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Discontinued Operations

6 Months Ended

Jun. 30, 2021

Discontinued Operations and Disposal Groups [Abstract]

Note 14 – Discontinued Operations

Sale of HTS and AMSG

In 2017, the Company announced plans to spin off or sell its wholly-owned subsidiaries, HTS and AMSG. On June 25, 2021, the Company sold the shares of stock of HTS and AMSG to VisualMED. HTS and AMSG held Rennova’s software and genetic testing interpretation divisions. The terms of the sale are discussed in Note 1.

EPIC Reference Labs, Inc.

During the three months ended September 30, 2020, the Company made a decision to sell its last clinical laboratory, EPIC Reference Labs, Inc., and it made a decision to discontinue several other non-operating subsidiaries, and as a result, EPIC Reference Labs, Inc.’s operations and the other non-operating subsidiaries have been included in discontinued operations for all periods presented. The Company has been unable to find a buyer for EPIC Reference Labs, Inc. and, therefore, effective June 30, 2021, it has ceased all efforts to sell the company.

Carrying amounts of major classes of assets and liabilities sold or included as part of discontinued operations in the consolidated balance sheets as of June 30, 2021 and December 31, 2020 consisted of the following:

HTS and AMSG Assets and Liabilities:

	June 30, 2021		December 31, 2020
		(unaudited)
Cash	$	-	$	31,294
Accounts receivable, net		-		151,363
Prepaid expenses and other current assets		-		1,717
Current assets classified as held for sale	$	-	$	184,374

Property and equipment, net	$	-	$	685
Deposits		-		-
Right-of-use assets		-		-
Non-current assets classified as held for sale	$	-	$	685

Accounts payable and checks issued in excess of bank balance	$	-	$	726,220
Accrued expenses		-		1,308,283
Current portion of right-of-use operating lease obligation		-		-
Current portion of notes payable		-		168,751
Current liabilities classified as held for sale	$	-	$	2,203,254

Note payable	$	-	$	69,267
Right-of-use operating lease obligation		-		-
Non-current liabilities classified as held for sale	$	-	$	69,267

EPIC Reference Labs, Inc. and Other Subsidiaries Assets and Liabilities:

	June 30, 2021		December 31, 2020
	(unaudited)
Cash	$	-	$	136
Accounts receivable, net		-		-
Prepaid expenses and other current assets		-		-
Current assets classified as held for sale	$	-	$	136

Property and equipment, net	$	-	$	-
Deposits		100,014		100,014
Right-of-use assets		52,284		100,116
Non-current assets classified as held for sale	$	152,298	$	200,130

Accounts payable and checks in excess of bank balance	$	1,144,088	$	1,185,158
Accrued expenses		336,410		334,667
Current portion of right-of-use operating lease obligation		52,284		91,166
Current portion of notes payable		-		-
Current liabilities classified as held for sale	$	1,532,782	$	1,610,991

Note payable	$	-	$	-
Right-of-use operating lease obligation		-		8,950
Non-current liabilities classified as held for sale	$	-	$	8,950

Consolidated Discontinued Operations Assets and Liabilities:

	June 30, 2021		December 31, 2020
		(unaudited)
Cash	$	-	$	31,430
Accounts receivable, net		-		151,363
Prepaid expenses and other current assets		-		1,717
Current assets classified as held for sale	$	-	$	184,510

Property and equipment, net	$	-	$	685
Deposits		100,014		100,014
Right-of-use assets		52,284		100,116
Non-current assets classified as held for sale	$	152,298	$	200,815

Accounts payable and checks issued in excess of bank balance	$	1,144,088	$	1,911,378
Accrued expenses		336,410		1,642,950
Current portion of right-of-use operating lease obligation		52,284		91,166
Current portion of notes payable		-		168,751
Current liabilities classified as held for sale	$	1,532,782	$	3,814,245

Note payable	$	-	$	69,267
Right-of-use operating lease obligation		-		8,950
Non-current liabilities classified as held for sale	$	-	$	78,217

Major line items constituting income (loss) from discontinued operations in the consolidated statements of operations for the three and six months ended June 30, 2021 and 2020 consisted of the following (unaudited):

HTS and AMSG Income (Loss) from Discontinued Operations:

	Three Months Ended June 30, 2021			Three Months Ended June 30, 2020			Six Months Ended June 30, 2021			Six Months Ended June 30, 2020
Revenue from services	$	98,725		$	103,110		$	216,941		$	262,177
Cost of services		1,996			2,212			2,386			10,989
Gross profit		96,729			100,898			214,555			251,188
Operating expenses		(267,796	)		(67,366	)		(551,296	)		(251,734	)
Other income (expense)		213			(25,500	)		(9,577	)		(51,431	)
Gain on sale		10,727,152			-			10,727,152			-
Provision for income taxes		-			-			-			-
Income (loss) from discontinued operations	$	10,556,298		$	8,032		$	10,380,834		$	(51,977	)

As presented in the table above, the Company recorded a gain on the sale of HTS and AMSG of $10.7 million of which $8.5 million resulted from the value of the VisualMED Series B Preferred Stock received per the terms of the sale and $2.2 million resulted from the transfer to VisualMED of the net liabilities of HTS and AMSG. The sale is more fully discussed in Note 1. The fair value of the VisualMED Series B Preferred Stock that the Company received as consideration for the sale of $8.5 million was based on a third-party valuation using the Option Price Method (the “OPM”) The OPM treats common and preferred interests as call options on the equity value of the subject company, with exercise prices based on the liquidation preference of the preferred interests and participation thresholds for subordinated classes. The common interest is modeled as a call option that gives its owner the right but not the obligation to buy the enterprise value at a predetermined or exercise price. In the model, the exercise price is based on a comparison with the enterprise value rather than, as in the case of a “regular” call option, a comparison with a per share stock price. Thus, the common interest is considered to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the preferred interests are liquidated. The Black Scholes model was used to price the call options. The assumptions used were: risk free rate of 0.84%; volatility of 250.0%; and exit period of 5 years. Lastly, a discount rate of 35% was applied due to the lack of marketability of the VisualMED Series B Preferred Stock and the underlying liquidity of VisualMED’s common stock.

EPIC Reference Labs, Inc. and Other Subsidiaries (Loss) Income from Discontinued Operations:

	Three Months Ended June 30, 2021			Three Months Ended June 30, 2020			Six Months Ended June 30, 2021			Six Months Ended June 30, 2020
Revenue from services	$	-		$	-		$	-		$	442
Cost of services		-			110,257			-			-
Gross profit		-			(110,257	)		-			442
Operating expenses		(46,759	)		(22,537	)		(94,856	)		(51,653	)
Other income (expense)		51,876			93,035			48,771			90,392
Gain on sale		-			-			-			-
Provision for income taxes		-			-			-			-
Income (loss) from discontinued operations	$	5,117		$	(39,759	)	$	(46,085	)	$	39,181

Consolidated (Loss) Income from Discontinued Operations:

	Three Months Ended June 30, 2021			Three Months Ended June 30, 2020			Six Months Ended June 30, 2021			Six Months Ended June 30, 2020
Revenue from services	$	98,725		$	103,110		$	216,941		$	262,619
Cost of services		1,996			112,469			2,386			10,989
Gross profit		96,729			(9,359	)		214,555			251,630
Operating expenses		(314,555	)		(89,903	)		(646,152	)		(303,387	)
Other income (expense)		52,089			67,535			39,194			38,961
Gain on sale		10,727,152			-			10,727,152			-
Provision for income taxes		-			-			-			-
Income (loss) from discontinued operations	$	10,561,415		$	(31,727	)	$	10,334,749		$	(12,796	)