Note 1 - Condensed Consolidated Financial Statement Presentation	3 Months Ended
Mar. 31, 2021
Notes to Financial Statements
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]	Note 1. Condensed Consolidated Financial Statement Presentation Description of Operations – Novation Companies, Inc. and its subsidiaries (the “Company,” “Novation,” “we,” or “us”), through Healthcare Staffing, Inc. ("HCS"), our wholly-owned subsidiary, provides outsourced health care staffing and related services in the State of Georgia. Our common stock, par value $0.01 per share, is traded on the OTC Pink marketplace of the OTC Markets Group, Inc. under the symbol “NOVC”. Liquidity and Going Concern – During the three months ended March 31, 2021 , the Company incurred a net loss of $ 1.4 million and generated negative operating cash flow of $ 0.3 million. As of March 31, 2021 , the Company had an overall shareholders deficit of $ 82.4 million, an aggregate of $ 1.0 million in cash and cash equivalents and total liabilities of $ 93.9 million. Of the $ 1.0 million in cash, $ 0.3 million is held by the Company's subsidiary NovaStar Mortgage LLC ("NMLLC"). This cash is available only to pay general creditors and expenses of NMLLC. Prior to executing the Amendment with the Noteholders in August 2019 ( Note 5 ), the Company had a significant on-going obligation to pay interest under its senior notes agreement at LIBOR plus 3.5% per annum, payable quarterly in arrears until maturity on March 30, 2033, leading to a significant annual cash outflow. HCS has also experienced lower than anticipated cash flows in general due to increased costs and decrease in business from certain customers. These items have led to substantial doubt about the Company's ability to continue as a going concern. Management continues to work toward expanding HCS's customer base by increasing revenue from existing customers, looking at methods to reduce overall operating costs, both at HCS and the corporate level, and targeting new customers that have not previously been served by HCS. As disclosed in Note 5 to the condensed consolidated financial statements, the Company was successful in amending the senior note agreements to lower the interest rate and receive future credit for cash interest payments made in 2019 in exchange for the issuance of common stock and warrants. Based on the terms of the amendment, the Company is not required to make cash interest payments on the senior notes from August 2019 through March 2022, leading to significant cash savings for the Company. This amendment to the Note Purchase Agreement and waiver of interest payments through April 2022 has significantly improved our forecasted cash position over the next year. In late March 2020, HCS started experiencing a reduction in Community Service Board ("CSB") customer needs related to the COVID- 19 pandemic. This resulted in the layoff of approximately 8% of the Company's employees. As HCS relies on providing healthcare staffing services to generate income, this has decreased our service fee income, and direct cost of services, accordingly. While the majority of these employees were rehired when customer demand returned, there have been some permanent loss of staffing opportunities based on changes to programs and services offered by CSBs. In addition, there is still concern at the Company about the ongoing effects of COVID- 19 on our services for the foreseeable future. Our historical operating results and poor cash flow suggest substantial doubt exists related to the Company's ability to continue as a going concern. Furthermore, there is still significant uncertainty regarding the future impact that COVID- 19 will have on our business. Based on these uncertainties, there is no guarantee the Company's cash position will cover current obligations. As a result, we have not been able to alleviate the substantial doubt about the Company's ability to continue as a going concern for at least one year after the date that these condensed consolidated financial statements are issued. Earnings Per Share – For the three months ended March 31, 2021 and 2020 , potentially dilutive securities excluded from the computations of diluted weighted-average shares outstanding were 3.1 million and 4.5 million shares of restricted common stock, respectively. Condensed Consolidated Financial Statement Presentation – The Company's condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expense during the period. The Company uses estimates and judgments in assessing the recoverability of its long-lived assets, impairments, and accounting for income taxes, including the determination of the timing of the establishment or release of the valuation allowance related to the deferred tax asset balances and reserves for uncertain tax positions. While these condensed consolidated financial statements and footnotes reflect the best estimates and judgments of management at the time, actual results could differ significantly from those estimates, and the amounts could be material. The Company's condensed consolidated financial statements are unaudited. In the opinion of management, all necessary adjustments have been made, which were of a normal and recurring nature, for a fair presentation of the condensed consolidated financial statements. The Company's condensed consolidated financial statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included herein and the consolidated financial statements of the Company and the notes thereto included in the Company's Annual Report on Form 10 -K for the year ended December 31, 2020 (the " 2020 Form 10 -K").

Note

Condensed Consolidated Financial Statement Presentation

Description of Operations

–

Novation Companies, Inc. and its subsidiaries (the “Company,” “Novation,” “we,” or “us”), through Healthcare Staffing, Inc. ("HCS"), our wholly-owned subsidiary, provides outsourced health care staffing and related services in the State of Georgia. Our common stock, par value

$0.01

per share, is traded on the OTC Pink marketplace of the OTC Markets Group, Inc. under the symbol “NOVC”.

Liquidity and Going Concern –

During the

three

months ended

March 31, 2021

, the Company incurred a net loss of $

1.4

million and generated negative operating cash flow of $

0.3

million. As of

March 31, 2021

, the Company had an overall shareholders deficit of $

82.4

million, an aggregate of $

1.0

million in cash and cash equivalents and total liabilities of $

93.9

million. Of the $

1.0

million in cash, $

0.3

million is held by the Company's subsidiary NovaStar Mortgage LLC ("NMLLC"). This cash is available only to pay general creditors and expenses of NMLLC. Prior to executing the Amendment with the Noteholders in

August 2019 (

Note

), the Company had a significant on-going obligation to pay interest under its senior notes agreement at LIBOR plus

3.5%

per annum, payable quarterly in arrears until maturity on

March 30, 2033,

leading to a significant annual cash outflow. HCS has also experienced lower than anticipated cash flows in general due to increased costs and decrease in business from certain customers. These items have led to substantial doubt about the Company's ability to continue as a going concern.

Management continues to work toward expanding HCS's customer base by increasing revenue from existing customers, looking at methods to reduce overall operating costs, both at HCS and the corporate level, and targeting new customers that have

not

previously been served by HCS. As disclosed in Note

to the condensed consolidated financial statements, the Company was successful in amending the senior note agreements to lower the interest rate and receive future credit for cash interest payments made in

2019

in exchange for the issuance of common stock and warrants. Based on the terms of the amendment, the Company is

not

required to make cash interest payments on the senior notes from

August 2019

through

March 2022,

leading to significant cash savings for the Company. This amendment to the Note Purchase Agreement and waiver of interest payments through

April 2022

has significantly improved our forecasted cash position over the next year.

In late

March 2020,

HCS started experiencing a reduction in Community Service Board ("CSB") customer needs related to the COVID-

pandemic. This resulted in the layoff of approximately

of the Company's employees. As HCS relies on providing healthcare staffing services to generate income, this has decreased our service fee income, and direct cost of services, accordingly. While the majority of these employees were rehired when customer demand returned, there have been some permanent loss of staffing opportunities based on changes to programs and services offered by CSBs. In addition, there is still concern at the Company about the ongoing effects of COVID-

on our services for the foreseeable future.

Our historical operating results and poor cash flow suggest substantial doubt exists related to the Company's ability to continue as a going concern. Furthermore, there is still significant uncertainty regarding the future impact that COVID-

will have on our business. Based on these uncertainties, there is

guarantee the Company's cash position will cover current obligations. As a result, we have

not

been able to alleviate the substantial doubt about the Company's ability to continue as a going concern for at least

one

year after the date that these condensed consolidated financial statements are issued.

Earnings Per Share –

For the

three

months ended

March 31, 2021

and

2020

, potentially dilutive securities excluded from the computations of diluted weighted-average shares outstanding were

3.1

million and

4.5

million shares of restricted common stock, respectively.

Condensed Consolidated Financial Statement Presentation –

The Company's condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expense during the period. The Company uses estimates and judgments in assessing the recoverability of its long-lived assets, impairments, and accounting for income taxes, including the determination of the timing of the establishment or release of the valuation allowance related to the deferred tax asset balances and reserves for uncertain tax positions. While these condensed consolidated financial statements and footnotes reflect the best estimates and judgments of management at the time, actual results could differ significantly from those estimates, and the amounts could be material.

The Company's condensed consolidated financial statements are unaudited. In the opinion of management, all necessary adjustments have been made, which were of a normal and recurring nature, for a fair presentation of the condensed consolidated financial statements. The Company's condensed consolidated financial statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included herein and the consolidated financial statements of the Company and the notes thereto included in the Company's Annual Report on Form

-K for the year ended

December 31, 2020

(the "

2020

Form

-K").