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

RENNOVA HEALTH, INC. 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

(unaudited)

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

RENNOVA HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

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

RENNOVA HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 (unaudited)

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

RENNOVA HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

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

RENNOVA HEALTH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 – Organization and BasisSummary of PresentationSignificant Accounting Policies

Description of Business

Rennova Health, Inc. (“Rennova”), together with its subsidiaries (the “Company”, “we”, “us” or “our”), is a vertically integrated provider of healthcare related products and services. The Company’s principal lines of business are (i) hospital operations; and (ii) clinical laboratory operations; (ii) supportive software solutions to healthcare providers including Electronic Health Records (“EHR”), Medical Billing Services and Laboratory Information Services; and (iii) the recent addition of a rural critical access hospital.operations. The Company presents its financial results based upon these two business segments, which are more fully discussed in Note 16.

Reverse Stock Split

On September 18, 2018, the Company amended its Certificate of Incorporation to have the authority to issue 10,000,000,000 shares of Common Stock, par value $.0001 per share, and 5,000,000 shares of Preferred Stock, par value $0.01 per share.

On November 5, 2018, the Board of Directors of the Company approved an amendment to the Company’s Certificate of Incorporation, to effect a 1-for-500 reverse stock split of the Company’s shares of common stock to be effective on November 12, 2018. As a result of this reverse stock split, every 500 shares of the Company’s pre-reverse split common stock were combined and reclassified into one share of the Company’s common stock.The par value and other terms of the common stock were not affected by the reverse stock split.

All outstanding preferred shares, stock options, warrants, and equity incentive plans immediately prior to the reverse stock split will generally be appropriately adjusted by dividing the number of shares of common stock into which the preferred shares, stock options, warrants and equity incentive plans of the common stock are exercisable or convertible by 500 and multiplying the exercise or conversion price by 500, as a result of the reverse stock split.

All share, per share, and capital stock amounts for all periods presented have been restated to give effect to the reverse stock splits and the Certificate of Incorporation.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read in conjunction with the 2016 auditedconsolidated financial statements included inas filed on the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 10, 2017. These condensed consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC, and therefore omit or condense certain footnotes and other information normally included in consolidated interim financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). All material intercompany balances and transactions have been eliminated in consolidation.24, 2018. In the opinion of the Company’s management, the unaudited interim condensed consolidated financial statements included herein contain all adjustments (consisting only of normal recurring accruals) considered necessary forto present fairly the fair presentation of theCompany’s consolidated financial position as of September 30, 2018, and the results of its operations and cash flows for the interim periods reported herein.presented. Such adjustments are of a normal recurring nature. The results of operations presented are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

During the three and nine months ended September 30, 2017 and 2016, comprehensive loss was equal2018 may not be indicative of results for the year ending December 31, 2018.

RENNOVA HEALTH, INC. AND SUBSIDIARIES

Notes to the net loss amounts presented in theCondensed Consolidated Financial Statements

(unaudited)

Principles of Consolidation

The accompanying condensed consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of operations. In addition, certain prior yearAmerica (“U.S. GAAP”) include the accounts of Rennova and its wholly-owned subsidiaries. All intercompany transactions and balances have been reclassified to conform toeliminated in the current presentation.consolidation.

Reclassification

The Company has reclassified certain amounts in the 20162017 condensed consolidated financial statements to be consistent with the 20172018 presentation. These principally relate to classification of certain revenues, cost of revenues and related segment data, as well as balance sheet classifications to assets and liabilities held for sale. Reclassifications relating to the discontinued operations of AMSGAdvanced Molecular Services Group (AMSG) and Health Technology Solutions (HTS) are described further in Note 14.18. The reclassifications had no impact on operations or cash flows for the three and nine months ended September 30, 2016.2017. In addition, certain prior year balances have been reclassified to conform to the current period presentation.

Comprehensive Income (Loss)

Reverse Stock Splits

On February 7,During the three and nine months ended September 30, 2018 and 2017, the Company’s Board of Directors approved an amendmentcomprehensive income (loss) was equal to the Company’s Certificate of Incorporation to effect a 1-for-30 reverse stock split of the Company’s shares of common stock effective on February 22, 2017 and on September 21, 2017, the Company’s Board of Directors approved an amendment to the Company’s Certificate of Incorporation to effect a 1-for-15 reverse stock split effective October 5, 2017 (the “Reverse Stock Splits”). The stockholders of the Company had approved these amendments to the Company’s Certificate of Incorporation on December 22, 2016 for the February 7, 2017 reverse stock split and on September 20, 2017 for the October 5, 2017 reverse stock split. In both cases, the Company’s stockholders had granted authorization to the Board of Directors to determine in its discretion the specific ratio, subject to limitations, and the timing of the reverse splits within certain specified effective dates.

As a result of the Reverse Stock Splits, every 30 shares of the Company’s then outstanding common stock was combined and automatically converted into one share of the Company’s common stock, par value $0.01 per share, on February 7, 2017 and every 15 shares of the Company’s then outstanding common stock was combined and automatically converted into one share of the Company’s common stock, par value $0.01 per share, on October 5, 2017. In addition, the conversions and exercise prices of all of the Company’s outstanding preferred stock, common stock purchase warrants, stock options, restricted stock, equity incentive plans and convertible notes payable were proportionately adjusted at the 1:30 reverse split ratio and again at the 1:15 reverse split ratio in accordance with the terms of such instruments. In addition, proportionate voting rights and other rights of common stockholders were not affected by the Reverse Stock Splits, other than as a result of the rounding up of fractional sharesnet income (loss) amounts presented in the February reverse split and the paymentaccompanying condensed consolidated statements of cash in lieu of fractional shares in the October reverse split, as no fractional shares were issued in connection with the Reverse Stock Splits.

The par value and other terms of the common stock were not affected by the Reverse Stock Splits. The authorized capital of the Company of 500,000,000 shares of common stock and 5,000,000 shares of preferred stock were also unaffected by the Reverse Stock Splits.

All share, per share and capital stock amounts for all periods presented have been restated to give effect to the Reverse Stock Splits.

operations.

RENNOVA HEALTH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

AdoptionUse of ASU 2017-11Estimates

Management makes estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions include the estimates of fair values of assets acquired and liabilities assumed in business combinations, reserves and write-downs related to receivables and inventories, the recoverability of long-lived assets, the valuation allowance relating to the Company’s deferred tax assets, valuation of equity and derivative instruments, and debt discounts and the valuation of the assets and liabilities acquired in the acquisition of hospitals.

Revenue Recognition

In July 2017,May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606),” including subsequently issued updates. This series of comprehensive guidance has replaced all existing revenue recognition guidance and became effective for us beginning January 1, 2018. There is a five-step approach outlined in the standard. Entities are permitted to apply the new standard under the full retrospective method, subject to certain practical expedients, or the modified retrospective method that requires the application of the guidance only to contracts that are uncompleted on the date of initial application.

In determining revenue, we first identify the contract according to the scope of Accounting Standard Codification (“ASC’) 606 with the following criteria:

Based on the new standard for revenue recognition, bad debt is now treated similar to contractual allowance, and directly reduces sales revenue. The Company reduced gross revenues by $3.1 million for bad debt for the nine months ended September 30, 2018, for the Oneida hospital, which began operations in August 2017, and for the Jamestown Regional Medical Center, which was acquired on June 1, 2018. As required by the new standard, after bad debt and contractual allowance adjustments to revenues of $13.0 million for the nine months ended September 30, 2018, the Company reported net revenues for the three and nine months ended September 30, 2018 of $5.0 million and $9.9 million, respectively. The Company continues to review its provision for bad debt and contractual allowance.

Service revenues are generated from laboratory testing services and hospital revenues.

Laboratory testing services include chemical diagnostic tests such as blood analysis and urine analysis. Laboratory service revenues are recognized at the time the testing services are performed and billed and are reported at their estimated net realizable amounts. Net service revenues are determined utilizing gross service revenues net of contractual adjustments and discounts. Even though it is the responsibility of the patient to pay for laboratory service bills, most individuals in the U.S. have an agreement with a third-party payer such as a commercial insurance provider, Medicaid or Medicare to pay all or a portion of their healthcare expenses; most of the services provided by us are to patients covered under a third-party payer contract. In most cases, the Company is provided the third-party billing information and seeks payment from the third party in accordance with the terms and conditions of the third-party payer for health service providers like us. Each of these third-party payers may differ not only in terms of rates, but also with respect to terms and conditions of payment and providing coverage (reimbursement) for specific tests. Estimated revenues are established based on a series of procedures and judgments that require industry specific healthcare experience and an understanding of payer methods and trends. Despite follow up billing efforts, the Company does not currently anticipate collection of a significant portion of self-pay billings, including the patient responsibility portion of the billing for patients covered by third party payers. The Company currently does not have any capitated agreements.

RENNOVA HEALTH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

For hospital goods and or services, net revenues are determined utilizing gross revenues net of contractual adjustments and discounts and are recognized when the goods and services are delivered. Even though it is the responsibility of the patient to pay for goods and services rendered, most individuals have an agreement with a third-party payer such as a commercial insurance provider, Medicaid or Medicare to pay all or a portion of their healthcare expenses.

The hospitals ensure that the collection of substantially all the consideration to which they are entitled to is probable. The hospitals have established the transaction price for providing goods or services to a patient through historical cash collection and current data from each identified payer class. This may include the effects of variable consideration such as discounts and price concessions and may be less than the stated contract price, whether applied on a contract-by-contract basis or by using a portfolio approach. The ultimate transaction price reflects explicit price concessions. The hospitals have an obligation to provide medically necessary or emergency services regardless of a patient’s intent or ability to pay. In determining collectability, the evaluation is based on experience or the contract portfolio approach with either a specific patient or a class of similar patients.

The hospitals and the laboratory service practice the full retrospective approach of all the reporting periods presented under the new standard and disclose any adjustment to prior-period information. No such prior-period adjustment has been determined to date.

This includes but is not limited to disaggregated revenue information, contract asset and liability information, including significant changes from prior year, and judgments, and changes in judgment, that significantly affect the determination of the amount of revenue and timing.

We review our calculations for the realizability of gross service revenues monthly to make certain that we are properly allowing for the uncollectable portion of our gross billings and that our estimates remain sensitive to variances and changes within our payer groups. The contractual allowance calculation is made based on historical allowance rates for the various specific payer groups monthly with a greater weight being given to the most recent trends; this process is adjusted based on recent changes in underlying contract provisions. This calculation is routinely analyzed by us based on actual allowances issued by payers and the actual payments made to determine what adjustments, if any, are needed.

Derivative Liabilities

The Company applies ASC Topic 815-40,“Derivatives and Hedging,” which provides a two-step model to determine whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the scope exception in ASC 815-10-15-74. This standard triggers liability accounting on all instruments and embedded features exercisable at strike prices based on future equity-linked instruments issued at a lower rate. Using the criteria in ASC 815, the Company determines which instruments or embedded features that require liability accounting and records the fair values as a derivative liability. The changes in the values of the derivative liabilities are shown in the accompanying consolidated statements of operations as “Change in Fair Value of Derivative Instruments.”

In July 2017, the FASB issued ASU 2017-11 “Earnings“Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815).”The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings 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 shareholders 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). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect.

RENNOVA HEALTH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Under current GAAP, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative accounting. Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.

The amendments in this Update revise the guidance for instruments with down round features in Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. An entity still is required to determine whether instruments would be classified in equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities and embedded conversion options with down round features are no longer bifurcated.

For entities that present EPS in accordance with Topic 260, and when the down round feature is included in an equity-classified freestanding financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a numerator adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder of the instrument, while alleviating the complexity and income statement volatility associated with fair value measurement on an ongoing basis. Convertible instruments are unaffected by the Topic 260 amendments in this Update.

Those amendments in Part 1 of this Update are a cost savings relative to current GAAP. This is because, assuming the required criteria for equity classification in Subtopic 815-40 are met, an entity that issued such an instrument no longer measures the instrument at fair value at each reporting period (in the case of warrants) or separately accounts for a bifurcated derivative (in the case of convertible instruments) based on the basis of the existence of a down round feature. For convertible instruments with embedded conversion options that have down round features, applying specialized guidance such as the model for contingent beneficial conversion features rather than bifurcating an embedded derivative also reduces cost and complexity. Under that specialized guidance, the issuer recognizes the intrinsic value of the feature only when the feature becomes beneficial instead of bifurcating the conversion option and measuring it at fair value each reporting period.

The amendments in Part II of this Update replace the indefinite deferral of certain guidance in Topic 480 with a scope exception.exception and do not require any transition guidance because those amendments do not have an accounting effect. This has the benefit of improving the readability of the Codification and reducing the complexity associated with navigating the guidance in Topic 480.

For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part 1 of this Update should be applied in either of the following ways: 1. Retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective; or 2. Retrospectively to outstanding financial instruments with a down round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10.

RENNOVA HEALTH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect.

The Company has determined that this amendment had a material impact on its condensed consolidated financial statements and has early adopted this accounting standard update. The cumulative effect of the adoption of ASU 2017-11 resulted in the reclassification of the derivative liability recorded of $56 million and the reversal of $41 million of interest expense recorded in the Company’s first fiscal quarter of 2017. The remaining $16 million was offset to additional paid in capital (discount on convertible debenture). Additionally, the Company recognized a deemed dividend from the trigger of the down round provision feature of $53.3 million. A $51 million deemed dividend was recorded retrospectively as of the beginning of the issuance of the debentures issued in March 2017 debentures where the initial derivative liability was recorded. A $2.3 million deemed dividend adjustment was recorded in the three months ended September 30, 2017 as a resultbecause of the down round provision feature.

Going ConcernEarnings (Loss) Per Share

The Company’s condensed consolidated financial statementsCompany reports earnings (loss) per share in accordance with ASC Topic 260, “Earnings Per Share,” which establishes standards for computing and presenting earnings per share. Basic earnings (loss) per share of common stock is calculated by dividing net earnings (loss) allocable to common stockholders by the weighted-average shares of common stock outstanding during the period, without consideration of common stock equivalents. Diluted earnings (loss) per share is calculated by adjusting the weighted-average shares of common stock outstanding for the dilutive effect of common stock equivalents, including stock options and warrants outstanding for the period as determined using the treasury stock method. For purposes of the diluted net loss per share calculation, common stock equivalents are prepared using U.S. GAAPexcluded from the calculation when their effect would be anti-dilutive. The gain associated with the change in fair value of the derivative liabilities and the unamortized discounts associated with dilutive convertible debentures, are deducted from net income, the numerator, as a result of the inclusion of dilutive securities in the common stock equivalents, the denominator. Therefore, basic and diluted net loss per share applicable to common stockholders is the same for periods with a going concern that contemplatesnet loss. See Note 3 for the realizationcomputation of assetsearnings (loss) per share for the three and liquidationnine months ended September 30, 2018 and 2017.

Note 2 – Liquidity and Financial Condition

Under ASU, 2014-15, Presentation of liabilities inFinancial Statements—Going Concern (Subtopic 205-40) (“ASC 205-40”), the normal course of business. The Company has accumulated significant losses and has negative cash flows from operations, and at September 30, 2017 had a working capital deficit and stockholders’ deficit of $18.0 million and $18.8 million, respectively, whichthe 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.concern in accordance with the requirement of ASC 205-40.

As reflected in the condensed consolidated financial statements, the Company had a working capital deficit and an accumulated deficit of $30 million and $191.0 million, respectively, at September 30, 2018. In addition, the Company’sCompany had a loss from operations of approximately $3.9 million and cash position asused in operating activities of $7.1 million for the datenine months ended September 30, 2018. The reduced loss from operations was primarily driven by a positive change in fair value of this report is critically deficient, critical payments are not being made in the ordinary course of business and certain indebtednessderivative instruments in the amount of $6.0$13.7 million maturedand a gain on March 31, 2017, whichbargain purchase in the Company does not have the financial resources to satisfy (seeamount of $7.7 million. See Note 5), all of which17. The continued losses and other related factors raise substantial doubt about the Company’s ability to continue as a going concern.concern for twelve months from the filing date of this report.

The Company’s condensed consolidated financial statements are prepared assuming the Company continuescan 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. Initial cost savings were realized by reducing the number of laboratory facilities to consider efficiencies and is currently using one laboratory for the majoritymost of its toxicology diagnostics, thereby reducing the number of employees and associated operating expenses, in order to reduce costs. In addition, the Company received approximately $15.7 million in cash from the issuances of debentures and warrants in the first nine months of 2017 (see Note 6), $3.8 million from related parties and an additional $4.0 million of proceeds on October 30, 2017 from the issuance of convertible preferred stock (see Note 15). In Julyexpenses. During 2017, the Company announced that it plansCompany’s Board of Directors voted unanimously to spin off itsspinoff Advanced Molecular Services Group (“AMSG”) and Health Technology Solutions, Inc. (“HTS”), as an independent publicly traded companycompanies by way of a tax-free distributiondistributions to its shareholders. Completion of the spinoff of AMSGthese spinoffs is expected to occur during the first quartersecond half of 2018, and is2018. The spinoffs are subject to numerous conditions, including effectiveness of a Registration StatementStatements 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. The intent of the spinoffspinoffs of AMSG and HTS is to create twothree public companies, each of which can focus on its own strengths and operational plans. In accordance with ASC 205-20 and having met the criteria for “held for sale”, the Company has reflected amounts relating to AMSG and HTS as a disposal groupgroups classified as held for sale and included as part of discontinued operations. AMSG isand HTS are no longer included in the segment reporting following the reclassification to discontinued operations. The discontinued operations of AMSG and HTS are described further in Note 14. The Company also announced that18.

During the Big South Fork Medical Center received CMS regional office licensure approval and opened its doors on August 8, 2017. The hospital provided services to over 1,854 patients and recognized approximately $0.6 million of revenues during the threenine months ended September 30, 2017. The Company may amend its current revenue recognition policy and percentage for the hospital when payments are received to support amended revenue recognition methodologies. Therefore,2018, the Company expects thatcompleted several private placement offerings with institutional investors for $9.9 million in principal less original issue discounts of an aggregate of $1.9 million and received proceeds totaling $8,000,000.As more fully discussed in Note 20, from October 1, 2018 to November 9, 2018, the opening of the hospital will continueCompany completed additional private placement offerings for $1.2 million in principal and received $1 million in total proceeds.

RENNOVA HEALTH, INC. AND SUBSIDIARIES

Notes to provide additional revenue and cash flow sources.Condensed Consolidated Financial Statements

(unaudited)

There can be no assurance that the Company will be able to achieve its business plan, raise any additional capital or secure the additional financing necessary to implement its current operating plan. The ability of the Company to continue as a going concern is dependent upon its ability to significantly reduce its operating costs, increase its revenues, and eventually regain profitable operations. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Recent EventsNote 3 – Earnings (Loss) Per Share

Common Stock ListingThe following table sets forth basic and diluted earnings (loss) per share for the periods presented:

Effective October 25,

Diluted loss per share as reflected in the table above excludes all dilutive potential shares if their effect is anti-dilutive. For the nine months ended September 30, 2018 and 2017, the Company’sfollowing table sets forth the computation of the following potential common stock (RNVA) and warrants to purchase common stock (RNVAW) were no longer listed onequivalents excluded from the Nasdaq Stock Market but began trading on the OTCQB instead,calculation of diluted loss per share as more fully discussed in Note 15.

their effect was anti-dilutive:

RENNOVA HEALTH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Financing Agreements

On October 30, 2017, the Company issued its Series I-1 Convertible Preferred Stock, and modified the anti-dilution provisions of certain outstanding debentures and warrants that were issued in March 2017, as more fully discussed in Note 15.

Note 24 – Accounts Receivable

Accounts receivable at September 30, 20172018 (unaudited) and December 31, 20162017 consisted of the following:

Note 35 – Property and Equipment

Property and equipment at September 30, 20172018 (unaudited) and December 31, 20162017 consisted of the following:

On January 13, 2017, the Company completed an asset purchase agreement to acquire certain assets related to Scott County Community Hospital, based in Oneida, Tennessee (the “Hospital Assets”). The Hospital Assets include a 52,000 square foot hospital building and 6,300 square foot professional building on approximately 4.3 acres. Scott County Community Hospital, which has since been renamed as Big South Fork Medical Center, is classified as a Critical Access Hospital (rural). The Company acquired the Hospital Assets out of bankruptcy for a purchase price of $1.0 million, and the purchase price has been recorded as property and equipment in the Company’s condensed consolidated balance sheet. The Company opened the hospital on August 8, 2017.

On January 31, 2018, the Company entered into a purchase agreement to acquire certain assets and liabilities related to Jamestown Regional Medical Center. The purchase was completed on June 1, 2018. The Company has valued the net assets acquired, subject to completion of a valuation study, at approximately $7.1 million, of which $6.5 million was recorded as property and equipment. The purchase is more fully discussed in Notes 1 and 6.

RENNOVA HEALTH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Depreciation expense on property and equipment was $0.5$0.1 million and $0.7$0.4 million for the three months ended September 30, 2018 and 2017, respectively, and 2016, and $1.5$0.8 million and $2.0$1.2 million for the nine months ended September 30, 2018 and 2017, and 2016, respectively.

Management periodically reviews the valuation of long-lived assets, including property and equipment, for potential impairment. Management did not recognize any impairment of these assets during the three and nine months ended September 30, 20172018 and 2016.2017.

Note 6 – Acquisitions

Purchase Agreement Re Jamestown Regional Medical Center

On June 1, 2018, the Company acquired a business engaging in acute hospital care located in Jamestown, Tennessee under an asset purchase agreement. The acquisition also included a separate physician practice which now operates under the Company as Mountain View Physician Practice, Inc.

Pursuant to the asset purchase agreement, by and among the Company and Jamestown TN Medical Center, Inc., and HMA Fentress County Hospital, LLC, Jamestown HMA Physician Management, LLC and CHS/Community Health Systems, Inc. (the “Sellers”), the purchase price paid for the transaction was an aggregate of $668,983 which includes closing costs of $35,735 paid for in cash consideration to the Sellers.

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

The Company is currently undertaking a valuation study to determine the fair value of the assets acquired. The preliminary estimated fair value of the net assets acquired, and liabilities assumed is approximately $8.4 million. The excess of the aggregate fair value of the net tangible assets acquired over the purchase price is currently estimated to be $7.7 million and has been treated as a gain on bargain purchase in accordance with ASC 805. In addition, during the measurement period or until the valuation study is complete, the provisional amounts used for the purchase price allocation are subject to adjustments for a period not to exceed one year from the acquisition date. As a result, upon completion of the valuation study, the gain on bargain purchase presented below may be increased or decreased. The preliminary purchase price allocation was based, in part, on management’s knowledge of HMA Fentress County General Hospital and Jamestown HMA Physician Management, LLC.

The following table shows the preliminary allocation of the purchase price of Jamestown Regional Medical Center to the acquired identifiable assets acquired, and liabilities assumed:

RENNOVA HEALTH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

The total cost relating to the acquisition was approximately $1,100,000. This includes $668,983, which was paid in cash consideration to the sellers, closing costs of $35,735, legal costs of approximately $115,000, and other diligence related costs, which were expensed as of September 30, 2018.

As prescribed by Regulation S-X of the Securities and Exchange Commission, within seventy-five days of the acquisition of a significant business, separate audited pre-acquisition historical financial statements are required to be filed. An audit of the Jamestown Regional Medical Center’s financial statements was deemed necessary based on the guidance applicable to our financial statements and based on the acquisition’s significance to the Company’s financial statements prior to completion. On August 25, 2018, the Company engaged our auditors, Haynie & Company to perform the required audit. As of the date of the filing of this report, the Company has not met this filing requirement.

The following presents the unaudited pro-forma combined results of operations of the Company and Jamestown Regional Medical Center as if the acquisition had occurred on January 1, 2017.

The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2017 or to project potential operating results as of any future date or for any future periods.

RENNOVA HEALTH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 47 – Accrued Expenses

Accrued expenses at September 30, 20172018 (unaudited) and December 31, 20162017 consisted of the following:

Note 58 – Notes Payable

The Company and its subsidiaries are party to a number of loans with affiliates and unrelated parties. At September 30, 20172018 (unaudited) and December 31, 2016,2017, notes payable consisted of the following:

Notes Payable – Third Parties