RENNOVA HEALTH, INC. – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations
should be read together with our consolidated financial statements and the notes
thereto included elsewhere in this report. This discussion contains certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1996. Such statements consist of any statement other
than a recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "intend" or
"estimate" or the negative thereof or other variations thereof or comparable
terminology. The reader is cautioned that all forward-looking statements are
speculative, and there are certain risks and uncertainties that could cause
actual events or results to differ from those referred to in such
forward-looking statements (see Item 1A, "Risk Factors").
Overview
Inc.
Nevada
Merger, dated as of
with and into Medytox, with Medytox as the surviving company and a direct,
wholly-owned subsidiary of
Company amended its certificate of incorporation to change its name to
Health, Inc.
accordance with accounting principles generally accepted in
America
Medytox became the historical financial statements of the Company.
Our Services
We are a provider of health care services. We own one operating hospital in
reopen and operate, a physician's practice in
to reopen and operate and a rural clinic in
segment.
On
assets related to
(the "Oneida Assets"). The Oneida Assets include a 52,000-square foot hospital
building and a 6,300 square foot professional building on approximately 4.3
acres.
Hospital
a laboratory that provides a range of diagnostic services.
Community Hospital
of its parent company,
Assets out of bankruptcy for a purchase price of
which has since been renamed
on
30
Jamestown
On
acquire from Community Health Systems, Inc. certain assets related to an acute
care hospital located in
Medical Center
of
square feet on over eight acres of land, which offers a 24-hour emergency
department with two 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
The Company suspended operations at the hospital and physician clinic in
2019
other factors. The Company plans to reopen the hospital and physician clinic.
The reopening plans have also been disrupted by the coronavirus ("COVID-19")
pandemic and the timing of the reopening has been delayed. It is now intended
that the re-opening process will be initiated within 18 months subject to
securing adequate capital.
Medical Center
On
certain assets related to a 54-bed acute care hospital that offered
comprehensive services located in
Hospital
acquired from
LLC
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.
Center
On
of Jellico
hospital in
Center
Discontinued Operations
Sale of
Inc.
In 2017, we announced plans to spin off or sell our wholly-owned subsidiaries,
Inc.
AMSG to
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 Series B Non-Voting
Convertible Preferred Stock (the "InnovaQor Series B Preferred Stock"), 14,000
of the shares were issued on
the third quarter of 2021 as a result of a post-closing adjustment. Each share
of InnovaQor Series B Preferred Stock has a stated value of
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 the
limitation that no conversion can be made to the extent the holder's beneficial
interest (as defined pursuant to the terms of the InnovaQor Series B Preferred
Stock) in the common stock of InnovaQor would exceed 4.99%. The shares of the
InnovaQor Series B Preferred Stock may be redeemed by InnovaQor upon payment of
the stated value of the shares plus any accrued declared and unpaid dividends.
31
As a result of the sale, the Company has recorded the InnovaQor Series B
Preferred Stock as a long-term asset valued at
and a gain on the sale of HTS and AMSG of
shares of the InnovaQor Series B Preferred Stock and
the transfer to InnovaQor of the net liabilities of HTS and AMSG. During the
year ended
valued at
terms of notes payable that were issued on
2021
We have reflected the financial results of HTS and AMSG prior to the sale, as
well as the gain on sale, as discontinued operations in our accompanying
consolidated financial statements.
EPIC Reference Labs, Inc.
During the third quarter of 2020, we announced that we had decided to sell
Reference Labs, Inc.
included in discontinued operations in the accompanying consolidated financial
statements. We have been unable to find a buyer for EPIC and, therefore, have
ceased all efforts to sell EPIC 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 complete and once stabilized will
create more predictable and stable revenue. Rural hospitals provide a
much-needed service to their local communities and reduce our reliance on
commission-based sales employees to generate sales. We currently operate one
hospital and a rural clinic and we own another hospital and physician's practice
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. We remain confident that this is a
sustainable model we can continue to grow through acquisition and development.
The progress of the coronavirus ("COVID-19") pandemic, which is more fully
discussed below, has severely affected our operations and may cause such
expectations not to be achieved or, even if achieved, not to be done in the
expected timeframe.
Impact of the Pandemic
The COVID-19 pandemic was declared a global pandemic by the
Organization
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. As noted in
Notes 1 and 8 to the accompanying consolidated financial statements, we have
received Paycheck Protection Program loans ("PPP Notes") as well as
of Health and Human Services
retention credits from the federal government. If the COVID-19 pandemic
continues for a further extended period, we expect to incur significant losses
and additional financial assistance may be required. Going forward, we are
unable to determine the extent to which the COVID-19 pandemic will continue to
affect our business. The nature and effect of the COVID-19 pandemic on our
balance sheet and results of operations will depend on the severity and length
of the pandemic in our service areas; government activities to mitigate the
pandemic's effect; regulatory changes in response to the pandemic, especially
those affecting rural hospitals; and existing and potential government
assistance that may be provided.
The COVID-19 pandemic and the steps taken by governments to seek to reduce its
spread have severely impacted the economy and the health care industry in
particular. Hospitals have especially been affected. Small rural hospitals, such
as ours, may be overwhelmed by patients if conditions worsen in their local
areas. Staffing costs, and concerns due to the potential exposure to infections,
may increase, as may the costs of needed medical supplies necessary to keep the
hospitals open. Doctors and patients may defer elective procedures and other
health care services. Travel bans, social distancing and quarantines may limit
access to our facilities. Business closings and layoffs in our local areas may
result in the loss of insurance and adversely affect demand for our services, as
well as the ability of patients and other payers to pay for services as
rendered.
It is hoped that the continued roll out of vaccinations will significantly
reduce the risk of death and reduce transmission of the virus so that a return
to more normal expectations occurs throughout the remainder of 2022. These
developments have had, and may continue to have, a material adverse effect on us
and the operations of our hospitals. Our plans to reopen our
Medical Center
disrupted by the pandemic and the timing of the reopening has been delayed. It
is now intended that the re-opening process will be initiated within 18 months
subject to securing adequate capital.
32 Results of Operations
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations are
based on our consolidated financial statements, which have been prepared in
accordance with
requires us to make a number of estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Such estimates and
assumptions affect the reported amounts of revenues and expenses during the
reporting period. We base our estimates on historical experiences and on various
other assumptions that we believe to be reasonable under the circumstances.
Actual results may differ materially from these estimates under different
assumptions and conditions. We continue to monitor significant estimates made
during the preparation of our financial statements. On an ongoing basis, we
evaluate estimates and assumptions based upon historical experience and various
other factors and circumstances.
We have identified the policies and significant estimation processes discussed
below as critical to our business and to the understanding of our results of
operations. For a detailed application of these and other accounting policies,
see Note 2 to the accompanying consolidated financial statements as of and for
the year ended
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. Under the accounting guidance, we no longer present
the provision for doubtful accounts as a separate line item and our revenues are
presented net of estimated contract and related allowances. We also do not
present "allowances for doubtful accounts" on our consolidated balance sheets.
We review our calculations for the realizability of gross revenues monthly to
make certain that we are properly allowing for the uncollectable portion of our
gross billings and that our estimates remain sensitive to variances and changes
within our payer groups and within our service offerings. The contractual
allowance calculation is made based on historical allowance rates for the
various specific payer groups monthly with a greater weight being given to the
most recent trends; this process is adjusted based on recent changes in
underlying contract provisions, 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 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. Net revenues related to uninsured patients and
uninsured copayment and deductible amounts for patients
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.
33
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).
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
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
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
charity care. In implementing the uninsured discount policy, we may first
attempt to provide assistance to uninsured patients to help determine whether
they may qualify for Medicaid, other federal or state assistance, or charity
care. If an uninsured patient does not qualify for these programs, the uninsured
discount is applied.
The collection of outstanding receivables for Medicare, Medicaid, managed care
payers, other third-party payers and patients is our primary source of cash and
is critical to our operating performance. The primary collection risks relate to
uninsured patient accounts, including patient accounts for which the primary
insurance carrier has paid the amounts covered by the applicable agreement, but
patient responsibility amounts (deductibles and copayments) remain outstanding.
Implicit price concessions relate primarily to amounts due directly from
patients. Estimated implicit price concessions are recorded for all uninsured
accounts, regardless of the aging of those accounts. Accounts are written off
when all reasonable internal and external collection efforts have been
performed. The estimates for implicit price concessions are based upon
management's assessment of historical write offs and expected net collections,
business and economic conditions, trends in federal, state and private employer
health care coverage and other collection indicators. Management relies on the
results of detailed reviews of historical write-offs and collections at
facilities that represent a majority of our revenues and accounts receivable
(the "hindsight analysis") as a primary source of information in estimating the
collectability of our accounts receivable. We perform the hindsight analysis
quarterly, utilizing rolling accounts receivable collection and write off data.
We believe our quarterly updates to the estimated contractual allowance amounts
and to the estimated implicit price concessions at each of our facilities
provide reasonable estimates of our net revenues and valuation of our accounts
receivable.
Contractual Allowances and Doubtful Accounts Policy
Accounts receivable are reported at realizable value, net of contractual
allowances and estimated implicit price concessions (also referred to as
doubtful accounts), which are estimated and recorded in the period the related
revenue is recorded. The Company has a standardized approach to estimating and
reviewing the collectability of its receivables based on a number of factors,
including the period they have been outstanding. Historical collection and payer
reimbursement experience is an integral part of the estimation process related
to contractual allowances and doubtful accounts. In addition, the Company
regularly assesses the state of its billing operations in order to identify
issues which may impact the receivables or reserve estimates. Receivables deemed
to be uncollectible are charged against the allowance for doubtful accounts at
the time such receivables are written-off. Recoveries of receivables previously
written-off are recorded as credits to the allowance for doubtful accounts.
Revisions to the allowances for doubtful accounts are recorded as an adjustment
to revenues.
34
Impairment or Disposal of Long-Lived Assets
The Company accounts for the impairment or disposal of long-lived assets
according to
Standards Codification ("ASC") Topic 360, Property, Plant and Equipment ("ASC
360"). ASC 360 clarifies the accounting for the impairment of long-lived assets
and for long-lived assets to be disposed of, including the disposal of business
segments and major lines of business. Long-lived assets are reviewed when facts
and circumstances indicate that the carrying value of the asset may not be
recoverable. When necessary, impaired assets are written down to estimated fair
value based on the best information available. Estimated fair value is generally
based on either appraised value or measured by discounting estimated future cash
flows. Considerable management judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly from
such estimates.
Fair Value Measurements
In accordance with Accounting Standard Codification ("ASC") 820, "Fair Value
Measurements and Disclosures," the Company applies fair value accounting for all
financial assets and liabilities and non-financial assets and liabilities that
are recognized or disclosed at fair value in the financial statements on a
recurring basis. Fair value is defined as the price that would be received from
selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair
value measurements for assets and liabilities which are required to be recorded
at fair value, the Company considers the principal or most advantageous market
in which it would transact and the market-based risk measurements or assumptions
that market participants would use in pricing the asset or liability, such as
risks inherent in valuation techniques, transfer restrictions and credit risk.
Fair value is estimated by applying the following 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 applies to assets or liabilities for which there are quoted prices
in active markets for identical assets or liabilities that we have the
ability to access at the measurement date.
? Level 2 applies to assets or liabilities for which there are inputs other
than quoted prices included in Level 1 that are observable for the asset
or liability, either directly or indirectly, such as quoted prices for
similar assets or liabilities in active markets; or quoted prices for
identical assets or liabilities in markets with insufficient volume or
infrequent transactions (less active markets).
? Level 3 applies to assets or liabilities for which fair value is derived
from valuation techniques in which one or more significant inputs are
unobservable, including our own assumptions.
Derivative Financial Instruments
In
Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging
(Topic 815)." The amendments in Part I of this Update change the classification
analysis of certain equity-linked financial instruments (or embedded features)
with down round features. When determining whether certain financial instruments
should be classified as liabilities or equity instruments, a down round feature
no longer precludes equity classification when assessing whether the instrument
is indexed to an entity's own stock. The amendments also clarify existing
disclosure requirements for equity-classified instruments. As a result, a
freestanding equity-linked financial instrument (or embedded conversion option)
no longer would be accounted for as a derivative liability at fair value as a
result of the existence of a down round feature. For freestanding equity
classified financial instruments, the amendments require entities that present
earnings (loss) per share (EPS) in accordance with Topic 260 to recognize the
effect of the down round feature when it is triggered. That effect is treated as
a dividend and as a reduction of income available to common stockholders in
basic EPS. Convertible instruments with embedded conversion options that have
down round features are now subject to the specialized guidance for contingent
beneficial conversion features (in Subtopic 470-20, Debt-Debt with Conversion
and Other Options), including related EPS guidance (in Topic 260).
Deemed dividends associated with down round provisions represent the economic
transfer of value to holders of equity-classified freestanding financial
instruments when certain down round provisions (commonly referred to as
"ratchets") are triggered. These 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.
35
Year ended
The following table summarizes the results of our consolidated continuing
operations for the years ended
Year Ended December 31,
2021 2020
% %
Net revenues $ 3,223,896 100.0 % $ 7,200,120 100.0 %
Operating expenses:
Direct costs of revenues 5,292,430 164.2 % 11,783,526 163.7 %
General and administrative
expenses 7,507,613 232.9 % 11,660,899 162.0 %
Asset impairments 2,300,826 71.4 % 250,000 3.5 %
Depreciation and amortization 643,551 20.0 % 700,993 9.7 %
Loss from continuing operations
before other income (expense)
and income taxes (12,520,524 ) -388.4 % (17,195,298 ) -238.8 %
Other income, net 5,376,244 166.8 % 5,371,484 74.6 %
Gain from extinguishment of debt 1,985,121 61.6 % 2,041,038 28.3 %
Gain from legal settlements 3,252,144 100.9 % 671,613 9.3 %
Interest expense (3,185,828 ) -98.8 % (9,840,724 ) -136.7 %
(Provision) benefit from income
taxes (179,530 ) -5.6 % 1,308,180 18.2 %
Net loss from continuing
operations $ (5,272,843 ) -163.5 % $ (17,643,707 ) -245.0 %
Net Revenues
Net revenues were
to
million
approximately
in net revenues from
inpatient activity and to adjustments for contractual allowances and estimated
implicit price concessions during 2021. In addition, approximately
of the decrease was from
Hospital
notice for the lease of the building.
Net revenues for the years ended
implicit price concessions of
doubtful accounts and
contractual allowances.
Direct Costs of Revenues
Direct costs of revenue decreased by
31, 2021
direct costs increased slightly to 164.2% in 2021 compared to 163.7% in the
comparable 2020 period.
General and Administrative Expenses
General and administrative expenses decreased by
year ended
expenses decreased primarily as a result of the closure of
Hospital
for
administrative expenses increased from 162.0% to 232.9% due to the fixed nature
of many general and administrative expenses.
36 Asset Impairments
We recorded an asset impairment charge of
for
of
changed condition of the building that has not been in use since operations were
suspended in
on
a certificate of need valued at
Depreciation and Amortization Expenses
Depreciation and amortization expenses were
2020
associated with
1, 2021
Loss from Continuing Operations Before Other Income (Expense) and Income Taxes
Our loss from continuing operations before other income (expense) and income
taxes for the year ended
of
in the operating loss primarily to the closure of
impairment. Asset impairment was
Other Income, net
Other income, net of
primarily of
million
by
of
income from HHS Provider Relief Funds, partially offset by
penalties associated with non-payment of payroll taxes and
on the sale of accounts receivable under a sales agreement.
Gain from Extinguishment of Debt
We recorded gain from extinguishment of debt of
ended
the period. We recorded a
the year ended
forbearance agreements that we entered into on
agreements preferred stock and debentures and associated accrued interest were
exchanged for shares of the Company's Series N Convertible Redeemable Preferred
Stock ("Series N Preferred Stock").
Gain from Legal Settlements
The gain from legal settlements was
ended
of
from the settlements of obligations under accounts receivable sale agreements,
(ii) a gain of
debenture, and (iii) a gain of
obligations owed under professional services agreements. We settled several
legal proceedings during the year ended
net gain from legal settlements of
under a financing lease for property and equipment resulted in
the gain and we recorded
offsetting the gains from legal settlements in 2020 was a
a legal settlement related to a lawsuit by certain employees against the
Company.
Interest Expense
Interest expense for the year ended
to
included
Directors. Interest expense for the year ended
million
interest associated with loans from a former member of our Board of Directors
and approximately
lease obligations. The decrease in interest expense in 2021 as compared to 2020
was due primarily to the
our Board of Directors for preferred stock and the exchange of debentures on
interest charged on certain debentures under the terms of the
exchange. Also, attributing to the decrease in interest expense in 2021 was the
exchange of debentures and notes payable for preferred stock in
37 Benefit from Income Taxes
We incurred an income tax provision of
During the year ended
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 2020. As a result, during
the year ended
income tax refunds from the carryback of certain of our federal net operating
losses. In addition, during the year ended
additional
adjustments related to prior years, partially offset by
provision for state income taxes.
Net Loss from Continuing Operations
The net loss from continuing operations for the year ended
2020
to: (i) a decrease in the loss from continuing operations before other income
(expense) and income taxes of
from federal employee retention tax credits, (iii) a
legal settlements in 2021 compared to a
in 2020, (iv) a decrease in interest expense of
2020, and (v) a loss on sales of accounts receivable under a sales agreement of
year ended
Provider Relief Funds in 2021 compared to 2020 and a provision for income taxes
of
in 2020, among other items.
Liquidity and Capital Resources
Overview
For the years ended
issuances of preferred stock, notes payable, loans from
former member of our Board of Directors, and the sale of accounts receivable
under sales agreements. Also, during the year ended
received approximately
million
recognized as other income in the year ended
was recognized as other income in the year ended
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. As of
million
million
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 consolidated financial statements. During the year
ended
credits, which we applied to outstanding past-due payroll taxes. During the year
ended
issuances of promissory notes and
O Convertible Redeemable Preferred Stock ("Series O Preferred Stock"). During
the years ended
working capital purposes. On
million
Stock. On
On
wherein we exchanged the amount owed to
on that date, which totaled
Convertible Redeemable Preferred Stock (the "Series M Preferred Stock").
38
On
agreements with certain institutional investors wherein the investors reduced
their holdings of the Company's debentures by approximately
(including accrued interest and penalties) by exchanging the debentures and all
of the then outstanding shares of the Company's Series I-1 Convertible Preferred
Stock and Series I-2 Convertible Preferred Stock for 30,435.52 shares of the
Company's Series N Preferred Stock.
On
"
Company. In the
reduce their holdings of
promissory notes payable and
debentures, plus accrued interest thereon of approximately
exchanging the indebtedness and accrued interest for 8,544.870 shares of the
Company's newly-authorized Series P Convertible Redeemable Preferred Stock (the
"Series P Preferred Stock") with a stated value of
of approximately
Exchange Agreements, the expiration dates of the March Warrants that were issued
by the Company to the investors in
12 to the accompanying consolidated financial statements, were extended from
Each of these financing transactions is more fully discussed in Notes 1, 8, 11,
12 and 18 to our accompanying consolidated financial statements.
On
received 14,950 shares of InnovaQor's Series B Preferred Stock with a stated
value of
sale. In addition,
transferred to InnovaQor. The sale is more fully discussed above under the
heading, "Discontinued Operations," and in Note 15 to our accompanying
consolidated financial statements.
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 dilution 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.
Going Concern and Liquidity
Under ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic
205-40) ("ASC 205-40"), the Company has the responsibility to evaluate whether
conditions and/or events raise substantial doubt about its ability to meet its
future financial obligations as they become due within one year after the date
that the financial statements are issued. As required by ASC 205-40, this
evaluation shall initially not take into consideration the potential mitigating
effects of plans that have not been fully implemented as of the date the
financial statements are issued. Management has assessed the Company's ability
to continue as a going concern in accordance with the requirement of ASC 205-40.
As reflected in the accompanying consolidated financial statements, the Company
had a working capital deficit and a stockholders' deficit of
continuing operations before other income (expense) and income taxes of
approximately
in its operating activities was
2021
operations in the ordinary course are not being made. The continued losses and
other related factors, including past due accounts payable and payroll taxes, as
well as payment defaults under the terms of certain outstanding notes payable
and debentures, as more fully discussed in Notes 7 and 8 to the accompanying
consolidated financial statements, raise substantial doubt about the Company's
ability to continue as a going concern for 12 months from the filing date of
this report.
The Company's accompanying consolidated financial statements are prepared
assuming the Company can continue as a going concern, which contemplates
continuity of operations through realization of assets, and the settling of
liabilities in the normal course of business. As more fully discussed in Note 15
to the accompanying consolidated financial statements, on
Company sold HTS and AMSG to InnovaQor and the Company received 14,940 shares of
InnovaQor's Series B Preferred Stock valued at
the sale. In addition,
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
clinical laboratory, EPIC, and as a result, EPIC s operations have been included
in discontinued operations for all periods presented. The Company has been
unable to find a buyer for EPIC, and, therefore, has ceased all efforts to sell
EPIC and closed down its operations during 2021.
39
On
of
the Company in
rural hospital,
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 and eventually achieve profitable operations. The accompanying
consolidated financial statements do not include any adjustments that might be
necessary if we are unable to continue as a going concern.
As of
in Note 14 to the accompanying consolidated financial statements.
The following table presents our capital resources as ofDecember 31, 2021 and 2020: December 31, December 31, 2021 2020 Change Cash$ 724,524 $ 25,353 $ 699,171 Working capital deficit (41,641,960 ) (56,454,545 ) 14,812,585 Total debt, exclusive of debt discounts 15,017,059 20,770,771 (5,753,712 ) Finance lease obligations 220,461 249,985 (29,524 ) Stockholders' deficit (27,301,524 ) (49,017,752 ) 21,716,228
The following table presents the major sources and uses of cash for the years
ended
Year Ended December 31,
2021 2020 Change
Net cash used in operations $ (8,912,682 ) $ (16,928,376 ) $ 8,015,694
Net cash used in investing
activities - (288,890 ) 288,890
Net cash provided by financing
activities 9,611,853 17,225,686 (7,613,833 )
Net change in cash 699,171 8,420 690,751
Cash and cash equivalents, beginning
of the year 25,353 16,933 8,420
Cash and cash equivalents, end of
the period $ 724,524 $ 25,353 $ 699,171
40
The components of cash used in operations for years ended
2020 are presented in the following table:
Year Ended December 31,
2021 2020 Change
Net loss from continuing operations $ (5,272,373 ) $ (17,643,707 ) $ 12,371,334
Non-cash adjustments to net loss (1) (8,192,389 ) (9,111,711 ) 919,322
Change in operating assets and
liabilities:
Accounts receivable (544,616 ) 1,446,117 (1,990,733 )
Inventory 164,902 168,929 (4,027 )
Accounts payable, checks issued in
excess of bank balance and accrued
expenses 4,540,724 9,199,632 (4,658,908 )
Income tax assets and liabilities 179,530 (712,580 ) 892,110
Other 102,450 (174,517 ) 276,967
Net cash used in operating
activities of continuing operations (9,021,772 ) (16,827,837 ) 7,806,065
Net cash provided by (used in)
discontinued operations 109,090 (100,539 ) 209,629
Net cash used in operations $ (8,912,682 ) $ (16,928,376 ) $ 8,015,694
(1) Non-cash adjustments to net loss for the year ended
million include primarily a$11.3 million gain from the sale of HTS and AMSG,$3.3 million gain from legal settlements,$2.0 million gain from extinguishment of debt,$4.4 million gain from HHS provider relief funds and$1.5 million of income from employee retention credits, partially offset by net income from discontinued operations of$10.9 million ,$2.3 million of fixed asset impairment and$0.6 million of depreciation and amortization. Non-cash adjustments to net loss for the year endedDecember 31, 2020 of$9.1 million include primarily$0.7 million from legal settlements, a$2.0 million gain from extinguishment of debt, an$8.0 million gain from HHS provider relief funds and$0.7 million in net loss from discontinued operation, partially offset by a$1.2 million loss on sales of accounts receivable under sales agreements and$0.7 million of depreciation and amortization.
No cash was used by investing activities for the year ended
Cash used by investing activities of
31, 2020
offset by
Cash provided by financing activities for the year ended
our Series O Preferred Stock,
Board of Directors,
from the issuances of notes payable, partially offset by
payments of loans from a former member of our Board of Directors,
in payments of notes payable and
under sales agreements. Cash provided by financing activities for the year ended
loans from a former member of our Board of Directors,
Notes,
of accounts receivable and
payable. Partially offsetting these cash receipts were
of debentures,
of loans owed to a former member of our Board of Directors,
payments of accounts receivable under sales agreements and
finance lease obligation payments.
Common Stock and Common Stock Equivalents
The Company had 4.2 million and 4 shares of its common stock issued and
outstanding at
year ended
stock upon the exchange and conversions of
Series M Preferred Stock and 4.2 million shares of its common stock upon the
conversions of
During the year ended
share of its common stock upon conversion of
Series I-2 Convertible Preferred Stock and three shares of its common stock upon
conversion of
Stock.
41
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 8, 11, 12 and 18 to
the accompanying consolidated financial statements). These provisions have
resulted in significant dilution of the Company's common stock and have given
rise to reverse splits of the Company's common stock, including a 1-for-1,000
reverse stock split effected on
split effected on
the potential common stock equivalents, including outstanding common stock,
totaled 109.6 million at
On
Company, Mr.
Chief Executive Officer, is the sole manager) pursuant to which
held by
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.
Also, on
as amended, to provide that the number of authorized shares of its 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
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 series
of preferred 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 and the
Company's Certificate of Incorporation discussed above, 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 shares of common stock outstanding.
42 Inflation
The healthcare industry is very labor intensive and salaries and benefits are
subject to inflationary pressures, as are supply and other costs. The nationwide
shortage of nurses and other clinical staff and support personnel has been a
significant operating issue facing us and other healthcare providers. In
particular, like others in the healthcare industry, we continue to experience a
shortage of nurses and other clinical staff and support personnel, which has
been exacerbated by the COVID-19 pandemic. We are treating patients with
COVID-19 in our facilities and, in some areas, the increased demand for care is
putting a strain on our resources and staff, which has required us to utilize
higher-cost temporary labor and pay premiums above standard compensation for
essential workers. The length and extent of the disruptions caused by the
COVID-19 pandemic are currently unknown; however, we expect such disruptions to
continue. This staffing shortage may require us to further enhance wages and
benefits to recruit and retain nurses and other clinical staff and support
personnel or require us to hire expensive temporary personnel. Our ability to
pass on increased costs associated with providing healthcare to Medicare and
Medicaid patients is limited due to various federal, state and local laws which
have been enacted that, in certain cases, limit our ability to increase prices.
Off-Balance Sheet Arrangements
Under
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.
As of
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.
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