UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended SeptemberJune 30, 20172023

OR

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

For the transition period from ______ to ______.

Commission File Number: 001-35141

RENNOVA HEALTH, INC.

(Exact name of registrant as specified in its charter)

(561)855-1626

(Registrant’s telephone number, including area code)

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

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

Common Stock, $0.0001 Par Value

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

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

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

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

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

As of November 17, 2017,August 8, 2023, the registrant had 5,639,66929,934,322,257 shares of its Common Stock, $0.01$0.0001 par value, outstanding.

RENNOVA HEALTH, INC. AND SUBSIDIARIES

FORM 10-Q

SeptemberJune 30, 20172023

TABLE OF CONTENTS

RENNOVA HEALTH, INC.

PART I-FINANCIALI - FINANCIAL INFORMATION

Item 1. Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

RENNOVA HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

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 SEPTEMBERFor Each of the Quarters in the Six-Month Period Ended June 30, 20172023

(unaudited)

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

RENNOVA HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWSCHANGES IN STOCKHOLDERS’ DEFICIT

(unaudited)For Each of the Quarters in the Six-Month Period Ended June 30, 2022

(unaudited)

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

RENNOVA HEALTH, INC.

Notes to Condensed Consolidated Financial StatementsCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(unaudited)

Note 1 – Organization and BasisSummary of PresentationSignificant Accounting Policies

Description of Business

Rennova Health, Inc. (“Rennova”), together with its subsidiaries, (thethe “Company”, “we”, “us”, “its” or “our”), is a vertically integrated provider of healthcare related products andhealth care services. The Company owns one operating hospital in Oneida, Tennessee, a hospital located in Jamestown, Tennessee that it plans to reopen, and operate and an operating rural health clinic in Kentucky. In addition, the Company owns a subsidiary pursuing opportunities in the behavioral health sector and, on August 14, 2023, commenced operations of an alcohol and drug treatment facility on the campus of its hospital in Oneida, Tennessee. The Company’s principal linesoperations consist of business are (i) clinicalonly one segment.

Scott County Community Hospital (d/b/a Big South Fork Medical Center)

On January 13, 2017, we acquired certain assets related to Scott County Community Hospital, based in Oneida, Tennessee (the “Oneida Assets”). The Oneida 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 has 25 beds, a 24/7 emergency department and a laboratory operations; (ii) supportive software solutionsthat provides a range of diagnostic services. Scott County Community Hospital closed in July 2016 in connection with the bankruptcy filing of its parent company, Pioneer Health Services, Inc. We acquired the Oneida Assets out of bankruptcy for a purchase price of $1.0 million. The hospital, which has since been renamed Big South Fork Medical Center, became operational on August 8, 2017. The hospital became certified as a Critical Access Hospital (rural) hospital in December 2021, retroactive to healthcare providers including ElectronicJune 30, 2021.

CarePlus Clinic

On March 5, 2019, we acquired certain assets related to an outpatient clinic located in Williamsburg, Kentucky. The clinic and its associated assets, which were acquired from CarePlus Rural Health RecordsClinic, LLC, offers compassionate care in a modern, patient-friendly facility. The CarePlus Clinic is located 32 miles northwest of our Big South Fork Medical Center.

Myrtle Recovery Centers, Inc.

In the second quarter of 2022, the Company formed a subsidiary, Myrtle Recovery Centers, Inc. (“EHR”Myrtle”), to pursue opportunities in the behavioral health sector, initially in our core, rural markets. We intend to focus on leveraging our existing physical locations and corporate and regional infrastructure to offer behavioral health services, including substance abuse treatment. Services will be provided on either an inpatient, residential basis or an outpatient basis.

On August 10, 2023, Myrtle was granted a license under the rules of the Department of Mental Health and Substance Abuse Services of Tennessee to operate an alcohol and drug treatment facility in Oneida Tennessee. The facility, which is located at Rennova’s Big South Fork Medical Billing ServicesCenter campus, commenced operations and Laboratory Information Services;began accepting patients on August 14, 2023. The facility offers alcohol and (iii)drug residential detoxification and residential rehabilitation treatment services for up to 30 patients. Myrtle intends to offer outpatient opioid treatment services at its Oneida facility in the recent additionfuture.

On April 11, 2023, Myrtle sold shares of its common stock equivalent to a rural critical access hospital.1.961% ownership stake in the subsidiary for de minimis value to an unaffiliated individual licensed as a physician in Tennessee. The shares have certain transfer restrictions, including the right of the subsidiary to transfer the shares to another physician licensed in Tennessee for de minimis value. The shares were sold to the individual for Tennessee healthcare regulatory reasons.

Jamestown Regional Medical Center

On June 1, 2018, we acquired from Community Health Systems, Inc. certain assets related to an acute care hospital located in Jamestown, Tennessee, referred to as Jamestown Regional Medical Center, for a purchase price of $0.7 million. The hospital is an 85-bed facility of approximately 90,000-square feet on over eight acres of land, which offered a 24-hour emergency department with two trauma bays and seven private exam rooms, inpatient and outpatient medical services and a progressive care unit which provided telemetry services. The acquisition also included a separate physician practice known as Mountain View Physician Practice, Inc.

The Company suspended operations at the hospital and physician practice in June 2019, as a result of the termination of the hospital’s Medicare agreement and other factors. The Company is evaluating whether to reopen the facility as an acute care hospital or as another type of healthcare facility. Jamestown is located 38 miles west of Big South Fork Medical Center.

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 includedas filed in the Company’s Annual Report on Form 10-K filed withfor the U.S. Securities and Exchange Commission (the “SEC”) on April 10, 2017. Theseyear ended December 31, 2022. In the opinion of management, the unaudited condensed consolidated interim financial statements included herein contain all adjustments necessary to present fairly the Company’s consolidated financial position as of June 30, 2023, and the results of its operations and changes in stockholders’ deficit for the three and six months ended June 30, 2023 and 2022 and its cash flows for the six months ended June 30, 2023 and 2022. Such adjustments are of a normal recurring nature. The results of operations for the three and six months ended June 30, 2023 may not be indicative of results for the year ending December 31, 2023.

Principles of Consolidation

The unaudited condensed consolidated financial statements, which 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.accounting principles generally accepted accounting principlesin the United States of America (“U.S. GAAP”)., include the accounts of Rennova and its wholly-owned and majority-owned subsidiaries. All material intercompany balancestransactions and transactionsbalances have been eliminated in consolidation. In the opinionconsolidation.

Comprehensive Income (Loss)

During the three and six months ended June 30, 2023 and 2022, comprehensive income (loss) was equal to the net income (loss) amounts presented in the unaudited condensed consolidated statements of operations.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the Company’s management, the unaudited interim condensed consolidated financial statements, contain all adjustments (consisting onlyand the reported amounts of normal recurring accruals) considered necessary fornet revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions include the estimates of fair presentationvalues of assets acquired and liabilities assumed in business combinations, contractual allowances and bad debt reserves, the financial positionrecoverability of long-lived assets, the valuation allowance relating to the Company’s deferred tax assets, the valuations of investments, equity and derivative instruments, deemed dividends, litigation and related reserves, among others. Actual results could differ from those estimates and would impact future results of operations and cash flows for the interim periods reported herein. 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.flows.

During the three and nine months ended September 30, 2017 and 2016, comprehensive loss was equal to the net loss amounts presented in the accompanying condensed consolidated statements of operations. In addition, certainReclassifications

Certain prior year balancesamounts have been reclassified to conform to the current year presentation.

ReclassificationCash and Cash Equivalents

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents.

Revenue Recognition

We recognize revenue in accordance with Accounting Standard Codification (“ASC”), “Revenue from Contracts with Customers (Topic 606),” including subsequently issued updates. Under the accounting guidance, our revenues are presented net of estimated contractual allowances and estimated implicit price concessions. We also do not present “allowances for doubtful accounts” on our balance sheets.

Our revenues relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods averaging approximately three days, and revenues are recognized based on charges incurred. Our performance obligations for outpatient services, including emergency room-related services, are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges. Medicare, because of the Big South Fork Medical Center’s designation as a Critical Access Hospital, generally pays for inpatient and outpatient services at rates related to the hospital’s costs. Services provided to patients having Medicaid coverage are generally paid at prospectively determined rates per discharge, per identified service or per covered member. Agreements with commercial insurance carriers, managed care and preferred provider organizations generally provide for payments based upon predetermined rates per diagnosis, per diem rates or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals. Our net revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual allowances under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record self-pay revenues at the estimated amounts we expect to collect.

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Estimated reimbursement amounts are adjusted in subsequent periods as cost reports are prepared and filed and as final settlements are determined (in relation to certain government programs, primarily Medicare, this is generally referred to as the “cost report” filing and settlement process). As of June 30, 2023, $1.0 million of Medicare cost report settlement reserves were recorded as liabilities on the condensed balance sheet, as more fully discussed in Note 5.

The collection of outstanding receivables for Medicare, Medicaid, managed care payers, other third-party payers and patients is our primary source of operating cash and is critical to our operating performance. The primary collection risks relate to uninsured patient accounts, including patient accounts for which the primary insurance carrier has paid the amounts covered by the applicable agreement, but patient responsibility amounts (deductibles and copayments) remain outstanding. Implicit price concessions relate primarily to amounts due directly from patients. Estimated implicit price concessions are recorded for all uninsured accounts, regardless of the aging of those accounts. Accounts are written off when all reasonable internal and external collection efforts have been performed. The estimates for implicit price concessions are based upon management’s assessment of historical write offs and expected net collections, business and economic conditions, trends in federal, state and private employer health care coverage and other collection indicators. Management relies on the results of detailed reviews of historical write-offs and collections at facilities that represent a majority of our revenues and accounts receivable (the “hindsight analysis”) as a primary source of information in estimating the collectability of our accounts receivable.

Contractual Allowances and Doubtful Accounts Policy

Accounts receivable are reported at realizable value, net of estimated contractual allowances and estimated implicit price concessions (also referred to as doubtful accounts), which are estimated and recorded in the period the related revenue is recorded. The Company has reclassified certain amountsa standardized approach to estimating and reviewing the collectability of its receivables based on a number of factors, including the period they have been outstanding. Historical collection and payer reimbursement experience is an integral part of the estimation process related to contractual allowances and doubtful accounts. In addition, the Company regularly assesses the state of its billing operations in order to identify issues which may impact the 2016 condensed consolidated financial statementsreceivables or reserve estimates. Receivables deemed to be consistent withuncollectible are charged against the 2017 presentation. These principally relateallowance for doubtful accounts at the time such receivables are written-off. Recoveries of receivables previously written-off are recorded as credits to classificationthe allowance for doubtful accounts. Revisions to the allowances for doubtful accounts are recorded as an adjustment to revenues.

During the three months ended June 30, 2023 and 2022, estimated contractual allowances of certain revenues, cost$8.5 million and $5.1 million, respectively, and estimated implicit price concessions of $1.4 million and $2.7 million, respectively, have been recorded as reductions to our revenues and accounts receivable balances to enable us to record our revenues and accounts receivable at the estimated amounts we expect to collect. As required by Topic 606, after estimated implicit price concessions and contractual and related segment data, as well as balance sheet classificationsallowance adjustments to assetsrevenues of $9.9 million and liabilities held for sale. Reclassifications relating to the discontinued operations of AMSG are described further in Note 14. The reclassifications had no impact on operations or cash flows$7.8 million, respectively, for the three and nine months ended SeptemberJune 30, 2016.2023 and 2022, we reported net revenues of $6.4 million and $3.6 million, respectively.

Reverse Stock Splits

On February 7, 2017,During the Company’s Boardsix months ended June 30, 2023 and 2022, estimated contractual allowances of Directors approved an amendment$19.6 million and $13.2 million, respectively, and estimated implicit price concessions of $2.4 million and $4.1 million, respectively, have been recorded as reductions to our revenues and accounts receivable balances to enable us to record our revenues and accounts receivable at the Company’s Certificate of Incorporationestimated amounts we expect 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, 2016collect. As required by Topic 606, for the February 7, 2017 reverse stock splitsix months ended June 30, 2023 and on September 20, 20172022, after estimated implicit price concessions and contractual and related allowance adjustments to revenues of $22.0 million and $17.3 million, respectively, we reported net revenues of $11.3 million and $4.8 million, respectively.

We continue to review the provisions 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,implicit price concessions and the timing of the reverse splits within certain specified effective dates.contractual allowances. See Note 4 – Accounts Receivable.

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 shares in the February reverse split and the payment 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.

RENNOVA HEALTH, INC.Impairment or Disposal of Long-Lived Assets

Notes

We account for the impairment or disposal of long-lived assets according to Condensed Consolidated Financial Statements

(unaudited)

Adoption of ASU 2017-11

In July 2017, the Financial Accounting Standards Board (“FASB”(the “FASB”) issuedASC Topic 360, Property, Plant and Equipment (“ASC 360”). ASC 360 clarifies the accounting for the impairment of long-lived assets and for long-lived assets to be disposed of, including the disposal of business segments and major lines of business. Long-lived assets are reviewed when facts and circumstances indicate that the carrying value of the asset may not be recoverable. When necessary, impaired assets are written down to estimated fair value based on the best information available. Estimated fair value is generally either based on appraised value or measured by discounting estimated future cash flows. Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. The Company did not record an asset impairment charge during the three and six months ended June 30, 2023 and 2022.

Leases in Accordance with ASU No. 2016-02

We account for leases in accordance with Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires leases with durations greater than 12 months to be recognized on the balance sheet. Upon adoption in 2019, we elected the package of transition provisions available which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. We lease property and equipment under finance and operating leases. For operating leases with terms greater than 12 months, we record the related right-of-use assets and right-of-use obligations at the present value of lease payments over the term. For finance leases, we record the present value of the lease payments as finance lease obligations. We do not separate lease and non-lease components of contracts. Our finance and operating leases are more fully discussed in Note 8.

Fair Value Measurements

In accordance with ASC 820, “Fair Value Measurements and Disclosures,” the Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

On June 30, 2023 and December 31, 2022, we applied the Level 3 fair value hierarchy in determining the fair value of InnovaQor, Inc.’s Series B-1 Non-Voting Convertible Preferred Stock (the “InnovaQor Series B-1 Preferred Stock”), which is reflected on our unaudited condensed consolidated balance sheets as an investment. Also, on June 30, 2023 and December 31, 2022, we applied the Level 3 fair value hierarchy in determining the fair value of a derivative liability for an embedded conversion option of an outstanding convertible debenture. Our determination of fair value is more fully discussed in Note 9.

Derivative Financial Instruments and Fair Value, Including ASU 2017-11 and ASU 2021-04

In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815).” The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings (loss) per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholdersstockholders in basic and diluted 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

In May 2021, 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.

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, DerivativesFASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications 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 warrantsExtinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), 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 (Subtopic 815-40), Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The FASB issued this update to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The guidance clarifies whether an issuer should account for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity (that is, deemed dividends) and, if so, the related earnings per share (EPS) effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. We adopted this new accounting guidance on January 1, 2022. Under the new guidance, the FASB decided not to include convertible debt instruments in the guidance because ASU No 2016-01, Financial Instruments – Overall (Subtopic 825-10) requires that an entity capture the impact of changes in down round provision features of convertible debt within the fair value of the instruments. During the three and six months ended June 30, 2023 and 2022, there were no changes in the fair values of the Company’s convertible debentures with down round provision features as these debentures issued in 2018 have floors of $0.052 per share and were not in-the-money during these periods. Debentures are more fully discussed in Note 6.

There were no triggers of down round provisions to warrants during the three and six months ended June 30, 2023. The incremental value of modification to warrants as a result of triggers of the down round provisions of $194.7 million and $330.5 million were recorded as deemed dividends in the three and six months ended June 30, 2022, respectively. See Note 9 for an additional discussion of derivative financial instruments and deemed dividends.

In addition, we recorded deemed dividends of approximately $0.2 million and $0.3 million during the three and six months ended June 30, 2022, respectively, as a result of the issuances of shares of our Series P Convertible Redeemable Preferred Stock (the “Series P Preferred Stock”), which is more fully discussed in Note 10.

Income Taxes

Income taxes are accounted for under the liability method of accounting for income taxes. Under the liability method, future tax liabilities and assets are recognized for the estimated future tax consequences attributable to differences between the amounts reported in the financial statement carrying amounts of assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantially enacted income tax rates expected to apply when the asset is realized or the liability settled. The effect of a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs. Future income tax assets are recognized to the extent that they are considered in determining whether an equity-linked financial instrument qualifiesmore likely than not to be realized. When projected future taxable income is insufficient to provide for the realization of deferred tax assets, the Company recognizes a scope exception from derivative accounting. An entity stillvaluation allowance.

In accordance with U.S. GAAP, the Company is required to determine whether instrumentsa tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Derecognition of a tax benefit previously recognized could result in the Company recording a tax liability (or reducing a tax asset) that 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 liabilitiesreduce net assets. The Company did not have an unrecognized tax benefit at June 30, 2023 and embedded conversion options with down round features are no longer bifurcated.December 31, 2022.

For entities that present EPS

Earnings (Loss) Per Share

The Company reports earnings (loss) per share in accordance with ASC Topic 260, “Earnings Per Share,” which establishes standards for computing and whenpresenting earnings (loss) per share. Basic earnings (loss) per share of common stock is calculated by dividing net earnings (loss) available to common stockholders by the down round featureweighted-average shares of common stock outstanding during the period, without consideration of common stock equivalents. Diluted earnings (loss) per share is included in an equity-classified freestanding financial instrument,calculated by adjusting the valueweighted-average shares of common stock outstanding for the dilutive effect of common stock equivalents, including preferred stock, convertible debt, stock options and warrants outstanding for the period, with options and warrants determined using the treasury stock method. For purposes of the diluted earnings (loss) per share calculation, common stock equivalents are excluded from the calculation when their effect would be anti-dilutive. See Note 3 for the computation of earnings (loss) per share for the three and six months ended June 30, 2023 and 2022.

Reverse Stock Split

On March 15, 2022, the Company effected a 1-for-10,000 reverse stock split (the “Reverse Stock Split”). As a result 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 holderReverse Stock Split, every 10,000 shares of the instrument, while alleviating the complexityCompany’s common stock then outstanding was combined 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) on the basisautomatically converted into one share of the existenceCompany’s common stock on March 15, 2022. The conversion and exercise prices 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 valueall of the feature only whenCompany’s outstanding convertible preferred stock, common stock purchase warrants, stock options and convertible debentures were proportionately adjusted at 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. 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 presentedapplicable reverse split ratio in accordance with the guidance on accounting changesterms of such instruments. The par value and other terms of the common stock were not affected by the Reverse Stock Split. All share, per share and capital stock amounts and common stock equivalents presented herein have been restated where appropriate to give effect to the Reverse Stock Split.

Amendment to Certificate of Incorporation

Effective November 5, 2021, the Company filed an Amendment to its Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware to provide that the number of authorized shares of the Company’s common stock or preferred stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the holders of a majority in paragraphs 250-10-45-5 through 45-10.voting power of the stock of the Company entitled to vote generally in the election of directors, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware (or any successor provision thereto), voting together as a single class, without a separate vote of the holders of the class or classes the number of authorized shares of which are being increased or decreased unless a vote by any holders of one or more series of preferred stock is required by the express terms of any series of preferred stock pursuant to the terms thereof.

RENNOVA HEALTH, INC.Note 2 – Liquidity and Financial Condition

Notes to Condensed Consolidated Financial Statements

(unaudited)Going Concern

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 offsetresponsibility 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 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 result of the down round provision feature.

Going Concern

The Company’s condensed consolidated financial statements are prepared using U.S. GAAP applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in 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, whichevaluate 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, Presentation of Financial Statements-Going Concern (Subtopic 205-40) (“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 addition,concern in accordance with the Company’s cash positionrequirements of ASC 205-40.

At June 30, 2023, the Company had a working capital deficit and a stockholders’ deficit of $40.9 million and $27.0 million, respectively. While the Company incurred net income of $2.1 million for the six months ended June 30, 2023, it incurred a net loss of $3.3 million for the year ended December 31, 2022 and as of the date of this report, its cash is critically deficient criticaland payments are not being madefor its operations in the ordinary course are not being made. The prior year loss and other related factors, including past due accounts payable and payroll taxes, as well as payment defaults under the terms of businessoutstanding notes payable and certain indebtedness in the amount of $6.0 million matured on March 31, 2017, which the Company does not have the financial resources to satisfy (see Note 5), all of whichdebentures, raise substantial doubt about the Company’s ability to continue as a going concern.concern for 12 months from the filing date of this report.

The Company continues to consider efficiencies and is currently using one laboratory for the majority of its toxicology diagnostics thereby reducing the number of employees and associated operating expenses, in order to reduce costs. In addition,Company’s unaudited condensed consolidated financial statements are prepared assuming the Company received approximately $15.7 million in cash fromcan continue as a going concern, which contemplates continuity of operations through realization of assets, and the issuancessettling of debentures and warrantsliabilities in the first nine monthsnormal course of 2017 (see Note 6), $3.8 million from related partiesbusiness. The Company’s current financial condition may make it difficult to attract and an additional $4.0 million of proceeds on October 30, 2017 from the issuance of convertible preferred stock (see Note 15). In July 2017, the Company announced that it plansmaintain adequate expertise in its management team to spin offsuccessfully operate its Advanced Molecular Services Group (“AMSG”) as an independent publicly traded company by way of a tax-free distribution to its shareholders. Completion of the spinoff of AMSG is expected to occur during the first quarter of 2018, and is subject to numerous conditions, including effectiveness of a Registration Statement 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 spinoff of AMSG is to create two 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 as a disposal group classified as held for sale and included as part of discontinued operations. AMSG is no longer included in the segment reporting following the reclassification to discontinued operations. The discontinued operations of AMSG are described further in Note 14. The Company also announced that 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 three 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, the Company expects that the opening of the hospital will continue to provide additional revenue and cash flow sources.healthcare facilities.

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 reduceraise adequate capital to fund its operations and repay its outstanding debt and other past due obligations, fully align its operating costs, increase its net revenues, and eventually regainmaintain profitable operations. The accompanyingunaudited 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 EventsHHS Provider Relief Funds

Common Stock ListingThe Company received HHS Provider Relief Funds, which were provided to eligible healthcare providers out of the $100 billion Public Health and Social Services Emergency Fund provided for in the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The funds were allocated to eligible healthcare providers for expenses and lost revenue attributable to the COVID-19 pandemic. As of June 30, 2023, our facilities have received approximately $13.6 million in relief funds. The fund payments are grants, not loans, and HHS will not require repayment, but the funds must be used only for grant approved purposes. Based on an analysis of the compliance and reporting requirements of the Provider Relief Funds and the impact of the pandemic on our operating results through June 30, 2023, we have recognized a net of $13.0 million of these funds as income of which $0.6 million, $4.4 million and $8.0 million were recognized as income during the years ended December 31, 2022, 2021 and 2020, respectively. Accordingly, approximately $0.6 million of relief funds received as of June 30, 2023 are included on our balance sheets in accrued expenses – see Note 5.

Effective October 25, 2017,As of June 30, 2023, the Company’s common stock (RNVA)estimate of the amount for which it is reasonably assured of meeting the underlying terms and warrantsconditions of the grants was based on, among other things, the various notices issued by HHS on September 19, 2020, October 22, 2020, and January 15, 2021 and the Company’s results of operations during the three and six months ended June 30, 2023 and the years ended December 31, 2022, 2021 and 2020. The Company believes that it was appropriate to purchase common stock (RNVAW) were no longer listedrecognize a net of $13.0 million of the HHS Provider Relief Funds as income in various periods, as discussed in the paragraph above. Accordingly, the $13.0 million is not recognized as a liability at June 30, 2023. Additional guidance or new and amended interpretations of existing guidance on the Nasdaq Stock Market but began trading onterms and conditions of such payments may result in changes in the OTCQB instead,Company’s estimate of amounts for which the terms and conditions are reasonably assured of being met, and any such changes may be material. Additionally, any such changes may result in derecognition of amounts of income previously recognized, which may be material. If we are unable to attest to or comply with current or future terms and conditions, and there is no assurance we will be able to do so, our ability to retain some or all of the funds received may be impacted.

The Company has been served with a qui tam complaint with regards to the use of monies received from HHS Provider Relief Funds, as more fully discussed in Note 15.12.

Note 3 – Earning (Loss) Per Share

The earnings (loss) per share accounting guidance is discussed in Note 1. The following table sets forth the computation of the Company’s basic and diluted net earnings (loss) per share available to common stockholders (unaudited) for the three and six months ended June 30, 2023 and 2022:

Schedule of Earnings Per Share