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, 2018 (the "2018 Form 10-K") and in our subsequent filings
with the Securities and Exchange Commission. The following discussion of our
results of operations should be read in conjunction with the audited financial
statements contained within the 2018 Form 10-K and with our unaudited condensed
consolidated financial statements and related notes thereto included elsewhere
in this report.



  38






COMPANY OVERVIEW



Our Services

We have operated in two business segments: Hospital Operations and Clinical Laboratory Operations.





Our Hospital Operations net revenues were $3.9 million and $13.1 million for the
three and nine months ended September 30, 2019, respectively, as compared to
$5.0 million and $9.8 million for the three and nine months ended September 30,
2018, respectively. 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. Our clinical laboratory operations
outside of our hospitals are now minimal and the Company is actively discussing
the disposal of the laboratory operations outside of the hospital locations.
There can be no guarantee that any discussions will lead to a successful sale.



On January 31, 2018, the Company 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. 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, when operating, 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 providing telemetry services. The
Company suspended operations of the hospital in June 2019 but is currently
planning the reopening of the hospital. The acquisition also included a separate
physician practice which now operates under Rennova as Mountain View Physician
Practice, Inc. Jamestown is located 38 miles west of Big South Fork Medical
Center.



In addition, on March 5, 2019, we closed an asset purchase agreement (the
"Purchase Agreement") whereby we acquired certain assets related to an acute
care hospital located in Jellico, Tennessee and an outpatient clinic located in
Williamsburg, Kentucky. The hospital is known as Jellico Community Hospital and
the clinic is known as the CarePlus Center. The hospital and 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 director of the Company. Annual net revenues in
recent years have been approximately $12.0 million, with government payors,
including Medicare and Medicaid, accounting for in excess of 70% of the payor
mix. The Company does not expect that payor mix to change in the near future.



Going forward, we expect our Hospital Operations to provide us with a stable
revenue base, as well as the potential for significant synergistic opportunities
with our Clinical Laboratory Operations business segment.



Prior to our focus on our Hospital Operations, our principal line of business
had been clinical laboratory blood and urine testing services, with a particular
emphasis on the provision of urine drug toxicology testing to physicians,
clinics and rehabilitation facilities in the United States. Our Clinical
Laboratory Operations net revenues were $(34,631) and $56,169 for the three and
nine months ended September 30, 2019, respectively as compared to $17,569 and
$177,890 for the three and nine months ended September 30, 2018. Our clinical
laboratory operations outside of our hospitals are now minimal and the Company
is actively discussing the disposal of the laboratory operations outside of the
hospital locations. There can be no guarantee that any discussions will lead to
a successful sale.



Departure of Director



On December 11, 2019, Dr. Kamran Ajami resigned as a director of the Company. In
submitting his resignation; Dr. Ajami did not express any disagreement with the
Company on any matter relating to the Company's operations, policies or
practices. Dr. Ajami had served as a director since April 9, 2017.



Discontinued Operations



On July 12, 2017, the Company announced plans to spin off its Advanced Molecular
Services Group ("AMSG") and in the third quarter 2017 the Company's 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. While
these spin offs have taken longer than anticipated, completion of these spin
offs is now expected to occur in the first quarter of 2020. The spin offs are
subject to numerous conditions, including effectiveness of Registration
Statements on Form 10 to be filed with the Securities and Exchange Commission,
and consents, including under various funding agreements previously entered into
by the Company. A record date to determine those stockholders entitled to
receive shares in the spin offs should be approximately 30 to 60 days prior to
the dates of the spin offs. The strategic goal of the spin offs is to create
three public companies, each of which can focus on its own strengths and
operational plans. In addition, after the spin offs, each company will provide a
distinct and targeted investment opportunity. The Company has reflected the
amounts relating to AMSG and HTS as disposal groups classified as held for sale
and included in discontinued operations in the Company's accompanying unaudited
condensed consolidated financial statements.



  39






Outlook



We believe that the addition of our Hospital Operations to our business model
offers a more predictable and stable revenue base, as well as the potential for
significant synergistic opportunities with our Clinical Laboratory Operations
business segment. To date, our focus is on rural hospitals, which provide a
much-needed service to their local communities. These hospitals reduce our
reliance on commission based sales employees to generate sales. Our hospitals,
CarePlus center and a doctor's office practice are in the same general
geographic location, which has created numerous efficiencies in purchasing,
staffing and provision of needed services to the local communities. We are
confident that this is a sustainable model we can continue to grow through
acquisition and development and believe that we can benefit from the compliance
and IT and software capabilities we already have in place. The Company is
focusing on centralizing certain functions like ordering of supplies, revenue
cycle management and financial management of the acquired facilities and is
planning to share certain services that one facility alone could not sustain.
Management believes that these actions when complete will enable the operations
to be profitable and cash flow positive.



Our Clinical Laboratory Operations revenues have decreased significantly over
the past number of years. This decline in revenues has had a material adverse
impact on our liquidity, results of operations and financial condition, and is
the result of lower third-party reimbursement and while we secured numerous
in-network contracts with payers our status in many cases is as an "out of
network" service provider. These trends have impacted our entire industry, and
have been accompanied by allegations of irregularities in the practices of a
number of our competitors and substance abuse facilities. In response, we have
put in place a robust compliance program that we are implementing in all facets
of our business.



We believe that our ability to grow our Clinical Laboratory Operations revenues
inside our Hospital Operations and return this division to profitability is
dependent on our ability to secure additional "in-network" contracts with
insurance companies and other third-party payers, which will then ensure
adequate and timely payment for the toxicology, clinical pharmacogenetics and
other testing services we perform. These third-party payers are now generally
unwilling to reimburse service providers who are not part of their network, a
departure from prior industry practices and a trend that has accelerated during
the past several years. However, we do anticipate that significant new
opportunities to become credentialed with certain large third-party payers will
arise in 2020 and 2021, which would have a significant positive impact on our
future revenues. In addition, we have made a number of changes to our onboarding
policies and procedures to ensure that, on a going forward basis, substantially
all services that we perform will be reimbursable.



We believe that a successful spin off of AMSG and HTS as two independent
publicly traded companies by way of tax-free distributions to the Company's
stockholders would allow each to focus on its own strengths and operational
plans. In addition, after the spin offs, each company will provide a distinct
and targeted investment opportunity. The Company believes it will be able to
recognize the expenditures to date with regard to AMSG and HTS, which are in
excess of $20 million, as an investment after the spinoff(s) are complete.



Our net loss from continuing operations for the three months ended September 30,
2019 was $12.1 million compared to net income of $97.4 million for the same
period of a year ago. The change is primarily due to a gain of $109.3 million
from the change in fair value of derivative instruments in the three months
ended September 30, 2018 versus no change in the fair value of derivative
instruments during the three months ended September 30, 2019. Also contributing
to the change was other expense of $5.8 million in the three months ended
September 30, 2019 compared to other income of $0.2 million in the comparable
2018 period. Partially offsetting these items was an improvement in the loss
from continuing operations before other income (expense) and income taxes, which
was $2.7 million in the three months ended September 30, 2019 compared to $2.8
million in the three months ended September 30, 2018 and interest expense of
$3.6 million in the three months ended September 30, 2019 compared to $9.3
million in the three months ended September 30, 2018.



Our net loss from continuing operations for the nine months ended September 30,
2019 was $38.3 million compared to a net loss of $4.0 million for the same
period of a year ago. The increase in the loss is primarily due to a gain of
$13.7 million from the change in fair value of derivative instruments in the
nine months ended September 30, 2018 compared to a loss of $0.1 million from the
change in fair value of derivative instruments during the nine months ended
September 30, 2019, other expense of $7.0 million in the nine months ended
September 30, 2019 compared to other income of $0.6 million in the comparable
2018 period, loss from continuing operations before other income (expense) and
income taxes of $12.3 million in the nine months ended September 30, 2019
compared to $8.9 million in the nine months ended September 30, 2018 and
interest expense of $19.2 million in the nine months ended September 30, 2019
compared to $17.1 million in the nine months ended September 30, 2018.



  40

Comparison for the three months ended September 30, 2019 and September 30, 2018





The following table summarizes the results of our consolidated continuing
operations for the three months ended September 30, 2019 and 2018 (unaudited):



                                                  Three Months Ended September 30,
                                                 2019                           2018
                                                           %                              %
Net revenues                          $   3,885,977        100.0 %   $   5,039,112        100.0 %
Operating expenses:
Direct costs of revenue                   3,227,709         83.1 %       3,350,286         66.5 %
General and administrative expenses       3,163,624         81.4 %       4,351,576         86.4 %
Depreciation and amortization               199,996          5.1 %         152,825          3.0 %
Loss from operations before other
income (expense) and income taxes        (2,705,352 )      -69.6 %      (2,815,575 )      -55.9 %
Other income (expense), net              (5,874,873 )     -151.2 %         188,658          3.7 %
Change in fair value of derivative
instruments                                       -          0.0 %     109,305,331       2169.1 %
Interest expense                         (3,637,467 )      -93.6 %      (9,322,333 )     -185.0 %
Provision for income taxes                        -          0.0 %               -          0.0 %
Net (loss) income from continuing
operations                            $ (12,217,692 )     -314.4 %   $  97,356,081       1932.0 %




Net Revenues



Consolidated net revenues were $3.9 million for the three months ended September
30, 2019 as compared to $5.0 million for the three months ended September 30,
2018. Our Hospital Operations net revenues decreased by $1.1 million, which
reflect a decrease in net revenues from Jamestown Regional Medical Center of
$3.9 million, partially offset by $1.8 million of net revenues from Jellico
Community Hospital and CarePlus Center, which were acquired on March 5, 2019,
and an increase in net revenues from Big South Fork Medical Center of $1.0
million. 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. Our Clinical Laboratory Operations net revenue decreased by $52,200 for
the 2019 period compared to the 2018 period. Net revenues for the three months
ended September 30, 2019 and 2018, include bad debt expense elimination of $0.9
million and $1.8 million, respectively, for doubtful accounts and $23.3 million
and $22.9 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 monthly, to make certain that we are properly allowing for bad
debt and contractual adjustments.



Direct Costs of Revenue



Direct costs of revenue decreased by $0.1 million compared to the three months
ended September 30, 2018 due to a reduction in Clinical Laboratory Operations'
direct costs. As a percentage of net revenues, direct costs increased to 83.1%
in the three months ended September 30, 2019 as compared to 66.6% in the
comparable period. We attribute the increase in the percentage of net revenues
primarily to the Company's decision to suspend operations at Jamestown Regional
Medical Center, which did not operate during the third quarter of 2019,
following the termination of the Medicare program. Despite the suspension, we
still incurred certain direct costs of revenue. On June 10, 2019, the Company
hired a new CEO to oversee the reopening of the hospital and took steps to
re-enter the Medicare program. Contributing to the increase in the direct costs
as a percentage of net revenues for the three months ended September 30, 2019
compared to the comparable 2018 period was a decision to reassess our revenue
rate at Big South Fork Medical Center to recognize revenue after contractual
allowances at 10% based on the Company's historical data compared to using an
industry standard rate of 20% in the comparable 2018 period.



  41

General and Administrative Expenses





General and administrative expenses decreased by $1.2 million, or 27%, in the
three months ended September 30, 2019 compared to the same period a year ago.
The decrease was primarily due to a $0.8 million decrease in our Hospital
Operations' general and administrative expenses as well as a $0.2 million
decrease in our Clinical Laboratory Operation's general and administrative
expenses and a $0.3 million decrease in our Corporate's general and
administrative expense. We attribute the decrease in our Hospital Operations
general and administrative expenses primarily to the suspension of operations at
Jamestown Regional Medical Center during the 2019 period.

Depreciation and Amortization Expenses

Depreciation and amortization expense was $0.2 million and $0.2 million for the three months ended September 30, 2019 and 2018, respectively.

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





Loss from continuing operations before other income (expense) and income taxes
decreased by $0.1 million for the three months ended September 30, 2019 as
compared to same period a year ago. The loss from our Clinical Laboratory
Operations decreased by approximately $0.3 million, and the loss from Corporate
decreased by approximately $0.3 million, which were partially offset by an
increase in the loss from our Hospital Operations of $0.5 million. Contributing
to the increase in the loss from our Hospital Operations for the three months
ended September 30, 2019 compared to the comparable 2018 period was a decision
to reassess our revenue rate at Big South Fork Medical Center to recognize
revenue after contractual allowances at 10% based on the Company's historical
data compared to using an industry standard rate of 20% in the comparable 2018
period.



Other Income (Expense)



Other expense was $5.8 million for the three months ended September 30, 2019,
compared to other income of $0.2 million for the same period a year ago. The
expense in the three months ended September 30, 2019 was due to the loss on sale
of receivables under a factoring arrangement of $0.7 million and penalties for
non-payment of debentures at maturity of $5.1 million.

Change in Fair Value of Derivative Instruments


For the three months ended September 30, 2018, the Company realized income of
$109.3 million for the change in fair value of derivative instruments. On
September 23, 2018, the Company's board of directors approved a reverse split of
its common stock, which would provide sufficient authorized and unissued shares
to allow for otherwise equity classified instruments to be classified in equity.
As of September 23, 2018, the fair value of these instruments was evaluated for
reclassification. As a result of the evaluation, the Company reclassified the
derivative liability previously reported as a current liability to derivative
income. We did not incur a change in fair value of derivative instruments in the
2019 period.



Interest Expense



Interest expense for the three months ended September 30, 2019 was $3.6 million
compared to $9.3 million for the three months ended September 30, 2018. Interest
expense for the three months ended September 30, 2019 includes $1.8 million for
interest on loans from a member of our board of directors, $1.4 million for the
amortization of debt discount and deferred financing costs related to debentures
and note payable and approximately $0.4 million of interest expense on
debentures, notes payable and finance lease obligations. Interest expense for
the three months ended September 30, 2018 included $9.0 million for the
amortization of debt discount and deferred financing costs related to
convertible debentures and warrants and $0.3 million for finance lease
obligations.

Net Loss/Income From Continuing Operations





Our net loss from continuing operations for the three months ended September 30,
2019 was $12.1 million compared to net income of $97.4 million for the same
period of a year ago. The change is primarily due to a gain of $109.3 million
from the change in fair value of derivative instruments in the three months
ended September 30, 2018 versus no change in the fair value of derivative
instruments during the three months ended September 30, 2019. Also contributing
to the change was other expense of $5.8 million in the three months ended
September 30, 2019 compared to other income of $0.2 million in the comparable
2018 period. Partially offsetting these items was an improvement in the loss
from continuing operations before other income (expense) and income taxes, which
was $2.7 million in the three months ended September 30, 2019 compared to $2.8
million the three months ended September 30, 2018 and interest expense of $3.6
million in the three months ended September 30, 2019 compared to $9.3 million in
the three months ended September 30, 2018.



  42






The following table presents key financial metrics for our Hospital Operations
segment:



                                     Three Months Ended September 30,
                                         2019                  2018             Change           %
Hospital Operations

Net revenues                       $       3,920,608       $   5,021,543     $ (1,100,935 )      -21.9 %
Operating expenses:
Direct costs of revenue                    3,226,509           3,156,461           70,048          2.2 %
General and administrative
expenses                                   2,280,667           3,119,994         (839,327 )      -26.9 %
Depreciation and amortization                182,832              39,669          143,163        360.9 %

Loss from operations               $      (1,769,400 )     $  (1,294,581 )   $   (474,819 )      -36.7 %


Number of Patients Served                      9,607               3,044            6,563
Key Operating Measures - Net
revenues per patient served:       $          408.10       $    1,649.65              N/A

Key Operating Measures - Direct
cost of revenue per patient:       $          335.85       $    1,036.95              N/A




In the three months ended September 30, 2019, we reassessed our revenue rate at
Big South Fork Medical Center to recognize revenue after contractual allowances
at 10% based on the Company's historical data compared to using an industry
standard rate of 20% in the compared 2018 period.

The following table presents key financial and operating metrics for our Clinical Laboratory Operations segment:





                                      Three Months Ended September 30,
                                         2019                   2018             Change          %
Clinical Laboratory Operations

Net revenues (1)                   $        (34,631 )     $         17,569     $  (52,200 )     -297.1 %
Operating expenses:
Direct costs of revenue                       1,200                193,825       (192,625 )      -99.4 %
General and administrative
expenses                                    250,041                257,877         (7,836 )       -3.0 %
Depreciation and amortization                10,036                112,908

(102,872 ) -91.1 %


Loss from operations               $       (295,908 )     $       (547,041

) $ 251,133 45.9 %



Key Operating Measures -
Revenues: (1)
Insured tests performed                           -                  1,895         (1,895 )     -100.0 %
Net revenue per insured test       $              -       $           9.27     $    (9.27 )     -100.0 %
Revenue recognition percent of
gross billings                                                         7.0

% -7.0 %



Key Operating Measures - Direct
Costs:
Total samples processed                           -                  1,259         (1,259 )     -100.0 %
Direct costs per sample            $              -       $         153.95 
$  (153.95 )     -100.0 %

(1) No tests were performed in the three months ended September 30, 2019. The

negative net revenue represents bad debt expense recorded in the period.






  43







The following table presents key financial metrics for our Corporate group:




                                   Three Months Ended September 30,
                                      2019                   2018              Change           %
Corporate

Operating expenses:
General and administrative
expenses                        $        632,916       $        973,705     $   (340,789 )      -35.0 %
Depreciation and amortization              7,128                    248    

       6,880       2774.2 %

Loss from operations            $       (640,044 )     $       (973,953 )   $    333,909         34.3 %

Comparison for the nine months ended September 30, 2019 and September 30, 2018





The following table summarizes the results of our consolidated continuing
operations for the nine months ended September 30, 2019 and 2018 (unaudited):



                                                Nine Months Ended September 30,
                                              2019                           2018
                                         $              %               $              %
Net revenues                       $  13,137,816        100.0 %   $   9,932,989        100.0 %
Operating expenses:
Direct costs of revenue               12,072,442         91.9 %       7,809,465         78.6 %
General and administrative
expenses                              12,730,695         96.9 %      10,240,434        103.1 %
Depreciation and amortization            609,818          4.6 %         804,074          8.1 %
Loss from operations before
other income (expense) and
income taxes                         (12,275,139 )      -93.4 %      (8,920,984 )      -89.8 %
Other income (expense)                (6,980,616 )      -53.1 %         609,719          6.1 %
Gain on bargain purchase                 250,000          1.9 %       7,732,302         77.8 %
Change in fair value of
derivative instruments                  (105,076 )       -0.8 %      13,688,678        137.8 %
Interest expense                     (19,229,232 )     -146.4 %     (17,075,437 )     -171.9 %
Provision for income taxes                     -          0.0 %             (76 )        0.0 %
Net loss from continuing
operations                         $ (38,340,063 )     -291.8 %   $  (3,965,798 )      -39.9 %




Net Revenues



Consolidated net revenues were $13.1 million for the nine months ended September
30, 2019, as compared to $9.9 million for the nine months ended September 30,
2018, an increase of $3.2 million. The increase in net revenues was due to net
revenue from Jellico Community Hospital and CarePlus Center of $4.8 million,
which were acquired on March 5, 2019. In addition, our Big South Fork Medical
Center's net revenue increased by $0.7 million in the nine months ended
September 30, 2019, as compared to the nine months ended September 30, 2018. The
increases were partially offset by a decrease in net revenues from Jamestown
Regional Medical Center of $2.2 million for the nine months ended September 30,
2019 compared to the 2018 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 increase in Hospital Operations net revenues
was offset by an approximately $0.1 million decrease in Clinical Laboratory
Operations net revenues for the 2019 period compared to 2018 period. Net
revenues for the nine months ended September 30, 2019 and 2018, include bad debt
expense elimination of $4.8 million and $3.1 million, respectively, for doubtful
accounts and $81.9 million and $40.7 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 monthly, to make certain that we are
properly allowing for bad debt and contractual adjustments.



  44






Direct Costs of Revenue




Direct costs of revenue increased by $4.3 million in the nine months ended
September 30, 2019 compared to the nine months ended September 30, 2018. We
attribute the increase to Jellico Community Hospital and CarePlus Center, which
were acquired on March 5, 2019. As a percentage of net revenues, direct costs
increased to 91.9% in the nine months ended September 30, 2019 as compared to
78.6% in the comparable period. We attribute the increase in the percentage of
net revenues primarily to the Company's decision to suspend operations at
Jamestown Regional Medical Center, which did not operate during the third
quarter of 2019, following the termination of the Medicare program. Despite the
suspension, we still incurred certain direct costs of revenue. On June 10, 2019,
the Company hired a new CEO to oversee the reopening of the hospital and took
steps to re-enter the Medicare program. Also contributing to the increase in the
direct costs as a percentage of revenue for the nine months ended September 30,
2019, was our decision to reassess our revenue rate at Big South Fork Medical
Center to recognize revenue after contractual allowances at 10% based on the
Company's historical data compared to using an industry standard rate of 20% in
the compared 2018 period.

General and Administrative Expenses

General and administrative increased by $2.5 million, or 24.5%, in the nine months ended September 30, 2019 compared to the same period a year ago. The increase was primarily due to a $3.4 million increase in our Hospital Operations' general and administrative expenses, partially offset by a decrease of $0.4 million decrease in our Clinical Laboratory Operations and a $0.5 million decrease in Corporate's general and administrative expense.

Depreciation and Amortization Expenses


Depreciation and amortization expense was $0.6 million for the nine months ended
September 30, 2019 as compared to $0.8 million for the same period a year ago.
The decrease is due to fully depreciating certain fixed assets in 2018. We
expect our depreciation and amortization expense to increase going forward as a
result of the fixed assets associated with our hospital acquisitions.

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





Our operating loss increased by $3.4 million for the nine months ended September
30, 2019 as compared to same period a year ago due to additional losses for our
Hospital Operations. The increase in the loss from operations was due to the
suspension of operations at Jamestown Regional Medical Center, which did not
operate during the third quarter of 2019, following the termination of the
Medicare program. Despite the suspension, we still incurred certain direct costs
of revenue as well as general and administrative expenses. We also attribute the
increase in the loss to the reassessment of our revenue rate at Big South Fork
Medical Center to recognize revenue after contractual allowances at 10% based on
the Company's historical data compared to using an industry standard rate of 20%
in the comparable 2018 period.



Other Income (Expense)



We incurred other loss of $7.0 million in the nine months ended September 30,
2019 as compared to income of $0.6 million in same period a year ago. The loss
in the nine months ended September 30, 2019 was due to $5.7 million in penalties
for non-payment of debentures on the maturity dates and $1.2 million of loss on
sale under factoring arrangements.



Gain on Bargain Purchase



The gain on bargain purchase of $0.3 million for the nine months ended September
30, 2019 resulted primarily from intangible assets of Jellico Community Hospital
and CarePlus Center, which were acquired on March 5, 2019. The gain on bargain
purchase of $7.7 million for the nine months ended September 30, 2018 resulted
primarily from real property of Jamestown Regional Medical Center, which was
acquired on June 1, 2018.

Change in Fair Value of Derivative Instruments





For the nine months ended September 30, 2019, the Company realized a loss of
$0.1 million for the change in fair value of derivative instruments, which
represented the increase in the fair value of a derivative debenture due to the
increase in the spread between the price of our common stock and the conversion
price of the derivative in the nine months ended September 30, 2019. For the
nine months ended September 30, 2018, the Company realized income of $13.7
million for the change in fair value of derivative instruments. On September 23,
2018, the Company's board of directors approved a reverse split of its common
stock, which would provide sufficient authorized and unissued shares to allow
for otherwise equity classified instruments to be classified in equity. As of
September 23, 2018, the fair value of these instruments was evaluated for
reclassification. As a result of the evaluation, the Company reclassified the
derivative liability previously reported as a current liability to derivative
income.



  45






Interest Expense



Interest expense for the nine months ended September 30, 2019 was $19.2 million
compared to $17.1 million for the nine months ended September 30, 2018. Interest
expense for the nine months ended September 30, 2019 includes $2.9 million for
interest on loans from a member of our board of directors, $6.4 million for the
amortization of debt discount and deferred financing costs related to debentures
and note payable, $9.5 million for the modification of warrants and
approximately $0.4 million of interest expense on debentures, notes payable and
finance lease obligations. Interest expense for the nine months ended September
30, 2018 includes $16.1 million for the amortization of debt discount, including
expense associated with the modification of warrants, and deferred financing
costs related to convertible debentures and warrants and $1.0 million for
interest on notes payable and finance lease obligations.

Net Loss From Continuing Operations


Our net loss from continuing operations for the nine months ended September 30,
2019 was $38.3 million compared to net loss of $4.0 million for the same period
of a year ago. The increase in the loss is primarily due to a gain of $13.7
million from the change in fair value of derivative instruments in the nine
months ended September 30, 2018 compared to a loss of $0.1 million from the
change in fair value of derivative instruments during the nine months ended
September 30, 2019, other expense of $7.0 million in the nine months ended
September 30, 2019 compared to other income of $0.6 million in the comparable
2018 period, loss from continuing operations before other income (expense) and
income taxes of $12.3 million in the nine months ended September 30, 2019
compared to $8.9 million in the nine months ended September 30, 2018 and
interest expense of $19.2 million in the nine months ended September 30, 2019
compared to $17.1 million in the nine months ended September 30, 2018.



The following table presents key financial metrics for our Hospital segment:



                                     Nine Months Ended September 30,
                                         2019                 2018             Change           %
Hospital Operations

Net revenues                       $     13,081,647       $   9,755,099     $  3,326,548         34.1 %
Operating expenses:
Direct costs of revenue                  12,068,460           7,574,619        4,493,841         59.3 %
General and administrative
expenses                                  9,426,928           6,002,037        3,424,891         57.1 %
Depreciation and amortization               532,979             177,386          355,593        200.5 %

Loss from operations               $     (8,946,720 )     $  (3,998,943 )   $ (4,947,777 )     -123.7 %


Number of Patients Served                    33,299              10,093              N/A

Key Operating Measures - Revenue
per patient served:                $         392.85       $      966.52

N/A



Key Operating Measures - Direct
costs of revenue per patient
served:                            $         362.43       $      750.48              N/A





In the nine months ended September 30, 2019, we reassessed our revenue rate at
Big South Fork Medical Center to recognize revenue after contractual allowances
at 10% based on the Company's historical data compared to using an industry
standard rate of 20% in the compared 2018 period.



  46

The following table presents key financial and operating metrics for our Clinical Laboratory Operations segment





                                       Nine Months Ended September 30,
                                        2019                    2018              Change           %

Clinical Laboratory Operations


Net revenues                       $        56,169       $          177,890     $  (121,721 )     -68.4 %
Operating expenses:
Direct costs of revenue                      3,982                  234,846        (230,864 )     -98.3 %
General and administrative
expenses                                   684,272                1,082,562        (398,290 )     -36.8 %
Depreciation and amortization               69,381                  625,877

       (556,496 )     -88.9 %

Loss from operations               $      (701,466 )     $       (1,765,395 )   $ 1,063,929        60.3 %

Key Operating Measures -
Revenues: (1)
Insured tests performed                         78                    3,444          (3,366 )     -97.7 %
Net revenue per insured test                    NM       $            51.65
Revenue recognition percent of
gross billings                                                         11.0

% -11.0 %



Key Operating Measures - Direct
Costs: (1)
Total samples processed                         19                    4,499          (4,480 )     -99.6 %
Direct costs per sample                         NM       $            52.20

(1) Net revenue per insured test and direct costs of insured tests are not

meaningful for the nine months ended September 30, 2019 due to the impact of

the recovery of $74,000 of bad debt in the nine months ended September 30,


      2019, partially offset by additional bad debt expense recorded in the
      period.





The following table presents key financial metrics for our Corporate group:




                                        Nine Months Ended September 30,
                                            2019                 2018            Change          %
Corporate

Operating expenses:

General and administrative expenses   $      2,619,495       $   3,155,835
   $ (536,340 )     -17.0 %
Depreciation and amortization                    7,458                 811          6,647       819.6 %

Loss from operations                  $     (2,626,953 )     $  (3,156,646 )   $  529,693        16.8 %

LIQUIDITY AND CAPITAL RESOURCES





For the nine months ended September 30, 2019 and the year ended December 31,
2018, we financed our operations primarily from the sale of our equity
securities, the issuance of debentures and advances from related parties and in
the nine months ended September 30, 2019 from the sale of accounts receivable to
factors. Future cash needs for working capital, capital expenditures and
potential acquisitions will require management to seek additional equity or
obtain additional credit facilities. The sale 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.



  47






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, at September 30, 2019, we had $0.1 million cash on hand from
continuing operations, a working capital deficit of $69.3 million, an
accumulated deficit of $578.0 million and a stockholders' deficit of $67.7
million. In addition, we incurred a loss from continuing operations of $39.1
million and cash used in operating activities of $14.4 million for the nine
months ended September 30, 2019. As of the date of this report, our cash
position is deficient and payments are not being made in the ordinary course. In
addition, we have not repaid approximately $28.7 million of outstanding
principal balance of debentures, including default penalties, which are past
due. Our fixed operating expenses include payroll, rent, finance lease payments
and other fixed expenses, as well as the costs required to operate our Hospital
Operations. Our fixed operating expenses were approximately $2.0 million per
month for the nine months ended September 30, 2019.



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, raise any additional capital or secure the
additional financing necessary to implement our current operating plan. Our
ability to continue as a going concern is dependent upon our ability to
significantly reduce our operating costs, increase our revenues and eventually
achieve profitable operations. The accompanying unaudited condensed consolidated
financial statements do not include any adjustments that might be necessary if
we are unable to continue as a going concern.



We received approximately $3.8 million in cash from issuances of debentures and
$1.5 million from the issuance of a note payable during the nine months ended
September 30, 2019. In addition, during the nine months ended September 30,
2019, we entered into five accounts receivable factoring arrangements, as more
fully discussed in Note 4 to the accompanying condensed consolidated financial
statements, and Mr. Diamantis, a member of our board of directors, advanced the
Company: (i) $0.7 million for the purchase of Jellico Community Hospital; (ii)
$9.9 million, which was used to repay obligations under a prepaid forward
purchase contract related to an accounts receivable financing; (iii) $1.9
million for fees and expenses incurred in connection with the settlement of the
prepaid forward purchase contract; and (iv) $4.7 million for working capital
purposes.

Subsequent to September 30, 2019 and through November 30, 2019, Mr. Diamantis advanced the Company $0.7 million, which was used for working capital purposes.

As of September 30, 2019, we were party to legal proceedings, which are presented in Note 15 to the accompanying unaudited condensed consolidated financial statements.





The following table presents our capital resources as of September 30, 2019 and
December 31, 2018:



                                            September 30,      December 31,
                                                 2019              2018             Change

Cash                                        $      107,472     $       6,870     $     100,602
Working capital deficit                        (69,272,314 )     (39,293,904 )     (29,978,410 )
Total debt, excluding discounts and
derivative liabilities                          47,636,055        26,418,305        21,217,750
Finance lease obligations                          618,278           762,208          (143,930 )
Stockholders' deficit                       $  (67,644,949 )   $ (39,167,864 )   $ (28,477,085 )




  48

The following table presents the major sources and uses of cash for the nine months ended September 30, 2019 and 2018:





                                              Nine Months Ended September 30,
                                                  2019                  2018            Change

Cash used in operations                     $     (14,420,826 )     $ (7,121,826 )   $ (7,299,000 )
Cash (used in) provided by investing
activities                                           (709,338 )          461,242       (1,170,580 )
Cash provided by financing activities              15,230,766

6,660,584 8,570,182


Net change in cash                                    100,602                  -          100,602
Cash and cash equivalents, beginning of
the year                                                6,870                  -            6,870
Cash and cash equivalents, end of the
period                                      $         107,472       $          -     $    107,472

The components of cash used in operations for the nine months ended September 30, 2019 and 2018 are presented in the following table:





                                              Nine Months Ended September 30,
                                                  2019                  2018            Change

Net loss from continuing operations $ (38,340,063 ) $ (3,965,798 ) $ (34,374,265 ) Non-cash adjustments to net loss

                   23,413,633         (4,346,430 )      27,760,063
Accounts receivable                                (3,525,152 )       (5,648,343 )       2,123,191
Inventory                                              82,010                  -            82,010
Accounts payable, checks issued in excess
of
 bank balance and accrued expenses                  4,604,504          7,225,248        (2,620,744 )
(Loss) income from discontinued
operations                                           (791,936 )          115,787          (907,723 )
Other                                                 (46,485 )          125,864          (172,349 )
Net cash used in operating activities             (14,603,489 )       (6,493,672 )      (8,109,817 )
Cash provided by (used in) discontinued
operations                                            182,663           (628,154 )         810,817
Cash used in operations                     $     (14,420,826 )     $ (7,121,826 )   $  (7,299,000 )




Cash used in investing activities for the nine months ended September 30, 2019
was due primarily to $0.7 million for the acquisition of Jellico Community
Hospital and CarePlus Center as well as $50,801 for purchases of property and
equipment. Cash used in investing activities for the nine months ended September
30, 2018 was due to the acquisition of Jamestown Regional Medical Center for
$0.7 million and the purchases of property and equipment of $0.1 million,
partially offset by proceeds from the sale of equipment under finance leases of
$0.4 million. Cash provided by investing activities of discontinued operations
for the nine months ended September 30, 2018 consist of the $0.8 million
received from the February 14, 2018 Common Stock Purchase Agreement with two
investors pursuant to which the Company agreed to sell an aggregate of 200,000
shares of common stock of NanoVibronix, Inc. owned by the Company at a purchase
price of $4.00 per share. The Company had acquired the shares as a result of an
investment originally made in 2011.



Cash provided by financing activities in the nine months ended September 30,
2019 consists of $16.5 million for the issuance of related party notes payable
and advances, $2.7 million in proceeds from the sale of accounts receivable to
factors, $3.8 million from the issuances of debentures and $1.5 million from the
issuance of a promissory note. Cash used in financing activities in the nine
months ended September 30, 2019 include $1.8 million of payments to factors,
$5.0 million in payments on notes payable, $2.3 million for payments of related
party notes payable and advances and $0.1 million for payments of finance lease
obligations. Cash provided by financing activities for the nine months ended
September 30, 2018 consists of the $8.0 million received from the issuances of
debentures, and $3.6 million from related party notes and advances, partially
offset by payments of related party notes and advances of $4.0 million, $0.3
million in payments of notes payable and $0.7 million of payment of finance
lease obligations.

We need to raise additional funds immediately and continue to do so until we begin to realize positive cash flow from operations.





  49






The terms of certain of the warrants, convertible preferred stock and
convertible debentures issued by the Company provide for reductions in the per
share exercise prices of the warrants and the per share conversion prices of the
debentures and preferred stock (if applicable and subject to a floor in certain
cases), in the event that the Company issues common stock or common stock
equivalents (as that term is defined in the agreements) at an effective
exercise/conversion price that is less than the then exercise/conversion 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 13 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. As a result
of these down round provisions, the potential common stock equivalents,
including outstanding common stock, totaled 753.9 billion at December 26, 2019.



OTHER MATTERS



Inflation

We do not believe inflation has a significant effect on the Company's operations at this time.

Off Balance Sheet Arrangements





Under SEC regulations, we are required to disclose the Company's off-balance
sheet arrangements that have or are reasonably likely to have a current or
future effect on the Company's financial condition, results of operations,
liquidity, capital expenditures or capital resources that are material to
investors. Off-balance sheet arrangements consist of transactions, agreements or
contractual arrangements to which any entity that is not consolidated with

us is
a party, under which we have:

? Any obligation under certain guarantee contracts.

? Any retained or contingent interest in assets transferred to an unconsolidated

entity or similar arrangement that serves as credit, liquidity or market risk

support to that entity for such assets.

? Any obligation under a contract that would be accounted for as a derivative

instrument, except that it is both indexed to the Company's stock and

classified in stockholder's equity in the Company's statement of financial

position.

? Any obligation arising out of a material variable interest held by us in an

unconsolidated entity that provides financing, liquidity, market risk or

credit risk support to us, or engages in leasing, hedging or research and


    development services with us.

As of September 30, 2019, 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.

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