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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-33135
Regional Health Properties, Inc.
(Exact name of registrant as specified in its charter)
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Georgia |
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81-5166048 |
(State or other jurisdiction of incorporation) |
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(I.R.S. Employer Identification Number) |
1050 Crown Pointe Parkway, Suite 720, Atlanta, GA 30338
(Address of principal executive offices)
(678) 869-5116
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Common Stock, no par value |
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RHE |
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NYSE American |
Series A Redeemable
Preferred Stock, no par value |
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RHE-PA |
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NYSE American |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
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Large accelerated filer |
☐ |
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Accelerated filer |
☐ |
Non-accelerated filer |
☒ |
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Smaller reporting company |
☒ |
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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 13(a) of the Exchange Act. Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
As of May 13, 2024 the registrant had 1,839,028 shares of common stock, no par value, outstanding.
Regional Health Properties, Inc.
Form 10-Q
Table of Contents
Part I. Financial Information
Item 1. Financial Statements
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in 000's)
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March 31, 2024 |
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December 31, 2023 |
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(Unaudited) |
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ASSETS |
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Property and equipment, net |
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$ |
44,885 |
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$ |
45,337 |
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Cash |
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752 |
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953 |
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Restricted cash |
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3,223 |
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3,231 |
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Accounts receivable, net of allowances of $2,056 and $2,040 |
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1,464 |
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1,403 |
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Prepaid expenses and other |
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410 |
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609 |
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Notes receivable |
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1,034 |
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1,044 |
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Intangible assets - bed licenses |
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2,471 |
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2,471 |
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Intangible assets - lease rights, net |
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83 |
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87 |
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Right-of-use operating lease assets |
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2,455 |
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2,556 |
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Goodwill |
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1,585 |
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1,585 |
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Lease deposits and other deposits |
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4 |
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4 |
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Straight-line rent receivable |
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2,859 |
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2,901 |
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Total assets |
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$ |
61,225 |
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$ |
62,181 |
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LIABILITIES AND EQUITY (DEFICIT) |
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|
Senior debt, net |
|
$ |
43,500 |
|
|
$ |
43,855 |
|
Bonds, net |
|
|
5,993 |
|
|
|
5,991 |
|
Other debt, net |
|
|
516 |
|
|
|
889 |
|
Accounts payable |
|
|
3,106 |
|
|
|
2,493 |
|
Accrued expenses |
|
|
4,240 |
|
|
|
4,060 |
|
Operating lease obligation |
|
|
2,807 |
|
|
|
2,917 |
|
Other liabilities |
|
|
1,797 |
|
|
|
1,791 |
|
Total liabilities |
|
|
61,959 |
|
|
|
61,996 |
|
|
|
|
|
|
|
|
Stockholders' equity (deficit): |
|
|
|
|
|
|
Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 1,850 shares issued and 1,839 shares outstanding at March 31, 2024 and December 31, 2023 |
|
|
63,102 |
|
|
|
63,059 |
|
Preferred stock, no par value; 5,000 shares authorized (including amounts authorized for Series A and Series B); shares issued and outstanding designated as follows: |
|
|
|
|
|
|
Preferred stock, Series A, no par value; 560 shares authorized, issued and outstanding at March 31, 2024 and December 31, 2023, with a redemption amount $426 at March 31, 2024 and December 31, 2023 |
|
|
426 |
|
|
|
426 |
|
Preferred stock, Series B, no par value; 2,812 shares authorized; 2,252 shares issued and outstanding at March 31, 2024 and December 31, 2023, with a redemption amount $18,602 at March 31, 2024 and December 31, 2023 |
|
|
18,602 |
|
|
|
18,602 |
|
Accumulated deficit |
|
|
(82,864 |
) |
|
|
(81,902 |
) |
Total stockholders' equity (deficit) |
|
|
(734 |
) |
|
|
185 |
|
Total liabilities and stockholders' equity (deficit) |
|
$ |
61,225 |
|
|
$ |
62,181 |
|
See accompanying notes to unaudited consolidated financial statements.
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000's)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2024 |
|
|
2023 |
|
|
Revenues: |
|
|
|
|
|
|
Patient care revenues |
$ |
2,309 |
|
|
$ |
1,916 |
|
|
Rental revenues |
|
1,818 |
|
|
|
1,708 |
|
|
Management fees |
|
— |
|
|
|
278 |
|
|
Other revenues |
|
— |
|
|
|
4 |
|
|
Total revenues |
|
4,127 |
|
|
|
3,906 |
|
|
Expenses: |
|
|
|
|
|
|
Patient care expense |
|
2,101 |
|
|
|
2,321 |
|
|
Facility rent expense |
|
149 |
|
|
|
149 |
|
|
Cost of management fees |
|
— |
|
|
|
141 |
|
|
Depreciation and amortization |
|
511 |
|
|
|
510 |
|
|
General and administrative expense |
|
1,632 |
|
|
|
1,531 |
|
|
Doubtful accounts expense |
|
28 |
|
|
|
16 |
|
|
Total expenses |
|
4,421 |
|
|
|
4,668 |
|
|
Loss from operations |
|
(294 |
) |
|
|
(762 |
) |
|
Other expense: |
|
|
|
|
|
|
Interest expense, net |
|
674 |
|
|
|
680 |
|
|
Other (income) expense, net |
|
(6 |
) |
|
|
550 |
|
|
Total other expense, net |
|
668 |
|
|
|
1,230 |
|
|
Net loss |
|
(962 |
) |
|
|
(1,992 |
) |
|
Preferred stock dividends - undeclared |
|
— |
|
|
|
(2,249 |
) |
|
Net loss attributable to Regional Health Properties, Inc. common stockholders |
$ |
(962 |
) |
|
$ |
(4,241 |
) |
|
Net loss per share of common stock attributable to Regional Health Properties, Inc. |
|
|
|
|
|
|
Basic and Diluted |
$ |
(0.52 |
) |
|
$ |
(2.28 |
) |
|
Weighted average shares of common stock outstanding: |
|
|
|
|
|
|
Basic and Diluted |
|
1,839 |
|
|
|
1,862 |
|
|
See accompanying notes to unaudited consolidated financial statements.
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Amounts in 000's)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of
Common
Stock |
|
|
Shares of
Preferred
Stock A |
|
|
Shares of
Preferred
Stock B |
|
|
Shares of Treasury Stock |
|
|
Common
Stock and
Additional
Paid-in
Capital |
|
|
Preferred Stock A, no par value |
|
|
Preferred Stock B, no par value |
|
|
Accumulated
Deficit |
|
|
Total |
|
Balance, December 31, 2023 |
|
|
1,839 |
|
|
|
560 |
|
|
|
2,252 |
|
|
|
(11 |
) |
|
$ |
63,059 |
|
|
$ |
426 |
|
|
$ |
18,602 |
|
|
$ |
(81,902 |
) |
|
$ |
185 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
43 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
43 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(962 |
) |
|
|
(962 |
) |
Balances, March 31, 2024 |
|
|
1,839 |
|
|
|
560 |
|
|
|
2,252 |
|
|
|
(11 |
) |
|
$ |
63,102 |
|
|
$ |
426 |
|
|
$ |
18,602 |
|
|
$ |
(82,864 |
) |
|
$ |
(734 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of
Common
Stock |
|
|
Shares of
Preferred
Stock A |
|
|
Shares of
Preferred
Stock B |
|
|
Shares of Treasury Stock |
|
|
Common
Stock and
Additional
Paid-in
Capital |
|
|
Preferred Stock A, no par value |
|
|
Preferred Stock B, no par value |
|
|
Accumulated
Deficit |
|
|
Total |
|
Balances, December 31, 2022 |
|
|
1,784 |
|
|
|
2,812 |
|
|
|
— |
|
|
|
(9 |
) |
|
$ |
62,702 |
|
|
$ |
62,423 |
|
|
$ |
— |
|
|
$ |
(121,409 |
) |
|
$ |
3,716 |
|
Restricted stock issuance |
|
|
99 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
81 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
81 |
|
Net Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(1,992 |
) |
|
|
(1,992 |
) |
Balances, March 31, 2023 |
|
|
1,883 |
|
|
|
2,812 |
|
|
|
— |
|
|
|
(9 |
) |
|
$ |
62,783 |
|
|
$ |
62,423 |
|
|
$ |
— |
|
|
$ |
(123,401 |
) |
|
$ |
1,805 |
|
See accompanying notes to unaudited consolidated financial statements.
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000's)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2024 |
|
|
2023 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
Net loss |
|
$ |
(962 |
) |
|
$ |
(1,992 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
511 |
|
|
|
510 |
|
Stock-based compensation expense |
|
|
43 |
|
|
|
81 |
|
Rent expense less than cash paid |
|
|
(9 |
) |
|
|
(4 |
) |
Rent revenue in excess of cash received |
|
|
121 |
|
|
|
26 |
|
Amortization of deferred financing costs, debt discounts and premiums |
|
|
25 |
|
|
|
19 |
|
Bad debt expense |
|
|
28 |
|
|
|
16 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
|
(168 |
) |
|
|
3,357 |
|
Prepaid expenses and other assets |
|
|
209 |
|
|
|
546 |
|
Accounts payable and accrued expenses |
|
|
793 |
|
|
|
(107 |
) |
Other liabilities |
|
|
6 |
|
|
|
145 |
|
Net cash provided by operating activities |
|
|
597 |
|
|
|
2,597 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(55 |
) |
|
|
(2 |
) |
Net cash used in investing activities |
|
|
(55 |
) |
|
|
(2 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
Payment of senior debt |
|
|
(378 |
) |
|
|
(322 |
) |
Payment of other debt |
|
|
(373 |
) |
|
|
(363 |
) |
Net cash used in financing activities |
|
|
(751 |
) |
|
|
(685 |
) |
Net change in cash and restricted cash |
|
|
(209 |
) |
|
|
1,910 |
|
Cash and restricted cash, beginning |
|
|
4,184 |
|
|
|
3,909 |
|
Cash and restricted cash, ending |
|
$ |
3,975 |
|
|
$ |
5,819 |
|
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000's)
(Unaudited)
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2024 |
|
|
2023 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
Cash interest paid |
$ |
677 |
|
|
$ |
650 |
|
See accompanying notes to unaudited consolidated financial statements.
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2024
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Regional Health Properties, Inc.'s (the "Company" or "Regional Health") predecessor was incorporated in Ohio on August 14, 1991, under the name Passport Retirement, Inc. In 1995, Passport Retirement, Inc. acquired substantially all of the assets and liabilities of AdCare Health Systems, Inc. and changed its name to AdCare Health Systems, Inc. ("AdCare"). AdCare completed its initial public offering in November 2006, relocated its executive offices and accounting operations to Georgia in 2012, and changed its state of incorporation from Ohio to Georgia in December 2013. Regional Health Properties, Inc. is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior housing. The Company's business primarily consists of leasing such facilities to third-party tenants, which operate the facilities. The Company has two primary reporting segments: (i) Real Estate, which consists of the leasing and subleasing of long-term care and senior living facilities to third-party tenants and (ii) Healthcare Services segment, which consists of the operation of the Meadowood and Glenvue facilities. Effective August 3, 2023, the Company’s 12.5% Series B Cumulative Redeemable Preferred Shares (the “Series B Preferred Stock”) is quoted on the OTC Markets Group, Inc.’s OTCQB Venture Market under the symbol “RHEPB”.
Basis of Presentation
The accompanying consolidated financial statements are prepared in conformity with United States ("U.S.") generally accepted accounting principles ("GAAP") in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"). The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2023 audited consolidated financial statements and notes thereto, which are included in the 2023 Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC") on April 1, 2024.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
Reclassifications
Certain reclassifications have been made to the amounts reported in the prior period in order to conform to the current period's presentation. A reclassification has been made to certain expenses reported on the consolidated statements of operations in the prior period in order to conform to the current period's presentation.
Revenue Recognition and Allowances
Patient Care Revenue. ASC Topic 606, Revenue from Contracts with Customers, requires a company to recognize revenue when the company transfers control of promised goods and services to a customer. Revenue is recognized in an amount that reflects the consideration to which a company expects to receive in exchange for such goods and services. Revenue from our Healthcare Services business segment is derived from services rendered to patients in the Meadowood and Glenvue facilities. The Company receives payments from the following sources for services rendered in our facilities: (i) the federal government under the Medicare program administered by CMS; (ii) state governments under their respective Medicaid and similar programs; (iii) commercial insurers; and (iv) individual patients and clients. The vast majority (greater than 90%) of the revenue the Company has recognized is from government sources. The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients and other price concessions. Contractual adjustments and discounts are based on contractual agreements, discount policies and historical experience. The Company recognizes revenue at the amount that reflects the consideration the Company expects to receive in exchange for the services provided. These amounts are due from residents or third-party payors and include variable consideration for retroactive adjustments from estimated reimbursements, if any, under reimbursement programs. Performance obligations, such as providing room and board, wound care, intravenous drug therapy, physical therapy, and quality of life activities amongst others, are determined based on the nature of the services provided are determined based
on the nature of the services provided. Estimated uncollectible amounts due from patients are generally considered implicit price concessions that are a direct reduction to net patient care revenues.
Triple-Net Leased Properties. The Company recognizes rental revenue in accordance with ASC 842, Leases. The Company's triple-net leases provide for periodic and determinable increases in rent. The Company recognizes rental revenues under these leases on a straight-line basis over the applicable lease term when collectability is probable. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in the straight-line rent receivable on our consolidated balance sheets. In the event the Company cannot reasonably estimate the future collection of rent from one or more tenant(s) of the Company's facilities, rental income for the affected facilities is recognized only upon cash collection, and any accumulated straight-line rent receivable is expensed in the period in which the Company deems rent collection to no longer be probable.
Management Fee Revenues and Other Revenues. The Company recognizes management fee revenues as services are provided in accordance with ASU 2014-09, Revenue from Contracts with Customers, as codified in ASC 606, which requires revenue to be recognized in an amount that reflects the consideration to which a company expects to receive in exchange for such goods and services. The Company had one contract to manage three facilities (the “Management Contract”) which ended on December 31, 2023. Further, the Company recognizes interest income from loans and investments, using the effective interest method when collectability is probable. The Company applies the effective interest method on a loan-by-loan basis.
Allowances. The Company assesses the collectability of its rent receivables, including straight-line rent receivables and working capital loans to tenants. The Company bases its assessment of the collectability of rent receivables and working capital loans to tenants on several factors, including payment history, the financial strength of the tenant and any guarantors, the value of the underlying collateral, and current economic conditions. If the Company’s evaluation of these factors indicates it is probable that the Company will be unable to receive the rent payments or payments on a working capital loan, then the Company provides a reserve against the recognized straight-line rent receivable asset or working capital loan for the portion that we estimate may not be recovered. Payments received on impaired loans are applied against the allowance. If the Company changes its assumptions or estimates regarding the collectability of future rent payments required by a lease or required from a working capital loan to a tenant, then the Company may adjust its reserve to increase or reduce the rental revenue or interest revenue from working capital loans to tenants recognized in the period the Company makes such change in its assumptions or estimates. See Note 6 – Leases. The Company has reserved for approximately 1.5% of our patient care receivables based on the historic industry standards and continues to assess the adequacy of such reserve.
The following table presents the Company's Accounts receivable, net of allowance for the periods presented:
|
|
|
|
|
|
|
|
|
(Amounts in 000’s) |
|
March 31,
2024 |
|
|
December 31,
2023 |
|
Gross receivables |
|
|
|
|
|
|
Real Estate Services |
|
$ |
656 |
|
|
$ |
693 |
|
Healthcare Services |
|
|
2,864 |
|
|
|
2,750 |
|
Subtotal |
|
|
3,520 |
|
|
|
3,443 |
|
Allowance |
|
|
|
|
|
|
Real Estate Services |
|
|
— |
|
|
|
— |
|
Healthcare Services |
|
|
(2,056 |
) |
|
|
(2,040 |
) |
Subtotal |
|
|
(2,056 |
) |
|
|
(2,040 |
) |
Accounts receivable, net of allowance |
|
$ |
1,464 |
|
|
$ |
1,403 |
|
Prepaid Expenses and Other
As of March 31, 2024 and December 31, 2023, the Company had approximately $0.4 million and $0.6 million , respectively, in prepaid expenses and other; the $0.2 million decrease is related to insurance for the Meadowood and Glenvue facility operations, while the other amounts are predominantly for directors' and officers' insurance, NYSE American annual fees, and mortgage insurance premiums.
Accounts Payable
The following table presents the Company's Accounts payable for the periods presented:
|
|
|
|
|
|
|
|
|
(Amounts in 000’s) |
|
March 31,
2024 |
|
|
December 31,
2023 |
|
Accounts payable |
|
|
|
|
|
|
Real Estate Services |
|
$ |
1,410 |
|
|
$ |
751 |
|
Healthcare Services |
|
|
1,696 |
|
|
|
1,742 |
|
Total Accounts payable |
|
$ |
3,106 |
|
|
$ |
2,493 |
|
Other Liabilities
As of March 31, 2024 and December 31, 2023, the Company had approximately $1.8 million and $1.8 million, respectively in Other liabilities, consisting of security lease deposits and sublease improvement funds.
Other Expense, net
The Company had retained a law firm to evaluate and assist with opportunities to improve the Company's capital structure. See Note 2 – Series A Preferred Exchange Offer.
Leases and Leasehold Improvements
The Company leases certain facilities and equipment in the normal course of business. At the inception of each lease, the Company performs an evaluation to determine whether the lease should be classified as an operating lease or finance lease. As of March 31, 2024, the Company's leased facility is accounted for as an operating lease. For operating leases that contain scheduled rent increases, the Company records rent expense on a straight-line basis over the term of the lease. Leasehold improvements are amortized over the shorter of the useful life of the asset or the lease term.
The Company assesses any new contracts or modification of contracts in accordance with ASC 842, Leases, to determine the existence of a lease and its classification. We are reporting revenues and expenses for real estate taxes and insurance where the lessee has not made those payments directly to a third party in accordance with their respective leases with us.
Insurance
We maintain general liability, professional liability, and other insurance policies in amounts and with coverage and deductibles we believe are appropriate, based on the nature and risks of our business, historical experience, availability, and industry standards, including for the operations at the Glenvue and Meadowood facilities. Our current policies provide for deductibles for each claim and contain various exclusions from coverage. The Company has self-insured against professional and general liability claims related to its healthcare operations that were discontinued during 2014 and 2015 in connection with its transition from an owner and operator of healthcare properties to a healthcare property holding and leasing company (the "Transition"). For further information, see Note 11 – Commitments and Contingencies, and Note 12 – Commitments and Contingencies, to the consolidated financial statements for the year ended December 31, 2023 for more information. The Company evaluates quarterly the adequacy of its self-insurance reserve based on a number of factors, including: (i) the number of actions pending and the relief sought; (ii) analyses provided by defense counsel, medical experts or other information which comes to light during discovery; (iii) the legal fees and other expenses anticipated to be incurred in defending the actions; (iv) the status and likely success of any mediation or settlement discussions, including estimated settlement amounts and legal fees and other expenses anticipated to be incurred in such settlement, as applicable; and (v) the venues in which the actions have been filed or will be adjudicated. The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgment unless settlement is more advantageous to the Company. Accordingly, the self-insurance reserve reflects the Company's estimate of settlement amounts for the pending actions, if applicable, and legal costs of settling or litigating the pending actions, as applicable. Because the self-insurance reserve is based on estimates, the amount of the self-insurance reserve may not be sufficient to cover the settlement amounts actually incurred in settling the pending actions, or the legal costs actually incurred in settling or litigating the pending actions. See Note 7 – Accrued Expenses. In addition, the Company maintains certain other insurance programs, including commercial general liability, property, casualty, directors' and officers' liability, crime, and employment practices liability.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the respective period. Diluted earnings per share is similar to basic net loss per share except that the net loss is adjusted by the impact of the weighted-average number of shares of common stock outstanding including potentially dilutive securities (such as options, warrants and non-vested common stock) when such securities are not anti-dilutive. Potentially dilutive securities from options, warrants and unvested restricted shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options and warrants with exercise prices exceeding the average market value are used to repurchase common stock at market value. The incremental shares remaining after the proceeds are exhausted represent the potentially dilutive effect of the securities.
Securities outstanding that were excluded from the computation, because they would have been anti-dilutive were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
(Share amounts in 000’s) |
|
2024 |
|
|
2023 |
|
Stock options |
|
|
33 |
|
|
|
13 |
|
Warrants - employee |
|
|
32 |
|
|
|
34 |
|
Warrants - non employee |
|
|
— |
|
|
|
1 |
|
Total anti-dilutive securities |
|
|
65 |
|
|
|
48 |
|
The weighted average contractual terms in years for these securities as of March 31, 2024, with no intrinsic value, are 6.6 years for the stock options and 0.8 years for the warrants.
Recently Adopted Accounting Pronouncements
In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842): Common Control Arrangements (Topic 842) amendments, which requires entities to determine whether related party arrangements between entities under common control are leases. The amendments also address the accounting treatment of leasehold improvements associated with common control leases. They require the lessee to amortize leasehold improvements over the useful life of the improvements to the common control group, regardless of the lease term, as long as the lessee controls the use of the underlying asset. If the lessee no longer controls the use of the asset, the leasehold improvements are accounted for as a transfer between entities under common control through an adjustment to equity. These improvements are also subject to impairment guidance in Topic 360, Property, Plant, and Equipment. The amendment is effective for public entities beginning after December 15, 2023. The Company adopted ASU 2023-01 effective January 1, 2024. The adoption of ASU-2023-01 did not have a material impact on the Company's consolidated financial statements.
New Accounting Pronouncements Issued But Not Yet Effective
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public company to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. A public company with a single reportable segment is required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-07.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures,
which requires a public company, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company does not expect the adoption of ASU 2023-09 to have a material impact on the Company's consolidated financial statements.
No other new accounting pronouncement issued or effective has had, or is expected to have, a material impact on the Company's financial statements.
NOTE 2. LIQUIDITY
Overview
The Company intends to pursue measures to grow its operations, streamline its cost infrastructure and otherwise increase liquidity, including: (i) refinancing or repaying debt to reduce interest costs and mandatory principal repayments, with such repayment to be funded through potentially expanding borrowing arrangements with certain lenders; (ii) increasing future lease revenue through acquisitions and investments in existing properties; (iii) modifying the terms of existing leases; (iv) replacing certain tenants who default on their lease payment terms; and (v) reducing other and general and administrative expenses.
Management anticipates access to several sources of liquidity, including cash on hand, cash flows from operations, and debt refinancing during the twelve months following the date of this filing. At March 31, 2024, the Company had $0.8 million in unrestricted cash and $1.5 million of net accounts receivable, mainly consisting of patient accounts receivable and rent receivables.
During the three months ended March 31, 2024, the Company's cash provided by operating activities was $0.6 million primarily due to the timing of accounts payable and accrued expense payments. The Company is seeking collection of the past due rent. In addition, management is working to expedite the time it takes to collect and receive aged patient receivables. Cash flow from operations in the future will be based on the operational performance of the facilities under the company's management, Glenvue and Meadowood, as well as continued uncertainty of the COVID-19 pandemic and its impact on the Company's business, financial condition and results of operations.
Series A Preferred Stock Exchange Offer ("Exchange Offer")
In early 2020, the Company began ongoing efforts to investigate alternatives to retire or refinance our outstanding Series A Preferred Stock through privately negotiated transactions, open market repurchases, redemptions, exchange offers, tender offers, or otherwise.
On June 30, 2023, the Company closed the Company’s offer to exchange (the “Exchange Offer”) any and all outstanding shares of the Company’s 10.875% Series A Cumulative Redeemable Preferred Shares (the “Series A Preferred Stock”) for newly issued shares of the Company’s Series B Preferred Stock. In connection with the completion of the Exchange Offer and the implementation of the Series A Charter Amendments and the Series B Charter Amendments, the liquidation preference of the Series A Preferred Stock was reduced, accumulated and unpaid dividends on the Series A Preferred Stock were eliminated and future dividends on the Series A Preferred Stock were eliminated. As a result, $50.4 million in accumulated and unpaid dividends on the Series A Preferred Stock were eliminated and, as of March 31, 2024, there are no accumulated and unpaid dividends on the Series A Preferred Stock. For further information regarding the Exchange Offer, Series A Charter Amendments and Series B Charter Amendments, see Note 9 – Common and Preferred Stock.
The Company is current with all of its debt and other financial obligations.
Costs associated with these efforts have been expensed as incurred in “Other expense, net” and were $0.6 million for the three months ended March 31, 2023, and there were no expenses incurred for the three months ended March 31, 2024.
Series A Preferred Dividend Suspension
Prior to the Exchange Offer, as discussed above, we suspended the quarterly dividend payment with respect to our Series A Preferred Stock commencing with the fourth quarter of 2017, and on June 8, 2018, the Board suspended quarterly dividend payments indefinitely with respect to the Series A Preferred Stock. The dividend suspension provided the Company with additional funds to meet its ongoing liquidity needs. As the Company had failed to pay cash dividends on the outstanding Series A Preferred Stock in full for more than four dividends periods, the annual dividend rate on the Series A Preferred Stock for the fifth and future missed dividend periods had increased to 12.875%, which was equivalent to approximately $3.20 per share each year, commencing on the first day after the missed fourth quarterly payment (October 1, 2018) and continuing until the second consecutive dividend payment date following such time as the Company had paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash. As discussed above, in connection with the completion of the Exchange Offer, accumulated and unpaid dividends on the Series A Preferred Stock were eliminated.
Debt
As of March 31, 2024, the Company had $50.0 million in indebtedness, net of $1.0 million deferred financing costs and unamortized discounts. The Company anticipates net principal repayments of approximately $1.7 million during the next twelve-month period, approximately $1.5 million of routine debt service amortization and a $0.1 million payment of bond debt.
Debt Covenant Compliance
At March 31, 2024, the Company was in compliance with the various financial and administrative covenants related to all of the Company's credit facilities except for one immaterial non-compliance. When management learned of the non-compliance, the non-compliance was cured after the balance sheet date.
Evaluation of the Company's Ability to Continue as a Going Concern
Under the accounting guidance related to the presentation of financial statements, the Company is required to evaluate, on a quarterly basis, whether or not the Company's current financial condition, including its sources of liquidity at the date that the consolidated financial statements are issued, will enable the Company to meet its obligations as they come due arising within one year of the date of the issuance of the Company's consolidated financial statements and to make a determination as to whether or not it is probable, under the application of this accounting guidance, that the Company will be able to continue as a going concern. The Company's consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
In applying applicable accounting guidance, management considered the Company's current financial condition and liquidity sources, including current funds available, forecasted future cash flows, the Company's obligations due over the next twelve months, and the Company's recurring business operating expenses.
The Company concluded that it is probable that the Company will be able to meet its obligations arising within one year of the date of issuance of these consolidated financial statements within the parameters set forth in the accounting guidance.
NOTE 3. CASH AND RESTRICTED CASH
The following presents the Company's cash and restricted cash:
|
|
|
|
|
|
|
|
|
(Amounts in 000’s) |
|
March 31,
2024 |
|
|
December 31,
2023 |
|
Cash |
|
$ |
752 |
|
|
$ |
953 |
|
Restricted cash: |
|
|
|
|
|
|
Cash collateral |
|
|
159 |
|
|
|
159 |
|
HUD and other replacement reserves |
|
|
2,126 |
|
|
|
2,125 |
|
Escrow deposits |
|
|
621 |
|
|
|
630 |
|
Restricted investments for debt obligations |
|
|
317 |
|
|
|
317 |
|
Total restricted cash |
|
|
3,223 |
|
|
|
3,231 |
|
Total cash and restricted cash |
|
$ |
3,975 |
|
|
$ |
4,184 |
|
Cash collateral—In securing mortgage financing from certain lending institutions, the Company and certain of its wholly-owned subsidiaries are required to deposit cash to be held as collateral in accordance with the terms of such loan agreements.
HUD and other replacement reserves—The regulatory agreements entered into in connection with the financing secured through HUD require monthly escrow deposits for replacement and improvement of the HUD project assets.
Escrow deposits—In connection with financing secured through the Company's lenders, several wholly-owned subsidiaries of the Company are required to make monthly escrow deposits for taxes and insurance.
Restricted cash for debt obligations—In compliance with certain financing and insurance agreements, the Company and certain wholly-owned subsidiaries of the Company are required to deposit cash held as collateral by the lender or in escrow with certain designated financial institutions.
NOTE 4. PROPERTY AND EQUIPMENT
The following table sets forth the Company's property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s) |
|
Estimated
Useful
Lives (Years) |
|
|
March 31,
2024 |
|
|
December 31,
2023 |
|
Buildings and improvements |
|
5-40 |
|
|
$ |
64,466 |
|
|
$ |
64,447 |
|
Equipment and computer related |
|
2-10 |
|
|
|
1,095 |
|
|
|
1,187 |
|
Land (1) |
|
|
— |
|
|
|
2,774 |
|
|
|
2,774 |
|
Property and equipment |
|
|
|
|
|
68,335 |
|
|
|
68,408 |
|
Less: accumulated depreciation |
|
|
|
|
|
(23,450 |
) |
|
|
(23,071 |
) |
Property and equipment, net |
|
|
|
|
$ |
44,885 |
|
|
$ |
45,337 |
|
(1)Includes $0.1 million of land improvements with an average estimated useful remaining life of approximately 6.1 years as of March 31, 2024.
The following table summarizes total depreciation and amortization expense three months ended March 31, 2024 and 2023:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(Amounts in 000’s) |
|
2024 |
|
|
2023 |
|
Depreciation |
|
$ |
403 |
|
|
$ |
400 |
|
Amortization |
|
|
108 |
|
|
|
110 |
|
Total depreciation and amortization expense |
|
$ |
511 |
|
|
$ |
510 |
|
NOTE 5. INTANGIBLE ASSETS AND GOODWILL
Intangible assets and Goodwill consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s) |
|
Bed licenses
(included
in property and
equipment)1) |
|
|
Bed Licenses -
Separable (2) |
|
|
Lease
Rights |
|
|
Total |
|
|
Goodwill (2) |
|
Balances, December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
$ |
14,276 |
|
|
$ |
2,471 |
|
|
$ |
176 |
|
|
$ |
16,923 |
|
|
$ |
1,585 |
|
Accumulated amortization |
|
|
(4,997 |
) |
|
|
— |
|
|
|
(89 |
) |
|
|
(5,086 |
) |
|
|
— |
|
Net carrying amount |
|
$ |
9,279 |
|
|
$ |
2,471 |
|
|
$ |
87 |
|
|
$ |
11,837 |
|
|
$ |
1,585 |
|
Balances, March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
$ |
14,276 |
|
|
$ |
2,471 |
|
|
$ |
176 |
|
|
$ |
16,923 |
|
|
$ |
1,585 |
|
Accumulated amortization |
|
|
(5,101 |
) |
|
|
— |
|
|
|
(93 |
) |
|
|
(5,194 |
) |
|
|
— |
|
Net carrying amount |
|
$ |
9,175 |
|
|
$ |
2,471 |
|
|
$ |
83 |
|
|
$ |
11,729 |
|
|
$ |
1,585 |
|
(1)Non-separable bed licenses are included in property and equipment as is the related accumulated amortization expense (see Note 4 – Property and Equipment).
(2)The Company does not amortize indefinite-lived intangibles, which consist of separable bed licenses and goodwill.
The following table summarizes amortization expense for the three months ended March 31, 2024 and 2023:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(Amounts in 000’s) |
|
2024 |
|
|
2023 |
|
Bed licenses |
|
$ |
104 |
|
|
$ |
104 |
|
Lease rights |
|
|
4 |
|
|
|
6 |
|
Total amortization expense |
|
$ |
108 |
|
|
$ |
110 |
|
Expected amortization expense for the years ending December 31, for all definite-lived intangibles, for each of the next five years and thereafter is as follows:
|
|
|
|
|
|
|
|
|
(Amounts in 000’s) |
|
Bed
Licenses |
|
|
Lease
Rights |
|
2024 |
|
$ |
311 |
|
|
$ |
14 |
|
2025 |
|
|
414 |
|
|
|
18 |
|
2026 |
|
|
414 |
|
|
|
18 |
|
2027 |
|
|
414 |
|
|
|
18 |
|
2028 |
|
|
414 |
|
|
|
15 |
|
Thereafter |
|
|
7,208 |
|
|
|
- |
|
Total expected amortization expense |
|
$ |
9,175 |
|
|
$ |
83 |
|
NOTE 6. LEASES
Operating Leases
As of March 31, 2024 and December 31, 2023, the Company leases one Skilled Nursing Facility ("SNF") in Covington, Ohio under a non-cancelable lease, which has rent escalation clauses and provisions for payments of real estate taxes, insurance, and maintenance costs. The remaining lease term for the Covington facility is approximately 4.7 years as of March 31, 2024. The Company subleases the Covington facility to a third party.
The Company also leased certain office space located in Suwanee, Georgia through the termination date of June 30, 2023. Effective July 1, 2023, the Company signed a sublease for 2,000 sq ft of office space in Atlanta, Georgia. The sublease expires on July 31, 2025.
As of March 31, 2024, the Company is in compliance with all operating lease financial covenants except for one non-compliance. When management learned of the non-compliance, the non-compliance was cured after the balance sheet date.
Future Minimum Lease Payments
Future minimum lease payments for the twelve months ending December 31, for each of the next five years and thereafter is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s) |
|
Future
rental
payments |
|
|
Accretion of
lease liability (1) |
|
|
Operating
lease
obligation |
|
2024 |
|
$ |
510 |
|
|
$ |
(16 |
) |
|
$ |
494 |
|
2025 |
|
|
672 |
|
|
|
(66 |
) |
|
|
606 |
|
2026 |
|
|
658 |
|
|
|
(109 |
) |
|
|
549 |
|
2027 |
|
|
671 |
|
|
|
(155 |
) |
|
|
516 |
|
2028 |
|
|
685 |
|
|
|
(198 |
) |
|
|
487 |
|
Thereafter |
|
|
230 |
|
|
|
(75 |
) |
|
|
155 |
|
Total |
|
$ |
3,426 |
|
|
$ |
(619 |
) |
|
$ |
2,807 |
|
(1)Weighted average discount rate 7.98%.
Facilities Lessor
As of March 31, 2024, the Company was the lessor of 9 of its 11 owned facilities, and the sublessor of one facility. These leases are triple net basis leases, meaning that the lessee (i.e., the third-party tenant of the property) is obligated for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments to the Company. The weighted average remaining lease term for our 10 owned and subleased out facilities is approximately 5.3 years.
Future Minimum Lease Receivables
Future minimum lease receivables for the twelve months ending December 31, for each of the next five years and thereafter is as follows:
|
|
|
|
|
|
|
(Amounts
in 000's) |
|
2024 |
|
$ |
4,948 |
|
2025 |
|
|
6,696 |
|
2026 |
|
|
6,801 |
|
2027 |
|
|
6,909 |
|
2028 |
|
|
6,758 |
|
Thereafter |
|
|
8,227 |
|
Total |
|
$ |
40,339 |
|
For further details regarding the Company's leased and subleased facilities to third-party operators, including a full summary of the Company's leases to third-parties and which comprise the future minimum lease receivables of the Company, see Note 6 - Leases and Leasing Transactions in Part I, Item 1, Financial Statements and Supplementary Data, included in the Annual Report.
NOTE 7. ACCRUED EXPENSES
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
(Amounts in 000’s) |
March 31,
2024 |
|
|
December 31,
2023 |
|
Accrued employee benefits and payroll-related |
$ |
365 |
|
|
$ |
255 |
|
Real estate and other taxes (1) |
|
3,055 |
|
|
|
3,077 |
|
Self-insured reserve |
|
— |
|
|
|
61 |
|
Accrued interest |
|
223 |
|
|
|
225 |
|
Insurance escrow |
|
116 |
|
|
|
98 |
|
Other accrued expenses (2) |
|
481 |
|
|
|
344 |
|
Total accrued expenses |
$ |
4,240 |
|
|
$ |
4,060 |
|
(1)March 31, 2024 includes approximately $0.7 million of bed taxes in arrears related to the Wellington Transition in 2020 as well as $2.0 million related to our own dates of operation under the Healthcare Services segment and approximately $0.4 million property tax accrual for the Real Estate segment. December 31, 2023 includes approximately $0.7 million of bed taxes in arrears related to the Wellington Transition in 2020 as well as $1.9 million related to our own dates of operation under the Healthcare Services segment and approximately $0.5 million property tax accrual for the twelve months ended December 31, 2023 for the Real Estate segment.
(2)As of March 31, 2024 and December 31, 2023, the remaining escheatment liabilities for discontinued operations are $0.3 million and are included in other accrued expenses.
NOTE 8. NOTES PAYABLE AND OTHER DEBT
See Note 8 – Notes Payable and Other Debt in Part II, Item 8, Financial Statements and Supplementary Data, included in the Annual Report for a detailed description of all the Company's debt facilities.
Notes payable and other debt consists of the following:
|
|
|
|
|
|
|
|
|
(Amounts in 000’s) |
|
March 31,
2024 |
|
|
December 31,
2023 |
|
Senior debt—guaranteed by HUD |
|
$ |
28,774 |
|
|
$ |
28,979 |
|
Senior debt—guaranteed by USDA (1) |
|
|
7,186 |
|
|
|
7,259 |
|
Senior debt—guaranteed by SBA(2) |
|
|
552 |
|
|
|
557 |
|
Senior debt—bonds |
|
|
6,117 |
|
|
|
6,117 |
|
Senior debt—other mortgage indebtedness |
|
|
7,913 |
|
|
|
8,001 |
|
Other debt |
|
|
516 |
|
|
|
889 |
|
Subtotal |
|
|