange and Redemption Agreements,Agreements”), 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 30,435.52 30,435,52 shares of the Company’s Series N Preferred Stock. The Exchange and Redemption Agreements are more fully discussed in Notes 8 and 12.

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 three and nine months ended September 30, 2020, In particular:as a result of the Exchange and Redemption Agreements, the Company recorded: (i) a $0.4 million gain on the extinguishment of debt, which included the potential exchange premium of $1.65 million, and a $0.3 million fair value adjustment to the debenture principal, partially offset by the reduction in interest expense of $2.3 million; and (ii) deemed dividends of $3.7 million as a result of the exchange of the debentures and Series I-1 Preferred Stock and Series I-2 Preferred Stock for shares of the Series N Preferred Stock.

During the nine months ended September 30, 2021, the holders converted 18,350.1 shares of their Series N Preferred Stock, with a stated value of $18.4 million, into 4.7 billion shares of the Company’s common stock. During the nine months ended September 30, 2020, the holders converted 131 shares of their Series N Preferred Stock, with a stated value of $0.1 million, into 589 shares of the Company’s common stock.

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 provided for the issuance of up to 4,400 shares of Series O Preferred Stock at four closings of 1,100 shares each. The four closings occurred on May 10, 2021, May 18, 2021, July 12, 2021 and August 10, 2021.

The Company entered into a second Securities Purchase Agreement (the “Second Purchase Agreement”), dated as of September 7, 2021, between the Company and the existing institutional investors of the Company. The Second Purchase Agreement provided for the issuance of up to 1,100 shares of the Series O Preferred Stock at two closings of 550 shares each. The two closings under the Second Purchase Agreement occurred on September 7, 2021 and September 30, 2021.

As a result, as of September 30, 3021, the Company has issued 5,500 shares of its Series O Preferred Stock and it received proceeds of $5.0 million, $2.5 million of which was received in the three months ended June 30, 2021 and $2.5 million of which was received in the three months ended September 30, 2021.

On October 28, 2021, the Company entered into the Securities Purchase Agreement, dated as of October 28, 2021 (the “October 28 Agreement”), among the Company and certain existing institutional investors of the Company. The October 28 Agreement provides for the issuance of up to 4,400 shares of the Company’s Series O Preferred Stock at two closings of 2,200 shares each as more fully discussed in Note 16.

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.

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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 10,000 shares of the 5,000,000 authorized shares of preferred stock as the Series O Preferred Stock. Each share of the Series O Preferred Stock has a stated value of $1,000.

Voting Rights. Except as provided below or by law, the Series NO Preferred Stock shall have no voting rights. However, as long as any shares of Series NO 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 NO Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series NO 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 NO Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.

Dividends. Dividends at the rate per annum of 10% of the stated value per share shall accrue on each outstanding share of Series NO Preferred Stock from and after the date of the original issuance of such share of Series NO Preferred Stock (the “Preferred“Series O Preferred Accruing Dividends”). The Series O Preferred Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative and non-compounding; provided, however, that such Series O Preferred Accruing Dividends shall be payable only when, as, and if declared by the Board of Directors. No cash dividends shall be paid on the common stock unless the Series O Preferred Accruing Dividends are paid.

Rank. The Series NO 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 MN 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 NO Preferred Stock.

Conversion. Each share of the Series NO 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 NO Preferred Stock, plus any accrued declared and unpaid dividends, by the conversion price. The conversion price is equal to 90% of the lowest VWAP during the 10 trading days immediately prior to the conversion date. Holders of the Series NO Preferred Stock are prohibited from converting Series NO Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% (or, upon election of the holder, 9.99%) of the total number of shares of common stock then issued and outstanding. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after notice to the Company.

Liquidation Preference. Upon any liquidation, dissolution or winding up of the Company, the holders of the Series NO Preferred Stock shall be entitled to receive an amount equal to the stated value of the Series NO 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 NO 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 NO Preferred Stock then outstanding. The Series NO 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 NO Preferred Stock being redeemed plus all accrued declared and unpaid dividends.

During the nine months ended September 30, 2020, the holder converted 131

Common Stock

The Company had 4,777,350,000 and 39,648 shares of its Series N Preferred Stock into 589,500 shares of the Company’s common stock.

Common Stock

The Company has authorized 10,000,000,000 shares of Common Stock, par value $.0001 per share.

The Company had 1,866,929 and 964,894 shares of common stock issued and outstanding at September 30, 20202021 and December 31, 2019,2020, respectively. During the nine months ended September 30, 2021, the Company issued 450,000 shares of its common stock upon the conversion of 619.65 shares of its Series M Preferred Stock, 95,000,000 shares of its common stock upon the exchange of 570 shares of its Series M Preferred Stock and 4.7 billion shares of its common stock upon the conversions of 18,355.5 shares of its Series N Preferred Stock. During the nine months ended September 30, 2020, the Company issued 313,000313 shares of its common stock upon the conversion of 236.3 shares of its Series I-2 Preferred Stock and 589,500589 shares of its common stock upon the conversion of 131 shares of its Series N Preferred Stock.

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Stockholder Proposal Approval and Reverse Stock Split

On May 7, 2020, Mr. Lagan and Alcimede LLC, the holders of 50.25% of the total voting power of the Company’s voting securities, approved by written consent in lieu of a special meeting of stockholders the following proposal, which had previously been approved and recommended to be approved by the stockholders by the Board of Directors of the Company.

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

The stockholder approval of the above proposal became effective on June 9, 2020. As more fully discussed in Note 1, the Company effected the Reverse Stock Split on July 31, 2020. The Reverse Stock Split did not have an effect on the par value or the number of authorized shares of the Company’s common stock.

Common Stock Equivalents

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 ourthe Company’s common stock and a decline in itsthe market price.price of the common stock. In addition, the terms of certain of the warrants, convertible preferred stock and convertible debentures issued by usthe 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 we issuethe 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 ourthe Company’s common stock and have given rise to reverse splits of ourits common stock.stock, including the Reverse Stock Splits, which are 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 November 10, 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.

Effective November 5, 2021, the Company increased its authorized shares of common stock to 50,000,000,000 as more fully discussed in Note 16.

Stock Options

The Company maintained and sponsored the Tegal Corporation 2007 Incentive Award Equity Plan (the “2007 Equity Plan”). Tegal Corporation wasis 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 a result of the Reverse Stock Split, the total number of outstanding stock options at September 30, 2020 was 26 and the exercise price was so high as to not be meaningful. All outstanding stock options as of September 30, 2021, 26 options were outstanding and exercisable with a weighted average exercise price of $2,992,125 per share. No options were issued, forfeited or expired during the nine months ended September 30, 2021. The remaining weighted average contractual term is 4.62 years. The intrinsic value of the options exercisable at each of September 30, 2021 and December 31, 2020 was $0. No compensation expense was recorded in the three and nine months ended September 30, 2021 and 2020 as all of the options were fully vested as of December 31, 2019 and, accordingly, the Company did not incur stock option compensation expense during the nine months ended September 30, 2020. The Company recognized stock option compensation expense of $25,950 for the nine months ended September 30, 2019. As of September 30, 2020, the weighted average remaining contractual life was 5.6 years for options outstanding and exercisable. The intrinsic value of options exercisable at September 30, 2020 was $0.

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Warrants

The Company, as part of various debt and equity financing transactions, has issued warrants to purchase shares of the Company’s common stock.

Atstock exercisable into a total of 182.7 billion shares at September 30, 2020, there were 335.4 million warrants outstanding primarily2021. During the nine months ended September 30, 2021, as a result of the anti-dilution provisions of outstanding warrants, thatthe exercise prices of certain warrants decreased and they became exercisable into an additional 182.7 billion shares of the Company’s common stock. Certain of these warrants were issued in connection with the issuances of debentures, whichthe debentures. Debentures are more fully discussed in Note 8. 7.

Included in the warrants outstanding at September 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 September 30, 2021, these warrants were exercisable into an aggregate of approximately 177.8 billion shares of the Company’s common stock. The March Warrants were issued to the investors in three tranches, Series A Warrants, Series B Warrants and Series C Warrants. At September 30, 2021, the Series A Warrants were exercisable for 66.5 billion shares of the Company’s common stock. They were exercisable upon issuance and have a term of exercise equal to five years. At September 30, 2021, the Series B Warrants were exercisable for 42.6 billion shares of the Company’s common stock and are exercisable until March 31, 2022. At September 30, 2021, the Series C Warrants were exercisable for 68.7 billion shares of the Company’s common stock and have a term of five yearsprovided such warrants shall only vest if, when and to the extent that the holders exercise the Series B Warrants. On November 7, 2021, the expiration dates of the March Warrants were extended to March 21, 2024, as more fully discussed in Note 16. At September 30, 2021, the Series A, Series B and Series C Warrants each have an exercise price of $0.00027 per share, which reflects adjustments pursuant to their terms. The March Warrants are subject to “full ratchet” and other customary anti-dilution protections. During the three and nine months ended September 30, 2021 and 2020, reductions in the exercise prices of the March Warrants have given rise to deemed dividends. Deemed dividends are also discussed below and in Notes 1, 3 and 10.

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The Company extended certain common stock warrants during the three and nine months ended September 30, 2021, and as a result of the extension, deemed dividends of $0.3 million were recorded during the three and nine months ended September 30, 2021. The initial fair value was calculated using the Black Scholes valuation model using the following assumptions: risk free rate of 0.05%, volatility of 230% and a term of six months.

The number of shares of common stock issuable under 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 current exercise prices forfull ratchet provisions of the majority of the outstanding warrants (subject to a floor in some cases), as well as the full ratchet provisions of the majority of the outstanding warrants (again, subject to a floor in some cases), subsequent decreases in the price of the Company’s common stock and subsequent issuances of the Company’s common stock or common stock equivalents at prices below the then current exercise prices of the warrants will resulthave resulted in (1) increases in the number of shares issuable pursuant to the warrants and (2) decreases in the exercise prices of the warrants.

The following summarizes the information related to warrants issued and the activitynumber of shares of common stock issuable under outstanding warrants during the nine months ended September 30, 2020:2021:

Schedule of Warrants Activity 

  Number of warrants  Weighted average exercise price 
Balance at December 31, 2019  63,458,546  $1.44 
Increase during the period as a result of down round provisions  271,987,673     
Warrants expired  (1) $(3,150.00)
Balance at September 30, 2020  335,446,218  $0.27 
  

Number of

Shares of

Common Stock

Issuable for

Warrants

  

Weighted

average exercise price

 
Balance at December 31, 2020  4,571,165  $19.99 
Issuance of warrants  47,500,000   0.007 
Expiration of warrants  (44,078,213)  (0.3110)
Increase in number of shares of common stock issuable under warrants during the period as a result of down round provisions  182,655,951,726   - 
Balance at September 30, 2021  182,663,835,038  $0.00043 

On March 27, 2019, the expiration dates of certainThe 47.5 million warrants issued in March 2017 and September 2017 with convertible debentures, referred to as the March 2017 Series B Warrants and the September 2017 Series B Warrants, were extended from June 2019 to September 2019. On May 12, 2019, the expiration date of these warrants was further extended to March 31, 2022. The Company used the Black Scholes model to calculate the fair value of the warrants as of each modification date. Using the pre-modification terms and related assumptions, and the post-modification terms and related assumptions, the Company determined that the change in fair value of the warrants as a result of the March 27th modification was $4.1 million and the May 12th modification was $5.4 million. Accordingly, the Company recorded the modification value of $9.5 million as interest expense induring the nine months ended September 30, 2019.2021 were issued pursuant to an exchange agreement with the holder of the Series M Preferred Stock as more fully discussed above under the heading, “Series M Preferred Stock.” See Note 11above and Notes 1, 3, 10 and 16 for a discussion of the assumptions used indilutive effect on the Black Scholes valuation models.Company’s common stock as a result of the outstanding warrants.

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Note 1412 – Supplemental Disclosure of Cash Flow Information

Schedule of Supplemental Disclosure of Cash Flow Information 

  2021  2020 
  

Nine Months Ended

September 30,

 
  2021  2020 
Cash paid for interest $-  $64,454 
Cash paid for income taxes $

281,025

  $- 
         
Non-cash investing and financing activities:        
Preferred stock of InnovaQor received from the sale of HTS and AMSG $9,117,500  $- 
Net liabilities of HTS and AMSG transferred to InnovaQor  2,227,152   - 
Settlement of liability with InnovaQor preferred stock  60,714   - 
Issuance of notes payable in settlement of accounts payable and accrued expenses  2,352,961   - 
Series I-2 Preferred Stock converted into common stock  -   277,994 
Exchange of Series K Preferred Stock for Series L Preferred Stock  -   (2,500)
Issuance of Series L Preferred Stock  -   2,500 
Issuance of Series M Preferred Stock in exchange for related party loans and accrued interest  -   22,000,000 
Loans and accrued interest exchanged for Series M Preferred Stock  -   (18,849,632)
Deemed dividend from exchange of loans and accrued interest for Series M Preferred Stock  -   3,150,368 
Series M Preferred Stock converted/exchanged into common stock  1,189,650   - 
Deemed dividends from issuance of common stock warrants under exchange agreement  341,525   - 
Issuance of Series N Preferred Stock in exchange for debentures, accrued interest and Series I-1 and Series I-2 Preferred Stock  -   30,435,519 
Debentures, accrued interest and Series I-1 and Series I-2 Preferred Stock exchanged for Series N Preferred Stock  -   (19,342,322)
Series N Preferred Stock converted into common stock  18,355,507   58 
Deemed dividends from the issuance of Series N Preferred Stock  -   3,720,718 
Deemed dividends for trigger of down round provisions  408,509,361   59,824,232 
Deemed dividends from extension of common stock warrants  291,592   - 
Original issue discounts on debt  52,836   108,958 

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  Nine Months Ended September 30, 
  2020  2019 
Cash paid for interest $64,454  $- 
Cash paid for income taxes $-  $45,000 
         
Acquisition of Jellico Community Hospital and CarePlus Center:        
Inventory $-  $317,427 
Property and equipment  -   500,000 
Intangible assets  -   250,000 
Accrued expenses  -   158,890 
         
Non-cash investing and financing activities:        
Series I-2 Preferred Stock converted into common stock $277,994  $1,143,973 
Issuance of Series M Preferred Stock in exchange for related party loans and accrued interest  22,000,000   - 
Loans and accrued interest exchanged for Series M Preferred Stock  (18,849,632)  - 
Issuance of Series N Preferred Stock in exchange for debentures, accrued interest and Series I-1 and Series I-2 Preferred Stock  30,435,519   - 
Debentures, accrued interest and Series I-1 and Series I-2 Preferred Stock exchanged for Series N Preferred Stock  (19,342,322)  - 
Series N Preferred Stock converted into common stock  58   - 
Deemed dividends  66,695,318   123,861,587 
Exchange of Series K Preferred Stock for Series L Preferred Stock  (2,500)  - 
Issuance of Series L Preferred Stock  2,500   - 
Original issue discounts on debt  108,958   100,000 

Note 1513 – Commitments and Contingencies

Concentration of Credit Risk

Credit risk with respect to accounts receivable is generally diversified due to the large number of patients comprising the client base. Generally, theaccounts 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 (CMS) 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, (CMS), which could have a material adverse effect on the Company. The Company is unable to predict, however, the extent to which such actions will be taken.

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

Legal Matters

From time-to-time,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 was dismissed on June 22, 2020; the Company’s caseThe suit remains in the early stages.

The Company’s Epinex Diagnostics Laboratories, Inc. subsidiary was sued in a California state court by two former employees who alleged that they were wrongfully terminated, as well as for a variety of unpaid wage claims. The parties entered into a settlement agreement of this matter on July 29, 2016 for approximately $0.2 million, and the settlement was consummated on August 25, 2016. In October of 2016, the plaintiffs in this matter filed a motion with the court seeking payment for attorneys’ fees in the approximate amount of $0.7 million. On March 24, 2017, the court granted plaintiffs’ motion for payment of attorneys’ fees in the amount of $0.3 million, andongoing but because the Company accrued this amount in its consolidateddid not have the financial statements.

In February 2016,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 received notice thatand assumption of all costs to carry the Internal Revenue Service (the “IRS”) placed a lien against Medytox Solutions, Inc. and its subsidiaries relatingcost to unpaid 2014 taxes due, plus penalties and interest, in the amount of $5.0 million. The Company paid $0.1 million toward its 2014 tax liability in March 2016. The Company filed its 2015 Federal tax return on March 15, 2016 and the accompanying election to carryback the reported net operating losses was filed in April 2016. On August 24, 2016, the lien was released, and in September of 2016 the Company received a refund from the IRS in the amount of $1.9 million. conclusion.

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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 $1.0$1.0 million as a liability and $0.6approximately $0.9 million as a receivable in its financial statements. The Company receivedstatements for the $0.6 million refund receivable duringyear ended December 31, 2018. During the three and nine months ended September 30, 2020. The $1.0 million liability is still outstanding. The Company is also duefirst quarter of 2020, the U.S. Congress approved the CARES Act, which allows a refund as a result of the five-year carryback privilege for federal net operating tax losses perthat arose in a tax year beginning in 2018 and through 2020. As a result, during the nine months ended September 30, 2020, the Company recorded approximately $1.1 million in refunds from the carryback of certain of its federal net operating losses. During the nine months ended September 30, 2021, the Company received income tax refunds of $0.3 million, which represented income tax refunds associated with the CARES Act, which is more fully discussedAct. No refunds were received during the nine months ended September 30, 2020. The Company used the $0.3 million of refunds that it received in Note 4.the nine months ended September 30, 2021 to repay a portion of the amount that it owes for federal income tax liabilities that arose from the 2015 federal income tax audit. As of September 30, 2021, the Company had federal income tax receivables of $1.1 million and federal income tax liabilities of $0.8 million.

On September 27, 2016, a tax warrant was issued against the Company by the Florida Department of Revenue (the “DOR”) for unpaid 2014 state income taxes in the approximate amount of $0.9$0.9 million, including penalties and interest. The Company entered into a Stipulation Agreement with the DOR allowing the Company to make monthly installments until July 2019. The Company has made payments to reduce the amount owed. The Company intends to renegotiate another Stipulationstipulation agreement. However, there can be no assurance the Company will be successful. The balance accrued of approximately $0.4$0.4 million remained outstanding to the DOR at September 30, 2020.2021.

In December of 2016, TCS-Florida, L.P. (“Tetra”), filed suit against the Company for failure to make the required payment under an equipment leasing contract that the Company had with Tetra and received a judgment against the Company. In May 2018, Tetra and the Company agreed to dispose of certain equipment and the proceeds from the sale were applied to the outstanding balance. In July 2020, the Company entered into a settlement with Tetra and paid $100,000 as full and final settlement of all liability to Tetra. As a result of the settlement, the Company recorded a gain on settlement of approximately $0.9 million in the nine months ended September 30, 2020.

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 10)9). On January 24, 2017, DeLage received a default judgment against the Company in the approximate amount of $1.0$1.0 million, representing the balance owed on the lease, as well as additional interest, penalties and fees. The Company recognized this amount in its consolidated financial statements as of December 31, 2016. On February 8, 2017, a Stay of Execution was filed and under its terms the balance due was to be paid in variable monthly installments through January of 2019, with an implicit interest rate of 4.97%. The Company and DeLage have now disposed of certain equipment and reduced the balance owed to DeLage. A balance of approximately $0.2$0.2 million remained outstanding at September 30, 2020.2021.

On December 7, 2016, the holders of the Tegal Notes (see Note 7)6) filed suit against the Company seeking payment for the amounts due under the notes in the aggregate of the principal of $341,612,$341,612, and accrued interest of $43,000.$43,000. A request for entry of default judgment was filed on January 24, 2017. On April 23, 2018, the holders of the Tegal Notes received a judgment against the Company. As of September 30, 2020,2021, the Company has repaid $44,544$50,055 of the principal amount of these notes.

Two former employees of the Company’s CollabRx, Inc. subsidiary filed suits in a California state court in connection with amounts claimed to be owed under their respective employment agreements with the subsidiary. One former employee received a judgment in October 2018 for approximately $253,000. The other former employee received a judgment in December 2018 for approximately $173,000. While the Company has accrued these amounts claimed, it is considering its options to refute these matters and believes the claims against the Company to be frivolous and outside of entitlement and contractual agreements.

The Company, as well as many of ourits subsidiaries, arewere defendants in a case filed in Broward County Circuit Court by TCA Global Credit Master Fund, L.P. The plaintiff allegesalleged a breach by Medytox Solutions, Inc. of its obligations under a debenture and claimsclaimed damages of approximately $2,030,000 $2,030,000 plus interest, costs and fees. The Company and the other subsidiaries arewere sued as alleged guarantors of the debenture. The complaint was filed on August 1, 2018. The Company has recorded the principal balance and interest owed under the debenture agreement for the period ended September 30, 2020 (see Note 7). The Company and all defendants have filed a motion to dismiss the complaint, but have not recorded any potential liability related to any further damages. In May 2020, the SEC appointed a Receiver to close down the TCA Global Credit Master Fund, LP over allegationsL.P. The Company and TCA entered into a settlement agreement dated effective as of accounting fraud. The amount recorded bySeptember 30, 2021, under which the Company agreed to pay TCA $500,000 as being owed to TCA was based on TCA’s application of prior payments made by the Company. The Company believes that prior paymentsfull and final settlement of principal and interest, may have been applied to unenforceable investment bankingof which $200,000 was paid on November 4, 2021 and other feesthe remaining $300,000 is due in six consecutive monthly installments of $50,000 payable on or before the fifth day of each month beginning December 2021. As a result of the settlement, the Company recorded a gain from legal settlement of $2.2 million in the three and charges. It is the Company’s position that the amount owed to TCA is less than what is set forth in Note 7 above.nine months ended September 30, 2021.

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 $155,000.$155,000. The Company has recorded the amount owed as a liability as of September 30, 2020.2021.

In July 2019, Roche Diagnostics Corporation sued EPIC Reference Labs, Inc. in the Circuit Court for Palm Beach County claiming approximately $240,000 under an agreement to lease equipment and purchase supplies. The amount of the settlement in this case of $110,000 was accrued in 2019 and paid in full during the nine months ended September 30, 2020.

In August 2019, EPIC Reference Labs, Inc., Medytox Diagnostics, Inc. and Medytox Solutions, Inc. were sued by Beckman Coulter, Inc. in the same court under an agreement to purchase laboratory supplies. The plaintiff claims damages of approximately $124,000. The Company has disputed the amount owed, and has entered settlement discussions to settle the matter, but has recorded this liability as of September 30, 2020.

In July 2019, the landlord of Medytox Solutions, Inc. received a judgment in the amount of approximately $413,000 in connection with failure to pay under an office lease in West Palm Beach, Florida. The Company reached a settlement in May 2020 to resolve the judgment in the amount of $300,000, which is being paid under a payment plan.

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 $2.0$2.0 million relating to the promissory note issued by the Company in September 2019. In May 2020, the parties entered into a Stipulation providing for a payment of a total of $2,158,168$2,158,168 (which includes accrued interest) in installments through November 1, 2020.2020 (See Note 7)6). As of September 30, 2021, the Company has not made the majority of the required payments and, as a result, approximately $1.5 million of principal and $0.7 million of penalty interest, which accrues at a rate of 20% per annum, are due and owing.

31

 

In February 2021, a supplier to the Company’s hospitals, Shared Medical Services, Inc., filed suit in Palm Beach County Circuit Court for approximately $90,000 by virtue of default and for breach of contract and charges totaling approximately another $100,000. On September 30, 2021, the parties agreed to settle this case for $50,000 payable in installments through February 2022.

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 taken stepsaccrued the amounts that it expects to re-enterowe in its financial statements. The Company plans to reopen the Medicare program and is currently planning thehospital upon securing adequate capital to do so. The reopening of the hospital. Plans and timingplans have also been disrupted by the current pandemic.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 2022.

Two former employees of Jamestown Regional Medical Center have filed suit alleging violations of the federal Worker Adjustment and Retraining Notification Act (“WARN”). This case isThe 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 settlement agreement dated May 14, 2021. Pursuant to the terms of this agreement, the Company was required to pay a sum of $425,000 , which was paid in the early stages.full in October 2021.

In June 2019, CHSPSC, the former owners of Jamestown Regional Medical Center, obtained a judgment against the Company in the amount of $592,650.$592,650. The Company has recorded $130,000 of this judgment as a liability as of September 30, 2021, as management believes that a number of insurance payments were made to CHSPCSCHSPSC after the change of ownership and will likely offset the majority of the claim made by CHSPCS.CHSPSC.

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 $194,455$194,455 in connection with housekeeping and dietary services. The Company has recorded this liability as of September 30, 2020.2021.

In November 2019, Newstat, PLLC obtained a judgment against Big South Fork Medical Center in Knox County, Tennessee in the amount of $190,600$190,600 in connection with the provision of medical services. The Company has recorded this liability as of September 30, 2020.2021.

32

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 is obligated to pay a total of $109,739, payable in a lump sum payment of $32,922 on or before August 15, 2021 and in 24 consecutive monthly payments of $3,201 each on or before the 15th day of each month beginning September 15, 2021. The Company has made the required payments due during the three months ended September 30, 2021 and has accrued the remaining obligation owed as of September 30, 2021.

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. On September 14, 2021, the Company entered into separate stipulation of settlement agreements with the three funding parties under which the Company agreed to repay an aggregate of $0.9 million in equal monthly payments totaling $52,941 through January 1, 2023.

Note 1614 – Discontinued Operations

On July 12,Sale of HTS and AMSG

In 2017, the Company announced plans to spin off AMSGor sell its wholly-owned subsidiaries, HTS and in the third quarter 2017 our Board of Directors voted unanimously to spin off the Company’s wholly-owned subsidiary, HTS, as independent publicly traded companies by way of tax-free distributions to the Company’s stockholders.AMSG. On June 10, 2020,25, 2021, the Company signed an agreement forsold the separationshares of these divisions into a public company. The agreement is with TPT Global Tech, Inc. (OTC: TPTW), a California-based public company, to mergestock of HTS and AMSG into a public company after TPT completes a mergerto InnovaQor. HTS and AMSG held Rennova’s software and genetic testing interpretation divisions. In consideration for the shares of HTS and AMSG and the elimination of intercompany debt among the Company and HTS and AMSG, InnovaQor issued the Company 14,950 shares of its wholly-owned subsidiary, InnovaQor, Inc. with this public company. The public company will be known as InnovaQor going forward. CompletionSeries B Non-Voting Convertible Preferred Stock (the “InnovaQor Series B Preferred Stock”), 14,000 of the agreementshares were issued on June 25, 2021 and 950 of the shares were issued in the three months ended September 30, 2021 as a result of a post-closing adjustment. Each share of InnovaQor Series B Preferred Stock has a stated value of $1,000 and is convertible into that number of shares of InnovaQor common stock equal to the stated value divided by 90% of the average closing price of the InnovaQor common stock during the 10 trading days immediately prior to the conversion date. Conversion of the InnovaQor Series B Preferred Stock, however, is subject to a numberthe limitation that no conversion can be made to the extent the holder’s beneficial interest (as defined pursuant to the terms of approvals and consents which need to be secured to complete the transaction. Subject to closing and the relevant SEC approvals it is intended that Rennova will receive approximately $22 million of preferred sharesInnovaQor Series B Preferred Stock) in the transaction, $5 millioncommon stock of which will be converted to commonInnovaQor would exceed 4.99%. The shares in the public company, and distributed to Rennova shareholders upon completion of the relevant registration/approvals withInnovaQor Series B Preferred Stock may be redeemed by InnovaQor upon payment of the SEC. The remaining approximately $17 millionstated value of preferredthe shares held by Rennova as an investment in InnovaQor will be convertible to common shares on achievementplus any accrued declared and unpaid dividends.

32

As a result of certain milestones going forward. There can be no assurance that the transaction as described will be consummated or that terms including numbers or values for consideration shares will not change significantly before closing. In accordance with ASC 205-20 and having met the criteria for “held for sale, the Company has reflected amounts relating to AMSG and HTS (referred to below asrecorded the AMSG & HTS Group)InnovaQor Series B Preferred Stock as a disposal group classifiedlong-term asset valued at $9.1 million at September 30, 2021 and a gain on the sale of HTS and AMSG of $0.6 million in the three months ended September 30, 2021, which resulted from the value of the 950 shares of InnovaQor Series B Preferred Stock received as helda result of a post-closing adjustment, and a gain on the sale of HTS and AMSG of $11.3 million in the nine months ended September 30, 2021, of which $9.1 million resulted from the value of the InnovaQor Series B Preferred Stock and $2.2 million resulted from the transfer to InnovaQor of the net liabilities of HTS and AMSG. A discussion of the assumptions used in the valuation of the InnovaQor Series B Preferred Stock is presented below. During the three and nine months ended September 30, 2021, 100 shares of InnovaQor Series B Preferred Stock valued at $60,714 were used to settle accrued interest that was due under the terms of notes payable dated January 31, 2021 and February 16, 2021. The notes payable are more fully discussed in Note 6.

See Note 8 for salea discussion of related party transactions between the Company and included as part of discontinued operations.InnovaQor.

EPIC Reference Labs, Inc.

During the three months ended September 30, 2020, the Company announced that it had reached an agreementmade 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 classified as held for sale and included in discontinued operations for all periods presented. The Company has been unable to find a buyer for EPIC Reference Labs, Inc. and, therefore, it has ceased all efforts to sell the company and closed down its operations.

Carrying amounts of major classes of assets and liabilities classified as held for sale andsold or included as part of discontinued operations in the condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020 consisted of the following:

Schedule of Discontinued Operation of Balance Sheet and Operation Statement 

 

AMSG & HTS Groupand AMSG Assets and Liabilities:

  

September 30,

2021

  

December 31,

2020

 
  (unaudited)    
Cash $       -  $31,294 
Accounts receivable, net  -   151,363 
Prepaid expenses and other current assets  -   1,717 
Current assets classified as held for sale $-  $184,374 
         
Property and equipment, net $-  $685 
Deposits  -   - 
Right-of-use assets  -   - 
Non-current assets classified as held for sale $-  $685 
         
Accounts payable and checks issued in excess of bank balance $-  $726,220 
Accrued expenses  -   1,308,283 
Current portion of right-of-use operating lease obligation  -   - 
Current portion of notes payable  -   168,751 
Current liabilities classified as held for sale $-  $2,203,254 
         
Note payable $-  $69,267 
Right-of-use operating lease obligation  -   - 
Non-current liabilities classified as held for sale $-  $69,267 

33

 

  September 30, 2020  December 31, 2019 
  (unaudited)    
Cash $9,066  $17,767 
Accounts receivable, net  174,641   482,472 
Prepaid expenses and other current assets  2,575   5,150 
Current assets classified as held for sale $186,282  $505,389 
         
Property and equipment, net $1,168  $3,354 
Deposits  -   6,029 
Right-of-use assets  -   - 
Non-current assets classified as held for sale $1,168  $9,383 
         
Accounts payable $946,161  $1,160,101 
Accrued expenses  1,286,326   1,376,127 
Current portion of right-of-use operating lease obligations  -   - 
Current portion of notes payable  238,018   256,274 
Current liabilities classified as held for sale $2,470,505  $2,792,502 

EPIC Reference Labs, Inc. and Other Subsidiaries Assets and LiabilitiesLiabilities:

 September 30, 2020  December 31, 2019  September 30,
2021		  December 31,
2020		 
 (unaudited)     (unaudited)    
Cash $9,057  $-  $-  $136 
Accounts receivable, net  174,641   -   -   - 
Prepaid expenses and other current assets  2,575   -   -   - 
Current assets classified as held for sale $186,273  $-  $-  $136 
                
Property and equipment, net $-  $-  $-  $- 
Deposits  100,014   100,014   5,014   100,014 
Right-of-use assets  122,898   185,842   -   100,116 
Non-current assets classified as held for sale $222,912  $285,856  $5,014  $200,130 
                
Accounts payable $818,912  $881,527 
Accounts payable and checks in excess of bank balance $1,111,557  $1,185,158 
Accrued expenses  283,368   338,662   336,410   334,667 
Current portion of right-of-use operating lease obligations  96,334   85,726 
Current portion of right-of-use operating lease obligation  -   91,166 
Current portion of notes payable  -   -   -   - 
Current liabilities classified as held for sale $1,198,614  $1,305,915  $1,447,967  $1,610,991 
                
Right-of-use operating lease obligations  26,564   100,116 
Liabilities classified as held for sale $26,564  $100,116 
Note payable $-  $- 
Right-of-use operating lease obligation  -   8,950 
Non-current liabilities classified as held for sale $-  $8,950 

Consolidated Discontinued Operations Assets and Liabilities:

 September 30, 2020  December 31, 2019  September 30,
2021		  December 31,
2020		 
 (unaudited)     (unaudited)    
Cash $9,066  $17,767  $-  $31,430 
Accounts receivable, net  174,641   482,472   -   151,363 
Prepaid expenses and other current assets  2,575   5,150   -   1,717 
Current assets classified as held for sale $186,282  $505,389  $-  $184,510 
                
Property and equipment, net $1,168  $3,354  $-  $685 
Deposits  100,014   106,043   5,014   100,014 
Right-of-use assets  122,898   185,842   -   100,116 
Non-current assets classified as held for sale $224,080  $295,239  $5,014  $200,815 
                
Accounts payable $1,765,073  $2,041,628 
Accounts payable and checks issued in excess of bank balance $1,111,557  $1,911,378 
Accrued expenses  1,569,694   1,714,789   336,410   1,642,950 
Current portion of right-of-use operating lease obligations  96,334   85,726 
Current portion of right-of-use operating lease obligation  -   91,166 
Current portion of notes payable  238,018   256,274   -   168,751 
Current liabilities classified as held for sale $3,669,119  $4,098,417  $1,447,967  $3,814,245 
                
Right-of-use operating lease obligations  26,564   100,116 
Liabilities classified as held for sale $26,564  $100,116 
Note payable $-  $69,267 
Right-of-use operating lease obligation  -   8,950 
Non-current liabilities classified as held for sale $-  $78,217 

34

 

Major line items constituting lossincome (loss) from discontinued operations in the unaudited condensed consolidated statements of operations for the three months ended September 30, 2020 and 2019 consisted of the following:

AMSG & HTS Group Loss from Discontinued Operations:

  Three Months Ended 
  September 30, 2020  September 30, 2019 
  (unaudited)  (unaudited) 
Revenue from services $174,941  $246,676 
Cost of services  390   26,012 
Gross profit  174,551   220,664 
Operating expenses  258,789   355,828 
Other expense  37,476   2,912 
Provision for income taxes  -   - 
Loss from discontinued operations $(121,714) $(138,076)

EPIC Reference Labs, Inc. Loss from Discontinued Operations

  Three Months Ended 
  September 30, 2020  September 30, 2019 
  (unaudited)  (unaudited) 
Revenue from services (1) $-  $(34,630)
Cost of services  -     
Gross profit  -   (34,630)
Operating expenses  41,360   89,102 
Other expense  3,106   - 
Provision for income taxes  -   - 
Loss from discontinued operations $(41,360) $(123,732)

(1)The Company recorded bad debts in excess of gross revenues in the three months ended September 30, 2019.

Consolidated Loss from Discontinued Operations:

  Three Months Ended 
  September 30, 2020  September 30, 2019 
  (unaudited)  (unaudited) 
Revenue from services $174,941  $212,046 
Cost of services  390   26,012 
Gross profit  174,551   186,034 
Operating expenses  300,149   444,930 
Other expense  40,582   2,912 
Provision for income taxes  -   - 
Loss from discontinued operations $(166,180) $(261,808)

Major line items constituting loss from discontinued operations in the unaudited condensed consolidated statements of operations for the nine months ended September 30, 20202021 and 20192020 consisted of the following:following (unaudited):

HTS and AMSG & HTS Group LossIncome (Loss) from Discontinued Operations:Operations (unaudited):

 Nine Months Ended 
 September 30, 2020  September 30, 2019 
 (unaudited) (unaudited)  Three Months
Ended
September 30,
2021		  

Three Months

Ended
September 30,
2020

  Nine Months
Ended
September 30,
2021		  Nine Months
Ended
September 30,
2020		 
Revenue from services $437,119  $766,627  $-  $174,941  $216,941  $437,119 
Cost of services  11,379   113,266   -   390   2,386   11,379 
Gross profit  425,740   653,361   -   174,551   214,555   425,740 
Operating expenses  509,989   1,413,423   -   (258,710)  (551,296)  (509,989)
Other expense  61,067   31,874 
Other income (expense)  -   (9,636)  (9,577)  (61,067)
Gain on sale  576,787   -   11,303,939   - 
Provision for income taxes  -   -   -   -   -   - 
Loss from discontinued operations $(145,316) $(791,936)
Income (loss) from discontinued operations $576,787  $(93,795) $10,957,621  $(145,316)

The fair value of the InnovaQor Series B Preferred Stock that the Company received as consideration for the sale of $9.1 million was based on a third-party valuation using the Option Price Method (the “OPM”). The OPM treats common and preferred interests as call options on the equity value of the subject company, with exercise prices based on the liquidation preference of the preferred interests and participation thresholds for subordinated classes. The common interest is modeled as a call option that gives its owner the right but not the obligation to buy the enterprise value at a predetermined or exercise price. In the model, the exercise price is based on a comparison with the enterprise value rather than, as in the case of a “regular” call option, a comparison with a per share stock price. Thus, the common interest is considered to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the preferred interests are liquidated. The Black Scholes model was used to price the call options. The assumptions used were: risk free rate of 0.84%; volatility of 250.0%; and exit period of 5 years. Lastly, a discount rate of 35% was applied due to the lack of marketability of the InnovaQor Series B Preferred Stock and the underlying liquidity of InnovaQor’s common stock.

EPIC Reference Labs, Inc. Lossand Other Subsidiaries Income (Loss) from Discontinued Operations:Operations (unaudited):

 Nine Months Ended  Three Months
Ended
September 30,
2021		  

Three Months

Ended
September 30,
2020

  Nine Months
Ended
September 30,
2021		  Nine Months
Ended
September 30,
2020		 
 September 30, 2020  September 30, 2019 
 (unaudited) (unaudited) 
Revenue from services (1) $441  $(18,066)
Revenue from services $-  $-  $-  $441 
Cost of services  -   3,982   -   -   -   - 
Gross profit  441   (22,048)  -   -   -   441 
Operating expenses  106,704   453,280   (31,388)  (41,439)  (126,243)  (106,704)
Other income  (87,286)  (500)
Other income (expense)  -   (30,946)  48,770   87,286 
Gain on sale  -   -   -   - 
Provision for income taxes  -   -   -   -   -   - 
Loss from discontinued operations $(18,977) $(474,828) $(31,388) $(72,385) $(77,473) $(18,977)

(1)The Company recorded bad debts in excess of gross revenues in the nine months ended September 30, 2019.

Consolidated LossIncome (Loss) from Discontinued Operations:Operations (unaudited):

  Three Months
Ended
September 30,
2021		  

Three Months

Ended
September 30,
2020

  Nine Months
Ended
September 30,
2021		  Nine Months
Ended
September 30,
2020		 
Revenue from services $-  $174,941  $216,941  $437,560 
Cost of services  -   390   2,386   11,379 
Gross profit  -   174,551   214,555   426,181 
Operating expenses  (31,388)  (300,149)  (677,539)  (616,693)
Other income (expense)  -   (40,582)  39,193   26,219 
Gain on sale  576,787   -   11,303,939   - 
Provision for income taxes  -   -   -   - 
Income (loss) from discontinued operations $545,399  $(166,180) $10,880,148  $(164,293)

35

 

  Nine Months Ended 
  September 30, 2020  September 30, 2019 
  (unaudited)  (unaudited) 
Revenue from services $437,560  $748,561 
Cost of services  11,379   117,248 
Gross profit  426,181   631,313 
Operating expenses  616,693   1,866,703 
Other expense (income)  (26,219)  31,374 
Provision for income taxes  -   - 
Loss from discontinued operations $(164,293) $(1,266,764)

Note 1715 – Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This standard will require entities to disclose the amount of total gains or losses for the period recognized in other comprehensive income that is attributable to fair value changes in assets and liabilities held as of the balance sheet date and categorized within Level 3 of the fair value hierarchy. This ASU will be effective for us for annual and interim periods beginning after December 31, 2020. Early adoption of this standard is permitted. We have not yet determined the impact of the adoption of this ASU on our results of operations, financial position and cash flows.

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 will be effective for us for annual and interim periods beginning after December 30, 2020. Early adoption of this standard is permitted and may be applied either prospectively to eligible costs incurred on or after the date of the new guidance or retrospectively. We have not yet determined the impact of the adoption of this ASU 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, the step-up in tax basis of goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. This standard will bebecame effective for us for annual periods beginning on January 1, 2021, including interim periods within those fiscal years. Early2021. The adoption of this standard is permitted, including adoption of all amendments in any interim period for which financial statementsASU did not have not yet been issued. We are evaluating thea material impact of adopting this new accounting guidance 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.

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 1816 – Subsequent Events

HHS Provider Relief FundsPPP Notes

In comparison toOn November 3, 2021, $0.8 million of the September 19, 2020 Notice on whichoutstanding principal amount of the Company’s estimate of HHS Provider Relief Funds as of September 30, 2020 is based, the October 22, 2020 NoticePPP Notes was forgiven. PPP Notes are more fully discussed in Note 1 includes two primary changes: (1)6.

36

Shareholder Proposals Effective November 5, 2021

On November 5, 2021, the definitionCompany filed an Amendment to its Articles of lost revenue is changedIncorporation, as amended (the “Amendment”), with the Secretary of State of Delaware to refermake effective the following proposals, which had previously been approved by the Company’s Board of Directors and stockholders:

Proposal 1: To approve an amendment to our Certificate of Incorporation, as amended, to increase the negative year-over-year differencenumber of authorized shares of our common stock from 10,000,000,000 to 50,000,000,000 shares.

Proposal 2: To approve an amendment to our Certificate of Incorporation, as amended, to provide that the number of authorized shares of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the holders of a majority in 2019 and 2020 actual revenue from patient care related sourcesvoting power of the stock of the Company entitled to vote generally in the election of directors, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware (or any successor provision thereto), voting together as opposed toa single class, without a separate vote of the negative year-over-year change in net patient care operating income, and (2)holders of the definitionclass or classes the number of reporting entities is broadened to include the parentauthorized shares of which are being increased or decreased unless a vote by any holders 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 casesseries of COVID-19, or entities that can otherwise attestPreferred Stock is required by the express terms of any series of Preferred Stock pursuant to the terms thereof.

As a result of the Voting Agreement discussed in Note 11 and the two proposals above that became effective on November 5, 2021, 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.

Issuances of Preferred Stock

On October 28, 2021, the Company entered into the October 28 Agreement among the Company and certain existing institutional investors of the Company. The October 28 Agreement provides for the issuance of up to 4,400 shares of the Company’s Series O Preferred Stock at two closings of 2,200 shares each. The first closing occurred on October 28, 2021 in which the Company received $2.0 million. The second closing is expected to occur on or before December 1, 2021. The subsequent closing depends upon the Company’s satisfaction of certain conditions. While now codifiedIf the second closing occurs, the Company will receive proceeds of $2.0 million.

Debt Exchange and Amendment Agreements

On November 7, 2021, the Company entered into Exchange and Amendment Agreements (the “November 2021 Exchange Agreements”) with certain institutional investors in the October 22, 2020 Notice, guidance permitting parent companiesCompany. In the November 2021 Exchange Agreements, the investors agreed to allocate general fund distributionsreduce their holdings of $1.1 million stated amount of outstanding warrant promissory notes payable and $4.5 million of outstanding non-convertible debentures, plus accrued interest thereon of approximately $1.4 million, by exchanging the indebtedness and accrued interest for 8,545 shares of the Company’s Series P Preferred Stock. The warrant promissory notes payable and the debentures are more fully discussed in Notes 6 and 7, respectively. After the exchange, the investors continue to subsidiaries was previouslyown approximately $8.2 million of the outstanding debentures, plus the associated accrued interest of approximately $3.3 million. In addition, pursuant to the November 2021 Exchange Agreements, the expiration dates of the March Warrants that were issued by the Company to the investors in March 2017, as more fully described in Note 11, were extended from varying dates in March 2022 to March 21, 2024. The terms of the Series P Preferred Stock are set forth in FAQs published by HHS and as such, the Company’s estimateCurrent Report on Form 8-K filed with the SEC on November 8, 2021, in particular:

General. The Company’s Board of pandemic relief fundsDirectors has designated 30,000 shares of the 5,000,000 authorized shares of preferred stock as the Series P Preferred Stock. Each share of September 30, 2020 includes the allocationSeries P Preferred Stock has a stated value of certain general funds among subsidiaries. Regarding$1,000.

Voting Rights. Except as provided below or by law, the amended definitionSeries P Preferred Stock shall have no voting rights. However, as long as any shares of lost revenues, suchSeries P 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 P Preferred Stock, (a) alter or change serves to increase amounts eligible to be recognized as income, as comparedadversely the powers, preferences or rights given to the September 19, 2020 Notice. The Company’s evaluationSeries P 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 October 22, 2020 Noticeholders, (c) increase the number of authorized shares of the Series P Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.

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Dividends. Dividends at the rate per annum of 10% of the stated value per share shall accrue on each outstanding share of Series P Preferred Stock from and after the date of the original issuance of such share of Series P Preferred Stock (the “Preferred Accruing Dividends”). The Preferred Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative and non-compounding; provided, however, that such Preferred Accruing Dividends shall be payable only when, as, and if declared by the Board of Directors. No cash dividends shall be paid on the common stock unless the Preferred Accruing Dividends are paid.

Rank. The Series P Preferred Stock ranks with respect to dividends or a liquidation, (i) on parity with the common stock, the Series H Preferred Stock, Series L Preferred Stock, Series M Convertible Preferred Stock, Series N Convertible Preferred Stock, and Series O Preferred Stock, (ii) senior to the Company’s Series F Convertible 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 P Preferred Stock.

Conversion. Each share of the Series P Preferred Stock is ongoingconvertible into shares of the Company’s common stock, at any time and from time to time, at the amountoption of the holder, into that number of shares of common stock determined by whichdividing the approximately $4.4 millionstated value of deferred Provider Relief Funds assuch share of September 30, 2020 may be recognizedSeries P Preferred Stock, plus any accrued declared and unpaid dividends, by the conversion price. The conversion price is equal to 90% of the lowest VWAP during the 10 trading days immediately prior to the conversion date. Holders of the Series P Preferred Stock are prohibited from converting Series P Preferred Stock into shares of common stock if, as a result of such conversion, the October 22, 2020 Notice isholder, together with its affiliates, would own more than 9.99% of the total number of shares of common stock then issued and outstanding. However, any holder may increase or decrease such percentage to any other percentage not yet known. U.S. GAAP doesin excess of 9.99%, provided that any increase in such percentage shall not permit amounts recognized asbe effective until 61 days after notice to the Company.

Liquidation Preference. Upon any liquidation, dissolution or winding up of September 30, 2020the Company, the holders of the Series P Preferred Stock shall be entitled to receive an amount equal to the stated value of the Series P 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 P Preferred Stock before any distribution or payment shall be updatedmade on any junior securities.

Redemption. At any time the basisCompany shall have the right to redeem all, or any part, of new informationthe Series P Preferred Stock then outstanding. The Series P Preferred Stock subject to redemption shall be redeemed by the Company in cash in an amount equal to the October 22, 2020 Notice.stated value of the shares of the Series P Preferred Stock being redeemed plus all accrued declared and unpaid dividends.

IssuanceIssuances of Common Stock

Subsequent to September 30, 20202021 and through November 12, 2020,10, 2021, the Company issued an aggregate of 2,076,7508.7 billion shares of its common stock forupon conversions of preferred stock.2,495.84 shares of its Series N Preferred Stock with a stated value of $2.5 million.

Potential Common Stock as of November 10, 2021

The following table presents the potential dilutive effect of our various potential common sharesequity-linked instruments as of November 12, 2020.10, 2021:

Schedule of Dilutive Effect of Various Potential Common Shares 

  November 12, 202010,
2021		 
Common sharesShares of common stock outstanding  

3,943,679 

13,491,000,000		 
Dilutive potential shares:    
Stock optionsConvertible preferred stock 26174,319,763,738
Warrants  

987,961,512

273,995,752,554		 
Convertible debenturesdebt  

150,590,476

14,443,166,667		 
Convertible preferred stockStock options  

888,763,212

26		 
Total dilutive potential shares of common shares,stock, including outstanding common stock  

2,031,258,905

476,249,682,985		 

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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, 20192020 (the “2019“2020 Form 10-K”) and in our subsequent filings with the Securities and Exchange Commission (“SEC”).Commission. The following discussion of our results of operations should be read in conjunction with the audited financial statements contained within the 20192020 Form 10-K and with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this report.

COMPANY OVERVIEW

Our Services

We operate in one business segment: Hospital Operations.

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, the Companywe entered into an asset purchase agreement to acquire from Community Health Systems, Inc. certain assets related to an acute care hospital located in Jamestown, Tennessee, referred to as Jamestown Regional Medical Center. The purchase was completed on June 1, 2018 for a purchase price of $0.7 million. The hospital was acquired by a newly formed subsidiary, Jamestown TN Medical Center, Inc., and is an 85-bed facility of approximately 90,000 square feet on over eight acres of land, which offers a 24-hour Emergency Department with two spacious trauma bays and seven private exam rooms, inpatient and outpatient medical services and a Progressive Care Unit which provides telemetry services. 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. The Company has suspended operations at the Jamestown hospital but plans to reopen it upon receiving Medicare approval and securing adequate capital to do so.

In addition, on March 5, 2019, we closed an asset purchase agreement (the “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.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 hospitalreopening plans have also been disrupted by the coronavirus (“COVID-19”) pandemic and the timing of the reopening has been delayed. It is known asnow intended that the re-opening process will be initiated in 2022.

On March 1, 2021, we closed Jellico Community Hospital, andafter the clinic is known ascity of Jellico issued a 30-day termination notice for the CarePlus Center. The hospital andlease of the clinic and their associated assets were acquired from Jellico Community Hospital, Inc. and CarePlus Rural Health Clinic, LLC, respectively. Jellico Community Hospital is a fully operational 54-bed acute care facility that offers comprehensive services, including diagnostic imaging, radiology, surgery (general, gynecological and vascular), nuclear medicine, wound care and hyperbaric medicine, intensive care, emergency care and physical therapy. Jellico is located 33 miles east of our Big South Fork Medical Center. The CarePlus Center offers sophisticated testing capabilities and compassionate care, all in a modern, patient-friendly environment. Services include diagnostic imaging services, x-ray, mammography, bone densitometry, computed tomography (CT), ultrasound, physical therapy and laboratory services on a walk-in basis. We refer to the Jellico Community Hospital and CarePlus Center collectively as Jellico Community Hospital. The purchase price was approximately $0.7 million. This purchase price was made available by Mr. Diamantis, a former member of our Board of Directors.building.

 

Our Hospital Operations generated revenues of approximately $2.0 million and $3.9 million during the three months ended September 30, 2020 and 2019, respectively, and approximately $5.9 million and $13.2 million during the nine months ended September 30, 2020 and 2019, respectively. Going forward, we expect our Hospital Operations to provide us with a stable revenue base.

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Discontinued Operations

On July 12,Sale of Health Technology Solutions, Inc. and Advanced Molecular Services Group, Inc.

In 2017, we announced plans to spin off or sell our wholly-owned subsidiaries, Advanced Molecular Services Group, Inc. (“AMSG”) and in the third quarter 2017 our Board of Directors voted unanimously to spin off the Company’s wholly-owned subsidiary, Health Technology Solutions, Inc. (“HTS”), as independent publicly traded companies by way of tax-free distributions to the Company’s stockholders.. On June 10, 2020,25, 2021, the Company signed an agreement forsold the separationshares of these divisions into a public company. The agreement is with TPT Global Tech, Inc. (OTC: TPTW), a California-based public company, to mergestock of HTS and AMSG into a public company after TPT completes a mergerto InnovaQor, Inc. (“InnovaQor”). HTS and AMSG held Rennova’s software and genetic testing interpretation divisions. In consideration for the shares of HTS and AMSG and the elimination of intercompany debt among the Company and HTS and AMSG, InnovaQor issued the Company 14,950 shares of its wholly-owned subsidiary, InnovaQor, Inc. with this public company. The public company will be known as InnovaQor going forward. CompletionSeries B Non-Voting Convertible Preferred Stock (the “InnovaQor Series B Preferred Stock”), 14,000 of the agreementshares were issued on June 25, 2021 and 950 of the shares were issued in the three months ended September 30, 2021 as a result of a post-closing adjustment. Each share of InnovaQor Series B Preferred Stock has a stated value of $1,000 and is convertible into that number of shares of InnovaQor common stock equal to the stated value divided by 90% of the average closing price of the InnovaQor common stock during the 10 trading days immediately prior to the conversion date. Conversion of the InnovaQor Series B Preferred Stock, however, is subject to a numberthe limitation that no conversion can be made to the extent the holder’s beneficial interest (as defined pursuant to the terms of approvals and consents which need to be secured to complete the transaction. Subject to closing and the relevant SEC approvals it is intended that Rennova will receive approximately $22 million of preferred sharesInnovaQor Series B Preferred Stock) in the transaction, $5common stock of InnovaQor would exceed 4.99%. The shares of the InnovaQor Series B Preferred Stock may be redeemed by InnovaQor upon payment of the stated value of the shares plus any accrued declared and unpaid dividends.

As a result of the sale, the Company has recorded the InnovaQor Series B Preferred Stock as a long-term asset valued at $9.1 million at September 30, 2021 and a gain on the sale of HTS and AMSG of $0.6 million in the three months ended September 30, 2021, which resulted from the value of the 950 shares of InnovaQor Series B Preferred Stock received as a result of a post-closing adjustment, and a gain on sale of HTS and AMSG of $11.3 million in the nine months ended September 30, 2021, of which will be converted to common shares in$9.1 million resulted from the public company, and distributed to Rennova shareholders upon completionvalue of the relevant registration/approvals withInnovaQor Series B Preferred Stock and $2.2 million resulted from the SEC. The remaining approximately $17 milliontransfer to InnovaQor of preferredthe net liabilities of HTS and AMSG. During the three and nine months ended September 31, 2021, 100 shares held by Rennova as an investment inof InnovaQor will be convertibleSeries B Preferred Stock valued at $60,714 were used to common shares on achievement of certain milestones going forward. There can be no assurancesettle accrued interest that the transaction as described will be consummated or thatwas due under the terms including numbers or values for consideration shares, will not change significantly before closing. The strategic goal of this transaction is to create a separate public company which can focusnotes payable that were issued on its own strengthsJanuary 31, 2021 and operational plans and create value for Rennova and its shareholders. The Company hasFebruary 16, 2021.

We have reflected the amounts relating to HTS and AMSG, and HTS (referred to asincluding the AMSG  & HTS Group)gain on sale, as a disposal group classified as held for sale and included in discontinued operations in the Company’sour accompanying unaudited condensed consolidated financial statements.

EPIC Reference Labs, Inc.

During the third quarter of 2020, the Companywe announced that itwe had reached an agreementdecided to sell its last clinical laboratory, EPIC Reference Labs, Inc., and as a result, EPIC Reference Labs, Inc.’s operations have been classified as held for sale and included in discontinued operations for all periods presented in the Company’s accompanying unaudited condensed consolidated financial statements. The Company’s operationsCompany has been unable to find a buyer for EPIC Reference Labs, Inc. and, therefore, it has ceased all efforts to sell company and closed down its operations.

Outlook

We believe that the transition of our business model from health information technology and diagnostics to ownership and operation of rural hospitals and related healthcare service providers is now consist of only one business segment, Hospital Operations.

Voting Agreement

On August 13, 2020, Mr. Diamantis entered into a Voting Agreement and Irrevocable Proxy (the “Voting Agreement”) with the Company, Mr. Lagan and Alcimede LLC (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 Convertible Preferred Stock (the “Series M Preferred Stock”) held by Mr. Diamantis, Mr. Diamantis has retained all other rights under the Series M Preferred Stock. The foregoing description of the Voting Agreement does not purport to be complete and is qualified by reference to the Voting Agreement, a copy of which is filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 13, 2020.

Outlook

once stabilized will create more predictable and stable revenue. Rural hospitals provide a much-needed service to their local communities.communities and reduce our reliance on commission-based sales employees to generate sales. We currently operate two hospitalsone 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 management, 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. While 2019 was a difficult year with unexpected disruption to revenue causing us to suspend operations at the Jamestown facility, we believe we will be successful in reopening this facility and expect to achieve more stable and predictable revenues and relative costs in the near future. 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.development. The progress of the coronavirus (“COVID-19”)COVID-19 pandemic, which is more fully discussed below, has severely affected our operations and may however, 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 12 and 76 to the accompanying unaudited condensed consolidated financial statements, we have received Paycheck Protection Program loans (“PPP”PPP Notes”) loans 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.

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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 have in the past and may in the future 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.

HospitalizationsFrom third party information, in Tennessee for COVID-19there have been increasing.  In particular, infection levels1,286,713 cases and 16,509 deaths from COVID-19 as of November 5, 2021. One concern previously cited in eachthe report and shared by health leaders is low vaccination rates in the State. Tennessee is the 8th-worst in population of fully vaccinated individuals with approximately 48% fully vaccinated. Moreover, Scott County, in which Big South Fork Medical Center is located, currently has the second highest rate of new daily COVID-19 cases per 100,000 persons in the State of Tennessee.

It is hoped that the continued roll out of vaccinations will significantly reduce the risk of death and reduce transmission of the three countiesvirus so that a return to more normal expectations occurs throughout the remainder of 2021 and in which the Company owns hospitals are at the highest levels to date.2022. These developments have had, and may continue to have, a material adverse effect on the Companyus 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 openingreopening has been delayed.

On September 14, 2020, the Company announced that it had purchased and taken delivery of equipment to provide rapid testing for COVID-19 at Jellico Community Hospital and CarePlus Center and Big South Fork Medical Center in an effort to provide the Company with an additional revenue stream.

AMSG & HTS Group

We believe that a successful separation of the AMSG & HTS Group will allow each to focus on its own strengths and operational plans. We have agreed to terms that will combine these divisions into one publicly traded entity and believe this will provide a distinct and targeted investment opportunity. The Company believes it will be able to recognize the expenditures to date with regard to the AMSG & HTS Group, which are in excess of $20 million, as an investment after the separation is complete.

Result of Operations

Our loss from continuing operations before other income and (expense) and income taxes for the three months ended September 30, 2020 was $4.2 million compared to a loss of $2.6 million for the same period a year ago. We attribute the increase in the operating loss primarily to the reduction in revenue.

Our loss from continuing operations before other income and (expense) and income taxes for the nine months ended September 30, 2020 was $11.3 million compared to a loss of $11.8 million for the same period a year ago. We attribute the decrease in the operating loss in the nine months ended September 30 2020 compared to the 2019 period primarily due to fixed direct costs and general and administrative expenses of Jamestown Regional Medical Center. While the hospital closed in June 2019, fixed costs continued during the three months ended September 30, 2019.

We recorded net loss from continuing operations for the three months ended September 30, 2020 of $6.0 million, as compared to a loss of $12.0 million for the same period of a year ago. The decrease in the loss was primarily due to other income (expense), net of approximately $0.2 million in the three months ended September 30, 2020 compared to other income (expense), net of ($5.8) million in the comparable 2019 period, a gain on extinguishment of debt of $0.4 million in the three months ended September 30, 2020, and a decrease in interest expense of $1.3 million in the three months ended September 30, 2020 compared to the comparable period, partially offset by an increase in the loss from operations before other income (expense) and income taxes of approximately $1.6 million

We recorded a net loss from continuing operations for the nine months ended September 30, 2020 of $9.7 million, as compared to a loss of $37.9 million for the same period of a year ago. The improvement was primarily due to a decrease in the loss from operations before other income (expense) and income taxes of approximately $0.5 million, other income (expense), net of approximately $6.9 million in the nine months ended September 30, 2020 compared to other income (expense), net of ($7.0) million in the comparable 2019 period, a $1.1 million gain from legal settlements in the nine months ended September 30, 2020 and a decrease in interest expense of $11.3 million

Three months ended September 30, 20202021 compared to the three months ended September 30, 20192020

The following table summarizes the results of our consolidated continuing operations for the three months ended September 30, 20202021 and 2019:2020:

  

Three Months Ended

September 30,

 
  2021  2020 
     %     % 
Net revenues $1,010,245   100.0% $1,950,698   100.0%
Operating expenses:                
Direct costs of revenues  1,207,749   119.6%  2,805,829   143.8%
General and administrative expenses  2,019,086   199.9%  3,274,508   167.9%
Depreciation and amortization  135,065   13.4%  53,579   2.7%
Loss from continuing operations before other income (expense) and income taxes  (2,351,655)  -232.8%  (4,183,218)  -214.4%
Other income (expense), net  (346,197)  -34.3%  169,101   8.7%
Gain from extinguishment of debt  1,027,000   101.7%  389,864   20.0%
Gain (loss) from legal settlements  3,157,203   312.5%  (23,652)  -1.2%
Interest expense  (700,786)  -69.4%  (2,377,980)  -121.9%
Benefit from income taxes  -   0.0%  -   0.0%
Net income (loss) from continuing operations $785,565   77.8% $(6,025,885)  -308.9%

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  Three Months Ended September 30, 
  2020  2019 
  $  %  $  % 
Net revenues $1,950,698   100.0% $3,920,607   100.0%
Operating expenses:                
Direct costs of revenue  2,805,829   143.8%  3,227,709   82.3%
General and administrative expenses  3,274,508   167.9%  3,074,522   78.4%
Depreciation and amortization  53,579   2.7%  199,996   5.1%
Loss from operations  (4,183,218)  -214.4%  (2,581,620)  -65.8%
Other income (expense), net  169,101   8.7%  (5,784,873)  -147.6%
Loss from legal settlement  (23,652)  -1.2%  -   0.0%
Gain on extinguishment of debt  389,864   20.0%  -   0.0%
Interest expense  (2,377,980)  -121.9%  (3,637,467)  -92.8%
Benefit from income taxes  -   0.0%  -   0.0%
Net loss from continuing operations $(6,025,885)  -308.9% $(12,003,960)  -306.2%

Net Revenues

Consolidated net revenues were $1.0 million for the three months ended September 30, 2021, as compared to consolidated net revenues of $2.0 million for the three months ended September 30, 2020, as compared to $3.9 million for the three months ended September 30, 2019, a decrease of $1.9$1.0 million. The decrease in netNet revenues from Big South Fork Medical Center decreased by approximately $0.2 million in the three months ended September 30, 2020, as2021 compared to the 2019 period was primarily a result2020 period. We attribute the decrease in net revenues from Big South Fork Medical Center to less inpatient activity in the 2021 period. In addition, approximately $0.6 million of the COVID-19 pandemic, which we attribute, in part, to decreasing net revenuesdecrease was from Jellico Community Hospital and CarePlus Center by $1.3 million and from Big South Fork by $0.7 million, partially offset by a $0.1 million adjustment to revenue from Jamestown Regional Medical Center for bad debt recoveries. As a result of the COVID-19 pandemic, we believe demand for our hospital services was reduced. Also reducing revenues atCenter. We closed Jellico Community Hospital and CarePlus Center and Big South Fork Medical Center were staffing issues duringon March 1, 2021 after the 2020 period, which required us to divert patients to third party facilities.city of Jellico issued a 30-day termination notice for the lease of the building.

Net revenues for the three months ended September 30, 2021 and 2020 and 2019 included bad debt expense eliminationestimated implicit price concessions of $2.2$1.9 million and $0.9$2.2 million, respectively, for doubtful accounts and $14.0$6.8 million and $21.0$14.0 million, respectively, for contractual allowances. In a continued effort to refine our revenue recognition estimates, the Company practices the full retrospective approach, evaluating and analyzing the realizability of gross service revenues quarterly, to make certain that we are properly allowing for bad debt and contractual adjustments.

Direct Costs of RevenueRevenues

Direct costs of revenuerevenues decreased by $0.4$1.6 million for the three months ended September 30, 20202021 compared to the three months ended September 30, 2019.2020. We attribute the decreasesdecrease primarily to decreases in the numberclosure of patients served at Jellico Community Hospital and CarePlus Center and Big South Fork Medical Center.on March 1, 2021. As a percentage of net revenues, direct costs increaseddecreased to 143.8%119.6% in the three months ended September 30, 20202021 compared to 82.3%143.8% in the comparable 20192020 period. We attribute the increase in the direct costs as a percentage of net revenues to the COVID-19 pandemic

General and the diversion of patients to third party facilities due to staffing issues duringAdministrative Expenses

General and administrative expenses decreased by $1.3 million, or 38.3%, for the three months ended September 30, 2020. While the number of patients served decreased, certain direct costs of revenue remained.

General and Administrative Expenses

General and administrative expenses increased by $0.2 million, or 6.5%,2021 compared to the same period a year agoago. General and administrative expenses for our hospital operations decreased by $1.5 million in the 2021 period, primarily due toas a result of the closure of Jellico Community Hospital on March 1, 2021. Partially offsetting the decrease was an increase of corporate related expenses of approximately $0.3 million in hospital consulting fees.the three months ended September 30, 2021 compared to the 2020 period.

Depreciation and Amortization ExpensesExpense

Depreciation and amortization expense was $0.1 million for the three months ended September 30, 2021 compared to $53,579 for the three months ended September 30, 2020 as compared2020. We attribute the increase to $0.2 million forpurchases of medical equipment during the same period a year ago as certain fixed assets were fully depreciated during 2019.latter part of 2020.

Loss from Continuing Operations Before Other Income (Expense) and Income Taxes

Our operating loss increased by $1.6from continuing operations before other income (expense) and income taxes for the three months ended September 30, 2021 was $2.4 million compared to a loss of $4.2 million for the three months ended September 30, 2020, as compared to the 2019 period.2020. We attribute the increasedecrease in the operating loss primarily to the reduction in revenue.operating losses associated with Jellico Community Hospital.

Other Income (Expense), netNet

Other income (expense), net for the three months ended September 30, 2021 was $0.2a net expense of $0.3 million, which resulted primarily from the write off of equipment and inventory associated with Jellico Community Hospital that we closed in March 2021. We had previously expected to be able to use the equipment and inventory at our other facilities but we determined during the period that the equipment and inventory could not be used. Other income (expense), net for the three months ended September 30, 2020 andwas $0.2 million, which included income of approximately $0.6 million from HHS Provider Relief Funds that were received from the federal government, partially offset by $0.3 million of loss on the sale of accounts receivable under sales agreements and $0.1 million for the loss on disposal of property. Other income (expense) was ($5.8)

Gain from Extinguishment of Debt

We recorded gain from extinguishment of debt of $1.0 million forduring the three months ended September 30, 2019,2021, which resulted from the loss on saleforgiveness of accounts receivables under sales agreements of $0.7 million and penalties for non-payment of debentures at maturity of $5.1 million.

Gain on Extinguishment of Debt

PPP Notes during the period. We recorded a $0.4 million gain on extinguishment of debt in the three months ended September 30, 2020, which resulted from exchange, redemption and forbearance agreements that we entered into on August 31, 2020. Under these agreements preferred stock and debentures and associated accrued interest were exchanged for shares of the Company’s Series N Convertible Redeemable Preferred Stock. These agreements are more fully discussed belowStock (the “Series N Preferred Stock”).

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Gain (Loss) from Legal Settlements

We recorded a gain (loss) from legal settlements of $3.2 million and ($23,652) for the three months ended September 30, 2021 and 2020, respectively. The gain from legal settlements of $3.2 million for the three months ended September 30, 2021 resulted from: (i) a gain of $0.6 million from the settlements of obligations under accounts receivable sale agreements; (ii) a gain of $2.2 million from the settlement of obligations under the heading LiquidityTCA Debenture; and Capital Resources and in Notes 8, 13 and 14(iii) $0.3 million pursuit to the accompanying unaudited condensed consolidated financial statements.settlement of obligations owed under professional services agreements.

Interest Expense

Interest expense for the three months ended September 30, 20202021 was $2.4$0.7 million as compared to $3.6$2.4 million for the three months ended September 30, 2019.2020. Interest expense for the three months ended September 30, 2021 was for interest on past due debentures and on notes payable. Interest expense for the three months ended September 30, 2020 included $1.7 million for interest on past due debentures and on notes payable, $0.6 million for interest incurred by Mr. Diamantis a former member of our Board of Directors, on borrowings he procured in order to lend funds to the Company and $55,000 of interest on loans from Mr. Diamantis. Interest

The decrease in interest expense forin the three months ended September 30, 2019 includes $1.8 million2021 as compared to the 2020 period was due primarily to the exchange of debentures on August 31, 2020 for interest on loans from Mr. Diamantis, $1.4 million forpreferred stock, as well as a reduction in the amortization of debt discount and deferred financing costs related to debentures and note payable and approximately $0.4 millionrate of interest expensecharged on certain debentures notes payable and finance lease obligations.under the terms of the exchange.

Net LossIncome (Loss) from Continuing Operations

We recordedOur net lossincome from continuing operations for the three months ended September 30, 20202021 was $0.8 million compared to net loss from continuing operations of $6.0 million as compared to a loss of $12.0 million for the same period of a year ago.three months ended September 30, 2020. The decrease in the loss was primarily due to other income (expense), net of approximately $0.2 millionimprovement in the three months ended September 30, 2020 compared to other income (expense), net of ($5.8) million in the comparable 2019 period, a gain on extinguishment of debt of $0.4 million in the three months ended September 30, 2020, and a decrease in interest expense of $1.3 million in the three months ended September 30, 20202021 as compared to the comparable2020 period partially offset by an increasewas due primarily to: (i) a reduction in the loss from continuing operations before other income (expense) and income taxes of approximately $1.6$1.8 million

The following table presents key financial metrics that management uses to monitor the results for our Hospital Operations:

  Three Months Ended September 30,       
Hospital Operations 2020  2019  Change  % 
             
Net revenues $1,950,698  $3,920,607  $(1,969,909)  -50.2%
                 
Direct costs of revenue  2,805,829   3,227,709   (421,880)  -13.1%
                 
Number of Patients Served  4,662   9,607   (4,945)  -51.5%
                 
Key Operating Measures - Net revenues per patient served: $418.43  $408.10  $10.33   2.5%
                 
Key Operating Measures - Direct costs per patient served: $601.85  $335.97  $265.88   79.1%

Our Hospital Operations have historically generated operating losses. We served less patients during the three months ended September 30, 2020 compared to the three months ended September 30, 2019, which we attribute primarily to the COVID-19 pandemic. The increase in direct costs per patient in the three months ended September 30,2021 period, (ii) the gain from extinguishment of debt of $1.0 million in the 2021 period versus a gain from extinguishment of debt of $0.4 million in the 2020 compared toperiod, (iii) the 2019gain from legal settlements of $3.2 million in the 2021 period, was primarily due toand (iv) a decrease of interest expense of $1.7 million in the use of contract labor versus employees for patient care.2021 period.

Nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020

The following table summarizes the results of our consolidated continuing operations for the nine months ended September 30, 20202021 and 2019:2020:

  

Nine Months Ended

September 30,

 
  2021  2020 
     %     % 
Net revenues $1,288,402   100.0% $5,860,807   100.0%
Operating expenses:                
Direct costs of revenues  4,074,149   316.2%  8,151,478   139.1%
General and administrative expenses  6,915,453   536.7%  8,593,756   146.6%
Depreciation and amortization  513,929   39.9%  399,377   6.8%
Loss from continuing operations before other income (expense) and income taxes  (10,215,129)  -792.9%  (11,283,804)  -192.5%
Other income (expense), net  4,140,049   321.3%  6,907,670   117.9%
Gain from extinguishment of debt  1,027,000   79.7%  389,864   6.7%
Gain from legal settlements  3,179,393   246.8%  1,096,613   18.7%
Interest expense  (2,503,173)  -194.3%  (7,926,750)  -135.3%
Benefit from income taxes  -   0.0%  1,118,485   19.1%
Net loss from continuing operations $(4,371,860)  -339.3% $(9,697,922)  -165.5%

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  Nine Months Ended September 30, 
  2020  2019 
     %     % 
Net revenues $5,860,807   100.0% $13,155,882   100.0%
Operating expenses:                
Direct costs of revenue  8,151,478   139.1%  12,068,460   91.7%
General and administrative expenses  8,593,756   146.6%  12,277,416   93.3%
Depreciation and amortization  399,377   6.8%  609,818   4.6%
Loss from operations  (11,283,804)  -192.5%  (11,799,812)  -89.7%
Other income (expense), net  6,907,670   117.9%  (6,981,116)  -53.1%
Gain on legal settlements  1,096,613   18.7%  -   0.0%
Gain on extinguishment of debt  389,864   6.7%  -   0.0%
Gain on bargain purchase  -   0.0%  250,000   1.9%
Change in fair value of derivative instruments  -   0.0%  (105,075)  -0.8%
Interest expense  (7,926,750)  -135.3%  (19,229,233)  -146.2%
Benefit from income taxes  1,118,485   19.1%  -   0.0%
Net loss from continuing operations $(9,697,922)  -165.5% $(37,865,236)  -287.8%

Net Revenues

Consolidated net revenues were $1.3 million for the nine months ended September 30, 2021, as compared to $5.9 million for the nine months ended September 30, 2020, as compared to $13.2 million for the nine months ended September 30, 2019, a decrease of $7.3$4.6 million. The decrease in net revenues was due to a reduction inNet revenues from Jamestown RegionalBig South Fork Medical Center ofdecreased by approximately $2.9 million in the nine months ended September 30, 20202021 compared to the 20192020 period. Operations at Jamestown Regional Medical Center were temporarily suspended beginning in June 2019 pending reinstatement of the hospital’s Medicare agreement, which the Company is hoping to get reinstated in the near future. The decrease in net revenues in the nine months ended September 30, 2020 as compared to the 2019 period was also, in large part, a result of the COVID-19 pandemic, which weWe attribute to the decrease in net revenues from Jellico Community Hospital and CarePlus Center of $3.1 million and net revenues from Big South Fork Medical Center of $1.3 million. As a resultprimarily to reduced inpatient activity and to adjustments for contractual allowances and estimated implicit price concessions during the 2021 period. In addition, approximately $1.6 million of the COVID-19 pandemic, we believe demanddecrease was from Jellico Community Hospital and CarePlus Center. We closed Jellico Community Hospital on March 1, 2021 after the city of Jellico issued a 30-day termination notice for our services was reduced. Also reducing revenue were staffing issues and supply shortages caused by cash constraints during the 2020 period, which required us to divert patients to third party facilities.lease of the building.

Net revenues for the nine months ended September 30, 2021 and 2020 and 2019 include bad debt expense eliminationincluded estimated implicit price concessions of $6.2 million and $4.8$6.2 million, respectively, for doubtful accounts and $32.9$16.2 million and $81.9$32.9 million, respectively, for contractual allowances. In a continued effort to refine our revenue recognition estimates, the Company practices the full retrospective approach, evaluating and analyzing the realizability of gross service revenues quarterly, to make certain that we are properly allowing for bad debt and contractual adjustments.

Direct Costs of RevenueRevenues

Direct costs of revenue decreased by $3.9$4.1 million for the nine months ended September 30, 20202021 compared to the nine months ended September 30, 2019.2020 period. We attribute the decrease primarily to Jamestown Regional Medical Center, which was temporarily suspended beginning in June 2019, as well as decreases in the numberclosure of patients served at Jellico Community Hospital and CarePlus Center and Big South Fork Medical Center.on March 1, 2021. As a percentage of net revenues, direct costs increased to 139.1%316.2% in the nine months ended September 30, 20202021 compared to 91.7%139.1% in the comparable 20192020 period. We attribute the increase in the direct costs as a percentage of net revenues to the COVID-19 pandemic

General and the diversion of patients to third party facilities due to staffing issuesAdministrative Expenses

General and supply shortages causedadministrative expenses decreased by cash constraints during$1.7 million, or 19.5%, for the nine months ended September 30, 2020. While the number of patients served decreased, certain direct costs of revenue remained.

General and Administrative Expenses

General and administrative expenses decreased by $3.7 million, or 30.0%, in the nine months ended September 20, 20202021 compared to the same period a year ago. The decrease in generalGeneral and administrative expenses was mainly due to the temporary cessation offor our hospital operations of Jamestown Regional Medical Center in June 2019. Also, contributing to the decrease were acquisition costs incurreddecreased by $1.9 million in the 20192021 period, forprimarily as a result of the acquisitionclosure of Jellico Community Hospital and CarePlus Center on March 5, 2019 and reductions in insurance expense, compensation1, 2021. Partially offsetting the decrease was an increase of corporate related expenses and directors fees.of approximately $0.2 million in the nine months ended September 30, 2021 compared to the 2020 period.

Depreciation and Amortization ExpensesExpense

Depreciation and amortization expense was $0.5 million and $0.4 million for the nine months ended September 30, 2021 and 2020, as comparedrespectively. The increase in the nine months ended September 30, 2021 was due to $0.6 million fordepreciation expense associated with the same period a year ago as certain fixed assets were fully depreciatedpurchases of medical equipment during 2019.the latter part of 2020.

Loss from Continuing Operations Before Other Income (Expense) and Income Taxes

Our operating loss decreased by $0.5from continuing operations before other income (expense) and income taxes for the nine months ended September 30, 2021 was $10.2 million compared to a loss of $11.3 million for the nine months ended September 30, 2020, as compared to the 2019 period.2020. We attribute the decrease in the operating loss primarily to the operationsclosure of Jamestown Regional Medical Center, which did not operate in the 2020 period and operated at a loss in the 2019 period. In addition, while Jamestown Regional Medical Center temporarily ceased operations in June of 2019, certain fixed costs continued during the third quarter of 2019.Jellico Community Hospital on March 1, 2021.

Other Income (Expense), netNet

Other income (expense), net of $4.1 million for the nine months ended September 30, 2021 included primarily $4.4 million of income from HHS Provider Relief Funds, partially offset by $0.3 million of loss on disposal of equipment and inventory. Other income (expense), net of $6.9 million for the nine months ended September 30, 2020 included primarily $8.0 million of HHS Provider Relief Funds, partially offset by ($0.6)$0.6 million in penalties and interest associated with non-payment of payroll taxes ($0.6)and $0.6 million of loss on the sale of accounts receivable under a sales agreement and ($0.1) million for loss on disposal of property. Other income (expense), net of ($7.0) million for the nine months ended September 30, 2019 included ($5.7) million in penalties for non-payment of debentures on the maturity dates and ($1.4) million of losses on sales of accounts receivable under sales agreements.

Gain from Legal SettlementsExtinguishment of Debt

We settled several legal proceedingsrecorded gain from extinguishment of debt of $1.0 million during the nine months ended September 30, 2020,2021, which resulted in a gain from legal settlementsthe forgiveness of $1.1 million. The settlement of obligations under a financing lease for property and equipment resulted in $0.9 million ofPPP Notes during the gain.

Gain on Bargain Purchase

In the nine months ended September 30, 2019, we realized a $0.3 million gain on the bargain purchase of Jellico Community Hospital, which was acquired on March 5, 2019. The gain was associated with the intangible asset acquired in the acquisition.

Gain on Extinguishment of Debt

period. We recorded a $0.4 million gain on extinguishment of debt in the threenine months ended September 30, 2020, which resulted from exchange, redemption and forbearance agreements that we entered into on August 31, 2020. Under these agreements preferred stock and debentures and associated accrued interest were exchanged for shares of the Company’s Series N Preferred Stock. These agreements are more fully discussed below under the heading

Liquidity and Capital Resources and in Notes 8, 13 and 14 to the accompanying unaudited condensed consolidated financial statements.

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Change in Fair Value of Derivative Instruments

Gain from Legal Settlements

The change in the fair value of derivative instrumentsgain from legal settlements was $3.2 million and $1.1 million for the nine months ended September 30, 20192021 and 2020, respectively. The gain from legal settlements of $0.1$3.2 million for the nine months ended September 30, 2021 resulted from: (i) a gain of $0.6 million from the settlements of obligations under accounts receivable sale agreements, (ii) a reductiongain of $2.2 million from the settlement of obligations under the TCA Debenture, and (iii) a gain of $0.3 million pursuit to the settlement of obligations owed under professional services agreements. The settlement of obligations under a financing lease for property and equipment resulted in $0.9 million of the conversion price of an outstanding debenture.gain for the 2020 period.

 

Interest Expense

Interest expense for the nine months ended September 30, 20202021 was $7.9$2.5 million, as compared to $19.2$7.9 million for the nine months ended September 30, 2019.2020. Interest expense for the nine months ended September 30, 2021 included $2.4 million for interest on past due debentures and notes payable and $0.1 million for interest on loans from Mr. Diamantis. Interest expense for the nine months ended September 30, 2020 included $5.7 million for default interest on past due debentures and note payable, $1.3 million for interest incurred by Mr. Diamantis on borrowings he procured in order to lend funds to the Company and approximately $0.6 million of interest on loans from Mr. Diamantis. Interest

The decrease in interest expense forin the nine months ended September 30, 2019 included $2.9 million for interest on2021 as compared to the 2020 period was due primarily to the exchange of loans from Mr. Diamantis $6.4 millionon June 30, 2020 for preferred stock and the amortizationexchange of debt discount and deferred financing costs related to debentures and note payable, $9.5 millionin the third quarter of 2020 for preferred stock, as well as a reduction in the modification of warrants and approximately $0.4 millionrate of interest expensecharged on certain debentures notes payable and finance lease obligations.under the terms of the exchange.

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Benefit from Income Taxes

During the nine months ended September 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 nine months ended September 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 nine months ended September 30, 20202021 was $9.7$4.4 million as compared to a net loss from continuing operations of $37.9$9.7 million for the samenine months ended September 30, 2020. The decrease in the net loss in the 2021 period of a year ago. The improvement was primarily due toto: (i) a decrease in the loss from continuing operations before other income (expense) and income taxes of approximately $0.5$1.1 million, other income (expense), net(ii) a gain from extinguishment of approximately $6.9debt of $1.0 million in the nine months ended September 30, 2020 compared to other income (expense), net2021 period versus a gain from extinguishment of ($7.0)debt of $0.4 million in the comparable 20192020 period, (iii) a $3.2 million gain from legal settlements in the 2021 period compared to a $1.1 million gain from legal settlements in the nine months ended September 30, 2020 period, and (iv) a decrease in interest expense of $11.3$5.4 million in the 2021 period compared to the 2020 period. Partially offsetting the decrease in the net loss in the 2021 period was a reduction in income of $3.6 million from HHS Provider Relief Funds in the 2021 period compared to the 2020 period and a benefit from income taxes of $1.1 million income tax benefit in the 2020 period, among other items.

LIQUIDITY AND CAPITAL RESOURCES

For the three and nine months ended September 30 2020.

The following table presents key financial metrics that management uses to monitor the results for our Hospital Operations:

  Nine Months Ended September 30,       
Hospital Operations 2020  2019  Change  % 
             
Net revenues $5,860,807  $12,155,882  $(6,295,075)  -51.8%
                 
Direct costs of revenue  8,151,478   12,068,460   (3,916,982)  -32.5%
                 
                 
Number of Patients Served  13,217   33,299   (20,082)  -60.3%
                 
Key Operating Measures - Net revenues per patient served: $443.43  $365.05  $78.38   21.5%
                 
Key Operating Measures - Direct costs per patient served: $616.74  $362.43  $254.31   70.2%

Our Hospital Operations have historically generated operating losses. We served less patients during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 as a result of the suspension of operations at Jamestown Regional Medical Center, which did not operate during the nine months ended September 30, 2020 following the termination of the Medicare program in June 2019. Also, reducing the number of patients served was the COVID-19 pandemic, as well as staffing issues and shortages of hospital supplies due to cash constraints, which required us to divert patients to third-party facilities during the nine months ended September 30, 2020. Net revenues and direct costs per patient increased in the nine months ended September 30, 2020 as compared to 2019 period due to the type of services billed. Direct costs per patient was also impacted by the use of contract labor versus employees for patient care during the nine months ended September 30, 2020.

LIQUIDITY AND CAPITAL RESOURCES

For the nine months ended September 30, 20202021 and the year ended December 31, 2019,2020, we financed our operations from the issuances of equity, debentures andpreferred stock, notes payable, loans from Christopher Diamantis, a related partyformer member of our Board of Directors, and the sale of accounts receivable under sales agreements. Also, during the nine monthsyear ended September 30,December 31, 2020, we received approximately $2.3$2.4 million from PPP notes payable (“PPP Notes”)Notes and our continuing operations received approximately $12.5 million from HHS Provider Relief Funds.Funds, of which $8.0 million was recognized as other income in the nine months ended September 30, 2020 and $4.4 million was recognized as other income in the nine months ended September 30, 2021. The PPP Notes and associated 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. As of September 30, 2021, $1.0 million of the PPP Notes has been forgiven. On JuneNovember 3, 2021, an additional $0.8 million of the PPP Notes was forgiven. 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 nine months ended September 30, 2021 and $5.0 million from the issuance of our Series O Convertible Redeemable Preferred Stock (“Series O Preferred Stock”). During the nine months ended September 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.

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Subsequent to September 30, 2021, we received $2.0 million in proceeds from issuances of our Series O Preferred Stock. On or before December 1, 2021, we expect to receive an additional $2.0 million in proceeds from the issuance of an additional 2,200 shares of our Series O Preferred Stock.

On November 7, 2021, we entered into an exchange agreement with Mr. Diamantis, a former member of our Board of Directors, wherein we exchanged the amount owed to Mr. Diamantis for principalExchange and interest on that date, which totaled $18.8 million, for shares of the Company’s Series M Convertible Preferred Stock. On August 31, 2020, we entered into the Exchange, Redemption and ForbearanceAmendment Agreements (the “Exchange and Redemption“November 2021 Exchange Agreements”) with certain institutional investors in the Company as discussed inCompany. In the paragraph below. Each of these financing transactions is more fully discussed in Notes 1, 4, 7, 8, 12 and 13 to our accompanying unaudited condensed consolidated financial statements.

On August 31, 2020, the Company entered into theNovember 2021 Exchange and Redemption Agreements, with certain institutional investors in the Company under which the investors agreed to reduce their holdings of the Company’s$1.1 million stated amount of outstanding warrant promissory notes payable and $4.5 million of outstanding non-convertible debentures, (the debentures are more fully discussed in Note 8 to the accompanying unaudited condensed consolidated financial statements) by approximately $19.3 million (includingplus accrued interest and penalties)thereon of approximately $1.4 million, by exchanging the debenturesindebtedness and all of the outstanding shares of the Company’s Series I-1 Convertible Preferred Stock and Series I-2 Convertible Preferred Stock (the preferred stock is more fully discussed in Note 12 to the accompanying unaudited condensed consolidated financial statements)accrued interest for 30,435.528,545 shares of the Company’s newly-authorized Series NP Convertible Redeemable Preferred Stock (the “Series NP Preferred Stock”).

The After the exchange, the investors continue to own afterapproximately $8.2 million of the initial exchange, approximately $14.9 million (includingoutstanding debentures, plus the associated accrued interest and penalties) of debentures, but have agreedapproximately $3.3 million. In addition, pursuant to the November 2021 Exchange Agreements, the expiration dates of the March Warrants that were issued by the Company could redeem $10to the investors in March 2017, as more fully described in Note 11, were extended from varying dates in March 2022 to March 21, 2024.

The foregoing financing transactions are more fully discussed in Notes 2, 4, 5, 6, 11 and 16 to our accompanying unaudited condensed consolidated financial statements.

On June 25, 2021, the Company sold HTS and AMSG to InnovaQor and the Company received shares of InnovaQor’s Series B Preferred Stock valued at $9.1 million as consideration for the sale. In addition, $2.2 million of its obligations under these debentures held by the investors at face value, plus accrued interestnet liabilities of HTS and penalties. These debentures include approximately $4.9 million under debentures and accrued interest that have been guaranteed by Mr. Diamantis. This redemption rightAMSG were transferred to InnovaQor. The sale is exercisable for 90 days, or until November 29, 2020. If it is exercised in full, the remaining debentures held by the investors (totaling approximately $4.9 million, including accrued interest and penalties) will be exchanged for approximately 4,900 additional shares of Series N Preferred Stock.

During the 90-day redemption period (or until the occurrence of certain specified events, if earlier), the investors will forbear from exercising any remedies against the Company or Mr. Diamantis as a result of any existing defaultsmore fully discussed above under the outstanding securities. During that period, additional interestheading, “Discontinued Operations,” and penalties will not accrue and will be forgiven if the redemption right is exercised in full. If the redemption right is not exercised in full, all such additional amounts will become due and payable.

Future cash needs for working capital, capital expenditures, debt obligations and potential acquisitions will require management to seek additional equity or obtain additional credit facilities. The Company and our facilities may also receive additional government assistance. The sale/issuances of additional equity will result in additional dilutionNote 14 to our stockholders. A portion of our cash may be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time-to-time, in the ordinary course of business, we evaluate potential acquisitions of such businesses, products or technologies.accompanying unaudited condensed consolidated financial statements.

Going Concern and Liquidity

Under Accounting Standards Update, or 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 accumulateda stockholders’ deficit of $47.6$54.3 million and $663.5$37.5 million, respectively, at September 30, 2020. In addition, the2021. The Company had a loss from continuing operations before other income (expense) and income taxes of approximately $9.7$2.4 million and cash used in operating activities$4.2 million for the three months ended September 30, 2021 and 2020, respectively, and a loss from continuing operations before other income (expense) and income taxes of $13.4$10.2 million and $11.3 million, for the nine months ended September 30, 2020.2021 and 2020, respectively. In addition, cash used in operating activities was $5.7 million and $13.5 million for the nine months ended September 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 debenturesnotes payable and notes payabledebentures as more discussed in Notes 76 and 87 to the accompanying unaudited condensed consolidated financial statements, raise substantial doubt about the Company’s ability to continue as a going concern for twelve12 months from the filing date of this report. Our fixed operating expenses include payroll, rent, finance lease payments

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 other fixed expenses,the settling of liabilities in the normal course of business. As more fully discussed in Note 14 to the accompanying unaudited condensed consolidated financial statements, on June 25, 2021, the Company sold HTS and AMSG to InnovaQor and the Company received InnovaQor’s Series B Preferred Stock valued at $9.1 million as well as the costs required to operate our Hospital Operations. Our fixed operating expenses were approximately $1.5 million per monthconsideration for the nine months ended September 30, 2020.sale. In addition, $2.2 million of net liabilities of HTS and AMSG were transferred to InnovaQor. 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, it has ceased all efforts to sell the company and closed down its operations.

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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, CarePlus Center and a hospital and physician’s office that it plans to reopen and operate. 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 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 and related service providers, 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 increase our revenues, 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.

Also, during the nine months ended September 30, 2020 we received approximately $2.3 million from PPP Notes and Company-owned facilities have received approximately $12.5 million of HHS Provider Relief Funds, $8.0 million of which was recorded as other income and the remainder was recorded as a liability at September 30, 2020. A portion of 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 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 1 to the accompanying unaudited condensed consolidated financial statements. We received approximately $1.2 million in cash from the issuance of a promissory note during the nine months ended September 30, 2020, which was used to repay amounts due under accounts receivable sales agreements and $0.8 million from the sale of accounts receivable under sales agreements. In addition, during the nine months ended September 30, 2020, Mr. Diamantis, a former member of our Board of Directors, loaned the Company $5.8 million, the majority of which was used for working capital purposes.

As of September 30, 2020,2021, we were party to legal proceedings, which are presented in Note 1513 to the accompanying unaudited condensed consolidated financial statements.

The following table presents our capital resources as of September 30, 20202021 and December 31, 2019:2020:

 September 30, December 31,     September 30, December 31,    
 2020  2019  Change  2021  2020  Change 
              
Cash $220,343  $16,933  $203,410  $331,491  $25,353  $306,138 
Working capital deficit  (47,588,770)  (78,073,092)  30,484,322   (54,308,866)  (56,454,545)  2,145,679 
Total debt, excluding discounts and derivative liabilties  20,630,596   49,010,905   (28,380,309)
Total debt, exclusive of debt discounts  22,415,981   20,770,771   1,645,210 
Finance lease obligations  249,985   1,119,418   (869,433)  220,461   249,985   (29,524)
Stockholders’ deficit  (40,540,193)  (76,519,721)  35,979,528   (37,509,709)  (49,017,752)  11,508,043 

The following table presents the major sources and uses of cash for the nine months ended September 30, 20202021 and 2019:2020:

  

Nine Months Ended

September 30,

    
  2021  2020  Change 
          
Net cash used in operations $(5,689,943) $(13,522,634) $7,832,691 
Net cash used in investing activities  -   (370,890)  370,890 
Net cash provided by financing activities  5,996,081   14,096,934   (8,100,853)
             
Net change in cash  306,138   203,410   102,728 
Cash and cash equivalents, beginning of the year  25,353   16,933   8,420 
Cash and cash equivalents, end of the period $331,491  $220,343  $111,148 

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  Nine Months Ended September 30,    
  2020  2019  Change 
          
Cash used in operations $(13,424,260) $(14,374,213) $949,953 
Cash used in investing activities  (370,890)  (709,338)  338,448 
Cash provided by financing activities  13,998,560   15,188,813   (1,190,253)
             
Net change in cash  203,410   105,262   98,148 
Cash and cash equivalents, beginning of the year  16,933   2,209   14,724 
Cash and cash equivalents, end of the period $220,343  $107,471  $112,872 

The components of cash used in operations for the nine months ended September 30, 20202021 and 20192020 are presented in the following table:

 Nine Months Ended September 30,     

Nine Months Ended

September 30,

    
 2020  2019  Change  2021  2020  Change 
              
Net loss from continuing operations $(9,697,922) $(37,865,236) $28,167,314  $(4,371,860) $(9,697,922) $5,326,062 
Non-cash adjustments to income  (8,320,255)  23,413,633   (31,733,888)
Non-cash adjustments to net loss continuing operations(1)  (7,704,444)  (8,320,255)  615,811
Gain on sale of discontinued operations  (11,303,939)  -   11,303,939 
Change in operating assets and liabilities:            
Accounts receivable  1,241,398   (3,564,790)  4,806,188   377,088   1,241,398   (864,310)
Inventory  (76,065)  1,174   (77,239)  164,653   (76,065)  240,718 
Accounts payable, checks issued in excess of bank balance and accrued expenses  4,497,662   4,602,923   (105,261)  6,126,702   4,399,288   1,727,414 
Loss from discontinued operations  (164,293)  (1,266,764)  1,102,471 
Income (loss) from discontinued operations  10,880,148   (164,293)  11,044,441 
Income tax assets and liabilities  (522,885)  (45,000)  (477,885)  -   (522,885)  522,885 
Other  (281,215)  47,092   (328,307)  39,142   (281,215)  320,357 
Net cash used in operating activities  (13,323,575)  (14,676,968)  1,353,393   (5,792,510)  (13,421,949)  7,629,439 
Cash (used in) provided by discontinued operations  (100,685)  302,755   (403,440)
Cash used in operations $(13,424,260) $(14,374,213) $949,953 
Net cash provided by (used in) discontinued operations  102,567   (100,685)  203,252 
Net cash used in operations $(5,689,943) $(13,522,634) $7,832,691 

(1)Non-cash adjustments to net loss for the nine months ended September 30, 2021 include primarily $3.2 million gain from legal settlements, $1.0 million gain from extinguishment of debt and $4.4 million gain from HHS provider relief funds. Non-cash adjustments to net loss for the nine months ended September 30, 2020 include primarily $1.1 million gain from legal settlements, $0.4 million gain from extinguishment of debt and $8.0 million gain from HHS provider relief funds, partially offset by depreciation and amortization of $0.5 million.

CashNo cash was used by investing activities during the nine months ended September 30, 2021. Cash of $0.4 million was used by investing activities during the nine months ended September 30, 2020 to purchase hospital equipment.

Cash provided by financing activities for the nine months ended September 30, 2020 was to purchase2021 of $6.0 million included primarily $5.0 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 repayments of hospital equipment. The cash usedloans from a former member of our Board of Directors, $0.4 million in investing activities for the nine months ended September 30, 2019, was due to $0.7payments of notes payable and $0.3 million used for the acquisitionin payments of Jellico Community Hospital and approximately $50,801for purchases of hospital equipment.

accounts receivable under sales agreements. Cash provided by financing activities for the nine months ended September 30, 2020 totaled $14.0of $14.1 million andincluded primarily included $5.8 million in loans from a related party,former member of our Board of Directors, $2.3 million from PPP Notes, $12.5 million from HHS Provider Relief Funds, $0.8 million from the salessale of accounts receivable under sales agreements and $1.2 million from the issuance of an installmenta note payable. Partially offsetting these cash receipts were $0.9 million in payments of debentures, $1.5$1.6 million of notes payable payments, $4.2 million in paymentsrepayments of related party loans from a former member of our Board of Directors, $1.5 million in payments ofon accounts receivable under sales agreements and $0.2 million of finance lease obligation payments. Cash provided by financing activities for

Common Stock and Common Stock Equivalents

The Company had 4.8 billion and 39,648 shares of its common stock issued and outstanding at September 30, 2021 and December 31, 2020, respectively. During the nine months ended September 30, 20192021, the Company issued 95,450,000 shares of $15.2its common stock upon the exchange and conversion of $1.2 million primarily included $16.5of stated value of its Series M Convertible Redeemable Preferred Stock (the “Series M Preferred Stock”) and 4.7 billion shares of its common stock upon the conversions of $18.4 million in loans from a related party, $3.8of stated value of its Series N Preferred Stock. During the nine months ended September 30, 2020, the Company issued 313 shares of its common stock upon the conversion of $0.2 million fromof stated value of its Series I-2 Preferred Stock and 589 shares of its common stock upon the issuancesconversion of debentures, $1.5 million in proceeds from notes payable and $2.6 million in proceeds from the sales of accounts receivable under sales agreements. Partially offsetting these cash receipts were $2.3 million in payments of related party loans, $5.0 million in payments of note payable, $1.8 million in payments of accounts receivable under sales agreements and $0.1 million of finance lease obligation payments.stated value of its Series N 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 3, 87, 10, 11 12, 13 and 1816 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-10,000 reverse stock split effected on July 31, 2020 and 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, including outstanding common stock, totaled 286.9 billion at September 30, 2021 and 476.2 billion at November 10, 2021.

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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.

Shareholder Proposals Effective November 5, 2021

On November 5, 2021, the Company filed an Amendment to its Articles of Incorporation, as amended (the “Amendment”), with the Secretary of State of Delaware to make effective the following proposals, which had previously been approved by the Company’s Board of Directors and stockholders:

Proposal 1: To approve an amendment to our Certificate of Incorporation, as amended, to increase the number of authorized shares of our common stock from 10,000,000,000 to 50,000,000,000 shares.

Proposal 2: To approve an amendment to our Certificate of Incorporation, as amended, to provide that the number of authorized shares of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Company entitled to vote generally in the election of directors, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware (or any successor provision thereto), voting together as a single class, without a separate vote of the holders of the class or classes the number of authorized shares of which are being increased or decreased unless a vote by any holders of one or more fully described in Notes 1 and 13series of Preferred Stock is required by the express terms of any series of Preferred Stock pursuant to the accompanying unaudited condensed consolidated financial statements.terms thereof.

As a result of the Voting Agreement and the two proposals listed above that became effective on November 5, 2021, 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.

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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 September 30, 2020,2021, 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

(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 Securities and Exchange Commission’s (“SEC”)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 September 30, 2020,2021, 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, 2019,2020, 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, 2019.2020. As of September 30, 2020,2021, we concluded that these material weaknesses continued to exist.

The Company expects improvements to be made on the integration of information issues during 2020the remainder of 2021 and beyond 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 accounting department;finance department, including hiring a chief financial officer; (ii) continuing the process of moving towards securingconverting to a prompt and accuratenew integrated accounting system to enhance controls and procedures for recording accounting transactions; and (iii) implementing enhanced documentation procedures to be followed by the internal accountingfinance department, including independent review of material cash disbursements.

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Notwithstanding such material weaknesses,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

(b) Changes in Internal Control over Financial Reporting

During the threenine months ended September 30, 2020,2021, 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.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

From time-to-time,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 1513 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 20192020 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 20192020 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

3.243.27Certificate of Amendment to Certificate of Incorporation of Rennova Health, Inc. (incorporated by reference to Exhibit 3.243.27 of the Company’s Current Report on Form 8-K filed with the SEC on August 4, 2020)July 19, 2021).
3.2510.1CertificateExchange Agreement, dated as of Designation for Series N Convertible Redeemable Preferred StockAugust 27, 2021, between Rennova Health, Inc. and Christopher Diamantis (incorporated by reference to Exhibit 3.2510.1 of the Company’s Current Report on Form 8-K filed with the SEC on September 1, 2020)2, 2021).

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10.2
10.1ExchangeForm of Securities Purchase Agreement, dated as of June 30, 2020, betweenSeptember 7, 2021, among Rennova Health, Inc. and Christopher Diamantis (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2020).
10.2Voting Agreement and Irrevocable Proxy, dated as of August 13, 2020, by and among Rennova Health, Inc., Seamus Lagan, Alcimede LLC and Christopher Diamantis (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 13, 2020).
10.3Form of Exchange, Redemption and Forbearance Agreement, dated as of August 31, 2020, among Rennova Health, Inc., Christopher Diamantis and the investorinvestors signatory thereto (incorporated by reference to Exhibit 10.1 toof the Company’s Current Report on Form 8-K filed with the SEC on September 1, 2020)8, 2021).
10.3Promissory Note, dated August 10, 2021, by Rennova Health, Inc. and Jellico Medical Center, Inc.*
  
31.110.4Promissory Note, dated August 10, 2021, by Rennova Health, Inc. and Scott County Community Hospital, Inc. d/b/a Big South Fork Medical Center*
31.1Rule 13a-14(a) Certification by the Principal Executive Officer.*
31.2Rule 13a-14(a) Certification by the Principal Financial Officer.*
32.1Certification 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.**
32.2Certification 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.INSXBRL Instance Document
101.SCHXBRL Schema Document
101.CALXBRL Calculation Link base Document
101.DEFXBRL Definition Link base Document
101.LABXBRL Label Link base Document
101.PREXBRL Presentation Link base Document

*Filed herewith

**Furnished herewith

SIGNATURES

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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: November 16, 202015, 2021By:/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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