As
filed with the Securities and Exchange Commission on August 30 , 2017.
Registration
No. 333-219145
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Amendment
No. 2 to
FORM
S-1
REGISTRATION
STATEMENT
UNDER THE SECURITIES ACT
OF 1933
Rennova
Health, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
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|
7374
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68-0370244
|
(State
or other jurisdiction of
incorporation or organization)
|
|
(Primary
Standard Industrial
Classification Code Number)
|
|
(I.R.S.
Employer
Identification
Number)
|
400
South Australian Avenue, Suite 800
West
Palm Beach, Florida 33401
(561)
855-1626
(Address,
including zip code, and telephone number,
including area code, of registrant’s principal
executive offices)
Seamus
Lagan
Chief
Executive Officer and President
Rennova
Health, Inc.
400
South Australian Avenue, Suite 800
West
Palm Beach, Florida 33401
(561)
855-1626
(Name,
address. including zip code, and telephone number,
including area code, of agent for service)
Copies
to:
J.
Thomas Cookson, Esq.
Shutts
& Bowen LLP
200
South Biscayne Boulevard, Suite 4100
Miami,
Florida 33131
Tel:
(305) 379-9141
Approximate
date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement
becomes effective.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box: [X]
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the
same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
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,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer [ ]
|
|
Accelerated
filer [ ]
|
|
Non-
accelerated
filer [ ]
(Do not check
if a
smaller
reporting
company)
|
|
Smaller
reporting company [X]
Emerging
growth company [ ]
|
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 7(a)(2)(B) of the Securities Act.
[ ]
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of
Securities to be Registered
|
|
Amount
to be
Registered
|
|
|
Proposed
Maximum
Offering
Price Per
Share
|
|
|
Proposed
Maximum
Aggregate
Offering
Price
(1)
|
|
|
Amount
of
Registration
Fee
(5)
|
|
Common Stock, par value
$.01 per share, underlying Series B Warrants (2)(3)
|
|
|
25,000,000
|
(4)
|
|
$
|
0.39
|
|
|
$
|
9,750,000
|
|
|
$
|
1,131
|
|
(1)
|
Estimated
solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended
(the “Securities Act”).
|
(2)
|
Represents
common stock issuable upon the exercise (at a price of $0.39 per share) of outstanding Series B Warrants.
|
(3)
|
Pursuant
to Rule 416 under the Securities Act, the securities being registered hereunder include such indeterminate number of additional
shares of common stock as may be issued after the date hereof as a result of stock splits, stock dividends, anti-dilution
adjustments or similar transactions.
|
(4)
|
To
be offered and sold by the selling stockholders identified in this registration statement upon the exercise of Warrants ,
based on an exercise price of $0.39.
|
(5)
|
$239
previously paid.
|
The
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.
The
information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell securities, and we are
not soliciting offers to buy these securities, in any state where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS
|
Subject
to Completion
|
Dated
AUGUST 30,
2017
|
25,000,000
Shares
of Common Stock Offered by Selling Stockholders
This
prospectus relates to the resale, from time to time, by the selling stockholders listed in this prospectus under the section “Selling
Stockholders,” of up to 25,000,000 shares of common stock, par value $.01 per share, of Rennova Health, Inc., issuable
upon the exercise of Series B Warrants which we sold to the Selling Stockholders in private placements on March 21, 2017.
The
Selling Stockholders may sell the shares of common stock being offered by this prospectus from time to time on terms to be
determined at the time of sale through ordinary brokerage transactions or through any other means described in this
prospectus under “Plan of Distribution.” The prices at which the Selling Stockholders may sell the shares will be
determined by the prevailing market price for the shares or in negotiated transactions. We are not selling any securities
under this prospectus and we will not receive any proceeds from the sale of the shares by the Selling Stockholders. However,
we may receive proceeds from the cash exercise of the Series B Warrants which, if exercised in full in cash, would result in
gross proceeds of $9,750,000. See the section entitled “Use of Proceeds” on page 21 of this
prospectus.
Our
common stock is listed on The NASDAQ Capital Market and traded under the symbol “RNVA.” The last reported sales price
of our common stock on The NASDAQ Capital Market on August __, 2017 was $[●] per share. There were [●] shares
of our common stock outstanding as of August __, 2017.
Investing
in our securities involves a high degree of risk. See “Risk Factors” beginning on page 6 of this prospectus for a
discussion of information that should be considered in connection with an investment in our securities.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
___________
The
date of this prospectus is [_______], 2017
TABLE
OF CONTENTS
_____________________________
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission (the “SEC”
or the “Commission”). By using such registration statement, the Selling Stockholders may, from time to time, offer
and sell shares of our common stock pursuant to this prospectus. It is important for you to read and consider all of our information
contained in this prospectus before making any decision whether to invest in the common stock. You should also read and consider
the information contained in the documents that we have incorporated by reference as described in “Where You Can Find Additional
Information,” and “Incorporation of Certain Information by Reference” in this prospectus.
We
and the Selling Stockholders have not authorized anyone to give any information or to make any representations different from
that which is contained or incorporated by reference in this prospectus in connection with the offer made by this prospectus and,
if given or made, such information or representations must not be relied upon as having been authorized by Rennova Health, Inc.
or any Selling Stockholder. Neither the delivery of this prospectus nor any sale made hereunder and thereunder shall under any
circumstances create an implication that there has been no change in the affairs of Rennova Health, Inc. since the date hereof.
This prospectus does not constitute an offer or solicitation by anyone in any state in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful
to make such offer or solicitation.
PROSPECTUS
SUMMARY
This
summary provides an overview of selected information contained elsewhere in this prospectus and does not contain all of the information
you should consider before investing in our securities. You should carefully read this prospectus and the registration statement
of which this prospectus is a part in their entirety before investing in our securities, including the information discussed under
“Risk Factors” and our financial statements and notes thereto that appear elsewhere in this prospectus or are incorporated
by reference in this prospectus. Unless otherwise indicated herein, the terms “we,” “our,” “us,”
or the “Company” refer to Rennova Health, Inc.
Rennova
Health, Inc. (“Rennova” or the “Company”) is a provider of diagnostics and supportive software solutions
to healthcare providers. Through continued research and development of our diagnostics testing services and an ever-expanding
group of strategic and interoperable software solutions that work in unison to empower customers, we aspire to create an efficient,
effective single source solution and service for healthcare providers, their patients and individuals. We believe that our approach
will benefit from a more sustainable relationship and the capture of multiple revenue streams from the same customer.
Our
Services
We
are a healthcare enterprise that delivers products and services to healthcare providers, their patients and individuals. We currently
operate in three synergistic divisions: 1) Clinical diagnostics through our clinical laboratories; 2) supportive software
solutions to healthcare providers including Electronic Health Records (“EHR”), Laboratory Information Systems and
Medical Billing services; and 3 ) the recent addition of a hospital in Tennessee. We aspire to create a more sustainable
relationship with our customers by offering needed and interoperable solutions to capture multiple revenue streams from medical
providers.
Historically,
we have specialized in providing urine and blood toxicology and pain medication testing to physicians, clinics and rehabilitation
facilities in the United States. We intend to expand our business operations in each sector in which we focus and will continue
to assess the best way to do so. We may consider the sale of or spin-off of one or more of our business operations if deemed to
be the best way to create value for our stockholders.
On July 12, 2017, we announced that we
plan to spin off our Advanced Molecular Services Group (“AMSG”) as an independent publicly-traded company by way of
a tax-free distribution to our stockholders. Completion of the spin off is expected to occur at the end of September 2017 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 entered into by the Company. As a result, our
Decision Support and Infomatics business segment, which is part of AMSG, is now considered a discontinued operation and is reflected
as such in our financial statements incorporated by reference in this prospectus.
The Board of Directors also approved the
spin off of our Health Technology Solutions business to our stockholders in a similar transaction. Our Health Technology Solutions
business is not included as a discontinued operation in our financial statements incorporated by reference in this prospectus.
Clinical
Diagnostics
Our
principal line of business to date has been clinical laboratory blood and urine testing services, with a particular emphasis on
the provision of urine drug toxicology testing to physicians, clinics and rehabilitation facilities in the United States. As we
expand our customer base to include pain management and other healthcare providers, testing services to rehabilitation facilities
represented approximately 74% of the Company’s revenues for the six months ended June 30, 2017 , approximately
75% of the Company’s revenues for the year ended December 31, 2016 and approximately 95% of the Company’s revenues
for the years ended December 31, 2015 and 2014. We believe that we are responding to the challenges faced by today’s healthcare
providers to adopt paper free and interoperable systems, and to market demand for solutions by strategically expanding our offering
of diagnostics services to include a full suite of clinical laboratory services. The drug and alcohol rehabilitation and pain
management sectors provide an existing and sizable target market, where the need for our services already exists and opportunity
is being created by a continued secular growth and need for compliance.
In
2016 we added genetic testing, specifically pharmacogenetic testing, to our array of services. Genetic testing represents the
most rapidly expanding segment of the diagnostics market worldwide. Growing incidence of genetic diseases presents new opportunities
for genetic testing. According to a report issued by Global Industry Analysts, Inc., the global market for genetic testing is
forecast to reach $2.2 billion by 2017. Increasing knowledge about the potential benefits of genetic testing is one of the prime
reasons for the growth of the market. Advancements in the genetic testing space, an aging population and a corresponding rise
in the number of chronic diseases, and increasing incidence of cancer cases are other factors propelling growth in the genetic
testing market.
Primary
revenue generating activity in this market revolves around DNA profiling aimed at better understanding the predisposition for
diseases and possible adverse reactions that may occur with drugs that are currently available and/or under clinical development.
Rising importance of early infection detection and prevention together with growing demand of DNA tests in pharmacogenomics or
cancer genetic testing are significant factors responsible for the anticipated growth. In order to further capitalize on this
opportunity, we operate Genomas, Inc., a biomedical company that develops PhyzioType Systems for DNA-guided management and prescription
of drugs used to treat mental illness, pain, heart disease and diabetes. Our genetic testing business is part of AMSG and will
be included in the spin off to stockholders.
The
Company owns and operates the following products and services to support its business objectives and to enable it to offer these
services to its customers:
Medytox
Diagnostics, Inc. (“MDI”)
Through
our CLIA certified laboratories, Rennova offers toxicology, clinical pharmacogenetics and esoteric testing. Rennova seeks to provide
these testing services with superior logistics and specimen integrity, competitive turn-around times and excellent customer service.
Clinical
Laboratory Operations
The
Company, through its wholly-owned MDI subsidiary, owns three clinical laboratories, as follows:
Laboratory
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Location
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International
Technologies, LLC
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Waldwick,
NJ
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EPIC
Reference Labs, Inc.
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Riviera
Beach, FL
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Epinex
Diagnostics Laboratories, Inc.
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Tustin,
CA
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During
the year ended December 31, 2016, the Company experienced a substantial decline in the volume of samples processed at its laboratories
and continued difficulty in receiving reimbursement for certain diagnostics. As result, in an effort to reduce costs, the Company
is currently operating all of its Clinical Laboratory Operations business segment out of its EPIC Reference Labs, Inc. (“EPIC”)
laboratory, and cost reduction efforts are continuing in response to the operating losses incurred in 2016. MDI formed EPIC as
a wholly-owned subsidiary on January 29, 2013 to provide reference, confirmation and clinical testing services. The Company acquired
necessary equipment and licenses in order to allow EPIC to test urine for drugs and medication monitoring. Operations at EPIC
began in January 2014 using approximately 2,500 square feet and the premises has since been expanded to occupy approximately 12,500
square feet.
Epinex
Diagnostics has initiated a relationship and integration with a California-based Clinical Research Organization that the Company
believes will see it providing testing services to this Clinical Research Organization starting in the third quarter of
2017.
Alethea
Laboratories operates in New Mexico, a state that permits direct to consumer testing but remains subject to certain regulations
governing the patient in the state from which they might order a diagnostic. Alethea is part of AMSG and will be included
in the spin off to stockholders. As a result, it is considered part of our discontinued operations in our financial statements
incorporated by reference in this prospectus.
The
Company’s Medytox Medical Marketing & Sales, Inc. (“MMMS”) subsidiary was formed on March 9, 2013 as a wholly-owned
subsidiary to provide marketing, sales, and customer service exclusively for our clinical laboratories.
Supportive
Software Solutions
Advantage
software
Advantage
is a proprietary HIPAA compliant software developed to eliminate the need for paper requisitions by providing an easy to use and
efficient web-based system that lets customers securely place lab orders, track samples and view test reports in real time from
any web-enabled laptop, notepad or smart phone.
Clinlab
ClinLab
is a Windows-based web-enabled laboratory information management system. It acts as a HIPAA-compliant data warehouse for lab results
and includes reporting, data acquisition, label printing, electronic signoff and numerous interface capabilities to a multitude
of reference labs and practice systems
that scales
from small physician-operated labs to large clinical reference laboratories.
Medical
Mime
Medical
Mime’s suite of solutions includes a uniquely optimized EHR for substance abuse and behavioral health providers, a dictation-based
ambulatory EHR for physician practices, and advanced transcription services. Solutions are web-based, 100% secure, and HIPAA compliant,
with remote access, on-site training and intensive 24/7 technical support.
The
Company has four operating subsidiaries that provide supportive services, historically primarily to its clinical laboratories
and corporate operations and to a lesser but now increasing extent, third party customers.
Medical
Billing Choices, Inc. (“MBC”)
: MBC was acquired by the Company on August 22, 2011 in an agreement that closed
in July 2013. MBC provides revenue cycle management services to third party customers, with an initial focus on substance abuse
facilities, by utilizing tools designed to improve documentation and collect information, driving faster reimbursement with fewer
denied claims. MBC also functions as our in-house billing company which compiles and sends invoices to our Clinical Laboratory
Operations customers (primarily insurance companies, Medicaid, Medicare, and Preferred Provider Organizations (“PPOs”))
for reimbursement.
Health
Technology Solutions, Inc. (“HTS”)
: HTS is a wholly-owned subsidiary that provides information technology and
software solutions including continued development of software to our subsidiaries and outside medical service providers. This
entity provides the set up services for customers and supports our clinical labs and other operations.
ClinLab,
Inc. (“ClinLab”):
ClinLab was acquired by the Company on March 18, 2014. ClinLab develops and markets laboratory
information management systems (“LIS”). ClinLab has installed its LIS into the Company’s laboratories to create
a uniform LIS platform throughout the Company’s laboratories.
Medical
Mime, Inc. (“Mime”):
Mime was formed on May 9, 2014 as a wholly-owned subsidiary that specializes in EHR, initially
targeting the rehab marketplace. We launched an enhanced version of our EHR software in the second quarter of 2016, which includes
Electronic Medication Administration Records (“eMAR”). Our eMAR enhancement allows physicians to transition additional
processes from paper to our software platform. eMAR automates the gathering, consolidating and presenting of data with more speed
and accuracy than any manual system.
Hospital
The
Company believes that the acquisition or development of hospitals will create a stable revenue base as a needed service and believes
that it can expand the sales of its products and services to surrounding medical providers and doctors’ groups.
On
January 13, 2017, we 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, since renamed Big South
Fork Medical Center, is classified as a Critical Access Hospital (rural) with 25 beds, a 24/7 emergency department, operating
rooms and a laboratory that provides a range of diagnostic services. The hospital closed in July 2016 in connection with the bankruptcy
filing of its parent company, Pioneer Health Services, Inc. We acquired the Hospital Assets out of bankruptcy for a purchase price
of $1 million.
The hospital become operational on August 8,
2017.
The
hospital had unaudited annual revenues of approximately $12 million, and a normalized EBITDA of approximately $1.3 million for
Fiscal 2015, the last full year of the hospital’s operation. These revenues were attributable to the typical services of
a rural acute care hospital, including emergency room visits, outpatient procedures, diagnostic ancillary tests, physical therapy
and inpatient hospital stays. Based on the hospital’s historical information, we believe the hospital offers an established
patient and stable revenue base as it serves the general healthcare needs of its community and supports local physicians.
Decision
Support Interpretation of Cancer and Genomic Diagnostics
This
business segment is now considered part of our discontinued operations due to its planned spin off to stockholders.
We
own a solution in CollabRx to provide evidence, interpretation and therapy guidance to enhance genomic testing and to provide
actionable decision support for standardized, evidence-based cancer care and superior clinical outcomes in precision oncology.
We also operate a biomedical company, Genomas,
Inc. (“Genomas”), bringing DNA-Guided medicine to clinical practice with products for personalized prescription of
drugs used in the treatment of mental illness, diabetes, and cardiovascular disease (“CVD”). Our products eliminate
trial-and-error prescription with DNA-Guided medicine and enable physicians to treat with unprecedented precision, avoiding significant
drug side effects, improving efficacy and enhancing patient compliance. Core applications are drug treatments of mood and thought
disorders in mental illness and of cardiometabolic risk in diabetes and CVD.
CollabRx
was acquired by the Company on November 2, 2015 via the merger of the Company with Medytox Solutions, Inc. CollabRx develops and
markets medical information and clinical decision support products and services intended to set a standard for the clinical interpretation
of genomics-based, precision medicine. CollabRx offers interpretation and decision support solutions that enhance cancer diagnoses
and treatment through actionable data analytics and reporting for oncologists and their patients.
We
entered into an agreement to acquire Genomas in late 2016. Genomas has developed PhyzioGenomics technology as a proprietary platform
integrating genotypic and phenotypic measures to correlate gene variability with physiological variability. Genomas has established
a DNA repository and clinical registry of 6,000 patients with mental illness, diabetes and CVD. The clinical data from these extensive
cohorts is integrated systematically into the PhyzioClinica Database. A PhyzioType System consists of three components: an array
of inherited, stable DNA polymorphisms from various genes to establish a patient’s combinatorial genotype, bioclinical algorithms
for predicting the patient’s drug response, and a portal for doctors to select the best drug for the patient.
Recent
Developments
On
April 9, 2017, Robert Lee and Dr. Paul Billings resigned from our Board of Directors. Mr. Lee and Dr. Billings were the two independent
directors and were members of the Audit, Compensation and Nominating/Corporate Governance Committees of the Board. On April 9,
2017, the remaining members of the Board elected Trevor Langley and Dr. Kamran Ajami as directors to fill those two Board vacancies.
The Board of Directors determined that both of the new directors qualify as “independent” under the Listing Rules
of The NASDAQ Stock Market and the rules and regulations of the Securities and Exchange Commission.
Trevor
Langley, 55, since 2006 has been the Owner and Managing Partner of Avanti Capital Group LLC/Avanti Partners LLC (“Avanti”).
Avanti assists micro, small and mid-cap publicly traded companies and those looking to become public by leveraging traditional
and new communication strategies, with a specialization in healthcare and alternative energy markets. Avanti also provides comprehensive
consulting services.
Dr.
Kamran Ajami, 58, is a pathologist and, since February 2011, has been the Medical Director of the laboratories at West Side Regional
Medical Center and Plantation General Hospital. Since 1997, he has also been Owner and Chief Executive Officer of American Cytopathology
Associates PA, which supplies medical directors for laboratories.
The
Board named Mr. Langley and Dr. Ajami as members of the Audit Committee, with Mr. Langley as Chairman. In addition to each of
them being “independent”, the Board of Directors determined that each of them is “financially literate”
as required by the Listing Rules of The NASDAQ Stock Market and that Mr. Langley qualifies as an “audit committee financial
expert” as defined by the rules and regulations of the SEC and meets the qualifications of “financial sophistication”
under the Listing Rules of The NASDAQ Stock Market. The Board named Mr. Langley and Dr. Ajami also as members of the Compensation
Committee (with Mr. Langley as Chairman) and of the Nominating/Corporate Governance Committee (with Dr. Ajami as Chairman).
Michael
Goldberg resigned from the Board of Directors effective April 24, 2017. The consulting agreement with Monarch Capital LLC, of
which Mr. Goldberg is the Managing Director, remains in effect.
On
June 2, 2017, the Company closed an offering of $795,000 aggregate principal amount of Original Issue Discount Debentures due
September 2, 2017 and warrants to purchase an aggregate of 500,000 shares of common stock for a purchase price of $750,000. Pursuant
to the offering, the purchasers shall have the right, for one year, to participate in any issuance by the Company of common stock
or common stock equivalents for cash consideration, indebtedness or a combination of units thereof, with certain exceptions.
On
June 22, 2017, the Company closed an offering of $1,902,700 aggregate principal amount of Original Issue Discount Debentures due
September 22, 2017 and warrants to purchase an aggregate of 1,000,000 shares of common stock for consideration of $1,000,000 in
cash and the exchange of the $795,000 aggregate principal amount of Original Issue Discount Debentures due September 2, 2017 issued
by the Company on June 2, 2017. Pursuant to the offering, the purchasers shall have the right, for one year, to participate in
any issuance by the Company of common stock or common stock equivalents for cash consideration, indebtedness or a combination
of units thereof, with certain exceptions.
On
July 17, 2017, the Company closed an offering of $4,136,862 aggregate principal amount of Original Issue Discount Debentures due
October 17, 2017 and warrants to purchase an aggregate of 2,120,000 shares of common stock for consideration of $2,000,000 in
cash and the exchange of the $1,902,700 aggregate principal amount of Original Issue Discount Debentures due September 22, 2017
issued by the Company on June 22, 2017. Pursuant to the offering, the purchasers shall have the right, for one year, to participate
in any issuance by the Company of common stock or common stock equivalents for cash consideration, indebtedness or a combination
of units thereof, with certain exceptions. Also, the Company is required to hold a stockholders’ meeting to obtain stockholder
approval for at least a 1-for-8 reverse split of the Company’s common stock. If such approval is not obtained on or before
September 20, 2017, it shall be an event of default under the debentures. Promptly following receipt of such approval, the Company
shall cause such reverse split to occur. A Special Meeting of our stockholders is scheduled for September 20, 2017, at which
this reverse split proposal is to be voted upon.
On
June 12, 2017, the Company was notified by Nasdaq that the bid price of the Company’s common stock closed below the minimum
$1.00 per share requirement for continued inclusion under Nasdaq Rule 5550(a)(2) (the “Price Rule”). In accordance
with Nasdaq Rule 5810(c)(3)(A), the Company has 180 calendar days, or until December 11, 2017, to regain compliance. If at any
time before December 11, 2017, the bid price of the Company’s common stock closes at $1.00 per share or more for a minimum
of 10 consecutive business days, the Company will regain compliance with the Price Rule. If the Company does not regain compliance
by December 11, 2017, an additional 180 days may be granted to regain compliance, so long as the Company meets The Nasdaq Capital
Market initial listing criteria (except for the bid price requirement). As noted above, the Company is holding a Special Meeting
on September 20, 2017 to obtain stockholder approval of at least a 1-for-8 reverse split of the Company’s common stock.
On
April 18, 2017, the Company was notified by Nasdaq that the stockholders’ equity balance reported on its Form 10-K for the
year ended December 31, 2016 fell below the $2,500,000 minimum requirement for continued listing under the Nasdaq Capital Market’s
Listing Rule 5550(b)(1) (the “Equity Rule”). As of June 30, 2017, the Company reported a stockholders’ deficit
of $17,561,514. In accordance with the Equity Rule, the Company submitted a plan to Nasdaq outlining how it intends to regain
compliance. On August 17, 2017, Nasdaq notified the Company that its plan did not contain evidence of its ability to achieve near
term compliance with the continued listing requirements or sustain such compliance over an extended period of time. The Company
has appealed the Staff’s decision to a Hearing Panel. The appeal will stay any further action pending the Panel’s
decision. If the appeal is successful, the Company may be granted 180 days from August 17, 2017 to regain compliance. The Company
is considering its available options to regain compliance, including the previously-announced spin offs of its Advanced Molecular
Services Group and its software division, Health Technology Solutions, in a manner by which the Company believes all of its investment
to date can be recognized on the Company’s balance sheet. Although there can be no guarantee of a successful appeal or of
regaining compliance, the Company expects that it will regain compliance with the Equity Rule.
We have scheduled a Special Meeting of
our stockholders for September 20, 2017. At the meeting, the stockholders will vote upon a proposal to approve an amendment to
our Certificate of Incorporation to effect a reverse stock split of all of our outstanding shares of common stock at a specific
ratio within a range from 1-for-8 to 1-for-15, and to grant authorization to our Board of Directors to determine, in its sole
discretion, the specific ratio and timing of the reverse stock split at any time before December 31, 2017, subject to the Board
of Directors’ discretion to abandon such amendment. The intent of the reverse stock split would be to increase the per share
trading price of our common stock on the Nasdaq Capital Market to meet and maintain compliance with the $1.00 minimum per share
requirement for continued listing under the Marketplace Rule 5550(a)(2).
On August 15, 2017, the Board of Directors,
based on the recommendation of the Compensation Committee of the Board and in accordance with the provisions of the 2007 Incentive
Award Plan, approved grants to employees and directors of the Company of an aggregate of 2,729,000 shares of restricted common
stock of the Company. The grants fully vest on the first anniversary of the date of grant, subject to the grantee’s continued
status as an employee or director, as the case may be, on the vesting date.
March
2017 Private Placements
On
March 21, 2017, we closed an offering of an aggregate of $10,850,000 principal amount of Senior Secured Original Issue Discount
Convertible Debentures due March 21, 2019 (the “New Debentures”) and three series of warrants to purchase initially
an aggregate of 19,608,426 shares of common stock. The offering was pursuant to the terms of the Securities Purchase Agreement,
dated as of March 15, 2017 (the “Purchase Agreement”), among the Company and Sabby Healthcare Master Fund, Ltd., Sabby
Volatility Warrant Master Fund, Ltd. and Lincoln Park Capital Fund, LLC. The Company received proceeds of approximately $8.4 million
from the offering, after giving effect to the original issue discounts and transaction expenses.
Also
on March 21, 2017, pursuant to the Exchange Agreements, dated as of March 15, 2017 (the “Exchange Agreements”), the
Company issued an aggregate of $5,160,260 principal amount of debentures (the “Exchange Debentures”) and three series
of warrants to purchase initially an aggregate of 9,325,773 shares of common stock in exchange for (i) $1,590,000 principal
amount of Original Issue Discount Convertible Debentures issued by the Company on February 2, 2017 and $2,000,000 stated value
of our Series H Convertible Preferred Stock from Sabby Healthcare Master Fund, LLC and (ii) $174,000 stated value of our Series
H Convertible Preferred Stock from Alpha Capital Anstalt. The Exchange Debentures are on the same terms as, and pari passu with,
the New Debentures (the New Debentures and the Exchange Debentures, collectively, the “Debentures”). The warrants
issued pursuant to the Purchase Agreement and the Exchange Agreements are referred to, collectively, as the “Warrants”.
The parties to which the Company issued the Warrants under the Purchase Agreement and the Exchange Agreements are the Selling
Stockholders and they were all existing institutional investors of the Company. For a detailed description of the transactions
contemplated by the Purchase Agreement and the Exchange Agreements and a description of the securities issued pursuant thereto,
see “March 2017 Private Placements”.
We
filed the registration statement on Form S-1, of which this prospectus is a part, to fulfill our contractual obligation
under the Registration Rights Agreement, dated as of March 21, 2017, to provide for the resale by the Selling Stockholders of
the shares of common stock offered hereby and issuable upon exercise of the Series B Warrants , based on an
exercise price of $0.39. The initial exercise prices of $1.95 for the Series A and Series C Warrants and
$1.66 for the Series B Warrants have been adjusted pursuant to their terms to $0.39 due to prices at which the Company
has subsequently issued shares of common stock. As a result, pursuant to their terms the Warrants are now exercisable into
an aggregate of 137,499,255 shares of common stock. We agreed to use our best efforts to keep such registration statement
continuously effective until the shares of common stock being offered by this prospectus have been sold hereunder or pursuant
to Rule 144 or may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement of
the Company to be in compliance with the current public information requirement under Rule 144.
Corporate
Information
Effective
November 2, 2015, the Company, a Delaware corporation, changed its name from “CollabRx, Inc.” to “Rennova Health,
Inc.” The Company was previously named Tegal Corporation until 2012 when it acquired a private company named CollabRx, Inc.
and changed its name to “CollabRx, Inc.” Tegal Corporation was formed in December 1989 to acquire the operations of
the former Tegal Corporation, a division of Motorola, Inc. Tegal’s predecessor company was founded in 1972 and was acquired
by Motorola, Inc. in 1978. Tegal completed its initial public offering in October 1995.
The
Company’s fiscal year-end is December 31.
Our
principal executive offices are located at 400 South Australian Avenue, Suite 800, West Palm Beach, Florida 33401 and our telephone
number is (561) 855-1626. Our website address is www.rennovahealth.com. The information contained on, or that can be accessed
through, our website is not part of this prospectus.
THE
OFFERING
Securities
Offered by the Selling Stockholders
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25,000,000
shares
of our Common Stock
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Offering
Price per Share
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The
Selling Stockholders may sell all or a portion of the shares being offered by this prospectus at fixed prices, at prevailing
market prices at the time of sale, at varying prices or at negotiated prices. See “Plan of Distribution.”
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Use
of Proceeds
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We
will not receive any of the proceeds from the sale by the Selling Stockholders of the shares of Common Stock. However,
we may receive proceeds from the cash exercise of the Warrants which, if exercised in full in cash, would result in gross
proceeds of $9,750,000. See “Use of Proceeds.”
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NASDAQ
Symbol
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RNVA
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Risk
Factors
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Investing
in our securities involves a high degree of risk. See “Risk Factors” beginning on page 6 of this prospectus for
a discussion of information that should be considered in connection with an investment in our securities.
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RISK
FACTORS
Investing
in our securities involves a high degree of risk. You should carefully consider the following risk factors, as well as the other
information in this prospectus, including our financial statements and related notes, which are incorporated by reference in this
prospectus, before deciding whether to invest in our securities. Information in this prospectus may be amended, supplemented or
superseded from time to time by reports we file with the SEC in the future. The occurrence of any of the adverse developments
described in the following risk factors could materially and adversely harm our business, financial condition, results of operations
or prospects. In that case, the trading price of our securities could decline, and you may lose all or part of your investment.
Risks
Related to this Offering
Our
stockholders may be diluted by exercises of the Warrants and conversions or exercises of other securities into common stock .
The
Warrants were initially exercisable into an aggregate of 28,934,196 shares of common stock. The initial conversion prices of
$1.95 for the Series A and Series C Warrants and $1.66 for the Series B Warrants have been adjusted pursuant to their terms
to $0.39 due to prices at which the Company has subsequently issued shares of common stock. As a result, the Warrants are now
exercisable into an aggregate of 137,499,255 shares of common stock. All of the Warrants are owned by the Selling
Stockholders
This prospectus relates to the sale by the Selling Stockholders of up to 25,000,000 shares of common
stock issuable upon exercise of the Series B Warrants. As of June 30, 2017, we had outstanding options to purchase an
aggregate of 581,167 shares of our common stock at a weighted-average exercise price of $137.37 per share and warrants (other
than the Warrants) to purchase an aggregate of 1,311,462 shares of our common stock at a weighted-average exercise price of
$11.70 per share. We also have outstanding convertible securities which are convertible into 11,902,458 shares of common
stock as of June 30, 2017. The exercise or conversion of the foregoing securities will result in substantial dilution of our
stockholders.
The
sale of a substantial amount of our common stock, including resale of the shares of common stock issuable upon the exercise of
the Warrants held by the Selling Stockholders, in the public market could adversely affect the prevailing market price of our
common stock.
Sales
of substantial amounts of shares of our common stock in the public market, or the perception that such sales might occur, could
adversely affect the market price of our common stock, and the market value of our other securities.
A
substantial number of shares of common stock are being offered by this prospectus, and we cannot predict if and when the Selling
Stockholders may sell such shares in the public markets. Furthermore, in the future, we may issue additional shares of common
stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation
settlement, employee arrangements, or otherwise. Any such issuance could result in substantial dilution to our existing stockholders
and could cause our stock price to decline.
Risks
Related to the Company
Although
our financial statements have been prepared on a going concern basis, we have recently accumulated significant losses and have
negative cash flows from operations, which raise substantial doubt about our ability to continue as a going concern.
If
we are unable to improve our liquidity position we may not be able to continue as a going concern. The consolidated financial
statements incorporated by reference in this prospectus do not include any adjustments that might result if we are unable to continue
as a going concern and, therefore, be required to realize our assets and discharge our liabilities other than in the normal course
of business which could cause investors to suffer the loss of all or a substantial portion of their investment.
The
Company has recently accumulated significant losses and has negative cash flows from operations, and at December 31, 2016 had
a working capital deficit and stockholders’ deficit of $16.3 million and $14.9 million, respectively. At June 30 ,
2017, we had a working capital deficit and stockholders’ deficit of $17 million and $17.5 million, respectively.
For the six months ended June 30 , 2017, we incurred net losses attributable to common stockholders of $10.3 million
and for the years ended December 31, 2016 and 2015, we incurred net losses attributable to common stockholders in the amount
of $32.6 million and $37.6 million, respectively. In addition, the Company’s cash position is critically deficient, critical
payments are not being made in the ordinary course, the Company is in default of two promissory notes with an aggregate principal
amount of $0.4 million and additional indebtedness in the amount of $6.0 million matured on March 31, 2017 (see note 7 to the
consolidated financial statements incorporated by reference in this prospectus). This additional indebtedness is secured by receivables
that we have filed suit to recover from a national payer and while we believe that we will be successful in such recovery there
can be no assurances as to our ability to collect on these receivables, and the Company does not have the financial resources
to satisfy this indebtedness. All of the foregoing raises substantial doubt about the Company’s ability to continue as a
going concern.
The
Company is currently executing on a plan of action to reduce the number of laboratory facilities it operates from four such facilities
as of December 31, 2016 into one, with a corresponding reduction in the number of employees and associated operating expenses,
in order to reduce costs. In addition, the Company issued $17.6 million of convertible notes in the first three months of 2017,
for which it received net proceeds of $9.9 million. There can be no assurance, however, 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 consolidated financial statements incorporated by
reference in this prospectus do not include any adjustments that might be necessary if the Company is unable to continue as a
going concern.
Our
common stock could be delisted from NASDAQ.
On
January 11, 2017, we were notified by Nasdaq that we no longer comply with Nasdaq’s audit committee requirements as set
forth in Nasdaq Listing Rule 5605 (the “Audit Committee Rule”), which requires the audit committee of the Company’s
board of directors to have at least three members, each of whom must be an independent director as defined under the Audit Committee
Rule. With the passing of Benjamin Frank in December of 2016, our audit committee currently consists of two independent directors.
In accordance with Nasdaq Rule 5605(c)(4), we have until the earlier of our next annual stockholders’ meeting or December
18, 2017 to regain compliance. If we do not regain compliance by the foregoing applicable dates, then Nasdaq will provide written
notification to the Company that its securities will be delisted.
On
April 18, 2017, the Company was notified by Nasdaq that the stockholders’ equity balance reported on its Form 10-K for the
year ended December 31, 2016 fell below the $2,500,000 minimum requirement for continued listing under the Nasdaq Capital Market’s
Listing Rule 5550(b)(1) (the “Equity Rule”). As of June 30, 2017, the Company reported a stockholders’ deficit
of $17,561,514. In accordance with the Equity Rule, the Company submitted a plan to Nasdaq outlining how it intends to regain
compliance. On August 17, 2017, Nasdaq notified the Company that its plan did not contain evidence of its ability to achieve near
term compliance with the continued listing requirements or sustain such compliance over an extended period of time. The Company
has appealed the Staff’s decision to a Hearing Panel. The appeal will stay any further action pending the Panel’s
decision. If the appeal is successful, the Company may be granted 180 days from August 17, 2017 to regain compliance. The Company
is considering its available options to regain compliance, including the previously-announced spin offs of its Advanced Molecular
Services Group and its software division, Health Technology Solutions, in a manner by which the Company believes all of its investment
to date can be recognized on the Company’s balance sheet. Although there can be no guarantee of a successful appeal or of
regaining compliance, the Company expects that it will regain compliance with the Equity Rule.
On
June 12, 2017, the Company was notified by Nasdaq that the bid price of the Company’s common stock closed below the minimum
$1.00 per share requirement for continued inclusion under Nasdaq Rule 5550(a)(2) (the “Price Rule”). In accordance
with Nasdaq Rule 5810(c)(3)(A), the Company has 180 calendar days, or until December 11, 2017, to regain compliance. If at any
time before December 11, 2017, the bid price of the Company’s common stock closes at $1.00 per share or more for a minimum
of 10 consecutive business days, the Company will regain compliance with the Price Rule. If the Company does not regain compliance
by December 11, 2017, an additional 180 days may be granted to regain compliance, so long as the Company meets The Nasdaq Capital
Market initial listing criteria (except for the bid price requirement). As noted above, the Company is required to hold a meeting
of stockholders to obtain stockholder approval of at least a 1-for-8 reverse split of the Company’s common stock. Promptly
following receipt of such stockholder approval, the Company shall cause the reverse split to occur. A Special Meeting of our
stockholders is scheduled for September 20, 2017, at which this reverse split proposal is to be voted upon.
In
the future, our common stock may fall below the NASDAQ listing requirements or we may not comply with other listing requirements,
with the result being that our common stock may be delisted. If our common stock is delisted, we may list our common stock for
trading over the counter. Delisting from NASDAQ could adversely affect the liquidity and price of our common stock. A determination
could also then be made that our common stock is a “penny stock” which would require brokers trading in our common
stock to adhere to more stringent rules and possibly result in a reduced level of trading. This could have a long-term impact
on our ability to raise future capital through the sale of our common stock.
The proposed spin offs of our Advanced
Molecular Services Group and Health Technology Solutions are subject to various risks and uncertainties and may not be completed
on the terms or timeline currently contemplated, if at all, and will involve significant time and expense, which could harm our
business, results of operations and financial condition.
In July 2017, we announced plans to separate
our Advanced Molecular Services Group and Health Technology Solutions businesses as independent, publicly-traded companies. The
transactions are expected to be completed in [ ], subject to satisfaction of certain conditions. Unanticipated developments could
delay, prevent or otherwise adversely affect one or both of these proposed spin offs, including but not limited to disruptions
in general market conditions or potential problems, delays or difficulties in satisfying conditions and obtaining approvals and
clearances or litigation or other legal proceedings that may arise as a result of the proposed spin offs. In addition, consummation
of the spin offs will require final approval from our Board of Directors. Therefore, we cannot assure that we will be able to
complete the spin offs on the terms or on the timeline that we announced, if at all.
We will incur significant expenses in connection
with the spin offs, and such costs and expenses may be greater than we anticipate. In addition, completion of the spin offs will
require a significant amount of management time and effort which may disrupt our business or otherwise divert management’s
attention from other aspects of our business operations. Any such difficulties could adversely affect our business, results of
operations and financial condition.
The proposed spin offs may not achieve
some or all of the anticipated benefits.
If the spin offs are completed, there is
uncertainty as to whether the anticipated operational, financial and strategic benefits of the spin offs will be achieved. There
can be no assurance that the combined value of the common stock of the publicly-traded companies will be equal to or greater than
what the value of our common stock would have been had the proposed separations not occurred. The combined value of the common
stock of the companies could be lower than anticipated for a variety of reasons, including, but not limited to, the inability
of the new spin off companies to operate and compete effectively as independent entities, and the stock price of the common stock
of each of the companies could experience periods of volatility. If we fail to achieve the anticipated benefits of the spin offs,
our stock price could decline.
If either spin off does not qualify
as a transaction that is generally tax-free for U.S. federal income tax purposes, we and our stockholders could be subject to
significant tax liabilities.
We intend to obtain an opinion of outside
counsel regarding the qualification of the distribution in each spin off, together with certain related transactions, as a transaction
that is generally tax-free for U.S. federal income tax purposes. The opinion will be based on and rely on, among other things,
certain facts and assumptions, as well as certain representations, statements and undertakings of Rennova and the new spin off
company, including those relating to the past and future conduct of Rennova and the new spin off company. If any of these facts,
assumptions, representations, statements or undertakings are, or become, inaccurate or incomplete, or if we or the new spin off
company breach any of their respective covenants in the separation documents, the opinion of counsel may be invalid and the conclusions
reached therein could be jeopardized. It is also possible that the U.S. Internal Revenue Service, or the IRS, could determine
that the distribution in the spin off, together with certain related transactions, is taxable for U.S. federal income tax purposes
if it determines that any of these facts, assumptions, representations, statements or undertakings are incorrect or have been
violated or if it disagrees with the conclusions in the opinion of counsel. An opinion of counsel is not binding on the IRS or
any court and there can be no assurance that the IRS will not challenge the conclusions reached in the opinion. If the distribution
in the spin off, together with certain related transactions, is ultimately determined to be taxable, we and our stockholders that
are subject to U.S. federal income tax could incur significant tax liabilities.
Our
acquisition of the Hospital Assets does not provide assurance that the acquired operations will be accretive to our earnings or
otherwise improve our results of operations.
Acquisitions,
such as that of the Hospital Assets in January 2017, involve the integration of previously separate businesses into a common enterprise
in which it is envisioned that synergistic operations will result in improved financial performance. However, realization of these
envisioned results is subject to numerous risks and uncertainties, including but not limited to:
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Diversion
of management time and attention from daily operations;
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Difficulties
integrating the acquired business, technologies and personnel into our business;
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Potential
loss of key employees, key contractual relationships or key customers of the acquired business; and
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Exposure
to unforeseen liabilities of the acquired business.
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There
is no assurance that the acquisition of the Hospital Assets will be accretive to our earnings or otherwise improve our results
of operations.
Big
South Fork Medical Center will require continued investment by the Company.
Big South Fork Medical Center became operational
on August 8, 2017.
The reopening of the hospital
will require substantial investment by the Company and we may not have the funds or be able to access such funds when necessary.
We will need to fully fund the operations of the hospital out of our own resources for an extended period because the hospital
will not receive reimbursement for any services for a number of months after they are performed, or otherwise generate any positive
cash flow. Because the hospital has been closed since July 2016, it could take a long period of time for utilization of the hospital
to reach pre-closure levels, and no assurance can be made that it will do so or that utilization will be sufficient to cover the
costs of operating the hospital.
Our
results of operations may be adversely affected if the Patient Protection and Affordable Care Act (the “ACA”) is repealed,
replaced or otherwise changed.
The
ACA has increased the number of people with health care insurance. It also has reduced Medicare and Medicaid reimbursements. Numerous
proposals continue to be discussed in Congress and the administration to repeal, amend or replace the law. We cannot predict whether
any such repeal, amend or replace proposals, or any parts of them, will become law and, if they do, what their substance or timing
will be. Any of the foregoing, if they occur, could have a material adverse effect on our business and results of operations.
Our
business could be harmed from the loss or suspension of a license or imposition of a fine or penalties under, or future changes
or changing interpretations of, CLIA or state laboratory licensing laws to which we are subject.
The
clinical laboratory testing industry is subject to extensive federal and state regulation, and many of these statutes and regulations
have not been interpreted by the courts. The Clinical Laboratory Improvement Amendments of 1988, or CLIA, are federal regulatory
standards that apply to virtually all clinical laboratories (regardless of the location, size or type of laboratory), including
those operated by physicians in their offices, by requiring that they be certified by the federal government or by a federally
approved accreditation agency. CLIA does not preempt state law, which in some cases may be more stringent than federal law and
require additional personnel qualifications, quality control, record maintenance and proficiency testing. The sanction for failure
to comply with CLIA and state requirements may be suspension, revocation or limitation of a laboratory’s CLIA certificate,
which is necessary to conduct business, as well as significant fines and/or criminal penalties. Many other states have similar
laws and we may be subject to similar penalties.
We
cannot assure you that applicable statutes and regulations will not be interpreted or applied by a prosecutorial, regulatory or
judicial authority in a manner that would adversely affect our business. Potential sanctions for violation of these statutes and
regulations include significant fines and the suspension or loss of various licenses, certificates and authorizations, which could
have a material adverse effect on our business. In addition, compliance with future legislation could impose additional requirements
on us, which may be costly.
Healthcare
plans have taken steps to control the utilization and reimbursement of healthcare services, including clinical test services.
We
also face efforts by non-governmental third-party payers, including healthcare plans, to reduce utilization and reimbursement
for clinical testing services.
The
healthcare industry has experienced a trend of consolidation among healthcare insurance plans and payers, resulting in fewer but
larger insurance plans with significant bargaining power to negotiate fee arrangements with healthcare providers, including clinical
testing providers. These healthcare plans, and independent physician associations, may demand that clinical testing providers
accept discounted fee structures or assume all or a portion of the financial risk associated with providing testing services to
their members through capped payment arrangements. In addition, some healthcare plans have been willing to limit the PPO or Point
of Service (“POS”) laboratory network to only a single national laboratory to obtain improved fee-for-service pricing.
There are also an increasing number of patients enrolling in consumer driven products and high deductible plans that involve greater
patient cost-sharing.
The
increased consolidation among healthcare plans and payers increases the potential adverse impact of ceasing to be a contracted
provider with any such insurer. The ACA includes provisions, including ones regarding the creation of healthcare exchanges, which
may encourage healthcare insurance plans to increase exclusive contracting.
We
expect continuing efforts to reduce reimbursements, to impose more stringent cost controls and to reduce utilization of clinical
test services. These efforts, including future changes in third-party payer rules, practices and policies or ceasing to be a contracted
provider to many healthcare plans, have had and may continue to have a material adverse effect on our business.
Unless
we raise sufficient funds, we will not be able to succeed in our business model.
During
the year ended December 31, 2016 and through the date of this prospectus, we have relied on the sale of our equity securities
and short-term advances from one of our directors, Christopher Diamantis, the sale of debentures and the proceeds we secured
from pledging certain of our accounts receivable to fund our operations. We generated negative cash flow from operating activities
for the six months ended June 30, 2017 and the years ended December 31, 2016 and 2015. If this trend were to continue
and we are unable to raise sufficient capital to fund our operations through other sources, our business will be adversely affected,
and we may not be able to continue as a going concern. There can be no assurances that we will be able to raise sufficient funds
on terms that are acceptable to us, or at all, to fund our operations under our current business model.
Regulation
by the Food and Drug Administration (“FDA”) of Laboratory Developed Tests (“LDTs”) and clinical laboratories
may result in significant change, and our business could be adversely impacted if we fail to adapt.
High
complexity, CLIA-certified laboratories, such as ours, frequently develop testing procedures to provide diagnostic results to
customers. These tests have been traditionally offered by nearly all complex laboratories for the last few decades and LDTs are
subject to oversight by the Centers for Medicare and Medicaid Services (“CMS”) through its enforcement of CLIA. The
FDA, which regulates the development and use of medical devices, has claimed that it has regulatory authority over LDTs, but has
not exercised enforcement with respect to most LDTs offered by high complexity laboratories, and not sought to require these laboratories
to comply with FDA regulations regarding medical devices. During 2010, the FDA publicly announced that it has decided to exercise
regulatory authority over these LDTs, and that it plans to issue guidance to the industry regarding its regulatory approach. At
that time, the FDA indicated that it would use a risk-based approach to regulation and would direct more resources to tests with
wider distribution and with the highest risk of injury, but that it will be sensitive to the need to not adversely impact patient
care or innovation. In September 2014, the FDA announced its framework and timetable for implementing this guidance. On November
18, 2016, the FDA announced it would not release final guidance at this time and instead would continue to work with stakeholders,
the new administration and Congress to determine the right approach, and on January 3, 2017, the FDA released a discussion paper
outlining a possible risk-based approach for FDA and CMS oversight of LDTs. We cannot predict the ultimate timing or form of any
such guidance or regulation or their potential impact. If adopted, such a regulatory approach by the FDA may lead to an increased
regulatory burden, including additional costs and delays in introducing new tests. While the ultimate impact of the FDA’s
approach is unknown, it may be extensive and may result in significant change. Our failure to adapt to these changes could have
a material adverse effect on our business.
Some
of our operations are subject to federal and state laws prohibiting “kickbacks” and other laws designed to prohibit
payments for referrals and eliminate healthcare fraud.
Federal
and state anti-kickback and similar laws prohibit payment, or offers of payment, in exchange for referrals of products and services
for which reimbursement may be made by Medicare or other federal and state healthcare programs. Some state laws contain similar
prohibitions that apply without regard to the payer of reimbursement for the services. Under a federal statute, known as the “Stark
Law” or “self-referral” prohibition, physicians, subject to certain exceptions, are prohibited from referring
their Medicare or Medicaid program patients to clinical laboratories with which the physicians or their immediate family members
have a financial relationship, and the laboratories are prohibited from billing for services rendered in violation of Stark Law
referral prohibitions. Violations of the federal Anti-Kickback Law and Stark Law may be punished by civil and criminal penalties,
and/or exclusion from participation in federal health care programs, including Medicare and Medicaid. States may impose similar
penalties. The ACA significantly strengthened provisions of the Federal False Claims Act and Anti-Kickback Law provisions, and
other health care fraud provisions, leading to the possibility of greatly increased qui tam suits by private citizen “relators”
for perceived violations of these laws. There can be no assurance that our activities will not come under the scrutiny of regulators
and other government authorities or that our practices will not be found to violate applicable laws, rules and regulations or
prompt lawsuits by private citizen relators under federal or state false claims laws.
Federal
officials responsible for administering and enforcing the healthcare laws and regulations have made a priority of eliminating
healthcare fraud. For example, the ACA includes significant new fraud and abuse measures, including required disclosures of financial
arrangements with physician customers, lower thresholds for violations and increased potential penalties for violations. Federal
funding available for combating health care fraud and abuse generally has increased. While we seek to conduct our business in
compliance with all applicable laws and regulations, many of the laws and regulations applicable to our business, particularly
those relating to billing and reimbursement of tests and those relating to relationships with physicians, hospitals and patients,
contain language that has not been interpreted by courts. We must rely on our interpretation of these laws and regulations based
on the advice of our counsel and regulatory or law enforcement authorities may not agree with our interpretation of these laws
and regulations and may seek to enforce legal remedies or penalties against us for violations.
From
time to time we may need to change our operations, particularly pricing or billing practices, in response to changing interpretations
of these laws and regulations, or regulatory or judicial determinations with respect to these laws and regulations. These occurrences,
regardless of their outcome, could damage our reputation and harm important business relationships that we have with healthcare
providers, payers and others. Furthermore, if a regulatory or judicial authority finds that we have not complied with applicable
laws and regulations, we would be required to refund amounts that were billed and collected in violation of such laws and regulations.
In addition, we may voluntarily refund amounts that were alleged to have been billed and collected in violation of applicable
laws and regulations. In either case, we could suffer civil and criminal damages, fines and penalties, exclusion from participation
in governmental healthcare programs and the loss of licenses, certificates and authorizations necessary to operate our business,
as well as incur liabilities from third-party claims, all of which could harm our operating results and financial condition.
Moreover,
regardless of the outcome, if we or physicians or other third parties with whom we do business are investigated by a regulatory
or law enforcement authority we could incur substantial costs, including legal fees, and our management may be required to divert
a substantial amount of time to an investigation.
To
enhance compliance with applicable health care laws, and mitigate potential liability in the event of noncompliance, regulatory
authorities, such as the Department of Health and Human Services’ Office of Inspector General (“OIG”), have
recommended the adoption and implementation of a comprehensive health care compliance program that generally contains the elements
of an effective compliance and ethics program described in Section 8B2.1 of the United States Sentencing Commission Guidelines
Manual, and for many years the OIG has made available a model compliance program targeted to the clinical laboratory industry.
In addition, certain states require that health care providers, such as clinical laboratories, that engage in substantial business
under the state Medicaid program have a compliance program that generally adheres to the standards set forth in the Model Compliance
Program. Also, under the ACA, the U.S. Department of Health and Human Services, or HHS, will require suppliers, such as the Company,
to adopt, as a condition of Medicare participation, compliance programs that meet a core set of requirements. While we have adopted,
or are in the process of adopting, healthcare compliance and ethics programs that generally incorporate the OIG’s recommendations,
and training our applicable employees in such compliance, having such a program can be no assurance that we will avoid any compliance
issues.
We
conduct our clinical laboratory testing business in a heavily regulated industry and changes in regulations or violations of regulations
could, directly or indirectly, harm our operating results and financial condition.
The
clinical laboratory testing industry is highly regulated and there can be no assurance that the regulatory environment in which
we operate will not change significantly and adversely in the future. Areas of the regulatory environment that may affect our
ability to conduct business include, without limitation:
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federal
and state laws applicable to billing and claims payment;
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federal
and state laboratory anti-mark-up laws;
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federal
and state anti-kickback laws;
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federal
and state false claims laws;
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federal
and state self-referral and financial inducement laws, including the federal physician anti-self-referral law, or the Stark
Law;
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coverage
and reimbursement levels by Medicare and other governmental payors and private insurers;
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federal
and state laws governing laboratory licensing and testing, including CLIA;
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federal
and state laws governing the development, use and distribution of diagnostic medical tests known as laboratory developed tests
or “LDTs”;
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HIPAA,
along with the revisions to HIPAA as a result of the HITECH Act, and analogous state laws;
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federal,
state and foreign regulation of privacy, security, electronic transactions and identity theft;
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federal,
state and local laws governing the handling, transportation and disposal of medical and hazardous waste;
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Occupational
Safety and Health Administration rules and regulations;
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changes
to laws, regulations and rules as a result of the ACA; and
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changes
to other federal, state and local laws, regulations and rules, including tax laws.
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These
laws and regulations are extremely complex and in many instances, there are no significant regulatory or judicial interpretations
of these laws and regulations. Any determination that we have violated these laws or regulations, or the public announcement that
we are being investigated for possible violations of these laws or regulations, could harm our operating results and financial
condition. In addition, a significant change in any of these laws or regulations may require us to change our business model in
order to maintain compliance with these laws or regulations, which could harm our operating results and financial condition.
Failure
to comply with complex federal and state laws and regulations related to submission of claims for clinical laboratory services
can result in significant monetary damages and penalties and exclusion from the Medicare and Medicaid Programs.
We
are subject to extensive federal and state laws and regulations relating to the submission of claims for payment for clinical
laboratory services, including those that relate to coverage of our services under Medicare, Medicaid and other governmental health
care programs, the amounts that may be billed for our services and to whom claims for services may be submitted.
Our
failure to comply with applicable laws and regulations could result in our inability to receive payment for our services or result
in attempts by third-party payers, such as Medicare and Medicaid, to recover payments from us that have already been made. Submission
of claims in violation of certain statutory or regulatory requirements can result in penalties, including substantial civil money
penalties for each item or service billed to Medicare in violation of the legal requirement, and exclusion from participation
in Medicare and Medicaid. Government authorities may also assert that violations of laws and regulations related to submission
or causing the submission of claims violate the federal False Claims Act (“FCA”) or other laws related to fraud and
abuse, including submission of claims for services that were not medically necessary. Violations of the FCA could result in enormous
economic liability. The FCA provides that all damages are trebled, and each false claim submitted is subject to a penalty of up
to $11,000. For example, we could be subject to FCA liability if it was determined that the services we provided were not medically
necessary and not reimbursable, particularly if it were asserted that we contributed to the physician’s referrals of unnecessary
services to us. It is also possible that the government could attempt to hold us liable under fraud and abuse laws for improper
claims submitted by an entity for services that we performed if we were found to have knowingly participated in the arrangement
that resulted in submission of the improper claims.
We
continuously conduct internal audits on current and historical billings to protect against errors related to any of the above.
One of these audits has led us to retain an independent consulting firm to assess if any violations to the foregoing regulations
have occurred in the historical billings by our laboratories. If the review determines that any overpayment was received, we will
inform the relevant party and make arrangements to repay any overpayment.
Changes
in regulation and policies, including increasing downward pressure on health care reimbursement, may adversely affect reimbursement
for diagnostic services and could have a material adverse impact on our business.
Reimbursement
levels for health care services are subject to continuous and often unexpected changes in policies, and we face a variety of efforts
by government payers to reduce utilization and reimbursement for diagnostic testing services. Changes in governmental reimbursement
may result from statutory and regulatory changes, retroactive rate adjustments, administrative rulings, competitive bidding initiatives,
and other policy changes.
The
U.S. Congress has considered, at least yearly in conjunction with budgetary legislation, changes to the Medicare fee schedules
under which we receive reimbursement. For example, currently there is no copayment or coinsurance required for clinical laboratory
services. However, Congress has periodically considered imposing a 20 percent coinsurance on laboratory services. If enacted,
this would require us to attempt to collect this amount from patients, although in many cases the costs of collection would exceed
the amount actually received.
The
CMS pays laboratories on the basis of a fee schedule that is reviewed and re-calculated on an annual basis. CMS may change the
fee schedule upward or downward on billing codes that we submit for reimbursement on a regular basis; our revenue and business
may be adversely affected if the reimbursement rates associated with such codes are reduced. Even when reimbursement rates are
not reduced, policy changes add to our costs by increasing the complexity and volume of administrative requirements. Medicaid
reimbursement, which varies by state, is also subject to administrative and billing requirements and budget pressures. Recently,
state budget pressures have caused states to consider several policy changes that may impact our financial condition and results
of operations, such as delaying payments, reducing reimbursement, restricting coverage eligibility and service coverage, and imposing
taxes on our services.
Failure
to timely or accurately bill for our services could have a material adverse effect on our business.
Billing
for clinical testing services is extremely complicated and is subject to extensive and non-uniform rules and administrative requirements.
Depending on the billing arrangement and applicable law, we bill various payers, such as patients, insurance companies, Medicare,
Medicaid, physicians, hospitals and employer groups. Changes in laws and regulations could increase the complexity and cost of
our billing process. Additionally, auditing for compliance with applicable laws and regulations as well as internal compliance
policies and procedures adds further cost and complexity to the billing process. Further, our billing systems require significant
technology investment and, as a result of marketplace demands, we need to continually invest in our billing systems.
Missing,
incomplete, or incorrect information on requisitions adds complexity to and slows the billing process, creates backlogs of unbilled
requisitions, and generally increases the aging of accounts receivable and bad debt expense. Failure to timely or correctly bill
may lead to our not being reimbursed for our services or an increase in the aging of our accounts receivable, which could adversely
affect our results of operations and cash flows. Failure to comply with applicable laws relating to billing or even having to
pay back amounts incorrectly billed and collected could lead to various penalties, including: (1) exclusion from participation
in CMS and other government programs; (2) asset forfeitures; (3) civil and criminal fines and penalties; and (4) the loss of various
licenses, certificates and authorizations necessary to operate our business, any of which could have a material adverse effect
on our results of operations or cash flows.
There
have been times when our accounts receivable have increased at a greater rate than revenue growth and, therefore, have adversely
affected our cash flows from operations. We have taken steps to implement systems and processing changes intended to improve billing
procedures and related collection results. However, we cannot assure that our ongoing assessment of accounts receivable will not
result in the need for additional provisions. Such additional provisions, if implemented, could have a material adverse effect
on our operating results.
During
the last half of 2014 and the first three quarters of 2015, the Company experienced difficulty in delivering accurate electronic
submissions to third party payers. The difficulties arose from a variety of factors, including pressure, scrutiny and requirement
for additional information from payers related to toxicology services, difficulty complying with CMS’s new HCPCS codes for
toxicology services, difficulty in accurately billing for internal reference laboratory work, and complications arising from the
implementation of new billing technology. These difficulties have a significant impact on the time it takes the Company to collect
its receivables and consequently on its cash flow from operations. The Company believes that these difficulties were corrected
in the fourth quarter of 2015, but there can be no assurance that CMS and other third party payers will not change their requirements
resulting in further billing related difficulties.
Our
operations may be adversely impacted by the effects of extreme weather conditions, natural disasters such as hurricanes and earthquakes,
health pandemics, hostilities or acts of terrorism and other criminal activities.
Our
operations are always subject to adverse impacts resulting from extreme weather conditions, natural disasters, health pandemics,
hostilities or acts of terrorism or other criminal activities. Such events may result in a temporary decline in the number of
patients who seek clinical testing services or in our employees’ ability to perform their job duties. In addition, such
events may temporarily interrupt our ability to transport specimens, to receive materials from our suppliers or otherwise to provide
our services. The occurrence of any such event and/or a disruption of our operations as a result may adversely affect our results
of operations.
Increased
competition, including price competition, could have a material adverse impact on our net revenues and profitability.
We
operate in a business that is characterized by intense competition. Our major competitors include large national laboratories
that possess greater name recognition, larger customer bases, and significantly greater financial resources and employ substantially
more personnel than we do. Many of our competitors have long established relationships. We cannot assure you that we will be able
to compete successfully with such entities in the future.
The
clinical laboratory business is intensely competitive both in terms of price and service. Pricing of laboratory testing services
is often one of the most significant factors used by health care providers and third-party payers in selecting a laboratory. As
a result of the clinical laboratory industry undergoing significant consolidation, larger clinical laboratory providers are able
to increase cost efficiencies afforded by large-scale automated testing. This consolidation results in greater price competition.
We may be unable to increase cost efficiencies sufficiently, if at all, and as a result, our net earnings and cash flows could
be negatively impacted by such price competition. We may also face competition from companies that do not comply with existing
laws or regulations or otherwise disregard compliance standards in the industry. Additionally, we may also face changes in fee
schedules, competitive bidding for laboratory services or other actions or pressures reducing payment schedules as a result of
increased or additional competition. Additional competition, including price competition, could have a material adverse impact
on our net revenues and profitability.
Failure
to comply with environmental, health and safety laws and regulations, including the federal Occupational Safety and Health Administration
Act and the Needlestick Safety and Prevention Act, could result in fines and penalties and loss of licensure, and have a material
adverse effect upon the Company’s business.
The
Company is subject to licensing and regulation under federal, state and local laws and regulations relating to the protection
of the environment and human health and safety, including laws and regulations relating to the handling, transportation and disposal
of medical specimens, and infectious and hazardous waste materials, as well as regulations relating to the safety and health of
laboratory employees. All of the Company’s laboratories are subject to applicable federal and state laws and regulations
relating to biohazard disposal of all laboratory specimens, and they utilize outside vendors for disposal of such specimens. In
addition, the federal Occupational Safety and Health Administration has established extensive requirements relating to workplace
safety for health care employers, including clinical laboratories, whose workers may be exposed to blood-borne pathogens such
as HIV and the hepatitis B virus. These requirements, among other things, require work practice controls, protective clothing
and equipment, training, medical follow-up, vaccinations and other measures designed to minimize exposure to, and transmission
of, blood-borne pathogens. In addition, the Needlestick Safety and Prevention Act requires, among other things, that the Company
include in its safety programs the evaluation and use of emergency controls such as safety needles if found to be effective at
reducing the risk of needlestick injuries in the workplace.
Failure
to comply with federal, state and local laws and regulations could subject the Company to denial of the right to conduct business,
fines, criminal penalties and/or other enforcement actions which would have a material adverse effect on its business. In addition,
compliance with future legislation could impose additional requirements on the Company which may be costly.
Regulations
requiring the use of “standard transactions” for health care services issued under HIPAA may negatively impact the
Company’s profitability and cash flows.
Pursuant
to HIPAA, the Secretary of Health and Human Services has issued regulations designed to improve the efficiency and effectiveness
of the health care system by facilitating the electronic exchange of information in certain financial and administrative transactions
while protecting the privacy and security of the information exchanged.
The
HIPAA transaction standards are complex, and subject to differences in interpretation by payers. For instance, some payers may
interpret the standards to require the Company to provide certain types of information, including demographic information not
usually provided to the Company by physicians. As a result of inconsistent application of transaction standards by payers or the
Company’s inability to obtain certain billing information not usually provided to the Company by physicians, the Company
could face increased costs and complexity, a temporary disruption in receipts and ongoing reductions in reimbursements and net
revenues. In addition, new requirements for additional standard transactions, such as claims attachments and the ICD-10-CM Code
Set, could prove technically difficult, time-consuming or expensive to implement.
Failure
to maintain the security of customer-related information or compliance with security requirements could damage the Company’s
reputation with customers, and cause it to incur substantial additional costs and to become subject to litigation.
Pursuant
to HIPAA and certain similar state laws, we must comply with comprehensive privacy and security standards with respect to the
use and disclosure of protected health information. Under the HITECH amendments to HIPAA, HIPAA was expanded to require certain
data breach notifications, to extend certain HIPAA privacy and security standards directly to business associates, to heighten
penalties for noncompliance and to enhance enforcement efforts.
The
Company receives certain personal and financial information about its customers. In addition, the Company depends upon the secure
transmission of confidential information over public networks, including information permitting cashless payments. A compromise
in the Company’s security systems that results in customer personal information being obtained by unauthorized persons or
the Company’s failure to comply with security requirements for financial transactions could adversely affect the Company’s
reputation with its customers and others, as well as the Company’s results of operations, financial condition and liquidity.
It could also result in litigation against the Company or the imposition of penalties.
Failure
of the Company, third party payers or physicians to comply with the ICD-10-CM Code Set and our failure to comply with other emerging
electronic transmission standards could adversely affect our business.
The
Company believes that it is in compliance in all material respects with the current Transactions and Code Sets Rule. The Company
implemented Version 5010 of the HIPAA Transaction Standards, and believes it has fully adopted the ICD-10-CM code set. The compliance
date for ICD-10-CM was October 1, 2015. Clinical laboratories are typically required to submit health care claims with diagnosis
codes to third party payers. The diagnosis codes must be obtained from the ordering physician. The failure of the Company, third
party payers or physicians to transition within the required timeframe could have an adverse impact on reimbursement, day’s
sales outstanding and cash collections.
Also,
the failure of our IT systems to keep pace with technological advances may significantly reduce our revenues or increase our expenses.
Public and private initiatives to create healthcare information technology (“HCIT”) standards and to mandate standardized
clinical coding systems for the electronic exchange of clinical information, including test orders and test results, could require
costly modifications to our existing HCIT systems. While we do not expect HCIT standards to be adopted or implemented without
adequate time to comply, if we fail to adopt or delay in implementing HCIT standards, we could lose customers and business opportunities.
Compliance
with the HIPAA security regulations and privacy regulations may increase the Company’s costs.
The
HIPAA privacy and security regulations, including the expanded requirements under HITECH, establish comprehensive federal standards
with respect to the use and disclosure of protected health information by health plans, healthcare providers and healthcare clearinghouses,
in addition to setting standards to protect the confidentiality, integrity and security of protected health information. The regulations
establish a complex regulatory framework on a variety of subjects, including:
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the
circumstances under which the use and disclosure of protected health information are permitted or required without a specific
authorization by the patient, including but not limited to treatment purposes, activities to obtain payments for the Company’s
services, and its healthcare operations activities;
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a
patient’s rights to access, amend and receive an accounting of certain disclosures of protected health information;
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the
content of notices of privacy practices for protected health information;
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administrative,
technical and physical safeguards required of entities that use or receive protected health information; and
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the
protection of computing systems maintaining Electronic Personal Health Information (“ePHI”).
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The
Company has implemented policies and procedures related to compliance with the HIPAA privacy and security regulations, as required
by law. The privacy and security regulations establish a “floor” and do not supersede state laws that are more stringent.
Therefore, the Company is required to comply with both federal privacy and security regulations and varying state privacy and
security laws. In addition, for healthcare data transfers from other countries relating to citizens of those countries, the Company
may also be required to comply with the laws of those other countries. The federal privacy regulations restrict the Company’s
ability to use or disclose patient identifiable laboratory data, without patient authorization, for purposes other than payment,
treatment or healthcare operations (as defined by HIPAA), except for disclosures for various public policy purposes and other
permitted purposes outlined in the privacy regulations. HIPAA, as amended by HITECH, provides for significant fines and other
penalties for wrongful use or disclosure of protected health information in violation of the privacy and security regulations,
including potential civil and criminal fines and penalties. Due to the enactment of HITECH and an increase in the amount of monetary
financial penalties, government enforcement has also increased. It is not possible to predict what the extent of the impact on
business will be, other than heightened scrutiny and emphasis on compliance. If the Company does not comply with existing or new
laws and regulations related to protecting the privacy and security of health information it could be subject to significant monetary
fines, civil penalties or criminal sanctions. In addition, other federal and state laws that protect the privacy and security
of patient information may be subject to enforcement and interpretations by various governmental authorities and courts resulting
in complex compliance issues. For example, the Company could incur damages under state laws pursuant to an action brought by a
private party for the wrongful use or disclosure of confidential health information or other private personal information.
The
clinical laboratory industry is subject to changing technology and new product introductions.
Advances
in technology may lead to the development of more cost-effective technologies such as point-of-care testing equipment that can
be operated by physicians or other healthcare providers in their offices or by patients themselves without requiring the services
of freestanding clinical laboratories. Development of such technology and its use by the Company’s customers could reduce
the demand for its laboratory testing services and negatively impact its revenues.
Currently,
most clinical laboratory testing is categorized as “high” or “moderate” complexity, and thereby is subject
to extensive and costly regulation under CLIA. The cost of compliance with CLIA makes it impractical for most physicians to operate
clinical laboratories in their offices, and other laws limit the ability of physicians to have ownership in a laboratory and to
refer tests to such a laboratory. Manufacturers of laboratory equipment and test kits could seek to increase their sales by marketing
point-of-care laboratory equipment to physicians and by selling test kits approved for home or physician office use to both physicians
and patients. Diagnostic tests approved for home use are automatically deemed to be “waived” tests under CLIA and
may be performed in physician office laboratories as well as by patients in their homes with minimal regulatory oversight. Other
tests meeting certain FDA criteria also may be classified as “waived” for CLIA purposes. The FDA has regulatory responsibility
over instruments, test kits, reagents and other devices used by clinical laboratories and has taken responsibility from the Centers
for Disease Control and Prevention (“CDC”) for classifying the complexity of tests for CLIA purposes. Increased approval
of “waived” test kits could lead to increased testing by physicians in their offices or by patients at home, which
could affect the Company’s market for laboratory testing services and negatively impact its revenues.
Health
care reform and related programs (e.g. Health Insurance Exchanges), changes in government payment and reimbursement systems, or
changes in payer mix, including an increase in capitated reimbursement mechanisms and evolving delivery models, could have a material
adverse impact on the Company’s net revenues, profitability and cash flow.
Testing
services are billed to private patients, Medicare, Medicaid, commercial clients, managed care organizations (“MCOs”)
and third-party insurance companies. Tests ordered by a physician may be billed to different payers depending on the medical insurance
benefits of a particular patient. Most testing services are billed to a party other than the physician or other authorized person
that ordered the test. Increases in the percentage of services billed to government and managed care payers could have an adverse
impact on the Company’s net revenues.
The
various MCOs have different contracting philosophies, which are influenced by the design of the products they offer to their members.
Some MCOs contract with a limited number of clinical laboratories and engage in direct negotiation of the rates reimbursed to
participating laboratories. Other MCOs adopt broader networks with a largely uniform fee structure offered to all participating
clinical laboratories. In addition, some MCOs have used capitation in an effort to fix the cost of laboratory testing services
for their enrollees. Under a capitated reimbursement mechanism, the clinical laboratory and the managed care organization agree
to a per member, per month payment to pay for all authorized laboratory tests ordered during the month by the physician for the
members, regardless of the number or cost of the tests actually performed. Capitation shifts the risk of increased test utilization
(and the underlying mix of testing services) to the clinical laboratory provider.
A
portion of the third-party insurance fee-for-service revenues are collectible from patients in the form of deductibles, copayments
and coinsurance. As patient cost-sharing increases, collectability may be impacted.
In
addition, Medicare and Medicaid and private insurers have increased their efforts to control the cost, utilization and delivery
of health care services, including clinical laboratory services. Measures to regulate health care delivery in general, and clinical
laboratories in particular, have resulted in reduced prices, added costs and decreased test utilization for the clinical laboratory
industry by increasing complexity and adding new regulatory and administrative requirements. Pursuant to legislation passed in
late 2003, the percentage of Medicare beneficiaries enrolled in Medicare managed care plans has increased. The percentage of Medicaid
beneficiaries enrolled in Medicaid managed care plans has also increased, and is expected to continue to increase. Changes to,
or repeal of, the ACA, the health care reform legislation passed in 2010, also may continue to affect coverage, reimbursement,
and utilization of laboratory services, as well as administrative requirements, in ways that are currently unpredictable.
The
Company expects efforts to impose reduced reimbursement, more stringent payment policies and cost controls by government and other
payers to continue. If the Company cannot offset additional reductions in the payments it receives for its services by reducing
costs, increasing test volume and/or introducing new procedures, it could have a material adverse impact on the Company’s
net revenues, profitability and cash flows.
As
an employer, health care reform legislation also contains numerous regulations that will require the Company to implement significant
process and record keeping changes to be in compliance. These changes increase the cost of providing healthcare coverage to employees
and their families. Given the limited release of regulations to guide compliance, as well as potential changes to or repeal of
the ACA, the exact impact to employers including the Company is uncertain.
A
failure to obtain and retain new customers, a loss of existing customers or material contracts, a reduction in tests ordered or
specimens submitted by existing customers, or the inability to retain existing and create new relationships with health systems
could impact the Company’s ability to successfully grow its business.
To
offset efforts by payers to reduce the cost and utilization of clinical laboratory services and to otherwise grow its business,
the Company needs to obtain and retain new customers and business partners. In addition, a reduction in tests ordered or specimens
submitted by existing customers, without offsetting growth in its customer base, could impact the Company’s ability to successfully
grow its business and could have a material adverse impact on the Company’s net revenues and profitability. The Company
competes primarily on the basis of the quality of testing, timeliness of test reporting, reporting and information systems, reputation
in the medical community, the pricing of services and ability to employ qualified personnel. The Company’s failure to successfully
compete on any of these factors could result in the loss of customers and a reduction in the Company’s ability to expand
its customer base.
In
addition, as the broader healthcare industry trend of consolidation continues, including the acquisition of physician practices
by health systems, relationships with hospital-based health systems and integrated delivery networks are becoming more important.
The Company’s inability to create relationships with those provider systems and networks could impact its ability to successfully
grow its business.
A
failure to identify and successfully close and integrate strategic acquisition targets could have a material adverse impact on
the Company’s business objectives and its net revenues and profitability.
Part
of the Company’s strategy involves deploying capital in investments that enhance the Company’s business, which includes
pursuing strategic acquisitions to strengthen the Company’s capabilities and increase its presence in key geographic areas.
Since January 1, 2013, the Company has acquired the Hospital Assets, clinical laboratories in California, New Jersey and New Mexico
in addition to Clinlab, Medical Mime and CollabRx. However, the Company cannot assure that it will be able to identify acquisition
targets that are attractive to the Company or that are of a large enough size to have a meaningful impact on the Company’s
operating results. Furthermore, the successful closing and integration of a strategic acquisition entails numerous risks, including,
among others:
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failure
to obtain regulatory clearance;
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loss
of key customers or employees;
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difficulty
in consolidating redundant facilities and infrastructure and in standardizing information, including lack of complete integration;
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unidentified
regulatory problems;
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failure
to maintain the quality of services that such companies have historically provided;
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coordination
of geographically-separated facilities and workforces; and
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diversion
of management’s attention from the present core business of the Company.
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The
Company cannot assure that current or future acquisitions, if any, or any related integration efforts will be successful, or that
the Company’s business will not be adversely affected by any future acquisitions, including with respect to net revenues
and profitability. Even if the Company is able to successfully integrate the operations of businesses that it may acquire in the
future, the Company may not be able to realize the benefits that it expects from such acquisitions.
Adverse
results in material litigation matters or governmental inquiries could have a material adverse effect upon the Company’s
business and financial condition.
The
Company may become subject in the ordinary course of business to material legal action related to, among other things, intellectual
property disputes, professional liability, contracts and employee-related matters, as well as inquiries and requests for information
from governmental agencies and bodies and Medicare or Medicaid carriers requesting comment and/or information on allegations of
billing irregularities, billing and pricing arrangements and other matters that are brought to their attention through billing
audits or third parties. The healthcare industry is subject to substantial Federal and state government regulation and audit.
Legal actions could result in substantial monetary damages as well as damage to the Company’s reputation with customers,
which could have a material adverse effect upon its business.
As
a company with limited capital and human resources, we anticipate that more of management’s time and attention will be diverted
from our business to ensure compliance with regulatory requirements than would be the case with a company that has well established
controls and procedures. This diversion of management’s time and attention may have a material adverse effect on our business,
financial condition and results of operations.
In
the event we identify significant deficiencies or material weaknesses in our internal control over financial reporting that we
cannot remediate in a timely manner, or if we are unable to receive a positive attestation from our independent registered public
accounting firm with respect to our internal control over financial reporting when we are required to do so, investors and others
may lose confidence in the reliability of our financial statements. If this occurs, the trading price of our common stock, if
any, and ability to obtain any necessary equity or debt financing could suffer. In addition, in the event that our independent
registered public accounting firm is unable to rely on our internal control over financial reporting in connection with its audit
of our financial statements, and in the further event that it is unable to devise alternative procedures in order to satisfy itself
as to the material accuracy of our financial statements and related disclosures, we may be unable to file our periodic reports
with the SEC. This would likely have an adverse effect on the trading price of our common stock, if any, and our ability to secure
any necessary additional financing, and could result in the delisting of our common stock. In such event, the liquidity of our
common stock would be severely limited and the market price of our common stock would likely decline significantly.
An
inability to attract and retain experienced and qualified personnel could adversely affect the Company’s business.
The
loss of key management personnel or the inability to attract and retain experienced and qualified employees at the Company’s
clinical laboratories and at the hospital could adversely affect the business. The success of the Company is dependent in part
on the efforts of key members of its management team.
In
addition, the success of the Company’s clinical laboratories also depends on employing and retaining qualified and experienced
laboratory professionals, including specialists, who perform clinical laboratory testing services. The Company will also need
to recruit and hire a complete staff for the hospital, including doctors and other healthcare professionals. In the future, if
competition for the services of these professionals increases, the Company may not be able to continue to attract and retain individuals
in its markets. The Company’s revenues and earnings could be adversely affected if a significant number of professionals
terminate their relationship with the Company or become unable or unwilling to continue their employment.
Failure
in the Company’s information technology systems could significantly increase testing turn-around time or billing processes
and otherwise disrupt the Company’s operations or customer relationships.
The
Company’s laboratory operations and customer relationships depend, in part, on the continued performance of its information
technology systems. Despite network security measures and other precautions, the Company’s information technology systems
are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptions. Sustained system failures
or interruption of the Company’s systems in one or more of its laboratory operations could disrupt the Company’s ability
to process laboratory requisitions, perform testing, provide test results in a timely manner and/or bill the appropriate party.
Breaches with respect to protected health information could result in violations of HIPAA and analogous state laws, and risk the
imposition of significant fines and penalties. Failure of the Company’s information technology systems could adversely affect
the Company’s business, profitability and financial condition.
A
significant deterioration in the economy could negatively impact testing volumes, cash collections and the availability of credit.
The
Company’s operations are dependent upon ongoing demand for diagnostic testing services by patients, physicians, hospitals,
MCOs, and others. A significant downturn in the economy could negatively impact the demand for diagnostic testing as well as the
ability of patients and other payers to pay for services ordered. In addition, uncertainty in the credit markets could reduce
the availability of credit and impact the Company’s ability to meet its financing needs in the future.
Increasing
health insurance premiums and co-payments or high deductible health plans may cause individuals to forgo health insurance and
avoid medical attention, either of which may reduce demand for our products and services.
Health
insurance premiums, co-payments and deductibles have generally increased in recent years. These increases may cause individuals
to forgo health insurance, as well as medical attention. This behavior may reduce demand for testing by our laboratories.
Our
business has substantial indebtedness.
We
currently have, and will likely continue to have, a substantial amount of indebtedness. Our indebtedness could, among other things,
make it more difficult for us to satisfy our debt and other obligations, require us to use a large portion of our cash flow from
operations to repay and service our debt or otherwise create liquidity problems, limit our flexibility to adjust to market conditions
and place us at a competitive disadvantage. As of June 30, 2017 , we had total debt outstanding of approximately $8.0 million
of notes payable, all of which is short term, and approximately $13.3 million principal amount of convertible debentures.
In addition, our capital lease obligations were approximately $4.5 million at June 30, 2017 .
Our
ability to meet our obligations depends on our future performance and capital raising activities, which will be affected by financial,
business, economic and other factors, many of which are beyond our control. If our cash flow and capital resources prove inadequate
to allow us to pay the principal and interest on our debt, and meet our other obligations, we could face substantial liquidity
problems and might be required to dispose of material assets or operations, restructure or refinance our debt, which we may be
unable to do on acceptable terms, and forego attractive business opportunities. In addition, the terms of our existing or future
debt agreements may restrict us from pursuing any of these alternatives.
Failure
to achieve and maintain an effective system of internal control over financial reporting may result in our not being able to accurately
report our financial results. As a result, current and potential stockholders could lose confidence in our financial reporting,
which would harm our business and the trading price of our stock.
Our
management has determined that as of June 30, 2017 , we did not maintain effective internal control over financial reporting
based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal
Control-Integrated Framework as a result of material weaknesses in our internal control over financial reporting. A material weakness
is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable
possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or
detected on a timely basis. If the results of our remediation efforts regarding our material weaknesses are not successful, or
if additional material weaknesses or significant deficiencies are identified in our internal control over financial reporting,
our management will be unable to report favorably as to the effectiveness of our internal control over financial reporting and/or
our disclosure controls and procedures, and we could be required to further implement expensive and time-consuming remedial measures
and potentially lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse
effect on our stock price and potentially subject us to litigation.
Hardware
and software failures, delays in the operation of computer and communications systems, the failure to implement system enhancements
or cyber security breaches may harm the Company.
The
Company’s success depends on the efficient and uninterrupted operation of its computer and communications systems. A failure
of the network or data gathering procedures could impede the processing of data, delivery of databases and services, client orders
and day-to-day management of the business and could result in the corruption or loss of data. While certain operations have appropriate
disaster recovery plans in place, we currently do not have sufficient redundant facilities to provide IT capacity in the event
of a system failure. Despite any precautions the Company may take, damage from fire, floods, hurricanes, power loss, telecommunications
failures, computer viruses, break-ins, cybersecurity breaches and similar events at our various computer facilities could result
in interruptions in the flow of data to the servers and from the servers to clients.
In
addition, any failure by the computer environment to provide required data communications capacity could result in interruptions
in service. In the event of a delay in the delivery of data, the Company could be required to transfer data collection operations
to an alternative provider of server hosting services. Such a transfer could result in delays in the ability to deliver products
and services to clients. Additionally, significant delays in the planned delivery of system enhancements, improvements and inadequate
performance of the systems once they are completed could damage the Company’s reputation and harm the business. Finally,
long-term disruptions in the infrastructure caused by events such as natural disasters, the outbreak of war, the escalation of
hostilities, acts of terrorism (particularly involving cities in which the Company has offices) and cybersecurity breaches could
adversely affect the business. Although the Company carries property and business interruption insurance, the coverage may not
be adequate to compensate for all losses that may occur.
Our
Chief Executive Officer is in the process of renewing his visa to enter the United States.
Our
Chief Executive Officer is Seamus Lagan. In 2014, through Alcimede LLC (of which Mr. Lagan is the sole manager) Mr. Lagan received
an E2 Visa and worked at the Company’s offices in West Palm Beach, Florida. His visa expired in late 2016. Mr. Lagan is
now in the process of applying for a new E2 visa. Historical financing activities have been completed by our Chief Executive Officer.
No assurance can be given as to when or if his new visa will be granted, and a continued lengthy absence of Mr. Lagan from the
United States may have a material adverse effect on the Company’s business or ability to secure additional financing.
Provisions
of Delaware law and our organizational documents may discourage takeovers and business combinations that our stockholders may
consider in their best interests, which could negatively affect our stock price.
Provisions
of Delaware law and our certificate of incorporation and bylaws may have the effect of delaying or preventing a change in control
of the Company or deterring tender offers for our common stock that other stockholders may consider in their best interests.
Our
certificate of incorporation authorizes us to issue up to 5,000,000 shares of preferred stock in one or more different series
with terms to be fixed by our board of directors. Stockholder approval is not necessary to issue preferred stock in this manner.
Issuance of these shares of preferred stock could have the effect of making it more difficult and more expensive for a person
or group to acquire control of us, and could effectively be used as an anti-takeover device.
Our
bylaws provide for an advance notice procedure for stockholders to nominate director candidates for election or to bring business
before an annual meeting of stockholders, including proposed nominations of persons for election to our board of directors, and
require that special meetings of stockholders be called only by our chairman of the board, chief executive officer, president
or the board pursuant to a resolution adopted by a majority of the board.
The
anti-takeover provisions of Delaware law and provisions in our organizational documents may prevent our stockholders from receiving
the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence
of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock
if they are viewed as discouraging takeover attempts in the future.
As
a public company, we incur significant administrative workload and expenses.
As
a public company with common stock listed on The NASDAQ Capital Market, we must comply with various laws, regulations and requirements,
including certain provisions of the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC and The NASDAQ Stock Market.
Complying with these statutes, regulations and requirements, including our public company reporting requirements, continues to
occupy a significant amount of the time of our board of directors and management and involves significant accounting, legal and
other expenses. We will need to hire additional accounting personnel to handle these responsibilities, which will increase our
operating costs. Furthermore, these laws, regulations and requirements could make it more difficult or more costly for us to obtain
certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy
limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements
could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board
committees or as executive officers.
New
laws and regulations as well as changes to existing laws and regulations affecting public companies, including the provisions
of the Sarbanes-Oxley Act of 2002 and rules adopted by the SEC and by The NASDAQ Stock Market, would likely result in increased
costs to us as we respond to their requirements. We are investing resources to comply with evolving laws and regulations, and
this investment may result in increased general and administrative expenses and a diversion of management’s time and attention
from revenue-generating activities to compliance activities.
We
do not intend to pay cash dividends on our Common Stock in the foreseeable future.
We
have never declared or paid cash dividends on our Common Stock. We anticipate that we will retain our earnings, if any, for future
growth and therefore do not anticipate paying any cash dividends in the foreseeable future. Accordingly, our stockholders will
not realize a return on their investment unless the trading price of our Common Stock appreciates, which is uncertain and unpredictable.
We
may use our stock to pay, to a large extent, for future acquisitions or for the repayment of debt, which would be dilutive to
investors.
We
may choose to use additional stock to pay, to a large extent, for future acquisitions, and believe that doing so will enable us
to retain a greater percentage of our operating capital to pay for operations and marketing. Price and volume fluctuations in
our stock might negatively impact our ability to effectively use our stock to pay for acquisitions, or could cause us to offer
stock as consideration for acquisitions on terms that are not favorable to us and our stockholders. If we did resort to issuing
stock in lieu of cash for acquisitions under unfavorable circumstances, it would result in increased dilution to investors.
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This
prospectus and those documents incorporated by reference in this prospectus contain forward-looking statements. Statements
contained in this prospectus that refer to the Company’s estimated or anticipated future results are forward-looking statements
that reflect current perspective of existing trends and information as of the date of this prospectus. Forward-looking statements
generally will be accompanied by words such as “anticipate,” “believe,” “plan,” “could,”
“should,” “estimate,” “expect,” “forecast,” “outlook,” “guidance,”
“intend,” “may,” “might,” “will,” “possible,” “potential,”
“predict,” “project,” or other similar words, phrases or expressions. Such forward-looking statements
include statements about the Company’s plans, objectives, expectations and intentions. It is important to note that the
Company’s goals and expectations are not predictions of actual performance. Actual results may differ materially from the
Company’s current expectations depending upon a number of factors affecting the Company’s business. These risks and
uncertainties include those set forth under “
Risk Factors
” beginning on page 6, as well as, among others, business
effects, including the effects of industry, economic or political conditions outside of the Company’s control; the inherent
uncertainty associated with financial projections; the anticipated size of the markets and continued demand for the Company’s
products and services; the impact of competitive products and pricing; and access to available financing on a timely basis and
on reasonable terms. We caution you that the foregoing list of important factors that may affect future results is not exhaustive.
When
relying on forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider
the foregoing factors and other uncertainties and potential events and read the Company’s filings with the SEC for a discussion
of these and other risks and uncertainties. The Company undertakes no obligation to update or revise any forward-looking statement,
except as may be required by law. The Company qualifies all forward-looking statements by these cautionary statements.
USE
OF PROCEEDS
We
will incur all costs associated with this registration statement and prospectus, which we anticipate to be approximately $______.
We will not receive any proceeds from the sale of our common stock covered hereby by any of the Selling Stockholders. However,
we may receive proceeds from the cash exercise of the warrants which, if exercised in full in
cash, would result
in gross proceeds of $9,750,000. The shares of common stock to be sold in this offering have not yet been issued and will only
be issued upon exercise of the warrants.
MARKET
PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
common stock has been listed on The NASDAQ Capital Market since November 3, 2015 under the symbol “RNVA.” Prior to
that date, our common stock was listed on The NASDAQ Capital Market under the symbol “CLRX.”
On
August __, 2017, the closing price for our common stock as reported on The NASDAQ Capital Market was $[●] per share.
The following table sets forth the ranges of high and low closing sales prices per share of our common stock as reported on The
NASDAQ Capital Market for the periods indicated, as adjusted to reflect the 1-10 reverse stock split that was effective on November
2, 2015 as well as the 1-30 reverse stock split that was effective on February 22, 2017. Such quotations represent inter-dealer
prices without retail markup, markdown or commission and may not necessarily represent actual transactions.
Quarter
Ended
|
|
High
|
|
|
Low
|
|
March 31, 2015
|
|
$
|
822.02
|
|
|
$
|
177.98
|
|
June 30, 2015
|
|
$
|
378.04
|
|
|
$
|
197.00
|
|
September 30, 2015
|
|
$
|
240.02
|
|
|
$
|
135.01
|
|
December 31, 2015
|
|
$
|
209.99
|
|
|
$
|
38.61
|
|
March 31, 2016
|
|
$
|
39.90
|
|
|
$
|
17.11
|
|
June 30, 2016
|
|
$
|
34.80
|
|
|
$
|
15.60
|
|
September 30, 2016
|
|
$
|
22.15
|
|
|
$
|
5.19
|
|
December 31, 2016
|
|
$
|
6.90
|
|
|
$
|
2.41
|
|
March 31, 2017
|
|
$
|
4.01
|
|
|
$
|
1.40
|
|
June 30, 2017
|
|
$
|
1.69
|
|
|
$
|
0.36
|
|
September 30, 2017 (through August __, 2017)
|
|
$
|
[●]
|
|
|
$
|
[●]
|
|
As
of August __, 2017, there were approximately [●] stockholders of record of our common stock, which excludes stockholders
whose shares were held in nominee or street name by brokers.
On
January 11, 2017, we were notified by Nasdaq that we no longer comply with Nasdaq’s audit committee requirements as set
forth in Nasdaq Listing Rule 5605 (the “Audit Committee Rule”), which requires the audit committee of the Company’s
board of directors to have at least three members, each of whom must be an independent director as defined under the Audit Committee
Rule. With the passing of Benjamin Frank in December 2016, our audit committee currently consists of two independent directors.
In accordance with Nasdaq Rule 5605(c)(4), we have a cure period in order to regain compliance. We have until the earlier of our
next annual stockholders’ meeting or December 18, 2017 to regain compliance. If we do not regain compliance by the foregoing
applicable dates, then Nasdaq will provide written notification to the Company that its securities will be delisted. We believe
that we will regain compliance with the Audit Committee Rule within the required timeframe.
On April 18, 2017, the Company was notified
by Nasdaq that the stockholders’ equity balance reported on its Form 10-K for the year ended December 31, 2016 fell below
the $2,500,000 minimum requirement for continued listing under the Nasdaq Capital Market’s Listing Rule 5550(b)(1) (the
“Equity Rule”). As of June 30, 2017, the Company reported a stockholders’ deficit of $17,561,514. In accordance
with the Equity Rule, the Company submitted a plan to Nasdaq outlining how it intends to regain compliance. On August 17, 2017,
Nasdaq notified the Company that its plan did not contain evidence of its ability to achieve near term compliance with the continued
listing requirements or sustain such compliance over an extended period of time. The Company has appealed the Staff’s decision
to a Hearing Panel. The appeal will stay any further action pending the Panel’s decision. If the appeal is successful, the
Company may be granted 180 days from August 17, 2017 to regain compliance. The Company is considering its available options to
regain compliance, including the previously-announced spin offs of its Advanced Molecular Services Group and its software division,
Health Technology Solutions, in a manner by which the Company believes all of its investment to date can be recognized on the
Company’s balance sheet. Although there can be no guarantee of a successful appeal or of regaining compliance, the Company
expects that it will regain compliance with the Equity Rule.
On
June 12, 2017, the Company was notified by Nasdaq that the bid price of the Company’s common stock closed below the minimum
$1.00 per share requirement for continued inclusion under Nasdaq Rule 5550(a)(2) (the “Price Rule”). In accordance
with Nasdaq Rule 5810(c)(3)(A), the Company has 180 calendar days, or until December 11, 2017, to regain compliance. If at any
time before December 11, 2017, the bid price of the Company’s common stock closes at $1.00 per share or more for a minimum
of 10 consecutive business days, the Company will regain compliance with the Price Rule. If the Company does not regain compliance
by December 11, 2017, an additional 180 days may be granted to regain compliance, so long as the Company meets The Nasdaq Capital
Market initial listing criteria (except for the bid price requirement). As noted above, the Company is required to hold a meeting
of stockholders date to obtain stockholder approval of at least a 1-for-8 reverse split of the Company’s common stock. Promptly
following receipt of such stockholder approval, the Company shall cause the reverse split to occur. A Special Meeting of our
stockholders is scheduled for September 20, 2017, at which this reverse split proposal is to be voted upon.
Dividend
Policy
Holders
of the Company’s common stock are entitled to dividends when, as, and if declared by the board of directors out of funds
legally available therefor. The Company does not anticipate the declaration or payment of any dividends in the foreseeable future
to common stockholders. The holders of the Rennova Series G Preferred Stock and the Series H Preferred Stock receive dividends
at the same time any dividend is paid on shares of common stock in an amount equal to the amount such holder would have received
if such shares of preferred stock were converted into common stock.
The
Company intends to retain earnings, if any, to finance the development and expansion of its business. Future dividend policy will
be subject to the discretion of the board of directors and will be contingent upon future earnings, if any, the Company’s
financial condition, capital requirements, general business conditions and other factors. The terms of certain of our indebtedness
prohibit our payment of cash dividends on our common stock while such indebtedness is outstanding. Therefore, there can be no
assurance that any dividends of any kind will ever be paid on the Company’s common stock.
BUSINESS
You
should read the following discussion and analysis of our financial condition and results of operations together with our financial
statements and related notes incorporated by reference in this prospectus. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors”
and elsewhere in this prospectus. See “Cautionary Note Regarding Forward-Looking Statements.”
We
are a provider of an expanding group of health care services for healthcare providers, their patients and individuals. We currently
operate in three synergistic divisions with specialized management: 1) Clinical diagnostics through our clinical laboratories;
2) supportive software solutions to healthcare providers including Electronic Health Records (“EHR”), Laboratory Information
Systems and Medical Billing services; and 3 ) the recent addition of a hospital in Tennessee. We believe that our approach
will produce a more sustainable relationship and the capture of multiple revenue streams from medical providers.
Historically,
we have specialized in providing urine and blood drug toxicology and pain medication testing to physicians, clinics and rehabilitation
facilities in the United States. We intend to expand our business operations in each sector in which we focus and will continue
to assess the best way to do so. We may consider the sale of or spin-off of one or more of our business operations if deemed to
be the best way to create value for our stockholders.
On July 12, 2017, we announced that we
plan to spin off our Advanced Molecular Services Group (“AMSG”) as an independent publicly-traded company by way of
a tax-free distribution to our stockholders. Completion of the spin off is expected to occur at the end of September 2017 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 entered into by the Company. As a result, our
Decision Support and Infomatics business segment, which is part of AMSG, is now considered a discontinued operation and is reflected
as such in our financial statements incorporated by reference in this prospectus.
The Board of Directors also approved the
spin off of our Health Technology Solutions business to our stockholders in a similar transaction.
History
and Development of the Company
Medytox
Solutions, Inc. (“Medytox”) was organized on July 20, 2005 under the laws of the State of Nevada. In the first half
of 2011, Medytox’s management elected to reorganize as a holding company, and Medytox established and acquired a number
of companies in the medical service sector between 2011 and 2014.
On
November 2, 2015, pursuant to the terms of the Agreement and Plan of Merger, dated as of April 15, 2015, by and among CollabRx,
Inc. (“CollabRx”), CollabRx Merger Sub, Inc. (“Merger Sub”), a direct wholly-owned subsidiary of CollabRx
formed for the purpose of the merger, and Medytox, Merger Sub merged with and into Medytox, with Medytox as the surviving company
and a direct, wholly-owned subsidiary of CollabRx (the “Merger”). Prior to closing, the Company amended its certificate
of incorporation to effect a 1-for-10 reverse stock split and to change its name to Rennova Health, Inc. In connection with the
Merger, (i) each share of common stock of Medytox was converted into the right to receive 0.4096 shares of common stock of the
Company, (ii) each share of Series B Preferred Stock of Medytox was converted into the right to receive one share of a newly-authorized
Series B Convertible Preferred Stock of the Company, and (iii) each share of Series E Convertible Preferred Stock of Medytox was
converted into the right to receive one share of a newly-authorized Series E Convertible Preferred Stock of the Company. This
transaction was accounted for as a reverse merger in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”) and, as such, the historical financial statements of Medytox became the historical financial
statements of the Company.
Holders
of Company equity prior to the closing of the Merger (including all outstanding Company common stock and all restricted stock
units, options and warrants exercisable for shares of Company common stock) held 10% of the Company’s common stock immediately
following the closing of the Merger, and holders of Medytox equity prior to the closing of the Merger (including all outstanding
Medytox common stock and all outstanding options exercisable for shares of Medytox common stock, but less certain options that
were cancelled upon the closing pursuant to agreements between Medytox and such optionees) held 90% of the Company’s common
stock immediately following the closing of the Merger, in each case on a fully diluted basis, provided, however, outstanding shares
of the newly-designated Series B Convertible Preferred Stock and Series E Convertible Preferred Stock, certain outstanding convertible
promissory notes exercisable for Company common stock after the closing and certain option grants expected to be made following
the closing of the Merger are excluded from such ownership percentages.
On
November 3, 2015, the common stock of Rennova Health, Inc. commenced trading on The NASDAQ Capital Market under the symbol “RNVA.”
Prior to that date, our common stock was listed on The NASDAQ Capital Market under the symbol “CLRX.” Immediately
after the consummation of the Merger, the Company had 13,750,010 shares of common stock, 5,000 shares of Series B Convertible
Preferred Stock and 45,000 shares of Series E Convertible Preferred Stock issued and outstanding.
Recent
Developments
We have scheduled a Special Meeting of
our stockholders for September 20, 2017. At the meeting, the stockholders will vote upon a proposal to approve an amendment to
our Certificate of Incorporation to effect a reverse stock split of all of our outstanding shares of common stock at a specific
ratio within a range from 1-for-8 to 1-for-15, and to grant authorization to our Board of Directors to determine, in its sole
discretion, the specific ratio and timing of the reverse stock split at any time before December 31, 2017, subject to the Board
of Directors’ discretion to abandon such amendment. The intent of the reverse stock split would be to increase the per share
trading price of our common stock on the Nasdaq Capital Market to meet and maintain compliance with the $1.00 minimum per share
requirement for continued listing under the Marketplace Rule 5550(a)(2).
On August 15, 2017, the Board of Directors,
based on the recommendation of the Compensation Committee of the Board and in accordance with the provisions of the 2007 Incentive
Award Plan, approved grants to employees and directors of the Company of an aggregate of 2,729,000 shares of restricted common
stock of the Company. The grants fully vest on the first anniversary of the date of grant, subject to the grantee’s continued
status as an employee or director, as the case may be, on the vesting date.
On
June 2, 2017, the Company closed an offering of $795,000 aggregate principal amount of Original Issue Discount Debentures and
warrants to purchase an aggregate of 500,000 shares of common stock for a purchase price of $750,000. Pursuant to the offering,
the purchasers shall have the right, for one year, to participate in any issuance by the Company of common stock or common stock
equivalents for cash consideration, indebtedness or a combination of units thereof, with certain exceptions.
On
June 22, 2017, the Company closed an offering of $1,902,700 aggregate principal amount of Original Issue Discount Debentures due
September 22, 2017 and warrants to purchase an aggregate of 1,000,000 shares of common stock for consideration of $1,000,000 in
cash and the exchange of the $795,000 aggregate principal amount of Original Issue Discount Debentures due September 2, 2017 issued
by the Company on June 2, 2017. Pursuant to the offering, the purchasers shall have the right, for one year, to participate in
any issuance by the Company of common stock or common stock equivalents for cash consideration, indebtedness or a combination
of units thereof, with certain exceptions.
On
July 17, 2017, the Company closed an offering of $4,136,862 aggregate principal amount of Original Issue Discount Debentures due
October 17, 2017 and warrants to purchase an aggregate of 2,120,000 shares of common stock for consideration of $2,000,000 in
cash and the exchange of the $1,902,700 aggregate principal amount of Original Issue Discount Debentures due September 22, 2017
issued by the Company on June 22, 2017. Pursuant to the offering, the purchasers shall have the right, for one year, to participate
in any issuance by the Company of common stock or common stock equivalents for cash consideration, indebtedness or a combination
of units thereof, with certain exceptions. Also, the Company is required to hold a stockholders’ meeting to obtain stockholder
approval for at least a 1-for-8 reverse split of the Company’s common stock. If such approval is not obtained on or before
September 20, 2017, it shall be an event of default under the debentures. Promptly following receipt of such approval, the Company
shall cause such reverse split to occur.
On
April 9, 2017, Robert Lee and Dr. Paul Billings resigned from our Board of Directors. Mr. Lee and Dr. Billings were the two independent
directors and were members of the Audit, Compensation and Nominating/Corporate Governance Committees of the Board. On April 9,
2017, the remaining members of the Board elected Trevor Langley and Dr. Kamran Ajami as directors to fill those two Board vacancies.
The Board of Directors determined that both of the new directors qualify as “independent” under the Listing Rules
of The NASDAQ Stock Market and the rules and regulations of the Securities and Exchange Commission.
Trevor
Langley, 55, since 2006 has been the Owner and Managing Partner of Avanti Capital Group LLC/Avanti Partners LLC (“Avanti”).
Avanti assists micro, small and mid-cap publicly traded companies and those looking to become public by leveraging traditional
and new communication strategies, with a specialization in healthcare and alternative energy markets. Avanti also provides comprehensive
consulting services.
Dr.
Kamran Ajami, 58, is a pathologist and, since February 2011, has been the Medical Director of the laboratories at West Side Regional
Medical Center and Plantation General Hospital. Since 1997, he has also been Owner and Chief Executive Officer of American Cytopathology
Associates PA, which supplies medical directors for laboratories.
The
Board named Mr. Langley and Dr. Ajami as members of the Audit Committee, with Mr. Langley as Chairman. In addition to each of
them being “independent”, the Board of Directors determined that each of them is “financially literate”
as required by the Listing Rules of The NASDAQ Stock Market and that Mr. Langley qualifies as an “audit committee financial
expert” as defined by the rules and regulations of the SEC and meets the qualifications of “financial sophistication”
under the Listing Rules of The NASDAQ Stock Market. The Board named Mr. Langley and Dr. Ajami also as members of the Compensation
Committee (with Mr. Langley as Chairman) and of the Nominating/Corporate Governance Committee (with Dr. Ajami as Chairman).
Michael
Goldberg resigned from our Board of Directors effective April 24, 2017. The consulting agreement with Monarch Capital LLC, of
which Mr. Goldberg is the Managing Director, remains in effect.
On
March 21, 2017, we closed an offering of $10,850,000 principal amount of Senior Secured Original Issue Discount Convertible Debentures
due March 21, 2019 (the “New Debentures”) and three series of warrants to purchase an aggregate of 19,608,426 shares
of common stock. The offering was pursuant to the terms of the Securities Purchase Agreement, dated as of March 15, 2017 (the
“Purchase Agreement”), between the Company and certain existing institutional investors of the Company. The Company
received proceeds of approximately $8.4 million from the offering, after giving effect to the original issue discounts and transaction
expenses. The net proceeds were used to pay down certain related party and other indebtedness and for general corporate purposes.
Also
on March 21, 2017, we closed exchanges by which the holder of the Company’s Original Issue Discount Convertible Debentures
issued on February 2, 2017 and holders of the Company’s Series H Convertible Preferred Stock exchanged $1,590,000 principal
amount of such debentures and $2,174,000 stated value of such preferred stock for $5,160,260 principal amount of new debentures
on the same items as, and pari passu with, the New Debentures (the “Exchange Debentures” and, together with the New
Debentures, the “Debentures”) and warrants to purchase an aggregate of 9,325,773 shares of common stock. All issuance
amounts of Debentures reflect a 24% original issue discount.
On
February 7, 2017, our Board of Directors approved an amendment 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 (the “Reverse
Stock Split”). The stockholders of the Company had previously approved, on December 22, 2016, an amendment to the Company’s
Certificate of Incorporation to effect a reverse split of all of the Company’s shares of common stock at a specific ratio
within a range from 1-for-10 to 1-for-30, and granted authorization to the Board of Directors to determine in its discretion the
specific ratio and timing of the reverse split prior to December 31, 2017.
As
a result of the Reverse Stock Split, every 30 shares of the Company’s then outstanding common stock was combined and reclassified
into one share of the Company’s common stock. Proportionate voting rights and other rights of common stockholders were not
affected by the Reverse Stock Split, other than as a result of the rounding up of fractional shares. Stockholders who would have
otherwise held a fractional share of common stock had their holdings rounded up to the nearest full share, as no fractional shares
were issued in connection with the Reverse Stock Split.
The
reverse stock split became effective at the close of business on February 22, 2017 and our common stock began trading on The NASDAQ
Capital Market on a post-split basis on February 23, 2017. The par value and other terms of the common stock were not affected
by the Reverse Stock Split. 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 Split. All outstanding preferred shares, stock options, warrants, convertible
notes and equity incentive plans immediately prior to the Reverse Stock Split were adjusted by dividing the number of shares of
common stock into which the preferred shares, stock options, warrants, convertible notes and equity incentive plans were exercisable
or convertible by 30 and multiplying the exercise or conversion price by 30. All share and per share amounts discussed in this
prospectus have been retroactively restated to give effect to the Reverse Stock Split.
On
January 13, 2017, we closed on 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 is classified as a Critical
Access Hospital (rural) with 25 beds, a 24/7 emergency department, operating rooms and a laboratory that 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 Hospital Assets out of bankruptcy for a purchase price of $1.0 million. The hospital
became operational on August 8, 2017.
On
January 11, 2017, we were notified by Nasdaq that we no longer comply with Nasdaq’s audit committee requirements as set
forth in Nasdaq Listing Rule 5605 (the “Audit Committee Rule”), which requires the audit committee of the Company’s
Board of Directors to have at least three members, each of whom must be an independent director as defined under the Audit Committee
Rule. With the passing of one of our directors, Benjamin Frank, in December 2016, our audit committee currently consists of two
independent directors. In accordance with Nasdaq Rule 5605(c)(4), we have until the earlier of our next annual stockholders’
meeting or December 18, 2017 to regain compliance. If we do not regain compliance by the foregoing applicable dates, then Nasdaq
will provide written notification to us that our securities will be delisted.
On April 18, 2017, the Company was notified
by Nasdaq that the stockholders’ equity balance reported on its Form 10-K for the year ended December 31, 2016 fell below
the $2,500,000 minimum requirement for continued listing under the Nasdaq Capital Market’s Listing Rule 5550(b)(1) (the
“Equity Rule”). As of June 30, 2017, the Company reported a stockholders’ deficit of $17,561,514. In accordance
with the Equity Rule, the Company submitted a plan to Nasdaq outlining how it intends to regain compliance. On August 17, 2017,
Nasdaq notified the Company that its plan did not contain evidence of its ability to achieve near term compliance with the continued
listing requirements or sustain such compliance over an extended period of time. The Company has appealed the Staff’s decision
to a Hearing Panel. The appeal will stay any further action pending the Panel’s decision. If the appeal is successful, the
Company may be granted 180 days from August 17, 2017 to regain compliance. The Company is considering its available options to
regain compliance, including the previously-announced spin offs of its Advanced Molecular Services Group and its software division,
Health Technology Solutions, in a manner by which the Company believes all of its investment to date can be recognized on the
Company’s balance sheet. Although there can be no guarantee of a successful appeal or of regaining compliance, the Company
expects that it will regain compliance with the Equity Rule.
On
June 12, 2017, the Company was notified by Nasdaq that the bid price of the Company’s common stock closed below the minimum
$1.00 per share requirement for continued inclusion under Nasdaq Rule 5550(a)(2) (the “Price Rule”). In accordance
with Nasdaq Rule 5810(c)(3)(A), the Company has 180 calendar days, or until December 11, 2017, to regain compliance. If at any
time before December 11, 2017, the bid price of the Company’s common stock closes at $1.00 per share or more for a minimum
of 10 consecutive business days, the Company will regain compliance with the Price Rule. If the Company does not regain compliance
by December 11, 2017, an additional 180 days may be granted to regain compliance, so long as the Company meets The Nasdaq Capital
Market initial listing criteria (except for the bid price requirement). As noted above, the Company is required to hold a meeting
of stockholders to obtain stockholder approval of at least a 1-for-8 reverse split of the Company’s common stock. Promptly
following receipt of such stockholder approval, the Company shall cause the reverse split to occur. A Special Meeting of our
stockholders is scheduled for September 20, 2017, at which this reverse split proposal is to be voted upon.
Our
Services
We
are a healthcare enterprise that delivers products and services to healthcare providers, their patients and individuals. We currently
operate in three synergistic divisions with specialized management: 1) Clinical diagnostics through our clinical laboratories;
2) supportive software solutions to healthcare providers including Electronic Health Records (“EHR”), Laboratory Information
Systems and Medical Billing services; and 3 ) the recent addition of a hospital in Tennessee. We aspire to create a more
sustainable relationship with our customers by offering needed and interoperable solutions to capture multiple revenue streams
from medical providers.
On July 12, 2017, we announced that we
plan to spin off our Advanced Molecular Services Group (“AMSG”) as an independent publicly-traded company by way of
a tax-free distribution to our stockholders. Completion of the spin off is expected to occur at the end of September 2017 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 entered into by the Company. As a result, our
Decision Support and Infomatics business segment, which is part of AMSG, is now considered a discontinued operation and is reflected
as such in our financial statements incorporated by reference in this prospectus.
The Board of Directors also approved the
spin off of our Health Technology Solutions business to our stockholders in a similar transaction. Our Health Technology Solutions
business is not included as a discontinued operation in our financial statements incorporated by reference in this prospectus.
Clinical
Diagnostics
Our
principal line of business to date has been clinical laboratory blood and urine testing services, with a particular emphasis on
the provision of urine drug toxicology testing to physicians, clinics and rehabilitation facilities in the United States. As we
expand our customer base to include pain management and other healthcare providers, testing services to rehabilitation facilities
represented approximately 74% of the Company’s revenues for the six months ended June 30 , 2017, approximately
75% of the Company’s revenues for the year ended December 31, 2016 and approximately 95% of the Company’s revenues
for the years ended December 31, 2015 and 2014. We believe that we are responding to the challenges faced by today’s healthcare
providers to adopt paper free and interoperable systems, and to market demand for solutions by strategically expanding our offering
of diagnostics services to include a full suite of clinical laboratory services. The drug and alcohol rehabilitation and pain
management sectors provide an existing and sizable target market, where the need for our services already exists and opportunity
is being created by a continued secular growth and need for compliance.
In
2016 we added genetic testing, specifically pharmacogenetic testing, to our array of services. Genetic testing represents the
most rapidly expanding segment of the diagnostics market worldwide. Growing incidence of genetic diseases presents new opportunities
for genetic testing. According to a report issued by Global Industry Analysts, Inc., the global market for genetic testing is
forecast to reach $2.2 billion by 2017. Increasing knowledge about the potential benefits of genetic testing is one of the prime
reasons for the growth of the market. Advancements in the genetic testing space, an aging population and a corresponding rise
in the number of chronic diseases, and increasing incidence of cancer cases are other factors propelling growth in the genetic
testing market.
Primary
revenue generating activity in this market revolves around DNA profiling aimed at better understanding the predisposition for
diseases and possible adverse reactions that may occur with drugs that are currently available and/or under clinical development.
Rising importance of early infection detection and prevention together with growing demand of DNA tests in pharmacogenomics or
cancer genetic testing are significant factors responsible for the anticipated growth. In order to further capitalize on this
opportunity, we operate Genomas, Inc., a biomedical company that develops PhyzioType Systems for DNA-guided management and prescription
of drugs used to treat mental illness, pain, heart disease and diabetes. Our genetic testing business is part of AMSG and will
be included in the spin off to stockholders.
The
Company owns and operates the following products and services to support its business objectives and to enable it to offer these
services to its customers:
Medytox
Diagnostics, Inc. (“MDI”)
Through
our CLIA certified laboratories, Rennova offers toxicology, clinical pharmacogenetics and esoteric testing. Rennova seeks to provide
these testing services with superior logistics and specimen integrity, competitive turn-around times and excellent customer service.
Clinical
Laboratory Operations
The
Company, through its wholly-owned MDI subsidiary, owns three clinical laboratories, as follows:
Laboratory
|
|
Location
|
International
Technologies, LLC
|
|
Waldwick,
NJ
|
EPIC
Reference Labs, Inc.
|
|
Riviera
Beach, FL
|
Epinex
Diagnostics Laboratories, Inc.
|
|
Tustin,
CA
|
During
the year ended December 31, 2016, the Company experienced a substantial decline in the volume of samples processed at its laboratories
and continued difficulty in receiving reimbursement for certain diagnostics. As result, in an effort to reduce costs, the Company
is currently operating all of its Clinical Laboratory Operations business segment out of its EPIC Reference Labs, Inc. (“EPIC”)
laboratory, and cost reduction efforts are continuing in response to the operating losses incurred in 2016. MDI formed EPIC as
a wholly-owned subsidiary on January 29, 2013 to provide reference, confirmation and clinical testing services. The Company acquired
necessary equipment and licenses in order to allow EPIC to test urine for drugs and medication monitoring. Operations at EPIC
began in January 2014 using approximately 2,500 square feet and the premises has since been expanded to occupy approximately 12,500
square feet.
Epinex
Diagnostics has initiated a relationship and integration with a California-based Clinical Research Organization that the Company
believes will see it providing testing services to this Clinical Research Organization starting in the third quarter of
2017.
Alethea
Laboratories operates in New Mexico, a state that permits direct to consumer testing but remains subject to certain regulations
governing the patient in the s tate from which they might order a diagnostic. Alethea is part of AMSG and will be included
in the spin off to stockholders. As a result, it is considered part of our discontinued operations in our financial statements
incorporated by reference in this prospectus.
The
Company’s Medytox Medical Marketing & Sales, Inc. (“MMMS”) subsidiary was formed on March 9, 2013 as a wholly-owned
subsidiary to provide marketing, sales, and customer service exclusively for our clinical laboratories.
Supportive
Software Solutions
Advantage
software
Advantage
is a proprietary HIPAA compliant software developed to eliminate the need for paper requisitions by providing an easy to use and
efficient web-based system that lets customers securely place lab orders, track samples and view test reports in real time from
any web-enabled laptop, notepad or smart phone.
Clinlab
ClinLab
is a Windows-based web-enabled laboratory information management system. It acts as a HIPAA-compliant data warehouse for lab results
and includes reporting, data acquisition, label printing, electronic signoff and numerous interface capabilities to a multitude
of reference labs and practice systems that scales from small physician-operated labs to large clinical reference laboratories.
Medical
Mime
Medical
Mime’s suite of solutions includes a uniquely optimized EHR for substance abuse and behavioral health providers, a dictation-based
ambulatory EHR for physician practices, and advanced transcription services. Solutions are web-based, 100% secure, and HIPAA compliant,
with remote access, on-site training and intensive 24/7 technical support.
The
Company has four operating subsidiaries that provide supportive services, historically primarily to its clinical laboratories
and corporate operations and to a lesser but now increasing extent, third party customers.
Medical
Billing Choices, Inc. (“MBC”)
: MBC was acquired by the Company on August 22, 2011 in an agreement that closed
in July 2013. MBC provides revenue cycle management services to third party customers, with an initial focus on substance abuse
facilities, by utilizing tools designed to improve documentation and collect information, driving faster reimbursement with fewer
denied claims. MBC also functions as our in-house billing company which compiles and sends invoices to our Clinical Laboratory
Operations customers (primarily insurance companies, Medicaid, Medicare, and Preferred Provider Organizations (“PPOs”))
for reimbursement.
Health
Technology Solutions, Inc. (“HTS”)
: HTS is a wholly-owned subsidiary that provides information technology and
software solutions including continued development of software to our subsidiaries and outside medical service providers. This
entity provides the set up services for customers and supports our clinical labs and other operations.
ClinLab,
Inc. (“ClinLab”):
ClinLab was acquired by the Company on March 18, 2014. ClinLab develops and markets laboratory
information management systems (“LIS”). ClinLab has installed its LIS into the Company’s laboratories to create
a uniform LIS platform throughout the Company’s laboratories.
Medical
Mime, Inc. (“Mime”):
Mime was formed on May 9, 2014 as a wholly-owned subsidiary that specializes in EHR, initially
targeting the rehab marketplace. We launched an enhanced version of our EHR software in the second quarter of 2016, which includes
Electronic Medication Administration Records (“eMAR”). Our eMAR enhancement allows physicians to transition additional
processes from paper to our software platform. eMAR automates the gathering, consolidating and presenting of data with more speed
and accuracy than any manual system.
Hospital
The Company believes that the acquisition
or development of hospitals will create a stable revenue base as a needed service and believes that it can expand the sales of
its products and services to surrounding medical providers and doctors’ groups.
On January 13, 2017, we acquired the Hospital
Assets, which include a 52,000 square foot hospital building and 6,300 square foot professional building on approximately 4.3
acres. Scott County Community Hospital, since renamed Big South Fork Medical Center, is classified as a Critical Access Hospital
(rural) with 25 beds, a 24/7 emergency department, operating rooms and a laboratory that provides a range of diagnostic services.
We expect to have the hospital open in the third quarter of 2017, subject to the receipt of the necessary licenses and regulatory
approvals.
The hospital had unaudited annual revenues
of approximately $12 million, and a normalized EBITDA of approximately $1.3 million, for Fiscal 2015, the last full year of the
hospital’s operation. These revenues were attributable to the typical services of a rural acute care hospital, including
emergency room visits, outpatient procedures, diagnostic ancillary tests, physical therapy and inpatient hospital stays. Based
on the hospital’s historical information, we believe the hospital offers an established patient and stable revenue base
as it serves the general healthcare needs of its community and supports local physicians.
Decision
Support Interpretation of Cancer and Genomic Diagnostics
This
business segment is now part of our discontinued operations due to its planned spin off to stockholders.
We
own a solution in CollabRx to provide evidence, interpretation and therapy guidance to enhance genomic testing and to provide
actionable decision support for standardized, evidence-based cancer care and superior clinical outcomes in precision oncology.
We also operate a biomedical company, Genomas, Inc. (“Genomas”), bringing DNA-Guided medicine to clinical practice
with products for personalized prescription of drugs used in the treatment of mental illness, diabetes, and cardiovascular disease
(“CVD”). Our products eliminate trial-and-error prescription with DNA-Guided medicine and enable physicians to treat
with unprecedented precision, avoiding significant drug side effects, improving efficacy and enhancing patient compliance. Core
applications are drug treatments of mood and thought disorders in mental illness and of cardiometabolic risk in diabetes and CVD.
CollabRx
was acquired by the Company on November 2, 2015 via the Merger as discussed above. CollabRx develops and markets medical information
and clinical decision support products and services intended to set a standard for the clinical interpretation of genomics-based,
precision medicine. CollabRx offers interpretation and decision support solutions that enhance cancer diagnoses and treatment
through actionable data analytics and reporting for oncologists and their patients.
We
entered into an agreement to acquire Genomas in late 2016. Genomas has developed PhyzioGenomics technology as a proprietary platform
integrating genotypic and phenotypic measures to correlate gene variability with physiological variability. Genomas has established
a DNA repository and clinical registry of 6,000 patients with mental illness, diabetes and CVD. The clinical data from these extensive
cohorts is integrated systematically into the PhyzioClinica Database. A PhyzioType System consists of three components: an array
of inherited, stable DNA polymorphisms from various genes to establish a patient’s combinatorial genotype, bioclinical algorithms
for predicting the patient’s drug response, and a portal for doctors to select the best drug for the patient.
Marketing
Strategy
Rennova
provides a suite of products and services to the medical services sector. We endeavor to be a single source for multiple business
solutions that serve the medical services industry. We have invested in a professional sales team, a client services team and
proprietary technologies to better serve the needs of the modern-day medical provider. The Company intends to expand, through
its acquisition and subsequent integration of businesses, into a robust business model providing an extensive range of services
to medical providers that demonstrate improved patient care and outcomes.
Competition
For
our diagnostics division, the Company competes in a fragmented industry split between independently-owned and physician-owned
laboratories. There are three predominant players in the industry that operate as full-service clinical laboratories (processing
blood, urine and other tissue). In addition, the competition ranges from smaller privately-owned laboratories (3-6 employees)
to large publicly-traded laboratories with significant market capitalizations.
For
our software division the market for practice management, EHR and revenue cycle management (“RCM”) information solutions
and related services is highly competitive, and we expect competition to increase in the future. We face competition from other
providers of both integrated and stand-alone practice management, EHR and RCM solutions, including competitors who utilize a web-based
platform and providers of locally installed software systems. Our competitors also include larger healthcare IT companies with
longer operating histories, greater brand recognition and greater financial, marketing and other resources than us. We also compete
with various regional RCM companies, some of which may continue to consolidate and expand into broader markets. We expect that
competition will continue to increase as a result of consolidation in both the information technology and healthcare industries.
For
our decision support and interpretation of cancer and genomic diagnostics sector, while we believe we have some distinguishing
and unique features that create a competitive advantage, we also recognize that the sector has attracted many larger companies
that have greater financial strength and marketing capabilities.
Governmental
Regulation
General
The
clinical laboratory industry is subject to significant governmental laws and regulations at the federal, state and local levels.
As described below, these laws and regulations concern licensure and operation of clinical laboratories, claim submission and
payment for laboratory services, health care fraud and abuse, security, privacy and confidentiality of health information, quality
and environmental and occupational safety.
Regulation
of Clinical Laboratories
The
Clinical Laboratory Improvement Amendments (“CLIA”) are regulations that include federal standards applicable to all
U.S. facilities or sites that test human specimens for health assessment or to diagnose, prevent, or treat disease. The Centers
for Disease Control and Prevention (“CDC”), in partnership with the Centers for Medicare and Medicaid Services (“CMS”)
and the Food and Drug Administration (“FDA”), supports the CLIA program and clinical laboratory quality. CLIA requires
that all clinical laboratories meet quality assurance, quality control and personnel standards. Laboratories also must undergo
proficiency testing and are subject to inspections.
Standards
for testing under CLIA are based on the complexity of the tests performed by the laboratory, with tests classified as “high
complexity,” “moderate complexity,” or “waived.” Laboratories performing high complexity testing
are required to meet more stringent requirements than moderate complexity laboratories. Laboratories performing only waived tests,
which are tests determined by the FDA to have a low potential for error and requiring little oversight, may apply for a certificate
of waiver exempting them from most of the requirements of CLIA. All Company facilities hold CLIA certificates to perform high
complexity testing. The sanctions for failure to comply with CLIA requirements include suspension, revocation or limitation of
a laboratory’s CLIA certificate, which is necessary to conduct business, cancellation or suspension of the laboratory’s
approval to receive Medicare and/or Medicaid reimbursement, as well as significant fines and/or criminal penalties. The loss or
suspension of a CLIA certification, imposition of a fine or other penalties, or future changes in the CLIA law or regulations
(or interpretation of the law or regulations) could have a material adverse effect on the Company.
In
addition to compliance with the federal regulations, the Company is also subject to state and local laboratory regulation. CLIA
provides that a state may adopt laboratory regulations different from or more stringent than those contained in Federal law. There
are approximately 12 states with state licensure or permit requirements for an independent lab facility physically located within
the state. State laws may require that laboratory personnel meet certain qualifications, specify certain quality controls, or
require maintenance of certain records. There are a number of states (including California and Florida) that have even more stringent
requirements with which lab personnel must comply to obtain state licensure or a certificate of qualification.
The
Company believes that it is in compliance with all applicable laboratory requirements. The Company’s laboratories have continuing
programs to ensure that their operations meet all such regulatory requirements, but no assurances can be given that the Company’s
laboratories will pass all future licensure or certification inspections. We embrace compliance as an integral part of our culture
and we consistently promote that culture of ethics and integrity.
The
FDA has regulatory responsibility over instruments, test kits, reagents and other devices used by clinical laboratories. The FDA
has issued draft guidance regarding FDA regulation of laboratory-developed tests (“LDTs”), but if or how the draft
guidance will be implemented is uncertain. On November 18, 2016, the FDA announced it would not release final guidance at this
time and instead would continue to work with stakeholders, the new administration and Congress to determine the right approach,
and on January 3, 2017, the FDA released a discussion paper outlining a possible risk-based approach for FDA and CMS oversight
of LTDs. There are many other regulatory and legislative proposals that would increase general FDA oversight of clinical laboratories
and LDTs. The outcome and ultimate impact of such proposals on the business is difficult to predict at this time. Our point of
collection testing devices are regulated by the FDA. The FDA has authority to take various administrative and legal actions for
non-compliance, such as fines, product suspension, warning letters, injunctions and other civil and criminal sanctions. We make
every good faith effort to exercise proactive monitoring and review of pending legislation and regulatory action.
Payment
for Clinical Laboratory Services
In
each of the six months ended June 30 , 2017 and the years ended December 31, 2016 and 2015, the Company derived less
than 10% of its net sales directly from the Medicare and Medicaid programs. In addition, the Company’s other business depends
significantly on continued participation in these programs and in other government healthcare programs, in part because clients
often want a single laboratory to perform all of their testing services. In recent years, both governmental and private sector
payers have made efforts to contain or reduce health care costs, including reducing reimbursement for clinical laboratory services.
Reimbursement
under the Medicare program for clinical diagnostic laboratory services is subject to a clinical laboratory fee schedule that sets
the maximum amount payable in each Medicare carrier’s jurisdiction. This clinical laboratory fee schedule is updated annually.
Laboratories bill the program directly for covered tests performed on behalf of Medicare beneficiaries. State Medicaid programs
are prohibited from paying more than the Medicare fee schedule limit for clinical laboratory services furnished to Medicaid recipients.
Payment
under the Medicare fee schedule has been limited from year to year by Congressional action, including imposition of national limitation
amounts and freezes on the otherwise applicable annual Consumer Price Index (“CPI”) updates. For most diagnostic lab
tests, the national limitation is now 74.0% of the national median of all local fee schedules established for each test. Under
a provision of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (“BIPA”), for tests
performed after January 1, 2001 that the Secretary of Health and Human Services determines are new tests for which no limitation
amount has previously been established, the cap is set at 100% of the median.
Medicare,
Medicaid and other government program payment reductions will not currently have a direct adverse effect on the Company’s
net earnings and cash flows, due to insignificant revenue earned, however, it is not currently possible to project what impact
will be had in future years.
In
addition to reimbursement rates, the Company is also impacted by changes in coverage policies for laboratory tests. Congressional
action in 1997 required the Department of Health and Human Services (“HHS”) to adopt uniform coverage, administration
and payment policies for many of the most commonly performed lab tests using a negotiated rulemaking process. The negotiated rulemaking
committee established uniform policies limiting Medicare coverage for certain tests to patients with specified medical conditions
or diagnoses, replacing local Medicare coverage policies which varied around the country. The final rules generally became effective
in 2002, and the use of uniform policies improves the Company’s ability to obtain necessary billing information in some
cases, but Medicare, Medicaid and private payer diagnosis code requirements and payment policies continue to negatively impact
the Company’s ability to be paid for some of the tests it performs. Due to the range of payers and policies, the extent
of this impact continues to be difficult to quantify.
Future
changes in federal, state and local laws and regulations (or in the interpretation of current regulations) affecting government
payment for clinical laboratory testing could have a material adverse effect on the Company. In March 2010, comprehensive healthcare
legislation, the Patient Protection and Affordable Care Act (“ACA”), was enacted. Numerous proposals continue to be
discussed in Congress and the administration to repeal, amend or replace the ACA. Based on currently available information, the
Company is unable to predict what type of changes in legislation or regulations, if any, will occur.
Standard
Electronic Transactions, Security and Confidentiality of Health Information and Other Personal Information
The
Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) was designed to address issues related to the
security and confidentiality of health insurance information. In an effort to improve the efficiency and effectiveness of the
health care system by facilitating the electronic exchange of information in certain financial and administrative transactions,
HIPAA regulations were promulgated. These regulations apply to health plans, health care providers that conduct standard transactions
electronically and health care clearinghouses (“covered entities”). Five such regulations have been finalized: (i)
the Transactions and Code Sets Rule; (ii) the Privacy Rule; (iii) the Security Rule; (iv) the Standard Unique Employer Identifier
Rule, which requires the use of a unique employer identifier in connection with certain electronic transactions; and (v) the National
Provider Identifier Rule, which requires the use of a unique health care provider identifier in connection with certain electronic
transactions.
The
Privacy Rule regulates the use and disclosure of protected health information (“PHI”) by covered entities. It also
sets forth certain rights that an individual has with respect to his or her PHI maintained by a covered entity, such as the right
to access or amend certain records containing PHI or to request restrictions on the use or disclosure of PHI. The Privacy Rule
requires covered entities to contractually bind third parties, known as business associates, in the event that they perform an
activity or service for or on behalf of the covered entity that involves access to PHI. The Security Rule establishes requirements
for safeguarding patient information that is electronically transmitted or electronically stored. The Company believes that it
is in compliance in all material respects with the requirements of the HIPAA Privacy and Security Rules.
The
Federal Health Information Technology for Economic and Clinical Health Act (“HITECH”), which was enacted in February
2009, with regulations effective on September 23, 2013, strengthens and expands the HIPAA Privacy and Security Rules and their
restrictions on use and disclosure of PHI. HITECH includes, but is not limited to, prohibitions on exchanging PHI for remuneration,
and additional restrictions on the use of PHI for marketing. HITECH also fundamentally changes a business associate’s obligations
by imposing a number of Privacy Rule requirements and a majority of Security Rule provisions directly on business associates that
were previously only directly applicable to covered entities. Moreover, HITECH requires covered entities to provide notice to
individuals, HHS, and, as applicable, the media when PHI is breached, as that term is defined by HITECH. Business associates are
similarly required to notify covered entities of a breach. The Company believes its policies and procedures are fully compliant
with the HITECH requirements.
On
February 6, 2014, the CMS and HHS published final regulations that amended the HIPAA Privacy Rule to provide individuals (or their
personal representatives) with the right to receive copies of their test reports from laboratories subject to HIPAA, or to request
that copies of their test reports be transmitted to designated third parties. Previously, laboratories that were CLIA-certified
or CLIA-exempt were not subject to the provision in the Privacy Rule that provides individuals with the right of access to PHI.
The HIPAA Privacy Rule amendment resulted in the preemption of a number of state laws that prohibit a laboratory from releasing
a test report directly to the individual. The Company revised its policies and procedures to comply with these new access requirements
and has updated its privacy notice to reflect individuals’ new access rights under this final rule.
The
standard unique employer identifier regulations require that employers have standard national numbers that identify them on standard
transactions. The Employer Identification Number, also known as a Federal Tax Identification Number, issued by the Internal Revenue
Service, was selected as the identifier for employers and was adopted effective July 30, 2002. The Company believes it is in compliance
with these requirements.
The
administrative simplification provisions of HIPAA mandate the adoption of standard unique identifiers for health care providers.
The intent of these provisions is to improve the efficiency and effectiveness of the electronic transmission of health information.
The National Provider Identification Rule requires that all HIPAA-covered health care providers, whether they are individuals
or organizations, must obtain a National Provider Identifier (“NPI”) to identify themselves in standard HIPAA transactions.
NPI replaces the unique provider identification number - as well as other provider numbers previously assigned by payers and other
entities - for the purpose of identifying providers in standard electronic transactions. The Company believes that it is in compliance
with the HIPAA National Provider Identification Rule in all material respects.
The
total cost associated with the requirements of HIPAA and HITECH is not expected to be material to the Company’s operations
or cash flows. However, future regulations and interpretations of HIPAA and HITECH could impose significant costs on the Company.
In
addition to the HIPAA regulations described above, there are a number of other Federal and state laws regarding the confidentiality
and security of medical information, some of which apply to clinical laboratories. These laws vary widely, but they most commonly
regulate or restrict the collection, use and disclosure of medical and financial information and other personal information. In
some cases, state laws are more restrictive than and therefore not preempted by HIPAA. Penalties for violation of these laws may
include sanctions against a laboratory’s licensure, as well as civil and/or criminal penalties. Violations of the HIPAA
provisions could result in civil and/or criminal penalties, including significant fines and up to 10 years in prison. HITECH also
significantly strengthened HIPAA enforcement. It increased the civil penalty amounts that may be imposed, required HHS to conduct
periodic audits to confirm compliance and also authorized state attorneys general to bring civil actions seeking either injunctions
or damages in response to violations of the HIPAA privacy and security regulations that affect the privacy of state residents.
Additionally, numerous other countries have or are developing similar laws governing the collection, use, disclosure and transmission
of personal and/or patient information.
The
Company believes that it is in compliance in all material respects with the current Transactions and Code Sets Rule. The Company
implemented Version 5010 of the HIPAA Transaction Standards and believes it has fully adopted the ICD-10-CM code set. The compliance
date for ICD-10-CM was October 1, 2015. The costs associated with the ICD-10-CM Code Set were substantial, and failure of the
Company, third party payers or physicians to apply the new code set could have an adverse impact on reimbursement, day’s
sales outstanding and cash collections. As a result of inconsistent application of transaction standards by payers or the Company’s
inability to obtain certain billing information not usually provided to the Company by physicians, the Company could face increased
costs and complexity, a temporary disruption in receipts and ongoing reductions in reimbursements and net revenues.
The
Company believes it is in compliance in all material respects with the Operating Rules for electronic funds transfers and remittance
advice transactions, for which the compliance date was January 1, 2014.
Fraud
and Abuse Laws and Regulations
Existing
federal laws governing federal health care programs, including Medicare and Medicaid, as well as similar state laws, impose a
variety of broadly described fraud and abuse prohibitions on health care providers, including clinical laboratories. These laws
are interpreted liberally and enforced aggressively by multiple government agencies, including the U.S. Department of Justice,
HHS’ Office of Inspector General (“OIG”), and various state agencies. Historically, the clinical laboratory
industry has been the focus of major governmental enforcement initiatives. The federal government’s enforcement efforts
have been increasing over the past decade, in part as a result of the enactment of HIPAA, which included several provisions related
to fraud and abuse enforcement, including the establishment of a program to coordinate and fund federal, state and local law enforcement
efforts. The Deficit Reduction Act of 2005 also included new requirements directed at Medicaid fraud, including increased spending
on enforcement and financial incentives for states to adopt false claims act provisions similar to the federal False Claims Act.
Recent amendments to the False Claims Act, as well as other enhancements to the federal fraud and abuse laws enacted as part of
the ACA, are widely expected to further increase fraud and abuse enforcement efforts. For example, the ACA established an obligation
to report and refund overpayments from Medicare within 60 days of identification (whether or not paid through any fault of the
recipient); failure to comply with this new requirement can give rise to additional liability under the False Claims Act and Civil
Monetary Penalties statute. On February 11, 2016, CMS issued the final rule clarifying certain aspects of the overpayment requirement
for purposes of Medicare, effective on March 14, 2016.
The
federal health care programs’ anti-kickback law (the “Anti-Kickback Law”) prohibits knowingly providing anything
of value in return for, or to induce the referral of, Medicare, Medicaid or other federal health care program business. Violations
can result in imprisonment, fines, penalties, and/or exclusion from participation in federal health care programs. The OIG has
published “safe harbor” regulations which specify certain arrangements that are protected from prosecution under the
Anti-Kickback Law if all conditions of the relevant safe harbor are met. Failure to fit within a safe harbor does not necessarily
constitute a violation of the Anti-Kickback Law; rather, the arrangement would be subject to scrutiny by regulators and prosecutors
and would be evaluated on a case by case basis. Many states have their own Medicaid anti-kickback laws and several states also
have anti-kickback laws that apply to all payers (i.e., not just government health care programs).
From
time to time, the OIG issues alerts and other guidance on certain practices in the health care industry that implicate the Anti-Kickback
Law or other federal fraud and abuse laws. Examples of such guidance documents particularly relevant to the Company and its operations
follow.
In
October 1994, the OIG issued a Special Fraud Alert on arrangements for the provision of clinical laboratory services. The Fraud
Alert set forth a number of practices allegedly engaged in by some clinical laboratories and health care providers that raise
issues under the federal fraud and abuse laws, including the Anti-Kickback Law. These practices include: (i) providing employees
to furnish valuable services for physicians (other than collecting patient specimens for testing) that are typically the responsibility
of the physicians’ staff; (ii) offering certain laboratory services at prices below fair market value in return for referrals
of other tests which are billed to Medicare at higher rates; (iii) providing free testing to physicians’ managed care patients
in situations where the referring physicians benefit from such reduced laboratory utilization; (iv) providing free pick-up and
disposal of bio-hazardous waste for physicians for items unrelated to a laboratory’s testing services; (v) providing general-use
facsimile machines or computers to physicians that are not exclusively used in connection with the laboratory services; and (vi)
providing free testing for health care providers, their families and their employees (i.e., so-called “professional courtesy”
testing). The OIG emphasized in the Special Fraud Alert that when one purpose of such arrangements is to induce referrals of program-reimbursed
laboratory testing, both the clinical laboratory and the health care provider (e.g., physician) may be liable under the Anti-Kickback
Law, and may be subject to criminal prosecution and exclusion from participation in the Medicare and Medicaid programs. More recently,
in June 2014, the OIG issued another Special Fraud Alert addressing compensation paid by laboratories to referring physicians
for blood specimen processing and for submitting patient data to registries. This Special Fraud Alert reiterates the OIG’s
longstanding concerns about payments from laboratories to physicians in excess of the fair market value of the physician’s
services and payments that reflect the volume or value of referrals of federal healthcare program business.
Another
issue the OIG has expressed concern about involves the provision of discounts on laboratory services billed to customers in return
for the referral of federal health care program business. In a 1999 Advisory Opinion, the OIG concluded that a proposed arrangement
whereby a laboratory would offer physicians significant discounts on non-federal health care program laboratory tests might violate
the Anti-Kickback Law. The OIG reasoned that the laboratory could be viewed as providing such discounts to the physician in exchange
for referrals by the physician of business to be billed by the laboratory to Medicare at non-discounted rates. The OIG indicated
that the arrangement would not qualify for protection under the discount safe harbor to the Anti-Kickback Law because Medicare
and Medicaid would not get the benefit of the discount. Similarly, in a 1999 correspondence, the OIG stated that if any direct
or indirect link exists between a discounts that a laboratory offers to a skilled nursing facility (“SNF”) for tests
covered under Medicare’s payments to the SNF and the referral of tests billable by the laboratory under Medicare Part B,
then the Anti-Kickback Law would be implicated.
The
OIG also has issued guidance regarding joint venture arrangements that may be viewed as suspect under the Anti-Kickback Law. These
documents have relevance to clinical laboratories that are part of (or are considering establishing) joint ventures with potential
sources of federal health care program business. The first guidance document, which focused on investor referrals to such ventures,
was issued in 1989 and another concerning contractual joint ventures was issued in April 2003. Some of the elements of joint ventures
that the OIG identified as “suspect” include: arrangements in which the capital invested by the physicians is disproportionately
small and the return on investment is disproportionately large when compared to a typical investment; specific selection of investors
who are in a position to make referrals to the venture; and arrangements in which one of the parties to the joint venture expands
into a line of business that is dependent on referrals from the other party (sometimes called “shell” joint ventures).
In a 2004 advisory opinion, the OIG expressed concern about a proposed joint venture in which a laboratory company would assist
physician groups in establishing off-site pathology laboratories. The OIG indicated that the physicians’ financial and business
risk in the venture was minimal and that the physicians would contract out substantially all laboratory operations, committing
very little in the way of financial, capital, or human resources. The OIG was unable to exclude the possibility that the arrangement
was designed to permit the laboratory to pay the physician groups for their referrals, and therefore was unwilling to find that
the arrangement fell within a safe harbor or had sufficient safeguards to protect against fraud or abuse.
Violations
of other fraud and abuse laws also can result in exclusion from participation in federal health care programs, including Medicare
and Medicaid. One basis for such exclusion is an individual’s or entity’s submission of claims to Medicare or Medicaid
that are substantially in excess of that individual’s or entity’s usual charges for like items or services. In 2003,
the OIG issued a notice of proposed rulemaking that would have defined the terms “usual charges” and “substantially
in excess” in ways that might have required providers, including the Company, to either lower their charges to Medicare
and Medicaid or increase charges to certain other payers to avoid the risk of exclusion. On June 18, 2007, however, the OIG withdrew
the proposed rule, saying it preferred to continue evaluating billing patterns on a case-by-case basis. In its withdrawal notice,
the OIG also said it “remains concerned about disparities in the amounts charged to Medicare and Medicaid when compared
to private payers,” that it continues to believe its exclusion authority for excess charges “provides useful backstop
protection for the public fisc from providers that routinely charge Medicare or Medicaid substantially more than their other customers,”
and that it will continue to use “all tools available … to address instances where Medicare or Medicaid are charged
substantially more than other payers.” An enforcement action by the OIG under this statutory exclusion basis or an enforcement
by Medicaid officials of similar state law restrictions could have a material adverse effect on the Company.
Under
another federal statute, known as the “Stark Law” or “self-referral” prohibition, physicians who have
a financial or compensation relationship with a clinical laboratory may not, unless an exception applies, refer Medicare patients
for testing to the laboratory, regardless of the intent of the parties. Similarly, laboratories may not bill Medicare for services
furnished pursuant to a prohibited self-referral. There are several Stark Law exceptions that are relevant to arrangements involving
clinical laboratories, including: 1) fair market value compensation for the provision of items or services; 2) payments by physicians
to a laboratory for clinical laboratory services; 3) an exception for certain ancillary services (including laboratory services)
provided within the referring physician’s own office, if certain criteria are satisfied; 4) physician investment in a company
whose stock is traded on a public exchange and has stockholder equity exceeding $75.0 million; and 5) certain space and equipment
rental arrangements that are set at a fair market value rate and satisfy other requirements. All of the requirements of a Stark
Law exception must be met to take advantage of the exception. Many states have their own self-referral laws as well, which in
some cases apply to all patient referrals, not just government reimbursement programs.
There
are a variety of other types of federal and state fraud and abuse laws, including laws prohibiting submission of false or fraudulent
claims. The Company seeks to conduct its business in compliance with all federal and state fraud and abuse laws. The Company is
unable to predict how these laws will be applied in the future, and no assurances can be given that its arrangements will not
be subject to scrutiny under such laws. Sanctions for violations of these laws may include exclusion from participation in Medicare,
Medicaid and other federal health care programs, significant criminal and civil fines and penalties, and loss of licensure. Any
exclusion from participation in a federal or state health care program, or any loss of licensure, arising from any action by any
federal or state regulatory or enforcement authority, would likely have a material adverse effect on the Company’s business.
In addition, any significant criminal or civil penalty resulting from such proceedings could have a material adverse effect on
the Company’s business.
Environmental,
Health and Safety
The
Company is subject to licensing and regulation under federal, state and local laws and regulations relating to the protection
of the environment and human health and safety laws and regulations relating to the handling, transportation and disposal of medical
specimens, infectious and hazardous waste and radioactive materials. All Company laboratories are subject to applicable federal
and state laws and regulations relating to biohazard disposal of all laboratory specimens and the Company generally utilizes outside
vendors for disposal of such specimens. In addition, the federal Occupational Safety and Health Administration (“OSHA”)
has established extensive requirements relating to workplace safety for health care employers, including clinical laboratories,
whose workers may be exposed to blood-borne pathogens such as HIV and the hepatitis B virus. These regulations, among other things,
require work practice controls, protective clothing and equipment, training, medical follow-up, vaccinations and other measures
designed to minimize exposure to, and transmission of, blood-borne pathogens.
On
November 6, 2000, Congress passed the Needle Stick Safety and Prevention Act, which required, among other things, that companies
include in their safety programs the evaluation and use of engineering controls such as safety needles if found to be effective
at reducing the risk of needle stick injuries in the workplace. The Company has implemented the use of safety needles at all of
its service locations, where applicable.
Although
the Company is not aware of any current material non-compliance with such federal, state and local laws and regulations, failure
to comply could subject the Company to denial of the right to conduct business, fines, criminal penalties and/or other enforcement
actions.
Drug
Testing
There
is no comprehensive federal law that regulates drug testing in the private sector. The Drug-Free Workplace Act does impose certain
employee education requirements on companies that do business with the government, but it does not require testing, nor does it
restrict testing in any way. Drug testing is allowed under the Americans with Disabilities Act (ADA) because the ADA does not
consider drug abuse a disability — but the law does not regulate or prohibit testing. Instead of a comprehensive regulatory
system, federal law provides for specific agencies to adopt drug testing regulations for employers under their jurisdiction. As
a general rule, testing is presumed to be lawful unless there is a specific restriction in state or federal law.
Controlled
Substances
The
use of controlled substances in testing for drugs of abuse is regulated by the Federal Drug Enforcement Administration.
Compliance
Program
The
Company continuously evaluates and monitors its compliance with all Medicare, Medicaid and other rules and regulations. The objective
of the Company’s compliance program is to develop, implement, and update compliance safeguards as necessary. Emphasis is
placed on developing and implementing compliance policies and guidelines, personnel training programs and various monitoring and
audit procedures to attempt to achieve implementation of all applicable rules and regulations.
The
Company seeks to conduct its business in compliance with all statutes, regulations, and other requirements applicable to its clinical
laboratory operations. The clinical laboratory testing industry is, however, subject to extensive regulation, and many of these
statutes and regulations have not been interpreted by the courts. There can be no assurance that applicable statutes and regulations
will not be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that would adversely affect
the Company. Potential sanctions for violation of these statutes and regulations include significant fines and the loss of various
licenses, certificates, and authorizations, which could have a material adverse effect on the Company’s business.
Employees
As
of August 8, 2017, we have 180 employees, of which 155 are full time. Of our total employees, 20 are assigned
to laboratory operations, 18 are assigned to information technology, 21 are assigned to sales and customer service,
21 are assigned to medical billing and corporate administration, and 100 are assigned to the hospital. We continue
to adjust our number of employees to achieve efficiencies and cost savings where applicable.
Legal
Proceedings
From
time to time, the Company may be involved in a variety of claims, lawsuits, investigations and proceedings related to contractual
disputes, employment matters, regulatory and compliance matters, intellectual property rights and other litigation arising in
the ordinary course of business. The Company operates in a highly regulated industry which may inherently lend itself to legal
matters. Management is aware that litigation has associated costs and that results of adverse litigation verdicts could have a
material effect on the Company’s financial position or results of operations. Management, in consultation with legal counsel,
has addressed known assertions and predicted unasserted claims below.
The
Company’s Epinex Diagnostics Laboratories, Inc. subsidiary (“EDL”) had been sued in a California state
court by two former employees who alleged that they were wrongfully terminated, as well as for a variety of unpaid wage claims.
The parties entered into a settlement agreement of this matter on July 29, 2016 for approximately $0.2 million, and the settlement
was consummated on August 25, 2016. In October of 2016, the plaintiffs in this matter filed a motion with the court seeking payment
for attorneys’ fees in the approximate amount of $0.7 million. On March 24, 2017, the court granted plaintiffs’ motion
for payment of attorneys’ fees in the amount of $0.3 million, and the Company has accrued this amount in its consolidated
financial statements.
Additionally, the Company is seeking indemnification for these amounts from Epinex Diagnostics,
Inc., the seller of EDL, pursuant to a Stock Purchase Agreement entered into by and among the parties. This matter is pre-litigation,
but to the extent a favorable outcome cannot be negotiated, the Company will consider pursuing the indemnity claims in court.
In
February 2016, the Company received notice that the Internal Revenue Service (the “IRS”) had placed a lien against
Medytox and its subsidiaries related to unpaid 2014 income taxes due, plus penalties and interest, in the amount of $5.0 million.
The Company paid $0.1 million toward its 2014 tax liability in March 2016. The Company filed its 2015 Federal tax return on March
15, 2016 and the accompanying election to carryback the reported net operating losses was filed in April 2016. On August 24, 2016,
the lien was released, and in September of 2016 the Company received a refund from the IRS in the amount of $1.9 million. In November
of 2016, the IRS commenced an audit of the Company’s 2015 Federal tax return. The Company is currently unable to predict
the outcome of the audit or any liability to the Company that may result from the audit.
On
September 27, 2016, a tax warrant was issued against the Company by the Florida Department of Revenue (the “DOR”)
for unpaid state income taxes in the approximate amount of $0.9 million, including penalties and interest. On January 25, 2017,
the Company paid the DOR $250,000 as partial payment on this liability, and in February 2017 the Company entered into a Stipulation
Agreement with the DOR which requires monthly payments of $35,000 from March 2017 through January 2018 and a final payment of
approximately $0.3 million in February 2018. Under certain circumstances, the Company may be permitted to spread the final $0.3
million payment over an additional 12 months subsequent to January 2018. If at any time during the Stipulation period the Company
fails to timely file any required tax returns with the DOR or does not meet the payment obligations under the Stipulation Agreement,
the entire amount due will be accelerated.
In
December of 2016, TCS-Florida, L.P. (“Tetra”), filed suit against the Company for failure to make the required payments
under an equipment leasing contract that the Company had with Tetra. On January 3, 2017, Tetra received a Default Judgment against
the Company in the amount of $2.6 million, representing the balance owed on the leases, as well as additional interest, penalties
and fees. The Company has recognized this amount in its consolidated financial statements as of December 31, 2016. In January
and February of 2017, the Company made payments to Tetra in connection with this judgment aggregating to $0.7 million, and on
February 15, 2017 the Company entered into a forbearance agreement with Tetra whereby the remaining $1.9 million due would be
paid in 24 equal monthly installments, commencing on May 1, 2017.
In
December of 2016, DeLage Landen Financial Services, Inc. (“DeLage”), filed suit against the Company for failure to
make the required payments under an equipment leasing contract that the Company had with DeLage. On January 24, 2017, DeLage received
a default judgment against the Company in the approximate amount of $1.0 million, representing the balance owed on the lease,
as well as additional interest, penalties and fees. The Company has recognized this amount in its consolidated financial statements
as of December 31, 2016. On February 8, 2017, a Stay of Execution was filed and under its terms the balance due would be paid
in variable monthly installments through January of 2019, with an implicit interest rate of 4.97%.
On
December 7, 2016, the holders of two outstanding notes that the Company assumed in the Merger filed suit against the Company seeking
payment for the amounts due under the notes in the aggregate of $0.4 million, including accrued interest. A request for entry
of default judgment was filed on January 24, 2017. The Company has attempted to work out a payment arrangement with the plaintiffs,
but to date has not been able to consummate such an arrangement. A Case Management Conference is scheduled for September 5, 2017.
MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The
following discussion and analysis provides information which management believes is relevant to an assessment and understanding
of our consolidated results of operations and financial condition. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as
a result of numerous factors including, but not limited to, those described above under “Cautionary Statement Concerning
Forward-Looking Statements” and “Risk Factors”. The discussion should be read in conjunction with the financial
statements and notes thereto incorporated by reference in this prospectus.
Unless
stated otherwise, the words “we,” “us,” “our,” “the Company,” “Rennova Health”
or “Rennova Health, Inc.” means Rennova Health, Inc.
COMPANY
OVERVIEW
On
November 2, 2015, pursuant to the terms of the Agreement and Plan of Merger, dated as of April 15, 2015, by and among CollabRx,
Inc. (“CollabRx”), CollabRx Merger Sub, Inc. (“Merger Sub”), a direct wholly-owned subsidiary of CollabRx
formed for the purpose of the merger, and Medytox Solutions, Inc. (“Medytox”), Merger Sub merged with and into Medytox,
with Medytox as the surviving company and a direct, wholly-owned subsidiary of CollabRx (the “Merger”). Prior to closing,
the Company amended its certificate of incorporation to effect a 1-for-10 reverse stock split and to change its name to Rennova
Health, Inc. In connection with the Merger, each share of common stock of Medytox was converted into the right to receive 0.4096
shares of common stock of the Company and each share of Series B Preferred Stock and Series E Preferred Stock of Medytox was converted
into the right to receive one share of newly-authorized Series B Convertible Preferred Stock and Series E Convertible Preferred
Stock, respectively, of the Company. The Merger resulted in a change in control of the Company, and as a result this transaction
was accounted for as a reverse merger and recapitalization in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) and, as such, the financial statements presented prior to November 2, 2015
are those of Medytox and the financial statements presented after November 2, 2015 reflect the operations of the combined company.
We
are a healthcare enterprise that delivers products and services to healthcare providers, their patients and individuals. We currently
operate in three synergistic divisions: 1) Clinical diagnostics through our clinical laboratories; 2) supportive software
solutions to healthcare providers including Electronic Health Records (“EHR”), Laboratory Information Systems and
Medical Billing services; and 3 ) the recent addition of a hospital in Tennessee. We aspire to create a more sustainable
relationship with our customers by offering needed and interoperable solutions to capture multiple revenue streams from medical
providers. During the years ended December 31, 2016 and 2015, we operated in three business segments: (i) Clinical Laboratory
Operations; (ii) Supportive Software Solutions; and (iii) Decision Support and Informatics.
Our
Services
Our
principal line of business to date is laboratory blood and urine testing services performed by our Clinical Laboratory Operations
business segment, with a particular emphasis on the provision of urine drug toxicology testing to physicians, clinics and rehabilitation
facilities in the United States. Testing services to rehabilitation facilities represented approximately 74 % and 86 %
of our revenues for the six months ended June 30, 2017 and 2016, respectively, and approximately 75% of our revenues
for the year ended December 31, 2016 and 95% of our revenues for the year ended December 31, 2015.
Our
Supportive Software Solutions segment provides a customizable Electronic Health Record (“EHR”) and revenue cycle management
services providing a full suite of billing services to substance abuse and behavioral health providers, as well as a dictation-based
ambulatory EHR for physician practices and advanced transcription services.
On
January 13, 2017, we closed on 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 is classified as a Critical
Access Hospital (rural) with 25 beds, a 24/7 emergency department, operating rooms and a laboratory that 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 Hospital Assets out of bankruptcy for a purchase price of $1.0 million. T he
hospital, which has since been renamed Big South Fork Medical Center, became operational on August 8, 2017. We believe
that the hospital will provide us with a stable revenue base, as well as the potential for significant synergistic opportunities
with our Clinical Laboratory Operations business segment.
Our
Decision Support and Informatics business segment develops and markets medical information and clinical decision support products
and services intended to set a standard for the clinical interpretation of genomics-based, precision medicine. CollabRx offers
interpretation and decision support solutions that enhance cancer diagnoses and treatment through actionable data analytics and
reporting for oncologists and their patients. This segment is now considered part of our discontinued operations due to its
planned spin off to stockholders.
Outlook
While
our Clinical Laboratory Operations continue to account for a substantial portion of our consolidated revenues, these revenues
have decreased significantly over the past 12 to 18 months. This decline in revenues has had a material adverse impact on our
liquidity, results of operations and financial condition, and is the result of increased scrutiny of all service providers, lower
third-party reimbursement and our status, in many cases, as an “out of network” service provider. These trends have
impacted our entire industry, and have been accompanied by allegations of irregularities in the practices of a number of
our competitors and substance abuse facilities. In response, we have put in place a robust compliance program that we are implementing
in all facets of our business. As a result, some clients have returned to us and new ones are taking note of the compliance efforts
we have been undertaking.
We
believe that our ability to grow our clinical laboratory revenues and return to the profitability we experienced in fiscal 2014
and years prior are dependent on our ability to secure “in-network” contracts with insurance companies and other third
party payers which will then ensure adequate and timely payment for the toxicology, clinical pharmacogenetics and other testing
services we perform. These third party payers are now generally unwilling to reimburse service providers who are not part of their
network, a departure from prior industry practices and a trend that has developed during the last two years. While we have made
some progress in securing “in network” contracts with payers during the past year, it has not been reflected in our
revenues for the year ended December 31, 2016. However, we do anticipate that significant new opportunities to become credentialed
with certain large third party payers will arise in fiscal 2017, which would have a significant positive impact on our future
revenues. In addition, we have made a number of changes to our onboarding policies and procedures to ensure that, on a going forward
basis, substantially all services that we performed will be reimbursable.
We
have also increased the customer base for our EHR software and billing products and therefore expect increased revenues in our
Supportive Software Solutions segment in fiscal 2017.
RESULTS
OF OPERATIONS
Critical
Accounting Policies and Estimates
Our
discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which
have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make a number of
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during
the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable
under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions.
We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we
evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our
estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different
future conditions.
We
have identified the policies and significant estimation processes discussed below as critical to our business and to the understanding
of our results of operations. For a detailed application of these and other accounting policies, see Note 2 to the accompanying
audited consolidated financial statements as of and for the year ended December 31, 2016 incorporated by reference in this prospectus.
Revenue
Recognition
Service
revenues are principally generated from laboratory testing services, including 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 United States 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 majority of 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.
We
review our calculations for the realizability of gross service revenues on a monthly basis in order 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 on the basis of historical allowance rates for
the various specific payer groups on a monthly basis with a greater weight being given to the most recent trends; this process
is adjusted based on recent changes in underlying contract provisions and shifts in the testing being performed. This calculation
is routinely analyzed by us on the basis of actual allowances issued by payers and the actual payments made to determine what
adjustments, if any, are needed. Based on the calculations at June 30 , 2017, June 30 , 2016, December 31, 2016 and
2015, we determined that the collectible portion of our gross billings that should be reflected in net revenues was approximately
13%, 15% , 11% and 13%, respectively, of the outgoing gross billings.
Contractual
Allowances and Doubtful Accounts
Accounts
receivable are reported at realizable value, net of allowances for credits and doubtful accounts, which are estimated and recorded
in the period the related revenue is recorded. The Company has a 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 allowances for contractual credits and doubtful
accounts. In addition, the Company regularly assesses the state of its billing operations in order to identify issues which may
impact the collectability of these receivables or reserve estimates. Receivables deemed to be uncollectible are charged against
the allowance for doubtful accounts at the time such receivables are written-off. Recoveries of receivables previously written-off
are recorded as credits to the allowance for doubtful accounts. Revisions to the allowances for doubtful accounts estimates are
recorded as an adjustment to provision for bad debts within selling, general and administrative expenses.
Impairment
or Disposal of Long-Lived Assets
The
Company accounts for the impairment or disposal of long-lived assets according to the Financial Accounting Standards Board’s
(“FASB”) Accounting Standards Codification (“ASC”) 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 based on either 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.
At
December 31, 2016, we determined that a portion of our laboratory service equipment was impaired and we recorded an impairment
charge of $0.8 million, and we also recorded an impairment charge for our equity investment in Genomas, Inc. (“Genomas”)
in the amount of $0.25 million. At December 31, 2015, we determined that all of our goodwill and intangible assets were impaired,
and we recorded an impairment charge totaling $20.1 million. We did not record any impairment charges during the six months
ended June 30 , 2017 and 2016.
Derivative
Financial Instruments and Fair Value
We
account for warrants issued in conjunction with the issuance of common stock and certain convertible debt instruments in accordance
with the guidance contained in ASC Topic 815,
Derivatives and Hedging
(“ASC 815”) and ASC Topic 480,
Distinguishing
Liabilities from Equity
(“ASC 480”). For warrant instruments and conversion options embedded in promissory notes
that are not deemed to be indexed to the Company’s own stock, we classified such instruments as liabilities at their
fair values at the time of issuance and adjusted the instruments to fair value at each reporting period. These liabilities
were subject to re-measurement at each balance sheet date until extinguished either through conversion or exercise, and
any change in fair value was recognized in our statement of operations. The fair values of these derivative and other financial
instruments had been estimated using a Black-Scholes model and other valuation techniques.
On
July 13, 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 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 ASC 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 ASC 480 is evaluated under the guidance in ASC 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.
The
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 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 ASC 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 ASC 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.
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 early adopted this amendment as it has a material impact on our consolidated financial statements .
Stock - Based
Compensation
We
account for Stock-Based Compensation under ASC 718 “
Compensation – Stock Compensation
”, which addresses
the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus
on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718 requires measurement
of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of
the award. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.
The
Company accounts for stock-based compensation awards to non-employees in accordance with ASC 505-50, Equity-Based Payments to
Non-Employees. Under ASC 505-50, the Company determines the fair value of the options, warrants or stock-based compensation awards
granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is
more reliably measurable. Any stock options or warrants issued to non-employees are recorded in expense and additional paid-in
capital in stockholders’ equity/(deficit) over the applicable service periods using variable accounting through the vesting
dates based on the fair value of the options or warrants at the end of each period.
Year
ended December 31, 2016 compared to year ended December 31, 2015
The
following table summarizes the results of our consolidated operations for the years ended December 31, 2016 and 2015 (without
taking into effect the planned spin off of AMSG and our Decision Support and Infomatics Operations business segment now being
considered part of our discontinued operations) :
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
Net revenues
|
|
$
|
5,245,111
|
|
|
|
100.0
|
%
|
|
$
|
18,393,038
|
|
|
|
100.0
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of
revenue
|
|
|
1,695,233
|
|
|
|
32.3
|
%
|
|
|
9,339,644
|
|
|
|
50.8
|
%
|
General and administrative
expenses
|
|
|
23,695,381
|
|
|
|
451.8
|
%
|
|
|
27,346,160
|
|
|
|
148.7
|
%
|
Sales and marketing
expenses
|
|
|
2,457,050
|
|
|
|
46.8
|
%
|
|
|
3,763,802
|
|
|
|
20.5
|
%
|
Bad debt expense
|
|
|
3,630,685
|
|
|
|
69.2
|
%
|
|
|
99,754
|
|
|
|
0.5
|
%
|
Impairment charges
|
|
|
1,038,285
|
|
|
|
19.8
|
%
|
|
|
20,143,320
|
|
|
|
109.5
|
%
|
Engineering expenses
|
|
|
2,074,463
|
|
|
|
39.6
|
%
|
|
|
415,482
|
|
|
|
2.3
|
%
|
Depreciation
and amortization
|
|
|
3,046,902
|
|
|
|
58.1
|
%
|
|
|
2,749,850
|
|
|
|
15.0
|
%
|
Loss from operations
|
|
|
(32,392,888
|
)
|
|
|
-617.6
|
%
|
|
|
(45,464,974
|
)
|
|
|
-247.2
|
%
|
Other (expense) income, net
|
|
|
(955,827
|
)
|
|
|
-18.2
|
%
|
|
|
474,215
|
|
|
|
2.6
|
%
|
Income tax benefit
|
|
|
(735,028
|
)
|
|
|
-14.0
|
%
|
|
|
(9,028,253
|
)
|
|
|
-49.1
|
%
|
Net loss
|
|
$
|
(32,613,687
|
)
|
|
|
-621.8
|
%
|
|
$
|
(35,962,506
|
)
|
|
|
-195.5
|
%
|
Net
Revenues
Consolidated
net revenues were $5.2 million for the year ended December 31, 2016, as compared to $18.4 million for the year ended December
31, 2015, a decrease of $13.1 million, or 71%. The decrease is mainly due to the decline in Clinical Laboratory Operations revenue
resulting from an 81% decrease in insured test volume in 2016 as compared to 2015, as a number of large third party payers are
now generally unwilling to reimburse service providers who are not part of their network, a departure from prior industry practices.
Our focus on the provision of diagnostic services to the substance abuse sector was a factor in this reduction of revenue. The
third party payers have dramatically changed the way they reimburse for this sector. The Company has made progress in expanding
into a wider and more varied market place and that combined with aggressive consolidation and cost cutting is expected to reduce
the losses incurred in this sector in the future.
Direct
Cost of Revenue
Direct
costs of revenue decreased by 82%, from $9.3 million for the year ended December 31, 2015 to $1.7 million for the year ended December
31, 2016. The decrease is a result of the 60% decline in total samples processed and the transition of a significant portion of
our testing from external reference laboratories to internal processing.
General
and Administrative Expenses
General
and administrative expenses decreased by $3.7 million, or 13%, for the year ended December 31, 2016 as compared to the same period
of a year ago. The decrease is mainly due to decreased stock-based compensation in the amount of $2.5 million, decreased contracted
labor expense of $1.2 million and a reduction in employee compensation costs and related expenses of approximately $1.0 million,
partially offset by expenses associated with the Company’s financial support of Epinex Diagnostics, Inc. in the amount of
$0.8 million and Genomas in the amount of $0.4 million (see note 15 to the consolidated financial statements incorporated by reference
in this prospectus).
Sales
and Marketing Expenses
The
decline in sales and marketing expenses of $1.3 million for the year ended December 31, 2016 as compared to the year ended December
31, 2015 was primarily due to the decline in commissionable collections related to the decline in net revenues.
Bad
Debt Expense
Bad
debt expense for the year ended December 31, 2016 was $3.6 million, as compared to $0.1 million for the same period of a year
ago, mainly due to the $3.5 million bad debt charge related to receivables in our Clinical Laboratory Operations segment.
Impairment
Charges
During
the year ended December 31, 2016, we recognized an impairment charge of $0.8 million with respect to some of our idle laboratory
equipment, which was primarily due to the decrease in sample volume at our Clinical Laboratory Operations segment. In addition,
we determined that our $0.25 million investment in Genomas was fully impaired at December 31, 2016. During the year ended December
31, 2015, we determined that all of our goodwill and intangible assets were fully impaired, and we recorded an impairment charge
of $20.1 million.
Engineering
Expenses
Engineering
expenses of $2.1 million for the year ended December 31, 2016 reflect a full year of development expenses at our Decision Support
and Informatics business segment, which was acquired on November 2, 2015.
Depreciation
and Amortization Expenses
Depreciation
and amortization expense increased by $0.3 million during the year ended December 31, 2016 as compared with the prior year period,
mainly due to increased depreciation expense for leasehold improvements at some of our laboratory facilities.
Loss
from Operations
Our
operating loss decreased from $45.5 million for the year ended December 31, 2015 to $32.4 million for the year ended December
31, 2016. The decrease is mainly due to lower impairment charges in the amount of $19.1 million and lower direct costs of revenue
in the amount of $7.6 million, partially offset by the $13.1 million reduction in net revenues for the year.
Other
(Expense) Income, net
Other
expense, net, of $1.0 million for the year ended December 31, 2016 primarily consists of $5.4 million in non-cash gains on the
change in fair value of derivative financial instruments related to convertible notes and warrants, which was more than offset
by $6.3 million of interest expense, which includes interest charges of $1.3 million related to a $5 million prepaid forward purchase
contract, $0.8 million related to our capital lease obligations (see “Liquidity and Capital Resources”) and $3.0 million
of non-cash interest expense related to the accretion of debt discounts. Other income, net of $0.5 million for the year ended
December 31, 2015 includes a gain on the change in fair value of derivative instruments of $2.9 million and a gain on a legal
settlement in the amount of $0.3 million, largely offset by interest expense in the amount of $2.7 million.
Income
tax benefit
During
the year ended December 31, 2015, we recorded an income tax benefit in the amount of $9.0 million, with no comparable amount in
2016.
Net
loss
Our
net loss for the year ended December 31, 2016 was $32.6 million, as compared to $36.0 million for the same period of a year ago.
The change is primarily due to the $13.1 million decrease in operating loss in 2016, largely offset by the $9.0 million income
tax benefit recognized in 2015.
The
following table presents key financial and operating metrics for our Clinical Laboratory Operations segment:
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
Clinical
Laboratory Operations
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
3,716,662
|
|
|
$
|
17,501,189
|
|
|
$
|
(13,784,527
|
)
|
|
|
-78.8
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of
revenue
|
|
|
1,185,301
|
|
|
|
9,013,011
|
|
|
|
(7,827,710
|
)
|
|
|
-86.8
|
%
|
Bad debt expense
|
|
|
3,411,523
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
General and administrative
expenses
|
|
|
9,610,137
|
|
|
|
14,730,892
|
|
|
|
(5,120,755
|
)
|
|
|
-34.8
|
%
|
Sales and marketing
expenses
|
|
|
1,749,499
|
|
|
|
3,748,891
|
|
|
|
(1,999,392
|
)
|
|
|
-53.3
|
%
|
Impairment charges
|
|
|
788,285
|
|
|
|
5,027,860
|
|
|
|
(4,239,575
|
)
|
|
|
NM
|
|
Depreciation and
amortization
|
|
|
2,485,207
|
|
|
|
2,178,423
|
|
|
|
306,784
|
|
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income
from operations
|
|
$
|
(15,513,290
|
)
|
|
$
|
(17,197,888
|
)
|
|
$
|
5,096,121
|
|
|
|
-29.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Operating Measures - Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured tests performed
|
|
|
230,647
|
|
|
|
1,236,640
|
|
|
|
(1,005,993
|
)
|
|
|
-81.3
|
%
|
Net revenue per
insured test
|
|
$
|
16.11
|
|
|
$
|
14.15
|
|
|
$
|
1.96
|
|
|
|
13.9
|
%
|
Revenue recognition
percent of gross billings
|
|
|
11.0
|
%
|
|
|
13.0
|
%
|
|
|
-2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Operating Measures - Direct Costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total samples processed
|
|
|
30,456
|
|
|
|
76,819
|
|
|
|
(46,363
|
)
|
|
|
-60.4
|
%
|
Direct costs per sample
|
|
$
|
38.92
|
|
|
$
|
117.33
|
|
|
$
|
(78.41
|
)
|
|
|
-66.8
|
%
|
The
reduction in insured tests performed in 2016, negatively impacted our revenues by $14.2 million, while the increase in net revenue
per insured test positively impacted our revenues by $0.5 million. The decrease in direct costs per sample resulted in a $2.4
million reduction in direct costs of revenue, while the decrease in the number of samples processed resulted in a $5.4 million
reduction in direct costs of revenue.
The
decrease in general and administrative expenses is due to allocations of corporate overhead in the first half of 2015, with no
comparable amount in 2016.
The
following table presents key financial metrics for our Supportive Software Solutions segment:
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
Supportive
Software Solutions
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenues
|
|
$
|
834,158
|
|
|
$
|
805,899
|
|
|
$
|
28,259
|
|
|
|
3.5
|
%
|
Intersegment revenues
|
|
|
1,254,338
|
|
|
|
2,096,768
|
|
|
|
(842,430
|
)
|
|
|
-40.2
|
%
|
Total net revenues
|
|
|
2,088,496
|
|
|
|
2,902,667
|
|
|
|
(814,171
|
)
|
|
|
-28.0
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of
revenue
|
|
|
293,134
|
|
|
|
309,334
|
|
|
|
(16,200
|
)
|
|
|
NM
|
|
General and administrative
expenses
|
|
|
5,483,497
|
|
|
|
6,882,920
|
|
|
|
(1,399,423
|
)
|
|
|
-20.3
|
%
|
Bad debt
|
|
|
219,062
|
|
|
|
99,754
|
|
|
|
119,308
|
|
|
|
NM
|
|
Impairment charges
|
|
|
–
|
|
|
|
2,742,934
|
|
|
|
(2,742,934
|
)
|
|
|
-100.0
|
%
|
Depreciation and
amortization
|
|
|
651,872
|
|
|
|
678,201
|
|
|
|
(26,329
|
)
|
|
|
-3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(4,559,069
|
)
|
|
$
|
(7,810,476
|
)
|
|
$
|
3,251,407
|
|
|
|
-41.6
|
%
|
The
decrease in net revenues from 2016 is due to a reduction in the amounts charged by our Supportive Software Solutions group to
our Clinical Laboratory Operations group for services provided. The decrease in general and administrative expenses is primarily
due to a reduction of contracted labor related to our software development activities.
The
following table presents key financial metrics for our Decision Support and Informatics Operations segment:
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
Decision
Support and Informatics Operations
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
694,291
|
|
|
$
|
85,950
|
|
|
$
|
608,341
|
|
|
NM
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of
revenue
|
|
|
25,948
|
|
|
|
17,299
|
|
|
|
8,649
|
|
|
NM
|
General and administrative
expenses
|
|
|
921,193
|
|
|
|
281,190
|
|
|
|
640,003
|
|
|
NM
|
Sales and marketing
expenses
|
|
|
696,882
|
|
|
|
14,912
|
|
|
|
681,970
|
|
|
NM
|
Engineering expenses
|
|
|
2,074,463
|
|
|
|
415,482
|
|
|
|
1,658,981
|
|
|
NM
|
Impairment of goodwill
and intangible assets
|
|
|
–
|
|
|
|
12,372,526
|
|
|
|
(12,372,526
|
)
|
|
NM
|
Depreciation
and amortization
|
|
|
41,462
|
|
|
|
8,006
|
|
|
|
33,456
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(3,065,657
|
)
|
|
$
|
(13,023,465
|
)
|
|
$
|
9,957,808
|
|
|
NM
|
The
results above reflect a full year of operations for this business segment, which the Company began consolidating on November 2,
2015, the date of the Merger. This segment is now considered part of our discontinued operations due to its planned spin off
to stockholders.
The
following table presents key financial metrics for our Corporate group:
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
Corporate
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
expenses
|
|
$
|
8,936,493
|
|
|
$
|
7,482,927
|
|
|
$
|
1,453,566
|
|
|
|
19.4
|
%
|
Direct costs of
revenue
|
|
|
190,850
|
|
|
|
–
|
|
|
|
190,850
|
|
|
|
NM
|
|
Sales and marketing
expenses
|
|
|
9,168
|
|
|
|
–
|
|
|
|
9,168
|
|
|
|
NM
|
|
Impairment charge
|
|
|
250,000
|
|
|
|
–
|
|
|
|
250,000
|
|
|
|
NM
|
|
Depreciation and
amortization
|
|
|
(131,639
|
)
|
|
|
5,424
|
|
|
|
(137,063
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(9,254,872
|
)
|
|
$
|
(7,488,351
|
)
|
|
$
|
(1,766,521
|
)
|
|
|
23.6
|
%
|
The
increase in general and administrative expenses is mainly due to the allocation of corporate overhead expenses to other business
segments in the first half of 2015, partially offset by a decrease in stock-based compensation.
Three
months ended June 30, 2017 compared to three months ended June 30, 2016
The
following table summarizes the results of our consolidated continuing operations for the three months ended June 30, 2017 and
2016:
|
|
Three
Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
Net
revenues
|
|
$
|
898,730
|
|
|
|
100.0
|
%
|
|
$
|
2,565,272
|
|
|
|
100.0
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
costs of revenue
|
|
|
248,750
|
|
|
|
27.7
|
%
|
|
|
355,569
|
|
|
|
13.9
|
%
|
General
and administrative expenses
|
|
|
3,660,458
|
|
|
|
407.3
|
%
|
|
|
5,351,555
|
|
|
|
208.6
|
%
|
Sales
and marketing expenses
|
|
|
197,727
|
|
|
|
22.0
|
%
|
|
|
433,329
|
|
|
|
16.9
|
%
|
Bad
debt expense
|
|
|
577,252
|
|
|
|
64.2
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
Depreciation
and amortization
|
|
|
471,954
|
|
|
|
52.5
|
%
|
|
|
678,141
|
|
|
|
26.4
|
%
|
Loss
from operations
|
|
|
(4,257,411
|
)
|
|
|
-473.7
|
%
|
|
|
(4,253,322
|
)
|
|
|
-165.8
|
%
|
Interest
expense
|
|
|
(6,135,982
|
)
|
|
|
-682.7
|
%
|
|
|
(2,042,002
|
)
|
|
|
-79.6
|
%
|
Other
income, net
|
|
|
50,757
|
|
|
|
5.6
|
%
|
|
|
(17,650
|
)
|
|
|
-0.7
|
%
|
Change
in fair value of derivative instruments
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
(1,293,072
|
)
|
|
|
-50.4
|
%
|
Net
loss
|
|
$
|
(10,342,636
|
)
|
|
|
-1150.8
|
%
|
|
$
|
(5,019,902
|
)
|
|
|
-195.7
|
%
|
Net
Revenues
Consolidated
net revenues were $0.9 million for the three months ended June 30, 2017, as compared to $2.6 million for the three months ended
June 30, 2016, a decrease of $1.7 million, or 65%. The decrease is mainly the result of a 78% decline in insured test volumes
in our Clinical Laboratory Operations business segment. Net Revenues in our Supportive Software Solutions decreased by $0.1 million,
or 22%, for the three months ended June 30, 2017 compared to the same period a year ago.
Direct
Costs of Revenue
Direct
costs of revenue decreased by 30%, from $0.4 million in the three months ended June 30, 2016 to $0.3 million in the three months
ended June 30, 2017. The decrease is a result of reduced expenses for reagents and supplies at our laboratories, resulting in
a 16% decrease in direct costs per sample.
General
and Administrative Expenses
General
and administrative expenses decreased by $1.7 million, or 32%, in the second quarter of 2017 as compared to the same period a
year ago. The decrease is mainly the result of a $1.5 million reduction in employee compensation and related costs, as we significantly
reduced our headcount throughout the latter half of 2016 and 2017 in response to the decline in revenues, and a $0.2 million reduction
in maintenance costs for our laboratory equipment.
Sales
and Marketing Expenses
The
decline in sales and marketing expenses of $0.2 million, or 54%, for the three months ended June 30, 2017 as compared to the three
months ended June 30, 2016 was primarily due to a reduction in sales employee and contractor compensation expenses in the amount
of $0.2 million, as well as reduced travel, advertising and commissionable collections related to the decline in net revenues.
Bad
Debt Expense
During
the three months ended June 30, 2017, we identified certain accounts receivable related to our Clinical Laboratory Operations
business segment deemed uncollectible. As a result, we recorded $0.6 million of uncollectible receivables, which is reflected
in bad debt expense in the accompanying consolidated statements of operations.
Depreciation
and Amortization Expenses
Depreciation
and amortization expense was $0.5 million for the three months ended June 30, 2017 as compared to $0.7 million for the same period
a year ago, as some of our property and equipment became fully depreciated during 2016 and our capital expenditures have been
minimal due to the reduced sample volume at our laboratories.
Loss
from Operations
Our
operating loss is essentially unchanged in the three months ended June 30, 2017, as compared to the three months ended June 30,
2016.
Interest
Expense
Interest
expense for the three months ended June 30, 2017 was $6.1 million, as compared to $2.0 million for the three months ended June
30, 2016. Interest expense in the three months ended June 30, 2017 includes a $2.8 million non-cash interest charge related to
the issuance of convertible debentures and warrants during the period, and $0.9 million for the amortization of debt discount
and deferred financing costs.
Net
Loss
Our
net loss from continuing operations for the three months ended June 30, 2017 was $10.3 million, as compared to $5 million for
the same period of a year ago, an increase of $5.3 million. The change is primarily due to the increase of $2.8 million in non-cash
interest charge, $1.7 million decrease in general and administrative expenses, and a decrease of net revenues of $1.7 million
in 2017.
The
following table presents key financial and operating metrics for our Clinical Laboratory Operations segment:
|
|
Three
Months Ended June 30,
|
|
|
|
|
|
|
|
Clinical
Laboratory Operations
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
645,386
|
|
|
$
|
2,240,170
|
|
|
$
|
(1,594,784
|
)
|
|
|
-71.2
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
costs of revenue
|
|
|
183,598
|
|
|
|
290,798
|
|
|
|
(107,200
|
)
|
|
|
-36.9
|
%
|
Bad
debt expense
|
|
|
570,821
|
|
|
|
-
|
|
|
|
570,821
|
|
|
|
-
|
|
General
and administrative expenses
|
|
|
756,416
|
|
|
|
1,851,704
|
|
|
|
(1,095,288
|
)
|
|
|
-59.2
|
%
|
Sales
and marketing expenses
|
|
|
192,400
|
|
|
|
435,230
|
|
|
|
(242,830
|
)
|
|
|
-55.8
|
%
|
Depreciation
and amortization
|
|
|
419,905
|
|
|
|
548,979
|
|
|
|
(129,074
|
)
|
|
|
-23.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
$
|
(1,477,754
|
)
|
|
$
|
(886,541
|
)
|
|
$
|
(591,213
|
)
|
|
|
66.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
Operating Measures - Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured
tests performed
|
|
|
14,459
|
|
|
|
67,072
|
|
|
|
(52,613
|
)
|
|
|
-78.4
|
%
|
Net
revenue per insured test
|
|
$
|
44.64
|
|
|
$
|
33.40
|
|
|
$
|
11.24
|
|
|
|
33.6
|
%
|
Revenue
recognition percent of gross billings
|
|
|
13.0
|
%
|
|
|
15.0
|
%
|
|
|
-2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
Operating Measures - Direct Costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
samples processed
|
|
|
5,545
|
|
|
|
7,386
|
|
|
|
(1,841
|
)
|
|
|
-24.9
|
%
|
Direct
costs per sample
|
|
$
|
33.11
|
|
|
$
|
39.37
|
|
|
$
|
(6.26
|
)
|
|
|
-15.9
|
%
|
The
following table presents key financial metrics for our Supportive Software Solutions segment:
|
|
Three
Months Ended June 30,
|
|
|
|
|
|
|
|
Supportive
Software Solutions
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
253,344
|
|
|
$
|
325,102
|
|
|
$
|
(71,758
|
)
|
|
|
-22.1
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
costs of revenue
|
|
|
28,677
|
|
|
|
64,771
|
|
|
|
(36,094
|
)
|
|
|
-55.7
|
%
|
General
and administrative expenses
|
|
|
515,163
|
|
|
|
1,332,466
|
|
|
|
(817,303
|
)
|
|
|
-61.3
|
%
|
Bad
debt expense
|
|
|
6,431
|
|
|
|
-
|
|
|
|
6,431
|
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
45,421
|
|
|
|
162,059
|
|
|
|
(116,638
|
)
|
|
|
-72.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
$
|
(342,348
|
)
|
|
$
|
(1,234,194
|
)
|
|
$
|
891,846
|
|
|
|
-72.3
|
%
|
Our
Hospital Operations segment, formed in January of 2017, had general and administrative expenses of $0.6 million for the three
months ended June 30, 2017. These expenses consisted primarily of employee compensation costs, legal expenses and startup expenses.
The
following table presents key financial metrics for our Corporate group:
|
|
Three
Months Ended June 30,
|
|
|
|
|
|
|
|
Corporate
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
$
|
1,854,795
|
|
|
$
|
2,165,377
|
|
|
$
|
(310,582
|
)
|
|
|
-14.3
|
%
|
Direct
costs of revenue
|
|
|
26,805
|
|
|
|
-
|
|
|
|
26,805
|
|
|
|
-
|
|
Sales
and marketing expenses
|
|
|
2,338
|
|
|
|
-
|
|
|
|
2,338
|
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
19
|
|
|
|
874
|
|
|
|
(855
|
)
|
|
|
-97.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
$
|
(1,883,957
|
)
|
|
$
|
(2,166,251
|
)
|
|
$
|
282,294
|
|
|
|
-13.0
|
%
|
Six
months ended June 30, 2017 compared to six months ended June 30, 2016
The
following table summarizes the results of our consolidated continuing operations for the six months ended June 30, 2017 and 2016:
|
|
Six
Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
Net
revenues
|
|
$
|
1,898,265
|
|
|
|
100.0
|
%
|
|
$
|
4,026,200
|
|
|
|
100.0
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
costs of revenue
|
|
|
540,285
|
|
|
|
28.5
|
%
|
|
|
822,903
|
|
|
|
20.4
|
%
|
General
and administrative expenses
|
|
|
7,808,871
|
|
|
|
411.4
|
%
|
|
|
10,644,545
|
|
|
|
264.4
|
%
|
Sales
and marketing expenses
|
|
|
450,532
|
|
|
|
23.7
|
%
|
|
|
1,025,346
|
|
|
|
25.5
|
%
|
Bad
debt expense
|
|
|
574,341
|
|
|
|
30.3
|
%
|
|
|
1,285
|
|
|
|
0.0
|
%
|
Depreciation
and amortization
|
|
|
1,056,445
|
|
|
|
55.7
|
%
|
|
|
1,357,331
|
|
|
|
33.7
|
%
|
Loss
from operations
|
|
|
(8,532,209
|
)
|
|
|
-449.5
|
%
|
|
|
(9,825,210
|
)
|
|
|
-244.0
|
%
|
Interest
expense
|
|
|
(11,178,844
|
)
|
|
|
-588.9
|
%
|
|
|
(3,049,037
|
)
|
|
|
-75.7
|
%
|
Other
income, net
|
|
|
50,757
|
|
|
|
2.7
|
%
|
|
|
82,360
|
|
|
|
2.0
|
%
|
Change
in fair value of derivative instruments
|
|
|
(11,093,012
|
)
|
|
|
-584.4
|
%
|
|
|
4,726,660
|
|
|
|
117.4
|
%
|
Gain
on extinguishment of debt
|
|
|
11,093,012
|
|
|
|
584.4
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
Income
tax expense
|
|
|
3,250
|
|
|
|
0.2
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
Net
loss
|
|
$
|
(19,663,546
|
)
|
|
|
-1035.9
|
%
|
|
$
|
(8,065,227
|
)
|
|
|
-200.3
|
%
|
Net
Revenues
Consolidated
net revenues were $1.9 million for the six months ended June 30, 2017, as compared to $4 million for the six months ended June
30, 2016, a decrease of $2.1 million, or 53%. The decrease is mainly the result of a 71% decline in insured test volumes in our
Clinical Laboratory Operations business segment. Net Revenues in our Supportive Software Solutions decreased by $0.1 million,
or 12%, for the six months ended June 30, 2017 as compared to the same period of a year ago.
Direct
Costs of Revenue
Direct
costs of revenue decreased by 34%, from $0.8 million in the six months ended June 30, 2016 to $0.5 million in the six months ended
June 30, 2017. The decrease is a result of reduced expenses for reagents and supplies at our laboratories, resulting in a 38%
decrease in direct costs per sample.
General
and Administrative Expenses
General
and administrative expenses decreased by $2.8 million, or 27%, for the six months ended June 30, 2017, compared to the same period
a year ago. The decrease is mainly the result of a $2.6 million reduction in employee compensation and related costs, as we significantly
reduced our headcount throughout the latter half of 2016 and 2017 in response to the decline in revenues, and a $0.2 million reduction
in maintenance costs for our laboratory equipment.
Sales
and Marketing Expenses
The
decline in sales and marketing expenses of $0.6 million, or 56%, for the six months ended June 30, 2017 as compared to the six
months ended June 30, 2016 was primarily due to a reduction in sales employee and contractor compensation expenses in the amount
of $0.6 million, as well as reduced travel, advertising and commissionable collections related to the decline in net revenues.
Bad
Debt Expense
During
the six months ended June 30, 2017, we identified certain accounts receivable related to our Clinical Laboratory Operations business
segment deemed uncollectible. As a result, we recorded $0.6 million of uncollectible receivables, which is reflected in bad debt
expense in the accompanying consolidated statements of operations.
Depreciation
and Amortization Expenses
Depreciation
and amortization expense was $1.1 million for the six months ended June 30, 2017 as compared to $1.4 million for the same period
a year ago, as some of our property and equipment became fully depreciated during 2016 and our capital expenditures have been
minimal due to the reduced sample volume at our laboratories.
Loss
from Operations
Our
operating loss decreased by $1.3 million, to $8.5 million for the six months ended June 30, 2017, as compared to $9.8 million
for the six months ended June 30, 2016. The decrease is due to the $3.4 million decrease in total operating expenses for the period
partially offset by the $2.1 million decrease in net revenues.
Interest
Expense
Interest
expense for the six months ended June 30, 2017 was $11.2 million, as compared to $3 million for the six months ended June 30,
2016. Interest expense in the six months ended June 30, 2017 includes a $7.4 million non-cash interest charge related to the issuance
of convertible debentures and warrants during the period, and $2.5 million for the amortization of debt discount and deferred
financing costs.
Net
Loss
Our
net loss from continuing operations for the six months ended June 30, 2017 was $19.7 million, as compared to $8.1 million for
the same period a year ago, an increase of $11.6 million. The change is primarily due to the increase of $9.9 million non-cash
interest and amortization of debt discount charge, $2.8 million decrease in general and administrative expenses, and a decrease
of net revenues of $2.1 million in 2017.
The
following table presents key financial and operating metrics for our Clinical Laboratory Operations segment:
|
|
Six
Months Ended June 30,
|
|
|
|
|
|
|
|
Clinical
Laboratory Operations
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
1,407,976
|
|
|
$
|
3,471,072
|
|
|
$
|
(2,063,096
|
)
|
|
|
-59.4
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
costs of revenue
|
|
|
414,056
|
|
|
|
674,159
|
|
|
|
(260,103
|
)
|
|
|
-38.6
|
%
|
Bad
debt expense
|
|
|
570,821
|
|
|
|
-
|
|
|
|
570,821
|
|
|
|
-
|
|
General
and administrative expenses
|
|
|
1,897,105
|
|
|
|
3,901,487
|
|
|
|
(2,004,382
|
)
|
|
|
-51.4
|
%
|
Sales
and marketing expenses
|
|
|
441,649
|
|
|
|
1,025,346
|
|
|
|
(583,697
|
)
|
|
|
-56.9
|
%
|
Depreciation
and amortization
|
|
|
854,373
|
|
|
|
1,096,419
|
|
|
|
(242,046
|
)
|
|
|
-22.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from operations
|
|
$
|
(2,770,028
|
)
|
|
$
|
(3,226,339
|
)
|
|
$
|
456,311
|
|
|
|
-14.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
Operating Measures - Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured
tests performed
|
|
|
37,171
|
|
|
|
126,206
|
|
|
|
(89,035
|
)
|
|
|
-70.5
|
%
|
Net
revenue per insured test
|
|
$
|
37.88
|
|
|
$
|
27.50
|
|
|
$
|
10.38
|
|
|
|
37.7
|
%
|
Revenue
recognition percent of gross billings
|
|
|
13.0
|
%
|
|
|
15.0
|
%
|
|
|
-2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
Operating Measures - Direct Costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
samples processed
|
|
|
12,230
|
|
|
|
12,355
|
|
|
|
(125
|
)
|
|
|
-1.0
|
%
|
Direct
costs per sample
|
|
$
|
33.86
|
|
|
$
|
54.57
|
|
|
$
|
(20.71
|
)
|
|
|
-38.0
|
%
|
The
following table presents key financial metrics for our Supportive Software Solutions segment:
|
|
Six
Months Ended June 30,
|
|
|
|
|
|
|
|
Supportive
Software Solutions
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
490,289
|
|
|
$
|
555,128
|
|
|
$
|
(64,839
|
)
|
|
|
-11.7
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
costs of revenue
|
|
|
75,381
|
|
|
|
148,744
|
|
|
|
(73,363
|
)
|
|
|
-49.3
|
%
|
General
and administrative expenses
|
|
|
1,269,298
|
|
|
|
2,627,404
|
|
|
|
(1,358,106
|
)
|
|
|
-51.7
|
%
|
Bad
debt expense
|
|
|
3,520
|
|
|
|
-
|
|
|
|
3,520
|
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
202,984
|
|
|
|
326,487
|
|
|
|
(123,503
|
)
|
|
|
-37.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
$
|
(1,060,894
|
)
|
|
$
|
(2,547,507
|
)
|
|
$
|
1,486,613
|
|
|
|
-58.4
|
%
|
Our
Hospital Operations segment, formed in January of 2017, had general and administrative expenses of $1.0 million for the six months
ended June 30, 2017. These expenses consisted primarily of employee compensation costs, legal expenses and startup expenses.
The
following table presents key financial metrics for our Corporate group:
|
|
Six
Months Ended June 30,
|
|
|
|
|
|
|
|
Corporate
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
$
|
3,642,013
|
|
|
$
|
4,116,939
|
|
|
$
|
(474,926
|
)
|
|
|
-11.5
|
%
|
Direct
costs of revenue
|
|
|
41,177
|
|
|
|
-
|
|
|
|
41,177
|
|
|
|
-
|
|
Sales
and marketing expenses
|
|
|
4,953
|
|
|
|
-
|
|
|
|
4,953
|
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
(7,520
|
)
|
|
|
1,749
|
|
|
|
(9,269
|
)
|
|
|
-530.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
$
|
(3,680,623
|
)
|
|
$
|
(4,118,688
|
)
|
|
$
|
438,065
|
|
|
|
-10.6
|
%
|
LIQUIDITY
AND CAPITAL RESOURCES
For
the year ended December 31, 2016 and through June 30, 2016
,
we have financed our operations primarily from the sale of our equity securities, short-term advances from related parties ,
the sale of debentures and the proceeds we received from pledging certain of our accounts receivable as discussed below. Future
cash needs for working capital, capital expenditures and potential acquisitions will require management to seek additional equity
or obtain additional credit facilities. The sale of additional equity will result in additional dilution to the Company’s
stockholders. A portion of the Company’s cash may be used to acquire or invest in complementary businesses or products or
to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, the Company evaluates
potential acquisitions of such businesses, products or technologies.
At
June 30 , 2017, we had cash on hand of approximately $30,000 , a working capital deficit of $17 million and
a stockholders’ deficit of $17.5 million. In addition, we incurred a loss from continuing operations of $8.5 million
for the six months ended June 30, 2017 . As of the date of this prospectus, our cash position is critically deficient and payments
critical to our ability to operate are not being made in the ordinary course. Our fixed operating expenses, including payroll,
rent, capital lease payments and other fixed expenses, including the costs required to reopen Big South Fork Medical Center, are
approximately $1.5 to $2.0 million per month. Our failure to raise additional capital in the coming weeks will have a material
adverse effect on our ability to operate our business. In addition, we will be required to raise additional capital in order to
fund our operations for the next twelve months. There can be no assurances that we will be able to raise the necessary capital
on terms that are acceptable to us, or at all. If we are unable to secure the necessary funding as and when required, it will
have a material adverse effect on our business and we may be required to downsize, further reduce our workforce, sell some of
our assets or possibly curtail or even cease operations, raising substantial doubt about our ability to continue as a going concern.
In
2017, we received short-term advances from Christopher Diamantis, a member of our Board of Directors, in the amount of $3.3 million.
On March 7, 2017 we issued a promissory note to Mr. Diamantis
in the amount of $3.8 million (the “2017 Diamantis Note”) in connection with the advances we received in 2017, plus
accrued and unpaid interest reflecting the advances we received in both fiscal 2016 and 2017, in the amount of $0.5 million. The
net advances of $0.2 million received in the three months ended June 30, 2017 are not covered under this note.
On
February 2, 2017, we issued $1.59 million of convertible debentures (the “February Debentures”) and received net proceeds
of $1.5 million.
On
March 21, 2017, we issued $10.85 million aggregate principal amount of Senior Secured Original Issue Discount Convertible Debentures
due two years from the date of issuance (the “Convertible Debentures”) and three series of warrants to purchase shares
of the Company’s common stock to several accredited investors. We received net proceeds from this transaction in the approximate
amount of $8.4 million. We used $3.8 million of the net proceeds to repay the 2017 Diamantis Note and $0.75 million of the net
proceeds to make a partial repayment on the TCA Debenture (as defined below). The remainder of the net proceeds were used
for general corporate purposes. In conjunction with the issuance of the Convertible Debentures, the holder of the February Debentures
exchanged these debentures for $2.5 million of new debentures (the “Exchange Debentures” and, collectively with the
Convertible Debentures, the “Debentures”) on the same terms as, and pari passu with, the Convertible Debentures and
warrants. Additionally, the holders of an aggregate of $2.2 million stated value of the Company’s Series H Convertible Preferred
Stock (the “Series H Preferred Stock”) exchanged such preferred stock into $2.7 million principal amount of Exchange
Debentures and warrants. All of the Debentures contain a 24% original issue discount.
The
Debentures were convertible into shares of the Company’s common stock at an initial conversion price equal of $1.66 per
share, subject to adjustment as more fully described in the Debentures. The initial conversion price of $1.66 for the Debentures
has been adjusted pursuant to their terms to $0.39 due to prices at which the Company has subsequently issued shares of common
stock. The Debentures will begin to amortize monthly commencing on the 90
th
day following the closing date, except
for the Exchange Debentures related to the Series H Preferred Stock, which began to amortize monthly on the closing date. On each
monthly amortization date, the Company may elect to repay 5% of the original principal amount of Debentures in cash or, in lieu
thereof, the conversion price of such Debentures will thereafter be 85% of the volume weighted average price at the time of conversion.
In the event the Company does not elect to pay such amortization amounts in cash, each investor, in their sole discretion, may
increase the conversion amount subject to the alternative conversion price by up to four times the amortization amount. The conversion
price is subject to “full ratchet” and other customary anti-dilution protections as more fully described in the Debentures.
The Debentures are secured by all of our assets and are guaranteed by substantially all of our subsidiaries.
We
were obligated to file this registration statement registering for resale up to 25,000,000 shares of common
stock underlying the Series B Warrants . Additionally, we were required to seek stockholder approval to issue in excess of
20% of the Company’s issued and outstanding shares of common stock.
On
June 2, 2017, the Company closed an offering of $795,000 aggregate principal amount of Original Issue Discount Debentures and
warrants to purchase an aggregate of 500,000 shares of common stock for a purchase price of $750,000. Pursuant to the offering,
the purchasers shall have the right, for one year, to participate in any issuance by the Company of common stock or common stock
equivalents for cash consideration, indebtedness or a combination of units thereof, with certain exceptions.
On
June 22, 2017, the Company closed an offering of $1,902,700 aggregate principal amount of Original Issue Discount Debentures due
September 22, 2017 and warrants to purchase an aggregate of 1,000,000 shares of common stock for consideration of $1,000,000 in
cash and the exchange of the $795,000 aggregate principal amount of Original Issue Discount Debentures due September 2, 2017 issued
by the Company on June 2, 2017. Pursuant to the offering, the purchasers shall have the right, for one year, to participate in
any issuance by the Company of common stock or common stock equivalents for cash consideration, indebtedness or a combination
of units thereof, with certain exceptions. The Company recorded a discount on the debentures of $107,700 which is to be amortized
over the term of the June 22, 2017 debentures.
On
July 12, 2017 we announced that we plan to spin off the Advanced Molecular Services Group (“AMSG”) as an independent
publicly traded company by way of a tax-free distribution to our stockholders. Completion of the spinoff is expected to occur
at the end of September 2017, and is subject to numerous conditions, including effectiveness of a Registration Statement on Form
10 to be filed with the Securities and Exchange Commission. The intent of the spinoff is to create two public companies, each
of which can focus on its own strengths and operational plans. We also announced on July 24, 2017 that the Big South Fork Medical
Center received CMS regional office licensure approval. The hospital opened on August 8, 2017. The Company expects that the hospital
will provide us additional revenue and cash flow sources.
On
July 17, 2017, the Company closed an offering of $4,136,862 aggregate principal amount of Original Issue Discount Debentures due
October 17, 2017 and warrants to purchase an aggregate of 2,120,000 shares of common stock for consideration of $2,000,000 in
cash and the exchange of the $1,902,700 aggregate principal amount of Original Issue Discount Debentures due September 22, 2017
issued by the Company on June 22, 2017. Pursuant to the offering, the purchasers shall have the right, for one year, to participate
in any issuance by the Company of common stock or common stock equivalents for cash consideration, indebtedness or a combination
of units thereof, with certain exceptions. Also, the Company is required to hold a stockholders’ meeting to obtain stockholder
approval for at least a 1-for-8 reverse split of the Company’s common stock. If such approval is not obtained on or before
September 20, 2017, it shall be an event of default under the debentures. Promptly following receipt of such approval, the Company
shall cause such reverse split to occur. A Special Meeting of our stockholders is scheduled for September 20, 2017 at which
this reverse split proposal will be voted upon.
On
March 31, 2016, we entered into an agreement to pledge certain of our accounts receivable as collateral against a prepaid forward
purchase contract. The receivables had an estimated collectable value of $8.7 million which had been adjusted down to approximately
$4.3 million and nil on our balance sheet as of March 31, 2016 and December 31, 2016, respectively. The consideration received
was $5.0 million. In exchange for the consideration received, the counterparty received the right to: (i) a 20% per annum investment
return from the Company on the consideration, with a minimum repayment term of six months and minimum return of $0.5 million,
(ii) all payments recovered from the accounts receivable up to $5.25 million, if paid in full within six months, or $5.5 million,
if not paid in full within six months, and (iii) 20% of all payments of the accounts receivable in excess of amounts received
in (i) and (ii). As of June 30 , 2017, we had not collected any amounts due on these receivables, and $6.0 million is currently
due to the counterparty. We currently do not have the financial resources to satisfy this obligation. Mr. Diamantis has guaranteed
the Company’s payment obligation under this agreement.
On
November 3, 2016, we received a Notice of Default from TCA Global Credit Master Fund, LP (“TCA”), the holder of a
secured convertible debenture with an outstanding principal amount of $3.0 million (the “TCA Debenture”), related
to our failure to pay the monthly principal and interest payments required under the TCA Debenture. Prior to our issuance of the
Convertible Debentures on March 21, 2017, we had not made the last six required payments under the TCA Debenture, other than a
$0.4 million payment we made in February of 2017. In conjunction with the issuance of the Convertible Debentures on March 21,
2017, we entered into a letter agreement with TCA, which (i) waived any non-payment default through March 21, 2017; (ii)
provided for the $0.75 million payment discussed above; (iii) set forth a revised repayment schedule whereby the remaining
principal plus interest aggregating to approximately $2.6 million is repaid in various monthly installments from April of 2017
through September of 2017; and (iv) provided for payment of an additional service fee in the amount of $150,000. In addition,
TCA entered into an intercreditor agreement with the purchasers of the Debentures which sets forth rights, preferences and priorities
with respect to the security interests in our assets.
In
December of 2016, TCS-Florida, L.P. (“Tetra”), filed suit against us for our failure to make the required payments
under an equipment leasing contract that we had with Tetra. On January 3, 2017, Tetra received a Default Judgment against us in
the amount of $2.6 million, representing the balance owed on the leases, as well as additional interest, penalties and fees. In
January and February of 2017, we made payments to Tetra in connection with this judgment aggregating to $0.7 million, and on February
15, 2017 we entered into a forbearance agreement with Tetra whereby the remaining $1.9 million due would be paid in 24 equal monthly
installments of $77,400 commencing on May 1, 2017.
In
December of 2016, DeLage Landen Financial Services, Inc. (“DeLage”), filed suit against us for failure to make the
required payments under an equipment leasing contract that we had with DeLage. On January 24, 2017, DeLage received a default
judgment against us in the approximate amount of $1.0 million, representing the balance owed on the lease, as well as additional
interest, penalties and fees. On February 8, 2017, a Stay of Execution was filed and under its terms the balance due is to be
paid in variable monthly installments commencing in February of 2017 through January of 2019, with an implicit interest rate of
4.97%.
On
December 20, 2016, we completed a public offering whereby the Company issued 12,350 shares of Series H Preferred Stock and received
net proceeds of $11.8 million, net of offering costs of $0.5 million. The Series H Preferred Stock has a stated value of $1,000
per share and is convertible into shares of the Company’s common stock at a conversion price of $_____ per share
as of August __, 2017 . A total of $8.3 million of the net proceeds received from this offering was used to redeem 8,346
shares of our Series G Preferred Stock.
On
December 7, 2016, the holders of the Tegal Notes (see note 7 to the consolidated financial statements incorporated by reference
in this prospectus) filed suit against the Company seeking payment for the amounts due under the notes in the aggregate of $0.4
million, including accrued interest. A request for entry of default judgment was filed on January 24, 2017. The Company has attempted
to work out a payment arrangement with the plaintiffs, but to date has not been able to consummate such an arrangement. A case
management conference is scheduled for September 5, 2017.
In
September of 2016, we received $0.4 million from the sale of convertible notes and warrants. On March 13, 2017, these securities
were exchanged for 400,000 shares of our common stock.
Also
in September of 2016, we were issued warrants from the Florida Department of Revenue (the “DOR”) for unpaid taxes
related to the Company’s 2014 state income tax return in the amount of $0.9 million, including interest and penalties. On
January 25, 2017, the Company paid the DOR $250,000 as partial payment on this liability, and in February 2017 the Company entered
into a Stipulation Agreement with the DOR which requires monthly payments of $35,000 from March 2017 through January of 2018 and
a final payment of approximately $0.3 million in February 2018. Under certain circumstances, the Company may be permitted to spread
the final $0.3 million payment over an additional 12 months subsequent to January 2018. If at any time during the Stipulation
period the Company fails to timely file any required tax returns with the DOR or does not meet the payment obligations under the
Stipulation Agreement, the entire amount due will be accelerated.
On
July 19, 2016, we closed a public offering of our equity securities whereby we issued 19,115,000 shares of our common stock and
warrants to purchase an additional 19,115,000 shares of our common stock and received net proceeds of approximately $7.5 million.
In conjunction with this offering, we also issued an additional 303,633 warrants to cover over-allotments. The proceeds were used
for working capital and general corporate purposes, continued development of new diagnostics processes and methodologies, continued
development, roll out and implementation of EHR and Revenue Cycle Management services, acquisitions and expansion of our business
and for the repayment of certain related party notes and advances, including the outstanding balance on a related party note in
the amount of $750,000, and $2.7 million that was owed to Mr. Diamantis.
Liquidity
and Capital Resources during the year ended December 31, 2016 compared to the year ended December 31, 2015
The
following table presents our capital resources as of December 31, 2016 and December 31, 2015:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
|
Change
|
|
Cash
|
|
$
|
77,979
|
|
|
$
|
8,833,230
|
|
|
$
|
(8,755,251
|
)
|
Working capital
|
|
|
(16,344,128
|
)
|
|
|
4,218,687
|
|
|
|
(20,562,815
|
)
|
Total debt, excluding discounts and
derivative liabilities
|
|
|
9,110,112
|
|
|
|
8,541,612
|
|
|
|
568,500
|
|
Capital lease obligations
|
|
|
3,570,174
|
|
|
|
3,717,879
|
|
|
|
(147,705
|
)
|
Stockholders’ deficit
|
|
$
|
(14,885,896
|
)
|
|
$
|
(1,193,799
|
)
|
|
$
|
(13,692,097
|
)
|
The
following table presents the major sources and uses of cash for the years ended December 31, 2016 and 2015:
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash used in operations
|
|
$
|
(19,863,680
|
)
|
|
$
|
(12,561,861
|
)
|
Cash provided by investing activities
|
|
|
63,272
|
|
|
|
4,281,470
|
|
Cash provided
by financing activities
|
|
|
11,045,157
|
|
|
|
14,707,375
|
|
Net change in cash
|
|
|
(8,755,251
|
)
|
|
|
6,426,984
|
|
Cash and cash
equivalents, beginning of year
|
|
|
8,833,230
|
|
|
|
2,406,246
|
|
Cash and cash
equivalents, end of year
|
|
$
|
77,979
|
|
|
$
|
8,833,230
|
|
The
components of cash used in operations for the years ended December 31, 2016 and 2015 is presented in the following table:
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(32,613,687
|
)
|
|
$
|
(35,962,506
|
)
|
Non-cash adjustments to income
|
|
|
7,234,351
|
|
|
|
24,983,401
|
|
Accounts receivable
|
|
|
3,051,218
|
|
|
|
9,138,123
|
|
Accounts payable and accrued expenses
|
|
|
203,203
|
|
|
|
1,130,992
|
|
Other
|
|
|
2,261,235
|
|
|
|
(11,851,871
|
)
|
Cash used in
operations
|
|
$
|
(19,863,680
|
)
|
|
$
|
(12,561,861
|
)
|
The
decrease in cash used in investing activities is primarily due to the completion of the build out of our Riviera Beach, Florida
laboratory in 2015.
During
the year ended December 31, 2016, we received proceeds from the issuance of equity securities of $19.3 million, partially offset
by the redemption of preferred stock in the amount of $8.3 million, received proceeds from the issuance of non-related party debt
in the amount of $5.4 million, made net repayments of related party debt in the amount of $4.4 million and made payments on capital
leases of $0.9 million. During the year ended December 31, 2015, we received proceeds from the issuance of equity securities of
$8.8 million and proceeds from the issuance of third party and related party debt in the amount of $8.6 million, made payments
on notes payable and capital leases of $1.2 million and $1.1 million, respectively, and paid dividends on Medytox preferred stock
in the amount of $0.4 million.
Liquidity
and Capital Resources as of June 30 , 2017 compared to as of December 31, 2016
The
following table presents our capital resources as of June 30 , 2017 and December 31, 2016:
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
27,704
|
|
|
$
|
75,017
|
|
|
$
|
(47,313
|
)
|
Working
capital
|
|
|
(16,986,565
|
)
|
|
|
(16,344,128
|
)
|
|
|
(642,437
|
)
|
Total
debt, excluding discounts and derivative liabilities
|
|
|
22,988,226
|
|
|
|
9,110,112
|
|
|
|
13,878,114
|
|
Capital
lease obligations
|
|
|
2,429,008
|
|
|
|
3,570,174
|
|
|
|
(1,141,166
|
)
|
Stockholders'
deficit
|
|
$
|
(17,516,514
|
)
|
|
$
|
(14,885,896
|
)
|
|
$
|
(2,630,618
|
)
|
The
following table presents the major sources and uses of cash for the six months ended June 30, 2017 and 2016:
|
|
Six
Months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Cash
used in operations
|
|
$
|
(8,604,498
|
)
|
|
$
|
(11,891,559
|
)
|
|
$
|
3,287,061
|
|
Cash
used in investing activities
|
|
|
(1,392,151
|
)
|
|
|
(41,356
|
)
|
|
|
(1,350,795
|
)
|
Cash
provided by financing activities
|
|
|
9,949,336
|
|
|
|
3,584,926
|
|
|
|
6,364,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash
|
|
$
|
(47,313
|
)
|
|
$
|
(8,347,989
|
)
|
|
$
|
8,300,676
|
|
The
decrease in cash used in operations for continuing operations for the six months ended June 30, 2017 and 2016 is presented in
the following table:
|
|
Six
Months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(19,663,546
|
)
|
|
$
|
(8,065,227
|
)
|
|
$
|
(11,598,319
|
)
|
Non-cash
adjustments to income
|
|
|
11,390,941
|
|
|
|
(1,017,482
|
)
|
|
|
12,408,423
|
|
Accounts
receivable
|
|
|
409,261
|
|
|
|
459,414
|
|
|
|
(50,153
|
)
|
Accounts
payable and accrued expenses
|
|
|
246,304
|
|
|
|
(773,211
|
)
|
|
|
1,019,515
|
|
Loss
from discontinued operations
|
|
|
(683,320
|
)
|
|
|
(2,040,875
|
)
|
|
|
1,357,555
|
|
Other
|
|
|
(416,363
|
)
|
|
|
(370,759
|
)
|
|
|
(45,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
used in operations
|
|
$
|
(8,716,723
|
)
|
|
$
|
(11,808,140
|
)
|
|
$
|
3,091,417
|
|
The
increase in cash used in investing activities for continuing operations is due to the acquisition of the Hospital Assets in January
of 2017.
Cash
provided by financing activities for the six months ended June 30, 2017 consists of the $11.6 million of net proceeds received
in connection with the issuance of the February, March and June Debentures and $0.6 million of related party payments net of advances,
partially offset by payments on capital lease obligations in the amount of $1.1 million.
Cash
provided by financing activities for the six months ended June 30, 2016 consists of the $5.0 million received from the prepaid
forward purchase contract and $0.1 million of related party payments, net of advances, partially offset by the repayment of capital
lease obligations in the amount of $0.7 million.
MANAGEMENT
Executive
Officers and Directors
The
following table sets forth information with respect to persons who are currently serving as directors and executive officers of
the Company.
Name
|
Age
|
Positions
|
Seamus
Lagan
|
48
|
President,
Chief Executive Officer and Director
|
Dr.
Kamran Ajami
|
58
|
Director
|
Christopher
E. Diamantis
|
48
|
Director
|
Trevor
Langley
|
55
|
Director
|
Michael
Pollack
|
51
|
Interim
Chief Financial Officer
|
All
directors of the Company serve one year terms and hold office until the next annual meeting of stockholders and until their respective
successors are duly elected and qualified.
Executive
Officers’ and Directors’ Biographies
Seamus
Lagan
was appointed Chief Executive Officer and President and a director of the Company on November 2, 2015 and as Chief Executive
Officer and a director of Medytox Solutions, Inc., a wholly-owned subsidiary of the Company (“Medytox”), effective
September 15, 2014. Mr. Lagan served as Interim Chief Financial Officer of the Company from the resignation of Jason Adams effective
September 30, 2016 through May 24, 2017. Mr. Lagan has been, either individually or through Alcimede LLC, a consultant to Medytox
since May 2011. Mr. Lagan has been a manager of Alcimede since its formation in 2007. Alcimede is a privately-held, Delaware
limited liability company which provides various consulting services, including management, organization, and financial consulting
services. Mr. Lagan also currently serves, through Alcimede, as chief executive officer of the following subsidiaries of the Company:
Medytox Diagnostics, Inc. (since February 2012), and Health Technology Solutions, Inc. (since June 2011) and as president of Medical
Billing Choices, Inc. (since July 2013). From September 2008 through May 2011, Mr. Lagan was a private investor. In 2008, TecEnergy
UK Limited (“TEC”), a waste management and alternative energy company in England and Wales, of which Mr. Lagan served
as a director, was placed into administration to protect it from bankruptcy. The relevant taxing authorities in the United Kingdom
alleged that the directors reduced the debt of TEC to its creditors at the expense of tax liabilities to the taxing authorities.
There were no other allegations of wrongdoing, but based on such allegations, the taxing authorities sought to have each of the
directors of TEC banned from acting as a director in the United Kingdom for a three-year period. At the time of such action, Mr.
Lagan had significant health issues and did not defend himself. As a result, Mr. Lagan was banned in his absence from acting as
a director of a United Kingdom company from October 8, 2010 until October 2015 (In the Matter of TecEnergy UK Limited and in the
Matter of the Company Directors Disqualifications Act of 1986 between the Secretary of State for Business, Innovation and Skills
and Seamus Lagan (Norwich County Court, from 2014 to 2015, UK, Claim No. 0NR00656)). Mr. Lagan graduated from Ballymena Technical
College in Ireland in 1989.
Dr.
Kamran Ajami
has been a director of the Company since April 9, 2017. He is a pathologist and, since February 2011, has been
the Medical Director of the laboratories at West Side Regional Medical Center and Plantation General Hospital. Since 1997, he
has also been Owner and Chief Executive Officer of American Cytopathology Associates, PA, which supplies medical directors for
laboratories.
Christopher
E. Diamantis
has served as a director of the Company since November 2, 2015 and previously served as a director of Medytox
from April 24, 2013 to November 2, 2015. Mr. Diamantis has served, since 1999, as Chairman and Chief Executive Officer of Integrated
Financial Settlements, Inc., a structured settlement consulting firm in Tallahassee, Florida. He has also been, since April 2000,
a director and managing partner of The Gabor Agency, Inc., a 65-year old Florida-based company specializing in investment and
insurance planning for public employees and universities. In addition, since 2007, Mr. Diamantis has been a director and partner
in Counsel Financial Services, Inc., a specialty financial firm catering to the needs of the legal community and the largest non-bank
lender to law firms in the United States. He is a past member of the Board of Governors of the Florida State University College
of Business and past president of the National Structured Settlements Trade Association.
Trevor
Langley
has been a director of the Company since April 9, 2017. Since 2006, he has been the Owner and Managing Partner of
Avanti Capital Group LLC/Avanti Partners, LLC (“Avanti”). Avanti assists micro, small and mid-cap publicly traded
companies and those looking to become public by leveraging traditional and new communication technologies, with a specialization
in healthcare and alternative-energy markets. Avanti also provides comprehensive consulting services.
Michael
Pollack
has been Interim Chief Financial Officer of the Company since May 24, 2017. He has been a partner at regional certified
public accounting and business advisory services firms since 2005 and has approximately 30 years of experience in public accounting
and consulting to over 100 publicly traded and 250 private companies. Mr. Pollack is a member of the American Institute of Certified
Public Accountants, as well as licensed to practice in New Jersey and New York.
On
December 21, 2016, the Company filed a Current Report on Form 8-K to report that one of the Company’s independent directors,
Benjamin Frank, passed away on December 18, 2016. On January 11, 2017, the Company was notified by Nasdaq that the Company no
longer complies with Nasdaq’s audit committee requirements as set forth in Nasdaq Listing Rule 5605 (the “Rule”),
which requires the audit committee of the Company’s board of directors to have at least three members, each of whom must
be independent directors as defined under the Rule. In accordance with Nasdaq Rule 5605(c)(4), the Company has a cure period in
order to regain compliance. The Company has until the earlier of its next annual stockholders’ meeting or December 18, 2017
to regain compliance. If the Company does not regain compliance by the foregoing applicable dates, then Nasdaq will provide written
notification to the Company that its securities will be delisted. The Company expects that it will appoint a replacement for Mr.
Frank and regain compliance with the Rule within the required timeframe.
Family
Relationships amongst Directors and Executive Officers
There
are no family relationships between the executive officers and directors.
Board
Committees
The
board of directors has an audit committee, a compensation committee and a nominating/corporate governance committee. Each of these
committees operates under a charter that has been previously approved by the CollabRx board of directors and will have the composition
and responsibilities described below. The board of directors from time to time may establish other committees to facilitate the
management of the Company and may change the composition and the responsibilities of the existing committees.
The
table below summarizes the membership of each of the three standing board committees of the Company after the merger.
Director
|
|
Audit
|
|
Compensation
|
|
Nominating/
Corporate
Governance
|
Seamus
Lagan
|
|
|
|
|
|
|
Dr.
Kamran Ajami
|
|
X
|
|
X
|
|
Chairman
|
Christopher
E. Diamantis
|
|
|
|
|
|
|
Trevor
Langley
|
|
Chairman
|
|
Chairman
|
|
X
|
Audit
Committee
The
purpose of the audit committee of the Company is to review the Company’s audited financial statements with management, review
the performance of the Company’s independent registered public accountants, approve audit fees and fees for the preparation
of the Company’s tax returns, review the Company’s accounting policies and internal control procedures and consider
and appoint the Company’s independent registered public accountants. The audit committee has the authority to engage the
services of outside experts and advisors as it deems necessary or appropriate to carry out its duties and responsibilities.
The
audit committee charter is available on the Company’s website at
www.rennovahealth.com
by selecting “Investors”
and then “Corporate Governance” from the available options.
The
audit committee of the Company consists of Trevor Langley and Dr. Kamran Ajami. Each member of the audit committee qualifies as
“independent” for purposes of membership on audit committees pursuant to the Listing Rules of The NASDAQ Stock Market
and the rules and regulations of the SEC and is “financially literate” as required by the Listing Rules of The NASDAQ
Stock Market. In addition, the board of directors of the Company has determined that Mr. Langley qualifies as an “audit
committee financial expert” as defined by the rules and regulations of the SEC and meets the qualifications of “financial
sophistication” under the Listing Rules of The NASDAQ Stock Market.
Compensation
Committee
The
purpose of the compensation committee of the Company is to assist the board of directors of the Company in the discharge of its
responsibilities with respect to employee compensation including the adoption, periodic review and oversight of the Company’s
compensation strategy, policies and plans. The compensation committee of the Company administers the equity plans of the Company.
The compensation committee has the authority to engage the services of outside experts and advisors as it deems necessary or appropriate
to carry out its duties and responsibilities.
The
compensation committee charter is available on the Company’s website at
www.rennovahealth.com
by selecting “Investors”
and then “Corporate Governance” from the available options.
The
compensation committee of the Company consists of Trevor Langley and Dr. Kamran Ajami.
Nominating/Corporate
Governance Committee
The
purpose of the nominating/corporate governance committee of the Company is to oversee all aspects relating to corporate governance,
including acting as an independent committee evaluating transactions between the Company and directors and officers. The nominating/corporate
governance committee also assists the board of directors by identifying individuals qualified to become board members, recommending
for selection by the board of directors the director nominees to stand for election at the next annual meeting of the Company’s
stockholders and recommending to the board director nominees for each committee of the board.
When
reviewing related party transactions, the nominating/corporate governance committee considers all relevant facts and circumstances,
including:
|
●
|
the
commercial reasonableness of the terms;
|
|
|
|
|
●
|
the
benefit and perceived benefits, or lack thereof, to the Company;
|
|
|
|
|
●
|
opportunity
costs of alternate transactions; and
|
|
|
|
|
●
|
the
materiality and character of the related person’s interest, and the actual or apparent conflict of interest of the related
person.
|
The
nominating/corporate governance committee will only approve or ratify a related party transaction when it determines that, upon
consideration of all relevant information, the transaction is in, or is not inconsistent with, the best interests of the Company
and stockholders. No related party transactions will be consummated without the approval or ratification of the nominating/corporate
governance committee and the disinterested members of the Company board of directors. Any directors interested in a related party
transaction will recuse themselves from any vote relating to a related party transaction in which they have an interest.
The
nominating/corporate governance committee has the authority to engage the services of outside experts and advisors as it deems
necessary or appropriate to carry out its duties and responsibilities.
The
nominating/corporate governance committee charter is available on the Company’s website at
www.rennovahealth.com
by selecting “Investors” and then “Corporate Governance” from the available options.
The
nominating/corporate governance committee of the Company consists of Dr. Kamran Ajami and Trevor Langley.
Risk
Management
The
board of directors as a whole monitors and considers policies to manage risk as part of its regular activities. The committees
of the board focus on and manage specific forms of risk and report their activities to the board of directors. The audit committee
is primarily responsible for the identification and review of financial risk. The compensation committee works to minimize risks
associated with the executive compensation plans and stock benefit plans that it establishes. The nominating/corporate governance
committee considers risks presented by changing law and regulation and recommends changes in governance and operations to comply.
Director
Independence
The
board of directors has affirmatively determined that each of Dr. Kamran Ajami and Trevor Langley is an “independent director”
as defined under the Listing Rules of The NASDAQ Stock Market. The Listing Rules of The NASDAQ Stock Market provide a list of
disqualifying criteria for the independence determination. For example, under these rules, a director who is, or during the past
three years was, employed by the company or by any parent or subsidiary of the company, other than prior employment as an interim
chairman or interim chief executive officer, would not be considered independent. No director qualifies as independent unless
the board of directors affirmatively determines that the director does not have a material relationship with the listed company
that would interfere with the exercise of independent judgment.
EXECUTIVE
COMPENSATION
The
following table sets forth all of the compensation awarded to, earned by or paid to (i) each individual that served as our principal
executive officer during the fiscal year ended December 31, 2016; (ii) the Company’s two most highly compensated executive
officers other than the principal executive officer at the conclusion of the fiscal year ended December 31, 2016 ; and (iii)
the Company’s two most highly compensated executive officers other than the principal executive officer but for the fact
that these persons were not serving as executive officers at the conclusion of the fiscal year ended December 31, 2016 (collectively,
the Named Executive Officers).
SUMMARY
COMPENSATION TABLE
Name
and
Principal
Position
|
|
Fiscal
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
(4)
|
|
|
Option
Awards
(4)
|
|
|
Nonequity
Incentive Plan
Compensation
|
|
|
Nonqualified
Deferred
Compensation
Earnings
|
|
|
All
Other
Compensation
(5)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seamus
Lagan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President,
CEO, Director
|
|
2016
|
(1)
|
$
|
–
|
|
|
$
|
200,000
|
|
|
$
|
100,000
|
|
|
$
|
374,118
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
387,000
|
|
|
$
|
1,061,118
|
|
and
former Interim CFO
|
|
2015
|
(1)
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
371,375
|
|
|
$
|
371,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
R. Mika
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former
Chairman,
|
|
2016
|
(2)
|
$
|
277,968
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
248,745
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
526,713
|
|
President,
CEO and Acting Chief Financial Officer
|
|
2015
|
(2)
|
$
|
321,923
|
|
|
$
|
150,000
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,179
|
|
|
$
|
473,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason
P. Adams
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former
Chief Financial Officer
|
|
2016
|
(1)
|
$
|
153,667
|
|
|
$
|
50,000
|
|
|
$
|
63,250
|
|
|
$
|
53,674
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
12,277
|
|
|
$
|
332,868
|
|
|
|
2015
|
(3)
|
$
|
70,833
|
|
|
$
|
10,000
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,031
|
|
|
$
|
81,864
|
|
(1)
|
Mr.
Lagan was appointed Medytox’s President and Chief Executive Officer on September 15, 2014 and the Company’s President
and Chief Executive Officer on November 2, 2015. He served as Interim Chief Financial Officer of the Company from the resignation
of Jason Adams effective September 30, 2016 through May 24, 2017. The compensation information presented for 2015 includes
Mr. Lagan’s service to both Medytox and the Company.
|
|
|
(2)
|
Effective
November 2, 2015, Mr. Mika ceased being the Company’s Chief Executive Officer, but he remained the Company’s Chairman
until November 3, 2016.
|
|
|
(3)
|
Mr.
Adams became Medytox’s Chief Financial Officer on September 12, 2015 and the Company’s Chief Financial Officer
on November 2, 2015. Mr. Adams resigned as Chief Financial Officer of the Company effective September 30, 2016. The Company
paid Mr. Adams a one-time relocation bonus of $10,000 in September 2015. The compensation information presented for the fiscal
year ended December 31, 2015 includes the period from September 12, 2015 through December 31, 2015.
|
|
|
(4)
|
Reflects
the aggregate grant date fair value of stock and option awards computed in accordance with FASB ASC Topic 718. In determining
the grant date fair value of stock awards, the Company used the closing price of the Company’s common stock on the grant
date. The grant date fair value of option awards was determined using a binomial model. The assumptions made in the valuation
of the option awards are included in note 10 to our consolidated financial statements for the year ended December 31, 2016
incorporated by reference in this prospectus.
|
|
|
(5)
|
All
other compensation for the year ended December 31, 2016 includes (1) for Mr. Lagan, consulting fees of $375,000 and automobile
allowance of $12,000 described below; and (2) for Mr. Adams, health insurance premiums paid by the Company. All other
compensation for the year ended December 31, 2015 includes (1) for Mr. Lagan, consulting fees of $359,375 and automobile allowance
of $12,000 described below ; (2) for Mr. Mika, premiums on excess group term life insurance; and (3) for Mr. Adams,
health insurance premiums paid by the Company.
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
The
following table provides information regarding outstanding equity awards held by the named executive officers at December 31,
2016:
Name
|
|
Number
of shares underlying unexercised options exercisable
|
|
|
Number
of shares underlying unexercised options unexercisable
|
|
|
Equity
Incentive Plan Awards; Number of shares underlying unexercised unearned options
|
|
|
Option
exercise price
|
|
|
Option
Expiration date
|
|
Number
of shares or units of stock that have not vested
|
|
|
Market
value of shares or units of stock that have not vested $
|
|
|
Equity
Incentive Plan Awards: Number of unearned shares, units or other rights that have not vested
|
|
|
Equity
Incentive Plan Awards: Market or payout value of unearned shares, units or other rights that have not vested $
|
|
Seamus Lagan
|
|
|
33,334
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
300.00
|
|
|
12/31/2022
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
16,667
|
|
|
|
16,667
|
|
|
|
33,334
|
|
|
$
|
30.00
|
|
|
5/2/2026
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
16,667
|
|
|
|
16,667
|
|
|
|
33,334
|
|
|
$
|
9.00
|
|
|
7/17/2026
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Mika
|
|
|
70
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
6,300
|
|
|
12/18/2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
146
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
3,510
|
|
|
11/5/2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
30.00
|
|
|
5/2/2026
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
9.00
|
|
|
7/17/2026
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason Adams
|
|
|
3,334
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
30.00
|
|
|
5/2/2026
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
3,334
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
9.00
|
|
|
7/17/2026
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Agreements
with Named Executive Officers
Seamus
Lagan
Medytox
and Seamus Lagan entered into a non-exclusive Consulting Agreement on May 25, 2011. Under the agreement, Mr. Lagan rendered management
consulting and business advisory services and advised on marketing strategies. Medytox paid Mr. Lagan $15,000 per month. In connection
with the consulting agreement, Mr. Lagan received approximately $65,000 in cash and was issued 1,300,000 shares of common stock
of Medytox with a value of $13,000. This agreement was in effect through October 3, 2011, when it was replaced by a consulting
agreement between Medytox and Alcimede LLC, which is controlled by Mr. Lagan. Under this new agreement, Alcimede agreed to assist
Medytox by providing management as may be required by Medytox, assisting with Medytox’s capital structure and funding, completing
acquisitions and funding, and structuring and securing financing. The term of the Alcimede agreement was from October 3, 2011
to December 31, 2013, with automatic renewals for an additional year unless one party delivered notice of nonrenewal. Medytox
agreed to pay Alcimede a retainer of $20,000 a month and issued Alcimede options to purchase 200,000 shares of common stock of
Medytox, exercisable at $3.00 per share through January 1, 2014, and an additional 200,000 shares of common stock of Medytox exercisable
at $6.00 per share through January 1, 2015. Medytox also reimbursed Alcimede’s expenses.
Medytox
and Alcimede entered into a revised Consulting Agreement as of October 1, 2012. This agreement replaced and superseded the prior
Alcimede consulting agreement. This new agreement originally was for three years, and is now subject to annual renewals thereafter,
unless either party gives notice of non-renewal. The retainer remained at $20,000 a month and Medytox continues to reimburse Alcimede
for its out-of-pocket expenses. The parties agreed to cancel the options issued pursuant to the prior agreement. Under the new
agreement, Alcimede was issued 4,500,000 shares of common stock of Medytox and 1,000 shares of Series B Preferred Stock of Medytox.
In addition, Alcimede received options to purchase (i) 1,000,000 shares of common stock of Medytox exercisable at $2.50 per share
through December 31, 2017, (ii) 1,000,000 shares of common stock of Medytox exercisable at $5.00 per share through December 31,
2017 and (iii) 1,000,000 shares of common stock of Medytox exercisable at $10.00 a share through December 31, 2022. On June 29,
2015, Alcimede exercised the option to purchase 1,000,000 shares of common stock of Medytox at an exercise price of $2.50 per
share (See “Certain Relationships and Related Party Transactions” below for additional information). The parties agreed
to cancel the remaining options to purchase 1,000,000 shares of common stock of Medytox at an exercise price of $5.00 per share
and 1,000,000 shares of common stock at an exercise price of $10.00 per share in connection with the Merger on November 2, 2015.
The share amounts and exercise prices in this paragraph are on a pre-split and pre-Merger basis.
Effective
September 11, 2014 and in conjunction with the appointment of Mr. Lagan as our Chief Executive Officer, such consulting agreement
with Alcimede was amended to provide for a monthly retainer of $31,250, and we agreed to provide Mr. Lagan with an automobile.
During the year ended December 31, 2016, Alcimede received a cash bonus of $200,000.
Thomas
R. Mika
The
Company previously entered into an at-will employment agreement with Mr. Mika, which was amended and restated as of February 12,
2013. The employment agreement had an initial term of two years and was subject to annual automatic one-year extensions unless
either party provided prior notice of its intention not to renew. Under the agreement, Mr. Mika’s annual base salary was
initially set at $284,000 per year subject to review and potential increase in accordance with Company policy. The employment
agreement also provided for an annual target bonus equal to 50% of Mr. Mika’s annual base salary payable upon achievement
of targets and other objectives set by the Board and for annual long-term incentive awards with a fair market value on the date
of grant equal to 100% of Mr. Mika’s annual base salary. Effective December 1, 2014, Mr. Mika’s salary was increased
to $310,000 annually.
In
connection with the Merger of the Company with Medytox, Mr. Mika agreed to enter into a new employment agreement with CollabRx,
Inc., a newly-formed subsidiary of the Company upon the effectiveness of the Merger. Mr. Mika also agreed that the Merger would
not constitute a change of control or constitute or give rise to good reason under his prior employment agreement. As a result,
on November 2, 2015, CollabRx entered into an at-will employment agreement for Mr. Mika to serve as President and Chief Executive
Officer of CollabRx. The employment agreement had an initial term of one year and was subject to annual one-year extensions unless
either party provided prior written notice of its intention not to renew. Mr. Mika’s annual base salary was set at $310,000,
subject to review and potential increase in accordance with Company policy.
The
employment agreement provided that in the event Mr. Mika’s employment was terminated by the Company other than for cause
(as defined in the employment agreement) or if he resigned for “good reason,” died or became disabled, he would
receive a payment equal to two times his then-prevailing base salary (or one times his then-prevailing salary if after the initial
one-year term), plus $266,667 (if during the initial one-year term), plus 24 months of COBRA payments (or 12 months if after the
initial one-year term), all payable in two equal lump sum payments, the first within 60 days following the date of separation
and the second on the first anniversary of the date of separation. If Mr. Mika had any outstanding long-term incentive awards
that were not fully vested and, if applicable, exercisable, the Company would cause them to be vested and exercisable immediately
prior to the date of termination. Any notice of non-renewal of the term by the Company would constitute a termination of Mr. Mika
without cause during a period after the initial one-year term. The employment agreement was not renewed by the Company beyond
its initial one year term and, as a result, the employment agreement was terminated on November 2, 2016. Subject to the terms
and conditions in the employment agreement, Mr. Mika is eligible to receive an amount equal to his base salary of $310,000 and
12 months of COBRA premiums for Mr. Mika.
Jason
P. Adams
Medytox
entered into a two-year employment agreement with Jason Adams effective September 9, 2015, pursuant to which he was compensated
at the rate of $200,000 per year, and entitled to participate in any annual bonus plans that may be approved by the Board of Directors.
The Company and Mr. Adams agreed that he would leave the Company effective September 30, 2016 to pursue other interests. The Company
and Mr. Adams entered into an Executive Transition and Separation Agreement and General Release (the “Transition Agreement”)
effective October 6, 2016. Under the Transition Agreement, Mr. Adams agreed to assist in the transition of duties and to remain
available as a consultant for a period of three months to ensure a complete transition. Mr. Adams was paid $8,000 per month during
that three-month period, which is included in the foregoing compensation table. He also received a grant of 2,778 shares of the
Company’s common stock under the 2007 Incentive Award Plan. Mr. Adams’ health insurance was continued through November
30, 2016, including payment of 100% of the premiums for family dependent coverage. In addition, Mr. Adams granted the Company
a full and general release.
Equity
Compensation Plan Information
Medytox
Solutions, Inc. 2013 Incentive Compensation Plan
On
September 25, 2013, the Medytox board of directors approved and adopted the Medytox Solutions, Inc. 2013 Incentive Compensation
Plan (the “Medytox Plan”). The Medytox Plan was approved by the holders of a majority of Medytox’s voting stock
on November 22, 2013. The Medytox Plan provided for the grant of shares of common stock, options, performance shares, performance
units, restricted stock, stock appreciation rights and other awards. As of the date of this prospectus, options to purchase shares
of common stock and restricted shares of common stock have been granted to the Company’s employees and consultants under
the Medytox Plan. As a result of the Merger, this plan was cancelled, however any grants issued prior to the cancellation remain
in force, as adjusted pursuant to the terms of the Merger.
2007
Incentive Award Plan
In
connection with the Merger, the stockholders of the Company approved an amendment to the Company’s 2007 Incentive Award
Plan (the “2007 Equity Plan”) to increase the number of shares available for issuance under the 2007 Equity Plan
to 50,000,000 shares, and to increase the maximum number of shares any one individual may receive in any calendar year from 100,000
shares to 7,500,000 shares. The amendment became effective with the consummation of the Merger.
Pursuant
to the terms of the 2007 Equity Plan, as of June 30 , 2017, 49,793,833 shares of common stock were available for
grant. The 2007 Equity Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, stock
appreciation rights, performance shares, performance stock units, dividend equivalents, stock payments, deferred stock, restricted
stock units, other stock-based awards, and performance-based awards. The option exercise price of all stock options granted pursuant
to the 2007 Equity Plan will not be less than 100% of the fair market value of the common stock on the date of grant. Stock options
may be exercised as determined by the board, but in no event after the tenth anniversary date of grant, provided that a vested
nonqualified stock option may be exercised up to 12 months after the optionee’s death. Awards granted under the 2007 Equity
Plan are generally subject to vesting at the discretion of the Compensation Committee.
Director
Compensation
Non-employee
directors receive an annual cash retainer of $40,000 and are granted stock options upon joining the Board of Directors. In addition,
Mr. Lee was entitled to receive an additional $10,000 annually in connection with his service as Chairman of the Company’s
Audit Committee. We do not pay employee directors for Board service in addition to their regular employee compensation. The Board
has the primary responsibility for considering and determining the amount of director compensation. On March 23, 2016, the Board
of Directors approved a change to its compensation, whereby, in addition to receiving $40,000 annually in cash, non-employee directors
would receive 3,334 options to purchase the Company’s common stock on May 2, 2016, and each January 31 thereafter.
The
following table shows amounts earned by each non-employee Director in the fiscal year ended December 31, 2016:
Director
(1)
|
|
Fees
earned
or paid
in cash
|
|
|
Stock
Awards
|
|
|
Option
Awards
(3)
|
|
|
Non-equity
Incentive Plan
Compensation
|
|
|
All
Other
Compensation
(2)
|
|
|
Total
|
|
Dr. Kamran Ajami
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Dr. Paul
R. Billings
|
|
$
|
40,000
|
|
|
$
|
–
|
|
|
$
|
29,849
|
|
|
$
|
–
|
|
|
$
|
40,000
|
|
|
$
|
109,849
|
|
Christopher E. Diamantis
|
|
$
|
40,000
|
|
|
$
|
–
|
|
|
$
|
29,849
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
69,849
|
|
Benjamin Frank (4)
|
|
$
|
40,000
|
|
|
$
|
–
|
|
|
$
|
24,874
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
64,874
|
|
Michael L. Goldberg
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
74,623
|
|
|
$
|
–
|
|
|
$
|
227,500
|
|
|
$
|
302,123
|
|
Trevor Langley
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Robert Lee
|
|
$
|
50,000
|
|
|
$
|
–
|
|
|
$
|
29,849
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
79,849
|
|
(1)
|
Dr.
Ajami and Mr. Langley were appointed as directors on April 9, 2017. Dr. Billings and Mr. Lee resigned from the Board of Directors
on April 9, 2017. Mr. Goldberg resigned from the Board of Directors effective April 24, 2017.
|
|
|
(2)
|
For
Dr. Billings, includes $20,000 for his service on the Company’s Scientific Advisory Committee and $20,000 for consulting
services provided to the Company. For Mr. Goldberg, includes consulting fees earned by Monarch Capital LLC, of which Mr. Goldberg
is the Managing Director (see “Certain Relationships and Related Party Transactions”).
|
|
|
(3)
|
Reflects
the aggregate grant date fair value of option awards computed in accordance with FASB ASC Topic 718. The grant date fair value
of option awards was determined using a binomial model. The assumptions made in the valuation of the option awards are included
in note 10 to our consolidated financial statements for the year ended December 31, 2016 incorporated by reference in this
prospectus.
|
|
|
(4)
|
Mr.
Frank passed away on December 18, 2016.
|
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our
Nominating/Corporate Governance Committee reviews related party transactions and only approves or ratifies a related party transaction
when it determines that, upon consideration of all relevant information, the transaction is in, or is not inconsistent with, the
best interests of the Company and its stockholders. The Company’s policy with respect to transactions in which any of its
directors or officers may have an interest, requires that such transaction (i) be on terms no less favorable to the Company than
could be obtained from unaffiliated third parties and (ii) be approved by the Nominating/Corporate Governance Committee and a
majority of the uninterested, outside members of the board. It is the Company’s policy that directors interested in a related
party transaction will recuse themselves from any vote relating to a related party transaction in which they have an interest.
All related party transactions in the six months ended June 30 , 2017 and the fiscal years 2013, 2014, 2015 and 2016
and up to the latest practicable date before the date of this prospectus were approved in accordance with the Company’s
policy.
Alcimede
LLC, of which the CEO of the Company is the sole manager, had advanced loans to the Company for the payment of certain operating
expenses. The loans were non-interest bearing and were due on demand. Alcimede was paid $0.6 million and $0.4 million for consulting
fees pursuant to a consulting agreement for the years ended December 31, 2016 and 2015, respectively. Alcimede billed the Company
$0.2 million and $0.3 million for consulting fees pursuant to the consulting agreement for each of the six
months ended June 30 , 2017 and 2016 , respectively . On February 3, 2015, the Company borrowed $3,000,000 from Alcimede.
The note has an interest rate of 6% and was originally due on February 2, 2016. In February 2016, Alcimede agreed to extend the
maturity date of the loan to February 2, 2017 and the maturity date has since been extended to February 2, 2018 .
On June 29, 2015, Alcimede exercised options granted in October 2012 to purchase one million shares of the Company’s common
stock at an exercise price of $2.50 per share. The loan outstanding was reduced in satisfaction of the aggregate exercise price
of $2,500,000. In August 2016, a portion of the remaining $500,000 balance was repaid by the Company through the issuance of shares
of common stock, and the remaining balance on this loan as of June 30, 2017 was approximately $200,000. On February 27,
2015, the Company borrowed $30,000 from Alcimede. The loan was repaid on April 15, 2015.
Dr.
Thomas Mendolia, the former Chief Executive Officer of the Company’s Laboratories and at the time a principal stockholder,
was reimbursed $26,765 and $32,439 for certain operating expenses and asset purchases paid by Dr. Mendolia on the Company’s
behalf in the years ended December 31, 2016 and 2015, respectively.
On
June 30, 2015, the Company issued 6,667 shares of common stock to SS International Consulting Ltd., of which a former director
of the Company is the sole manager.
On
August 1, 2015, Medytox entered into a non-exclusive consulting agreement with Monarch Capital LLC (“Monarch”). Michael
Goldberg, at the time a director of Medytox and a director of the Company from November 2, 2015 through April 24, 2017, is the
Managing Director of Monarch. Under this agreement, Monarch provides business and financial advice. The original term of the agreement
was through August 31, 2016, and is subject to automatic renewal for an additional one year unless Medytox provides the consultant
with 180 days’ prior written notice of its intent not to renew. The agreement has been renewed for another year. Monarch
was paid approximately $150,000 and $73,000 for consulting fees pursuant to this agreement for the years ended December 31, 2016
and 2015, respectively. Monarch billed the Company $0.1 million for consulting fees for the six months ended June
30 , 2017 and 2016, respectively.
On
September 4, 2015, the Company borrowed $500,000 from Christopher Diamantis, at the time a director of Medytox and currently a
director of the Company. This loan was repaid in the fourth quarter of 2015 with a 10% fee in cash. In the fourth quarter of 2015,
the Company borrowed $1,600,000 from Mr. Diamantis which was due, along with $100,000 of interest, on January 7, 2016. These amounts
were repaid by the Company in January 2016. During the year ended December 31, 2016, the Company received additional short-term
advances from Mr. Diamantis payable on demand and aggregating $5.7 million, all of which was repaid prior to December 31, 2016.
In connection with these advances, the Company agreed to pay Mr. Diamantis interest in the amount of $0.4 million, as well as
interest at 10% per annum for all advances made subsequent to September 30, 2016, and these amounts are reflected in accrued expenses
in the consolidated balance sheet as of December 31, 2016 incorporated by reference in this prospectus. In January and February
2017, the Company received advances aggregating $3.3 million from Mr. Diamantis. The advances, along with $0.5 million of accrued
interest, were due on demand, bearing interest at 10% per annum. The Company used the advances to pay the purchase price of the
Hospital Assets and for general corporate purposes. The Company repaid these amounts in full on March 21, 2017. The Company
also issued to Mr. Diamantis warrants to purchase 250,000 shares of common stock. In May and June 2017, the Company received advances
from Mr. Diamantis, net of repayments, totaling $0.2 million, at a 10% per annum interest rate. Also, during the year ended
December 31, 2016, the Company received short-term advances from three principal stockholders aggregating approximately $1.2 million,
$1.1 million of which was repaid during the year. These remaining advances outstanding are payable on demand.
On
December 31, 2014, the Company borrowed $3,000,000 (the “D&D Debenture) from D&D Funding II, LLC (“D&D”).
Christopher Diamantis, a director of the Company, is the manager and 50% owner of D&D. In January 2016, the Company temporarily
repaid $3,000,000 of the amounts due under the D&D Debenture. In addition to the principal amount, the Company paid $300,000
in cash for interest for 2015. In March 2016, the Company re-borrowed 100% of the principal amount repaid in January 2016. In
April 2016, the Company repaid $2,250,000 of the amount outstanding under the D&D Debenture from proceeds of the accounts
receivable transaction discussed below, leaving an outstanding balance on the D&D Debenture of $750,000 as of June 30, 2016,
all of which was repaid in July 2016.
On
March 31, 2016, the Company entered into an agreement to pledge certain of its accounts receivable as collateral against a prepaid
forward purchase contract. The receivables had an estimated collectable value of $8,700,000 and had been adjusted down to approximately
$4,300,000 on the Company’s balance sheet at March 31, 2016 and $0 as of December 31, 2016 and June 30 , 2017. The
consideration received was $5,000,000. In exchange for the consideration received, the counterparty received the right to: (i)
a 20% per annum investment return from the Company on the consideration, with a minimum repayment term of six months and minimum
return of $500,000, (ii) all payments recovered from the accounts receivable up to $5,250,000, if paid in full within six months,
or $5,500,000, if not paid in full within six months, and (iii) 20% of all payments of the accounts receivable in excess of amounts
received in (i) and (ii). On March 31, 2017, to the extent that the counterparty has not been paid $6,000,000, the Company is
required to pay the difference. Christopher Diamantis, a director of the Company, guaranteed the Company’s payment obligation
of up to $6,000,000. For providing the guarantee, and to the extent that the counterparty receives amounts payable under clause
(ii) above exceeding $5,000,000, Mr. Diamantis will be paid a fee by the counterparty equal to the amount by which the amount
received under clause (ii) above exceeds $5,000,000 ($250,000 or $500,000, depending on the timing of payment). In addition, the
Company agreed to pay Mr. Diamantis $0.5 million in connection with his providing the guarantee. This amount was settled in August
2016 with the issuance of shares of the Company’s common stock and warrants to purchase shares of common stock as discussed
below. To date, the Company has not recovered any payments against the accounts receivable. As of June 30, 2017, the Company
has accrued $1.5 million for the counterparty’s required investment return, which is reflected in accrued expenses
in the consolidated balance sheet incorporated by reference in this prospectus, and $6.0 million is due to the counterparty as
of June 30, 2017. The Company does not have the financial resources to repay this obligation.
During
the second quarter of 2016, the Company received a short-term advance from Jason Adams, then the Company’s Chief Financial
Officer, in the amount of $50,000, all of which was repaid during the quarter. Also, in July 2016, the Company borrowed $350,000
from Aella Ltd., then a principal stockholder. This amount was repaid in the same month with a portion of the proceeds of the
July 19, 2016 public offering.
On
August 5, 2016, the Company exchanged (i) an aggregate of $351,500 of debt and interest payments payable to Alcimede LLC for 39,056
shares of common stock; (ii) $500,000 of interest payments payable to Christopher E. Diamantis for 37,038 shares of common stock
and warrants to purchase 37,038 shares of common stock; (iii) an aggregate of $1,152,619 of accrued dividends payable to Epizon
Ltd., Francisco Roca, III, Steven Sramowicz and Dr. Thomas F. Mendolia for 94,873 shares of common stock and warrants to purchase
63,336 shares of common stock; (iv) $8,000 of consulting fees payable to Monarch Capital LLC for 889 shares of common stock; (v)
an aggregate of $95,010 of board of directors fees and expenses payable to Christopher E. Diamantis, Robert Lee and Dr. Paul R.
Billings for 10,189 shares of common stock and warrants to purchase 741 shares of common stock; and (vi) $25,000 of interest payments
payable to Aella Ltd. for 2,778 shares of common stock. On November 15, 2016, the Company exchanged $100,000 of accrued dividends
payable to Steven Sramowicz for 7,408 shares of common stock and warrants to purchase 7,408 shares of common stock. The warrants
issued have an exercise price of $13.50 per share, are immediately exercisable and have a five-year term. The issuance of the
shares of common stock and warrants was exempt from the registration requirements of the Securities Act of 1933, as amended, in
accordance with Section 4(a)(2) thereof, as a transaction by an issuer not involving any public offering.
PRINCIPAL
STOCKHOLDERS
The
following table summarizes certain information regarding the beneficial ownership (as such term is defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of our outstanding Common Stock as of July
11 , 2017 by (i) each person known by us to be the beneficial owner of more than 5% of the outstanding Common Stock, (ii) each
of our directors, (iii) each of our executive officers, and (iv) all executive officers and directors as a group. Except as indicated
in the footnotes below, the stockholders listed below possess sole voting and investment power with respect to their shares.
Name
of Beneficial Owner
|
|
No.
of Shares of Common Stock Owned
|
|
|
Percentage
of
Ownership(1)
|
|
Seamus Lagan
|
|
|
217,373
|
(2)
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
Dr. Kamran Ajami
|
|
|
20,574
|
(3)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Christopher E. Diamantis
|
|
|
119,408
|
(4)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Trevor Langley
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Michael Pollack
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Thomas R. Mika
|
|
|
41,161
|
(5)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Jason P. Adams
|
|
|
–
|
(6)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Epizon Ltd.
|
|
|
129,575
|
(7)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All Directors and Executive Officers
as a Group (5 persons)
|
|
|
347,382
|
(8)
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
Sabby Healthcare Master Fund, Ltd.
(9)
|
|
|
1,389,445
|
|
|
|
9.9
|
%
|
|
|
|
|
|
|
|
|
|
Sabby Volatility Warrant Master Fund,
Ltd. (9)
|
|
|
1,389,445
|
|
|
|
9.9
|
%
|
(1)
|
Based
on 13,908,360 shares of Common Stock issued and outstanding as of July 11 , 2017, and additional shares deemed
to be outstanding as to a particular person, in accordance with applicable rules of the Securities and Exchange Commission
(the “SEC”). Beneficial ownership is determined in accordance with SEC rules to generally include shares of Common
Stock subject to options or issuable upon conversion of convertible securities, and such shares are deemed outstanding for
computing the percentage of the person holding such options or securities, but are not deemed outstanding for computing the
percentage of any other person.
|
|
|
(2)
|
Includes
1,475 shares of Common Stock and 141,667 stock options to purchase a like number of shares of Common Stock, owned of record
by Mr. Lagan. Also includes 64,231 shares of Common Stock owned of record by Alcimede LLC, of which Mr. Lagan is the sole
manager.
|
|
|
(3)
|
Includes
19,240 shares of Common Stock and 1,334 options to purchase a like number of shares of Common Stock owned of record by Dr.
Ajami.
|
|
|
(4)
|
Includes
60,496 shares of Common Stock, 10,049 stock options to purchase a like number of shares of Common Stock, and 48,890 warrants
to purchase a like number of shares of Common Stock, owned of record by Mr. Diamantis.
|
|
|
(5)
|
Mr.
Mika has currently exercisable options to purchase 6,893 shares of Common Stock. Mr. Mika resigned as Chairman and
a member of the Board of Directors effective November 3, 2016.
|
|
|
(6)
|
Mr.
Adams resigned as Chief Financial Officer effective September 30, 2016.
|
(7)
|
All
of the outstanding capital stock of Epizon Ltd. is owned by The Shanoven Trust, of which P. Wilhelm F. Toothe serves as trustee.
Mr. Lagan is the settlor and Mr. Lagan and his family are the beneficiaries of The Shanoven Trust. Epizon Ltd. owns of record
129,575 shares of Common Stock. The address of Epizon Ltd. is Suite 104a, Saffrey Square, Bank Lane, P.O. Box N-9306, Nassau,
Bahamas.
|
|
|
(8)
|
Includes
Messrs. Lagan, Diamantis, Pollack and Langley and Dr. Ajami. Includes 145,442 shares of Common Stock, 153,050 stock options
to purchase a like number of shares of Common Stock, and 48,890 warrants to purchase a like number of shares of Common Stock,
owned by Messrs. Lagan, Diamantis, Pollack and Langley and Dr. Ajami, as described in the above footnotes.
|
|
|
(9)
|
The
address of each of Sabby Healthcare Master Fund, Ltd. and Sabby Volatility Warrant Master Fund, Ltd. is c/o Ogier Fiduciary
Services (Cayman) Limited, 89 Nexus Way, Camana Bay, Grand Cayman KY1-9007, Cayman Islands. This stockholder has indicated
that Hal Mintz has voting and investment power over the shares held by it. This stockholder has indicated that Sabby
Management, LLC serves as its investment manager, that Hal Mintz is the manager of Sabby Management, LLC and that each of
Sabby Management, LLC and Hal Mintz disclaims beneficial ownership over these shares except to the extent of any
pecuniary interest therein. The conversion of the Debentures and the exercise of the Warrants held by these entities are
subject to ownership blockers of 9.99% and 4.99%, respectively.
|
DESCRIPTION
OF CAPITAL STOCK
General
The
following descriptions are summaries of the material terms of our amended and restated certificate of incorporation and amended
and restated bylaws, and are qualified by reference to our amended and restated certificate of incorporation and amended and restated
bylaws. For more detailed information, please see copies of these documents which are included as exhibits to this registration
statement. We refer in this section to our amended and restated certificate of incorporation as our certificate of incorporation,
and we refer to our amended and restated bylaws as our bylaws.
Our
authorized capital stock consists of 500,000,000 shares of common stock, par value $0.01 per share, and 5,000,000 shares of preferred
stock, par value $0.01 per share. As of August __, 2017, [●] shares of our common stock were outstanding and held
by approximately [●] stockholders of record.
Common
Stock
The
holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders.
The holders of our common stock do not have any cumulative voting rights. Holders of our common stock are entitled to receive
ratably any dividends declared by the board of directors out of funds legally available for that purpose, subject to any preferential
dividend rights of any outstanding preferred stock. Our common stock has no preemptive rights, conversion rights or other subscription
rights or redemption or sinking fund provisions. In the event of our liquidation, dissolution or winding up, holders of our common
stock will be entitled to share ratably in all assets remaining after payment of all debts and other liabilities and any liquidation
preference of any outstanding preferred stock.
Preferred
Stock
Our
Board of Directors may, without further action by our stockholders, fix the rights, preferences, privileges and restrictions of
up to an aggregate of 5,000,000 shares of preferred stock in one or more series and authorize their issuance. These rights, preferences
and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and
the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights
of our common stock. Any issuance of our preferred stock could adversely affect the voting power of holders of our common stock
and the likelihood that such holders would receive dividend payments and payments upon liquidation. In addition, the issuance
of preferred stock could have the effect of delaying, deferring or preventing a change of control or other corporate action.
Following
the Merger, Medytox is a wholly-owned subsidiary of CollabRx. CollabRx and its consolidated subsidiaries, including the surviving
company and its subsidiaries, operate as a combined company under the name Rennova Health, Inc. Upon the Merger, Rennova issued
(i) 5,000 shares of Rennova Series B Convertible Preferred Stock (“Series B Preferred Stock”) in exchange for 5,000
shares of Medytox Series B Non-Convertible Preferred Stock, and (ii) 45,000 shares of Rennova Series E Convertible Preferred Stock
(“Series E Preferred Stock”) in exchange for 45,000 shares of Medytox Series E Convertible Preferred Stock. Copies
of the Certificates of Designations for the Rennova Series B Preferred Stock and Rennova Series E Preferred Stock are incorporated
by reference to this prospectus. Subsequent to the Merger, all of the shares of Series B Preferred Stock have been converted into
shares of common stock and all of the shares of Series E Preferred Stock have been cancelled. All of the shares of Series C Preferred
Stock were exchanged, along with the December 2015 Warrants, for shares of Series G Preferred Stock and new warrants. As a result,
no shares of the Series B Preferred Stock, Series C Preferred Stock or Series E Preferred Stock are currently outstanding.
Rennova
Series G Convertible Preferred Stock
The
following is a summary of certain terms and provision of our Series G Convertible Preferred Stock (the “Series G Preferred
Stock”).
General
.
Our board of directors has designated up to 14,000 shares of the 5,000,000 authorized shares of preferred stock as Series G Preferred
Stock. As of August __, 2017, [●] shares of Series G Preferred Stock are issued and outstanding.
Rank
.
The Series G Preferred Stock ranks on parity to our common stock.
Conversion.
Each share of the Series G Preferred Stock is convertible into shares of our common stock (subject to adjustment as provided
in the related certificate of designation of preferences, rights and limitations) at any time at the option of the holder at a
conversion price equal to the stated value of the Series G Preferred Stock of $1,000 per share divided by, as of August
__, 2017, $[•], subject to adjustment. Holders of Series G Preferred Stock are prohibited from converting Series G Preferred
Stock into shares of our common stock if, as a result of such conversion, the holder, together with its affiliates, would own
more than 4.99% of the total number of shares of our common stock then issued and outstanding. However, any holder may increase
or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall
not be effective until 61 days after such notice to us.
Liquidation
Preference.
In the event of our liquidation, dissolution or winding-up, holders of Series G Preferred Stock will be entitled
to receive an amount equal to $1,000 per share before any distribution shall be made to the holders of any junior securities,
and then will be entitled to receive the same amount that a holder of common stock would receive if the Series G Preferred Stock
were fully converted into shares of our common stock at the conversion price (disregarding for such purposes any conversion limitations)
which amounts shall be paid pari passu with all holders of common stock.
Voting
Rights.
Shares of Series G Preferred Stock generally have no voting rights, except as required by law and except that the
affirmative vote of the holders of at least 75% of the then outstanding shares of Series G Preferred Stock is required to (a)
alter or change adversely the powers, preferences or rights given to the Series G Preferred Stock, (b) amend our certificate of
incorporation or other charter documents in any manner that materially adversely affects any rights of the holders, (c) increase
the number of authorized shares of Series G Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.
Dividends.
Shares of Series G Preferred Stock are not entitled to receive any dividends, unless and until specifically declared by our
board of directors. The holders of the Series G Preferred Stock will participate, on an as-if-converted-to-common stock basis,
in any dividends to the holders of common stock.
Redemption.
We are not obligated to redeem or repurchase any shares of Series G Preferred Stock. Shares of Series G Preferred Stock are
not otherwise entitled to any redemption rights or mandatory sinking fund or analogous fund provisions.
Negative
Covenants.
As long as any shares of Series G Preferred Stock are outstanding, unless the holders of at least 75% of the then
outstanding shares of Series G Preferred Stock shall have given prior written consent, Rennova may not, and we shall not permit
any of our subsidiaries to, directly or indirectly (a) repay, repurchase or offer to repay, repurchase or otherwise acquire more
than a
de minimis
number of shares of common stock or common stock equivalents or junior securities (as such terms are
defined in the Series G Preferred Stock Certificate of Designation), with certain exceptions, (b) pay cash dividends or distributions
on junior securities (which includes our common stock), (c) enter into any transaction with any affiliate which would be required
to be disclosed in any public filing with the SEC, unless it is made on an arm’s-length basis and expressly approved by
a majority of our disinterested directors (even if less than a quorum), (d) enter into any agreement to effect any issuance by
us or any subsidiary of common stock or common stock equivalents (or a combination thereof) involving a variable rate transaction
(as defined in the Series G Preferred Stock Certificate of Designation), or (e) enter into any agreements with respect to any
of the foregoing.
Shares
of Series G Preferred Stock were issued in the Exchange. The full text of the Series G Preferred Stock Certificate of Designation
is incorporated by reference in this prospectus. This summary is qualified in its entirety by reference to the full text of the
Series G Preferred Stock Certificate of Designation.
Rennova
Series F Convertible Preferred Stock
In
connection with the proposed acquisition of Genomas, up to 1,750,000 shares of the Company’s newly designated Series F Convertible
Preferred Stock (the “Series F Preferred Stock”) will be issued. The following is a summary of certain terms and provisions
of our Series F Preferred Stock to be issued upon the closing of the acquisition.
General
.
Our board of directors has designated up to 1,750,000 shares of the 5,000,000 authorized shares of preferred stock as Series F
Preferred Stock.
Rank
.
The Series F Preferred Stock ranks on parity to our common stock.
Conversion.
Each share of the Series F Preferred Stock is convertible into shares of our common stock (subject to adjustment as provided
in the related certificate of designation of preferences, rights and limitations) at any time after the one-year anniversary of
the closing date at the option of the holder at a conversion price equal to the greater of $58.50 or the average closing price
of the Company’s common stock for the 10 trading days immediately preceding the conversion. The maximum number of shares
of common stock issuable upon the conversion of the Series F Preferred Stock is 29,915. Any shares of Series F Preferred Stock
outstanding on the fifth anniversary of the closing will be mandatorily converted into common stock at the applicable conversion
price on such date.
Liquidation
Preference.
In the event of our liquidation, dissolution or winding-up, holders of Series F Preferred Stock will be entitled
to receive the same amount that a holder of common stock would receive if the Series F Preferred Stock were fully converted into
shares of our common stock at the conversion price (assuming for such purposes that the Series F Preferred Stock is then convertible)
which amounts shall be paid pari passu with all holders of common stock.
Voting
Rights.
Each share of Series F Preferred Stock shall have one vote, and the holders of the Series F Preferred Stock shall
vote together with the holders of our common stock as a single class.
Dividends.
The holders of the Series F Preferred Stock will participate, on an as-if-converted-to-common stock basis, in any dividends
to the holders of common stock.
Redemption.
At any time, from time to time after the first anniversary of the closing, we have the right to redeem all or any portion
of the outstanding Series F Preferred Stock at a price per share equal to $58.50 plus any accrued but unpaid dividends.
Negative
Covenants.
As long as any shares of Series F Preferred Stock are outstanding, Rennova may not amend, alter or repeal any provision
of our certificate of incorporation, the certificate of designation or our bylaws in a manner that materially adversely affects
the powers, preferences or rights of the Series F Preferred Stock.
The
full text of the Series F Preferred Stock Certificate of Designation is incorporated by reference in this prospectus. This summary
is qualified in its entirety by reference to the full text of the Series F Preferred Stock Certificate of Designation.
Rennova
Series H Convertible Preferred Stock
The
following is a summary of certain terms and provisions of our Series H Convertible Preferred Stock
General
Our board of directors has designated up to 14,202 shares of the 5,000,000 authorized shares of preferred stock as Series
H Preferred Stock. As of August __, 2017, [●] shares of Series H Preferred Stock are issued and outstanding.
Rank
.
The Series H Preferred Stock ranks on parity to our common stock.
Conversion.
Each share of the Series H Preferred Stock is convertible into shares of our common stock (subject to adjustment as provided
in the related certificate of designation of preferences, rights and limitations) at any time at the option of the holder at a
conversion price equal to the stated value of the Series H Preferred Stock of $1,000 per share divided by, as of August
__, 2017, $[•], subject to adjustment. Holders of Series H Preferred Stock are prohibited from converting Series H Preferred
Stock into shares of our common stock if, as a result of such conversion, the holder, together with its affiliates, would own
more than 4.99% of the total number of shares of our common stock then issued and outstanding. However, any holder may increase
or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall
not be effective until 61 days after such notice to us.
Liquidation
Preference.
In the event of our liquidation, dissolution or winding-up, holders of Series H Preferred Stock will be entitled
to receive an amount equal to $1,000 per share before any distribution shall be made to the holders of any junior securities,
and then will be entitled to receive the same amount that a holder of common stock would receive if the Series H Preferred Stock
were fully converted into shares of our common stock at the conversion price (disregarding for such purposes any conversion limitations)
which amounts shall be paid pari passu with all holders of common stock.
Voting
Rights.
Shares of Series H Preferred Stock generally have no voting rights, except as required by law and except that the
affirmative vote of the holders of at least a majority of the then outstanding shares of Series H Preferred Stock is required
to (a) alter or change adversely the powers, preferences or rights given to the Series H Preferred Stock, (b) amend our certificate
of incorporation or other charter documents in any manner that materially adversely affects any rights of the holders, (c) increase
the number of authorized shares of Series H Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.
Dividends.
Shares of Series H Preferred Stock are not entitled to receive any dividends, unless and until specifically declared by our
board of directors. The holders of the Series H Preferred Stock will participate, on an as-if-converted-to-common stock basis,
in any dividends to the holders of common stock.
Redemption.
We are not obligated to redeem or repurchase any shares of Series H Preferred Stock. Shares of Series H Preferred Stock are
not otherwise entitled to any redemption rights or mandatory sinking fund or analogous fund provisions.
Negative
Covenants.
As long as at least 1,420 shares of Series H Preferred Stock are outstanding, unless the holders of at least a
majority of the then outstanding shares of Series H Preferred Stock shall have given prior written consent, Rennova may not, and
we shall not permit any of our subsidiaries to, directly or indirectly (a) repay, repurchase or offer to repay, repurchase or
otherwise acquire more than a
de minimis
number of shares of common stock or common stock equivalents or junior securities
(as such terms are defined in the Series H Preferred Stock Certificate of Designation), with certain exceptions, (b) pay cash
dividends or distributions on junior securities (which includes our common stock), (c) enter into any transaction with any affiliate
which would be required to be disclosed in any public filing with the SEC, unless it is made on an arm’s-length basis and
expressly approved by a majority of our disinterested directors (even if less than a quorum), (d) enter into any agreement to
effect any issuance by us or any subsidiary of common stock or common stock equivalents (or a combination thereof) involving a
variable rate transaction (as defined in the Series H Preferred Stock Certificate of Designation), (e) except for certain exempt
issuances, issue any common stock or common stock equivalents for an effective price per share (as calculated in the Series H
Preferred Stock Certificate of Designation) less than the then conversion price or (f) enter into any agreements with respect
to any of the foregoing.
The
full text of the Series H Preferred Stock Certificate of Designation is incorporated by reference in this prospectus. This summary
is qualified in its entirety by reference to the full text of the Series H Preferred Stock Certificate of Designation.
Options
As
of December 31, 2016, we had outstanding options to purchase an aggregate of 709,025 shares of our common stock, with a weighted
average exercise price of $129.43, pursuant to our Stock Plans, named above.
Warrants
As
of December 31, 2016, we had outstanding warrants to purchase 1,407,047 shares of common stock at a weighted average exercise
price of $11.70 per share which expire through August 2021.
In
general, the outstanding warrants have terms similar to the following.
In
the event that the shares underlying the warrants are no longer registered under the Securities Act, the holder may, in its sole
discretion, exercise the warrant in whole or in part and, in lieu of making cash payment otherwise contemplated to be made to
us upon such exercise in payment of the aggregate exercise price, elect instead to receive upon such exercise the net number of
shares determined according to the formula set forth in the warrant.
Subject
to applicable laws, the warrants may be transferred at the option of the holders upon surrender of the warrants to us together
with the appropriate instruments of transfer.
In
addition, the exercise price and the number of shares issuable upon exercise are subject to adjustment in the event of certain
stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common
shares, and also upon any distributions of assets, including cash, stock or other property to our stockholders.
Upon
the consummation of a Fundamental Transaction (as defined in the warrant), the holder of the warrant will have the right to receive,
upon exercise of the warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive
upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder
of the number of shares then issuable upon exercise in full of the warrant without regard to any limitations on exercise contained
in the warrant.
Except
as otherwise provided in the warrants or by virtue of such holder’s ownership of our common stock, the holder of a warrant
does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises
the warrant.
Since
December 31. 2016, the Company has issued (i) warrants to purchase 100,000 shares of common stock in February 2017, (ii) the Warrants,
(iii) warrants to purchase 1,500,000 shares of common stock in June 2017, and (iv) warrants to purchase 2,120,000 shares of common
stock in July 2017.
The
terms of the Warrants are described under “March 2017 Private Placements”.
Anti-Takeover
Effects of Delaware Law and Our Certificate of Incorporation and Bylaws
Certain
provisions of Delaware law, our certificate of incorporation and our bylaws contain provisions that could have the effect of delaying,
deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, may have the
effect of discouraging coercive takeover practices and inadequate takeover bids. These provisions are also designed, in part,
to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits
of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages
of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Board
Composition and Filling Vacancies
Our
bylaws provide that any Director or the entire Board may be removed at any time, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors. Directors shall be elected at the annual meeting of the stockholders
and each Director elected shall hold office until his successor is elected and qualified; provided, however, that unless otherwise
restricted by the Certificate of Incorporation or by law, any Director or the entire Board may be removed, either with or without
cause, from the Board at any meeting of stockholders by a majority of the stock represented and entitled to vote thereat. Vacancies
on the Board by reason of death, resignation, retirement, disqualification, removal from office, or otherwise, and newly created
directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then
in office, although less than a quorum, or by a sole remaining Director. The Directors so chosen shall hold office until the next
annual election of Directors and until their successors are duly elected and shall qualify, unless sooner displaced.
Meetings
of Stockholders
Our
certificate of incorporation and bylaws provide that only a majority of the members of our board of directors then in office may
call special meetings of stockholders and only those matters set forth in the notice of the special meeting may be considered
or acted upon at a special meeting of stockholders. Our bylaws limit the business that may be conducted at an annual meeting of
stockholders to those matters properly brought before the meeting.
Advance
Notice Requirements
Our
bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election
as directors or new business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder
proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken.
Generally, to be timely, notice must be received at our principal executive offices not less than 90 days nor more than 120 days
prior to the first anniversary date of the annual meeting for the preceding year. Our bylaws specify the requirements as to form
and content of all stockholders’ notices. These requirements may preclude stockholders from bringing matters before the
stockholders at an annual or special meeting.
Amendment
to Bylaws
The
Board may from time to time make, amend, supplement or repeal the Company’s Bylaws by vote of a majority of the Board, and
the stockholders may change or amend or repeal these Bylaws by the affirmative vote of the majority of holders of the common stock.
In addition to and not in limitation of the foregoing, the Company’s Bylaws or any of them may be amended or supplemented
in any respect at any time, either: (i) at any meeting of stockholders, provided that any amendment or supplement proposed to
be acted upon at any such meeting shall have been described or referred to in the notice of such meeting; or (ii) at any meeting
of the Board, provided that any amendment or supplement proposed to be acted upon at any such meeting shall have been described
or referred to in the notice of such meeting or an announcement with respect thereto shall have been made at the last previous
Board meeting, and provided further that no amendment or supplement adopted by the Board shall vary or conflict with any amendment
or supplement adopted by the stockholders.
Section
203 of the Delaware General Corporation Law
We
are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for
a three-year period following the time that this stockholder becomes an interested stockholder, unless the business combination
is approved in a prescribed manner. Under Section 203, a business combination between a corporation and an interested stockholder
is prohibited unless it satisfies one of the following conditions:
|
●
|
before
the stockholder became interested, our board of directors approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder;
|
|
|
|
|
●
|
upon
consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee
stock plans, in some instances, but not the outstanding voting stock owned by the interested stockholder; or
|
|
|
|
|
●
|
at
or after the time the stockholder became interested, the business combination was approved by our board of directors and authorized
at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting
stock which is not owned by the interested stockholder.
|
Section
203 defines a business combination to include:
|
●
|
any
merger or consolidation involving the corporation and the interested stockholder;
|
|
|
|
|
●
|
any
sale, transfer, lease, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the
corporation;
|
|
|
|
|
●
|
subject
to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
|
|
|
|
|
●
|
subject
to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the
stock of any class or series of the corporation beneficially owned by the interested stockholder; and
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|
|
|
|
●
|
the
receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
|
In
general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding
voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.
Exchange
Listing
Our
common stock is listed on The NASDAQ Capital Market under the trading symbol “RNVA.” The warrants issued in July 2016
are listed on The NASDAQ Capital Market under the trading symbol “RNVAZ.”
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Computershare Trust Company, N.A. The transfer agent and registrar’s
address is 250 Royall Street, Canton, Massachusetts 02021.
MARCH
2017 PRIVATE PLACEMENTS
On
March 21, 2017, we closed an offering of an aggregate of $10,850,000 principal amount of Senior Secured Original Issue Discount
Convertible Debentures due March 21, 2019 (the “New Debentures”) and three series of warrants to purchase initially
an aggregate of 19,608,426 shares of common stock. The offering was pursuant to the terms of the Securities Purchase Agreement,
dated as of March 15, 2017 (the “Purchase Agreement”), among the Company and Sabby Healthcare Master Fund, Ltd., Sabby
Volatility Warrant Master Fund, Ltd. and Lincoln Park Capital Fund, LLC. The Company received proceeds of approximately $8.4 million
from the offering, after giving effect to the original issue discounts and transaction expenses.
Also
on March 21, 2017, pursuant to the Exchange Agreements, dated as of March 15, 2017 (the “Exchange Agreements”), the
Company issued an aggregate of $5,160,260 principal amount of debentures (the “Exchange Debentures”) and three series
of warrants to purchase initially an aggregate of 9,325,773 shares of common stock in exchange for (i) $1,590,000 principal
amount of Original Issue Discount Convertible Debentures issued by the Company on February 2, 2017 and $2,000,000 stated value
of our Series H Convertible Preferred Stock from Sabby Healthcare Master Fund, LLC and (ii) $174,000 stated value of our Series
H Convertible Preferred Stock from Alpha Capital Anstalt. The Exchange Debentures are on the same terms as, and pari passu with,
the New Debentures (the New Debentures and the Exchange Debentures, collectively, the “Debentures”). The warrants
issued pursuant to the Purchase Agreement and the Exchange Agreements are referred to, collectively, as the “Warrants”.
The parties to which the Company issued the Warrants under the Purchase Agreement and the Exchange Agreements are the Selling
Stockholders and they were all existing institutional investors of the Company.
The
Debentures are convertible at any time (initially at a conversion price of $1.66, which has been adjusted pursuant to the terms
of the Debentures to $0.39 due to prices at which the Company has subsequently issued shares of common stock). The New Debentures
begin to amortize monthly commencing on the 90th day following March 21, 2017 and the Exchange Debentures begin to amortize monthly
immediately. On each monthly amortization date, the Company may elect to repay 5% of the original principal amount of Debentures
in cash or, in lieu thereof, the conversion price of such Debentures shall thereafter be 85% of the volume weighted average price
at the time of conversion. In the event the Company does not elect to pay such amortization amounts in cash, each investor, in
their sole discretion, may increase the conversion amount subject to the alternative conversion price by up to four times the
amortization amount. The Debentures contain customary affirmative and negative covenants, including that we will not effect or
contract to effect a “Variable Rate Transaction” as defined in the Debentures. The conversion price is subject to
reset in the event of offerings or other issuances of common stock, or rights to purchase common stock, at a price below the then
conversion price, as well as other customary antidilution protections. The holders were also granted a right of participation
in up to 50% of any future offerings by us for as long as the Debentures and Warrants are outstanding.
The
Series A Warrants were initially exercisable for up to a number of shares of Common Stock equal to 100% of the shares underlying
the Debentures, or an aggregate of 9,644,732 shares. They are immediately exercisable and have a term of exercise equal to five
years. The Series B Warrants were initially exercisable for up to a number of shares of Common Stock equal to 100% of the
shares underlying the Debentures, or an aggregate of 9,644,732 shares, and are exercisable for a period of 18 months commencing
immediately. The Series C Warrants were initially exercisable for up to a number of shares of Common Stock equal to 100%
of the shares underlying the Debentures, or an aggregate of 9,644,732 shares, and have a term of five years provided such Warrants
shall only vest if, when and to the extent that the holders exercise the Series B Warrants. The initial exercise prices of
$1.95 for the Series A and Series C Warrants and $1.66 for the Series B Warrants have been adjusted pursuant to their terms to
$0.39 due to prices at which the Company has subsequently issued shares of common stock. As a result, pursuant to their terms,
the Warrants are exercisable into an aggregate of 137,499,255 shares of common stock.
Holders
of Debentures and Warrants are prohibited from converting or exercising such Debentures or Warrants into or for Common Stock if,
as a result of such conversion or exercise, the holder, together with its affiliates, would own more than 4.99% of the total number
of shares of Common Stock then issued and outstanding. However, any holder may increase or decrease such percentage to any other
percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after notice
to the Company. On July 10, 2017, the beneficial ownership limitation contained in the Debentures owned by Sabby Healthcare Master
Fund, Ltd. and Sabby Volatility Warrant Master Fund, Ltd. was amended from 4.99% to 9.99%.
We
filed the registration statement on Form S-1, of which this prospectus is a part, to fulfill our contractual obligation under
the Registration Rights Agreement, dated as of March 21, 2017, to provide for the resale by the Selling Stockholders of the shares
of common stock offered hereby and issuable upon exercise of the Warrants . We agreed to use our best efforts to keep such
registration statement continuously effective until the shares of common stock being offered by this prospectus have been sold
hereunder or pursuant to Rule 144 or may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without
the requirement of the Company to be in compliance with the current public information requirement under Rule 144.
As
collateral security for all of the Company’s obligations under the Debentures, the Company and the Company’s subsidiaries
granted the Debenture holders a security interest in all of the Company’s and our subsidiaries’ assets, pursuant to
the terms of the Security Agreement. To further secure the Company’s obligations, substantially all of the Company’s
subsidiaries also executed a Guarantee pursuant to which the subsidiaries agree to guaranty the Company’s obligations owed
to the Debenture holders.
The
securities issued under the Purchase Agreement were issued in reliance on the exemption from registration contained in Section
4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and/or Rule 506 of Regulation D promulgated
thereunder as transactions by an issuer not involving any public offering. The securities issued under the Exchange Agreements
were issued in reliance on the exemption from registration contained in Section 3(a)(9) of the Securities Act.
Nasdaq
Marketplace Rule 5635(d) limits the number of shares (or securities, such as warrants, that are convertible into shares) that
can be issued without stockholder approval. We were required to obtain the approval of our stockholders in order to issue shares
of Common Stock underlying (1) the Debentures, and (2) the Warrants at a price less than the greater of book or market value which
equal 20% or more of our Common Stock outstanding before the issuance (the “20% Rule”). As of March 14, 2017, the
day prior to which the Purchase Agreement or the Exchange Agreements were entered into, we had 5,136,981 shares of Common Stock
outstanding. As of the date of issuance, the Debentures were convertible into an aggregate of 9,644,73 2 shares of Common
Stock and the Warrants were exercisable into an aggregate of 28,934,196 shares of Common Stock (assuming all Series C Warrants
were then exercisable), which represented more than 20% of our Common Stock then outstanding. The terms of the Debentures and
the Warrants, as described below, limited their conversion or exercisability, as the case may be, to a number of shares of Common
Stock equal to no more than 1,027,396 shares, which was less than the 20% limit, until stockholder approval was received.
Notwithstanding
anything in the Debentures or the Warrants to the contrary, until the Company received stockholder approval, the Company could
not issue, upon conversion of a Debenture or exercise of a Warrant, a number of shares of Common Stock which, when aggregated
with any shares of Common Stock issued on or after March 21, 2017 and prior to the conversion or exercise date, (i) in connection
with the conversions of any Debentures issued pursuant to the Purchase Agreement or the Exchange Agreements, or (ii) in connection
with the exercise of any Warrants issued pursuant to the Purchase Agreement or the Exchange Agreements (such securities, collectively
the “Issuance Capped Securities” and the holders of Issuance Capped Securities, the “Capped Holders”)
would exceed 1,027,396 shares of Common Stock (such number of shares, the “Issuable Maximum”). Each Capped Holder
was entitled to a portion of the Issuable Maximum equal to the quotient obtained by dividing (x) the holder’s original subscription
amount under the Purchase Agreement plus the exchange amounts exchanged pursuant to the Exchange Agreements, if any, by (y) the
aggregate original subscription amount (or exchange amounts if pursuant to the Exchange Agreements) of all Capped Holders. In
addition, a Capped Holder could allocate its pro-rata portion of the Issuable Maximum among Issuance Capped Securities held by
it in its sole discretion.
The
Company held a Special Meeting of its stockholders on June 16, 2017, at which the above stockholder approval was received.
Effective
September 11, 2015, Medytox Solutions, Inc., now a wholly-owned subsidiary of the Company (“Medytox”), entered into
a Securities Purchase Agreement with TCA Global Credit Master Fund, LP (“TCA”), pursuant to which Medytox issued a
$3,000,000 debenture (the “TCA Debenture”) to TCA. The TCA Debenture is secured by a pledge of the assets of Medytox
and various subsidiaries. Prior to the issuance of the Debentures and the Warrants on March 21, 2017, the Company had not made
the last six required payments under the TCA Debenture, totalling $1,800,000.
In
connection with the issuance of the Debentures and the Warrants, the Company and TCA entered into a Side Letter (the “Side
Letter”). Pursuant to the Side Letter, TCA was paid $750,000 toward the TCA Debenture and the remaining indebtedness was
restructured over the next six months. TCA acknowledged that the Company was not in default of the TCA Debenture as a result of
any failure to make any required payment and TCA waived any such default that may have then existed.
The
Company also guaranteed Medytox’s obligations under the TCA Debenture pursuant to the terms of a Guaranty Agreement (the
“Rennova Guaranty Agreement”). To secure its obligations under the Rennova Guaranty Agreement, the Company granted
TCA a security interest in all of its assets, pursuant to the terms of a Security Agreement. Rennova also agreed, pursuant to
a Services Agreement, to pay TCA $150,000. To govern the relationship between TCA and the holders of the Debentures, each as secured
creditors of the Company, TCA and Sabby Management, LLC, as Agent for the Debenture holders, entered into an Intercreditor Agreement.
Our
Series G Preferred Stock, Series H Preferred Stock and certain of our outstanding warrants contain provisions that, in the event
any future issuance of securities by us contained anti-dilution protections in addition to those contained in such preferred stock
and warrants, the terms of such preferred stock and warrants would be automatically deemed to be amended to contain such additional
protections. The Debentures and the Warrants do provide for such additional anti-dilution protections. As a result, our Series
G Preferred Stock, Series H Preferred Stock and certain of our outstanding warrants now also provide for reset of their respective
conversion or exercise price in the event of offerings or other issuances by us of common stock, or rights to purchase common
stock, at a price below the then conversion or exercise price.
DESCRIPTION
OF THE SECURITIES WE ARE OFFERING
Common
Stock
The
material terms and provisions of our common stock are described under the caption “Description of Capital Stock” starting
on page 61 of this prospectus.
SHARES
ELIGIBLE FOR FUTURE SALE
Future
sales of substantial amounts of our common stock in the public market, including shares issued upon exercise of outstanding options
and warrants, or the conversion of outstanding preferred stock or other convertible securities, or the anticipation of these sales,
could adversely affect prevailing market prices from time to time and could impair our ability to raise equity capital in the
future.
Rule
144
In
general, under Rule 144, any person who is not our affiliate and has held their shares for at least six months, including the
holding period of any prior owner other than one of our affiliates, may sell shares without restriction, subject to the availability
of current public information about us. In addition, under Rule 144, any person who is not an affiliate of ours and has held their
shares for at least one year, including the holding period of any prior owner other than one of our affiliates, would be entitled
to sell an unlimited number of shares without regard to whether current public information about us is available. A person who
is our affiliate or who was our affiliate at any time during the preceding three months, and who has beneficially owned restricted
securities for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled
to sell a number of shares within any three-month period that does not exceed the greater of:
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●
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1%
of the number of shares of our common stock then outstanding, which currently would equal approximately [●] shares;
or
|
|
|
|
|
●
|
the
average weekly trading volume of our common stock on The NASDAQ Capital Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to the sale.
|
Sales
under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements, and to the availability
of current public information about us.
Rule
701
In
general, under Rule 701 of the Securities Act, any of our stockholders who purchased shares from us in connection with a qualified
compensatory stock plan or other written agreement before we became subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act is eligible to resell those shares in reliance on Rule 144. An affiliate of the issuer can resell shares in
reliance on Rule 144 without having to comply with the holding period requirements of Rule 144, and a non-affiliate of the issuer
can resell shares in reliance on Rule 144 without having to comply with the holding period requirements of Rule 144 and without
regard to the volume of such sales or the availability of public information about the issuer.
As
of December 31, 2016, options to purchase a total of 709,025 shares of common stock were outstanding, 635,690 of which were vested.
Equity
Plans
Shares
of our common stock issued under the Company’s 2007 Incentive Award Plan, as amended, and the Medytox Solutions,
Inc. 2013 Incentive Compensation Plan, are available for sale in the open market, subject to Rule 144 volume limitations.
SELLING
STOCKHOLDERS
The
shares of common stock being offered by the Selling Stockholders are those issuable to the Selling Stockholders upon exercise
of Series B Warrants . We are registering the shares of common stock in order to permit the Selling Stockholders to
offer the shares for resale from time to time. Except for the ownership of the Warrants and the Debentures, as well
as shares of common stock, preferred stock, convertible debentures, debentures and warrants, the Selling Stockholders have
not had any material relationship with us within the past three years.
The
table below lists the Selling Stockholders and other information regarding the beneficial ownership of the shares of common stock
by each of the Selling Stockholders. The first column lists the number of shares of common stock beneficially owned by each Selling
Stockholder, as of June 29, 2017, assuming exercise of the Warrants and conversion of the Debentures held by the Selling Stockholders
on that date, subject to any limitations on exercises or conversions.
Nasdaq
Marketplace Rule 5635(d) limits the number of shares (or securities, such as warrants, that are convertible into shares) that
can be issued without stockholder approval. We were required to obtain the approval of our stockholders in order to issue shares
of Common Stock underlying (1) the Debentures, and (2) the Warrants at a price less than the greater of book or market value which
equal 20% or more of our Common Stock outstanding before the issuance (the “20% Rule”). As of March 14, 2017, the
day prior to which the Purchase Agreement or the Exchange Agreements were entered into, we had 5,136,981 shares of Common Stock
outstanding. As of the date of issuance, the Debentures were convertible into an aggregate of 9,644,73 2 shares of Common
Stock and the Warrants were exercisable into an aggregate of 28,934,196 shares of Common Stock (assuming all Series C Warrants
were then exercisable), which represented more than 20% of our Common Stock then outstanding. The terms of the Debentures and
the Warrants, as described below, limited their conversion or exercisability, as the case may be, to a number of shares of Common
Stock equal to no more than 1,027,396 shares, which was less than the 20% limit, until stockholder approval was received.
Notwithstanding
anything in the Debentures or the Warrants to the contrary, until the Company received stockholder approval, the Company could
not issue, upon conversion of a Debenture or exercise of a Warrant, a number of shares of Common Stock which, when aggregated
with any shares of Common Stock issued on or after March 21, 2017 and prior to the conversion or exercise date, (i) in connection
with the conversions of any Debentures issued pursuant to the Purchase Agreement or the Exchange Agreements, or (ii) in connection
with the exercise of any Warrants issued pursuant to the Purchase Agreement or the Exchange Agreements (such securities, collectively
the “Issuance Capped Securities” and the holders of Issuance Capped Securities, the “Capped Holders”)
would exceed 1,027,396 shares of Common Stock (such number of shares, the “Issuable Maximum”). Each Capped Holder
was entitled to a portion of the Issuable Maximum equal to the quotient obtained by dividing (x) the holder’s original subscription
amount under the Purchase Agreement plus the exchange amounts exchanged pursuant to the Exchange Agreements, if any, by (y) the
aggregate original subscription amount (or exchange amounts if pursuant to the Exchange Agreements) of all Capped Holders. In
addition, a Capped Holder could allocate its pro-rata portion of the Issuable Maximum among Issuance Capped Securities held by
it in its sole discretion.
The
Company held a Special Meeting of its stockholders on June 16, 2017 at which the above stockholder approval was received.
In
addition, under the terms of the Warrants and the Debentures, a Selling Stockholder may not exercise the Warrants or convert the
Debentures to the extent such exercise or conversion would cause such Selling Stockholder, together with its affiliates and attribution
parties, to beneficially own a number of shares of Common Stock which would exceed 4.99% of our then outstanding Common Stock
following such exercise or conversion, excluding for purposes of such determination shares of Common Stock issuable upon exercise
of the Warrants or conversion of the Debentures which have not been exercised or converted. On July 10, 2017, the beneficial ownership
limitation contained in the Debentures owned by Sabby Healthcare Master Fund, Ltd. and Sabby Volatility Warrant Master Fund, Ltd.
was amended from 4.99% to 9.99%. The Selling Stockholders may sell all, some or none of their shares in this offering. See “Plan
of Distribution.”
Name
of Selling Stockholder
|
|
Number
of
shares of
Common Stock
Owned Prior
to Offering (3)
|
|
|
%
of shares
of Common
Stock Owned
Prior
to
Offering
|
|
|
Maximum
Number of
Shares of
Common
Stock
to be Sold
Pursuant
to
this
Prospectus(3)
|
|
|
Number
of
shares of
Common Stock
Owned
After
Offering
|
|
|
%
of
shares of
Common Stock
Owned
After
Offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sabby
Healthcare Master Fund, Ltd. (1)
|
|
|
133,369,701
|
(4)
|
|
|
9.99
|
%(7)
|
|
|
18,875,000
|
|
|
|
114,494,701
|
|
|
|
9.99
|
%(7)
|
Sabby
Volatility Warrant Master Fund, Ltd. (1)
|
|
|
28,619,827
|
(5)
|
|
|
9.99
|
%(7)
|
|
|
3,875,000
|
|
|
|
24,744,827
|
|
|
|
9.99
|
%(7)
|
Lincoln
Park Capital Fund, LLC (2)
|
|
|
15,364,708
|
(6)
|
|
|
4.99
|
%(8)
|
|
|
1,925,000
|
|
|
|
13,439,708
|
|
|
|
4.99
|
%(8)
|
Alpha
Capital Anstalt
|
|
|
2,341,648
|
(9)
|
|
|
4.99
|
%
(8)
|
|
|
325,000
|
|
|
|
2,016,648
|
|
|
|
4.99
|
%(8)
|
(1)
|
This
stockholder has indicated that Hal Mintz has voting and investment power over the shares held by it. This stockholder has
indicated that Sabby Management, LLC serves as its investment manager, that Hal Mintz is the manager of Sabby Management,
LLC and that each of Sabby Management, LLC and Hal Mintz disclaim beneficial ownership over these shares except to the extent
of any pecuniary interest therein.
|
(2)
|
Joshua
Scheinfeld and Jonathan Cope, the principals of Lincoln Park Capital, LLC, are deemed to be beneficial owners of all of the
shares of common stock owned by Lincoln Park Capital Fund, LLC. Messrs. Scheinfeld and Cope have shared voting and dispositive
power over the shares being offered.
|
(3)
|
The
actual number of shares of Common Stock offered hereby and included in the registration statement of which this prospectus
is a part includes, in accordance with Rule 416 under the Securities Act, such indeterminate number of additional shares of
our Common Stock as may become issuable in connection with any proportionate adjustment for any stock splits, stock combinations,
stock dividends, recapitalizations, anti-dilution adjustments or similar events with respect to our Common Stock.
|
(4)
|
Includes
the following shares of Common Stock and shares of Common Stock underlying convertible securities that are convertible or
exercisable within 60 days of June 29, 2017: (i) 24,601,281 shares of Common Stock issuable upon conversion of Debentures;
(ii) 103,698,191 shares of Common Stock issuable upon exercise of Warrants; (iii) 402,734 shares of Common Stock; (iv)
4,567,495 shares of Common Stock issuable upon exercise of warrants issued on July 19, 2016; and (v) 100,000 shares of Common
Stock issuable upon exercise of warrants issued on February 2, 2017. The conversion and exercise prices of the foregoing securities
are subject to adjustment. The conversion of the Debentures and the exercise of the Warrants held by this entity are
subject to ownership blockers of 9.99% and 4.99%, respectively.
|
(5)
|
Includes
the following shares of Common Stock and shares of Common Stock underlying convertible securities that are convertible or
exercisable within 60 days of June 29, 2017: (i) 5,700,340 shares of Common Stock issuable upon conversion of Debentures;
(ii) 21,298,720 shares of Common Stock issuable upon exercise of Warrants; (iii) 1,522,485 shares of Common Stock issuable
upon exercise of warrants issued on July 19, 2016; (iv) 2,166 shares of Common Stock issuable upon exercise of warrants issued
on February 25, 2015; and (v) 96,116 shares of Common Stock. The conversion and exercise prices of the foregoing securities
are subject to adjustment. The conversion of the Debentures and the exercise of the Warrants held by this entity are
subject to ownership blockers of 9.99% and 4.99%, respectively.
|
(6)
|
Includes
the following shares of Common Stock underlying convertible securities that are convertible or exercisable within 60 days
of June 29, 2017: (i) 2,963,734 shares of Common Stock issuable upon conversion of Debentures; (ii) 10,649,353 shares
of Common Stock issuable upon exercise of Warrants; (iii) 1,500,000 shares of Common Stock issuable upon exercise of warrants
issued on July 19, 2016 and listed on the NASDAQ Capital Market under the symbol “RNVAZ”; (iv) 35,765 shares of
Common Stock issuable upon exercise of warrants issued on July 19, 2016; and (v) 215,856 shares of Common Stock. The conversion
and exercise prices of the foregoing securities are subject to adjustment. The conversion of the Debentures and the exercise
of the Warrants held by this entity are subject to a 4.99% ownership blocker.
|
(7)
|
Represents
the aggregate combined percentage of shares beneficially owned by Sabby Healthcare Master Fund, Ltd. and Sabby Volatility
Warrant Master Fund, Ltd. The conversion of the Debentures and the exercise of the Warrants held by these entities
are subject to ownership blockers of 9.99% and 4.99%, respectively.
|
(8)
|
The
conversion of the Debentures and the exercise of the Warrants held by this entity are subject to a 4.99% ownership
blocker.
|
(9)
|
Includes the following shares of Common Stock
underlying convertible securities that are convertible or exercisable within 60 days of June 29, 2017: (i) 488,657 shares
of Common Stock issuable upon conversion of the Debentures; and (ii) 1,852,991 shares of Common Stock issuable upon exercise
of the Warrants.
|
PLAN
OF DISTRIBUTION
Each
Selling Stockholder of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time,
sell any or all of their securities covered hereby on the principal Trading Market or any other stock exchange, market or trading
facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling
Stockholder may use any one or more of the following methods when selling securities:
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●
|
ordinary
brokerage transactions and transactions in which the broker dealer solicits purchasers;
|
|
●
|
block
trades in which the broker dealer will attempt to sell the securities as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
|
|
●
|
purchases
by a broker dealer as principal and resale by the broker dealer for its account;
|
|
●
|
an
exchange distribution in accordance with the rules of the applicable exchange;
|
|
●
|
privately
negotiated transactions;
|
|
●
|
settlement
of short sales;
|
|
●
|
in
transactions through broker dealers that agree with the Selling Stockholders to sell a specified number of such securities
at a stipulated price per security;
|
|
●
|
through
the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
|
●
|
a
combination of any such methods of sale; or
|
|
●
|
any
other method permitted pursuant to applicable law.
|
The
Selling Stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act,
if available, rather than under this prospectus.
Broker
dealers engaged by the Selling Stockholders may arrange for other brokers dealers to participate in sales. Broker dealers may
receive commissions or discounts from the Selling Stockholders (or, if any broker dealer acts as agent for the purchaser of securities,
from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an
agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a
principal transaction a markup or markdown in compliance with FINRA IM-2440.
In
connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions
with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of
hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close
out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one
or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered
by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus
(as supplemented or amended to reflect such transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters”
within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement
or understanding, directly or indirectly, with any person to distribute the securities.
The
Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The
Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
We
agreed to keep this Prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling
Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without
the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act
or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under
the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed
brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered
hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not
simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined
in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of
purchases and sales of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus
available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser
at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
LEGAL
MATTERS
The
validity of the securities offered by this prospectus will be passed upon for us by Shutts & Bowen LLP, Miami, Florida.
EXPERTS
The
consolidated balance sheets of Rennova and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements
of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2016,
have been audited by Green & Company, CPAs, independent registered public accounting firm, as stated in their report which
is incorporated by reference herein. Such financial statements have been incorporated by reference herein in reliance on the report
of such firm given upon its authority as experts in accounting and auditing.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We
have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities being offered
by this prospectus. This prospectus does not contain all of the information in the registration statement and its exhibits. For
further information with respect to us and the securities offered by this prospectus, we refer you to the registration statement
and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit
to the registration statement. Each of these statements is qualified in all respects by this reference.
You
can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at www.sec.gov. You
may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street N.E., Washington,
D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the
SEC at 100 F Street N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference facilities.
We
are subject to the information and periodic reporting requirements of the Exchange Act, and we file periodic reports, proxy statements
and other information with the SEC. These periodic reports, proxy statements and other information are available for inspection
and copying at the public reference room and website of the SEC referred to above. We maintain a website at http://www.rennovahealth.com.
You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website
as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information
contained in, or that can be accessed through, our website is not incorporated by reference in, and is not part of, this prospectus.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The
following documents filed by Rennova Health, Inc. with the SEC are incorporated by reference into this prospectus. You should
carefully read and consider all of these documents before making an investment decision:
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●
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Annual
Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on April 11, 2017, as amended on Form 10-K/A,
filed with the SEC on April 28, 2017;
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●
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Quarterly
Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 22, 2017;
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●
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Quarterly
Report on Form 10-Q for the quarter ended June 30, 2017, filed with the SEC on August
14, 2017;
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●
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Current
Reports on Form 8-K, filed with the SEC on January 5, 2017, January 18, 2017, January 20, 2017, January 30, 2017, February
7, 2017, February 8, 2017, February 15, 2017, February 24, 2017, March 10, 2017, March 16, 2017, March 27, 2017, April 24,
2017, April 25, 2017, May 18, 2017, May 25, 2017, May 31, 2017, June 2, 2017, June 5, 2017, June 9, 2017, June 16, 2017, June
22, 2017, June 26, 2017, July 12, 2017, July 13, 2017, July 17, 2017 , July 20, 2017 , August 17, 2017, August 21,
2017 and August 28, 2017 ; and
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●
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Description
of the common stock contained in the Company’s Registration Statement on Form S-4 (File No. 333-205733) deemed effective
by the SEC on September 22, 2015.
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All
documents that we file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, on or after the date of this
prospectus and prior to the termination of this offering are also incorporated herein by reference and will automatically update
and, to the extent described above, supersede information contained or incorporated by reference in this prospectus and previously
filed documents that are incorporated by reference in this prospectus. However, anything herein to the contrary notwithstanding,
no document, exhibit or information or portion thereof that we have “furnished” or may in the future “furnish”
to (rather than “file” with) the SEC, including, without limitation, any document, exhibit or information filed pursuant
to Item 2.02, Item 7.01 and certain exhibits furnished pursuant to Item 9.01 of our Current Reports on Form 8-K, shall be incorporated
by reference into this prospectus.
We
will provide to each person, including any beneficial owner, to whom a prospectus is delivered, a copy of any or all of the reports
or documents that have been incorporated by reference into this prospectus but not delivered with this prospectus. We will provide
these reports upon written or oral request at no cost to the requester. Please direct your request, either in writing or by telephone,
to the Corporate Secretary, Rennova Health, Inc., 400 S. Australian Avenue, Suite 800, West Palm Beach, Florida 33401, telephone
number (561) 855-1626. We maintain a website at http://www.rennovahealth.com. You may access our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after such material
is electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website
is not incorporated by reference in, and is not part of, this prospectus.
25,000,000 Shares
of Common Stock
PROSPECTUS
[●],
2017
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
The
following table sets forth an itemization of the various expenses, all of which we will pay, in connection with the issuance and
distribution of the securities being registered. All of the amounts shown are estimated except the SEC Registration Fee.
SEC
Registration Fee
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$
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1,131
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Printing
and Engraving Fees
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Legal
Fees and Expenses
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Accounting
Fees and Expenses
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|
|
|
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Miscellaneous
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|
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Total
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$
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Item
14. Indemnification of Directors and Officers.
The
following is a summary of the statutes, certificate of incorporation, and bylaw provisions or other arrangements under which Rennova’s
directors and officers are insured or indemnified against liability in their capacities as such. All the directors and officers
of Rennova are covered by insurance policies maintained and held in effect by Rennova against certain liabilities for actions
taken in their capacities as such, including liabilities under the Securities Act.
Section
145 of Delaware General Corporation Law.
Rennova
is incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law (“DGCL”)
provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee, or agent
of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding
if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s
conduct was unlawful.
Section
145 also provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason
of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection
with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the corporation. However, no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only
to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the Court of Chancery of Delaware or such other court shall deem
proper.
Section
145 provides that to the extent that a present or former director or officer of a corporation has been successful on the merits
or otherwise in defense of any action, suit, or proceeding referred to above, or in defense of any claim, issue, or matter therein,
such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person
in connection therewith; provided that indemnification provided for by Section 145 or granted pursuant thereto shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled.
A
Delaware corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any such capacity or arising out of such person’s status as such whether
or not the corporation would have the power to indemnify such person against such liabilities under Section 145.
Certificate
of Incorporation Provisions on Exculpation and Indemnification.
Rennova’s
Certificate of Incorporation, as amended, provides that the personal liability of the directors of Rennova is eliminated to the
fullest extent permitted by paragraph (7) of Subsection 102 of the DGCL which provides that a director of Rennova shall not be
personally liable to either Rennova or any of its stockholders for monetary damages for a breach of fiduciary duty except for:
(i) breaches of the duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving
intentional misconduct or knowing violation of the law; (iii) as required by Section 174 of the DGCL; or (iv) a transaction resulting
in an improper personal benefit. In addition, the corporation has the power to indemnify any person serving as a director, officer
or agent of the corporation to the fullest extent permitted by law.
Bylaws
Provisions on Indemnification.
The
Rennova bylaws generally provide that Rennova shall indemnify, to the fullest extent permitted by applicable law as it presently
exists or may thereafter be amended, certain covered persons who was or is made or is threatened to be made a party or is otherwise
involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that
he or she, or a person for whom he or she is the legal representative, is or was a director or officer of Rennova or, while a
director or officer of Rennova, is or was serving at the request of Rennova as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such
covered person. The Rennova bylaws further specify that the rights provided in the bylaws shall not be exclusive of any other
rights that the covered person may have or thereafter acquire under any statute, provision of the Rennova charter, the Rennova
bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
Item
15. Recent Sales of Unregistered Securities.
On
June 30, 2015, the Company issued 6,667 shares of common stock to SS International Consulting Ltd., of which a former director
of the Company is the sole manager, pursuant to a consulting contract. These securities were not registered under the Securities
Act of 1933, as amended (the “Securities Act”), but were issued in reliance upon the exemption from registration provided
by Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.
On
March 8, 2016, the Company issued 444 shares of common stock to a consultant for services rendered. These securities were not
registered under the Securities Act but were issued in reliance upon the exemption from registration provided by Section 4(a)(2)
of the Securities Act as a transaction by an issuer not involving a public offering.
On
March 14, 2016, the Company issued 8,556 shares of common stock to its financial adviser in connection with the consummation of
the Merger. These securities were not registered under the Securities Act, but were issued in reliance upon the exemption from
registration provided by Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.
During
the three months ended June 30, 2016, the Company issued 1,461 shares of common stock for the cashless exercise of outstanding
warrants and issued 1,687 shares of common stock as an adjustment to previously converted preferred stock. The issuance of the
shares of common stock was exempt from the registration requirements of the Securities Act in accordance with Section 4(a)(2)
thereof, as a transaction by an issuer not involving any public offering.
On
July 11, 2016, the Company entered into Exchange Agreements with the holders of the Series C Preferred Stock and the holders of
the Company’s 215,054 warrants to purchase shares of common stock issued December 30, 2015 (the “December 2015 Warrants”),
to exchange such securities for shares of newly-authorized Series G Convertible Preferred Stock with a stated value of $1,000
per share (the “Series G Preferred Stock”) and new warrants to purchase shares of common stock (the “Exchange”).
The Exchange closed on July 19, 2016 in conjunction with the public offering, and the outstanding 8,740 shares of Series C Preferred
Stock and the December 2015 Warrants were exchanged for 13,793 shares of Series G Preferred Stock and new warrants to purchase
341,651 shares of the Company’s common stock. On July 6, 2016, stockholders representing approximately 74% of the voting
power of the Company approved the Exchange. The Exchange was made in reliance upon the exemption from the registration requirements
of the Securities Act pursuant to Section 3(a)(9) thereof based on the representations of the holders. No commission or other
remuneration was paid or given directly or indirectly for soliciting the Exchange.
On
August 5, 2016, the Company exchanged an aggregate of $2.1 million of indebtedness and other obligations to various related parties
for an aggregate of 184,815 shares of common stock and warrants to purchase 104,111 shares of the Company’s common stock.
On November 15, 2016, the Company exchanged $100,000 of accrued dividends payable to Steven Sramowicz for 7,408 shares of common
stock and warrants to purchase 7,408 shares of common stock. The warrants issued have an exercise price of $1.66 per share, are
immediately exercisable and have a five-year term. The issuance of the shares of common stock and warrants was exempt from the
registration requirements of the Securities Act, in accordance with Section 4(a)(2) thereof, as a transaction by an issuer not
involving any public offering.
On
September 15, 2016, the Company entered into a Securities Purchase Agreement with two accredited investors (the “Investors”)
whereby the Company sold to the Investors convertible notes in the aggregate principal amount of $440,000 (the “Notes”)
and issued to the Investors five-year warrants to purchase an aggregate of 66,667 shares of the Company’s common stock with
an exercise price of $12.00 per share (the “September Warrants”). The Notes did not accrue any interest provided that
the Company was not in default under the Notes, had a maturity date of March 15, 2017, and were convertible into shares of the
Company’s common stock at a conversion price of $7.50 per share. The Company received net proceeds of approximately $394,500
in connection with this transaction. The issuance of the Notes and September Warrants was exempt from the registration requirements
of the Securities Act, in accordance with Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.
On March 13, 2017, the Notes and the September Warrants were exchanged for 400,000 shares of common stock. The issuance of these
shares of common stock was except from the registration requirements of the Securities Act pursuant to Section 3(a)(9) thereof
based on the representations of the holders.
On
September 21, 2016, the Company issued an aggregate of 191,132 shares of the Company’s common stock in connection with the
conversion of all of the outstanding shares of the Company’s Series B Convertible Preferred Stock. The Company received
no consideration in connection with such conversion. The issuance of the shares of the Company’s common stock was exempt
from the registration requirements of the Securities Act, in accordance with Section 4(a)(2) thereof, as a transaction by an issuer
not involving a public offering.
On
September 29, 2016, the Company announced that it had entered into a Stock Purchase Agreement (the “Purchase Agreement”)
to acquire the remaining outstanding equity securities of Genomas, Inc. (“Genomas”) that the Company did not already
own, representing approximately 85% of the outstanding equity interests in Genomas, for up to 1,750,000 shares of the Company’s
newly designated Series F Convertible Preferred Stock (the “Series F Preferred Stock”). The Company had previously
announced that on July 19, 2016 it acquired approximately 15% of the outstanding equity of Genomas from Hartford Healthcare Corporation
(“Hartford”), along with approximately $1.5 million of notes payable to Hartford and certain rights to and license
participation in technology that is used by Genomas, for $250,000 in cash.
The
Series F Preferred Stock has an aggregate stated value of $1,750,000, and is convertible into shares of the Company’s common
stock at any time after the one-year anniversary of the closing date at a conversion price per common share equal to the greater
of $58.50 or the average closing sales price of the Company’s common stock for the 10 trading days immediately preceding
the conversion. The maximum number of common shares issuable upon the conversion of the Series F Preferred Stock is 29,915. Holders
of the Series F Preferred Stock have voting rights together with the holders of the Company’s common stock as a single class,
with each share of Series F Preferred Stock having one vote. The issuance of the shares of Series F Preferred Stock will be exempt
from the registration requirements of the Securities Act, in accordance with Section 4(a)(2) thereof, as a transaction by an issuer
not involving a public offering.
On
November 7, 2016, the Company issued 8,334 shares of common stock to a consultant for services rendered. These securities were
not registered under the Securities Act but were issued in reliance upon the exemption from registration provided by Section 4(a)(2)
of the Securities Act as a transaction by an issuer not involving a public offering.
During
the three months ended September 30, 2016, the Company issued 166 shares of common stock for the cashless exercise of outstanding
warrants. These securities were not registered under the Securities Act, but were issued in reliance upon the exemption from registration
provided by Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.
On
February 2, 2017, the Company issued $1,590,000 principal amount of Original Issue Discount Convertible Debentures due May 2,
2017 and warrants to purchase 100,000 shares of common stock. The issuance of the debentures and the warrants was exempt from
the registration requirements of the Securities Act in accordance with Section 4(a)(2) thereof, as a transaction by an issuer
not involving a public offering.
On
March 21, 2017, the Company issued $10,850,000 principal amount of Senior Secured Original Issued Discount Convertible Debentures
due March 21, 2019 and three series of warrants to purchase an aggregate of 19,608,426 shares of common stock. These securities
were issued in reliance on the exemption from registration contained in Section 4(a)(2) of the Securities Act as transactions
by an issuer not involving a public offering.
Also
on March 21, 2017, the Company issued $5,160,260 principal amount of Senior Secured Original Issued Discount Convertible Debentures
due March 21, 2019 and three series of warrants to purchase an aggregate of 9,325,773 shares of common stock in exchange for the
Original Issued Discount Convertible Debentures issued on February 2, 2017 and $2,174,000 stated value of Series H Convertible
Preferred Stock. These securities were issued in reliance on the exemption from registration contained in Section 3(a)(9) of the
Securities Act.
On
March 21, 2017, the Company issued 29,518 shares of common stock in exchange for warrants to purchase common stock issued on July
19, 2016. The shares of common stock were issued in reliance on the exemption from registration contained in Section 3(a)(9) of
the Securities Act.
On
March 21, 2017, the Company also issued to Christopher Diamantis, a director of the Company, warrants to purchase 250,000 shares
of common stock. The warrants were issued in reliance on the exemption from registration contained in Section 4(a)(2) of the Securities
Act as a transaction by an issuer not involving a public offering.
On
June 2, 2017, the Company issued $795,000 aggregate principal amount of Original Issue Discount Debentures due September 1, 2017
and warrants to purchase an aggregate of 500,000 shares of common stock. The issuance of the debentures and the warrants was exempt
from the registration requirements of the Securities Act in accordance with Section 4(a)(2) thereof, as a transaction by an issuer
not involving a public offering .
Since
March 31, 2017, the Company has issued an aggregate of 3,230,768 shares of the Company’s common stock in connection
with the conversions of an aggregate of 1,505 shares of the Company’s Series H Convertible Preferred Stock. The issuances
of the shares of the Company’s common stock were exempt from the registration requirements of the Securities Act in accordance
with Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.
On
June 22, 2017, the Company issued $1,902,700 aggregate principal amount of Original Issue Discount Debentures due September 22,
2017 and warrants to purchase an aggregate of 1,000,000 shares of common stock. The issuance of the debentures and the warrants
was exempt from the registration requirements of the Securities Act, in accordance with Section 4(a)(2) thereof, as a transaction
not involving a public offering or Section 3(a)(9) thereof .
On
July 17, 2017, the Company issued $4,136,862 aggregate principal amount of Original Issue Discount Debentures due October 17,
2017 and warrants to purchase an aggregate of 2,120,000 shares of common stock. The issuance of the debentures and the warrants
was exempt from the registration requirements of the Securities Act, in accordance with Section 4(a)(2) thereof, as a transaction
not involving a public offering, or Section 3(a)(9) thereof.
On August 15, 2017, the Company issued
500,000 shares of common stock to a consultant for services rendered. The issuance of the shares of the Company’s common
stock was exempt from the registration requirements of the Securities Act, in accordance with Section 4(a)(2) thereof, as a transaction
by an issuer not involving a public offering.
Item
16. Exhibits and Financial Statement Schedules.
(a)
Exhibits
See
the Exhibit Index attached to this Registration Statement, which is incorporated by reference herein.
(b)
Financial Statement Schedules
Financial
Statement Schedules are omitted because the information is included in our financial statements or notes to those financial statements.
Item
17. Undertakings
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described under Item 14 above, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The
undersigned registrant hereby undertakes that:
(1)
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To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
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(i)
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To
include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
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(ii)
|
To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration
statement;
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(iii)
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To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i),
(a)(1)(ii) and a(l)(iii) do not apply if the registration statement is on Form S-3 or Form F-3 and the information required
to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission
by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part
of the registration statement.
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(2)
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That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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(3)
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To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
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(4)
|
That,
for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
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(i)
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If
the registrant is relying on Rule 430B:
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A.
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Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as
of the date the filed prospectus was deemed part of and included in the registration statement; and
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B.
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Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance
on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information
required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement
as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract
of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the
issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration
statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement
made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated
or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that
was made in the registration statement or prospectus that was part of the registration statement or made in any such document
immediately prior to such effective date.
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(ii)
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If
the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance
on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such date of first use.
|
(5)
|
That,
for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial
distribution of the securities:
|
|
The
undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be
a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
|
|
(i)
|
Any
preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant
to Rule 424;
|
|
(ii)
|
Any
free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred
to by the undersigned registrant;
|
|
(iii)
|
The
portion of any other free writing prospectus relating to the offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the undersigned registrant; and
|
|
(iv)
|
Any
other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
|
(6)
|
For
purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
|
(7)
|
For
the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona fide offering thereof.
|
(8)
|
For
purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
|
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of West Palm Beach, State of Florida, on August 30 ,
2017.
|
RENNOVA
HEALTH, INC.
|
|
|
|
By:
|
/s/
Seamus Lagan
|
|
Name:
|
Seamus
Lagan
|
|
Title:
|
Director,
Chief Executive Officer, and President
|
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature
|
|
Title(s)
|
|
Date
|
|
|
|
|
|
/s/
Seamus Lagan
|
|
Director,
Chief Executive Officer, and President
|
|
August
30,
2017
|
Seamus
Lagan
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
Michael Pollack
|
|
Interim
Chief Financial Officer
|
|
August
30,
2017
|
Michael
Pollack
|
|
(Principal
Financial Officer)
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
August
30,
2017
|
Dr.
Kamran Ajami
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
August
30,
2017
|
Christopher
Diamantis
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
August
30,
2017
|
Trevor
Langley
|
|
|
|
|
*
By:
|
/s/
Seamus Lagan
|
|
|
Seamus
Lagan
|
|
|
Attorney-in-fact
|
|
EXHIBIT
INDEX
2.1
|
|
Agreement
and Plan of Merger, dated June 29, 2012, by and among Tegal Corporation, CLBR Acquisition Corp., CollabRx, Inc. and CommerceOne,
as Stockholders’ Representative (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed with the SEC on July 5, 2012).
|
2.2
|
|
Agreement
and Plan of Merger, dated as of April 15, 2015, by and among Medytox Solutions, Inc., CollabRx, Inc. and CollabRx Merger Sub,
Inc. (incorporated by reference to Annex A to the Company’s joint proxy statement/prospectus that was part of the registration
statement on Form S-4, filed with the SEC on September 18, 2015).
(1)
|
3.1
|
|
Certificate
of Incorporation, as amended (incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q
filed with the SEC on November 14, 2013).
|
3.2
|
|
Restated
Bylaws of Tegal Corporation (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed
with the SEC on November 3, 2006).
|
3.3
|
|
Certificate
of Amendment to Certificate of Incorporation of CollabRx, Inc., filed November 2, 2015 (incorporated by reference to Exhibit
3.1 of the Company’s Current Report on Form 8-K filed with the SEC on November 6, 2015).
|
3.4
|
|
Certificate
of Designation for Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 of the Company’s Current
Report on Form 8-K filed with the SEC on November 6, 2015).
|
3.5
|
|
Certificate
of Designation for Series E Convertible Preferred Stock (incorporated by reference to Exhibit 3.3 of the Company’s Current
Report on Form 8-K filed with the SEC on November 6, 2015).
|
3.6
|
|
Certificate
of Amendment to Certificate of Incorporation of Rennova Health, Inc., filed March 9, 2016 (Incorporated by reference to Exhibit
3.6 of the Company’s Annual Report on Form 10-K filed with the SEC on April 19, 2016)
|
3.7
|
|
Certificate
of Designation for Series C Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 of the Registrant’s
Current Report on Form 8-K filed with the SEC on December 30, 2015).
|
3.8
|
|
Certificate
of Designation for Series F Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s Current
Report on Form 8-K filed with the SEC on January 5, 2017).
|
3.9
|
|
Certificate
of Designation for Series G Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s Current
Report on Form 8-K filed with the SEC on July 19, 2016).
|
3.10
|
|
Certificate
of Designation for Series H Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s Current
Report on Form 8-K filed with the SEC on December 23, 2016).
|
3.11
|
|
Certificate
of Amendment to Certificate of Incorporation of Rennova Health, Inc., filed February 22, 2017 (incorporated by reference to
Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the SEC on February 24, 2017).
|
4.1
|
|
Stockholders
Agreement, dated July 12, 2012, by and among Tegal Corporation and the stockholders identified therein (incorporated by reference
to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on July 18, 2012).
|
4.2
|
|
Warrant
Agency Agreement, dated as of December 30, 2015, between Rennova Health, Inc. and Computershare, Inc. and its wholly-owned
subsidiary, Computershare Trust Company, N.A. (incorporated by reference to Exhibit 4.1 of the Company’s Current Report
on Form 8-K filed with the SEC on December 30, 2015.
|
4.3
|
|
Shareholder
Rights Agreement, dated as of April 13, 2011, by and between Tegal Corporation and Registrar and Transfer Company (incorporated
by reference to Exhibit 4.1 of the Company’s Registration Statement on Form 8-A filed with the SEC on April 14, 2011).
|
4.4
|
|
Amendment
to Shareholder Rights Agreement, dated April 15, 2015, by and between CollabRx, Inc. and Computershare Trust Company, N.A.
(incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the SEC on April 17,
2015).
|
4.5
|
|
Medytox
Solutions, Inc. Senior Secured, Convertible, Redeemable Debenture, effective September 11, 2015 (incorporated by reference
to Exhibit 4.1 to Medytox’s Current Report on Form 8-K filed with the SEC on September 18, 2015).
|
4.6
|
|
Form
of Common Stock Certificate (incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form
S-1 filed with the SEC on December 7, 2015).
|
4.7
|
|
Form
of Warrant in connection with the Exchange Agreement (incorporated by reference to Exhibit 4.8 to the Company’s Registration
Statement on Form S-1 (File No. 333-211515) filed with the SEC on July 12, 2016).
|
4.8
|
|
Warrant
Agency Agreement, dated as of July 19, 2016, between Rennova Health, Inc. and Computershare, Inc. and its wholly-owned subsidiary,
Computershare Trust Company, N.A. (incorporated by reference to the Company’s Current Report on Form 8-K filed with
the SEC on July 19, 2016).
|
4.9
|
|
Form
of Warrant in connection with the Securities Purchase Agreement, dated as of September 15, 2016 (incorporated by reference
to Exhibit 10.118 of the Company’s Current Report on Form 8-K filed with the SEC on September 21, 2016).
|
4.10
|
|
Common
Stock Purchase Warrant (incorporated by reference to Exhibit 10.124 of the Company’s Current Report on Form 8-K filed
with the SEC on February 8, 2017).
|
4.11
|
|
Form
of Series A/B/C Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.134 of the Company’s Current
Report on Form 8-K filed with the SEC on March 27, 2017).
|
4.12
|
|
Form
of Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.137 of the Company’s Current Report on Form
8-K filed with the SEC on June 5, 2017).
|
4.13
|
|
Form
of Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.141 of the Company’s Current Report on Form
8-K filed with the SEC on June 22, 2017).
|
5.1
|
|
Opinion
of Shutts & Bowen LLP, counsel to the Registrant, with respect to the legality of the securities being registered. (2)
|
10.1**
|
|
Fifth
Amended and Restated Stock Option Plan for Outside Directors (incorporated by reference to the Company’s Quarterly Report
on Form 10-Q, for the quarter ended June 30, 2006, filed with the SEC on August 14, 2006).
|
10.2**
|
|
Eighth
Amended and Restated 1998 Equity Participation Plan of Tegal Corporation (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 filed with the SEC on August 14, 2006).
|
10.3**
|
|
2007
Incentive Award Plan (incorporated by reference to Appendix A to the Company’s definitive proxy statement on Schedule
14A, filed with the SEC on July 29, 2007).
|
10.4**
|
|
Second
Amended and Restated Employee Qualified Stock Purchase Plan (incorporated by reference to Appendix C to the Company’s
revised definitive proxy statement on Schedule 14A filed with the SEC on July 29, 2004).
|
10.5
|
|
Form
of Stock Option Agreement for Employees from the 2007 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the SEC on December 21, 2007).
|
10.6**
|
|
Form
of Non-Qualified Stock Option Agreement for Employees from the Eighth Amended and Restated 1998 Equity Participation Plan
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November
12, 2004).
|
10.7**
|
|
Form
of Restricted Stock Unit Award Agreement from the Eighth Amended and Restated 1998 Equity Participation Plan (incorporated
by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on July 11, 2005).
|
10.8**
|
|
Restricted
Stock Unit Award Agreement between Tegal Corporation and Tom Mika, dated July 5, 2005 (incorporated by reference to Exhibit
10.4 to the Company’s Current Report on Form 8-K filed with the SEC on July 11, 2005).
|
10.9**
|
|
Restricted
Stock Unit Awards between Tegal Corporation and each of Thomas Mika and Christine Hergenrother, each dated October 7, 2010
(incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 10, 2010).
|
10.10
|
|
Warrant
issued to se2quel Partners LLC dated January 14, 2011 (incorporated by reference to Exhibit 99.3 to the Company’s Current
Report on Form 8-K filed with the SEC on January 21, 2011).
|
10.11
|
|
Warrant
issued to se2quel Management GmbH dated January 14, 2011 (incorporated by reference to Exhibit 99.4 to the Company’s
Current Report on Form 8-K filed with the SEC on January 21, 2011).
|
10.12
|
|
Warrant
Transfer Agreement and replacement Warrants issued dated March 31, 2012 (incorporated by reference to Exhibit 99.5 to the
Company’s Amendment No. 1 to its Annual Report on Form 10-K/A filed with the SEC on June 15, 2012).
|
10.13
|
|
Warrant
Transfer Agreement issued dated March 31, 2013 (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report
on Form 10-K filed with the SEC on June 27, 2013).
|
10.14**
|
|
Employment
Agreement, dated June 29, 2012, by and between Tegal Corporation and James Karis (incorporated by reference to Exhibit 10.2
to the Company’s Current Report on Form 8-K filed with the SEC on July 5, 2012).
|
10.15
|
|
Agreement
Not to Compete, dated July 12, 2012, by and between Tegal Corporation and Jay M. Tenenbaum (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 18, 2012).
|
10.16
|
|
Promissory
Note issued by Tegal Corporation on July 12, 2012 to Jay M. Tenenbaum (incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed with the SEC on July 18, 2012).
|
10.17
|
|
Promissory
Note issued by Tegal Corporation on July 12, 2012 to CommerceNet (incorporated by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K filed with the SEC on July 18, 2012).
|
10.18**
|
|
Restricted
Stock Unit Award Agreement, dated July 12, 2012, by and between Tegal Corporation and James Karis (incorporated by reference
to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the SEC on July 18, 2012).
|
10.19
|
|
Indemnity
Agreement, dated July 12, 2012, by and between Tegal Corporation and James Karis (incorporated by reference to Exhibit 10.8
to the Company’s Current Report on Form 8-K filed with the SEC on July 18, 2012).
|
10.20**
|
|
Amendment
No. 1 to Employment Agreement, dated as of December 7, 2012, by and between CollabRx, Inc. and James M. Karis (incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 7, 2012).
|
10.21**
|
|
Amendment
No. 1 to Restricted Stock Unit Award Agreement, dated as of December 7, 2012, by and between CollabRx, Inc. and James M. Karis
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on December
7, 2012).
|
10.22**
|
|
Employment
Agreement, dated February 12, 2013, by and among CollabRx, Inc. and Thomas R. Mika (incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K filed with the SEC on February 12, 2013).
|
10.23**
|
|
Stock
Option Grant Notice and Stock Option Agreement, dated July 12, 2012, by and between Tegal Corporation and Smruti Vidwans (incorporated
by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K filed with the SEC on June 27, 2013).
|
10.24**
|
|
Stock
Option Grant Notice and Stock Option Agreement, dated July 12, 2012, by and between Tegal Corporation and Michelle Turski
(incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K filed with the SEC on June 27,
2013).
|
10.25**
|
|
Stock
Option Grant Notice and Stock Option Agreement, dated July 12, 2012, by and between Tegal Corporation and Lisandra West (incorporated
by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed with the SEC on June 27, 2013).
|
10.26**
|
|
Stock
Option Grant Notice and Stock Option Agreement, dated July 12, 2012, by and between Tegal Corporation and Gavin Gordon (incorporated
by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K filed with the SEC on June 27, 2013).
|
10.27**
|
|
Stock
Option Grant Notice and Stock Option Agreement, dated July 12, 2012, by and between Tegal Corporation and John Randy Gobbel
(incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K filed with the SEC on June 27,
2013).
|
10.28**
|
|
Stock
Option Grant Notice and Stock Option Agreement, dated July 12, 2012, by and between Tegal Corporation and George Lundberg
(incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K filed with the SEC on June 27,
2013).
|
10.29**
|
|
Stock
Option Grant Notice and Stock Option Agreement, dated July 12, 2012, by and between Tegal Corporation and Jeff Shrager (incorporated
by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K filed with the SEC on June 27, 2013).
|
10.30
|
|
Loan
and Security Agreement, dated January 16, 2015, between CollabRx, Inc. and Medytox Solutions, Inc. (incorporated by reference
to Exhibit 10.1 to the Company’s Report on Form 8-K filed with the SEC on January 22, 2015).
|
10.31
|
|
Agreement,
dated January 16, 2015, between CollabRx, Inc. and Medytox Solutions, Inc. (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed with the SEC on January 22, 2015).
|
10.32
|
|
Parent
Support Agreement, dated April 15, 2015, between Medytox Solutions, Inc. and Thomas R. Mika (incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on April 17, 2015).
|
10.33
|
|
Form
of Company Support Agreement, dated April 15, 2015, between CollabRx, Inc. and certain Medytox Solutions, Inc. stockholders
identified therein (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with
the SEC on April 17, 2015).
|
10.34
|
|
Stockholders
Agreement, dated April 15, 2015, among CollabRx, Inc., Thomas R. Mika and certain Medytox Solutions, Inc. stockholders identified
therein (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on
April 17, 2015).
|
10.35
|
|
Agreement
regarding Termination of Employment, dated April 15, 2015, among CollabRx, Inc., Medytox Solutions, Inc. and Thomas R. Mika
(incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed with the SEC on April 17,
2015).
|
10.36
|
|
Agreement
regarding Termination of Employment, dated April 15, 2015, among CollabRx, Inc., Medytox Solutions, Inc. and Clifford Baron
(incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed with the SEC on April 17,
2015).
|
10.37
|
|
Form
of Employment Agreement among New Sub, CollabRx, Inc. and Thomas R. Mika (incorporated by reference to Exhibit 10.6 of the
Company’s Current Report on Form 8-K filed with the SEC on April 17, 2015).
|
10.38
|
|
Form
of Employment Agreement among New Sub, CollabRx, Inc. and Clifford Baron (incorporated by reference to Exhibit 10.7 of the
Company’s Current Report on Form 8-K filed with the SEC on April 17, 2015).
|
10.39
|
|
Agreement,
dated August 22, 2011, among Trident Laboratories, Inc., its shareholders and Medytox Institute of Laboratory Medicine, Inc.
(incorporated by reference to Exhibit 10.1 to Medytox’s Current Report on Form 8-K filed with the SEC on November 4,
2011).
|
10.40
|
|
Agreement,
dated August 22, 2011, among Medical Billing Choices, Inc., its shareholders and Medytox Solutions, Inc. (incorporated by
reference to Exhibit 10.2 to Medytox’s Current Report on Form 8-K filed with the SEC on November 4, 2011).
|
10.41
|
|
Promissory
Note, dated as of December 6, 2011, issued by Medytox Solutions, Inc. to Valley View Drive Associates, LLC (incorporated by
reference to Exhibit 10.1 to Medytox’s Current Report on Form 8-K filed with the SEC on December 12, 2011).
|
10.42
|
|
Convertible
Promissory Note, dated as of December 6, 2011, issued by Medytox Solutions, Inc. to Valley View Drive Associates, LLC (incorporated
by reference to Exhibit 10.2 to Medytox’s Current Report on Form 8-K filed with the SEC on December 12, 2011).
|
10.43
|
|
Security
Agreement, dated as of December 6, 2011, among Medytox Solutions, Inc., Medytox Management Solutions Corp., Medytox Institute
of Laboratory Medicine, Inc. and Valley View Drive Associates, LLC (incorporated by reference to Exhibit 10.3 to Medytox’s
Current Report on Form 8-K filed with the SEC on December 12, 2011).
|
10.44
|
|
Membership
Interest Purchase Agreement, dated as of February 16, 2012, between Marylu Villasenor Hall and Medytox Diagnostics, Inc. (incorporated
by reference to Exhibit 10.1 to Medytox’s Current Report on Form 8-K filed with the SEC on February 17, 2012).
|
10.45
|
|
Secured
Promissory Note, dated February 16, 2012, issued by Medytox Diagnostics, Inc. to Marylu Villasenor Hall (incorporated by reference
to Exhibit 10.2 to Medytox’s Current Report on Form 8-K filed with the SEC on February 17, 2012).
|
10.46
|
|
Senior
Secured Revolving Credit Facility Agreement, dated as of April 30, 2012, among Medytox Solutions, Inc., Medytox Medical Marketing
& Sales, Inc., Medytox Diagnostics, Inc., PB Laboratories, LLC and TCA Global Credit Master Fund, LP (incorporated by
reference to Exhibit 10.1 to Medytox’s Current Report on Form 8-K/A filed with the SEC on May 21, 2012).
|
10.47
|
|
Revolving
Promissory Note, dated April 30, 2012, issued by Medytox Solutions, Inc. to TCA Global Credit Master Fund, LP (incorporated
by reference to Exhibit 10.2 to Medytox’s Current Report on Form 8-K/A filed with the SEC on May 21, 2012).
|
10.48
|
|
Guaranty
Agreement, dated as of April 30, 2012, by Medytox Medical Marketing & Sales, Inc. in favor of TCA Global Credit Master
Fund, LP (incorporated by reference to Exhibit 10.3 to Medytox’s Current Report on Form 8-K/A filed with the SEC on
May 21, 2012).
|
10.49
|
|
Guaranty
Agreement, dated as of April 30, 2012, by Medytox Diagnostics, Inc. in favor of TCA Global Credit Master Fund, LP (incorporated
by reference to Exhibit 10.4 to Medytox’s Current Report on Form 8-K/A filed with the SEC on May 21, 2012).
|
10.50
|
|
Guaranty
Agreement, dated as of April 30, 2012, by PB Laboratories, LLC in favor of TCA Global Credit Master Fund, LP (incorporated
by reference to Exhibit 10.5 to Medytox’s Current Report on Form 8-K/A filed with the SEC on May 21, 2012).
|
10.51
|
|
Security
Agreement, dated as of April 30, 2012, between Medytox Solutions, Inc. and TCA Global Credit Master Fund, LP (incorporated
by reference to Exhibit 10.6 to Medytox’s Current Report on Form 8-K/A filed with the SEC on May 21, 2012).
|
10.52
|
|
Security
Agreement, dated as of April 30, 2012, between Medytox Medical Marketing & Sales, Inc. and TCA Global Credit Master Fund,
LP (incorporated by reference to Exhibit 10.7 to Medytox’s Current Report on Form 8-K/A filed with the SEC on May 21,
2012).
|
10.53
|
|
Security
Agreement, dated as of April 30, 2012, between Medytox Diagnostics, Inc. and TCA Global Credit Master Fund, LP (incorporated
by reference to Exhibit 10.8 to Medytox’s Current Report on Form 8-K/A filed with the SEC on May 21, 2012).
|
10.54
|
|
Security
Agreement, dated as of April 30, 2012, between PB Laboratories, LLC and TCA Global Credit Master Fund, LP (incorporated by
reference to Exhibit 10.9 to Medytox’s Current Report on Form 8-K/A filed with the SEC on May 21, 2012).
|
10.55
|
|
Amendment
No. 1 to Senior Secured Revolving Credit Facility, dated as of July 31, 2012, among Medytox Solutions, Inc., Medytox Medical
Marketing & Sales, Inc., Medytox Diagnostics, Inc., PB Laboratories, LLC and TCA Global Credit Master Fund, LP (incorporated
by reference to Exhibit 10.1 to Medytox’s Current Report on Form 8-K filed with the SEC on August 15, 2012).
|
10.56
|
|
Amended
and Restated Revolving Promissory Note, dated July 31, 2012, issued by Medytox Solutions, Inc. to TCA Global Credit Master
Fund, LP (incorporated by reference to Exhibit 10.2 to Medytox’s Current Report on Form 8-K filed with the SEC on August
15, 2012).
|
10.57
|
|
Amendment
to Convertible Promissory Note, dated as of July 27, 2012, between Medytox Solutions, Inc. and Valley View Drive Associates,
LLC (incorporated by reference to Exhibit 10.4 to Medytox’s Current Report on Form 8-K filed with the SEC on August
15, 2012).
|
10.58
|
|
Amendment
to Security Agreement, dated as of July 27, 2012, among Medytox Solutions, Inc., Medytox Medical Management Solutions Corp.
and Medytox Institute of Laboratory Medicine, Inc. in favor of Valley View Drive Associates, LLC (incorporated by reference
to Exhibit 10.5 to Medytox’s Current Report on Form 8-K filed with the SEC on August 15, 2012).
|
10.59
|
|
Membership
Interest Purchase Agreement, dated as of October 31, 2012, between Medytox Diagnostics, Inc. and Marylu Villasenor Hall (incorporated
by reference to Exhibit 10.10 to Medytox’s Quarterly Report on Form 10-Q/A filed with the SEC on November 21, 2012).
|
10.60
|
|
Secured
Promissory Note, dated October 31, 2012, issued by Medytox Diagnostics, Inc. to Marylu Villasenor Hall (incorporated by reference
to Exhibit 10.11 to Medytox’s Quarterly Report on Form 10-Q/A filed with the SEC on November 21, 2012).
|
10.61
|
|
Amendment
No. 2 to Senior Secured Revolving Credit Facility Agreement, dated as of October 31, 2012, among Medytox Solutions, Inc.,
Medytox Medical Marketing & Sales, Inc., Medytox Diagnostics, Inc., PB Laboratories, LLC and TCA Global Credit Master
Fund, LP (incorporated by reference to Exhibit 10.1 to Medytox’s Current Report on Form 8-K filed with the SEC on December
17, 2012).
|
10.62
|
|
Amended
and Restated Revolving Promissory Note, dated October 31, 2012, issued by Medytox Solutions, Inc. to TCA Global Credit Master
Fund, LP (incorporated by reference to Exhibit 10.2 to Medytox’s Current Report on Form 8-K filed with the SEC on December
17, 2012).
|
10.63
|
|
Stock
Purchase Agreement, dated as of December 7, 2012, between Luisa G. Suarez and Medytox Diagnostics, Inc. (incorporated by reference
to Exhibit 10.1 to Medytox’s Current Report on Form 8-K filed with the SEC on December 19, 2012).
|
10.64
|
|
Stock
Purchase Agreement, dated as of December 7, 2012, between Balbino Suarez and Medytox Diagnostics, Inc.(incorporated by reference
to Exhibit 10.2 to Medytox’s Current Report on Form 8-K filed with the SEC on December 19, 2012).
|
10.65
|
|
Secured
Promissory Note, dated December 7, 2012, issued by Medytox Diagnostics, Inc. to Balbino Suarez (incorporated by reference
to Exhibit 10.3 to Medytox’s Current Report on Form 8-K filed with the SEC on December 19, 2012).
|
10.66
|
|
Guarantee
of Medytox Solutions, Inc., dated December 7, 2012, of Secured Promissory Note issued to Balbino Suarez (incorporated by reference
to Exhibit 10.4 to Medytox’s Current Report on Form 8-K filed with the SEC on December 19, 2012).
|
10.67
|
|
Option
Agreement, dated as of December 31, 2012, between Joseph Fahoome and Medytox Solutions, Inc. (incorporated by reference to
Exhibit 10.1 to Medytox’s Current Report on Form 8-K filed with the SEC on January 15, 2013).
|
10.68
|
|
Option
Agreement, dated as of December 31, 2012, between Robert Kuechenberg and Medytox Solutions, Inc. (incorporated by reference
to Exhibit 10.2 to Medytox’s Current Report on Form 8-K filed with the SEC on January 15, 2013).
|
10.69
|
|
Amendment
No. 3 to Senior Secured Revolving Credit Facility Agreement, dated as of February 28, 2013, among Medytox Solutions, Inc.,
Medytox Medical Marketing & Sales, Inc., Medytox Diagnostics, Inc., PB Laboratories, LLC, Biohealth Medical Laboratory,
Inc., Advantage Reference Labs, Inc., and TCA Global Credit Master Fund, LP (incorporated by reference to Exhibit 10.1 to
Medytox’s Current Report on Form 8-K filed with the SEC on March 15, 2013).
|
10.70
|
|
Amended
and Restated Revolving Promissory Note, dated February 28, 2013, by Medytox Solutions, Inc. to TCA Global Credit Master Fund,
LP (incorporated by reference to Exhibit 10.2 to Medytox’s Current Report on Form 8-K filed with the SEC on March 15,
2013).
|
10.71
|
|
Guaranty
Agreement, dated as of January 22, 2013, by Biohealth Medical Laboratory, Inc. in favor of TCA Global Credit Master Fund,
LP (incorporated by reference to Exhibit 10.3 to Medytox’s Current Report on Form 8-K filed with the SEC on March 15,
2013).
|
10.72
|
|
Security
Agreement, dated as of January 22, 2013, between Biohealth Medical Laboratory, Inc. and TCA Global Credit Master Fund, LP
(incorporated by reference to Exhibit 10.4 to Medytox’s Current Report on Form 8-K filed with the SEC on March 15, 2013).
|
10.73
|
|
Guaranty
Agreement, dated as of February 28, 2013, by Advantage Reference Labs, Inc. in favor of TCA Global Credit Master Fund, LP
(incorporated by reference to Exhibit 10.5 to Medytox’s Current Report on Form 8-K filed with the SEC on March 15, 2013).
|
10.74
|
|
Security
Agreement, dated as of February 28, 2013, between Advantage Reference Labs, Inc. and TCA Global Credit Master Fund, LP (incorporated
by reference to Exhibit 10.6 to Medytox’s Current Report on Form 8-K filed with the SEC on March 15, 2013).
|
10.75
|
|
Consulting
Agreement, dated May 25, 2011, between Seamus Lagan and Medytox Solutions, Inc. (incorporated by reference to Exhibit 10.37
to Medytox’s Annual Report on Form 10-K filed with the SEC on April 16, 2013).
|
10.76
|
|
Consulting
Agreement, dated October 3, 2011, between Alcimede LLC and Medytox Solutions, Inc. (incorporated by reference to Exhibit 10.38
to Medytox’s Annual Report on Form 10-K filed with the SEC on April 16, 2013).
|
10.77
|
|
Consulting
Agreement, dated as of October 1, 2012, between Alcimede LLC and Medytox Solutions, Inc. (incorporated by reference to Exhibit
10.39 to Medytox’s Annual Report on Form 10-K filed with the SEC on April 16, 2013).
|
10.78**
|
|
Employment
Agreement, dated as of October 1, 2012, between Medytox Solutions, Inc. and Dr. Thomas F. Mendolia (incorporated by reference
to Exhibit 10.45 to Medytox’s Annual Report on Form 10-K filed with the SEC on April 16, 2013).
|
10.79
|
|
Stock
Purchase Agreement, dated as of January 1, 2013, among Bill White, Jackson R. Ellis and Medytox Diagnostics, Inc. (incorporated
by reference to Exhibit 10.46 to Medytox’s Annual Report on Form 10-K filed with the SEC on April 16, 2013).
|
10.80
|
|
Secured
Promissory Note, dated January 1, 2013, issued by Medytox Diagnostics, Inc. to Bill White (incorporated by reference to Exhibit
10.47 to Medytox’s Annual Report on Form 10-K filed with the SEC on April 16, 2013).
|
10.81
|
|
Secured
Promissory Note, dated January 1, 2013, issued by Medytox Diagnostics, Inc. to Jackson R. Ellis (incorporated by reference
to Exhibit 10.48 to Medytox’s Annual Report on Form 10-K filed with the SEC on April 16, 2013).
|
10.82
|
|
Promissory
Note, dated March 13, 2013, issued by Alethea Laboratories, Inc. to Summit Diagnostics, LLC (incorporated by reference to
Exhibit 10.49 to Medytox’s Annual Report on Form 10-K filed with the SEC on April 16, 2013).
|
10.83
|
|
Membership
Interest Purchase Agreement, dated as of January 14, 2013, as amended, among Reginald Samuels, Ralph Perricelli and Medytox
Diagnostics, Inc. (incorporated by reference to Exhibit 10.50 to Medytox’s Annual Report on Form 10-K filed with the
SEC on April 16, 2013).
|
10.84
|
|
Convertible
Debenture, dated April 4, 2013, issued by Medytox Solutions, Inc. to Reginald Samuels (incorporated by reference to Exhibit
10.51 to Medytox’s Annual Report on Form 10-K filed with the SEC on April 16, 2013).
|
10.85
|
|
Convertible
Debenture, dated April 4, 2013, issued by Medytox Solutions, Inc. to Ralph Perricelli (incorporated by reference to Exhibit
10.52 to Medytox’s Annual Report on Form 10-K filed with the SEC on April 16, 2013).
|
10.86
|
|
Option
Agreement, effective as of April 19, 2013, between Christopher E. Diamantis and Medytox Solutions, Inc. (incorporated by reference
to Exhibit 10.1 to Medytox’s Current Report on Form 8-K filed with the SEC on April 26, 2013).
|
10.87
|
|
Option
Agreement, effective as of April 19, 2013, between Benjamin Frank and Medytox Solutions, Inc. (incorporated by reference to
Exhibit 10.2 to Medytox’s Current Report on Form 8-K filed with the SEC on April 26, 2013).
|
10.88
|
|
Amendment
No. 4 to Senior Secured Revolving Credit Facility Agreement, dated as of June 30, 2013, among Medytox Solutions, Inc., Medytox
Medical Marketing & Sales, Inc., Medytox Diagnostics, Inc., PB Laboratories, LLC, Biohealth Medical Laboratory, Inc.,
Advantage Reference Labs, Inc., International Technologies, LLC, Alethea Laboratories, Inc. and TCA Global Credit Master Fund,
LP (incorporated by reference to Exhibit 10.1 to Medytox’s Current Report on Form 8-K filed with the SEC on July 24,
2013).
|
10.89
|
|
Fourth
Amended and Restated Revolving Promissory Note, dated June 30, 2013 (effective date July 15, 2013), issued by Medytox Solutions,
Inc. to TCA Global Credit Master Fund, LP (incorporated by reference to Exhibit 10.2 to Medytox’s Current Report on
Form 8-K filed with the SEC on July 24, 2013).
|
10.90
|
|
Guaranty
Agreement, dated as of July 15, 2013, by International Technologies, LLC in favor of TCA Global Credit Master Fund, LP (incorporated
by reference to Exhibit 10.3 to Medytox’s Current Report on Form 8-K filed with the SEC on July 24, 2013).
|
10.91
|
|
Security
Agreement, dated as of July 15, 2013, between International Technologies, LLC and TCA Global Credit Master Fund, LP (incorporated
by reference to Exhibit 10.4 to Medytox’s Current Report on Form 8-K filed with the SEC on July 24, 2013).
|
10.92
|
|
Guaranty
Agreement, dated as of July 15, 2013, by Alethea Laboratories, Inc. in favor of TCA Global Credit Master Fund, LP (incorporated
by reference to Exhibit 10.5 to Medytox’s Current Report on Form 8-K filed with the SEC on July 24, 2013).
|
10.93
|
|
Security
Agreement, dated as of July 15, 2013, between Alethea Laboratories, Inc. and TCA Global Credit Master Fund, LP (incorporated
by reference to Exhibit 10.6 to Medytox’s Current Report on Form 8-K filed with the SEC on July 24, 2013).
|
10.94
|
|
Amendment,
dated July 12, 2013, to the Agreement, dated August 22, 2011, among Medical Billing Choices, Inc., its shareholders and Medytox
Solutions, Inc. (incorporated by reference to Exhibit 10.53 to Medytox’s Quarterly Report on Form 10-Q filed with the
SEC on August 14, 2013).
|
10.95**
|
|
Form
of Medytox Solutions, Inc. 2013 Incentive Compensation Plan Restricted Stock Agreement (incorporated by reference to Exhibit
10.1 to Medytox’s Current Report on Form 8-K filed with the SEC on March 19, 2014).
|
10.96
|
|
Stock
Purchase Agreement, dated as of March 18, 2014, by and among Clinlab, Inc., Daniel Stewart, James A. Wilson, Medytox Information
Technology, Inc. and Medytox Solutions, Inc. (incorporated by reference to Exhibit 10.65 to Medytox’s Annual Report
on Form 10-K filed with the SEC on March 31, 2014).
|
10.97
|
|
Form
of Purchase Option Agreement between Medytox Solutions, Inc., and each holder of Series B Preferred Stock (incorporated by
reference to Exhibit 10.66 to Medytox’s Annual Report on Form 10-K filed with the SEC on March 31, 2014).
|
10.98
|
|
Consulting
Agreement, dated March 15, 2014, between Medytox Solutions, Inc. and SS International Consulting, Ltd. (incorporated by reference
to Exhibit 10.67 to Medytox’s Annual Report on Form 10-K filed with the SEC on March 31, 2014).
|
10.99
|
|
Stock
Purchase Agreement, dated as of August 26, 2014, by and among Epinex Diagnostics Laboratories, Inc., Epinex Diagnostics, Inc.,
Medytox Diagnostics, Inc. and Medytox Solutions, Inc. (incorporated by reference to Exhibit 10.1 to Medytox’s Current
Report on Form 8-K filed with the SEC on August 28, 2014).
|
10.100**
|
|
Agreement
for the Retirement as CEO and Release of Any and All Claims by and between Medytox Solutions, Inc. and William G. Forhan,
dated August 26, 2014, effective as of September 11, 2014 (incorporated by reference to Exhibit 10.1 to Medytox’s Current
Report on Form 8-K filed with the SEC on September 12, 2014).
|
10.101
|
|
Amendment
to Consulting Agreement, by and between Medytox Solutions, Inc. and Alcimede LLC, dated as of September 11, 2014 (incorporated
by reference to Exhibit 10.2 to Medytox’s Current Report on Form 8-K filed with the SEC on September 12, 2014).
|
10.102**
|
|
Employment
Agreement by and between Medytox Solutions, Inc. and Samuel R. Mitchell, dated as of February 4, 2015 (incorporated by reference
to Exhibit 10.1 to Medytox’s Current Report on Form 8-K filed with the SEC on February 18, 2015).
|
10.103**
|
|
Amendment
to the Tegal Corporation 2007 Incentive Award Plan (incorporated by reference to Exhibit 4.2 to the Company’s Registration
Statement on Form S-8 filed with the SEC on July 7, 2011).
|
10.104
|
|
Amendment
to Consulting Agreement, by and between SS International Consulting, Ltd. and Medytox Solutions, Inc., dated as of June 30,
2015 (incorporated by reference to Exhibit 10.1 to Medytox’s Current Report on Form 8-K filed with the SEC on September
18, 2015).
|
10.105**
|
|
Employment
Agreement, dated as of September 9, 2015, between Medytox Solutions, Inc. and Jason P. Adams (incorporated by reference to
Exhibit 10.2 to Medytox’s Current Report on Form 8-K filed with the SEC on September 18, 2015).
|
10.106**
|
|
Amendment
to Employment Agreement, dated as of June 16, 2015, between Medytox Solutions, Inc. and Sharon Hollis (incorporated by reference
to Exhibit 10.3 to Medytox’s Current Report on Form 8-K filed with the SEC on September 18, 2015).
|
10.107
|
|
Securities
Purchase Agreement, effective September 11, 2015, by and between Medytox Solutions, Inc. and TCA Global Credit Master Fund,
LP (incorporated by reference to Exhibit 10.1 to Medytox’s Current Report on Form 8-K filed with the SEC on September
18, 2015).
|
10.108
|
|
Form
of Guaranty Agreement (incorporated by reference to Exhibit 10.2 to Medytox’s Current Report on Form 8-K filed with
the SEC on September 18, 2015).
|
10.109
|
|
Security
Agreement, effective September 11, 2015 by and between Medytox Solutions, Inc. and TCA Global Credit Master Fund, LP (incorporated
by reference to Exhibit 10.3 to Medytox’s Current Report on Form 8-K filed with the SEC on September 18, 2015).
|
10.110
|
|
Form
of Security Agreement (incorporated by reference to Exhibit 10.4 to Medytox’s Current Report on Form 8-K filed with
the SEC on September 18, 2015).
|
10.111
|
|
Medytox
Solutions, Inc. 2013 Incentive Compensation Plan, filed as Exhibit 4.1 to Medytox’s Registration Statement on Form S-8
filed with the SEC on December 23, 2013 and incorporated by reference herein.
|
10.112**
|
|
Amendment
to the Tegal Corporation 2007 Incentive Award Plan (incorporated by reference to Exhibit 10.3 to the Company’s Registration
Statement on Form S-8 (File No. 333-210909) filed with the SEC on April 25, 2016).
|
10.113
|
|
Consulting
Agreement dated August 1, 2015 between Medytox Solutions, Inc. and Monarch Capital, LLC (incorporated by reference to Exhibit
10.112 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 17, 2016).
|
10.114
|
|
Prepaid
Forward Purchase Agreement dated as of March 31, 2016 by and between Racine Funding Co., LLC and Rennova Health, Inc., Biohealth
Medical Laboratory, Inc. and PB Laboratories, LLC (incorporated by reference to Exhibit 10.114 to the Company’s Registration
Statement on Form S-1/A filed with the SEC on July 7, 2016).
|
10.115
|
|
Form
of Exchange Agreement, dated July 11, 2016 (incorporated by reference to Exhibit 10.115 of the Company’s Registration
Statement on Form S-1 (File No. 333-211515) filed with the SEC on July 12, 2016).
|
10.116
|
|
Securities
Purchase Agreement, dated as of September 15, 2016 (incorporated by reference to Exhibit 10.116 of the Company’s Current
Report on Form 8-K filed with the SEC on September 21, 2016).
|
10.117
|
|
Form
of Note in connection with the Securities Purchase Agreement (incorporated by reference to Exhibit 10.117 of the Company’s
Current Report on Form 8-K filed with the SEC on September 21, 2016).
|
10.118
|
|
Stock
Purchase Agreement, dated as of September 29, 2016, by and among Genomas, Inc., the Sellers set forth in Schedule D thereto,
Medytox Diagnostics, Inc. and Rennova Health, Inc. (incorporated by reference to Exhibit 10.119 of the Company’s Current
Report on Form 8-K filed with the SEC on October 5, 2016).
|
10.119**
|
|
Executive
Transition and Separation Agreement and General Release, dated September 28, 2016, between Rennova Health, Inc. and Jason
Adams (incorporated by reference to Exhibit 10.120 of the Company’s Current Report on Form 8-K filed with the SEC on
October 5, 2016).
|
10.120
|
|
Form
of Share Redemption Agreement (incorporated by reference to Exhibit 10.120 of the Company’s Post-Effective Amendment
No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC on December 16, 2016).
|
10.121
|
|
Asset
Purchase Agreement dated as of October 26, 2016 by and among Pioneer Health Services of Oneida LLC, Pioneer Health Services
of Oneida Real Estate LLC, and Rennova Health, Inc. as amended by Amendment No. 1 to the Asset Purchase Agreement, dated as
of December 31, 2016, and as further amended by Amendment No. 2 to the Asset Purchase Agreement, dated as of January 6, 2017
(incorporated by reference to Exhibit 10.121 of the Company’s Current Report on Form 8-K filed with the SEC on January
20, 2017).
|
10.122
|
|
Securities
Purchase Agreement dated January 29, 2017 between Rennova Health, Inc. and Sabby Healthcare Master Fund, Ltd. (incorporated
by reference to Exhibit 10.122 of the Company’s Current Report on Form 8-K filed with the SEC on January 30, 2017).
|
10.123
|
|
Original
Issue Discount Convertible Debenture due May 2, 2017 (incorporated by reference to Exhibit 10.123 of the Company’s Current
Report on Form 8-K filed with the SEC on February 8, 2017).
|
10.124
|
|
Subsidiary
Guarantee between the subsidiaries of the Registrant party thereto and Sabby Healthcare Master Fund, Ltd. (incorporated by
reference to Exhibit 10.125 of the Company’s Current Report on Form 8-K filed with the SEC on February 8, 2017).
|
10.125
|
|
Securities
Purchase Agreement, dated as of March 15, 2017, between Rennova Health, Inc. and each purchaser identified on the signature
pages thereto (incorporated by reference to Exhibit 10.126 of the Company’s Current Report on Form 8-K filed with the
SEC on March 16, 2017).
|
10.126
|
|
Form
of Senior Secured Original Issue Discount Convertible Debenture (incorporated by reference to Exhibit 10.127 of the Company’s
Current Report on Form 8-K filed with the SEC on March 16, 2017).
|
10.127
|
|
Form
of Security Agreement (incorporated by reference to Exhibit 10.129 of the Company’s Current Report on Form 8-K filed
with the SEC on March 16, 2017).
|
10.128
|
|
Form
of Subsidiary Guarantee (incorporated by reference to Exhibit 10.130 of the Company’s Current Report on Form 8-K filed
with the SEC on March 16, 2017).
|
10.129
|
|
Exchange
Agreement, dated as of March 15, 2017, between Rennova Health, Inc. and the investors signatory thereto (incorporated by reference
to Exhibit 10.131 of the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2017).
|
10.130
|
|
Side
Letter, dated March 20, 2017, between Rennova Health, Inc. and TCA Global Credit Master Fund, LP (incorporated by reference
to Exhibit 10.138 of the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2017).
|
10.131
|
|
Security
Agreement, dated as of March 20, 2017, between Rennova Health, Inc. and TCA Global Credit Master Fund, LP (incorporated by
reference to Exhibit 10.139 of the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2017).
|
10.132
|
|
Guaranty
Agreement, dated as of March 20, 2017, by Rennova Health, Inc. in favor of TCA Global Credit Master Fund, LP (incorporated
by reference to Exhibit 10.140 of the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2017).
|
10.133
|
|
Intercreditor
Agreement, dated as of March 20, 2017, between Sabby Management, LLC, as Agent, and TCA Global Credit Master Fund, LP (incorporated
by referenced to Exhibit 10.141 of the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2017).
|
10.134
|
|
Services
Agreement, dated as of March 20, 2017, between Rennova Health, Inc. and TCA Global Credit Master Fund, LP (incorporated by
reference to Exhibit 10.142 of the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2017).
|
10.135
|
|
Securities
Purchase Agreement, dated as of June 2, 2017, between Rennova Health, Inc. and each purchaser identified on the signature
pages thereto (incorporated by reference to Exhibit 10.135 of the Company’s Current Report on Form 8-K filed with the
SEC on June 5, 2017).
|
10.136
|
|
Form
of Original Issue Discount Debenture (incorporated by reference to Exhibit 10.136 of the Company’s Current Report on
Form 8-K filed with the SEC on June 5, 2017).
|
10.137
|
|
Form
of Subsidiary Guarantee (incorporated by reference to Exhibit 10.138 of the Company’s Current Report on Form 8-K filed
with the SEC on June 5, 2017).
|
10.138
|
|
Securities
Purchase Agreement, dated as of June 21, 2017, between Rennova Health, Inc. and each purchaser identified on the signature
pages thereto (incorporated by reference to Exhibit 10.139 of the Company’s Current Report on Form 8-K filed with the
SEC on June 22, 2017).
|
10.139
|
|
Form
of Original Issue Discount Debenture (incorporated by reference to Exhibit 10.140 of the Company’s Current Report on
Form 8-K filed with the SEC on June 22, 2017).
|
10.140
|
|
Form
of Subsidiary Guarantee (incorporated by reference to Exhibit 10.142 of the Company’s Current Report on Form 8-K filed
with the SEC on June 22, 2017).
|
10.141
|
|
Amendment,
dated July 10, 2017, among Rennova Health, Inc. and Sabby Healthcare Master Fund, Ltd. and Sabby Volatility Warrant Master
Fund, Ltd. (incorporated by reference to Exhibit 10.141 of the Company’s Current Report on Form 8-K filed with the SEC
on July 13, 2017).
|
10.142
|
|
Securities
Purchase Agreement, dated as of July 16, 2017, between Rennova Health, Inc. and each purchaser identified on the signature
pages thereto (incorporated by reference to Exhibit 10.144 of the Company’s Current Report on Form 8-K filed with the
SEC on July 17, 2017).
|
10.143
|
|
Form
of Original Issue Discount Debenture (incorporated by reference to Exhibit 10.145 of the Company’s Current Report on
Form 8-K filed with the SEC on July 17, 2017).
|
10.144
|
|
Form
of Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.146 of the Company’s Current Report on Form
8-K filed with the SEC on July 20, 2017).
|
10.145
|
|
Form
of Subsidiary Guarantee (incorporated by reference to Exhibit 10.147 of the Companys Current Report on Form 8-K filed with
the SEC on July 17, 2017).
|
10.146
|
|
Form of Rennova Health, Inc. 2007 Incentive Award
Plan Grant Agreement (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the
SEC on August 21, 2017).
|
21
|
|
List
of Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to the Company’s Registration Statement on
Form S-1 (File No. 333-217350) filed with the SEC on May 17, 2017).
|
23.1
|
|
Consent
of Independent Registered Public Accounting Firm – Green & Company, CPAs. (2)
|
23.2
|
|
Consent
of Shutts & Bowen LLP (included in Exhibit 5.1).
|
24.1
|
|
Power
of Attorney for Rennova Health, Inc. (included on signature page of registration statement filed on July 3, 2017).
|
101.INS
|
|
XBRL
Instance Document. (3)
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document. (3)
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document. (3)
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document. (3)
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document. (3)
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document. (3)
|
(1)
|
The
exhibits to the Agreement and Plan of Merger have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K.
Rennova Health, Inc. will furnish copies of any such schedules and exhibits to the U.S. Securities and Exchange Commission
upon request.
|
(2)
|
Filed
herewith
|
(3)
|
Filed
as exhibits to the Company’s Form 10-K for the year ended December 31, 2016, and Form 10-Q for the quarter ended March
31, 2017, filed on April 11, 2017 and May 22, 2017, respectively, with corresponding exhibit numbers, and incorporated herein
by reference.
|
**
|
Management
contract for compensatory plan or arrangement.
|