RENNOVA HEALTH INC 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
COMPANY OVERVIEW Our Services
We operate in two business segments: Hospital Operations and Clinical Laboratory Operations.
Our Hospital Operations represented approximately 99.9% and 98.4% of our
revenues for the three months ended
On
34
In addition, on
Our Hospital Operations generated revenues of approximately
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
Discontinued Operations
On
Outlook
We believe that the transition of our business model from diagnostics 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 two hospitals and a rural clinic in the same general
geographic location and own another hospital and physician's office at which
operations are currently suspended. Owning a number of facilities in the same
geographic location will create numerous efficiencies in purchasing and staffing
and will enable the provision of additional, specialized and more valuable
services that are needed by rural communities but cannot be sustained by a
standalone rural hospital. While 2019 was a difficult year with unexpected
disruption to revenue causing us to suspend operations at the
35 Impact of the Pandemic
The COVID-19 pandemic was declared a global pandemic by the
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.
Our Clinical Laboratory Operations revenues have decreased significantly over the past few years. This decline in revenues has had a material adverse impact on our liquidity, results of operations and financial condition.
We believe that a successful separation of AMSG and HTS will allow each to focus
on its own strengths and operational plans. We have agreed terms that will see
these divisions combined into one publicly traded entity and believe this will
provide a distinct and targeted investment opportunity. The Company believes it
will be able to recognize the expenditures to date with regard to AMSG and HTS,
which are in excess of
Our net loss from continuing operations for the three months ended
36
Three months ended
The following table summarizes the results of our consolidated continuing
operations for the three months ended
Three Months Ended March 31,
2020 2019
$ % $ %
Net revenues $ 1,841,531 100.0 % $ 5,190,650 100.0 %
Operating expenses:
Direct costs of revenue 2,566,280 139.4 % 4,164,400 80.2 %
General and administrative
expenses 2,962,729 160.9 % 5,276,136 101.6 %
Depreciation and amortization 164,707 8.9 % 223,586 4.3 %
Loss from operations (3,852,185 ) -209.2 % (4,473,472 ) -86.2 %
Other expense, net (128,043 ) -7.0 % (884,280 ) -17.0 %
Gain on bargain purchase - 0.0 % 250,000 4.8 %
Change in fair value of
derivative instruments - 0.0 % (105,076 ) -2.0 %
Interest expense (2,890,260 ) -156.9 % (7,719,967 ) -148.7 %
Benefit from income taxes 1,118,485 60.7 % - 0.0 %
Net loss from continuing
operations $ (5,752,003 ) -312.3 % $ (12,932,795 ) -249.2 %
Net Revenues
Consolidated net revenues were
Net revenues for the three months ended
Direct Cost of Revenue
Direct costs of revenue decreased by
General and Administrative Expenses
General and administrative expenses decreased by
37
Depreciation and Amortization Expenses
Depreciation and amortization expense was
Loss from Continuing Operations Before Other Income (Expense) and Income Taxes
Our operating loss decreased by
Other Expense, net
Other expense for the three months ended
Gain on Bargain Purchase
In the three months ended
Change in Fair Value of Derivative Instruments and Gain on Extinguishment of Debt
The change in the fair value of derivative instruments for the three months
ended
Interest Expense
Interest expense for the three months ended
Benefit for Income Taxes
During the three months ended
Net Loss from Continuing Operations
Our net loss from continuing operations decreased by
38
The following table presents key financial metrics for our Hospital Operations
segment:
Three Months Ended March 31,
2020 2019 Change %
Hospital Operations
Net revenues $ 1,840,091 $ 5,105,265 $ (3,265,174 ) -64.0 %
Operating expenses:
Direct costs of revenue 2,676,537 4,161,618 (1,485,081 ) -35.7 %
General and administrative
expenses 2,074,172 3,944,978 (1,870,806 ) -47.4 %
Depreciation and
amortization 182,315 173,776 8,539 4.9 %
Loss from operations $ (3,092,933 ) $ (3,175,107 ) $ 82,174 -2.6 %
Number of Patients Served 5,341 10,955 (5,614 ) -51.2 %
Key Operating Measures - Net
revenues per patient served: $ 344.52 $ 466.02 $ (121.50 ) -26.1 %
Key Operating Measures -
Direct costs per patient
served: $ 501.13 $ 379.88 $ 121.25 31.9 %
Our Hospital Operations have historically generated operating losses. We served
less patients during the three months ended
The following table presents key financial and operating metrics for our Clinical Laboratory Operations segment:
Three Months Ended March 31,
2020 2019 Change %
Clinical Laboratory
Operations
Net revenues $ 1,440 $ 85,385 $ (83,945 ) -98.3 %
Operating expenses:
Direct costs of revenue (1) (110,257 ) 2,782 (113,039 ) -4063.2 %
General and administrative
expenses 242,826 258,471 (15,645 ) -6.1 %
Depreciation and
amortization (2) (17,743 ) 49,662 (67,405 ) -135.7 %
Loss from operations $ (113,386 ) $ (225,530 ) $ 112,144 -49.7 %
Key Operating Measures -
Revenues:
Insured tests performed - 78 (78 ) -100.0 %
Net revenue per insured test
(3) $ - $ 1,094.68 $ (1,094.68 ) -100.0 %
Revenue recognition percent
of gross billings 0.0 % 11.0 %
Key Operating Measures -
Direct Costs:
Total samples processed - 19 (19 ) -100.0 %
Direct costs per sample $ - $ 146.42 $ (146.42 ) -100.0 %
(1) Direct costs of revenue in 2020 reflect a reduction of $130,000 in the
amount previously recorded for laboratory supplies due to the settlement of
a claim as more fully discussed in Note 15.
(2) Accumulated depreciation that was previously overstated was adjusted in the
three months ended March 31, 2020 .
(3) Net revenue per insured test was impacted by the recovery of bad debt in the
three months ended March 31, 2019 . Excluding the effect of the recovery of
bad debt, the net revenue per insured test was approximately $210 per test.
During the three months ended
39
The following table presents key financial metrics for our Corporate group:
Three Months Ended March 31,
2020 2019 Change %
Corporate
Operating expenses:
General and administrative
expenses $ 645,731 $ 1,072,687 $ (426,956 ) -39.8 %
Depreciation and
amortization 135 148 (13 ) -8.8 %
Loss from operations $ (645,866 ) $ (1,072,835 ) $ 426,969 -39.8 %
The decrease in general and administrative expenses was mainly the result of
acquisition costs incurred in the 2019 period for the acquisition of
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended
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
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.
40
We received approximately
Subsequent to
As of
The following table presents our capital resources as ofMarch 31, 2020 andDecember 31, 2019 : March 31, December 31, 2020 2019 Change Cash$ 61,835 $ 16,933 $ 44,902 Working capital deficit (83,657,932 ) (78,073,092 ) (5,584,840 ) Total debt, excluding discounts and derivative liabilities 52,874,710 49,010,905 3,863,805 Capital lease obligations 1,018,711 1,119,418 (100,707 ) Stockholders' deficit$ (82,286,499 ) $ (76,519,721 ) $ (5,766,778 )
The following table presents the major sources and uses of cash for the three
months ended
Three Months Ended March 31,
2020 2019 Change
Cash used in operations $ (2,471,263 ) $ (885,125 ) $ (1,586,138 )
Cash used in investing activities - (700,854 ) 700,854
Cash provided by financing
activities 2,516,165 1,589,116 927,049
Net change in cash 44,902 3,137 41,765
Cash and cash equivalents, beginning
of the year 16,933 6,870 10,063
Cash and cash equivalents, end of
the period $ 61,835 $ 10,007 $ 51,828
41
The components of cash used in operations for the three months ended
Three Months Ended March 31,
2020 2019 Change
Net loss from continuing operations
183,140 8,501,199 (8,318,059 )
Accounts receivable 950,696 (1,059,478 ) 2,010,174
Inventory (36,420 ) 92,970 (129,390 )
Accounts payable, checks issued in
excess of bank balance and accrued
expenses 3,278,147 4,736,788 (1,458,641 )
Loss from discontinued operations (39,775 ) (508,609 ) 468,834
Income tax refunds receivable (1,118,485 ) - (1,118,485 )
Other 36,494 98,858 (62,364 )
Net cash used in operating
activities (2,498,206 ) (1,071,067 ) (1,427,139 )
Cash provided by discontinued
operations 26,943 185,942 (158,999 )
Cash used in operations $ (2,471,263 ) $ (885,125 ) $ (1,586,138 ) No cash was used or provided by investing activities during the three months
ended
Cash provided by financing activities for the three months ended
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 3, 8, 11, 12, 13 and
19 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
totaled 744.1 billion at
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
? 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.
42
? 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
© Edgar Online, source
