(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

RHE

NYSE American

10.875% Series A Cumulative Redeemable

Preferred Stock, no par value

RHE-PA

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 ☒ý No ☐o

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

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~~“large accelerated ~~filer"~~filer”, ~~"accelerated filer"~~“accelerated filer”, ~~"smaller~~“smaller reporting ~~company"~~company” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act. ~~(Check one)~~:



Large accelerated filero	☐	Accelerated filero	☐
Non-accelerated filero ~~(Do not check if a~~ ~~smaller reporting company)~~	☐	Smaller reporting companyý	☒
		Emerging growth companyo	☐

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 ☐o No ☐o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

.Yes ~~Yes~~ ☐o No ☒ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of October 31, ~~2017: 19,762,036~~2019: 1,688,219 shares of common stock, no par value, were outstanding.

Regional Health Properties, Inc.

Form 10-Q

Table of Contents

			Page Number

	~~Page~~ ~~Number~~
Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	4	3
	Consolidated Balance Sheets as of September 30, ~~2017 (unaudited)~~2019 and December 31, ~~2016~~2018	4	3
	Consolidated Statements of Operations for the three and nine months ended September 30, ~~2017~~2019 and ~~2016 (unaudited)~~2018	5	4
	Consolidated ~~Statement~~Statements of Stockholders' Equity ~~(Deficit)~~ for the three and nine months ended September 30, ~~2017 (unaudited)~~2019 and 2018	6	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2019 and ~~2016 (unaudited)~~2018	7	6
	Notes to Consolidated Financial Statements ~~(unaudited)~~	9	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44	48
Item 4.	Controls and Procedures	44	48

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	45	49
Item 1A.	Risk Factors	45	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47	51
Item 3.	Defaults upon Senior Securities	47	51
Item 4.	Mine Safety Disclosures	47	51
Item 5.	Other Information	47	51
Item 6.	Exhibits	47	52

Signatures		52	56

~~Forward-Looking Statements~~

This Quarterly Report on Form 10-Q (this “Quarterly Report”) and certain information incorporated herein by reference contain forward-looking statements and information within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. This information includes assumptions made by, and information currently available to management, including statements regarding future economic performance and financial condition, liquidity and capital resources, and management’s plans and objectives. In addition, certain statements included in this Quarterly Report, in the Company’s future filings with the Securities and Exchange Commission (“SEC”), in press releases, and in oral and written statements made by us or with our approval, which are not statements of historical fact, are forward-looking statements. Words such as “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “seek,” “plan,” “project,” “continue,” “predict,” “will,” and other words or expressions of similar meaning are intended by us to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are based on the Company’s current expectations about future events or results and information that is currently available to us, involve assumptions, risks, and uncertainties, and speak only as of the date on which such statements are made.

All forward-looking statements are subject to the risks and uncertainties inherent in predicting the future. The Company’s actual results may differ materially from those projected, stated or implied in these forward-looking statements as a result of many factors, including the Company’s critical accounting policies and risks and uncertainties related to, but not limited to, the operating results of the Company’s tenants, the overall industry environment and the Company’s financial condition. These and other risks and uncertainties are described in more detail in the Company’s most recent Annual Report on Form 10-K, as well as other reports that the Company files with the SEC.

Forward-looking statements speak only as of the date they are made and should not be relied upon as representing the Company’s views as of any subsequent date. The Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by applicable laws, and you are urged to review and consider disclosures that the Company makes in this Quarterly Report and other reports that the Company files with the SEC that discuss factors germane to the Company’s business.

Part I. Financial Information

~~Item 1. Financial Statements~~

Item 1.

Financial Statements

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in 000’s)(Unaudited)

	September 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash	$	3,421		$	2,407
Restricted cash		1,119			1,411
Accounts receivable, net of allowance of $721 and $1,356		912			971
Prepaid expenses and other		277			472
Notes receivable		687			610
Assets of disposal group held for sale		—			2,204
Total current assets		6,416			8,075
Restricted cash		2,550			2,668
Property and equipment, net		55,512			77,237
Intangible assets - bed licenses		2,471			2,471
Intangible assets - lease rights, net		584			906
Right-of-use operating lease assets		38,133			—
Goodwill		1,585			2,105
Lease deposits and other deposits		517			402
Straight-line rent receivable		6,376			6,301
Notes receivable		153			331
Other assets		74			74
Total assets	$	114,371		$	100,570
LIABILITIES AND EQUITY
Current liabilities:
Current portion of notes payable and other debt	$	1,747		$	26,397
Accounts payable		3,405			4,361
Accrued expenses and other		2,867			4,461
Operating lease obligation		6,093			—
Liabilities of disposal group held for sale		—			1,491
Total current liabilities		14,112			36,710
Notes payable and other debt, net of current portion:
Senior debt, net		47,251			48,317
Bonds, net		6,281			6,599
Other debt, net		502			—
Operating lease obligation		33,961			—
Other liabilities		1,247			2,793
Deferred tax liabilities		44			—
Total liabilities		103,398			94,419
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 1,688 issued and outstanding at September 30, 2019 and December 31, 2018		61,970			61,900
Preferred stock, no par value; 5,000 shares authorized; 2,812 shares issued and outstanding, redemption amount $70,288 at September 30, 2019 and December 31, 2018		62,423			62,423
Accumulated deficit		(113,420	)		(118,172	)
Total stockholders’ equity		10,973			6,151
Total liabilities and stockholders’ equity	$	114,371		$	100,570

September 30,
2017 December 31,
2016
(Unaudited)
ASSETS

Current assets:

Cash and cash equivalents $ 1,115
$ 14,045
Restricted cash 960
1,600
Accounts receivable, net of allowance of $2,946 and $7,529, respectively 1,086
2,429
Prepaid expenses and other 1,384
2,395
Total current assets 4,545
20,469
Restricted cash and investments 2,580
3,864
Property and equipment, net 82,441
79,168
Intangible assets - bed licenses 2,471
2,471
Intangible assets - lease rights, net 2,253
2,754
Goodwill 2,105
2,105
Lease deposits 808
1,411
Notes receivable 3,589
3,000
Other assets 6,407
4,244
Total assets $ 107,199
$ 119,486
LIABILITIES AND EQUITY (DEFICIT)

Current liabilities:

Current portion of notes payable and other debt $ 6,828
$ 4,018
Current portion of convertible debt, net 1,499
9,136
Accounts payable 3,617
3,037
Accrued expenses and other 8,582
9,077
Total current liabilities 20,526
25,268
Notes payable and other debt, net of current portion:

Senior debt, net 58,212
60,189
Bonds, net 6,548
6,586
Other debt, net 731
41
Other liabilities 3,785
3,677
Deferred tax liabilities 226
226
Total liabilities 90,028
95,987
Commitments and contingencies (Note 15)

Preferred stock, no par value; 5,000 shares authorized; 2,812 and 2,762 shares issued and outstanding, redemption amount $70,288 and $69,038 at September 30, 2017 and December 31, 2016, respectively —
61,446
Stockholders’ equity (deficit):

Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 19,762 and 19,927 issued and outstanding at September 30, 2017 and December 31, 2016, respectively 61,738
61,643
Preferred stock, no par value; 5,000 shares authorized; 2,812 and 2,762 shares issued and outstanding, redemption amount $70,288 and $69,038 at September 30, 2017 and December 31, 2016, respectively 62,423
—
Accumulated deficit (106,990 ) (99,590 )
Total stockholders’ equity (deficit) 17,171
(37,947 )
Total liabilities and stockholders’ equity (deficit) $ 107,199
$ 119,486

See accompanying notes to unaudited consolidated financial statements

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in 000’s, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenues:
Rental revenues	$	4,590		$	4,972		$	14,746		$	15,706
Management fees		239			235			716			703
Other revenues		1			49			93			148
Total revenues		4,830			5,256			15,555			16,557
Expenses:
Facility rent expense		1,640			2,171			5,006			6,512
Cost of management fees		148			137			467			448
Depreciation and amortization		797			1,126			2,661			3,507
General and administrative expense		730			984			2,551			2,751
Provision for doubtful accounts		32			(48	)		(214	)		3,934
Other operating expenses		191			255			821			823
Total expenses		3,538			4,625			11,292			17,975
Income (loss) from operations		1,292			631			4,263			(1,418	)
Other (income) expense:
Interest expense, net		1,157			1,783			4,535			4,595
Loss on extinguishment of debt		924			3,514			2,478			3,955
Gain on disposal of assets		(6,451	)		—			(7,141	)		—
Other (income) expense		(48	)		—			6			10
Total other (income) expense, net		(4,418	)		5,297			(122	)		8,560
Income (loss) from continuing operations before income taxes		5,710			(4,666	)		4,385			(9,978	)
Income tax expense		—			—			44			33
Income (loss) from continuing operations		5,710		$	(4,666	)	$	4,341		$	(10,011	)
Income (loss) from discontinued operations, net of tax		101			157			411			(242	)
Net income (loss)		5,811			(4,509	)		4,752			(10,253	)
Preferred stock dividends - undeclared		(2,250	)		(1,912	)		(6,748	)		(5,736	)
Net income (loss) attributable to Regional Health Properties, Inc. common stockholders	$	3,561		$	(6,421	)	$	(1,996	)	$	(15,989	)
Net income (loss) per share of common stock attributable to Regional Health Properties, Inc.
Basic and diluted:
Continuing operations	$	2.05		$	(3.93	)	$	(1.42	)	$	(9.45	)
Discontinued operations	$	0.06		$	0.09		$	0.24			(0.15	)
	$	2.11		$	(3.84	)	$	(1.18	)	$	(9.60	)
Weighted average shares of common stock outstanding:
Basic and diluted		1,688			1,688			1,688			1,665

~~(Unaudited)~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenues:

Rental revenues $ 5,983
$ 6,912
$ 17,703
$ 20,651
Management fee and other revenues 362
253
1,081
760
Total revenues 6,345
7,165
18,784
21,411

Expenses:

Facility rent expense 2,171
2,176
6,512
6,523
Depreciation and amortization 1,193
1,124
3,499
4,176
General and administrative expense 1,063
1,598
3,507
6,275
Other operating expenses 517
241
1,395
1,413
Total expenses 4,944
5,139
14,913
18,387

Income from operations 1,401
2,026
3,871
3,024

Other expense:

Interest expense, net 1,011
1,801
3,049
5,377
Loss on extinguishment of debt —
—
63
—
Other expense 105
—
388
51
Total other expense, net 1,116
1,801
3,500
5,428

Income (loss) from continuing operations before income taxes 285
225
371
(2,404 )
Income tax expense 19
3
20
3
Income (loss) from continuing operations 266
222
351
(2,407 )

Loss from discontinued operations, net of tax (1,032 ) (2,210 ) (2,049 ) (6,513 )
Net loss (766 ) (1,988 ) (1,698 ) (8,920 )

Preferred stock dividends 1,912
1,879
5,702
5,457
Net loss attributable to Regional Health Properties, Inc. common stockholders $ (2,678 ) $ (3,867 ) $ (7,400 ) $ (14,377 )

Net loss per share of common stock attributable to Regional Health Properties, Inc.

Basic and diluted:

Continuing operations $ (0.08 ) $ (0.08 ) $ (0.27 ) $ (0.39 )
Discontinued operations (0.05 ) (0.11 ) (0.10 ) (0.33 )
$ (0.13 ) $ (0.19 ) $ (0.37 ) $ (0.72 )

Weighted average shares of common stock outstanding:

Basic and diluted 19,762
19,917
19,784
19,909

See accompanying notes to unaudited consolidated financial statements

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF STOCKHOLDERS’ EQUITY ~~(DEFICIT)~~

(Amounts in 000’s)

(Unaudited)

For the Nine Months ended September 30, 2019	Shares of Common Stock		Shares of Preferred Stock		Common Stock and Additional Paid-in Capital		Preferred Stock		Accumulated Deficit			Total
Balances, December 31, 2018		1,688		2,812	$	61,900	$	62,423	$	(118,172	)	$	6,151
Stock-based compensation		—		—		27		—		—			27
Net income		—		—		—		—		184			184
Balances, March 31, 2019		1,688		2,812		61,927		62,423		(117,988	)		6,362
Stock-based compensation		—		—		21		—		—			21
Net loss		—		—		—		—		(1,243	)		(1,243	)
Balances, June 30, 2019		1,688		2,812		61,948		62,423		(119,231	)		5,140
Stock-based compensation		—		—		22		—		—			22
Net income		—		—		—		—		5,811			5,811
Balances, September 30, 2019		1,688		2,812	$	61,970	$	62,423	$	(113,420	)	$	10,973

~~(Unaudited)~~

For the Nine Months ended September 30, 2018	Shares of Common Stock		Shares of Preferred Stock		Common Stock and Additional Paid-in Capital		Preferred Stock		Accumulated Deficit			Total
Balances, December 31, 2017		1,647		2,812	$	61,724	$	62,423	$	(106,277	)	$	17,870
Stock-based compensation		—		—		31		—		—			31
Net loss		—		—		—		—		(2,528	)		(2,528	)
Balances, March 31, 2018		1,647		2,812		61,755		62,423		(108,805	)		15,373
Stock-based compensation		—		—		45		—		—			45
Issuance of restricted stock, net of forfeitures		41		—		—		—		—			—
Net loss		—		—		—		—		(3,216	)		(3,216	)
Balances, June 30, 2018		1,688		2,812		61,800		62,423		(112,021	)		12,202
Stock-based compensation		—		—		50		—		—			50
Net loss		—		—		—		—		(4,509	)		(4,509	)
Balances, September 30, 2018		1,688		2,812	$	61,850	$	62,423	$	(116,530	)	$	7,743

Shares of Common Stock Shares of Preferred Stock Common Stock and Additional
Paid-in
Capital
Preferred Stock ^(a)
Accumulated
Deficit Total
Balances, December 31, 2016 19,927
—
$ 61,643
$ —
$ (99,590 ) $ (37,947 )

Reclassification of preferred stock —
2,812
—
62,423
—
62,423

Stock-based compensation —
—
281
—
—
281

Common stock repurchase program (118 ) —
(186 ) —
—
(186 )

Issuance of restricted stock, net of forfeitures (47 ) —
—
—
—
—

Preferred stock dividends —
—
—
—
(5,702 ) (5,702 )

Net loss —
—
—
—
(1,698 ) (1,698 )
Balances, September 30, 2017 19,762
2,812
$ 61,738
$ 62,423
$ (106,990 ) $ 17,171

(a) Adoption of the classification of the Regional Health Properties, Inc.'s Series A Preferred Stock as permanent equity, as a result of the ownership and transfer restrictions contained in the Amended and Restated Articles of Incorporation of Regional Health Properties, Inc. with respect to the common stock.

See accompanying notes to unaudited consolidated financial statements

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS ~~(Unaudited)~~

(Amounts in 000’s)

(Unaudited)

	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	4,752		$	(10,253	)
(Income) loss from discontinued operations, net of tax		(411	)		242
Income (loss) from continuing operations		4,341			(10,011	)
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities:
Depreciation and amortization		2,661			3,507
Stock-based compensation expense		70			126
Rent expense in excess of cash paid		252			301
Rent revenue in excess of cash received		(1,124	)		(1,784	)
Amortization of deferred financing costs, debt discounts and premiums		166			698
Loss on debt extinguishment		2,478			3,955
Gain on disposal of assets		(7,141	)		—
Bad debt (benefit) expense		(214	)		3,934
Deferred tax expense		44			—
Changes in operating assets and liabilities:
Accounts receivable		578			(349	)
Prepaid expenses and other		326			239
Other assets		(57	)		35
Accounts payable and accrued expenses		(376	)		663
Other liabilities		161			7
Net cash provided by operating activities - continuing operations		2,165			1,321
Net cash used in operating activities - discontinued operations		(980	)		(1,264	)
Net cash provided by operating activities		1,185			57
Cash flows from investing activities:
Proceeds from disposal of lease assets, net		1,192			—
Proceeds from the sale of property and equipment, net		2,687			—
Purchase of property and equipment		(243	)		(266	)
Net cash provided by (used in) investing activities - continuing operations		3,636			(266	)
Net cash provided by (used in) investing activities		3,636			(266	)
Cash flows from financing activities:
Proceeds from debt issuance		—			2,397
Repayment on notes payable		(2,585	)		(1,546	)
Repayment on bonds payable		(344	)		(95	)
Debt extinguishment, forbearance and issuance costs		(1,254	)		(95	)
Net cash (used in) provided by financing activities - continuing operations		(4,183	)		661
Net cash used in financing activities - discontinued operations		(34	)		(188	)
Net cash (used in) provided by financing activities		(4,217	)		473
Net change in cash and restricted cash		604			264
Cash and restricted cash, beginning		6,486			5,359
Cash and restricted cash, ending	$	7,090		$	5,623

Nine Months Ended September 30,
2017 2016
Cash flows from operating activities:
Net loss $ (1,698 ) $ (8,920 )
Loss from discontinued operations, net of tax 2,049
6,513
Income (loss) from continuing operations 351
(2,407 )
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities:

Depreciation and amortization 3,499
4,176
Settlement agreements in excess of cash paid 300
—
Stock-based compensation expense 281
890
Rent expense in excess of cash paid 440
721
Rent revenue in excess of cash received (2,138 ) (1,941 )
Amortization of deferred financing costs 230
614
Amortization of debt discounts and premiums 11
11
Bad debt expense 455
—
Changes in operating assets and liabilities:
Accounts receivable 409
(657 )
Prepaid expenses and other 202
929
Other assets (16 ) 39
Accounts payable and accrued expenses 324
(199 )
Other liabilities 167
630
Net cash provided by operating activities - continuing operations 4,515
2,806
Net cash used in operating activities - discontinued operations (961 ) (3,470 )
Net cash provided by (used in) operating activities 3,554
(664 )

Cash flows from investing activities:

Change in restricted cash 1,889
3,625
Purchase of real estate, net (1,375 ) —
Purchase of property and equipment (774 )
(704 )
Proceeds from the sale of property and equipment —
1,546
Earnest money deposit
—

1,750
Net cash (used in) provided by investing activities - continuing operations (260 ) 6,217
Net cash used in investing activities - discontinued operations —
—
Net cash (used in) provided by investing activities (260 ) 6,217

Cash flows from financing activities:

Proceeds from debt —
3,940
Repayment on notes payable (3,038 ) (10,496 )
Repayment on bonds payable (90 ) (85 )
Repayment of convertible debt (7,700 ) —
Debt issuance costs —
(116 )
Proceeds from preferred stock issuances, net 977
6,790
Repurchase of common stock (186 ) (312 )
Dividends paid on preferred stock (5,702 ) (5,457 )
Net cash used in financing activities - continuing operations (15,739 ) (5,736 )
Net cash used in financing activities - discontinued operations (485 ) (1,080 )
Net cash used in financing activities (16,224 ) (6,816 )
Net change in cash and cash equivalents (12,930 ) (1,263 )
Cash and cash equivalents, beginning 14,045
2,720
Cash and cash equivalents, ending $ 1,115
$ 1,457

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS ~~(Unaudited)~~

(Amounts in 000’s)

(Unaudited)

	Nine Months Ended September 30,
	2019			2018
Supplemental disclosure of cash flow information:
Cash interest paid	$	4,105		$	3,775
Cash income taxes paid	$	—		$	33
Supplemental disclosure of non-cash activities:
Non-cash payments of short-term debt	$	(24,637	)	$	—
Non-cash payments of long-term debt	$	—		$	(8,744	)
Non-cash payments of convertible debt		—			(1,500	)
Non-cash payments of professional liability settlements from financing		—			(2,371	)
Non-cash debt extinguishment, issuance costs and prepayment penalties		(1,036	)		(1,238	)
Non-cash surrender of security deposit		(140	)		—
Non-cash payments of professional liability settlements from prior insurer		—			(2,850	)
Net payments through escrow	$	(25,813	)	$	(16,703	)
Non-cash proceeds from sale of property and equipment		25,813			—
Non-cash proceeds from financing		—			13,853
Non-cash proceeds from prior insurer for professional liability settlements		—			2,850
Net proceeds through escrow	$	25,813		$	16,703

Non-cash deferred financing	$	—		$	3,352
Surrender of security deposit	$	—		$	305
Non-cash proceeds from vendor-financed insurance	$	250		$	198
Non-cash proceeds from finance lease to purchase fixed assets	$	26		$	—

Nine Months Ended September 30,
2017 2016
Supplemental disclosure of cash flow information:

Interest paid $ 2,840

$ 4,846
Income taxes paid $ 13

$ 3
Supplemental disclosure of non-cash activities:
Non-cash proceeds from debt to purchase real estate $ 4,125
$ —
Surrender of security deposit $ 500
$ —
Settlement agreements in excess of cash paid $ 300
$ —
Non-cash proceeds from vendor-financed insurance $ 198
$ —
Non-cash proceeds from financing of South Carolina Medicaid audit repayment $ 385
$ —

See accompanying notes to unaudited consolidated financial statements

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

Notes to ~~Unaudited~~ Consolidated Financial Statements

September 30, ~~2017~~

2019

~~NOTE 1.ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES~~

NOTE 1.

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

~~See~~

Description of Business

AdCare Health Systems, Inc. (“AdCare”) is the former parent of, and the predecessor issuer to, Regional Health Properties, Inc. (“Regional Health” or “Regional” and, together with its subsidiaries, the “Company” or “we”). On September 29, 2017, AdCare merged (the “Merger”) with and into Regional Health, a Georgia corporation and wholly owned subsidiary of AdCare formed for the purpose of the Merger, with Regional Health continuing as the surviving corporation in the Merger. The Company now has many of the characteristics of a real estate investment trust and is focused on the ownership, acquisition and leasing of healthcare related properties. For a description of the Merger, see Part II, Item 8, ~~Notes to Consolidated Financial~~“Financial Statements and Supplemental Data”, Note 1 -– ~~Organization and~~Summary of Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2018, filed with the Securities and Exchange Commission ~~(the “SEC”~~(“SEC”) on ~~April~~May 17, ~~2017~~2019 (the “Annual Report”)~~, for a description of all significant accounting policies.~~

~~Description of Business~~

Regional Health ~~Properties, Inc. (“Regional Health”), through its subsidiaries (together, the “Company” or “we”),~~ is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living. The Company’s business primarily consists of leasing and subleasing healthcare facilities to third-party tenants, which operate ~~such~~the facilities. The operators of the Company’s facilities provide a range of healthcare services to their patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.

Regional Health’s predecessor was incorporated in Ohio on August 14, 1991, under the name Passport Retirement, Inc. In 1995, the company 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. Initially based in Ohio, AdCare expanded its portfolio through a series of strategic acquisitions to include properties in a number of other states, primarily in the Southeast. In 2012, AdCare relocated its executive offices and accounting operations to Georgia, and AdCare changed its state of incorporation from Ohio to Georgia on December 12, 2013. On September 29, 2017, AdCare merged (the “Merger”) with and into Regional Health a Georgia corporation and wholly owned subsidiary of AdCare formed for the purposes of the Merger with Regional Health continuing as the surviving corporation in the Merger.

~~As a consequence of the Merger:~~

the outstanding shares of AdCare’s common stock, no par value per share (the “AdCare common stock”), converted, on a one for one basis, into the same number of shares of Regional Health’s common stock, no par value per share (the “RHE common stock”);

the outstanding shares of AdCare’s 10.875% Series A Cumulative Redeemable Preferred Stock (the “AdCare Series A Preferred Stock”) converted, on a one for one basis, into the same number of shares of Regional Health’s 10.875% Series A Cumulative Redeemable Preferred Stock (the “RHE Series A Preferred Stock”);

the board of directors (the “AdCare Board”) and executive officers of AdCare immediately prior to the Merger are the board of directors (the “RHE Board”) and executive officers, respectively, of Regional Health immediately following the Merger, and each director and executive officer continued his directorship or employment, as the case may be, with Regional Health under the same terms as his directorship or employment with AdCare immediately following the Merger;

Regional Health assumed all of AdCare’s equity incentive compensation plans, and all rights to acquire shares of AdCare common stock under any AdCare equity incentive compensation plan converted into rights to acquire RHE common stock pursuant to the terms of the equity incentive compensation plans and other related documents, if any;

Regional Health began public trading as a NYSE American LLC (“NYSE American”) listed company as the successor issuer to AdCare and succeeded to the assets and continued the business and assumed the obligations of AdCare;

the rights of the holders of RHE common stock and RHE Series A Preferred Stock are governed by the amended and restated articles of incorporation of RHE (the “RHE Charter”) and the amended and restated bylaws of RHE (the “RHE Bylaws”). The RHE Charter is substantially equivalent to AdCare’s articles of incorporation, as amended (the “AdCare Charter”), except that the RHE Charter includes ownership and transfer restrictions related to the RHE common stock. The RHE Bylaws are substantially equivalent to the Bylaws of AdCare, as amended;

~~there was no change in the assets we hold or in the business we conduct; and~~

~~there is no fundamental change to our current operational strategy.~~

~~When used in this Quarterly Report on Form 10-Q, unless otherwise specifically stated or the context otherwise requires, the terms:~~

~~“Board” or “Board of Directors” refers to the AdCare Board with respect to the period prior to the Merger and to the RHE Board with respect to the period after the Merger;~~

“Company”, “we”, “our” and “us” refer to AdCare and its subsidiaries with respect to the period prior to the Merger and to Regional Health and its subsidiaries with respect to the period after the Merger;

~~“common stock” refers to the AdCare common stock with respect to the period prior to the Merger and to the RHE common stock with respect to the period after the Merger;~~

“Series A Preferred Stock” refers to the AdCare Series A Preferred Stock with respect to the period prior to the Merger and to the RHE Series A Preferred Stock with respect to the period after the Merger; and

~~“Charter” refers to the AdCare Charter with respect to the period prior to the Merger and to the RHE Charter with respect to the period after the Merger.~~

~~The Company leases its currently-owned healthcare properties, and subleases its currently-leased healthcare properties, on a triple-net basis, meaning that the lessee (i.e~~., the third-party operator of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. These leases are generally long-term in nature with renewal options and annual rent escalation clauses. The Company has many of the characteristics of a real estate investment trust (“REIT”) and is focused on the ownership, acquisition and leasing of healthcare properties. As a result of the Merger, the RHE Charter contains ownership and transfer restrictions with respect to the common stock. These ownership and transfer restrictions will better position the Company to comply with certain U.S. federal income tax rules applicable to REITs under the Internal Revenue Code of 1986, as amended (the “Code”) to the extent such rules relate to the common stock. The Board continues to analyze and consider: (i) whether and, if so, when, the Company could satisfy the requirements to qualify as a REIT under the Code; (ii) the structural and operational complexities which would need to be addressed before the Company could qualify as a REIT, including the disposition of certain assets or the termination of certain operations which may not be REIT compliant; and (iii) if the Company were to qualify as a REIT, whether electing REIT status would be in the best interests of the Company and its shareholders in light of various factors, including our significant consolidated federal net operating loss carryforwards. There is no assurance that the Company will qualify as a REIT in future taxable years or, if it were to so qualify, that the Board would determine that electing REIT status would be in the best interests of the Company and its shareholders.

As of September 30, ~~2017,~~2019, the Company ~~owns, leases,~~owned, leased, or ~~manages 30~~managed for third parties 24 facilities ~~which are located~~, primarily in the ~~Southeast.~~Southeast United States. Of the 3024 facilities, the Company: (i) leased 1410 owned facilities and subleased 11nine leased skilled nursing facilities to third-party tenants; (ii) leased two owned assisted living facilities to third-party tenants; and (iii) managed on behalf of third-party owners two skilled nursing facilities and one independent living ~~facility (see~~facility. See Note 7 -– Leases, herein, and Note 7 – Leases located in Part II, Item 8, ~~Notes to Consolidated Financial~~“Financial Statements, ~~Note 7 -~~ ~~Leases~~ and Supplemental Data” in the Annual Report for a more detailed description of the Company’s ~~leases)~~leases.

Pursuant to the Purchase and Sale Agreement, dated April 15, 2019, as subsequently amended from time to time (the “PSA”), between certain subsidiaries of the Company and MED Healthcare Partners LLC (“MED”), the Company sold to affiliates of MED Healthcare Partners LLC (“MED”) four skilled nursing facilities (collectively, the “PSA Facilities”), together with substantially all of the fixtures, equipment, furniture, leases and other assets relating to such PSA Facilities (the “Asset Sale”). Under the PSA, the Company sold: (i) on August 28, 2019, the 100-bed skilled nursing facility commonly known as Northwest Nursing Center located in Oklahoma City, Oklahoma (the “Northwest Facility”); and (ii) on August 1, 2019, the following three facilities, (a) the 182-bed skilled nursing facility commonly known as Attalla Health & Rehab located in Attalla, Alabama (the “Attalla Facility”), (b) the 100-bed skilled nursing facility commonly known as Healthcare at College Park located in College Park, Georgia (the “College Park Facility”), and (c) the 118-bed skilled nursing facility commonly known as Quail Creek Nursing Home located in Oklahoma City, Oklahoma (the “Quail Creek Facility”).

In connection with the Asset Sale: (i) MED paid to the Company a cash purchase price for the PSA Facilities equal to $28.5 million in the aggregate; (ii) the Company incurred approximately $0.4 million in sales commission expenses and $0.1 million for a building improvement credit; and (iii) the Company transferred approximately $0.1 million in lease security deposits to MED.

On August 1, 2019, the Company used a portion of the proceeds from the Asset Sale to repay approximately $21.3 million to Pinecone Realty Partners II, LLC (“Pinecone”) to extinguish all indebtedness owed by the Company under a loan agreement, dated February 15, 2018, as amended from time to time with an original aggregate principal amount of $16.25 million which refinanced existing mortgage debt (the “Pinecone Credit Facility”), and to repay approximately $3.8 million to Congressional Bank to extinguish all indebtedness owed by the Company under a term loan agreement, dated September 27, 2013, as amended from time to time, between the Company and Congressional Bank (the “Quail Creek Credit Facility”). For further information, see Note 9 – Notes Payable and Other Debt and Note 10 – Discontinued Operations and Dispositions

The Company leases its currently-owned healthcare properties, and subleases its currently-leased healthcare properties, on a triple-net basis, meaning that the lessee (i.e., the third-party operator of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. These leases are generally long-term in nature with renewal options and annual rent escalation clauses.

When used in this Quarterly Report on Form 10-Q (this “Quarterly Report”), unless otherwise specifically stated or the context otherwise requires, the terms:

•

“Board” or “Board of Directors” refers to the Board of Directors of AdCare with respect to the period prior to the Merger and to the Board of Directors of Regional Health with respect to the period after the Merger;

•

“common stock” refers to AdCare’s common stock with respect to the period prior to the Merger and to Regional Health’s common stock with respect to the period after the Merger;

•

“Series A Preferred Stock” refers to AdCare’s 10.875% Series A Cumulative Redeemable Preferred Stock with respect to the period prior to the Merger and to Regional Health’s 10.875% Series A Cumulative Redeemable Preferred Stock with respect to the period after the Merger; and

“Charter” refers to the amended and restated articles of incorporation of Regional Health.

Going Concern

As of September 30, 2019, we had negative working capital of approximately $1.6 million, which excludes $6.1 million of current operating lease obligation (with the corresponding right of use asset classified as long term). At September 30, 2019, we had $3.4 million in unrestricted cash and $55.8 million in indebtedness, including current maturities of $1.7 million. On August 1, 2019, the Company fully repaid the amounts due under the Pinecone Credit Facility and the Quail Creek Credit Facility using the proceeds from the sale of three of the Company’s facilities. On September 30, 2019, the Company and Pinecone entered into a waiver and release agreement and the Company paid approximately $0.4 million to Pinecone to fully extinguish the surviving obligations and provisions (the “Surviving Obligations”) of the Pinecone Credit Facility, which included (i) a right of first refusal to provide first mortgage financing for any acquisition of a healthcare facility by the Company for a period of three months following the above repayment, and (ii) an exclusive option to refinance the Company’s existing first mortgage loan (the “Pinecone Financing Option”), with a balance of $5.3 million at June 30, 2019, on the Company’s 124-licensed bed skilled nursing facility located in Alabama known as Coosa Valley Health Care, in each case subject to the terms and conditions of the Pinecone Credit Facility.

Prior to August 1, 2019, the continuation of our business was dependent upon our ability: (i) to comply with the terms and conditions under the Pinecone Credit Facility and the second new amended and restated forbearance agreement, dated March 29, 2019, between the Company and certain of its subsidiaries and Pinecone (the “Second A&R Forbearance Agreement”) as amended on June 13, 2019; and (ii) to refinance or obtain further debt maturity extensions on the Quail Creek Credit Facility, neither of which was entirely within the Company’s control. These factors had created substantial doubt about the Company’s ability to continue as a going concern. However, the Company repaid the Pinecone Credit Facility and Quail Creek Credit Facility on August 1, 2019 and fully extinguished the Surviving Obligations on September 30, 2019. If efforts to make such repayment had been unsuccessful, the Company would have been required to seek relief through other available alternatives, including a filing under the U.S. Bankruptcy Code. The consolidated financial statements do not include any adjustments that might have been necessary if the Company was unable to continue as a going concern. See Note – 10 Discontinued Operations and Dispositions for information with respect to the PSA, with respect to the sale of the PSA Facilities and the repayment of all amounts due under the Pinecone Credit Facility and the Quail Creek Credit Facility, which have addressed certain factors that had created substantial doubt regarding the Company’s ability to continue as a going concern.

As a result of such repayments, the Company is able to conclude 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. For additional information, see Note 3 – Liquidity.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with ~~accounting principles~~U.S. generally accepted ~~in the United States of America~~accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Article 8 of ~~Regulations~~Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments ~~(consisting of normal recurring accruals)~~ considered necessary for a fair presentation of the results of operations for the periods presented have been included. Operating results for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 are not necessarily indicative of the results that may be expected for the fiscal year. The consolidated balance sheet at December 31, ~~2016~~2018 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

You should read the unaudited consolidated financial statements in this Quarterly Report together with the historical audited consolidated financial statements of the Company for the year ended December 31, ~~2016,~~2018, included in the Annual Report.

See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 1 – Summary of Significant Accounting Policies included in the Annual Report, for a description of all significant accounting policies. During the three and nine months ended September 30, 2019, there were no material changes to the Company’s policies, except as noted below in RecentlyAdopted Standards.

Use of Estimates

The preparation of ~~consolidated~~ financial statements in conformity with GAAP requires management to make ~~certain~~ estimates and assumptions that affect the amounts reported ~~amounts of assets and liabilities and disclosure of contingent assets and liabilities at~~in the ~~date of the~~unaudited consolidated financial statements and the reported results of operations during the reporting period. Examples of significant estimates include allowance for doubtful accounts, self-insurance reserves, deferred tax valuation allowance, fair value of employee and nonemployee stock based awards, valuation of goodwill and other long-lived assets, and cash flow projections.accompanying notes. Actual results could differ materially from those estimates.

~~Adoption~~

Reverse Stock Split

On December 27, 2018, the Board authorized a reverse stock split of the ~~Classification~~issued and outstanding shares of the common stock, at a ratio of one-for-twelve shares (the “Reverse Stock Split”). Shareholder approval for the Reverse Stock Split was obtained at the Company’s annual meeting of shareholders on December 27, 2018 and the Reverse Stock Split became effective on December 31, 2018. At the effective date, every 12 shares of the common stock that were issued and outstanding were automatically combined into one issued and outstanding share of the common stock. Shareholders did not receive fractional shares in connection with the Reverse Stock Split and instead, received an additional whole share of the common stock in lieu thereof. The authorized number of shares, and the par value per share, of the common stock was not affected by the Reverse Stock Split. The Reverse Stock Split also correspondingly affected all outstanding Regional Health ~~Properties, Inc.'s Series A Preferred~~equity awards. The Reverse Stock ~~as Permanent Equity~~

~~The common~~Split was implemented for the purpose of complying with the NYSE American LLC (“NYSE American” or the “Exchange”) continued listing standards regarding low selling price.

All authorized, issued and outstanding stock ~~is subject to the ownership~~ and ~~transfer restrictions set forth~~per share amounts contained in the ~~RHE Charter, which restrictions permit classification of~~accompanying consolidated financial statements have been adjusted to reflect the ~~Series A Preferred~~Reverse Stock ~~as permanent equity, under the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”)~~ ~~Topic 480-10-S99-3A. The reclassification of the Series A Preferred Stock as permanent equity was adopted on a prospective basis as of September 29, 2017, upon completion of the Merger.~~

Split for all prior periods presented.

Revenue Recognition and Allowances

Triple-Net Leased Properties. The ~~Company's~~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 ~~collectibility~~collectability is ~~reasonably assured.~~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 ~~other assets~~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 ~~will be~~is thus recognized only upon cash collection, and any accumulated straight-line rent receivable ~~will be~~is thus reversed in the period in which the Company ~~first~~ deems rent collection to no longer ~~reasonably assured.~~be probable. Rental revenues for five facilities located in Ohio (until operator transition on December 1, 2018), one facility in North Carolina (until operator transition on March 1, 2019) and four facilities held for sale since April 15, 2019 (until the sale of such facilities, which occurred on August 1, 2019 (three facilities) and August 28, 2019 (one facility)) were recorded on a cash basis during the year ended December 31, 2018, the three months ended March 31, 2019 and until the sale of such facilities, respectively. For additional information with respect to such facilities, see Note 7 –

Leases ~~Management Fee~~ and Note 10 – Discontinued Operations and Dispositions.

Revenue ~~and Other.~~ from Contracts with Customers. The Company recognizes management fee revenues as services are provided. The Company has one contract to manage three facilities (the “Management Contract”), with payment for each month of service received in full on a monthly basis. The maximum penalty for service contract nonperformance under the Management Contract is $50,000 per year, payable after the end of the year. Further, the Company recognizes ~~income from lease inducement receivables and~~ interest income from loans and investments, using the effective interest method when ~~collectibility~~collectability is ~~reasonably assured. We apply~~probable. The Company applies the effective interest method on a loan-by-loan basis.

Allowances. The Company assesses the ~~collectibility~~collectability of ~~our~~its rent receivables, including straight-line rent receivables and working capital loans to tenants. The Company bases its assessment of the ~~collectibility~~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~~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 ~~collectibility~~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 7 –

Leases.

As of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, the Company ~~allowed~~reserved for approximately ~~$2.9~~$0.7 million and ~~$7.5~~$1.4 million, respectively, of gross patient care related receivables arising from our legacy operations. Allowance for patient care receivables are estimated based on an aged bucket method as well as additional analyses of remaining balances incorporating different payor types. Any changes in patient care receivable allowances are recognized as a component of discontinued operations. All uncollected ~~patient care receivables were fully allowed at September 30, 2017 and December 31, 2016.~~receivables. Accounts receivable, net, totaled ~~$1.1~~$0.9 million at September 30, ~~2017~~2019 and ~~$2.4~~$1.0 million at December 31, ~~2016,~~2018.

Extinguishment of ~~which $0.2~~Debt

The Company recognizes extinguishment of debt when the criteria for a troubled debt restructure are not met and the change in the debt terms is considered substantial. The Company calculates the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt (including deferred finance fees) and recognizes a gain or loss on the income statement of the period of extinguishment.

Pre-paid expenses and other

As of September 30, 2019 and December 31, 2018, the Company had $0.3 million and ~~$0.9~~$0.5 million, respectively, ~~related to patient care receivables from our legacy operations.~~

in pre-paid expenses and other, primarily for directors’ and officers’ insurance and mortgage insurance premiums.

Self-Insurance

The Company has self-insured against professional and general liability claims since it discontinued its healthcare operations during 2014 and 2015 ~~(see~~in connection with its transition from an owner and operator of healthcare properties to a healthcare property holding and leasing company (the “Transition”). See Part II, Item 8, ~~Notes to Consolidated Financial~~“Financial Statements and Supplementary Data”, Note 15 - – Commitments and Contingencies in the Annual Report for more ~~information).~~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;~~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 ~~currently~~ believes that most of the professional

and general liability ~~actions, and particularly many of the most recently filed~~ actions are defensible and intends to defend them through final ~~judgment. Consequently,~~judgment unless settlement is more advantageous to the Company. Accordingly, the self-insurance reserve ~~primarily~~ reflects the ~~Company's estimated~~Company’s estimate of settlement amounts for the pending actions, if applicable, and legal costs of settling or litigating the pending actions, ~~accordingly.~~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. ~~Since these reserves are based on estimates, the actual expenses we incur may differ from the amount reserved (see~~See Note 8 – - Accrued Expenses).

~~Fair Value Measurements~~ and ~~Financial Instruments~~

Accounting guidance establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The categorization of a measurement within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

~~Level 1— Quoted market prices in active markets for identical assets or liabilities~~

~~Level 2—~~ Other ~~observable market-based inputs or unobservable inputs that are corroborated by market data~~

~~Level 3— Significant unobservable inputs~~

~~The respective carrying value of certain financial instruments of~~.

In addition, the Company ~~approximates their fair value. These instruments include cash~~maintains certain other insurance programs, including commercial general liability, property, casualty, directors’ and ~~cash equivalents, restricted cash~~officers’ liability, crime and investments, accounts receivable, notes receivable, and accounts payable. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values, they are receivable or payable on demand, oremployment practices liability.

Recently Adopted Standards

On January 1, 2019, the ~~interest rates earned and/or paid approximate current market rates.~~

~~Adopted Standards~~

~~On April 1, 2017, we~~Company adopted Accounting Standards Update (“ASU”) ASU 2016-02, Leases, as codified in Accounting Standards Codification (“ASC”) 842, using the non-comparative transition option pursuant to ASU~~”) 2017-01, Clarifying~~ 2018-11. Therefore we have not restated comparative period financial information for the ~~Definition~~effects of ~~a Business (“ASU 2017-01”), which narrows~~ASC 842, and we have not made the ~~FASB definition~~new required lease disclosures for comparative periods beginning before January 1, 2019. The Company recognized both right of ~~a business and provides a framework that gives entities a basis for making reasonable judgments about whether a transaction involves an asset or a business.~~ ~~ASU 2017-01~~ states that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the acquired asset is not a business. If this initial test is not met, an acquired asset cannot be considered a business unless it includes an input and a substantive process that together significantly contribute to the ability to create output. The primary differences between business combinations and asset acquisitions include recognition of goodwill at the acquisition date and expense recognition for transaction costs as incurred. We are applying ~~ASU 2017-01~~ prospectively for acquisitions after April 1, 2017. Regardless of whether an acquisition is considered a business combination or an asset acquisition, we record the cost of the businesses (or assets) acquired as tangible and intangibleuse assets and lease liabilities ~~based upon their estimated fair values as~~for leases in which we lease land, real property or other equipment, electing the practical expedient to maintain the prior operating lease classification. Effective January 1, 2019, we will assess any new contracts or modification of the acquisition date. Intangibles primarily include certificates of need ("CON") but could include value of in-place leases and acquired lease contracts. For an asset acquisition, the cost of the acquisition is allocated to the assets and liabilities acquired on a relative fair value basis and no goodwill is recognized. We estimate the fair value of assetscontracts in accordance with ~~FASB~~ ASC ~~805~~ 842 to determine the existence of a lease and ~~ASC 820~~. its classification. We are reporting revenues and expenses for real estate taxes and insurance, prospectively where the lessee has not made those payments directly to a third party in accordance with their respective leases with us.

The ~~fair value is estimated under market conditions observed at the time of the measurement date and depreciated over the remaining life of the assets.~~

~~In March 2016, the FASB issued~~ ~~ASU 2016-09,~~ ~~with the intention to simplify aspects of the accounting for share-based payment transactions, including income~~following table summarizes real estate tax ~~impacts, classification~~recognized on ~~the~~our consolidated statement of ~~cash flows, and forfeitures.~~ ~~ASU 2016-09~~ is effective for fiscal years and interim periods within those years beginning after December 15, 2016. The various amendments within the standard require different approaches to adoption, on a retrospective, modified retrospective or prospective basis. The Company adopted the various amendments in its consolidated financial statementsoperations for the three ~~month period ending March 31, 2017 with an effective date~~and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,				Nine Months Ended September 30,
(Amounts in 000’s)	2019		2018		2019		2018
Rental revenues	$	129	$	—	$	358	$	—
Other operating expenses		129		—		358		—

Also, we now expense certain leasing costs, other than leasing commissions, as they are incurred. Current GAAP provides for the deferral and amortization of ~~January 1, 2017. The Company has elected to continue to estimate forfeitures expected to occur to determine~~such costs over the ~~amount of compensation cost to be recognized in each period. The adoption~~applicable lease term. Adoption of ASU ~~2016-09~~2016-02 ~~did~~has not ~~have~~had a material effect on the Company’s consolidated financial ~~statements.~~

~~Recent Accounting Pronouncements~~

~~In May 2014,~~statements, other than the ~~FASB issued~~initial balance sheet impact of recognizing the right-of-use assets and the right-of-use lease liabilities. Upon adoption, we recognized operating lease assets of $39.8 million on our consolidated balance sheet for the period ended March 31, 2019, which represents the present value of minimum lease payments associated with such leases. Also upon adoption, we recognized operating lease liabilities of $41.5 million, instead of $1.7 million of previously recorded deferred rent recorded in “Other Liabilities” on our consolidated balance sheet for the period ended March 31, 2019. The present value of minimum lease payments was calculated on each lease using a discount rate that approximated our incremental borrowing rate and the current lease term and upon adoption we utilized a discount rate of 7.98% for the Company’s leases. See Note 7– ~~ASU 2014-09~~ ~~as codified in~~ ~~ASC~~Leases ~~606~~for the Company’s operating leases.

See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 1 –~~which requires revenue to be recognized in an amount that reflects the consideration expected to be received in exchange for goods and services. This new standard requires the disclosure~~ Summary of sufficient quantitative and qualitative information for financial statement users to understand the nature, amount, timing and uncertainty of revenue and associated cash flows arising from contracts with customers. The new guidance does not affect the recognition of revenue from leases, which is approximately 95% of our revenue. The new revenue standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Early application is permitted, beginning after December 15, 2016. Our revenue streams also include loan interest and management fees. Based on our initial assessment, management fees for providing back office services and support in our Consolidated Statements of Income are subject to ~~ASC~~ 606, and the Company believes the pattern and timing of recognition of income for the management fees will be consistent with the current accounting model. The Company does not expect adoption of this guidance to have a material impact on the Company’s consolidated financial condition, results of operations or cash flows.

~~In January 2016, the FASB issued~~ ~~ASU 2016-01,~~ which provides revised accounting guidance related to the accounting for and reporting of financial instruments. This guidance significantly revises an entity’s accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. The ~~ASU~~ is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017; earlier adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial condition, results of operations or cash flows.

~~In February 2016, the FASB issued~~ ~~ASU 2016-02,~~ as a comprehensive new lease standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance, ~~ASC 840,~~Significant Accounting Policies ~~Leases~~. ~~ASU 2016-02~~ ~~creates a new Topic,~~ ~~ASC 842, Leases~~. This new Topic retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leasesincluded in the ~~previous leases guidance. The ASU is~~

~~effective~~Annual Report, for ~~annual periods beginning after December 15, 2018, including interim periods within those fiscal years; earlier adoption is permitted. In the financial statements in which the~~ ~~ASU~~ ~~is first applied, leases shall be measured and recognized at the beginning~~a description of the ~~earliest comparative period presented with an adjustment to equity. The~~other accounting pronouncements the Company is currently ~~evaluating the impact of the adoption of this guidance on its consolidated financial condition, results of operations and cash flows.~~

evaluating.

~~In June 2016, the FASB issued~~ ~~ASU 2016-13, which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses.~~ ~~ASU 2016-13~~ is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted for annual and interim periods beginning after December 15, 2018. We are currently evaluating the impact of adopting ~~ASU 2016-13~~ ~~on our consolidated financial statements.~~

~~In August 2016, the FASB issued~~ ~~ASU2016-1~~5, guidance which clarifies the treatment of several cash flow categories. In addition, the guidance clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use. This update is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted, including adoption in an interim period. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

~~In November 2016, the FASB issued~~ ~~ASU 2016-18~~, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash. Therefore, amounts generally described as restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted using a retrospective transition method to each period presented. We are currently evaluating the impact of adopting ASU 2016-18 on our consolidated financial statements.

~~In January 2017, the FASB issued~~ ~~ASU 2017-04,~~ ~~which simplifies the required periodic test for goodwill impairment and modifies the concept of impairment of goodwill under previous guidance,~~ ~~ASC 350,Intangibles - Goodwill and Other~~. Under the updated guidance, a goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, up to the total amount of goodwill allocated to that reporting unit. This simplification eliminates previous requirements to determine the implied fair value of goodwill and record a loss on impairment equal to the carrying value of goodwill less the implied fair value. Further, the ~~ASU~~ modifies the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. ~~ASU 2017-04~~ is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted on a prospective basis for annual and interim periods beginning after January 1, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial condition, results of operations or cash flows.

~~NOTE 2.EARNINGS PER SHARE~~

NOTE 2.

EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income or loss attributable to common stockholders by the ~~weighted average~~weighted-average number of shares of common stock outstanding during the respective period. Diluted earnings per share is similar to basic earnings per share ~~except: (i)~~except that the net income or loss is adjusted by the impact of the ~~assumed conversion of convertible debt into shares of common stock; and (ii) the weighted average~~weighted-average number of shares of common stock outstanding ~~includes~~including potentially dilutive securities (such as options, warrants and ~~additional shares of~~non-vested common ~~stock issuable under convertible debt outstanding during the period)~~stock) when such securities are not anti-dilutive. Potentially dilutive securities from options, warrants and ~~warrants~~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. Potentially dilutive securities from convertible debt are calculated based on the assumed issuance at the beginning of the period, as well as any adjustment to income that would result from their assumed issuance. For the three and nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, approximately ~~2.4~~0.1 million and ~~4.5~~0.1 million shares, respectively, of potentially dilutive securities were excluded from the diluted ~~income (loss)~~loss per share calculation because including them would have been anti-dilutive for such periods.

The following tables provide a reconciliation of net ~~loss~~income (loss) for continuing and discontinued operations and the number of shares of common stock used in the computation of both basic and diluted earnings per share:

	Three Months Ended September 30,						Nine Months Ended September 30,
(Amounts in 000’s, except per share data)	2019			2018			2019			2018
Numerator:
Income (loss) from continuing operations	$	5,710		$	(4,666	)	$	4,341		$	(10,011	)
Preferred stock dividends - undeclared ⁽¹⁾		(2,250	)		(1,912	)		(6,748	)		(5,736	)
Basic and diluted income (loss) from continuing operations		3,460			(6,578	)		(2,407	)		(15,747	)
Income (loss) from discontinued operations, net of tax		101			157			411			(242	)
Net income (loss) attributable to Regional Health Properties, Inc. common stockholders	$	3,561		$	(6,421	)	$	(1,996	)	$	(15,989	)
Denominator:
Basic - weighted average shares		1,688			1,688			1,688			1,665
Diluted - adjusted weighted average shares ⁽²⁾		1,688			1,688			1,688			1,665
Basic and diluted income (loss) per share:
Income (loss) from continuing operations attributable to Regional Health	$	2.05		$	(3.93	)	$	(1.42	)	$	(9.45	)
Income (loss) from discontinued operations, net of tax		0.06			0.09			0.24			(0.15	)
Net income (loss) attributable to Regional Health Properties, Inc. common stockholders	$	2.11		$	(3.84	)	$	(1.18	)	$	(9.60	)

(1)

The Board suspended dividend payments with respect to our Series A Preferred Stock commencing with the fourth quarter of 2017, and determined to continue such suspension indefinitely in June 2018. Accordingly, the Company has not paid dividends with respect to the Series A Preferred Stock since the third quarter of 2017.

Three Months Ended
September 30, Nine Months Ended
September 30,
(Amounts in 000’s, except per share data) 2017 2016 2017 2016
Numerator:
Income (loss) from continuing operations $ 266
$ 222
$ 351
$ (2,407 )
Preferred stock dividends 1,912
1,879
5,702
5,457
Basic and diluted loss from continuing operations (1,646 ) (1,657 ) (5,351 ) (7,864 )

Loss from discontinued operations, net of tax (1,032 ) (2,210 ) (2,049 ) (6,513 )
Net loss attributable to Regional Health Properties, Inc. common stockholders $ (2,678 ) $ (3,867 ) $ (7,400 ) $ (14,377 )

Denominator:
Basic - weighted average shares 19,762
19,917
19,784
19,909
Diluted - adjusted weighted average shares ^(a)
19,762
19,917
19,784
19,909

Basic and diluted loss per share:
Loss from continuing operations attributable to Regional Health $ (0.08 ) $ (0.08 ) $ (0.27 ) $ (0.39 )
Loss from discontinued operations (0.05 ) (0.11 ) (0.10 ) (0.33 )
Loss attributable to Regional Health Properties, Inc. common stockholders $ (0.13 ) $ (0.19 ) $ (0.37 ) $ (0.72 )

^(a)

(2)	Securities outstanding that were excluded from the computation, because they would have been anti-dilutive were as follows:

	September 30,
(Share amounts in 000’s)	2019		2018
Stock options		15		15
Warrants - employee		49		49
Warrants - non employee		36		36
Total anti-dilutive securities		100		100

NOTE 3.

LIQUIDITY

Going Concern and Overview

As of September 30, 2019, we had negative working capital of approximately $1.6 million which excludes $6.1 million of current operating lease obligation (with the corresponding right of use asset classified as long term). At September 30, 2019, we had $3.4 million in unrestricted cash and $55.8 million in indebtedness, including current maturities of $1.7 million. The current portion of such indebtedness is comprised of senior debt and bond and mortgage indebtedness. On August 1, 2019, the Company fully repaid the amounts due under the Pinecone Credit Facility and the Quail Creek Credit Facility using the proceeds from the Asset Sale.

Prior to August 1, 2019, the continuation of our business was dependent upon our ability: (i) to comply with the terms and conditions under the Pinecone Credit Facility and the Second A&R Forbearance Agreement as amended on June 13, 2019; and (ii) to refinance or obtain further debt maturity extensions on the Quail Creek Credit Facility, neither of which was entirely within the Company’s control. These factors had created substantial doubt about the Company’s ability to continue as a going concern.

The Company repaid the Pinecone Credit Facility and Quail Creek Credit Facility on August 1, 2019. If efforts to make such repayments had been unsuccessful, the Company would have been ~~anti-dilutive were~~required to seek relief through a number of other available alternatives including a filing under the U.S. Bankruptcy Code. The consolidated financial statements do not include any adjustments that might have been necessary if the Company was unable to continue as ~~follows:~~a going concern. See Note – 10 Discontinued Operations and Dispositions

September 30,
(Share amounts in 000’s) 2017 2016
Stock options 245
355
Warrants - employee 1,350
1,559
Warrants - non employee 437
437
Shares issuable upon conversion of convertible debt 353
2,165
Total anti-dilutive securities 2,385
4,516

~~NOTE 3.LIQUIDITY AND PROFITABILITY~~

~~Sources~~. The Asset Sale on August 1, 2019, and the repayment of ~~Liquidity~~

all amounts due under the Pinecone Credit Facility and the Quail Creek Credit Facility, have addressed certain factors that had created substantial doubt regarding the Company’s ability to continue as a going concern. As a result of such repayment, the Company is able to conclude 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.

The Company ~~continues to undertake~~is undertaking measures to grow its operations, streamline its cost infrastructure and ~~to reduce its expenses~~otherwise increase liquidity by: (i) ~~increasing future lease revenue through acquisitions and investments in its existing properties; (ii) modifying the terms of existing leases; (iii)~~ refinancing or repaying debt to reduce interest costs and mandatory principal ~~repayments;~~repayments, with such repayment to be funded through potentially expanding borrowing arrangements with certain lenders or raising capital through the issuance of securities after restructuring of the Company’s capital structure; (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.

~~At September 30, 2017, the Company had $1.1 million in cash and cash equivalents as well as restricted cash and investments of $3.5 million. In addition, management~~

Management anticipates access to several sources of liquidity, including cash on hand, cash flows from operations, and ~~cash on hand. Management holds routine ongoing discussions with existing lenders and potential new lenders to refinance current~~ debt ~~on a longer term basis and, in recent years, has refinanced shorter term acquisition debt with traditional longer term mortgage notes, many~~refinancing during the twelve months from the date of ~~which have been executed under government guaranteed lending programs. Historically,~~this filing. At September 30, 2019, the Company ~~has raised capital through other sources, including issuances of preferred stock and convertible debt.~~

~~On May 27, 2017,~~had $3.4 million in unrestricted cash. During the nine months ended September 30, 2019, the Company ~~entered into an At Market Issuance Sales Agreement (the “2017 Sales Agreement”)~~generated positive operating cash flow from continuing operations of $2.2 million.

Series A Preferred Dividend Suspension

On June 8, 2018, the Board indefinitely suspended quarterly dividend payments with ~~JMP Securities LLC~~respect to ~~sell, from time~~the Series A Preferred Stock. Such dividends are currently in arrears with respect to ~~time, shares~~the fourth quarter of 2017, all quarters of 2018, and the first, second and third quarters of 2019. The Board plans to revisit the dividend payment policy with respect to the Series A Preferred Stock ~~having~~on an ~~aggregate offering price of up to $4,618,472, through an “at-the-market” offering program (the “ATM”). From~~ongoing basis. The Board believes that the ~~inception of the ATM through September 30, 2017,~~dividend suspension will provide the Company ~~sold 50,000 shares of~~with additional funds to meet its ongoing liquidity needs. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for more than four dividend periods, the annual dividend rate on the Series A Preferred Stock ~~generating net proceeds of approximately $1.0 million (see Note 12 -~~ ~~Common~~for the fifth and ~~Preferred Stock). On August 2, 2017~~future missed dividend periods has increased to 12.875%, which is equivalent to $3.22 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 ~~terminated the 2017 Sales Agreement~~has paid all accumulated and ~~discontinued sales under the ATM.~~

On July 31, 2017, the Company extended the maturity date of a $1.2 million credit facility entered into in December 2012 between a certain wholly-owned subsidiary of the Company and First Commercial Bank associated with its Northwest Oklahoma facility (the “Northwest Credit Facility”), from December 31, 2017 to July 31, 2020.

On August 11, 2017, the Company extended the maturity date of the credit facilities entered into in April 2015, with respect to an aggregate of $0.5 million of indebtedness between certain wholly-owned subsidiaries of the Company and the KeyBank National Association (the “Key Bank Credit Facility”), from October 17, 2017 to August 2, 2019.

To conserve cash while working towards a settlement of our on-going professional and general liability claims, the Company’s Board of Directors (the “Board”) voted to postpone the payment of the fourth quarter 2017 dividendunpaid dividends on the Series A Preferred ~~Stock. The Board will revisit the dividend payment~~Stock in the first quarter 2018 meeting. The dividend suspension will allow the Company to pay outstanding vendors and fund ongoing legal expenses and settlement payments. The dividend suspension does not trigger a default under its outstanding indebtedness.

full in cash.

~~Beginning in the first quarter~~

Current Maturities of ~~2018, the Company expects to receive full rent with respect to all the facilities (the “Peach Facilities”) subleased by a subsidiary~~Debt

As of the Company to affiliates (collectively, “Peach Health Sublessee”) of Peach Health Group, LLC (“Peach Health”). The Peach Facilities were previously subleased to affiliates of New Beginnings Care, LLC (“New Beginnings”) prior to the bankruptcy of New Beginnings and are comprised of: (i) an 85-bed skilled nursing facility located in Tybee Island, Georgia (the “Oceanside Facility”); (ii) a 50-bed skilled nursing facility located in Tybee Island, Georgia (the “Savannah Beach Facility”); and (iii) a 131-bed skilled nursing facility located in Jeffersonville, Georgia (the “Jeffersonville Facility”). Rent for the Savannah Beach Facility, the Oceanside Facility, and the Jeffersonville Facility is $0.3 million, $0.4 million and $0.6 million per annum, respectively; but such rent was only $1 per month for the Oceanside Facility and Jeffersonville Facility until the date such facilities were recertified by the Centers for Medicare and Medicaid Services (“CMS”) or April 1, 2017, whichever occurred first (the “Rent Commencement Date”). The Oceanside Facility and Jeffersonville Facility were recertified by CMS in February 2017 and December 2016, respectively. Furthermore, with respect to the Oceanside Facility and Jeffersonville Facility, Peach Health Sublessee is entitled to three months of $1 per month rent following the Rent Commencement Date and, following such three-month period, five months of rent discounted by 50%.

On September 19, 2016, the Company obtained options to extend the maturity date, subject to customary conditions, of a $4.3 million credit facility entered into in September 2013 between a certain wholly-owned subsidiary of the Company and Housing & Healthcare Funding, LLC (the "Quail Creek Credit Facility") from September 2017 to September 2018. On August 10, 2017, the Company extended the maturity date of the Quail Creek Credit Facility to December 31, 2017 and retains the option to further extend the maturity date of such credit facility to September 2018. There is no assurance that we will be able to refinance or further extend the maturity date of this credit facility on terms that are favorable to the Company or at all.

~~Cash Requirements~~

At September 30, ~~2017,~~2019, the Company had ~~$73.8~~total current liabilities of $14.1 million and total current assets of $6.4 million, resulting in a working capital deficit of approximately $1.6 million after excluding $6.1 million of current operating lease obligation (with the corresponding right of use asset classified as long term). Included in current liabilities at September 30, 2019 is the $1.7 million current portion of the Company’s $55.8 million in ~~indebtedness of which the current portion is $8.3 million.~~indebtedness. The current portion of such indebtedness is comprised of ~~the following components: (i) convertible debt of $1.5 million, (ii)~~ senior debt, of $4.3 million attributable to the Company’s skilled nursing facility known as the Quail Creek Nursing & Rehabilitation Center located in Oklahoma City, Oklahoma (the “Quail Creek Facility”); and (iii) other debt of approximately $2.5 million which includes senior debt - bond and mortgage indebtedness ~~(for a detailed listing of our debt, see Note 9 -~~ ~~Notes Payable~~ and ~~Other Debt~~).

other debt. The Company anticipates net principal ~~disbursements, over~~repayments of approximately $1.7 million during the next ~~twelve months, of approximately $8.3 million,~~twelve-month period, which includes ~~$1.5 million of convertible debt, $4.3 million of senior debt attributable to the Quail Creek Facility,~~ approximately ~~$0.2 million of payments on shorter term vendor notes, $1.6~~$1.5 million of routine debt service amortization, $0.1 million payments on other non-routine debt and ~~$0.7~~$0.1 million payment of ~~other~~bond debt. ~~Based on the described sources of liquidity,~~On August 1, 2019, the Company ~~expects sufficient funds for its operations and scheduled debt service, at least through~~used a portion of the ~~next twelve months. On a longer term basis, at September 30, 2017,~~proceeds from the Asset Sale to repay approximately $21.3 million to Pinecone to extinguish all indebtedness owed by the Company ~~had~~under the Pinecone Credit Facility, and to repay approximately ~~$11.0~~$3.8 million ~~of debt maturities due over~~to Congressional Bank to extinguish all indebtedness owed by the two-year period ending September 30, 2019. These debt maturities include the aforementioned $1.5 million of convertible promissory notes, which are convertible into shares of the common stock, in addition to $4.3 million with respect toCompany under the Quail Creek Credit Facility. For further information, see Note – 9 Notes Payable and Other debt and Note – 10 Discontinued Operations and Dispositions.

Debt Covenant Compliance

As of September 30, 2019, the Company was in compliance with the various covenants for the Company’s outstanding credit related instruments.

Changes in Operational Liquidity

On August 1, 2019 and August 28, 2019 the Company completed the Asset Sale. The sale of the Quail Creek Facility, the Attalla Facility and the College Park Facility occurred on August 1, 2019, and the sale of the Northwest Facility occurred on August 28, 2019. In connection with the Asset Sale: (i) MED paid to the Company ~~believes~~a cash purchase price for the PSA Facilities equal to $28.5 million in the aggregate; (ii) the Company incurred approximately $0.4 million in sales commission expenses and $0.1 million for a building improvement credit; and (iii) transferred approximately $0.1 million in lease security deposits to MED. The expected 2019 annualized rent receivable, for the PSA Facilities was approximately $3.0 million and estimated 2019 annualized interest expense for the Pinecone Credit Facility and Quail Creek Credit Facility, repaid on August 1, 2019 from the Asset Sale proceeds, was approximately $3.8 million.

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 entity’s current financial condition, including its ~~long-term~~sources of liquidity ~~needs~~at the date that the consolidated financial statements are issued, will enable the entity 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 entity will be ~~satisfied by~~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, ~~from operations, cash on hand, borrowings as required to refinance indebtedness~~and the Company’s obligations due over the next twelve months, as well as ~~other sources, including issuances~~the Company’s recurring business operating expenses.

As the Company fully repaid the Pinecone Credit Facility and Quail Creek Credit Facility on August 1, 2019 from the proceeds of ~~convertible debt.~~

the Asset Sale, the Company is able to conclude 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.

The Company is a defendant in a total of 42 unsettled professional and general liability cases. The claims generally seek unspecified compensatory and punitive damages for former patients of the Company who were allegedly injured or died while patients of facilities operated by the Company due to professional negligence or understaffing. The Company established a self-insurance reserve for these professional and general liability claims, included within “Accrued expenses and other” in the Company’s unaudited consolidated balance sheets, of $6.7 million and $6.9 million at September 30, 2017, and December 31, 2016, respectively. The Company currently believes that most of the professional and general liability actions, and particularly many of the most recently filed actions, are defensible and intends to defend them through final judgment. Accordingly, the self-insurance reserve primarily reflects the Company's estimated legal costs of litigating the pending actions, which are expected to be paid over time as litigation continues. The duration of such legal proceedings could be greater than one year subsequent to the period ended September 30, 2017; however, management cannot reliably estimate the exact timing of payments. The Company expects to fund litigation and potential indemnity costs through cash on hand as well as other sources as described above.

NOTE 4.

CASH AND RESTRICTED CASH

During the three months ended September 30, 2017, the Company generated positive cash flow from operations and anticipates positive cash flow from operations through the remainder of the current year. In order to satisfy the Company’s capital needs, the Company seeks to: (i) refinance debt where possible to obtain more favorable terms; (ii) raise capital through the issuance of debt or equity securities; and (iii) increase operating cash flows through acquisitions. The Company anticipates that these actions, if successful, will provide the opportunity to maintain its liquidity, thereby permitting the Company to better meet its operating and financing obligations for the next twelve months. However, there is no guarantee that such actions will be successful. Management’s ability to raise additional capital through the issuance of equity securities and the terms upon which we are able to raise such capital may be adversely affected if we are unable to maintain the listing of the common stock and the Series A Preferred Stock on the NYSE American, formerly known as the NYSE MKT.

~~NOTE 4.~~ ��~~RESTRICTED CASH AND INVESTMENTS~~

The following presents the Company's cash and restricted ~~cash, escrow deposits and investments:~~ cash:

(Amounts in 000’s)	September 30, 2019		December 31, 2018
Cash	$	3,421	$	2,407

Restricted cash:
Cash collateral		94		313
Replacement reserves		—		297
Escrow deposits		1,025		801
Total current portion		1,119		1,411

Restricted cash for debt obligations		317		365
HUD and other replacement reserves		2,233		2,303
Total noncurrent portion		2,550		2,668
Total restricted cash		3,669		4,079

Total cash and restricted cash	$	7,090	$	6,486

(Amounts in 000’s) September 30, 2017 December 31, 2016
Cash collateral $ 40
$ 260
Replacement reserves 278
811
Escrow deposits 642
529
Total current portion 960
1,600

Restricted investments for other debt obligations and certificates of deposit 405
2,274
HUD and other replacement reserves 2,175
1,590
Total noncurrent portion 2,580
3,864
Total restricted cash and investments $ 3,540
$ 5,464

Cash ~~collateral~~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.

Replacement ~~reserves~~reserves——Cash reserves set aside for non-critical building repairs ~~to be completed~~for completion within the next 12twelve months, pursuant to loan agreements.

Escrow ~~deposits~~deposits——In connection with financing secured through ~~our~~the Company’s lenders, several wholly-owned subsidiaries of the Company are required to make monthly escrow deposits for taxes and insurance.

Restricted ~~investments~~cash for other debt obligations ~~and certificates of deposit~~—In compliance with certain financing and insurance agreements, the Company and certain wholly-owned subsidiaries of the Company are required to deposit cash ~~and/or certificates of deposit~~ held as collateral by the lender or in escrow with certain designated financial institutions.

HUD and other replacement ~~reserves~~reserves——The regulatory agreements entered into in connection with the financing secured through the U.S. Department of Housing and Urban Development (“HUD”) require monthly escrow deposits for replacement and improvement of the HUD project ~~assets.~~ assets

~~NOTE 5.PROPERTY AND EQUIPMENT~~

NOTE 5.

PROPERTY AND EQUIPMENT

The following table sets forth the Company’s property and equipment:

(Amounts in 000’s)	Estimated Useful Lives (Years)		September 30, 2019			December 31, 2018
Buildings and improvements	5-40		$	65,679		$	88,710
Equipment and computer related	2-10			5,748			7,398
Land		—		2,779			4,131
Construction in process		—		114			43
				74,320			100,282
Less: accumulated depreciation and amortization				(18,808	)		(23,045	)
Property and equipment, net			$	55,512		$	77,237

(Amounts in 000’s)
Estimated Useful
Lives (Years)
September 30, 2017 December 31, 2016
Buildings and improvements
5-40 $ 89,954
$ 84,108
Equipment and computer related*
2-10 10,883
12,286
Land
— 4,248
3,988
Construction in process — —
602
105,085
100,984
Less: accumulated depreciation and amortization* (22,644 ) (21,816 )
Property and equipment, net $ 82,441
$ 79,168

*The

During the three months ended June 30, 2019, the Company ~~retired approximately $2.2~~transferred $19.7 million of ~~fully depreciated assets during the nine months ended September 30, 2017.~~

~~On May~~Property and equipment, net, to Assets held for sale and on August 1, ~~2017, the Company completed the acquisition~~2019, and August 28, 2019, sold approximately $17.0 million and $2.7 million, respectively of ~~an assisted living and memory care community with 106 operational beds in Glencoe, Alabama (“the Meadowood Facility”) from Meadowood Retirement Village, LLC and Meadowood Properties, LLC (see~~such net assets. See Note 10 - – ~~Acquisitions)~~.

~~Buildings~~Discontinued Operations and ~~improvements includes the capitalization of costs incurred for the respective CON’s. For additional information on the CON amortization, see Note 6 -~~Dispositions ~~Intangible Assets and Goodwill~~.

The following table summarizes total depreciation and amortization expense for the three and nine months ended September 30, ~~2017~~2019 and ~~2016:~~2018:

	Three Months Ended September 30,				Nine Months Ended September 30,
(Amounts in 000’s)	2019		2018		2019		2018
Depreciation	$	571	$	788	$	1,906	$	2,394
Amortization		226		338		755		1,113
Total depreciation and amortization expense	$	797	$	1,126	$	2,661	$	3,507

Three Months Ended September 30, Nine Months Ended September 30,
(Amounts in 000’s) 2017 2016 2017 2016
Depreciation $ 857
$ 786
$ 2,486
$ 3,000
Amortization 336
338
1,013
1,176
Total depreciation and amortization $ 1,193
$ 1,124
$ 3,499
$ 4,176

~~NOTE 6.INTANGIBLE ASSETS AND GOODWILL~~

NOTE 6.

INTANGIBLE ASSETS AND GOODWILL

Intangible assets consist of the following:

(Amounts in 000’s)	Bed licenses (included in property and equipment)^(a)			Bed Licenses - Separable		Lease Rights			Total
Balances, December 31, 2018
Gross	$	22,811		$	2,471	$	5,015		$	30,297
Accumulated amortization		(4,849	)		—		(4,109	)		(8,958	)
Net carrying amount	$	17,962		$	2,471	$	906		$	21,339
Acquisitions		—			—		43			43
Assets sold
Gross		(8,535	)		—		—			(8,535	)
Accumulated amortization		2,003			—		—			2,003
Fully amortized asset adjustments
Gross		—			—		(300	)		(300	)
Accumulated amortization		—			—		300			300
Amortization expense		(390	)		—		(365	)		(755	)
Balances, September 30, 2019
Gross		14,276			2,471		4,758			21,505
Accumulated amortization		(3,236	)		—		(4,174	)		(7,410	)
Net carrying amount	$	11,040		$	2,471	$	584		$	14,095

(Amounts in 000’s) CON (included in property and equipment) Bed Licenses - Separable Lease Rights Total
Balances, December 31, 2016

Gross $ 22,811
$ 2,471
$ 6,881
$ 32,163
Accumulated amortization (3,483 ) —
(4,127 ) (7,610 )
Net carrying amount $ 19,328
$ 2,471
$ 2,754
$ 24,553

Amortization expense (512 ) —
(501 ) (1,013 )

Balances, September 30, 2017
Gross 22,811
2,471
6,881
32,163
Accumulated amortization (3,995 ) —
(4,628 ) (8,623 )
Net carrying amount $ 18,816
$ 2,471
$ 2,253
$ 23,540

(a)	Non-separable bed licenses are included in property and equipment as is the related accumulated amortization expense (see Note 5 – Property and Equipment).

The following table summarizes ~~total~~ amortization expense for the ~~three and~~ nine months ended September 30, ~~2017~~2019 and ~~2016:~~2018:

	Three Months Ended September 30,				Nine Months Ended September 30,
(Amounts in 000’s)	2019		2018		2019		2018
Bed licenses	$	104	$	171	$	390	$	512
Lease rights		122		167		365		601
Total amortization expense	$	226	$	338	$	755	$	1,113

Three Months Ended September 30, Nine Months Ended September 30,
(Amounts in 000’s) 2017 2016 2017 2016
CON $ 169
$ 171
$ 512
$ 676
Lease rights 167
167
501
500
Total amortization $ 336
$ 338
$ 1,013
$ 1,176

Expected amortization expense for all definite-lived intangibles for each of the years ended December 31 is as follows:

(Amounts in 000’s)	Bed Licenses		Lease Rights
2019^(a)	$	104	$	122
2020		414		304
2021		414		24
2022		414		24
2023		414		23
Thereafter		9,280		87
Total expected amortization expense	$	11,040	$	584

(a)	Estimated amortization expense for the year ending December 31, 2019, includes only amortization to be recorded after September 30, 2019.

(Amounts in 000’s) Bed Licenses Lease Rights
2017^(a)
$ 171
$ 166
2018 683
667
2019 683
667
2020 683
482
2021 683
203
Thereafter 15,913
68
Total expected amortization expense $ 18,816
$ 2,253

^(a)~~Estimated amortization expense for the year ending December 31, 2017, includes only amortization to be recorded after September 30, 2017.~~

The following table summarizes the carrying amount of goodwill:


(Amounts in 000’s)	September 30, 2017			December 31, 2016			September 30, 2019			December 31, 2018
Goodwill	$	2,945		$	2,945
Accumulated impairment losses	(840		)	(840		)
Goodwill - balances, December 31, prior year							$	2,105		$	2,105
Assets sold								(520	)		—
Net carrying amount	$	2,105		$	2,105		$	1,585		$	2,105

The Company does not amortize indefinite-lived intangibles, which consist of separable bed licenses and goodwill.

NOTE 7.

LEASES

~~NOTE 7. LEASES~~

Operating Leases

The Company leases ~~a total of eleven~~nine skilled nursing facilities from unaffiliated owners under non-cancelable leases, all of which have rent escalation clauses and provisions requiring payment of real estate taxes, insurance and maintenance costs by the lessee. Each of the skilled nursing facilities that are leased by the Company are subleased to and operated by third-party tenants. The Company also leases certain office space located in ~~Suwanee, Georgia~~Atlanta and ~~Atlanta,~~Suwanee, Georgia. The Atlanta office space is subleased to a third-party ~~tenant.~~

entity.

As of September 30, ~~2017,~~2019, the Company is in compliance with all operating lease financial covenants.

Subleased facilities

The weighted average remaining lease term for our nine subleased facilities is 8.1 years.

Foster Prime Lease. Eight of the Company’s skilled nursing facilities (collectively, the “Georgia Facilities”) are leased under a single master indivisible arrangement (as amended), by and between the Company and William M. Foster, with a lease termination date of August 31, 2027 (the “Prime Lease”). Under the Prime Lease, a default related to an individual facility may cause a default of the entire Prime Lease. The Company is responsible for the cost of maintaining the Georgia Facilities. On August 14, 2015, the lessor consented to the Company’s sublease of the Georgia Facilities to a third-party tenant. Commencing on July 1, 2016, annual rent increases at 2.0% annually for the remainder of the lease term.

Covington Prime Lease. One of the Company’s facilities is leased under an agreement dated August 26, 2002, as subsequently amended (the “Covington Prime Lease”), by and between the Company and Covington Realty, LLC (“Covington”). On January 11, 2019 the Company and Covington entered into a forbearance agreement (the “Covington Forbearance Agreement”), whereby the Company and Covington agreed that: (i) the term of the lease shall be extended from April 30, 2025 until April 30, 2029 (the “Term”); (ii) the base rent was reduced by approximately $0.8 million over the remainder of the prior lease term; and (iii) the Company shall receive relief from approximately $0.5 million of outstanding lease amounts (the “Rent Due”) as of December 31, 2018. Without waiving any default by the Company or Covington’s rights and remedies, and subject to specified terms and conditions for so long as the Company or the Company’s subtenant are not in default under the lease and the proposed sublease, as the case may be, Covington (including its subsidiaries, affiliates, successors and assigns) will forbear from pursuing its rights against the Company for so long as neither the Company nor its subtenant is not in default under the existing lease, as amended on January 11, 2019, or the new sublease, on the final day of the third, fourth and fifth years following the execution of the new sublease. Covington will release and forever quit claim specified portions of the Rent Due as follows: one-third at the end of year

three of the new sublease, one-third at the end of year four of the new sublease, and one-third at the end of year five of the new sublease. The forbearance period under the Covington Forbearance Agreement shall terminate as of the expiration of the Term. At Covington’s option in its sole and absolute business discretion, the Covington Forbearance Agreement and the forbearance period thereunder can be terminated upon the occurrence of certain specified events such as, the Company files a petition for bankruptcy or takes advantage of any other debtor relief law, or an involuntary petition for bankruptcy is filed against the Company, or any other judicial action is taken with respect to the Company by any creditor of the Company or the Company breaches or defaults in performance of any covenant or agreement contained in the Covington Forbearance Agreement. Upon termination of the forbearance period under the Covington Forbearance Agreement, for any reason, Covington may take all steps it deems necessary or desirable to enforce its lease rights as permitted by law or equity.

Bonterra/Parkview Master Lease. The Company and certain of its subsidiaries entered into a forbearance agreement with Pinecone with respect to the Pinecone Credit Facility on December 31, 2018 (the “A&R New Forbearance Agreement”). Pursuant to the A&R New Forbearance Agreement, Pinecone consented to the termination, of the Company’s lease and sublease of two skilled nursing facilities, an 115-bed skilled nursing facility located in East Point, Georgia and an 184-bed skilled nursing facility located in Atlanta, Georgia (the “Omega Facilities”), by mutual consent of the Company and the lessor (affiliate of Omega Healthcare) and the sublessees (affiliates of Wellington Health Services) of each of the Omega Facilities (the “Omega Lease Termination”). Prior to the Omega Lease Termination which was effective January 15, 2019, the Omega Facilities were leased under a single indivisible agreement (the “Bonterra/Parkview Master Lease”), which leases were due to expire August 2025 and which Omega Facilities the Company subleased to third party subtenants. Effective January 15, 2019, pursuant to the Omega Lease Termination and as contemplated by the A&R New Forbearance Agreement, the Company’s leases for the Omega Facilities were terminated by mutual consent of the Company and the lessor of the Omega Facilities.

In connection with the Omega Lease Termination, the Company transferred approximately $0.4 million of all its integral physical fixed assets in the Omega Facilities to the lessor and on January 28, 2019 received from the lessor gross proceeds of approximately $1.5 million, consisting of (i) a termination fee in the amount of $1.2 million and (ii) approximately $0.3 million to satisfy other net amounts due to the Company under the leases. The Company paid $1.2 million of such Omega Lease Termination proceeds to Pinecone on January 28, 2019, as required by the A&R New Forbearance Agreement, to reimburse Pinecone for approximately $0.3 million of certain unpaid expenses and partially prepay $0.9 million of the principal amount of Pinecone’s loan to AdCare Property Holdings, LLC (the “AdCare Holdco Loan”). The Omega Lease Termination contributed approximately $0.7 million income recorded in "Net loss attributable to Regional Health Properties, Inc. common stockholders" reported in the consolidated statement of operations for the period ended March 31, 2019. For further information, see Note 10 - Discontinued Operations and Dispositions.

Wellington. Two of the Company’s eight Georgia Facilities, leased under the Prime Lease, are subleased to affiliates of Wellington Health Services under agreements dated January 31, 2015, as subsequently amended (the “Wellington Subleases”). The Wellington Subleases, which are due to expire August 31, 2027, relate to the Company’s 134-bed skilled nursing facility located in Thunderbolt, Georgia (the “Tara Facility”) and an 208-bed skilled nursing facility located in Powder Springs, Georgia (the “Powder Springs Facility”). Effective February 1, 2019, the Company agreed to a 10% reduction in base rent, or in aggregate approximately an average $31,000 per month cash rent reduction for the year ended December 31, 2019, and$48,000 per month decrease in straight-line revenue, respectively for the Tara Facility and the Powder Springs Facility combined. Additionally the Company modified the annual rent escalator to 1% per year from the prior scheduled increase from 1% to 2% previously due to commence of the 1^st day of the sixth lease year.

Future Minimum Lease Payments

Future minimum lease payments for each of the next five years ending December 31, are as follows:

(Amounts in 000’s)	Future rental payments		Accretion of lease liability ⁽¹⁾			Operating lease obligation
2019 ⁽²⁾	$	1,584	$	(20	)	$	1,564
2020		6,390		(389	)		6,001
2021		6,551		(869	)		5,682
2022		6,691		(1,331	)		5,360
2023		6,823		(1,775	)		5,048
Thereafter		26,790		(10,391	)		16,399
Total	$	54,829	$	(14,775	)	$	40,054

(1)	Weighted average discount rate 7.98%.

(Amounts in 000’s)
2017 ^(a)
$ 2,069
2018 8,331
2019 8,492
2020 8,671
2021 8,830
Thereafter 46,456
Total $ 82,849

(2)	Estimated minimum lease payments for the year ending December 31, 2019 include only payments to be paid after September 30, 2019.

^(a) ~~Estimated minimum lease payments for the year ending December 31, 2017 include only payments to be recorded after September 30, 2017.~~

Leased and Subleased Facilities to Third-Party Operators

~~The~~

As of September 30, 2019, the Company ~~leases~~leased or ~~subleases 27~~subleased 21 facilities ~~(16~~(12 owned by the Company and 11nine leased to the Company), to third-party tenants on a triple net basis, meaning that the lessee (i.e., the third-party tenant of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. The weighted average remaining lease term for our facilities is 8.2 years.

Beacon. On August 1, 2015, the Company entered into a lease inducement fee agreement with certain affiliates (collectively, the "Beacon Affiliates") of Beacon Health Management, LLC (“Beacon”), pursuant to which the Company paid a fee of $0.6 million as a lease inducement for certain Beacon Affiliates to enter into sublease agreements and to commence such subleases and transfer operations thereunder (the “Beacon Lease Inducement”). As of December 31, 2017, the balance of the Beacon Lease Inducement was approximately $0.5 million. On April 24, 2018, five Beacon affiliates (the “Ohio Beacon Affiliates”) informed the Company in writing that they would no longer be operating five (four owned and one leased by the Company) of the Company’s facilities located in Ohio (the “Ohio Beacon Facilities”), whose leases were set to expire in 2025, and that they would surrender operation of such facilities to the Company on June 30, 2018. On November 30, 2018, the Ohio Beacon Affiliates, who were ten months in arrears on rental payments, surrendered possession of the Ohio Beacon Facilities and the lease was terminated by mutual consent. Pursuant to such termination, on November 30, 2018, the Company and the Ohio Beacon Affiliates entered into a termination agreement (the “Ohio Beacon Termination Agreement”), whereby the Ohio Beacon Affiliates agreed to pay a $0.675 million termination fee, payable in 18 monthly installments of $37,500 commencing January 3, 2019 in full satisfaction of the $0.5 million Beacon Lease Inducement and approximately $2.5 million in rent in arrears and approximately $0.6 million of other receivables, such as property taxes and capital expenditures, which discharges each tenant from any and all claims upon completion of the payment plan. The Company intends to enforce its rights under the Ohio Beacon Termination Agreement. As of the date of filing this Quarterly Report, 11 such installment payments have been received, but there is no assurance that the Company will be able to obtain payment of the outstanding unpaid termination fee from the Ohio Beacon Affiliates. During the year ended December 31, 2018, the Company recognized revenue on a cash basis with respect to the Ohio Beacon Facilities. During the first quarter of 2018, the Company expensed approximately $0.7 million straight-line rent asset, recorded an allowance of $0.5 million against the Beacon Lease Inducement and recorded approximately $0.3 million allowance for other receivables.During the three months ended September 30, 2019,the Company released approximately $0.3 million of the provision of doubtful accounts as the Company has assessed the collectability of the remaining $0.3 million termination fee is more probable than not.

Aspire. On November 30, 2018, the Company subleased the Ohio Beacon Facilities to affiliates (collectively, “Aspire Sublessees”) of Aspire Regional Partners, Inc. (“Aspire”) management formerly affiliated with MSTC Development Inc., pursuant to separate sublease agreements (the “Aspire Subleases”), whereby the Aspire Sublessees took possession of, and commenced operating, the Ohio Beacon Facilities (under Aspire’s operation, the “Aspire Facilities”) as subtenant. The Aspire Subleases became effective on December 1, 2018 and are structured as triple net leases. The Aspire Facilities are comprised of: (i) a 94-bed skilled nursing facility located in Covington, Ohio (the “Covington Facility”); (ii) an 80-bed assisted living facility located in Springfield, Ohio (the “Eaglewood ALF Facility”); (iii) a 99-bed skilled nursing facility located in Springfield, Ohio (the “Eaglewood Care Center Facility”); (iv) a 50-bed skilled nursing facility located in Greenfield, Ohio (the “H&C of Greenfield Facility”); and (v) a 50-bed skilled nursing facility located in Sidney, Ohio (the “Pavilion Care Facility”). Under the Aspire Subleases, a default related to an individual facility may cause a default under all the Aspire Subleases. All Subleases are for an initial term of 10 years, with renewal options, except with respect to term for the H&C of Greenfield Facility, which has an initial five year term, and set annual rent increases generally commencing in the third lease year; from month seven of the Aspire Subleases monthly rent amounts may increase based on each facility’s prior month occupancy, with minimum annual rent escalations of at least 1% generally commencing in the third lease year. Minimum rent receivable for the Covington Facility, the Eaglewood ALF Facility, the Eaglewood Care Center Facility, the H&C of Greenfield Facility and the Pavilion Care Facility for the year ending December 31, 2019 is $0.4 million, $0.5 million, $0.4 million, $0.2 million and $0.2 million per annum, respectively. Additionally, the Company agreed to indemnify Aspire against any and all liabilities imposed on them as arising from the former operator, capped at $8.0 million. The Company has assessed the fair value of the indemnity agreements as not material to the financial statements at September 30, 2019.

Symmetry. Affiliates (the “Symmetry Tenants”) of Healthcare Management, LLC (“Symmetry” or “Symmetry Healthcare”) leased the following facilities from the Company, pursuant to separate lease agreements which expire in 2030 (the “Symmetry Leases”): (i) the Company’s 106-bed, skilled nursing facility located in Sylvia, North Carolina (the “Mountain Trace Facility”); (ii) the Company’s 96-bed, skilled nursing facility located in Sumter, South Carolina (the “Sumter Facility”); and (iii) the Company’s 84-bed, skilled nursing facility located in Georgetown, South Carolina (the “Georgetown Facility”). On June 27, 2018, the Company notified Blue Ridge of Sumter, LLC, the tenant with respect to the Sumter Facility (the “Sumter Tenant”), and Blue Ridge on the Mountain, LLC, the tenant with respect to the Mountain Trace Facility (the “Mountain Trace Tenant”), that continued breach of the payment terms of the applicable Symmetry Lease would constitute an event of default. The Symmetry Tenants had alleged that the Company was in material breach of each of the Symmetry Leases with regard to deferred maintenance and were withholding rental payments on the basis of such allegations.

Prior to September 20, 2018, the Mountain Trace Tenant had not paid approximately $0.2 million in rent owed for April through August 2018, the Sumter Tenant had not paid approximately $0.3 million in rent owed for May through August 2018, and Blue Ridge in Georgetown, LLC, the tenant with respect to the Georgetown Facility (the “Georgetown Tenant”), had not paid $0.05 million in rent owed for July and August 2018.

On September 20, 2018, the Company reached an agreement with the Symmetry Tenants with respect to the Symmetry Leases, pursuant to which the Symmetry Tenants agreed to a payment plan for the rent arrears and the Company agreed to a reduction in annualized rent of approximately $0.6 million, or 5.3% of the total expected 2018 annual cash rent, and waived approximately $0.2 million in rent arrears, upon which the Symmetry Tenants recommenced monthly rent payments of $0.1 million starting with the September 1, 2018 amounts due under the Symmetry Leases. There is no assurance that the Company will be able to obtain payment of all unpaid rents and the collection of approximately $1.3 million (comprised of approximately $0.9 million straight-line rent asset and approximately $0.4 million of payment plan receivables) of asset balances could be at risk. During the three months ended September 30, 2019, the Company expensed approximately $0.4 million allowance against the outstanding balance of payment plan receivables. On February 28, 2019 the Company completed a mutual lease termination with the Mountain Trace Tenant and operations at the facility were transferred to Vero Health X, LLC (“Vero Health”).

Vero Health. On February 28, 2019, the Company entered into a lease agreement (the “Vero Health Lease”) with Vero Health, providing that Vero Health would take possession of and operate the Mountain Trace Facility located in North Carolina. The Vero Health Lease became effective, upon the termination of the prior Mountain Trace Tenant mutual lease termination on March 1, 2019. The Vero Health Lease is for an initial term of 10 years, with renewal options, is structured as a triple net lease and rent for the Mountain Trace Facility is approximately $0.5 million per year, with an annual 2.5 % rent escalation clause.

Peach Health. On June 18, 2016, the Company entered into a master sublease agreement, as amended on March 30, 2018, (the “Peach Health Sublease”) with affiliates (collectively, “Peach Health Sublessee”) of Peach Health ~~Sublessee,~~Group, LLC (“Peach Health”), providing that Peach Health Sublessee would take possession of and operate ~~the Peach Facilities~~three facilities located in Georgia (the “Peach Facilities”) as subtenant. The Jeffersonville Facility and the Oceanside Facility were previously decertified by CMS in February and May 2016, respectively, for deficiencies related to the operations and maintenance of the facility while operated by the previous sublessee (~~seePart II, Item 8, Notes to Consolidated Financial Statements, Note 7 -~~ ~~Leases~~ included in the Annual Report for additional information). The Jeffersonville Facility and the Oceanside Facility were recertified by CMS as of December 20, 2016 and February 7, 2017, respectively, which are the Rent Commencement Dates for such facilities.

The Peach Health Sublease became effective for the Jeffersonville Facility on June 18, 2016, and for the Savannah Beach Facility and the Oceanside Facility on July 13, 2016 (the date on which the Company accepted possession of the facilities from the previous sublessee). The Peach Health Sublease is structured as a triple net lease, except that the Company assumes responsibility for the cost of certain deferred maintenance at the Savannah Beach Facility and capital improvements that may be necessary for the Oceanside Facility and the Jeffersonville Facility in connection with recertification by CMS. Rent for the Savannah Beach Facility, the Oceanside Facility and the Jeffersonville Facility is $0.3 million, $0.4 million and $0.6 million per annum, respectively; provided, however, that rent was only $1 per month for the Oceanside Facility and the Jeffersonville Facility until the respective Rent Commencement Dates. In addition, for the Oceanside Facility and the Jeffersonville Facility, Peach Health Sublessee is entitled to three months of $1 per month rent following the respective Rent Commencement Dates and, following such three-month period, five months of rent discounted by 50%. The annual rent for each of the Peach Facilities ~~will escalate at~~are comprised of: (i) an 85-bed skilled nursing facility located in Tybee Island, Georgia (the “Oceanside Facility”); (ii) a ~~rate of 3% each year pursuant to the Peach Health Sublease,~~50-bed skilled nursing facility located in Tybee Island, Georgia (the “Savannah Beach Facility”); and ~~the term of the Peach Health Sublease for all three Peach Facilities expires on August 31, 2027.~~

(iii) a 131-bed skilled nursing facility located in Jeffersonville, Georgia (the “Jeffersonville Facility”).

In connection with the Peach Health Sublease, the Company extended a line of credit to Peach Health Sublessee for up to $1.0 million for operations at the Peach Facilities (the “Peach Line”), with ~~interest accruing on the unpaid balance under the Peach Line at a starting~~an initial interest rate of 13.5%~~, increasing~~ per annum, which increases by 1% per annum. The ~~entire principal amount due under the~~ Peach Line ~~together with all accrued and unpaid interest thereunder, was due~~had a maturity date one year from the date of the first ~~disbursement. The Peach Line~~

disbursement and is secured by a first priority security interest in Peach Health Sublessee’s assets and accounts ~~receivable pursuant to a security agreement executed by Peach Health Sublessee.~~

receivable. On April 6, 2017, the Company modified certain terms of the Peach Line in connection with Peach Health ~~Sublessee's~~Sublessee securing a $2.5 million revolving working capital loan from a third party lender (the “Peach Working Capital Facility”)~~. Borrowings under the~~, subsequently capped at $1.75 million, which matures April 5, 2020. The Peach Working Capital Facility ~~are based on a borrowing base of~~is secured by Peach Health Sublessee’s eligible accounts ~~receivable.~~receivable, and all collections on the eligible accounts receivable are remitted to a lockbox controlled by the lender. The modifications of the Peach Line ~~include (as so amended, the “Peach Note”):~~include: (i) reducing the loan balance to $0.8 million and restricting further borrowings; (ii) extending the maturity ~~of the loan~~date to October 1, 2020 and adding a six month extension option by Peach Health Sublessee, ~~assuming~~subject to certain ~~conditions precedent are met at the time of the exercise of the option;~~conditions; (iii) increasing the interest rate from 13.5% per annum by 1% per ~~year;~~annum; and (iv) establishing a ~~four year~~four-year amortization schedule. Payment of principal and interest under the Peach ~~Note shall be~~Line is governed by certain financial covenants limiting distributions under the Peach Working Capital Facility. Furthermore, the Company guaranteed Peach Health Sublessee’s borrowings under the Peach Working Capital Facility subject to certain burn-off provisions (i.e., the Company’s obligations under such guaranty cease after the later of 18 months or achievement of a certain financial ratio by Peach Health Sublessee).

~~At September 30, 2017, there was a $0.9 million~~ The Company is obligated to pay the outstanding balance on the Peach ~~Note.~~

~~Arkansas Leases~~Working Capital Facility (after application of all eligible accounts receivable collections by the lender) if Peach Health Sublessee fails to comply with the Peach Working Capital Facility obligations and ~~Facilities. Until February 3, 2016,~~covenants. Fair value of the ~~Company subleased through its subsidiaries~~liability using the expected present value approach is immaterial.

At September 30, 2019, there was approximately $1.2 million outstanding on the Peach Line.

C.R. Management. On March 21, 2018, C. R. of Attalla, LLC (the ~~“Aria Sublessors”~~“Attalla Tenant”) ~~nine facilities located~~, affiliated with C-Ross Management, filed a voluntary chapter 11 bankruptcy petition in ~~Arkansas (collectively,~~ the ~~“Arkansas Facilities”) to affiliates (the “Aria Sublessees”)~~state of ~~Aria Health Group, LLC (“Aria”) pursuant to separate sublease agreements (the “Aria Subleases”). Effective February 3, 2016, the Company terminated each Aria Sublease~~Alabama, due to unpaid back taxes owed to the ~~applicable Aria Sublessee’s failure~~Internal Revenue Services (the “IRS”) and a large professional and general liability judgement (the “Attalla PLGL Claim”) imposed against it, in order to be granted an automatic stay from any IRS recoupments and any collection attempts from the Attalla PLGL Claim. The Attalla Tenant continued to pay its monthly rent obligations under its lease agreement to the Company pursuant to the ~~terms~~April 16, 2018, court approved motion for the Attalla Tenant to formally assume the Attalla lease. As of December 31, 2018, the Company had recorded a straight-line rent receivable of approximately $0.6 million. On January 8, 2019, the Attalla Tenant bankruptcy filing was dismissed per filing with the bankruptcy court. On August 1, 2019, the Company sold the facility leased to the Attalla Tenant and the College Park Facility as part of the Asset Sale and leased to another tenant affiliated with C-Ross Management and assigned the associated leases, which were set to expire in 2030, pursuant to the Asset Sale. See Note – 10 Discontinued Operations and Dispositions for further information.

Southwest LTC. As part of the Asset Sale,on August 1, 2019 the Company sold the Quail Creek Facility and on August 28, 2019 the Company sold the Northwest Facility, assigning both associated leases which were set to expire in 2025. The tenants of such sublease. From February 5, 2016 to October 6, 2016, nine wholly-owned subsidiaries of the Company (each, a “Skyline Lessor”) leased the Arkansas Facilities to Skyline Healthcare LLC (“Skyline”), or an affiliate of Skyline (the “Skyline Lessee”), pursuant to a Master Lease Agreement, dated February 5, 2016 (the “Skyline Lease”). The term of the Skyline Lease commenced on April 1, 2016. In connectionfacilities were affiliated with ~~the Skyline Lease, the Skyline Lessors entered into an Option Agreement, dated February 5, 2016,~~Southwest LTC and were our only tenants associated with ~~Joseph Schwartz, the manager of Skyline, pursuant to which Mr. Schwartz, or an entity designated by Mr. Schwartz (the “Purchaser”), had an exclusive~~Southwest LTC. See Note – 10 Discontinued Operations and irrevocable option to purchase the Arkansas Facilities at a purchase price of $55.0 million, consisting of cash consideration in the amount of $52.0 million and a promissory note with a principal amount of $3.0 million. The Company completed the sale of the Arkansas Facilities to the Purchaser on October 6, 2016. ForDispositions for further ~~information see~~information.~~Part II, Item 8, Notes to Consolidated Financial Statements, Note 7~~ ~~- Leases~~ ~~included in the Annual Report).~~

~~Meadowood.~~ On March 8, 2017, AdCare executed a purchase and sale agreement with Meadowood Retirement Village, LLC and Meadowood Properties, LLC (the “Meadowood Purchase Agreement”) to acquire the Meadowood Facility for $5.5 million cash. On March 21, 2017, AdCare executed a long-term lease with an affiliate of C.R. Management (the “Meadowood Operator”) to lease the Meadowood Facility effective on May 1, 2017. For further information, see Note 10 - ~~Acquisitions~~.

Future minimum lease receivables, At September 30, 2019, from the Company’s facilities leased and subleased to third party tenants for each of the next five years ending December 31, are as follows:

	(Amounts in 000's)
2019 ^(a)	$	3,874
2020		15,716
2021		16,100
2022		17,272
2023		17,587
Thereafter		70,758
Total	$	141,307

(a)	Estimated minimum lease receivables for the year ending December 31, 2019 include only payments to be paid after September 30, 2019.

(Amounts in 000's)
2017 ^(a)
$ 5,460
2018 22,281
2019 22,764
2020 23,299
2021 23,886
Thereafter 136,813
Total $ 234,503

^(a) ~~Estimated minimum lease receivables for the year ending December 31, 2017, include only payments to be received after September 30, 2017.~~

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 10 -~~ ~~Acquisitions~~ ~~below and~~ Part II, Item 8, ~~Notes to Consolidated Financial~~“Financial Statements and Supplementary Data”, Note 7 - Leases and Note 10 – Acquisitions and Dispositions included in the Annual Report.

~~NOTE 8.ACCRUED EXPENSES AND OTHER~~

NOTE 8.

ACCRUED EXPENSES AND OTHER

Accrued expenses and other consist of the following:

(Amounts in 000’s)	September 30, 2019		December 31, 2018
Accrued employee benefits and payroll-related	$	197	$	326
Real estate and other taxes		788		851
Self-insured reserve ⁽¹⁾		804		1,435
Accrued interest		212		419
Unearned rental revenue		40		138
Other accrued expenses		826		1,292
Total accrued expenses and other	$	2,867	$	4,461

(Amounts in 000’s) September 30, 2017 December 31, 2016
Accrued employee benefits and payroll-related $ 387
$ 442
Real estate and other taxes 435
557
Self-insured reserve ⁽¹⁾
6,683
6,924
Accrued interest 248
251
Other accrued expenses 829
903
Total accrued expenses and other $ 8,582
$ 9,077

(1)
⁽¹⁾	The Company self-insures against professional and general liability cases incurred prior to the Transition and uses a third party administrator and outside counsel to manage and defend the ~~claims. The decrease in the reserve at September 30, 2017 primarily reflects the legal and associated settlement amounts paid~~claims (see Note 1513 - Commitments and Contingencies).

~~NOTE 9.NOTES PAYABLE AND OTHER DEBT~~

NOTE 9.

NOTES PAYABLE AND OTHER DEBT

See Part II, Item 8, ~~Notes to Consolidated Financial~~“Financial Statements and Supplementary Data”, Note 9 - – Notes Payable and Other Debt 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)	September 30, 2019			December 31, 2018
Senior debt—guaranteed by HUD	$	32,215		$	32,857
Senior debt—guaranteed by USDA ^(a)		13,411			13,727
Senior debt—guaranteed by SBA ^(b)		655			668
Senior debt—bonds		6,616			6,960
Senior debt—other mortgage indebtedness		3,812			28,139
Other debt		618			664
Subtotal		57,327			83,015
Deferred financing costs		(1,393	)		(1,535	)
Unamortized discount on bonds		(153	)		(167	)
Total debt		55,781			81,313
Less: current portion of debt		1,747			26,397
Notes payable and other debt, net of current portion	$	54,034		$	54,916

(Amounts in 000’s) September 30, 2017 December 31, 2016
Senior debt—guaranteed by HUD $ 33,887
$ 34,473
Senior debt—guaranteed by USDA ^(a)
20,477
22,518
Senior debt—guaranteed by SBA ^(b)
2,236
2,319
Senior debt—bonds 7,055
7,145
Senior debt—other mortgage indebtedness 9,572
5,639
Other debt 1,322
1,063
Convertible debt 1,500
9,200
Subtotal 76,049
82,357
Deferred financing costs, net (2,050 ) (2,196 )
Unamortized discount on bonds (181 ) (191 )
Total debt 73,818
79,970
Less: current portion of debt 8,327
13,154
Notes payable and other debt, net of current portion $ 65,491
$ 66,816

(a)
^(a)	U.S. Department of Agriculture (“USDA”).

(b)
^(b)	U.S. Small Business Administration (“SBA”).

The following is a detailed listing of the debt facilities that comprise each of the above categories:

(Amounts in 000’s)
Facility	Lender	Maturity	Interest Rate ^(a)			September 30, 2019		December 31, 2018
Senior debt - guaranteed by HUD^(b)
The Pavilion Care Center	Red Mortgage	12/01/2027	Fixed	4.16	%	$	1,134	$	1,219
Hearth and Care of Greenfield	Red Mortgage	08/01/2038	Fixed	4.20	%		2,010		2,061
Woodland Manor	Midland State Bank	10/01/2044	Fixed	3.75	%		5,125		5,216
Glenvue	Midland State Bank	10/01/2044	Fixed	3.75	%		7,957		8,099
Autumn Breeze	KeyBank	01/01/2045	Fixed	3.65	%		6,918		7,041
Georgetown	Midland State Bank	10/01/2046	Fixed	2.98	%		3,501		3,564
Sumter Valley	KeyBank	01/01/2047	Fixed	3.70	%		5,570		5,657
Total						$	32,215	$	32,857
Senior debt - guaranteed by USDA ^(c)
Coosa	Metro City	09/30/2035	Prime + 1.50%	7.00	%		5,257		5,388
Mountain Trace	Community B&T	01/24/2036	Prime + 1.75%	7.25	%		4,044		4,135
Southland	Bank of Atlanta	07/27/2036	Prime + 1.50%	7.00	%		4,110		4,204
Total						$	13,411	$	13,727
Senior debt - guaranteed by SBA ^(d)
Southland	Bank of Atlanta	07/27/2036	Prime + 2.25%	7.75	%		655		668
Total						$	655	$	668

(Amounts in 000’s)
Facility Lender Maturity
Interest Rate ^(a)
September 30, 2017 December 31, 2016
Senior debt - guaranteed by HUD
The Pavilion Care Center Red Mortgage 12/01/2027 Fixed 4.16% $ 1,355
$ 1,434
Hearth and Care of Greenfield Red Mortgage 08/01/2038 Fixed 4.20% 2,143
2,191
Woodland Manor Midland State Bank 10/01/2044 Fixed 3.75% 5,363
5,447
Glenvue Midland State Bank 10/01/2044 Fixed 3.75% 8,327
8,457
Autumn Breeze KeyBank 01/01/2045 Fixed 3.65% 7,238
7,352
Georgetown Midland State Bank 10/01/2046 Fixed 2.98% 3,664
3,723
Sumter Valley
KeyBank 01/01/2047 Fixed 3.70% 5,797
5,869
Total $ 33,887
$ 34,473

Senior debt - guaranteed by USDA ^(b)

Attalla
Metro City
09/30/2035
Prime + 1.50%
5.50%
$ 6,218

$ 7,189
Coosa
Metro City
09/30/2035
Prime + 1.50%
5.50%
5,607

6,483
Mountain Trace
Community B&T
01/24/2036
Prime + 1.75%
5.75%
4,292

4,384
Southland
Bank of Atlanta
07/27/2036
Prime + 1.50%
6.00%
4,360

4,462

Total

$ 20,477
$ 22,518

Senior debt - guaranteed by SBA

College Park
CDC
10/01/2031
Fixed
2.81% $ 1,545
$ 1,611
Southland
Bank of Atlanta
07/27/2036
Prime + 2.25% 5.75% 691
708
Total $ 2,236
$ 2,319

(a)
^(a)	Represents cash interest rates as of September 30, ~~2017~~2019 as adjusted for ~~applicable~~ interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs, which range from 0.08% to 0.53% per annum.

(b)

^(b)

For the ~~four~~seven skilled nursing facilities, the Company has term loans insured 100% by HUD with financial institutions. The loans are secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the underlying facility. The loans contain customary events of default, including fraud or material misrepresentations or material omission, the commencement of a forfeiture action or proceeding, failure to make required payments, and failure to perform or comply with certain agreements. Upon the occurrence of certain events of default, the lenders may, after receiving the prior written approval of HUD, terminate the loans and all amounts under the loans will become immediately due and payable. In connection with entering into each loan, the Company entered into a healthcare regulatory agreement and a promissory note, each containing customary terms and conditions.

(c)

For the three skilled nursing facilities, the Company has term loans insured 70% to 80% by the USDA with financial institutions. The loans have an annual renewal fee for the USDA guarantee of 0.25% of the guaranteed portion. The loans have prepayment penalties of 3%1% to 4%2% through ~~2017,~~2019, which declines 1% each year, capped at 1% for the remainder of the first 10 years of the term and 0% thereafter.

(Amounts in 000’s)

Facility Lender Maturity
Interest Rate ^(a)
September 30, 2017 December 31, 2016
Senior debt - bonds
Eaglewood Bonds Series A City of Springfield, Ohio 05/01/2042 Fixed 7.65% $ 6,610
$ 6,610
Eaglewood Bonds Series B City of Springfield, Ohio 05/01/2021 Fixed 8.50% 445
535
Total $ 7,055
$ 7,145

(d)	For the one facility, the Company has a term loan with a financial institution, which is insured 75% by the SBA.

(Amounts in 000’s)
Facility	Lender	Maturity	Interest Rate ^(a)			September 30, 2019		December 31, 2018
Senior debt - bonds ^(b)
Eaglewood Bonds Series A	City of Springfield, Ohio	05/01/2042	Fixed	7.65	%	$	6,379	$	6,610
Eaglewood Bonds Series B	City of Springfield, Ohio	05/01/2021	Fixed	8.50	%		237		350
Total						$	6,616	$	6,960

(a)	Represents cash interest rates as of September 30, ~~2017.~~2019. The rates exclude amortization of deferred financing of approximately ~~0.26%~~0.15% per annum.

(Amounts in 000’s)

Facility Lender Maturity
Interest Rate ^(a)
September 30, 2017 December 31, 2016
Senior debt - other mortgage indebtedness

Quail Creek ^(b)
Congressional Bank 12/31/2017
LIBOR + 4.75%
5.75% $ 4,346
$ 4,432
Northwest ^(c)
First Commercial 07/31/2020
Prime
5.00% 1,143
1,207
Meadowood ^(d)
Exchange Bank of Alabama 05/01/2022
Fixed
4.50% 4,083
—
Total $ 9,572
$ 5,639

(b)

On December 21, 2018, the Company received $243,467 in cash representing a refund of the original issuance fees of these bonds, into its restricted cash account managed by BOKF, NA, who on January 18, 2019, completed a principal distribution of such funds to notified bondholders on January 15, 2019. This pro-rata distribution was made pursuant to the Order Authorizing Distribution of Settlement Funds Collected in Related Actions Brought by the Securities and Exchange Commission Section 5 filed August 21, 2017 in the United States District Court District of New Jersey styled Securities and Exchange Commission, Plaintiff, v. Christopher Freeman Brogdon, Defendant, and Connie Brogdon, et al., Relief Defendants. Case 2:15-cv-08173-KM-JBC.

(Amounts in 000’s)
Facility	Lender	Maturity	Interest Rate (a)			September 30, 2019		December 31, 2018
Senior debt - other mortgage indebtedness
Quail Creek ^(c)	Congressional Bank	06/30/2019	LIBOR + 4.75%	7.15	%	$	—	$	4,059
Meadowood	Exchange Bank of Alabama	05/01/2022	Fixed	4.50	%		3,812		3,918
College Park ^(c)	Pinecone ^(b)	08/15/2020	Fixed	13.50	%		—		2,846
Northwest ^(c)	Pinecone ^(b)	08/15/2020	Fixed	13.50	%		—		2,803
Attalla^(c)	Pinecone ^(b)	08/15/2020	Fixed	13.50	%		—		9,089
Adcare Property Holdings ^(c)	Pinecone ^(b)	08/15/2020	Fixed	13.50	%		—		5,424
Total						$	3,812	$	28,139

(a)	Represents cash interest rates as of September 30, ~~2017~~2019 as adjusted for ~~applicable~~ interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs ~~which approximate 1.03%~~of 0.30% per annum.

(b)

^(b)

On ~~September 19, 2016, the Company obtained an option to extend the maturity date, subject to customary conditions, of the Quail Creek Credit Facility from September 2017 to September~~February 15, 2018, which management intends to exercise. On August 10, 2017, the Company extended the maturity date of the Quail Creek Credit Facility to December 31, 2017 and retains the option to further extend the maturity date of such credit facility to September 2018.


^(c)	~~On July 31, 2017, the Company extended the maturity date of the Northwest Credit Facility from December 2017 to July 31, 2020.~~

^(d)

~~On May 1, 2017, in connection with the Meadowood Purchase Agreement, a wholly-owned subsidiary of~~ the Company entered into the Pinecone Credit Facility with Pinecone. The Company entered into a ~~Loan Agreement (the “Meadowood~~number of forbearance agreements, which provided for certain amendments to the Pinecone Credit Facility (for further information see, “Pinecone Credit Facility”~~) with the Exchange Bank of Alabama, which provides~~ below in this Note).

(c)

Debt credit facilities held for ~~a $4.1 million principal amount secured credit facility maturing~~sale at June 30, 2019 and subsequently repaid in full on ~~May~~August 1, ~~2022. Interest on the Meadowood Credit Facility accrues on the principal balance thereof at 4.5% per annum. The Meadowood Credit Facility is secured by the Meadowood Facility.~~2019. For further information see Note 10 – Discontinued Operations and Dispositions.

(Amounts in 000’s)
Lender	Maturity	Interest Rate			September 30, 2019		December 31, 2018
Other debt
First Insurance Funding	03/01/2020	Fixed	6.19	%	$	103	$	20
Key Bank	08/25/2021	Fixed	0.00	%		495		495
McBride Note ^(a)	09/30/2019	Fixed	4.00	%		—		115
South Carolina Department of Health & Human Services ^(b)	02/24/2019	Fixed	5.75	%		—		34
Marlin Covington Finance	3/11/2021	Fixed	20.17	%		20		—
Total					$	618	$	664

(Amounts in 000’s)
Lender Maturity Interest Rate September 30, 2017 December 31, 2016
Other debt
First Insurance Funding 02/28/2018 Fixed 4.24% $ 81
$ 20
Key Bank ^(a)
08/02/2019 Fixed 0.00% 495
496
McBride Note ^(b)
09/30/2019 Fixed 4.00% 300
—
Pharmacy Care of Arkansas 02/08/2018 Fixed 2.00% 169
547
South Carolina Department of Health & Human Services ^(c)
02/24/2019 Fixed 5.75% 277
—
Total $ 1,322
$ 1,063

(a)
^(a)	~~On August 11, 2017, the Company extended the maturity date of the Key Bank Credit Facility from October 17, 2017 to August 2, 2019.~~


^(b)	The Company executed an unsecured promissory note in favor of William McBride III, the Company’s former Chairman and Chief Executive Officer, pursuant to a settlement and mutual release agreement dated September 26, 2017, between Mr. McBride and the ~~Company.~~Company (the “McBride Settlement Agreement”).

(b)

^(c)

On February 21, 2017, the South Carolina Department of Health and Human Services (“SCHHS”) issued fiscal year 2013 Medicaid audit reports for two facilities operated by the Company during 2013. In its fiscal year 2013 Medicaid audit reports, SCHHS determined that the Company owed an aggregate $0.4 million related to patient-care related payments made by SCHHS during 2013. Repayment of the $0.4 million began on March 24, 2017 in the form of a two-year note bearing interest of 5.75% per annum.

Pinecone Credit Facility

On February 15, 2018 (the “Closing Date”), the Company entered into the Pinecone Credit Facility with Pinecone, with an original aggregate principal amount of $16.25 million, which refinanced existing mortgage debt in an aggregate amount of $8.7 million on three skilled nursing properties, the Attalla Facility, the College Park Facility and the Northwest Facility (the “Pinecone Facilities”), and provided additional surplus cash flow of $6.3 million for general corporate needs after deducting approximately $1.25 million in debt issuance costs and prepayment penalties.

Regional Health was a guarantor of the Pinecone Credit Facility. Certain of the notes under the Pinecone Credit Facility were also guaranteed by certain wholly-owned subsidiaries of Regional Health. The surplus cash flow from the Pinecone Credit Facility was used to fund $2.4 million of self-insurance reserves for professional and general liability claims with respect to 25 professional and general liability actions, and to fund repayment of $1.5 million in convertible debt. The remaining $2.4 million in surplus cash proceeds from the Pinecone Credit Facility was used for general corporate purposes.

The maturity date of the Pinecone Credit Facility was August 15, 2020 and it originally bore interest at a fixed rate equal to 10% per annum for the first three months after the Closing Date and at a fixed rate equal to 12.5% per annum thereafter, subject to adjustment upon an event of default and specified regulatory events. The Pinecone Credit Facility was secured by, among other things, first priority liens on the Pinecone Facilities and all tangible and intangible assets of the borrowers owning the Pinecone Facilities, including all rent payments received from the operators thereof. Accrued and unpaid interest on the outstanding principal amount of the Pinecone Credit Facility was payable in consecutive monthly installments. Unless accelerated by Pinecone, the entire unpaid principal amount of the Pinecone Credit Facility was due on the maturity date, together with all accrued and unpaid interest and a finance fee equal to 3% of the original principal amount.

The Pinecone Credit Facility was subject to customary operating and financial covenants and regulatory conditions for each of the Pinecone Facilities, which resulted in additional monthly interest charges during any non-compliance and cure period. The Pinecone Credit Facility was prepayable with a prepayment premium equal to 1% of the principal amount being repaid.

The Pinecone Credit Facility and the related documentation provided for customary events of default. Upon the occurrence of certain events of default, Pinecone increased the interest rate to 18.5% during periods not covered by compliance with the relevant forbearance agreement.

Pinecone Forbearance Agreements

On May 10, 2018, management was notified by Pinecone that the certain events of default under the Pinecone Credit Facility had occurred and were continuing. On May 18, 2018, the Company and Pinecone entered into a forbearance agreement (the “Original Forbearance Agreement”), pursuant to which Pinecone agreed, subject to terms and conditions set forth in the Original Forbearance Agreement, to forbear from exercising its default-related rights and remedies with respect to specified events of default (the “Specified Defaults”) under the Pinecone Credit Facility during the forbearance period provided for therein. The Original Forbearance Agreement outlined a plan of correction whereby the Company could regain compliance under the Pinecone Credit Facility. Requirements set forth in the Original Forbearance Agreement included, among other things, the hiring of a special consultant to advise management on operational improvements and to assist in coordinating overall company strategy. Pursuant to the Original Forbearance Agreement, the Company and Pinecone agreed to amend certain provisions of the Pinecone Credit Facility. Such amendments, among other things: (i) eliminated the Company’s obligation to complete certain lease assignments to suitably qualified replacement operators; (ii) required the payment of a specified “break-up fee” upon certain events, including prepayment of the Pinecone Credit Facility or a change of control; (iii) increased the ongoing interest rate from 12.5% per annum to 13.5% effective May 18, 2018; and (iv) increased the outstanding principal balance of the Pinecone Credit Facility by 2.5%.

The Company and certain of its subsidiaries subsequently entered into additional forbearance agreements with Pinecone with respect to the Pinecone Credit Facility on September 6, 2018 (the “New Forbearance Agreement”) and the A&R New Forbearance Agreement on December 31, 2018. The forbearance period under the Original Forbearance Agreement terminated on July 6, 2018 and the forbearance period under the A&R New Forbearance Agreement terminated on December 31, 2018 because the Company did not satisfy certain conditions set forth therein.

(Amounts in 000’s)
Facility Maturity
Interest Rate ^(a)
September 30, 2017 December 31, 2016
Convertible debt
Issued July 2012 ^(C)
04/30/2018 Fixed 14.00% $ 1,500
$ 1,500
Issued March 2015 ^(b)
04/30/2017 Fixed 10.00% —
7,700
Total $ 1,500
$ 9,200


^(a)	~~Represents cash interest rates as of September 30, 2017. The rates exclude amortization of deferred financing costs which range from 0.25% to 1.92% per annum.~~

^(b)

On December 8, 2016, the Company announced a tender offer (the “Tender Offer”) for any and all of the Company’s 10% convertible subordinated notes due April 30, 2017 (the “2015 Notes”) at a cash purchase price equal to $1,000 per $1,000 principal amount of the 2015 Notes purchased, plus accrued and unpaid interest to, but not including, the payment date. The Tender Offer expired on January 9, 2017, and $6.7 million in aggregate principal amount of the 2015 Notes were tendered and paid on January 10, 2017. On April 30, 2017, the remaining $1.0 million in aggregate principal amount of the 2015 Notes outstanding was repaid plus accrued and unpaid interest in accordance with the terms of such notes, and all related obligations owed under the 2015 Notes were extinguished at that time.

^(c)

On November 8, 2017, the Company extended the maturity date of the convertible debt issued in July 2012 from October 31, 2017 to April 30, 2018. Pursuant to the maturity date extension, the interest rate increased to 14.00% from 10.00% and the annual default interest rate increased from 14.00% to 18.00% per annum. In addition the Company agreed to grant a second priority security interest in the Company’s College Park facility, located in College Park, Georgia (the “College Park Facility”) no later than December 22, 2017. Failure to grant the security interest by December 22, 2017, will constitute an event of default under the promissory note.

Pursuant to the New Forbearance Agreement, the Company and Pinecone agreed to amend certain provisions of the Pinecone Credit Facility. Such amendments, among other things: (i) increased the finance fee payable on repayment or acceleration of the loans, depending on the time at which the loans were repaid ($0.25 million prior to December 31, 2018 and $0.5 million thereafter); and (ii) increased the outstanding principal balance owed by (a) approximately $0.7 million to reimburse Pinecone for its accrued and unpaid expenses and to pay outstanding interest payments for prior interest periods and (b) $1.5 million as a non-refundable payment of additional interest. During the forbearance period under the New Forbearance Agreement, the interest rate reverted from the default rate of 18.5% per annum to the ongoing rate of 13.5% per annum.

Pursuant to the New Forbearance Agreement which amended the Pinecone Credit Facility, the Company hired a financial advisor (a “Financial Advisor”) acceptable to Pinecone to advise management and the Board of Directors on operational improvements and to assist in coordinating overall company strategy, whose engagement included assisting the Company to obtain one or more sources of refinancing to repay the obligations under the Pinecone Credit Facility.

On December 31, 2018, the Company and certain of its subsidiaries entered into the A&R New Forbearance Agreement with Pinecone pursuant to which Pinecone agreed, subject to the terms and conditions set forth in the A&R New Forbearance Agreement, to forbear for a specified period of time from exercising its default-related rights and remedies (including the acceleration of the outstanding loans and charging interest at the specified default rate) with respect to the Specified Defaults under the Pinecone Credit Facility. The forbearance period under the A&R New Forbearance Agreement was from December 31, 2018 to March 14, 2019, and expired according to its terms.

Pursuant to the A&R New Forbearance Agreement, the Company and Pinecone amended certain provisions of the Loan Agreement, whereby Pinecone consented to the Omega Lease Termination and required the Company to pay to Pinecone approximately $1.4 million, of which $0.2 million was paid on January 4, 2019 for Pinecone’s expenses, which included a 1% prepayment penalty. On January 28, 2019, in connection with the Omega Lease Termination, the Company received gross proceeds of approximately $1.5 million, consisting of (i) a termination fee in the amount of $1.2 million and (ii) approximately $0.3 million to satisfy other net amounts due to the Company under the leases.

The Company paid $1.2 million of such Omega Lease Termination proceeds to Pinecone on January 28, 2019, as required by the A&R New Forbearance Agreement, to reimburse Pinecone for approximately $0.3 million of certain unpaid expenses and partially prepay $0.9 million of the AdCare Holdco Loan.

The A&R New Forbearance Agreement amended the Loan Agreement to, among other things: (i) add a $0.35 million fee (paid in kind) to the loans on a pro rata basis; (ii) provide for additional payment in kind interest at a rate of 3.5% (the “PIK Rate”), with such interest to be paid in kind in arrears by increasing the outstanding principal amount of loans held by Pinecone on the first (1st) day of each month; provided that interest accruing at the PIK Rate on each loan and any overdue interest on each loan be paid in cash (a) on the maturity of the loans, whether by acceleration or otherwise, or (b) in connection with any repayment or prepayment of the loans; and (iii) modify the default rate of interest to add an additional 2.5% to the PIK Rate, in addition to the ongoing rate of 13.5%. During the forbearance period under the A&R New Forbearance Agreement, the interest rate to be paid in cash on the first (1st) day of each month was the ongoing rate of 13.5% per annum.

In addition, the A&R New Forbearance Agreement amended the Loan Agreement to require the Company to continue to retain the financial advisor as the Company’s chief restructuring officer (“CRO”) and hire a nationally recognized investment banker reasonably acceptable to Pinecone no later than January 7, 2019 to advise management and the Board on potential asset sale and related transactions and perform valuation debt capacity analyses. By February 28, 2019, the Company and the CRO (whose responsibilities were expanded to include all aspects of transaction planning, including a process of soliciting bids for one or more asset sale or related transactions (the “Bid Solicitation”) had to: (i) complete the Bid Solicitation; and (ii) negotiate in good faith and enter into with Pinecone an agreement that is acceptable to Pinecone, which required, among other things, that the Company engage in a process that culminated in (a) the consummation of one or more asset sales or related transactions and (b) the payment in full in cash of all obligations under the Loan Agreement with the proceeds thereof. As a condition of the A&R New Forbearance Agreement, the Company appointed a Pinecone non-voting observer to attend all meetings of the Board and each committee thereof, subject to certain exceptions described in the A&R New Forbearance Agreement.

On March 29, 2019, the Company and certain of its subsidiaries entered into the Second A&R Forbearance Agreement with Pinecone pursuant to which Pinecone agreed, subject to the terms and conditions set forth in the Second A&R Forbearance Agreement, to forbear for a specified period of time from exercising its default-related rights and remedies (including the acceleration of the outstanding loans and charging interest at the specified default rate) with respect to the Specified Defaults under the Loan Agreement. The forbearance period under the Second A&R Forbearance Agreement commenced on March 29, 2019 and could have extended as late as October 1, 2019, unless the forbearance period was earlier terminated as a result of specified termination events, including a default or event of default under the Loan Agreement (other than any Specified Defaults) or any failure by the Company or its subsidiaries to comply with the terms of the Second A&R Forbearance Agreement, including, without limitation, the Company’s obligation to progress with an Asset Sale in accordance with the timeline specified therein.

Pursuant to the Second A&R Forbearance Agreement, the Company and Pinecone agreed to amend certain provisions of the Loan Agreement. The Second A&R Forbearance Agreement required, among other things (i) that the Company pursue and complete the Asset Sale which resulted in the repayment in full of all of the Company’s indebtedness to Pinecone and, in connection therewith, the Company paid not less than $0.3 million and not more than $0.55 million in forbearance fees, as well as certain other expenses of Pinecone, or (ii) Pinecone’s other disposition of the Loan Agreement as contemplated by the Second A&R Forbearance Agreement. Additionally the Second A&R Forbearance Agreement accelerated the previously disclosed 3% finance “tail fee”, 1% prepayment penalty, and 1% break up fee so that such fees and penalties became part of the principal as of April 15, 2019.

On June 13, 2019, the Company and certain of its subsidiaries entered into an amendment with respect to the Second A&R Forbearance Agreement (the “Pinecone Amendment”), pursuant to which Pinecone agreed, subject to the terms and conditions set forth in the Pinecone Amendment, to extend the timeline to complete the Asset Sale to August 15, 2019.

Pursuant to the Pinecone Amendment, the Company paid an additional non-refundable payment, payable in kind, on June 13, 2019, by increasing the outstanding principal amount owed to Pinecone up to approximately $0.5 million, which replaced approximately $0.2 million of payable in kind fees, under the Second A&R Forbearance Agreement.

Pinecone Credit Facility Repayment

On August 1, 2019, the Company used a portion of the proceeds from the Asset Sale to repay approximately $21.3 million to Pinecone to extinguish all obligations and amounts owed under the Pinecone Credit Facility. However for a period of three months following such repayment, Pinecone continued to hold a right of first refusal to provide first mortgage financing for any acquisition of a healthcare facility by the Company and to have the Pinecone Financing Option. The repayment amount was comprised of the following amounts: (i) approximately $20.7 million in principal (net of $0.1 million loan forgiveness); (ii) $0.5 million in interest; and (iii) $0.1 million in legal expenses. See Note – 10 Discontinued Operations and Dispositions for further information.

On September 30, 2019, the Company and Pinecone entered into a waiver and release agreement, and the Company paid approximately $0.4 million to Pinecone to fully extinguish the Surviving Obligations under the Pinecone Credit Facility.

Quail Creek Credit Facility

On April 30, 2019, the Company, a wholly owned subsidiary of the Company and Congressional Bank amended the terms of the Quail Creek Credit Facility, with an original aggregate principal amount of $5.0 million, to extend the maturity date of the Quail Creek Credit Facility, with a principal balance of approximately $4.0 million as of March 31, 2019, and bearing interest at LIBOR + 4.75%, to June 30, 2019 (the “Maturity Date”), with an option to further extend the Maturity Date to July 31, 2019, as discussed below. The Quail Creek Credit Facility was secured by a mortgage on the Quail Creek Facility.

As discussed above, on April 15, 2019, the Company entered into the PSA with MED, which provided for, among other things, the sale of the Quail Creek Facility to MED.

The option to further extend the Maturity Date of the Quail Creek Credit Facility to July 31, 2019 (the “Extension Option”), was subject to the Company’s satisfaction of the following conditions: (i) the Company shall have delivered to the Congressional Bank written notice of its intent to exercise the Extension Option no earlier than 45 days and no later than 30 days prior to the Maturity Date; (ii) no default or event of default shall have occurred; (iii) the closing under the PSA shall have been extended and the PSA shall otherwise still be in full force and effect (including with respect to the Quail Creek Facility); (iv) Congressional Bank shall have received such additional information or costs as Congressional Bank may request; and (v) Congressional Bank shall have approved such extension in its commercially reasonable discretion.

On August 1, 2019, the Company paid approximately $3.8 million to the Congressional Bank to extinguish all obligations and amounts owed under the Quail Creek Credit Facility. The repayment amount was comprised of $3.9 million in principal after application of approximately $0.1 million in restricted cash. See Note – 10 Discontinued Operations and Dispositions for further information.

Debt Covenant Compliance

As of September 30, ~~2017,~~2019, the Company had ~~approximately 28~~17 credit related instruments outstanding that include various financial and administrative covenant requirements. Covenant requirements include, but are not limited to, fixed charge coverage ratios, debt service coverage ratios, minimum ~~EBITDA~~earnings before interest, taxes, depreciation, and amortization or ~~EBITDAR,~~earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs, and current ratios. Certain financial covenant requirements are based on consolidated financial measurements whereas others are based on measurements at the subsidiary level (i.e., facility, multiple facilities or a combination of subsidiaries). The subsidiary level requirements are as follows: (i) financial covenants measured against subsidiaries of the Company; and (ii) financial covenants measured against third-party operator performance. Some covenants are based on annual financial metric measurements whereas others are based on monthly and quarterly financial metric measurements. The Company routinely tracks and monitors its compliance with its covenant requirements.

~~The Company’s credit-related instruments were all in compliance as~~

As of September 30, ~~2017.~~

2019, the Company was in compliance with all covenant requirements under its outstanding credit related instruments.

Scheduled Maturities

The schedule below summarizes the scheduled gross maturities for the twelve months ended September 30 of the respective ~~year (not adjusted for commitments to refinance or extend the maturities of debt as noted above):~~year:

For the twelve months ended September 30,	(Amounts in 000’s)
2020	$	1,747
2021		2,216
2022		5,155
2023		1,723
2024		1,811
Thereafter		44,675
Subtotal	$	57,327
Less: unamortized discounts		(153	)
Less: deferred financing costs, net		(1,393	)
Total notes and other debt	$	55,781

NOTE 10.

DISCONTINUED OPERATIONS AND DISPOSITIONS

For the twelve months ended September 30, (Amounts in 000’s)
2018 $ 8,328
2019 2,719
2020 2,955
2021 2,088
2022 5,552
Thereafter 54,407
Subtotal $ 76,049
Less: unamortized discounts (181 )
Less: deferred financing costs, net (2,050 )
Total notes and other debt $ 73,818

~~NOTE 10. ACQUISITIONS~~

On March 8, 2017, the Company executed the Meadowood Purchase Agreement with Meadowood Retirement Village, LLC and Meadowood Properties, LLC to acquire the Meadowood Facility for $5.5 million cash. In addition, on March 21, 2017, the Company executed a long-term, triple net operating lease with the Meadowood Operator to lease the facility upon purchase. Lease terms include: (i) a 13-year initial term with one five-year renewal option; (ii) base rent of $37,500 per month; (iii) a rental escalator of 2.0% per annum in the initial term and 2.5% per annum in the renewal term; (iv) a cross renewal provision, whereby the Meadowood Operator may exercise the lease renewal for the Meadowood Facility if its affiliate exercises the lease renewal option for Coosa Valley Health Care, a 124-bed skilled nursing facility located in Gadsden, Alabama (the “Coosa Valley Facility”); and (v) a security deposit equal to one month of base rent. The Company completed the purchase of the Meadowood Facility on May 1, 2017 pursuant to the Meadowood Purchase Agreement, at which time the lease commenced and operations of the Meadowood Facility transferred to the Meadowood Operator.

~~The following table sets forth the preliminary purchase price allocation of the Meadowood Facility:~~

(Amounts in 000’s)
Estimated Useful
Lives (Years)
May 1, 2017
Buildings and improvements 15-32 $ 4,700
Equipment and computer related 10 400
Land — 100
Property and equipment 5,200
In place occupancy ^(a)
32 300
Purchase Price $ 5,500

^(a)~~In place occupancy is included in property and equipment, net on the Company’s unaudited consolidated balance sheets.~~

On May 1, 2017, in connection with the Meadowood Purchase Agreement, a wholly-owned subsidiary of the Company entered into the Meadowood Credit Facility with the Exchange Bank of Alabama, which provides for a $4.1 million principal amount secured credit facility maturing on May 1, 2022. Interest on the Meadowood Credit Facility accrues on the principal balance thereof at 4.5% per annum. The Meadowood Credit Facility is secured by the Meadowood Facility.

~~NOTE 11.DISCONTINUED OPERATIONS~~

Discontinued Operations

For ~~the~~ discontinued operations, ~~the patient care revenue and related~~ cost of services, ~~prior to the commencement~~primarily accruals or releases of ~~subleasing~~over accruals for professional and general liability claims and bad debt expense are classified in the activities below. For a historical listing and description of the Company’s discontinued entities, see Part II, Item 8, ~~Notes to Consolidated Financial~~“Financial Statements and Supplementary Data”, Note 11 -– Discontinued Operations included in the Annual Report.

The following table summarizes ~~certain~~the activity of discontinued operations for the three and nine months ended September 30, ~~2017~~2019 and 2018~~2016~~:

	Three Months Ended September 30,						Nine Months Ended September 30,
(Amounts in 000’s)	2019			2018			2019			2018
Cost of services	$	(101	)	$	(159	)	$	(411	)	$	235
Interest expense, net		—			2			—			7
Net income (loss)	$	101		$	157		$	411		$	(242	)

Three Months Ended September 30, Nine Months Ended September 30,
(Amounts in 000’s) 2017 2016 2017 2016
Total revenues $ —
$ —
$ —
$ —
Cost of services 1,026
2,200
2,032
6,478
Interest expense, net 6
10
17
35
Net loss $ (1,032 ) $ (2,210 ) $ (2,049 ) $ (6,513 )

The Company’s major classes of discontinued operation’s assets and liabilities included within the Company’s consolidated balance sheets at September 30, 2019 and December 31, 2018, respectively are: (i) “Accounts receivable, net of allowance” of $0.2 million and $0.1 million; (ii) “Accounts payable” of $3.0 million and $3.5 million; and (iii) “Accrued expenses and other” of $1.3 million and $2.1 million.

Dispositions

Omega

Effective January 15, 2019, and as contemplated by the A&R New Forbearance Agreement, the Company’s lease for the Omega Facilities, which leases were due to expire August 2025 and which Omega Facilities the Company subleased to third party subtenants, were terminated by mutual consent of the Company and the lessor of the Omega Facilities.

The Omega Lease Termination contributed approximately $0.7 million income recorded in "Net loss attributable to Regional Health Properties, Inc. common stockholders" reported in the consolidated statement of operations for the period ended March 31, 2019.

Facilities Sale to MED

On April 15, 2019, certain subsidiaries of the Company entered into the PSA with MED, with respect to four skilled nursing facilities owned by the Company.

Subject to the terms of the PSA, the Company agreed to sell, and MED agreed to purchase, all of the Company’s right, title and interest in the PSA Facilities. MED’s obligation to complete such purchase and sale was subject to specified closing conditions, which included a 30 day due diligence period (the “Due Diligence Period”). In consideration therefor, MED agreed to pay to the Company the sum of approximately $28.5 million in cash.

On June 11, 2019, the Company and MED entered into an amendment (the “PSA Amendment”) to the PSA, pursuant to which the Company and MED agreed, that the Due Diligence Period expired as of June 3, 2019 and that the scheduled closing date, subject to satisfaction or waiver of customary terms and conditions, would occur on August 1, 2019. In accordance with the PSA and PSA Amendment, MED deposited the first deposit of $0.15 million and the second deposit of $0.15 million into an escrow account.

On August 1, 2019, the Company and MED completed the sale of three of the PSA Facilities, together with substantially all of the fixtures, equipment, furniture, leases and other assets relating to such facilities, pursuant to the PSA as amended, and entered into an additional amendment to the PSA on July 31, 2019 (the “PSA NW Amendment”). The aggregate purchase price paid to the Company for the three facilities was $26.1 million, net of $0.175 million from the first and second deposits held in escrow. The remaining earned $0.125 million was applied to the remaining facility sale on August 28, 2019, and the Company paid a $0.4 million sale commission. The proceeds from the sale were used to repay the Pinecone Credit Facility and Quail Creek Credit Facility in full.

The PSA NW Amendment provided for: (i) the extension of the scheduled closing date of the fourth facility, the Northwest Facility, to August 30, 2019, subject to satisfaction or waiver of customary terms and conditions, which could have been extended to September 30, 2019, for an additional non-refundable fee of $0.075 million if Buyer notified Seller in writing by August 28, 2019 at 5:00 p.m. EST; and (ii) a reduction in the purchase price of approximately $0.1 million for building improvements.

On August 28, 2019, the Company sold to MED the Northwest Facility, together with substantially all of the fixtures, equipment, furniture, leases and other assets relating to the Northwest Facility, pursuant to the PSA as amended, between Seller and Buyer. In connection with the sale, MED paid to the Company a cash purchase price for the Northwest Facility equal to $2.4 million, and the Company incurred approximately $0.1 million for a building improvement credit and sales commission expenses.

The sale of the PSA Facilities contributed approximately $4.8 million income to the Company’s “Net loss attributable to Regional Health Properties, Inc. common stockholders” for the nine months ended September 30, 2019, which was comprised of approximately $6.4 million gain on the sale of assets, approximately $0.1 million in operational net income offset by $1.7 million of expenses related to the Pinecone Credit Facility forbearance agreements and debt extinguishment, in "Net loss attributable to Regional Health Properties, Inc. common stockholders" reported in the Consolidated Statement of operations for the nine months ended September 30, 2019.

The following table provides summary information regarding the leases associated with the PSA Facilities and related licensed beds/units by operator affiliation as of the disposition date:

						2019 Cash		2019 Cash
					Lease Term	Annual Rent		Annual Rent
Facility Name	Licensed Beds/Units		Location	Operator Affiliation	Expiration Date	(Amounts in 000’s)		% of Total Expected
Attalla ^(a)		182	AL	C.R. Management	8/31/2030	$	1,175		6.4	%
College Park ^(a)		100	GA	C.R. Management	3/31/2025		645		3.5	%
Quail Creek^(a)		118	OK	Southwest LTC	12/31/2025		783		4.3	%
Northwest ^(b)		100	OK	Southwest LTC	12/31/2025		379		2.1	%
Total		500				$	2,982		16.3	%

(a)	Disposition was completed on August 1, 2019. The Company received net proceeds of $0.4 million after repayment of the Pinecone Credit Facility, the Quail Creek Credit Facility and associated expenses related to the transactions.

(b)	Disposition was completed on August 28, 2019. The Company received net proceeds of $2.3 million.

The following table provides summary information regarding the credit facilities associated with the PSA Facilities and related purchase price, debt repaid and net gain on the sale for the period ended September 30, 2019:

						Principal indebtedness repaid		Purchase Price		Gain/(loss) on Sale
Facility Name	Lender	Interest Rate (a)				(Amounts in 000’s)		(Amounts in 000’s)		(Amounts in 000’s)
Attalla	Pinecone	Fixed		13.50	%	$	9,696	$	13,000	$	3,739
College Park	Pinecone	Fixed		13.50	%		3,043		7,000		3,050
Quail Creek	Congressional Bank	LIBOR + 4.75%		7.15	%		3,878		6,100		524
Northwest	Pinecone	Fixed	13.50		%		3,011		2,400		(862	)
AdCare Property Holdings	Pinecone	Fixed		13.50	%		5,009		—		—
Total						$	24,637	$	28,500	$	6,451

Pinecone Credit Facility

On August 1, 2019, the Company paid $21.3 million to Pinecone to repay all amounts owed under the Pinecone Credit Facility. The repayment amount was comprised of the following amounts: (i) approximately $20.7 million in principal (net of $0.1 million loan forgiveness); (ii) $0.5 million in interest; and (iii) $0.1 million in legal expenses. On September 30, 2019, the Company paid $0.4 million to Pinecone to terminate the Surviving Obligations.

Quail Creek Credit Facility

On August 1, 2019, the Company paid approximately $3.8 million to Congressional Bank to extinguish all obligations and amounts owed under the Quail Creek Credit Facility. The repayment amount was comprised of $3.9 million in principal after application of approximately $0.1 million in restricted cash.

NOTE ~~12.~~11.COMMON AND PREFERRED STOCK

Common Stock

As discussed in Note 1 - Summary of Significant Accounting Policies, the Reverse Stock Split became effective on December 31, 2018 for all issued and ~~Preferred Stock Repurchase Activity~~

~~In November 2016, the Board approved two share repurchase programs (collectively, the "November 2016 Repurchase Program"), pursuant to which AdCare was authorized to repurchase up to 1.0 million~~outstanding shares of the common ~~stock and 100,000~~stock. The number of shares of the Series A Preferred Stock during a twelve-month period. The November 2016 Repurchase Program succeeded the repurchase program announced on November 12, 2015 (the “November 2015 Repurchase Program”), which terminated in accordance with its terms. Share repurchasesauthorized under the ~~November 2016 Repurchase Program could be made from time~~Company’s equity incentive plans was proportionately adjusted in connection with the Reverse Stock Split. Accordingly, all share and per share amounts have been adjusted to ~~time through open market transactions, block trades or privately negotiated transactions and~~reflect the Reverse Stock Split for all prior periods presented.

There were ~~subject to market conditions, as well as corporate, regulatory and other considerations. The Company could suspend or continue the November 2016 Repurchase Program at any time and had~~ no ~~obligation to repurchase any amount of~~dividends paid on the common stock ~~or the Series A Preferred Stock under such program. The November 2016 Repurchase Program was suspended in February 2017.~~

During the nine months ended September 30, 2016, the Company repurchased 150,000 shares of common stock pursuant to the November 2015 Repurchase Program for $0.3 million at an average purchase price of approximately $2.05 per share, exclusive of commissions and related fees and made no repurchases during the three months ended September 30, 2016. Pursuant to the November 2015 Repurchase Program, the Company was authorized to repurchase up to 500,000 shares of its outstanding common stock during a twelve-month period. During the three and nine months ended September 30, ~~2016, the Company made no repurchases of~~2019 and 2018.

Preferred Stock

No dividends were declared or paid on the Series A Preferred ~~Stock.~~

During the nine months ended September 30, 2017, the Company repurchased 118,199 shares of the common stock pursuant to the November 2016 Repurchase Program for $0.2 million at an average price of $1.54 per share, exclusive of commissions and related fees and made no repurchases during the three months ended September 30, 2016. During the three and nine months ended September 30, 2017, the Company made no repurchases of the Series A Preferred Stock.

~~Preferred~~ Stock ~~Offerings and Dividends~~

~~Dividends declared and paid on shares of the Series A Preferred Stock were $0.68 per share per quarter, or $1.9 million and $5.7 million~~ for the three and nine months ended September 30, ~~2017, respectively,~~2019 and ~~$1.9 million and $5.5 million~~ for the three and nine months ended September 30, ~~2016, respectively.~~

2018.

~~During the three and nine months ended~~

As of September 30, ~~2016,~~2019, as a result of the ~~Company sold 106,796 and 336,905 shares~~suspension of the dividend payment on the Series A Preferred Stock ~~under~~commencing with the Company’s At Market Issuance Sales Agreement, dated July 21, 2015 (the “2015 Sales Agreement”), at an average sale price of $21.49 and $20.60 (excluding fees and commissions) per share, respectively. The Company received net proceeds of approximately $2.2 million during the three months ended September 30, 2016 and $6.8 million during the nine months ended September 30, 2016, after payment of sales commissions and discounts and all other expenses incurred by the Company. The 2015 Repurchase Program expired in accordance with its terms.

~~During the nine months ended September 30,~~fourth quarter 2017 dividend period, the Company ~~sold, under the ATM and pursuant to the 2017 Sales Agreement, dated May 26,2017, a total~~has $16.6 million of ~~50,000 shares~~undeclared preferred stock dividends in arrears. Holders of the Series A Preferred Stock ~~generating net proceeds~~are entitled to receive, when and as declared by the Board out of ~~$1.0 million~~funds of the Company legally available for the payment of distributions, cumulative preferential cash dividends at an ~~average price~~annual rate equal to 10.875% of ~~$21.80~~the $25.00 per share ~~exclusive~~stated liquidation preference of ~~commissions~~the Series A Preferred Stock, which is equivalent to an annual rate of $2.72 per share or $1.9 million per quarter. Dividends on the Series A Preferred Stock, when and ~~related fees, and made no sales during~~as declared by the ~~three months ended~~Board, are payable quarterly in arrears, on March 31, June 30, September 30, ~~2017.~~ and December 31 of each year. On June 8, 2018, the Board determined to continue suspension of the payment of the quarterly dividend on the Series A Preferred Stock indefinitely. Under the terms of the Series A Preferred Stock, dividends on the Series A Preferred Stock shall continue to accrue and accumulate regardless of whether such dividends are declared by the Board. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for four dividends periods: (i) the annual dividend rate on the Series A Preferred Stock has increased to 12.875% ,which is equivalent to an annual rate of $3.22 or $2.2 million per quarter, commencing on the first day after the missed fourth quarterly payment (October 1, 2018) continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash; and (ii) the holders of the Series A Preferred Stock will be entitled to vote, as a single class, for the election of two additional directors to serve on the Board, as further described in the Charter.

As of September 30, ~~2017,~~2019, the Company had 2,811,535 shares of the Series A Preferred Stock issued and outstanding. ~~On August 2, 2017, the Company terminated the 2017 Sales Agreement and discontinued sales under the ATM.~~

~~Holders of the Series A Preferred Stock generally have no voting rights but have limited voting rights under certain circumstances.~~

The Company may not redeem the Series A Preferred Stock before December 1, 2017, except the Company is required to redeem the Series A Preferred Stock following a "Change of Control," as defined in the Charter. On and after December 1, 2017, the Company may, at its option, redeem the Series A Preferred Stock, in whole or in part, by paying $25.00 per share, plus any accrued and unpaid dividends to the redemption date.

Prior to the Merger, the Company was required to classify the Series A Preferred Stock as temporary equity due to the change-in-control redemption provision contained in the Charter because, although deemed a remote possibility, a purchaser could acquire a majority of the voting power of the outstanding common stock without Company approval, thereby triggering redemption of the Series A Preferred Stock. FASB ~~ASC~~ Topic 480-10-S99-3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securities, requires classification outside of permanent equity for redeemable instruments for which the redemption triggers are outside of the issuer's control. The assessment of whether the redemption of an equity security could occur outside of the issuer's control is required to be made without regard to the probability of the event or events that may result in the instrument becoming redeemable.

As a result of the Merger, the rights of the holders of the common stock and Series A Preferred Stock are now governed by the RHE Charter and the RHE Bylaws. The RHE Charter contains ownership and transfer restrictions with respect to the common stock which, among other things, prohibit any person (as defined in the RHE Charter) from beneficially or constructively owning, or being deemed to beneficially or constructively own by virtue of the attribution provisions of the Code, more than 9.9%, by value or number of shares, whichever is more restrictive, of the outstanding shares of common stock. As such, a change of control redemption can no longer be triggered outside of the Company’s control, thus permitting the Series A Preferred Stock to be classified as permanent equity. As a result, the Company reclassified the Series A Preferred Stock from temporary equity to permanent equity on a prospective basis as of September 29, 2017, the effective date of the Merger, in accordance with applicable accounting guidance.

For historical information regarding the Series A Preferred Stock, the ~~ATM~~Company’s former “at-the-market” offering program and prior share repurchase programs, see Part II, Item 8, ~~Notes to Consolidated Financial~~“Financial Statements and Supplementary Data”, Note 12 - – Common and Preferred Stock included in the Annual Report.

NOTE 12.

STOCK BASED COMPENSATION

As discussed in Note 1 - ~~NOTE 13.~~Summary of Significant Accounting Policies~~STOCK BASED COMPENSATION~~

, the Reverse Stock Split became effective on December 31, 2018 for all issued and outstanding shares of the common stock. The number of shares authorized under the Company’s equity incentive plans was proportionately adjusted in connection with the Reverse Stock Split. The per share exercise price of all outstanding options and warrants was also increased proportionately and the number of shares of common stock issuable upon the exercise of such options and warrants was reduced proportionately. In addition, the conversion price of all other outstanding securities that are exercisable or exchangeable for, or convertible into, shares of common stock was increased proportionately and the number of shares of common stock issuable upon such exercise, exchange or conversion was reduced proportionally. Accordingly, all share and per share amounts have been adjusted to reflect the Reverse Stock Split for all periods presented.

For the three and nine months ended September~~September~~ 30, ~~2017~~2019 and 2018~~2016~~, the Company recognized stock-based compensation expense as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(Amounts in 000’s)	2019		2018		2019		2018
Employee compensation:
Restricted stock	$	—	$	4	$	—	$	11
Total employee stock-based compensation expense	$	—	$	4	$	—	$	11
Non-employee compensation:
Board restricted stock	$	22	$	46	$	70	$	115
Total non-employee stock-based compensation expense	$	22	$	46	$	70	$	115
Total stock-based compensation expense	$	22	$	50	$	70	$	126

Three Months Ended September 30, Nine Months Ended September 30,
(Amounts in 000’s) 2017 2016 2017 2016
Employee compensation:

Restricted stock $ 47
$ 118
$ 81
$ 494
Stock options —
—
—
112
Warrants 19
62
23
213
Total employee stock-based compensation expense $ 66
$ 180
$ 104
$ 819
Non-employee compensation:

Board restricted stock $ 48
$ (23 ) $ 140
$ 34
Board stock options 13
13
37
37
Total non-employee stock-based compensation expense $ 61
$ (10 ) $ 177
$ 71
Total stock-based compensation expense $ 127
$ 170
$ 281
$ 890

Stock Incentive Plan

The AdCare Health Systems, Inc. 2011 Stock Incentive Plan, as amended (the “2011 Stock Incentive Plan”), was assumed by Regional Health pursuant to the Merger. As a result of the Merger, all rights to acquire shares of AdCare common stock under

any AdCare equity incentive compensation plan have been converted into rights to acquire ~~RHE~~Regional Health common stock pursuant to the terms of the equity incentive compensation plans and other related documents, if any. The 2011 Stock Incentive Plan expires March 28, 2021 and provides for a maximum of ~~2,027,393~~168,950 shares of common stock to be issued. The 2011 Stock Incentive Plan permits the granting of incentive or nonqualified stock options and the granting of restricted stock. The plan is administered by the Compensation Committee of the Board (the “Compensation Committee”), pursuant to authority delegated to it by the Board. The Compensation Committee is responsible for determining the employees to whom awards will be made, the amounts of the awards, and the other terms and conditions of the awards. As of September 30, ~~2017,~~2019, the number of securities remaining available for future issuance is ~~594,179.~~

19,421.

In addition to the 2011 Stock Incentive Plan, the Company grants stock warrants to officers, directors, employees and certain consultants to the Company from time to time as determined by the Board and, when appropriate, the Compensation Committee.

~~The assumptions used in calculating~~

For the ~~fair value of employee common stock options~~three and ~~warrants granted during the~~ nine months ended September 30, ~~2017~~2019 and ~~September 30, 2016, using the Black-Scholes-Merton option-pricing model, are set forth in the following table:~~

Nine Months Ended September 30,
2017 * 2016
Dividend yield — % — %
Expected volatility — % 41 %
Risk-free interest rate — % 1.43 %
Expected term (in years) n/a
5.0

* 2018No, there were no issuances of common stock options or ~~warrants during the current period.~~

warrants.

Common Stock Options

The following table summarizes the Company’s common stock option activity for the nine months ended September 30, ~~2017:~~2019:

	Number of Shares (000's)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (000's)
Outstanding, December 31, 2018		15	$	47.77		5.4	$	—
Granted		—	$	—
Forfeited		—	$	—
Expired		—	$	—
Outstanding and Vested, September 30, 2019		15	$	47.77		4.6	$	—

Number of Shares (000's) Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in 000's)
Outstanding, December 31, 2016 355
$ 3.21
5.6 $ —
Granted —
$ —

Forfeited —
$ —

Expired (110 ) $ 2.62

Outstanding, September 30, 2017 245
$ 3.48
5.8 $ —
Vested, September 30, 2017 210
$ 3.41
5.5 $ —

The following table summarizes the common stock options outstanding and exercisable as of September 30, ~~2017:~~2019:

	Stock Options Outstanding						Options Exercisable
Exercise Price	Number of Shares (000's)		Weighted Average Remaining Contractual Term (in years)		Weighted Average Exercise Price		Vested, September 30, 2019		Weighted Average Exercise Price
$15.72 - $47.99		10		5.0	$	46.84		10	$	46.84
$48.00 - $51.60		5		4.0	$	49.42		5	$	49.42
Total		15		4.6	$	47.77		15	$	47.77

Stock Options Outstanding Options Exercisable
Exercise Price Number of Shares Weighted Average Remaining Contractual Term (in years) Weighted Average Exercise Price Vested, September 30, 2017 Weighted Average Exercise Price
$1.31 - $3.99 180
5.7 $ 3.25
145
$ 3.09
$4.00 - $4.30 65
6.0 $ 4.12
65
$ 4.12
Total 245
5.8 $ 3.48
210
$ 3.41

~~For options unvested at September 30, 2017, $0.01 million in compensation expense will be recognized over the next 0.2 years.~~

Common Stock Warrants

The following table summarizes the Company’s common stock warrant activity for the nine months ended September 30, ~~2017:~~2019:

	Number of Warrants (000's)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in 000's)
Outstanding, December 31, 2018		85	$	45.53		3.7	$	—
Granted		—	$	—
Forfeited		—	$	—
Expired		—	$	—
Outstanding and Vested, September 30, 2019		85	$	45.53		2.9	$	—

Number of Warrants (000's) Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in 000's)
Outstanding, December 31, 2016 1,887
$ 3.58
4.1 $ 11
Granted —
$ —

Forfeited (100 ) $ 4.49

Expired —
$ —

Outstanding, September 30, 2017 1,787
$ 3.53
3.1 $ —
Vested, September 30, 2017 1,695
$ 3.49
2.9 $ —

The following table summarizes the common stock warrants outstanding and exercisable as of September 30, ~~2017:~~2019:

	Warrants Outstanding						Warrants Exercisable
Exercise Price	Number of Shares (000's)		Weighted Average Remaining Contractual Term (in years)		Weighted Average Exercise Price		Vested, September 30, 2019		Weighted Average Exercise Price
$0.00- $23.99		9		0.1	$	23.16		9	$	23.16
$24.00 - $35.99		9		0.1	$	30.84		9	$	30.84
$36.00 - $47.99		23		1.7	$	44.50		23	$	44.50
$48.00 - $59.99		42		4.8	$	52.99		42	$	52.99
$60.00 - $70.80		2		3.6	$	70.80		2	$	70.80
Total		85		2.9	$	45.53		85	$	45.53

Warrants Outstanding Warrants Exercisable
Exercise Price Number of Shares (000's) Weighted Average Remaining Contractual Term (in years) Weighted Average Exercise Price Vested at September 30, 2017 Weighted Average Exercise Price
$0 - $1.99 218
0.1 $ 1.82
218
$ 1.82
$2.00 - $2.99 335
0.8 $ 2.58
335
$ 2.58
$3.00 - $3.99 500
2.1 $ 3.59
500
$ 3.59
$4.00 - $4.99 711
5.8 $ 4.38
619
$ 4.40
$5.00 - $5.90 23
5.6 $ 5.90
23
$ 5.90
Total 1,787
3.1 $ 3.53
1,695
$ 3.49

~~For warrants unvested at September 30, 2017, $0.04 million in compensation expense will be recognized over the next 0.5 years.~~

Restricted Stock

The following table summarizes the Company’s restricted stock activity for the nine months ended September 30, ~~2017:~~2019:

	Number of Shares (000's)			Weighted Avg. Grant Date Fair Value
Unvested, December 31, 2018		48		$	6.20
Granted		—		$	—
Vested		(19	)	$	8.65
Forfeited		—		$	—
Unvested, September 30, 2019		29		$	4.63

Number of Shares (000's) Weighted Avg. Grant Date Fair Value
Unvested, December 31, 2016 404
$ 2.84
Granted 23
$ 1.07
Vested (78 ) $ 3.21
Forfeited (70 ) $ 4.29
Unvested, September 30, 2017 279
$ 2.22

For restricted stock unvested at September 30, ~~2017, $0.4~~2019, $0.1 million in compensation expense will be recognized over the next ~~1.5~~1.1 years.

~~NOTE 14.~~ . ~~VARIABLE INTEREST ENTITIES~~

~~Non-consolidated Variable Interest Entities~~

~~Aria.~~ On April 30, 2015, the Company entered into a lease inducement (the “Aria Lease Inducement”) with Aria Health Consulting, LLC with respect to the Aria Subleases. The Aria Lease Inducement provided for a one-time payment from the Company to Aria Health Consulting, LLC equal to $2.0 million minus the security deposits and first month’s base and special rent for all Aria Subleases. On April 30, 2015, in connection with the Aria Lease Inducement, eight of the Aria Subleases were amended to, among

other things, provide that the Aria Sublessees shall, collectively, pay to the Aria Sublessors special rent in the amount of $29,500 per month payable in advance on or before the first day of each month (except for the first special rent payment, which was subtracted from the lease inducement fee paid by the Company under the Aria Lease Inducement).

On July 17, 2015, the Company made a short-term loan to Highlands Arkansas Holdings, LLC, an affiliate of Aria (“HAH”), for working capital purposes, and, in connection therewith, HAH executed a promissory note (the “ HAH Note”) in favor of the Company. Since July 17, 2015, the HAH Note has been amended from time to time and currently has an outstanding principal amount of $1.0 million and matured on December 31, 2016. On October 6, 2015, HAH and the Company entered into a security agreement, whereby HAH granted the Company a security interest in all accounts arising from the business of HAH and the Aria Sublessees, and all rights to payment from patients, residents, private insurers and others arising from the business of HAH and the Aria Sublessees (including any proceeds thereof), as security for payment of the HAH Note, as amended, and certain rent and security deposit obligations of the Aria Sublessees under Aria Subleases. Effective February 3, 2016, each Aria Sublessor terminated the applicable Aria Sublease due to the applicable Aria Sublessee’s failure to pay rent pursuant to the terms of such sublease. On May 31, 2016, HAH and nine of its affiliates filed petitions for relief under Chapter 7 (“Chapter 7”) of the United States Bankruptcy Code, as amended (see Note 15 - ~~Commitments and Contingencies~~). On March 1, 2017, the bankruptcy trustee in the Aria bankruptcy proceeding, advised the Company that $0.8 million was available for repayment of all of Aria’s remaining obligations, including the HAH Note. Accordingly, the Company has charged a $0.2 million bad debt expense to the Company’s unaudited consolidated statement of operations during the nine months ended September 30, 2017. Though management continues to believe that the remaining receivable balance on the HAH Note is collectible, there is no guarantee that the bankruptcy court will approve full repayment of the HAH Note to the Company or that the Company will prevail in any avoidance action that may be filed against it, which could have an adverse effect on the Company’s business, results of operations and financial condition. For further information, see Note 7 - ~~Leases~~ ~~and Note 15 -~~ ~~Commitments and Contingencies~~.

The Aria Lease Inducement and HAH Note entered into by the Company create a variable interest that may absorb some or all of the expected losses of the Variable Interest Entity (“VIE”). The Company does not consolidate the operating activities of the Aria Sublessees as the Company does not have the power to direct the activities that most significantly impact the VIE’s economic performance.

~~Peach Health.~~ In connection with the Peach Health Sublease, the Company extended the Peach Line to Peach Health Sublessee in an amount of up to $1.0 million, with interest accruing on the unpaid balance under the Peach Line at a rate of 13.5% per annum. The entire principal amount due under the Peach Line, together with all accrued and unpaid interest thereunder, was due one year from the date of the first disbursement. The Peach Line is secured by a first priority security interest in Peach Health Sublessee’s assets and accounts receivable pursuant to a security agreement executed by Peach Health Sublessee.

On April 6, 2017, the Company modified certain terms of the Peach Line in connection with Peach Health Sublessee's securing the Peach Working Capital Facility in the amount of $2.5 million. Borrowings under the Peach Working Capital Facility are based on a borrowing base of eligible accounts receivable. The modifications of the Peach Line include: (i) reducing the loan balance to $0.8 million and restricting further borrowings; (ii) extending the maturity of the loan to October 1, 2020 and adding a six month extension option by Peach Health Sublessee, assuming certain conditions precedent are met at the time of the exercise of the option; (iii) increasing the interest rate from 13.5% per annum by 1% per year; and (iv) establishing a four year amortization schedule. Payment of principal and interest under the Peach Note shall be governed by certain financial covenants limiting distributions under the Peach Working Capital Facility. Furthermore, the Company guaranteed Peach Health Sublessee’s borrowings under the Peach Working Capital Facility subject to certain burn-off provisions (i.e., the Company’s obligations under such guaranty cease after the later of 18 months or achievement of a certain financial ratio by Peach Health Sublessee). As of September 30, 2017, $0.9 million was outstanding on the Peach Note. For further information on the Peach Health Sublease and Peach Line and Note, see Note 7 ~~- Leases~~.

The Peach Note creates a variable interest that may absorb some or all of a VIE’s expected losses. The Company does not consolidate the operating activities of the affiliates of Peach Health as the Company does not have the power to direct the activities that most significantly impact the VIE’s economic performance.

~~NOTE 15.COMMITMENTS AND CONTINGENCIES~~

NOTE 13.

COMMITMENTS AND CONTINGENCIES

Regulatory Matters

Laws and regulations governing federal Medicare and state Medicaid programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future governmental review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from certain governmental programs. As of September 30, ~~2017,~~2019, all of the Company’s facilities leased and subleased to third-party operators and managed for third-parties are certified by ~~CMS~~the U.S. Department of Health and ~~operational (see~~Human Services Centers for Medicare and Medicaid Services (“CMS”) and are operational. See Note 7 - Leases).

Legal Matters

The Company is party to various legal actions and administrative proceedings and is subject to various claims arising in the ordinary course of business, including claims that the services the Company provided during the time it operated skilled nursing facilities resulted in injury or death to the patients of the Company’s facilities and claims related to professional and general negligence, employment, staffing requirements and commercial matters. Although the Company intends to vigorously defend itself in these matters, there is no assurance that the outcomes of these matters will not have a material adverse effect on the Company’s business, results of operations and financial condition.

The Company previously operated, and the Company’s tenants now operate, in an industry that is extremely regulated. As such, in the ordinary course of business, the Company’s tenants are continuously subject to state and federal regulatory scrutiny, supervision and control. Such regulatory scrutiny often includes inquiries, investigations, examinations, audits, site visits and surveys, some of which are non-routine. In addition, we believe that there has been, and will continue to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in legal proceedings or governmental investigations against or involving the Company, for the Company’s prior operations, or the Company’s tenants,

whether currently asserted or arising in the future, could have a material adverse effect on the Company’s business, results of operations and financial condition.

Professional and General Liability Claims. As of September 30, ~~2017,~~2019, the Company ~~was~~is a defendant in a total of ~~42 unsettled~~12 professional and general liability actions, primarily commenced on behalf of three of our former patients and nine of which 28 cases were filed in the State of Arkansas by the same plaintiff attorney who represented the plaintiffs in the lawsuit captioned Amy Cleveland et. al. v. APHR&R Nursing, LLC et. al. filed on March 4, 2015 with the Circuit Court of Pulaski County, Arkansas, 16th Division, 6th Circuit. During the three months ended September 30, 2017, one professional and general liability claim against the Company was settled for $0.8 million and two previously dismissed without prejudice cases were refiled.our current or prior tenant’s former patients. These actions generally seek unspecified compensatory and punitive damages for former patients ~~of the Company~~ who were allegedly injured or died while patients of our facilities ~~operated by the Company~~ due to professional negligence or understaffing. ~~Two~~One such action, on behalf of the ~~pending actions are~~Company’s former patient, is covered by insurance, except that any award of punitive damages would be excluded from such ~~coverage.~~coverage and nine of such actions relate to events which occurred after the Company transitioned the operations of the facilities in question to a third-party operator and which are subject to such operators’ indemnification obligations in favor of the Company.

During the three months ended March 31, 2019: (i) one action was dismissed, and because the plaintiffs did not re-file on or before September 12, 2019, may not re-file; and (ii) one additional action was filed on January 25, 2019 for a medical injury and improper care and treatment in the Circuit Court of Pulaski County, State of Arkansas on behalf of a deceased patient, who received care after the Transition, against the then operator affiliated with Skyline Healthcare, LLC (“Skyline”), the Company and CIBC Bancorp USA, Inc. The ~~actions are in various stages of discovery,~~plaintiff (Montgomery) is seeking unspecified compensatory damages for the actual losses and unspecified punitive damages. The Company believes that this action lacks merit and the Company intends to ~~vigorously defend~~take action most favorable to the ~~claims.~~

Company. There is no guarantee that the Company will prevail in the action that has been filed against it.

During the three months ended June 30, 2019, three professional and general liability claims as detailed below were filed against the Company.

On May 9, 2019, a complaint was filed in the State Court of Bibb County, State of Georgia by a patient, who received care outside Regional’s date of service (post Transition), against three different unrelated facilities and companies associated with those facilities. One of our tenants, their operator affiliated management company (Beacon) and the Company are among the named defendants. The plaintiff (Goodrum) alleges personal injury, pain and suffering, medical bills and expenses, and loss of consortium and is seeking unspecified compensatory damages to be determined by jury trial. The complaint claims that medical expenses to date amount to $3.0 million. The Company is indemnified in this action by Beacon and believes that this action lacks merit. The Company intends to take action most favorable to the Company. There is no guarantee that the Company will prevail in the action that has been filed against it.

On May 15 2019, a complaint was filed in the Circuit Court of Pulaski County, the State of Arkansas on behalf of a patient, who received care outside Regional’s date of service (post-Transition), against the then operator Skyline, the Company and CIBC Bancorp USA, Inc. The plaintiff (McFadden) alleges medical injury, improper care and treatment and is seeking unspecified compensatory damages for the actual losses and unspecified punitive damages. The Company believes that this action lacks merit, the Company intends to take action most favorable to the Company. There is no guarantee that the Company will prevail in the action that has been filed against it.

On June 17, 2019, a complaint was filed in Jackson County, General Court of Justice Superior Court Division, in the State of North Carolina by the estate of a patient (Medlin) who died in August 2016, against one of our prior tenants, their operator affiliated management company (Symmetry), the Company and our new tenant who began operations on March 1, 2019. The plaintiff alleged wrongful death and gross medical malpractice and was seeking unspecified amounts to recover medical and funeral expenses, compensatory damages for pain and suffering, legal expenses and compensation in excess of $25,000 for wrongful death, to be determined by jury trial. The action against the Company was dismissed on August 19, 2019.

During the three months ended September 30, 2019, three professional and general liability actions were dismissed, one of which was indemnified by our former tenant and one of which was insured. Additionally the Company settled one professional and general liability action (our former patient), for a total of $200,000, payable in 12 monthly installments of $14,500 with an initial payment of $26,000 commencing November 2019.

On March 12, 2018, the Company entered into a separate mediation settlement agreement with respect to 25 actions filed in the State of Arkansas which were pending on such date, pursuant to which the Company paid a specified settlement amount. The aggregate settlement amount for all such 25 actions before related insurance proceeds was $5.2 million. The settlement of each such action was individually approved by the probate court. Under the settlement and release agreement with respect to a particular action, the Company was released from any and all claims arising out of the applicable plaintiff’s care while the plaintiff was a resident of one of the Company’s facilities.

In connection with a dispute between the Company and the Company’s former commercial liability insurance provider regarding, among other things, the Company’s insurance coverage with respect to the 25 actions filed in the State of Arkansas, the former insurer filed a complaint in May 2016 against the Company seeking, among other things, a determination that the former insurer had properly exhausted the limits of liability of certain of the Company’s insurance policies issued by the former insurer, and the Company subsequently filed a counterclaim against the former insurer regarding such matters (collectively, the “Coverage Litigation”). On March 12, 2018, the former insurer and the Company entered into a settlement agreement (the “Coverage Settlement Agreement”), providing for, among other things, a settlement payment by the former insurer in the amount of approximately $2.8 million (the “Insurance Settlement Amount”), the dismissal with prejudice of the Coverage Litigation, a customary release of claims by the former insurer and the Company, and agreement that the former insurer has exhausted the policies’ respective limits of liability and has no further obligations under the policies. Pursuant to the Coverage Settlement Agreement: (i) on March 16, 2018, the former insurer deposited the Insurance Settlement Amount into the trust account of the mediator with respect to the 25 actions; and (ii) on March20, 2018,the former insurer and the Company caused the Coverage Litigation, including the counterclaim, to be dismissed with prejudice.

The Company paid, net of the Insurance Settlement Amount, an aggregate of approximately $2.4 million in settlement of all 25 actions filed in the State of Arkansas. The probate court approved settlements with respect to 15 of the 25 Arkansas actions during the quarter ended June 30, 2018 (having approved three in the first quarter of 2018) and approximately $3.3 million and $0.5 million, respectively, was paid from the mediator’s trust account in such settlements.

In the first quarter of 2018, the Company settled four professional and general liability actions (other than those subject to mediation settlement agreements as discussed above) for the total of $670,000.

In the second quarter of 2018, the Company settled one professional and general liability action (other than those subject to mediation settlement agreements as discussed above) for a total of $50,000, paid in 10 monthly installments commencing July 2018.

In the second quarter of 2018, the Company was notified of one employment related action filed against the Company related to one of the Company’s discontinued operations. On August 1, 2018 the Company responded requesting dismissal without prejudice on multiple grounds, including being barred by the applicable statute of limitation. On October 4, 2018, the case against the Company was dismissed with prejudice.

The Company established a self-insurance reserve for these professional and general liability claims, included within “Accrued expenses and other” in the Company’s ~~unaudited~~ consolidated balance sheets of ~~$6.7~~$0.8 million and ~~$6.9~~$1.4 million at September 30, ~~2017,~~2019 and December 31, ~~2016,~~2018, respectively. ~~The decrease~~Additionally as of September 30, 2019 and December 31, 2018, $0.4 million and $0.6 million, respectively, was reserved for settlement amounts in “Accounts payable” in the ~~reserve at September 30, 2017, primarily reflects the legal and associated settlement amounts paid.~~Company’s consolidated balance sheets. For additional information regarding the Company’s self-insurance reserve, ~~please~~ see Part II, Item 8, ~~Notes to Consolidated Financial~~“Financial Statements and Supplementary Data”, Note 15 -– Commitments and Contingencies included in the Annual Report.

Aria Bankruptcy Proceeding. On May 31, 2016, Highlands Arkansas Holdings, LLC (“HAH”), an affiliate of Aria Health Group, LLC (“Aria”) and nine affiliates of HAH (collectively with HAH, the “Debtors”), filed petitions in the United States Bankruptcy Court for the District of Delaware

for relief under Chapter 7. Following venue transfer from the Delaware court, these cases have been settled in the United States Bankruptcy Court for the Eastern District of Arkansas (the “Bankruptcy Court”).

On July 17, 2015, the Company made a short-term loan to HAH, for working capital purposes, and, in connection therewith, HAH executed a promissory note (the “HAH Note”) in favor of the Company. Since July 17, 2015, the HAH Note has been amended from time to time and had an outstanding principal balance of approximately $1.0 million that matured on December 31, 2015. On October 6, 2015, HAH and the Company entered into a security agreement, whereby HAH granted the Company a security interest in all accounts arising from the business of the Debtors, and all rights to payment from patients, residents, private insurers and others arising from the business of the Debtors (including any proceeds thereof), as security for payment of the HAH Note, as amended, and certain rent and security deposit obligations of the Debtors under their respective subleases with the Company (the “Aria Subleases”).

On April 21, 2017, the Company moved for relief from the automatic stay seeking release of its collateral, the Debtors’ accounts and their proceeds, which the trustee has represented as a total of approximately $0.8 million. The Company’s motion was opposed by the Chapter 7 trustee and another creditor, in May 2017. In its objection, the Chapter 7 trustee asserted that the Company was not entitled to any of the $0.8 million with respect to the HAH Note. In addition to opposing the Company’s claim to the $0.8 million, the Chapter 7 trustee also indicated he was investigating avoidance claims against the Company with respect to funds the Company received from the Debtors prior to the bankruptcy filings. On March 28, 2018, such avoidance case was filed, requesting relief in an amount of $4.7 million. The Company charged approximately $0.3 million and $0.6 million to “Provision for doubtful accounts” in the Company’s consolidated statement of operations on the HAH Note as of December 31,

2018, and December 31, 2017, respectively. On March 13, 2019, the Company and the Chapter 7 bankruptcy trustee entered into a settlement agreement to settle all existing and potential claims, including such avoidance claim. The Company has received $0.1 million with respect to the $1.0 million HAH Note.

Hardin & Jesson Action. On August 5, 2019, the Company received notification from Hardin & Jesson that they had executed a settlement agreement with the Company pursuant to an action filed in Sebastian County Circuit Court - Fort Smith Division, Arkansas by Hardin & Jesson on February 25, 2019, requesting financial documents from the Company’s predecessor issuer and seeking relief of outstanding amounts for legal services provided to the Company (and certain of its subsidiaries) in the State of Arkansas in relation to professional and general liability claims of approximately $0.5 million. On April 18, 2019, Hardin & Jesson amended their filing to correct their initial filing to clarify the claim is against the Company. On May 8, 2019, the Company provided a response denying the allegations. The settlement agreement provides for an agreed net outstanding liability of $0.3 million and provides for monthly payments of $13,888 beginning July 1, 2019, and continuing on the first day of each month thereafter until the $0.3 million liability is paid in full. As of the date of filing this Quarterly Report the Company has made five of the required payments, in accordance with the terms of the agreement.

Ohio Attorney General Action. On October 27, 2016, the Ohio Attorney General ~~of Ohio~~ (the “OAG”) filed in the Court of Common Pleas, Franklin County, Ohio a complaint against The Pavilion Care Center, LLC, Hearth & Home of Greenfield, LLC (each a subsidiary of the Company), and certain other parties (including parties for which the Company provides or provided management services). The lawsuit alleges that defendants submitted improper Medicaid claims for independent laboratory services for glucose blood tests and capillary blood draws and further alleges that defendants (i) engaged in deception, (ii) willfully received Medicaid payments to which they were not entitled or in a greater amount than that to which they were entitled, and (iii) obtained payments under the Medicaid program to which they were not entitled pursuant to their provider agreements and applicable Medicaid rules and regulations. The OAG is seeking, among other things, triple the amount of damages proven at trial (plus interest) and not less than $5,000 and not more than $10,000 for each deceptive claim or falsification. As previously disclosed, the Company received a letter from the OAG in February 2014 ~~demanding repayment of allegedly~~offering to settle its claims against the defendants for improper Medicaid claims related to glucose blood tests and capillary blood draws ~~and penalties~~for a payment of approximately $1.0 ~~million, and the~~million. The Company responded to such letter in July 2014 denying ~~all claims.~~the allegations and did not receive further communication from the OAG until the above referenced lawsuit was filed. The Company filed an answer to the complaint on January 27, 2017 in which it denied the allegations. An order granting a motion to stay this proceeding was granted in the Court of Common Pleas, Franklin County, Ohio on July 12,

2017. Although there is no assurance as to the ultimate outcome of this matter or its impact on the Company’s business or its financial condition, the Company believes it has meritorious defenses and intends to vigorously defend the claim.

~~Aria Bankruptcy Proceeding~~. On May 31, 2016, HAH and nine affiliates of HAH (Highland of Stamps, LLC; Highlands of Rogers Dixieland, LLC; Highlands of North Little Rock John Ashley, LLC; Highlands of Mountain View SNF, LLC; Highlands of Mountain View RCF, LLC; Highlands of Little Rock West Markham, LLC; Highlands of Little Rock South Cumberland, LLC; Highlands of Little Rock Riley, LLC; and Highlands of Fort Smith, LLC (collectively with HAH, the “Debtors”)), filed petitions in the United States Bankruptcy Court for the District of Delaware~~for relief under Chapter 7. Following venue transfer from the Delaware court, these cases are pending in the United States Bankruptcy Court for the Eastern District of Arkansas.~~

On April 21, 2017, the Company moved for relief from the automatic stay seeking release of its collateral, the Debtors’ accounts and their proceeds, which the trustee has represented total approximately $800,000. The Company’s motion was opposed by the Chapter 7 trustee and another creditor, in May 2017. In its objection, the Chapter 7 trustee asserts that the Company is not entitled to any of the $800,000 with respect to the HAH Note. Discovery with respect to the motion is ongoing and the matter is currently not on the calendar. In addition to opposing the Company’s claim to the $800,000, the Chapter 7 trustee has also taken the position that he is investigating avoidance claims against the Company with respect to funds it received from the Debtors prior to the bankruptcy filings. The trustee’s statute of limitation for filing avoidance actions runs on May 31, 2018. There is no guarantee that the bankruptcy court will approve repayment of the HAH Note to the Company or that the Company will prevail in any avoidance action that may be filed against it.

NOTE 14.

RELATED PARTY TRANSACTIONS

McBride Matters

During the three and nine months ended September 30, 2019, the Company paid $39,082 and $117,247, respectively to ~~NOTE 16.RELATED PARTY TRANSACTIONS~~

~~For additional information regarding~~Mr. McBride, the Company’s ~~related party transactions, see Part II, Item 8, Notes to Consolidated Financial Statements,Note 18 -~~ ~~Related Party Transactions~~ ~~included~~former Chief Executive Officer and a former director, in ~~the Annual Report.~~

~~Park City Capital~~

On March 31, 2015, the Company accepted a Subscription Agreement from Park City Capital Offshore Master, Ltd. (“Park City Offshore”), an affiliate of Michael J. Fox, for a 2015 Note with an aggregate principal amount of $1,000,000 and, in connection therewith, issued such note to Park City Capital Offshore on April 30, 2015. The 2015 Note was offered to Park City Offshore on the same terms and conditions as all other investors in the offering. In January 2017, the Company repurchased the $1,000,000 2015 Note held by Park City Offshore pursuant to the termsfull satisfaction of the ~~Tender Offer for any and all of the outstanding 2015 Notes (for a description of the Tender Offer, see Note 9 -~~McBride Settlement Agreement. ~~Notes Payable and Other Debt~~). Mr. Fox is an affiliate of Park City Offshore, a director of the Company since October 2013, Lead Independent Director since April 1, 2015, and a beneficial owner of greater than 5% of the outstanding common stock.

~~Doucet Asset Management, LLC~~

On June 10, 2014 and on subsequent dates, Doucet Capital, LLC, Doucet Asset Management, LLC, Christopher L. Doucet and Suzette A. Doucet jointly filed with the SEC a Schedule 13D reporting beneficial ownership of greater than 5% of the common stock.

In January 2017, the Company repurchased the 2015 Notes held by Mr. and Ms. Doucet , which had an aggregate principal amount of $250,000, pursuant to the terms of the Tender Offer for any and all of the outstanding 2015 Notes (for a description of the Tender Offer, see Note 9 - ~~Notes Payable and Other Debt~~).

On January 19, 2017, Doucet Capital, LLC, Doucet Asset Management, LLC and Mr. and Ms. Doucet jointly filed with the SEC a Schedule 13D reporting beneficial ownership of less than 5% of the common stock as a result of the 2015 Notes repurchased by the Company pursuant to the Tender Offer.

~~Brogdon~~

Rimland Matters

~~Brogdon Promissory Note.~~On November 10, 2016, the Company and Mr. Brogdon (a beneficial owner of greater than 5% of the outstanding common stock) agreed to further amend the promissory note issued by Mr. Brogdon on December 31, 2013 to the Company to extend its maturity date to December 31, 2017. As a condition to such amendment, Winter Haven Homes, Inc. (“Winter Haven”), an entity owned and controlled by Mr. Brogdon, has agreed to waive payment of certain charges otherwise due and owing from the Company to Winter Haven from January 1, 2016 to July 31, 2016. As of September 30, 2017, principal due and payable under the promissory note issued by Mr. Brogdon to the Company was $268,663, which was fully allowed for in the Company’s unaudited consolidated statement of operations during the quarter ended March 31, 2017.

~~Indemnification Claim~~.

On May 25, 2017, McKesson Corporation (“McKesson”) obtained a judgment against the Company in the principal amount of $232,439, plus accrued interest, court costs and legal fees, related to an unpaid debt incurred by certain entities affiliated with Mr. Brogdon located in Oklahoma, pursuant to a supply agreement between McKesson and Mr. Brogdon, as to which the Company was a guarantor. The Company has accrued for this judgment during the quarter ended June 30, 2017. Management has entered into settlement negotiations with McKesson and notified Mr. Brogdon of the amount owed. The Company intends to seek recovery of the judgment amount, or negotiated settlement amount, if applicable, from Mr. Brogdon under the Settlement and Indemnity Agreement entered into by the Company and Mr. Brogdon on March 26, 2015.

~~McBride Matters~~

~~On September 26, 2017,~~13, 2019, the Company entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”), with ~~Mr. McBride,~~Allan J. Rimland, our former Chief Executive Officer, Chief Financial Officer, President and director, who voluntarily resigned his employment effective October 17, 2017, pursuant to which, among other things, and in lieu of any other rights or obligations under Mr. ~~McBride’s~~Rimland’s employment ~~agreement: (i)~~agreement, the Company agreed to pay Mr. ~~McBride $60,000~~Rimland $85,000 in cash for ~~wage claims; (ii) the Company issued~~claimed breach of employment agreement and for certain compensation alleged to be due and owing and Mr. ~~McBride an Unsecured Negotiable Promissory Note with an original principal amount of $300,000 (the “McBride Note”); (iii) Mr. McBride~~Rimland released the Company from all claims and liabilities, including those arising out of his employment, and his employment agreement, with the Company ~~and his separation therefrom~~ (but excluding claims to enforce the provisions of the Settlement ~~Agreement, the McBride Note and the indemnification provisions under his employment agreement); (iv) the Company released Mr. McBride from all claims and liabilities arising out of his employment,~~

and his employment agreement, with the Company and his separation therefrom (excluding (a) claims for intentional tortious conduct, fraud or arising out criminal misconduct other than in connection with such separation (provided such claims were not known to, or reasonably discoverable by the Company), and (b) claims to enforce the provisions of theAgreement). The Settlement Agreement provided for two monthly payments of $25,000 paid by June 30, 2019, followed by three monthly payments of $11,667, paid during July 2019, August 2019 and September 2019.

For additional information regarding the ~~restrictive covenants under the employment agreement);~~ Company’s related party transactions, see Note – 15 Subsequent Events and ~~(v) from after the effective date of the Settlement Agreement, the termination of Mr. McBride’s employment shall be deemed a resignation by Mr. McBride.~~

~~The McBride~~Part II, Item 8, “Financial Statements and Supplementary Data”, Note ~~accrues interest at an annual rate of 4% and principal and interest is payable in 24 equal monthly installments of $13,027.42, which payments~~18 – Related Party Transactions ~~commenced on October 31, 2017 and shall end on September 30, 2019. Upon the existence and continuation of an Event of Default (as defined~~included in the ~~McBride Note), interest accrues at a default rate of eighteen percent 18% per annum.~~Annual Report.

Further it was agreed that the Company would pay Mr. McBride $200.00 per hour and reimburse other customary business expenses for consultancy services in relation to matters that may arise from his tenure with the Company.

~~NOTE 17.SUBSEQUENT EVENTS~~

NOTE 15.

SUBSEQUENT EVENTS

The Company has evaluated all subsequent events through the date the consolidated financial statements were issued and filed with the SEC. ~~The following is a summary~~

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This Quarterly Report and certain information incorporated herein by reference contain forward-looking statements and information within the “safe harbor” provisions of the ~~material subsequent events.~~

~~Maturity Date Extension on Convertible Debt~~

~~On November 8, 2017,~~Private Securities Litigation Reform Act of 1995, Section 27A of the ~~Company entered into an Amendment No. 2~~Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This information includes assumptions made by, and information currently available to Subordinated Convertible Note, with Cantone Asset Management LLC (“CAM”), which amended, effective October 31, 2017, the $1.5 million convertible promissory note originally issued by the Company to CAM in July 2012, as subsequently amended, to: (i) extend the maturity date from October 31, 2017 to April 30, 2018; (ii) increase the annual interest rate from 10.00% to 14.00%;management, including statements regarding future economic performance and ~~(iii) increase the default annual interest rate from 14.00% to 18.00%.~~financial condition, liquidity and capital resources, and management’s plans and objectives. In addition, ~~the Company agreed to grant to CAM a second security interest~~certain statements included in this Quarterly Report, in the Company’s ~~College Park Facility no later than December 22, 2017. The security may be converted~~future filings with the SEC, in press releases, and in oral and written statements made by us or with our approval, which are not statements of historical fact, are forward-looking statements. Words such as “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “seek,” “plan,” “project,” “continue,” “predict,” “will,” and other words or expressions of similar meaning are intended by us to ~~352,941 shares at a conversion price of $4.25 at the option of the holder. Failure to grant the security interest by December 22, 2017, will constitute an event of default under the promissory note.~~

~~Preferred Dividend Suspension~~

~~On November 8, 2017, the Board voted to postpone the payment of the fourth quarter dividend~~identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are based on the ~~Series A Preferred Stock. The Board will revisit the dividend payment in the first quarter 2018 meeting. The dividend suspension will allow the Company~~Company’s current expectations about future events or results and information that is currently available to ~~pay outstanding vendors~~us, involve assumptions, risks, and ~~fund ongoing legal expenses~~uncertainties, and settlement payments. The dividend suspension does not trigger a default under the Company’s outstanding indebtedness. Dividends on the Series A Preferred Stock will continue to accrue regardless of whether declared by the Board. A “dividend default” is deemed to occur if we fail to pay the accrued cash dividends on the outstanding Series A Preferred Stock in full for any four consecutive or non-consecutive quarterly periods. If we have committed a dividend default, then until we have paid all accrued dividends on the sharesspeak only as of the ~~Series A Preferred Stock for all dividend periods up to, and including, the dividend payment~~ date on which such statements are made.

All forward-looking statements are subject to the ~~accumulated~~risks and ~~unpaid dividends are paid~~uncertainties inherent in ~~full: (i)~~predicting the ~~annual dividend rate on~~future. The Company’s actual results may differ materially from those projected, stated or implied in these forward-looking statements as a result of many factors, including the ~~Series A Preferred Stock will be increased~~Company’s critical accounting policies and risks and uncertainties related to, ~~12.875% per annum, which we refer~~but not limited to, as the ~~“penalty rate,” commencing on the first day after the missed fourth quarterly payment; and (ii) the holders~~operating results of the ~~Series A Preferred Stock will have limited voting rights, namely to elect two additional directors, at a special meeting called upon~~Company’s tenants, the ~~request~~overall industry environment and the Company’s financial condition. These and other risks and uncertainties are described in more detail in the Annual Report and in Part II, Item 1A of this Quarterly Report, as well as other reports that the Company files with the SEC.

Forward-looking statements speak only as of the ~~holders~~date they are made and should not be relied upon as representing the Company’s views as of ~~record of at least 25.00% of~~any subsequent date. The Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by applicable laws, and you are urged to review and consider disclosures that the ~~outstanding shares of Series A Preferred Stock. Once we have paid all accumulated~~Company makes in this Quarterly Report and ~~unpaid dividends in full and have paid cash dividends at~~other reports that the ~~penalty rate in full for an additional two consecutive quarters (or declared such dividends provided~~Company files with the SEC that ~~a sum sufficient for the payment thereof is set aside for such payment), the dividend rate will be restored~~discuss factors germane to the stated rate and the foregoing provisions will not be applicable, unless we again fail to pay any quarterly dividend for any future quarter, at which time the term of any directors elected by holders of the Series A Preferred Stock shall immediately terminate and the number of directors constituting our board of directors shall be reduced accordingly.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Company’s business.

Overview

~~The Company~~

Regional Health, through its subsidiaries, is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living. Our business primarily consists of leasing and subleasing healthcare facilities to third-party tenants. As of September 30, ~~2017,~~2019, the Company owned, leased, or managed for third parties 3024 facilities primarily in the Southeast.

The operators of the Company’s facilities provide a range of health care and related services to patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.

On April 15, 2019, the Company entered into the PSA with MED providing for the sale of four of the Company’s skilled nursing facilities, with substantially all of the fixtures, equipment, furniture, leases and other assets relating to such facilities, on August 1, 2019, subject to satisfaction or waiver of customary terms and conditions.

Under the PSA, the Company sold to MED: (i) on August 28, 2019, the Northwest Facility; and (ii) on August 1, 2019 (a) the Attalla Facility, (b) the College Park Facility, and (c) the Quail Creek Facility.

On August 1, 2019, the Company used a portion of the proceeds from the Asset Sale to repay approximately $21.3 million to Pinecone to extinguish all indebtedness owed by the Company under the Pinecone Credit Facility, and to repay approximately $3.8 million to Congressional Bank to extinguish all indebtedness owed by the Company under the Quail Creek Credit Facility. On September 30, 2019, the Company and Pinecone entered into a waiver and release agreement, and the Company paid approximately $0.4 million to Pinecone to fully extinguish the Surviving Obligations under the Pinecone Credit Facility. For further information, see Note 10 – Discontinued Operations and Dispositions, Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)” in this Quarterly Report.

Liquidity.

Going Concern and Overview

As of September 30, 2019, we had negative working capital of approximately $1.6 million which excludes $6.1 million of current operating lease obligation (with the corresponding right of use asset classified as long term). At September 30, 2019, we had $3.4 million in unrestricted cash and $55.8 million in indebtedness, including current maturities of $1.7 million. The current portion of such indebtedness includes senior debt and bond and mortgage indebtedness.

Prior to August 1, 2019, the continuation of our business was dependent upon our ability: (i) to comply with the terms and conditions under the Pinecone Credit Facility and the Second A&R Forbearance Agreement (as amended by the Pinecone Amendment); and (ii) to refinance or obtain further debt maturity extensions on the Quail Creek Credit Facility, neither of which was entirely within the Company’s control. Those factors had created substantial doubt about the Company’s ability to continue as a going concern.

The Company repaid the Pinecone Credit Facility and Quail Creek Credit Facility on August 1, 2019 using proceeds from the Asset Sale. If efforts to make such repayment had been unsuccessful, the Company would have been required to seek relief through other available alternatives, including a filing under the U.S. Bankruptcy Code. The consolidated financial statements do not include any adjustments that might have been necessary if the Company was unable to continue as a going concern. See Note – 10 Discontinued Operations and Dispositions, to our consolidated financial statements in Part I, Item 1, “Financial Statements (unaudited)” in this Quarterly Report for details regarding the Asset Sale. The Asset Sale, and the repayment of all amounts due under the Pinecone Credit Facility and the Quail Creek Credit Facility, have addressed certain factors that had created substantial doubt regarding the Company’s ability to continue as a going concern.

As a result of such repayment, the Company is able to conclude 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.

The Company is undertaking measures to grow its operations, streamline its cost infrastructure and otherwise increase liquidity by: (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 or raising capital through the issuance of securities after restructuring of the Company’s capital structure; (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 from the date of this filing. At September 30, 2019, the Company had $3.4 million in unrestricted cash. During the nine months ended September 30, 2019, the Company generated positive cash flow from continuing operations of $2.2 million.

Portfolio

The following table provides summary information regarding the number of facilities and related ~~operational~~licensed beds/units as of September 30, ~~2017:~~2019:

	Owned				Leased				Managed for Third Parties				Total
	Facilities		Beds/Units		Facilities		Beds/Units		Facilities		Beds/Units		Facilities		Beds/Units
State
Alabama		2		230		—		—		—		—		2		230
Georgia		3		395		8		884		—		—		11		1,279
North Carolina		1		106		—		—		—		—		1		106
Ohio		4		291		1		99		3		332		8		722
South Carolina		2		180		—		—		—		—		2		180
Total		12		1,202		9		983		3		332		24		2,517
Facility Type
Skilled Nursing		10		1,016		9		983		2		249		21		2,248
Assisted Living		2		186		—		—		—		—		2		186
Independent Living		—		—		—		—		1		83		1		83
Total		12		1,202		9		983		3		332		24		2,517

Owned Leased Managed for Third Parties Total
Facilities Beds/Units Facilities Beds/Units Facilities Beds/Units Facilities Beds/Units
State
Alabama 3
410
—
—
—
—
3
410
Georgia 4
463
10
1,168
—
—
14
1,631
North Carolina 1
106
—
—
—
—
1
106
Ohio 4
279
1
94
3
332
8
705
Oklahoma 2
197
—
—
—
—
2
197
South Carolina 2
180
—
—
—
—
2
180
Total 16
1,635
11
1,262
3
332
30
3,229
Facility Type
Skilled Nursing 14
1,449
11
1,262
2
249
27
2,960
Assisted Living 2
186
—
—
—
—
2
186
Independent Living —
—
—
—
1
83
1
83
Total 16
1,635
11
1,262
3
332
30
3,229

The following table provides summary information regarding the number of facilities and related ~~operational~~licensed beds/units by operator affiliation as of September 30, ~~2017:~~2019:

Operator Affiliation	Number of Facilities ⁽¹⁾		Beds / Units
C.R. Management		6		689
Aspire		5		390
Wellington Health Services		2		342
Peach Health		3		266
Symmetry Healthcare ⁽²⁾		2		180
Beacon Health Management		2		212
Vero Health ⁽²⁾		1		106
Subtotal		21		2,185
Regional Health Managed		3		332
Total		24		2,517

Operator Affiliation
Number of Facilities ⁽¹⁾
Beds / Units
C.R. Management 8
936
Beacon Health Management 7
585
Wellington Health Services 4
641
Peach Health Group 3
252
Symmetry Healthcare 3
286
Southwest LTC 2
197
Subtotal 27
2,897
Regional Health Managed 3
332
Total 30
3,229

⁽¹⁾

Represents the number of facilities leased or subleased to separate tenants, of which each tenant is an affiliate of the entity named in the table above. For a more detailed discussion, see Note 7 -– Leases located in Part I, Item 1, “Financial Statements”, of this Quarterly ~~Report~~Report; Part II, Item 8, “Financial Statements and Supplementary Data”, Note 7 – Leases

included in the Annual Report; and “Portfolio of Healthcare Investments” included in Part I, Item 1, “Business” included in the Annual Report.

~~on Form 10-Q; Part II, Item 8, Notes to Consolidated Financial Statements, Note 7 -~~ ~~Leases~~ ~~included in the Annual Report; and “Portfolio of Healthcare Investments” included in Part I, Item 1, Business included in the Annual Report.~~

⁽²⁾	On March 1, 2019, the Company transferred operations of the 106-bed Mountain Trace Facility to Vero Health, an affiliate of Vero Health Management. See Note 7 – Leases to our consolidated financial statements in Part I, Item 1, “Financial Statements (unaudited)” in this Quarterly Report.

Portfolio Occupancy Rates

The following table provides summary information regarding our portfolio facility-level occupancy rates for the periods shown:

For the Three Months Ended

Operating Metric ⁽¹⁾

December 31,

2018

March 31,

2019

June 30,

2019

September 30,

2019

Occupancy (%) ⁽²⁾

79.7

80.8

80.7

80.1

For the Three Months Ended
Operating Metric ⁽¹⁾
December 31, 2016 March 31, 2017 June 30, 2017 September 30, 2017
Occupancy (%) ⁽²⁾
82.6% 82.6% 83.1% 84.0%

⁽¹⁾Excludes the nine Arkansas Facilities, which were sold on October 6, 2016, the three Peach Facilities, which were operated by affiliates of New Beginnings prior to their bankruptcy and are currently operated by affiliates of Peach Health and the Meadowood Facility acquired on May 1, 2017, for all periods presented. Occupancy (%) for the Savannah Beach Facility, the one facility among the Peach Facilities which was not decertified by CMS and which has 50 operational beds, for the three months ending December 31, 2016, March 31, 2017, June 30, 2017 and September 30, 2017 was 92.3%, 86.6%, 82.0% and 84.9%, respectively.

⁽¹⁾	Excludes the four PSA Facilities, Mountain Trace Facility, five facilities in Ohio, three managed facilities, and two Omega Facilities.

⁽²⁾

Occupancy percentages are based on ~~operational~~licensed beds. The number of operational beds is reported to us by our tenants and represents the number of available beds that can be occupied by patients. The number of operational beds is always less than or equal to the number of licensed beds with respect to any particular facility.

Lease Expiration

The following table provides summary information regarding our lease expirations for the years ~~shown:~~shown as of September 30, 2019:

			Licensed Beds					Annual Lease Revenue ⁽¹⁾
	Number of Facilities		Amount		Percent (%)			Amount '000's		Percent (%)
2023		1		62		2.8	%		263		1.6	%
2024		1		126		5.8	%		965		5.8	%
2025		2		269		12.3	%		2,221		13.3	%
2026		—		—		0.0	%		—		0.0	%
2027		8		884		40.4	%		7,748		46.4	%
2028		4		328		15.0	%		2,352		14.1	%
2029		1		106		4.9	%		538		3.2	%
Thereafter		4		410		18.8	%		2,601		15.6	%
Total		21		2,185		100.0	%	$	16,688		100.0	%

Operational Beds

Annual Lease Revenue⁽¹⁾
Number of Facilities Amount Percent (%)
Amount ($) '000's
Percent (%)
2024 1
126
4.3 % 965
4.0 %
2025 12
1,206
41.7 % 9,671
40.2 %
2026 —
—
— % —
— %
2027 8
869
30.0 % 8,265
34.4 %
Thereafter 6
696
24.0 % 5,129
21.4 %
Total 27
2,897
100.0 % 24,030
100.0 %


⁽¹⁾	Straight-line rent.

~~Liquidity Overview~~

During the nine months ended September 30, 2017, the Company generated positive cash flow from operations and anticipates positive cash flow from operations for the remainder of the current year. At September 30, 2017, we had: (i) $1.1 million in cash and cash equivalents; (ii) restricted cash of $3.5 million; and (iii) $73.8 million in indebtedness, of which the current portion is $8.3 million. This current portion is comprised of the following components: (i) convertible debt of $1.5 million, (ii) senior debt of $4.3 million attributable to the Company’s skilled nursing facility known as the Quail Creek Nursing & Rehabilitation Center located in Oklahoma City, Oklahoma (the “Quail Creek Facility”), and (iii) remaining debt of approximately $2.5 million which includes senior debt - bond and mortgage indebtedness.

To conserve cash while working towards a settlement of our on-going professional and general liability claims, The Company’s Board of Directors (the “Board”) has voted to postpone the payment of the fourth quarter dividend on the Series A Preferred Stock. The Board will revisit the dividend payment in the first quarter of 2018. The dividend suspension will allow the Company to pay outstanding vendors and fund ongoing legal expenses and settlement payments. Furthermore, the dividend suspension does not trigger a default under the Company’s outstanding indebtedness.” Dividends will continue to accumulate regardless of whether declared.

Over the next twelve months, we anticipate access to several sources of liquidity, including cash flows from operations and cash on hand. In addition, we hold routine ongoing discussions with existing lenders and potential new lenders to refinance current debt on a longer term basis and, in recent years, have refinanced shorter term acquisition debt, with traditional longer term mortgage notes, many of which have been executed under government guaranteed lending programs. Over the next twelve months, we anticipate net principal disbursements of approximately $8.3 million, which includes $1.5 million of convertible debt, $4.3 million of senior debt attributable to the Quail Creek Facility, approximately $0.2 million of payments on shorter term vendor notes, $1.6 million of routine debt service amortization, and $0.7 million payment of other debt. Based on the described sources of liquidity, we expect sufficient funds for our operations and scheduled debt service, at least through the next twelve months.

On a longer term basis, at September 30, 2017, the Company has approximately $11.0 million of debt maturities due over the next two year period ending September 30, 2019. These debt maturities include the aforementioned $1.5 million of convertible promissory notes, which are convertible into shares of the common stock, in addition to $4.3 million with respect to~~the Quail Creek Credit Facility. We believe our long-term liquidity needs will be satisfied by these same sources, as well as borrowings as required to refinance indebtedness.~~

In order to satisfy our capital needs, we seek to: (i) refinance debt where possible to obtain more favorable terms; (ii) raise capital through the issuance of debt or equity securities ; and (iii) increase operating cash flows through acquisitions. We anticipate that these actions, if successful, will provide the opportunity to maintain our liquidity, thereby permitting the Company to better meet its operating and financing obligations. However, there is no guarantee that such actions will be successful. Our ability to raise additional capital through the issuance of equity securities and the terms upon which we are able to raise such capital may be adversely affected if we are unable to maintain the listing of the common stock and the Series A Preferred Stock on the NYSE American, formerly known as the NYSE MKT. In addition, the current dividend suspension prevents us from registering securities under the Securities Act of 1933 on Form S-3, which adversely impacts our ability to raise equity capital.

~~For a more detailed discussion, see Note 3 -~~ ~~Liquidity and Profitability~~ ~~and Note 17 -~~ ~~Subsequent Events~~ ~~to the Company’s Notes to Consolidated Financial Statements located in Part I, Item 1, of this Quarterly Report on Form 10-Q .~~

~~Acquisitions~~

~~For information regarding the Company’s acquisitions, see Note 10~~ - Acquisitions~~, to the Company’s Notes to Consolidated Financial Statements located in Part I, Item 1, of this Quarterly Report on Form 10-Q.~~

~~Divestitures~~

There were no ~~divestitures for~~acquisitions during the three and nine months ended September 30, ~~2017.~~ 2019. For historical information regarding the Company’s acquisitions, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 10 – Acquisitions and Dispositions included in the Annual Report.

Divestitures

Effective January 15, 2019, and as contemplated by the A&R New Forbearance Agreement, the Company’s lease for the Omega Facilities (two facilities located in Georgia), which leases were due to expire August 2025 and which Omega Facilities the Company subleased to third party subtenants, were terminated by mutual consent of the Company and the lessor of the Omega Facilities.

On August 1, 2019, the Company and MED completed the sale of three of the PSA Facilities, together with substantially all of the fixtures, equipment, furniture, leases and other assets relating to such facilities, pursuant to the PSA, as amended. The aggregate purchase price paid to the Company for the three facilities was $26.1 million, net of $0.175 million from the first and second deposits held in escrow (the remaining earned $0.125 million deposit was applied to the remaining facility sale upon closing), and the Company paid a $0.4 million sale commission. The proceeds from the sale were used to repay the Pinecone Credit Facility and Quail Creek Credit Facility in full.

On August 28, 2019, the Company, sold the Northwest Facility, together with substantially all of the fixtures, equipment, furniture, leases and other assets relating to the Northwest Facility, to MED, pursuant to the PSA, as amended. In connection with the sale, MED paid to the Company a cash purchase price for the Northwest Facility equal to $2.4 million, and the Company incurred approximately $0.1 million for a building improvement credit and sales commission expenses. For further information on the above transactions, see Note 9 – Notes Payable and Other Debt and Note 10 – Discontinued Operations and Dispositions to the Company's Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report.

For historical information regarding the Company’s divestitures, see Part II, Item 8, ~~Notes to Consolidated Financial~~“Financial Statements and Supplementary Data”, Note 10 – Acquisitions and Dispositions and Note 11 - – Discontinued Operations included in the Annual Report.

Critical Accounting Policies

We prepare our financial statements in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Article 8 of Regulation S-X. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. On an ongoing basis, we review our judgments and estimates, including, but not limited to, those related to doubtful accounts, income taxes, stock compensation, intangible assets and loss contingencies. We base our estimates on historical experience, business knowledge and on various other assumptions that we believe to be reasonable under the circumstances at the time. Actual results may vary from our estimates. These estimates are evaluated by management and revised as circumstances change.

For a discussion of our critical accounting policies and recent accounting pronouncements not yet adopted by the Company, see Note 1 -– Organization and Significant Accounting Policies to the Company's Notes to ~~Consolidated Financial Statements~~our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly ~~Report on Form 10-Q.~~

Report.

Results of Operations

The following table sets forth, for the periods indicated, unaudited statement of operations items and the amounts and percentages of change of these items. The results of operations for any particular period are not necessarily indicative of results for any future period. The following data should be read in conjunction with our consolidated financial statements and the notes thereto, which are included herein.

	Three Months Ended September 30,									Nine Months Ended September 30,
(Amounts in 000’s)	2019			2018			Percent Change (*)			2019			2018			Percent Change (*)
Revenues:
Rental revenues	$	4,590		$	4,972			(7.7	)%	$	14,746		$	15,706			(6.1	)%
Management fees		239			235			1.7	%		716			703			1.8	%
Other revenues		1			49			(98.0	)%		93			148			(37.2	)%
Total revenues		4,830			5,256			(8.1	)%		15,555			16,557			(6.1	)%
Expenses:
Facility rent expense		1,640			2,171			(24.5	)%		5,006			6,512			(23.1	)%
Cost of management fees		148			137			8.0	%		467			448			4.2	%
Depreciation and amortization		797			1,126			(29.2	)%		2,661			3,507			(24.1	)%
General and administrative expenses		730			984			(25.8	)%		2,551			2,751			(7.3	)%
Provision for doubtful accounts		32			(48	)	NM				(214	)		3,934		NM
Other operating expenses		191			255			(25.1	)%		821			823			(0.2	)%
Total expenses		3,538			4,625			(23.5	)%		11,292			17,975			(37.2	)%
Income (loss) from operations		1,292			631			104.8	%		4,263			(1,418	)	NM
Other (income) expense:
Interest expense, net		1,157			1,783			(35.1	)%		4,535			4,595			(1.3	)%
Loss on extinguishment of debt		924			3,514			(73.7	)%		2,478			3,955			(37.3	)%
Gain on disposal of assets		(6,451	)		—		NM				(7,141	)		—		NM
Other (income) expense		(48	)		—		NM				6			10		NM
Total other (income) expense, net		(4,418	)		5,297			(183.4	)%		(122	)		8,560			(101.4	)%
Income (loss) from continuing operations before income taxes		5,710			(4,666	)		(222.4	)%		4,385			(9,978	)		(143.9	)%
Income tax expense		—			—		NM				44			33			33.3	%
Income (loss) from continuing operations		5,710			(4,666	)		(222.4	)%		4,341			(10,011	)		(143.4	)%
Income (loss) from discontinued operations, net of tax		101			157			(35.7	)%		411			(242	)		(269.8	)%
Net income (loss)	$	5,811		$	(4,509	)		(228.9	)%	$	4,752		$	(10,253	)		(146.3	)%

*	Not meaningful (“NM”).

Three Months Ended September 30, Nine Months Ended September 30,
(Amounts in 000’s) 2017 2016 Percent Change 2017 2016 Percent Change
Revenues:

Rental revenues $ 5,983
$ 6,912
(13.4 )% $ 17,703
$ 20,651
(14.3 )%
Management fee and other revenues 362
253
43.1 % 1,081
760
42.2 %
Total revenues 6,345
7,165
(11.4 )% 18,784
21,411
(12.3 )%
Expenses:

Facility rent expense 2,171
2,176
(0.2 )% 6,512
6,523
(0.2 )%
Depreciation and amortization 1,193
1,124
6.1 % 3,499
4,176
(16.2 )%
General and administrative expenses 1,063
1,598
(33.5 )% 3,507

6,275
(44.1 )%
Other operating expenses 517
241
114.5 % 1,395
1,413
(1.3 )%
Total expenses 4,944
5,139
(3.8 )% 14,913
18,387
(18.9 )%
Income from operations 1,401
2,026
(30.8 )% 3,871
3,024
28.0 %
Other expense:

Interest expense, net 1,011
1,801
(43.9 )% 3,049
5,377
(43.3 )%
Loss on extinguishment of debt —
—
NM
63
—
NM
Other expense 105
—
NM
388
51
NM
Total other expense, net 1,116
1,801
(38.0 )% 3,500
5,428
(35.5 )%
Income (loss) from continuing operations before income taxes 285
225
26.7 % 371
(2,404 ) NM
Income tax expense 19
3
NM
20
3
NM
Income (loss) from continuing operations 266
222
19.8 % 351
(2,407 ) NM
Loss from discontinued operations, net of tax (1,032 ) (2,210 ) (53.3 )% (2,049 ) (6,513 ) (68.5 )%
Net loss $ (766 ) $ (1,988 ) (61.5 )% $ (1,698 ) $ (8,920 ) (81.0 )%

Three Months Ended September 30, ~~2017~~2019 and ~~2016~~

2018

Rental ~~Revenues~~revenues—~~Total rental~~Rental revenue decreased by ~~$0.9~~approximately $0.4 million, or ~~13.4%~~7.7%, to ~~$6.0~~$4.6 million for the three months ended September 30, ~~2017,~~2019, compared with ~~$6.9~~$5.0 million for the same period in ~~2016.~~2018. The decrease reflects ~~lower rent due~~approximately $0.6 million related to the Omega Lease Termination, $0.5 million related to the sale of the ~~Arkansas~~PSA Facilities ~~on October 6, 2016, partially~~and approximately $0.1 million due to an amendment to the Wellington Subleases off-set by ~~lease revenue from~~approximately $0.7 million rent received in the ~~Meadowood Facility (acquired on May 1, 2017)~~current year by affiliates of Aspire for the facilities operated by Ohio Beacon Affiliates in the prior year who stopped paying rent and the ~~Peach Facilities.~~recognition of $0.1 million of property tax income as a result of the Company’s adoption on ASC 842. The Company recognizes all rental revenues on a straight line rent accrual basis, except with respect to the ~~Oceanside Facility~~Ohio Beacon Affiliates in the prior year and the ~~Jeffersonville~~Mountain Trace Facility ~~under the Peach Health Sublease prior to recertification (which were recertified~~while operated by ~~CMS, in~~an affiliate of Symmetry for January and February ~~2017 and December 2016, respectively)~~2019 and the ~~Skyline Lease (which terminated upon sale of~~PSA Facilities sold during the ~~Arkansas Facilities),~~current quarter, for which rental revenue iswas recognized based on cash ~~amount owed.~~received.

~~Management Fee and Other Revenues~~

Facility rent expense—~~Management fee and other revenues increased~~Facility rent expense decreased by ~~$0.1~~approximately $0.6 million, or ~~43.1%~~24.5%, to ~~$0.4~~$1.6 million for the three months ended September 30, ~~2017,~~2019, compared with ~~$0.3~~$2.2 million for the same period in ~~2016,~~2018. The net decrease is due to ~~$0.1~~the Omega Lease Termination and Covington Forbearance Agreement.

Depreciation and amortization—Depreciation and amortization expense decreased by approximately $0.3 million, ~~increase from the recognition of interest income related~~or 29.2%, to ~~lease inducements and seller note receivables.~~

~~Facility Rent Expense—Facility rent expense was $2.2~~$0.8 million for the three months ended September 30, ~~2017, and $2.2~~2019, compared with $1.1 million for the same period in ~~2016. Rent expense year over year~~2018. The decrease is ~~comparable~~mainly due to equipment and computer related assets being fully depreciated and the ~~completion~~cessation of depreciation and amortization on assets sold in the ~~Company's transition to a healthcare property holding~~current quarter.

General and ~~leasing company. For further information see Note 7~~administrative ~~- Leases~~—General and administrative costs decreased by approximately $0.3 million, or 25.8%, to $0.7 million for the ~~Company’s Notes~~three months ended September 30, 2019, compared with $1.0 million for the same period in 2018. The decrease is due to ~~Consolidated Financial Statements located~~approximately $0.4 million lower business consulting and legal expenses incurred in ~~Part I, Item 1,~~relation to the Pinecone forbearance agreements, a continued decrease in auditing, accounting and other expenses of ~~this Quarterly Report on Form 10-Q.~~

~~Depreciation and Amortization—Depreciation and amortization increased by~~approximately $0.1 million off-set by a non-recurring increase in employee related expenses of approximately $0.2 million.

Interest expense, net—Interest expense decreased by approximately $0.6 million, or ~~6.1%~~35.1%, to $1.2 million for the three months ended September 30, ~~2017, compared with $1.1 million for the same period in 2016. The decrease is primarily due to the~~

sale of the Arkansas Facilities on October 6, 2016, that were classified as held for sale beginning May 2016, with the subsequent cessation of depreciation expense partially offset by depreciation on the Meadowood Facility acquired on May 1, 2017 and leasehold improvements on the Peach Facilities.

~~General and Administrative~~—General and administrative costs decreased by $0.5 million, or 33.5%, to $1.1 million for the three months ended September 30, 2017, compared with $1.6 million for the same period in 2016. The net decrease is due to a continued reduction in overhead and specifically the following: (i) a decrease in salaries, wages and employee benefits expense of approximately $0.2 million and (ii) a decrease in legal, contract services, IT, insurance and other expenses of approximately $0.3 million.

~~Other Operating Expenses~~—Other operating expense increased by $0.3 million, or 114.5%, to $0.5 million for the three months ended September 30, 2017, compared with $0.2 million for the same period in 2016. The increase is due to $0.3 million settlement expense related to the Settlement Agreement with Mr. McBride, the Company’s former Chief Executive Officer and Chairman of the Board, in the current year period.

~~Interest Expense, Net—Interest expense, decreased by $0.8 million, or 43.9%, to $1.0 million for the three months ended September 30, 2017,~~2019, compared with $1.8 million for the same period in ~~2016.~~2018. The decrease is ~~mainly~~ due to the August 1, 2019, repayment of ~~$36.0 million~~all amounts due under the Pinecone Credit Facility and the Quail Creek Credit Facility.

Loss on extinguishment of debt and hence cessation of interest, in connection with the Arkansas Facilities and the sale thereof in October 2016 and $6.7 million principal repayment of the 2015 Notes on January 10, 2017 pursuant to the Tender Offer and the remaining $1.0 million on April 30, 2017, partially offset by $4.1 million in new financing for the Meadowood Facility.

~~Loss from Discontinued Operations~~—The loss from ~~discontinued operations~~extinguishment of debt decreased by ~~$1.2~~approximately $2.6 million, or ~~53.3%~~73.7%, to ~~$1.0~~$0.9 million for the three months ended September 30, ~~2017,~~2019, compared with ~~$2.2~~$3.5 million for the same period in ~~2016.~~2018. The current period expense is due to $0.4 million in settlement of the Surviving Obligations and $0.5 million in fees related to provisions in the Second A&R Forbearance Agreement, the Pinecone Amendment and the full repayment of the Pinecone Credit Facility. The prior year expenses were due to a substantial change in debt terms pursuant to the New Forbearance Agreement with Pinecone.

Gain on disposal of Assets— The gain on disposal of assets of $6.4 million for the three months ended September 30, 2019, is due to the sale of four of the Company’s facilities.

Income (loss) Discontinued operations, net of tax— The income (loss) from discontinued operations decreased by $0.1 million, or 35.7%, to a benefit of $0.1 million for the three months ended September 30, 2019, compared with a benefit of $0.2 million expense for the same period in 2018. The decrease is ~~primarily~~ due to ~~lower bad debt expense. Current period expense comprises (i) an accrual for $0.8~~approximately a $0.1 million ~~for a professional~~workers compensation insurance prior year’s premium and ~~general legal settlement and (ii) approximately $0.2 million for legal expenses.~~deposit refund.

Nine Months Ended September 30, ~~2017~~2019 and ~~2016~~

2018

Rental ~~Revenues~~revenues—~~Total rental~~Rental revenue decreased by ~~$2.9~~approximately $1.0 million, or ~~14.3%~~6.1%, to ~~$17.7~~$14.7 million for the nine months ended September 30, ~~2017,~~2019, compared with ~~$20.7~~$15.7 million for the same period in ~~2016.~~2018. The decrease reflects ~~lower rent due~~approximately $1.7 million related to the Omega Lease Termination, $0.5 million related to the sale of the ~~Arkansas~~PSA Facilities, ~~on October 6, 2016,~~approximately $0.3 million due to an amendment to the Wellington Subleases and approximately $0.1 million in aggregate lower rent for our facilities where we have changed operator compared to the prior year, partially off-set by ~~lease revenue from~~approximately $1.2 million rent received in the ~~Meadowood Facility (acquired on May 1, 2017)~~current year by affiliates of Aspire for the facilities operated by Ohio Beacon Affiliates in the prior year who stopped paying rent and the ~~Peach Facilities.~~recognition of approximately $0.4 million of property tax income as a result of the Company’s adoption on ASC 842. The Company recognizes all rental revenues on a straight line rent accrual basis, except with respect to the ~~Oceanside Facility~~Ohio Beacon Affiliates in the prior year and the ~~Jeffersonville~~Mountain Trace Facility ~~under the Peach Health Sublease prior to recertification (which were recertified~~while operated by ~~CMS, in~~an affiliate of Symmetry for January and February ~~2017 and December 2016, respectively), the Aria Subleases (which were terminated for non-payment of rent)~~2019 and the ~~Skyline Lease (which terminated upon~~PSA Facilities held for sale ofduring the ~~Arkansas Facilities),~~current quarter, for which rental revenue iswas recognized based on cash ~~amount owed, and the sublease with affiliates of New Beginnings (which terminated in connection with the bankruptcy of such entities), for which rental revenue is recognized when cash is~~ received.

~~Management Fee and Other Revenues~~

Facility rent expense—~~Management fee and other revenues increased~~Facility rent expense decreased by ~~$0.3~~approximately $1.5 million, or ~~42.2%~~23.1%, to ~~$1.1~~$5.0 million for the nine months ended September 30, ~~2017, compared with $0.8 million for the same period in 2016, due to a $0.3 million increase from the recognition of interest income related to lease inducements and seller note receivables.~~

~~Facility Rent Expense~~—Facility rent expense was $6.5 million for the nine months ended September 30, 2017, and $6.5 million million for the same period in 2016. Rent expense year over year is comparable due to the completion of the Company's transition to a healthcare property holding and leasing company. For further information, see Note 7 ~~- Leases, to the Company’s Notes to Consolidated Financial Statements located in Part I, Item 1, of this Quarterly Report on Form 10-Q.~~

~~Depreciation and Amortization~~—Depreciation and amortization decreased by $0.7 million, or 16.2%, to $3.5 million for the nine months ended September 30, 2017, compared with $4.2 million for the same period in 2016. The decrease is primarily due to the sale of the Arkansas Facilities on October 6, 2016, that were classified as held for sale beginning May 2016, with the subsequent cessation of depreciation expense partially off-set by depreciation on the Meadowood Facility acquired on May 1, 2017 and leasehold improvements on the Peach Facilities.

~~General and Administrative~~—General and administrative costs decreased by $2.8 million, or 44.1%, to $3.5 million for the nine months ended September 30, 2017, compared with $6.3 million for the same period in 2016. The net decrease is due to a continued reduction in overhead and specifically the following: (i) a decrease in salaries, wages and employee benefits expense of approximately $1.0 million, (ii) a decrease in stock-based compensation expense of approximately $0.6 million and (iii) a decrease in legal, contract services, IT, insurance and other expenses of approximately $1.2 million.

~~Other Operating Expenses~~—Other operating expense decreased by $0.02 million, or 1.3%, to $1.4 million for the nine months ended September 30, 2017, compared with $1.4 million for the same period in 2016. The decrease is primarily due to (i) $0.8 million non-recurring prior year property and bed tax expenses, (ii) the release of $0.2 million workers compensation accrual in

the prior year, off set by, (iii) an accrual for an potential indemnity obligation of the Company of approximately $0.2 million and (iv) an approximately $0.3 million investigation expense related to an internal investigation with respect to the circumstances surrounding the inaccurate representation of the educational credentials of William McBride, III, the Company’s then Chief Executive Officer and Chairman of the Board, in the current year period, and (v) an accrual of $0.3 million settlement with Mr. McBride.

~~Interest Expense, Net~~—Interest expense, decreased by $2.3 million or 43.3% to $3.0 million for the nine months ended September 30, 2017, compared with $5.4 million for the same period in 2016. The decrease is mainly due to the repayment of $36.0 million of debt, and hence cessation of interest, in connection with the Arkansas Facilities and the sale thereof in October 2016 and $6.7 million principal repayment of the 2015 Notes pursuant to the Tender Offer on January 10, 2017 and the remaining $1.0 million on April 30, 2017, partially offset by $4.1 million in new financing for the Meadowood Facility.

~~Loss on Debt Extinguishment~~—Loss on extinguishment of debt of $0.1 million for the nine months ended September 30, 2017, was due to a pre payment penalty incurred on March 20, 2017, when mortgage indebtedness related to the Coosa Valley Facility, and Attalla Health Care, a 182-bed skilled nursing facility located in Attalla, Alabama (“the Attalla Facility”), was reduced by $0.7 million and $0.8 million, respectively through the application of restricted cash held as collateral against such indebtedness.

~~Loss from Discontinued Operations—The loss from discontinued operations decreased by $4.5 million or (68.5)% to $2.0 million for the nine months ended September 30, 2017,~~2019, compared with $6.5 million for the same period in ~~2016.~~2018. The net decrease is due to the Omega Lease Termination and Covington Forbearance Agreement.

Depreciation and amortization—Depreciation and amortization expense decreased by approximately $0.8 million, or 24.1%, to $2.7 million for the nine months ended September 30, 2019, compared with $3.5 million for the same period in 2018. The decrease is ~~primarily~~mainly due to equipment and computer related assets being fully depreciated and the cessation of depreciation and amortization on assets sold in the current quarter.

General and administrative—General and administrative costs decreased by approximately $0.2 million, or 7.3%, to $2.6 million for the nine months ended September 30, 2019, compared with $2.8 million for the same period in 2018. The decrease is due to approximately $0.3 million lower business consulting and legal expenses incurred in relation to the Pinecone forbearance agreements, a continued decrease in auditing, accounting and other expenses of approximately $0.1 million, off-set by a non-recurring increase in employee related expenses of approximately $0.2 million.

Provision for doubtful accounts—Provision for doubtful accounts expense decreased by approximately $4.1 million, to a benefit of $0.2 million for the nine months ended September 30, 2019, compared with $3.9 million for the same period in 2018. The current year gain is related to the collection of the Ohio Beacon Affiliates lease termination payment plan, while the prior year expense is due to the Ohio Beacon Affiliates notifying the Company of their plan to cease operating our properties on June 30, 2018 and, the Company recording allowances for balances owed by the Ohio Beacon Affiliates and Mountain Trace Tenant, and the associated write-off of the straight-line rent receivable. During the three months ended September 30, 2019, the Company released all of the remaining provision for the Ohio Beacon Affiliates’ payment plan due to their timely monthly payments, which was off-set by fully providing for the outstanding balances on the Symmetry Tenants’ payment plan due to non-payment. The Company had also recorded an allowance of approximately $2.0 million on a $3.0 million note issued to Skyline in relation to their purchase of nine former facilities of the Company located in Arkansas, due to Skyline’s bankruptcy.

Interest expense, net—Interest expense decreased by approximately $0.1 million, or 1.3%, to $4.5 million for the nine months ended September 30, 2019, compared with $4.6 million for the same period in 2018. The decrease is due to the August 1, 2019, repayment of all amounts due under the Pinecone Credit Facility and the Quail Creek Credit Facility.

Loss on extinguishment of debt—The loss from extinguishment of debt decreased by approximately $1.5 million, to $2.5 million for the nine months ended September 30, 2019, compared with $4.0 million for the same period in 2018. The current period expense is due to the Second A&R Forbearance Agreement, the repayment of all amounts due under the Pinecone Credit Facility and related expenses amounting to approximately $2.1 million and $0.4 million in settlement of the Surviving Obligations, while the prior period expense is due to approximately $3.6 million due to the substantial change in debt terms pursuant to the New Forbearance Agreement with Pinecone, and pre-payment penalties of $0.2 million and $0.2 million in expensed deferred financing fees from the repayment of debt in connection with the Pinecone Credit Facility.

Gain on disposal of Assets— The gain on disposal of assets of $7.1 million for the nine months ended September 30, 2019, is comprised of $6.4 million due to the sale of four of the Company’s facilities in the current quarter and $0.7 million from the Omega Lease Termination in the first quarter.

Income (loss) Discontinued operations, net of tax— The income (loss) from discontinued operations decreased by $0.6 million, or 269.8%, to a benefit of $0.4 million for the nine months ended September 30, 2019, compared with $0.2 million expense for the same period in 2018. The decrease is due to net favorable adjustments to bad debt ~~expense. Current period expenses comprise an $0.8 million accrual for a~~expense and lower professional and general legal ~~settlement,~~expenses as the ~~remaining $1.2~~Company nears completion of its legacy professional and general liability claims and Transition vendor settlements and approximately a $0.1 million ~~is related to legal expenses, collection activities~~workers compensation insurance prior year’s premium and ~~bad debt.~~deposit refund.

Liquidity and Capital Resources

Current Maturities of Debt

As of September 30, 2019, the Company had total current liabilities of $14.1 million and total current assets of $6.4 million, resulting in a working capital deficit of approximately $1.6 million after excluding $6.1 million of current operating lease obligation (with the corresponding right of use asset classified as long term). Included in current liabilities at September 30, 2019 is the $1.7 million current portion of the Company’s $55.8 million in indebtedness. The current portion of such indebtedness is comprised of senior debt, bond and mortgage indebtedness and other debt. The Company anticipates net principal repayments of approximately $1.7 million during the next twelve-month period, which includes approximately $1.5 million of routine debt service amortization, $0.1 million payments on other non-routine debt and $0.1 million payment of bond debt. On August 1, 2019, the Company used a portion of the proceeds from the Asset Sale to repay approximately $21.3 million to Pinecone to extinguish all indebtedness owed by the Company under the Pinecone Credit Facility, and to repay approximately $3.8 million to Congressional Bank to extinguish all indebtedness owed by the Company under the Quail Creek Credit Facility. For further information see Note – 10 Discontinued Operations and Dispositions to the Company's Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report.

On February 15, 2018, the Company entered into the Pinecone Credit Facility with Pinecone, with an aggregate principal amount of $16.25 million, which refinanced existing mortgage debt in an aggregate amount of $8.7 million on the Pinecone Facilities, and provided additional surplus cash flow of $6.3 million for general corporate needs (see Note 9 – Notes Payable and Other Debt, Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)” of this Quarterly Report) after deducting approximately $1.25 million in debt issuance costs and prepayment penalties. Regional Health was a guarantor of the Pinecone Credit Facility. Certain of the notes under the Pinecone Credit Facility were also guaranteed by certain wholly-owned subsidiaries of Regional Health. The surplus cash flow from the Pinecone Credit Facility was used to fund $2.4 million of self-insurance reserves for professional and general liability claims with respect to 25 professional and general liability actions, and to fund repayment of $1.5 million in convertible debt. The remaining $2.4 million in surplus cash proceeds from the Pinecone Credit Facility was used for general corporate purposes.

On May 10, 2018, Pinecone sent the Company a default letter (the “Default Letter”), notifying the Company that it was in default under certain financial covenants of the Pinecone Credit Facility. On May 18, 2018, the Company and certain of its subsidiaries entered the Original Forbearance Agreement with respect to the specified events of default set forth therein, pursuant to which, among other things, additional fees in the amount of $0.4 million were added to the outstanding principal balance under the Pinecone Credit Facility. The forbearance period under the Original Forbearance Agreement terminated on July 6, 2018, because the Company did not satisfy conditions in the Original Forbearance Agreement that required the Company to enter into an agreement with Pinecone to support a transaction or series of transactions to remedy the defaults specified in the Default Letter and the Original Forbearance Agreement.

On September 6, 2018, the Company and certain of its subsidiaries entered into the New Forbearance Agreement with Pinecone pursuant to which Pinecone agreed, subject to the terms and conditions set forth in the New Forbearance Agreement, to forbear for a specified period of time from exercising its default-related rights and remedies (including the acceleration of the outstanding loans and charging interest at the specified default rate) with respect to the Specified Defaults under the Pinecone Credit Facility.

Pursuant to the New Forbearance Agreement, the Company and Pinecone amended certain provisions of the Pinecone Credit Facility. Such amendments, among other things: (i) removed the restriction on prepaying the loans during the 13 month-period after the Closing Date; (ii) provided a 30-day cure period for certain events of default and a 15-day cure period for certain failures to provide information or materials pursuant to the Pinecone Credit Facility; (iii) increased the finance fee payable on repayment or acceleration of the loans, depending on the time at which the loans are repaid ($0.25 million prior to December 31, 2018, and $0.5 million thereafter); and (iv) increased the outstanding principal balance owed by (a) approximately $0.7 million to reimburse Pinecone for its accrued and unpaid expenses and to pay outstanding interest payments for prior interest periods and (b) $1.5 million fee described as a non-refundable payment of additional interest. During the forbearance period under the New Forbearance Agreement, the interest rate reverted from the default rate of 18.5% per annum to the ongoing rate of 13.5% per annum.

The New Forbearance Agreement terminated on December 31, 2018, because the Company did not satisfy certain conditions set forth therein.

Pursuant to the A&R New Forbearance Agreement, the Company and Pinecone amended certain provisions of the Pinecone Credit Facility. In addition Pinecone consented to the Omega Lease Termination. The leases of the Omega Facilities were to expire in August 2025, and the A&R New Forbearance Agreement required that the Omega Lease Termination be completed by February 1, 2019.

Pursuant to the A&R New Forbearance Agreement, the Company reimbursed Pinecone by February 1, 2019, for certain unpaid expenses and prepaid the AdCare Holdco Loan. In connection with the Omega Lease Termination, the Company realized gross proceeds (including a $1.2 million termination fee payable by the landlord to the Company, which approximated future forgone cash flow from the Company’s related sublease) to contribute to the Company’s required payment to Pinecone of approximately $1.4 million, of which $0.2 million was paid to Pinecone on January 4, 2019, for Pinecone’s expenses and the balance of $1.2 million was paid on January 28, 2019, of which $0.3 million was for Pinecone’s expenses, which included a 1% prepayment penalty, and the balance of $0.9 million was applied to pay down the principal amount of the AdCare Holdco Loan, which at March 31, 2019, was approximately $4.5 million.

The A&R New Forbearance Agreement amended the Loan Agreement to, among other things: (i) add a $0.35 million fee (paid in kind) to the loans on a pro rata basis; (ii) provide for the PIK Rate (3.5%), with such interest to be paid in kind in arrears by increasing the outstanding principal amount of loans held by the Pinecone on the first day of each month; provided that interest accruing at the PIK Rate on each loan and any overdue interest on each loan was paid in cash (a) on the maturity of the loans, whether by acceleration or otherwise, or (b) in connection with any repayment or prepayment of the loans; and (iii) modify the default rate of interest to add an additional 2.5% to the PIK Rate, in addition to the ongoing rate of 13.5%. During the forbearance period under the A&R New Forbearance Agreement, the interest rate paid in cash on the first (1st) day of each month was the ongoing rate of 13.5% per annum. See Note – 10 Discontinued Operations and Dispositions, to our consolidated financial statements located in Part I, Item 1, “Notes to consolidated financial statements (unaudited)” for further information on the Omega Lease Termination and subsequent AdCare Holdco Loan partial repayment completed on January 28, 2019. The forbearance period under the A&R New Forbearance Agreement expired according to its terms on March 14, 2019.

On March 29, 2019, the Company and certain of its subsidiaries entered the Second A&R Forbearance Agreement (as amended by the Pinecone Amendment) with Pinecone pursuant to which Pinecone agreed, subject to the terms and conditions set forth in the Second A&R Forbearance Agreement, to forbear for a specified period of time from exercising its default-related rights and remedies (including the acceleration of the outstanding loans and charging interest at the specified default rate) with respect to the Specified Defaults under the Pinecone Credit Facility. The forbearance period under the Second A&R Forbearance Agreement commenced on March 29, 2019, and could have extended as late as October 1, 2019, unless the forbearance period was earlier terminated as a result of specified termination events, including a default or event of default under the Pinecone Credit Facility (other than any Specified Defaults) or any failure by the Company or its subsidiaries to comply with the terms of the Second A&R Forbearance Agreement, including, without limitation, the Company’s obligation to progress with an Asset Sale (as defined below) in accordance with the timeline specified therein. See Note -9 Notes Payable and Other Debt located in Part I. Item 1, “Notes to consolidated financial statements (unaudited)” in this Quarterly Report, for details of an amendment to the Second A&R Forbearance Agreement with respect to such timeline.

Pursuant to the Second A&R Forbearance Agreement, the Company and Pinecone amended certain provisions of the Pinecone Credit Facility. The Second A&R Forbearance Agreement required, among other things (i) that the Company pursue and complete Asset Sale which resulted in the repayment in full of all of the Company’s indebtedness to Pinecone and, in connection therewith, the Company pay not less than $0.3 million and not more than $0.55 million in forbearance fees, as well as certain other expenses of Pinecone, or (ii) Pinecone’s other disposition of the Pinecone Credit Facility as contemplated by the Second A&R Forbearance Agreement. Additionally the Second A&R Forbearance Agreement accelerated the previously disclosed 3% finance “tail fee”, 1% prepayment penalty, and 1% breakup fee so that such fees and penalties became part of the principal as of April 15, 2019.

Upon the occurrence of an event of default (other than the Specified Defaults), or the expiration or termination of the forbearance period under the Second A&R Forbearance Agreement, Pinecone could have declared the entire unpaid principal balance under the Pinecone Credit Facility, together with all accrued interest and other amounts payable to Pinecone thereunder, immediately due and payable. Subject to the terms of the Pinecone Credit Facility, Pinecone could have foreclosed on the collateral. The collateral included, among other things, the Pinecone Facilities and all assets of the borrowers owning the Pinecone Facilities, the leases associated with the Pinecone Facilities and all revenue generated by the Pinecone Facilities, and rights under a promissory note in the amount of $5.0 million, issued by Regional Health pursuant to the Pinecone Credit Facility in favor of one of its subsidiaries, which subsidiary is a borrower and guarantor under the Pinecone Credit Facility.

In addition, the equity interests in substantially all of Regional Health’s direct and indirect, wholly-owned subsidiaries were pledged to Pinecone as part of the collateral (the “Pledged Subsidiaries”). The assets and operations of the Pledged Subsidiaries constitute substantially all of the Company’s assets and operations.

The forbearance period under the Second A&R Forbearance Agreement remained unchanged by the Pinecone Amendment and may have continued until October 1, 2019, unless earlier terminated in accordance with the Second A&R Forbearance Agreement. The Company repaid the Pinecone Credit Facility on August 1, 2019 from the proceeds of the Asset Sale. For further information see Note – 9 Notes Payable and Other Debt and Dispositions and Note – 10 Discontinued Operations located in Part I. Item 1, “Notes to consolidated financial statements (unaudited)” in this Quarterly Report.

Debt Covenant Compliance

As of September 30, 2019, the Company was in compliance with the various covenants for the Company’s outstanding credit related instruments.

Changes in Operational Liquidity

On August 1, 2019 and August 28, 2019, the Company completed the Asset Sale. The sale of the Quail Creek Facility, the Attalla Facility and the College Park Facility occurred on August 1, 2019, and the sale of the Northwest Facility occurred on August 28, 2019. In connection with the Asset Sale: (i) MED paid to the Company a cash purchase price for the PSA Facilities equal to $28.5 million in the aggregate; (ii) the Company incurred approximately $0.4 million in sales commission expenses and $0.1 million for a building improvement credit; and (iii) the Company transferred approximately $0.1 million in lease security deposits to MED. The expected 2019 annualized rent receivable for the sold PSA Facilities was approximately $3.0 million and estimated 2019 annualized interest expense for the Pinecone Credit Facility and Quail Creek Credit Facility, paid off on August 1, 2019, from the Asset Sale proceeds, was approximately $3.8 million. See Note – 10 Discontinued Operations and Dispositions, located in Part I. Item 1, “Notes to consolidated financial statements (unaudited)” in this Quarterly Report.

Series A Preferred Dividend Suspension

On June 8, 2018, the Board indefinitely suspended quarterly dividend payments with respect to the Series A Preferred Stock. Such dividends are currently in arrears with respect to the fourth quarter of 2017, all quarters of 2018, and the first, second and third quarters of 2019. The Board plans to revisit the dividend payment policy with respect to the Series A Preferred Stock on an ongoing basis. The Board believes that the dividend suspension will provide the Company with additional funds to meet its ongoing liquidity needs. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for more than four dividend periods, the annual dividend rate on the Series A Preferred Stock for the fifth and future missed dividend periods has increased to 12.875%, which is equivalent to $3.22 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 has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash.

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 entity’s current financial condition, including its sources of liquidity at the date that the consolidated financial statements are issued, will enable the entity 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 entity 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 and the Company’s obligations due over the next twelve months, as well as the Company’s recurring business operating expenses.

As the Company fully repaid the Pinecone Credit Facility and Quail Creek Credit Facility on August 1, 2019 from the proceeds of the Asset Sale, the Company is able to conclude 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.

For additional information regarding the Company’s liquidity, see Note 3 -– Liquidity and Note 9 ~~Liquidity~~– Notes Payable and ~~Profitability~~other debt, to the Company’s ~~Notes to Consolidated Financial Statements~~consolidated financial statements located in Part I, Item 1, Notes to Consolidated Financial Statements”, of this Quarterly ~~Report on Form 10-Q and~~ ~~Liquidity Overview, to the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations located in Part I, Item 2, of this Quarterly Report on Form 10-Q.~~

Report.

Cash Flows

The following table presents selected data from our consolidated statement of cash flows for the periods presented:

	Nine Months Ended September 30,
(Amounts in 000’s)	2019			2018
Net cash provided by operating activities - continuing operations	$	2,165		$	1,321
Net cash used in operating activities - discontinued operations		(980	)		(1,264	)
Net cash provided by (used in) investing activities - continuing operations		3,636			(266	)
Net cash (used in) provided by financing activities - continuing operations		(4,183	)		661
Net cash used in financing activities - discontinued operations		(34	)		(188	)
Net change in cash and restricted cash		604			264
Cash and restricted cash at beginning of period		6,486			5,359
Cash and restricted cash (excluding restricted cash held for sale), ending	$	7,090		$	5,623

Nine Months Ended September 30,
(Amounts in 000’s) 2017 2016
Net cash provided by operating activities - continuing operations $ 4,515
$ 2,806
Net cash used in operating activities - discontinued operations (961 ) (3,470 )
Net cash (used in) provided by investing activities - continuing operations (260 ) 6,217
Net cash used in financing activities - continuing operations (15,739 ) (5,736 )
Net cash used in financing activities - discontinued operations (485 ) (1,080 )
Net change in cash and cash equivalents (12,930 ) (1,263 )
Cash and cash equivalents at beginning of period 14,045
2,720
Cash and cash equivalents at end of period $ 1,115
$ 1,457

Nine Months Ended September 30, ~~2017~~

2019

Net cash provided by operating activities—continuing operations for the nine months ended September 30, ~~2017~~2019 was approximately ~~$4.5~~$2.2 million, consisting primarily of our income from operations less changes in working capital, and noncash charges (primarily gain on disposal of assets, depreciation and amortization, ~~rent~~loss on debt extinguishment, and lease revenue in excess of cash ~~received~~received). The $0.8 million increase primarily reflects the decrease in interest payments, legal and consulting expenses related to the Pinecone Credit Facility and increase in bad debt ~~expense), primarily the result of routine operating activity.~~collections partially offset by lower rent receipts.

Net cash used in operating activities—discontinued operations for the nine months ended September 30, ~~2017~~2019 was approximately $1.0 ~~million.~~million, excluding non-cash proceeds and payments. This amount was to fund legal and associated settlement costs related to our legacy professional and general liability ~~claims and is net of $1.2 million of collections on patient care receivables.~~claims.

Net cash ~~used~~provided by investing activities—continuing operations for the nine months ended September 30, ~~2017~~2019 was approximately ~~$0.3~~$3.6 million. This is the result of ~~a net decrease in restricted cash deposits~~receipt of approximately ~~$1.9~~$2.6 million net proceeds (excluding non-cash proceeds and payments) from the sale of the PSA Facilities in the current quarter and the $1.2 million Omega Lease Termination fee offset by ~~(i) $1.4~~$0.2 million ~~for~~

~~the Meadowood acquisition transaction consisting of $5.5 million purchase price offset by the associated $4.1 million financing and (ii)~~ capital expenditures ~~of approximately $0.8 million~~ on building improvements notably, for the Oceanside Facility and the Jeffersonville Facility to assist the Peach Health Sublessee in connection with recertification efforts and the purchase of land adjacent to our facility located in Georgetown, South Carolina.

improvements.

Net cash used in financing activities—continuing operations was approximately ~~$15.7~~$4.2 million for the nine months ended September 30, ~~2017. This~~2019. Excluding non-cash proceeds and payments, this is ~~primarily~~ the result of routine repayments of ~~$7.7 million of convertible debt, $3.1~~approximately $2.6 million of other existing debt obligations, ~~$0.2~~$0.3 million ~~payment~~repayment of bonds principal and approximately $1.3 million in relation to ~~repurchase our common stock~~expenses and ~~$5.7 million payment of preferred stock dividends partially off-set by net proceeds of $1.0 million from issuances of shares~~fees related to Pinecone forbearance agreements, repayment of the ~~Series A Preferred Stock.~~Pinecone Credit Facility and settlement of the Surviving Obligations.

Net cash used in financing activities—discontinued operations for the nine months ended September 30, ~~2017~~2019 was ~~approximately $0.5 million payments~~ for Medicaid and vendor ~~notes.~~note payments.

Nine Months Ended September 30, ~~2016~~

2018

Net cash provided inby operating activities—continuing operations for the nine months ended September 30, ~~2016~~2018 was ~~$2.8~~approximately $1.3 million, consisting primarily of our loss from operations less changes in working capital, and noncash charges (primarily bad debt expense, loss on extinguishment of debt, depreciation and amortization ~~share-based compensation,~~and rent revenue in excess of cash ~~received,~~received). The $3.2 million decrease compared to the same period in 2017 was primarily reflects the non-payment of rent related to the Ohio Beacon Facilities (approximately $1.8 million), approximately $0.7 million (of which $0.2 million has been forgiven) of rent in arrears related to Symmetry Tenants and ~~amortization of debt discounts and related deferred financing costs), all primarily the result of routine operating activity.~~approximately $0.9 million increase in interest payments, partially offset by miscellaneous other amounts netting to $0.2 million.

Net cash used in operating activities—discontinued operations for the nine months ended September 30, ~~2016~~2018 was approximately ~~$3.5~~$1.3 million, ~~as we continued~~excluding non-cash proceeds and payments. This amount was to ~~settle~~fund legal and associated settlement costs related to our legacy ~~vendor liabilities.~~professional and general liability claims.

Net cash ~~provided by~~used in investing activities—continuing operations for the nine months ended September 30, ~~2016~~2018 was approximately ~~$6.2~~$0.3 million. This is ~~primarily~~ the result of ~~a net release in restricted cash deposits of approximately $3.6 million, earnest money deposit of $1.8 million received~~capital expenditures on building improvements for ~~the sale~~three of the ~~Arkansas Facilities on October 6, 2016 and proceeds from sale of property and equipment of approximately $1.5 million.~~Company’s properties.

Net cash ~~used in~~provided by financing activities—continuing operations was approximately ~~$5.7~~$0.7 million for the nine months ended September 30, ~~2016. This~~2018. Excluding non-cash proceeds and payments, this is primarily the result of $2.4 million new financing from Pinecone offset by routine repayments of approximately $1.7 million of other existing debt obligations of approximately $10.5 million, and payments of dividends of approximately $5.5 million. These uses were offset by net cash proceeds received from issuances of shares of the Series A Preferred Stock and additional debt borrowings of approximately $6.8 million and $3.9 million, respectively.obligations.

Net cash used in financing activities—discontinued operations for the nine months ended September 30, 2018 was approximately ~~$1.1~~$0.2 million payments for Medicaid and vendor notes.

Notes Payable and Other Debt

The Company repaid the Pinecone Credit Facility and Quail Creek Credit Facility on August 1, 2019, from the proceeds of the Asset Sale. For information regarding the Company’s debt financings, see Note 9 - – Notes Payable and Other Debt, to the Company’s Notes to ~~Consolidated Financial Statements~~our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report ~~on Form 10-Q,~~ and ~~Part II, Item 8, Notes to Consolidated Financial Statements,~~Note 9 -– Notes Payable and Other Debt to our audited consolidated financial statements included in Part II, Item 8., “Financial Statements and Supplementary Data” in the Annual Report.

Receivables

Our operations could be adversely affected if we experience significant delays in receipt of rental income from our tenants.

As of September 30, 2019 and December 31, 2018, the Company reserved for approximately $0.7 million and approximately $1.4 million, respectively, of receivables. Accounts receivable, net totaled ~~$1.1~~$0.9 million at September 30, ~~2017~~2019 and ~~$2.4~~$1.0 million at December 31, ~~2016, of which $0.2 million and $0.9 million, respectively, related to patient care receivables from our legacy operations.~~

The allowance for doubtful accounts was $2.9 million and $7.5 million at September 30, 2017 and December 31, 2016, respectively. We continually evaluate the adequacy of our bad debt reserves based on aging of older balances, payment terms and historical collection trends after facility operations transfer to third-party operators. We continue to evaluate and implement additional processes to strengthen our collection efforts and reduce the incidence of uncollectible accounts.

2018.

Operating Leases

For information regarding the Company’s operating leases, see Note 7 -– Leases, to the Company’s Notes to ~~Consolidated Financial Statements~~consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report, ~~on Form 10-Q,~~ and Note 7 – Leases located in Part II, Item 8, ~~Notes to Consolidated Financial~~“Financial Statements ~~Note 7 - Leases~~and Supplementary Data”, included in the Annual Report.

~~Item 3. Quantitative and Qualitative Disclosures About Market Risk.~~

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Disclosure in response to Item 3. of Form 10-Q is not required to be provided by smaller reporting companies.

~~Item 4.~~

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the ~~Securities~~ Exchange Act, ~~of 1934, as amended (the “Exchange Act”),~~ is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our ~~Interim~~ Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our ~~Interim~~ Chief Executive Officer and Interim Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report ~~on Form 10-Q~~ (the “Evaluation Date”). Based on such evaluation, our ~~Interim~~ Chief Executive Officer and Interim Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. ~~Other~~Other Information

~~Item 1.~~

Item 1.

Legal Proceedings.

The Company is a defendant in various legal actions and administrative proceedings arising in the ordinary course of business, including claims that the services the Company provided during the time it operated skilled nursing facilities resulted in injury or death to patients. Although the Company settles cases from time to time when settlement can be achieved on a reasonable basis, the Company vigorously defends any matter in which it believes the claims lack merit and the Company has a reasonable chance to prevail at trial or in arbitration. Litigation is inherently unpredictable and there is risk in the Company's strategy of aggressively defending these cases. There is no assurance that the outcomes of these matters will not have a material adverse effect on the Company’s financial condition. Although arising in the ordinary course of the Company's business, certain of these matters are described below under "Professional and General Liability Claims."

Except as set forth in this Item 1, Legal Proceedings, there have been no new material legal proceedings and no material developments in the legal proceedings reported in Part I, Item 3, Legal Proceedings, in the Annual Report. For further information with respect to legal proceedings, see Note 13 - Commitments and Contingencies, to the Company’s Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report.

Professional and General Liability Claims. As of September 30, ~~2017,~~2019, the Company ~~was~~is a defendant in a total of ~~42 unsettled~~12 professional and general liability actions, primarily commenced on behalf of three of our former patients and nine of which 28 cases were filed in the State of Arkansas by the same plaintiff attorney who represented the plaintiffs in the lawsuit captioned Amy Cleveland et. al. v. APHR&R Nursing, LLC et al. filed on March 4, 2015 with the Circuit Court of Pulaski County, Arkansas, 16th Division, 6th Circuit. During the three months ended September 30, 2017, one professional and general liability claim against the Company was settled for $0.8 million and two previously dismissed without prejudice cases were refiled.our current or prior tenant’s former patients. These actions generally seek unspecified compensatory and punitive damages for former patients ~~of the Company~~ who were allegedly injured or died while patients of our facilities ~~operated by the Company~~ due to professional negligence or understaffing. ~~Two~~One such action, on behalf of the ~~pending actions are~~Company’s former patient, is covered by insurance, except that any award of punitive damages would be excluded from such ~~coverage. The~~coverage and nine of such actions ~~are in various stages of discovery, and~~relate to events which occurred after the Company ~~intends~~transitioned the operations of the facilities in question to ~~vigorously defend~~a third-party operator and which are subject to such operators’ indemnification obligations in favor of the ~~claims.~~Company.

The Company established a self-insurance reserve for these professional and general liability claims, included within “Accrued expenses and other” in the Company’s ~~unaudited~~ consolidated balance sheets of ~~$6.7~~$0.8 million and ~~$6.9~~$1.4 million at September 30, ~~2017,~~2019 and December 31, ~~2016,~~2018, respectively. ~~The decrease~~Additionally as of September 30, 2019 and December 31, 2018, $0.4 million and $0.6 million, respectively, was reserved for settlement amounts in “Accounts payable” in the ~~reserve at September 30, 2017 primarily reflects the legal costs and associated settlement amounts paid.~~Company’s consolidated balance sheets. For additional information regarding the Company’s self-insurance reserve, see Part II, Item 8, ~~Notes to Consolidated~~ Financial Statements and Supplementary Data, Note 15 -– Commitments and Contingencies included in the Annual Report.

~~Ohio Attorney General~~

Hardin & Jesson Action. On October 27, 2016, the OAG filed in the Court of Common Pleas, Franklin County, Ohio a complaint against The Pavilion Care Center, LLC, Hearth & Home of Greenfield, LLC (each a subsidiary of the Company), and certain other parties (including parties for which the Company provides or provided management services). The lawsuit alleges that defendants submitted improper Medicaid claims for independent laboratory services for glucose blood tests and capillary blood draws and further alleges that defendants (i) engaged in deception, (ii) willfully received Medicaid payments to which they were not entitled or in a greater amount than that to which they were entitled, and (iii) obtained payments under the Medicaid program to which they were not entitled pursuant to their provider agreements and applicable Medicaid rules and regulations. The OAG is seeking, among other things, triple the amount of damages proven at trial (plus interest) and not less than $5,000 and not more than $10,000 for each deceptive claim or falsification. As previously disclosed,August 5, 2019, the Company received notification from Hardin & Jesson that they had executed a ~~letter~~settlement agreement with the Company pursuant to an action filed in Sebastian County Circuit Court - Fort Smith Division, Arkansas by Hardin & Jesson requesting financial documents from the ~~OAG~~Company’s predecessor issuer and seeking relief of outstanding amounts for legal services provided to the Company (and certain of its subsidiaries) in ~~February 2014 demanding repayment~~the State of ~~allegedly improper Medicaid~~Arkansas in relation to professional and general liability claims ~~related to glucose blood tests and capillary blood draws and penalties~~ of approximately ~~$1.0~~$0.5 million. On April 18, 2019, Hardin & Jesson amended their filing to correct their initial filing to clarify the claim is against the Company. On May 8, 2019, the Company provided a response denying the allegations. The settlement agreement provides for an agreed net outstanding liability of $0.3 million and provides for monthly payments of $13,888 beginning July 1, 2019, and continuing on the first day of each month thereafter until the $0.3 million liability is paid in full. As of the date of filing this Quarterly Report the Company ~~responded to such letter~~has made five of the required payments, in ~~July 2014 denying all claims. The Company filed an answer to~~accordance with the ~~complaint on January 27, 2017 in which it denied~~terms of the allegations. An order granting a motion to stay this proceeding was granted in the Court of Common Pleas, Franklin County, Ohio on July 12, 2017. Although there is no assurance as to the ultimate outcome of this matter or its impact on the Company’s business or its financial condition, the Company believes it has meritorious defenses and intends to vigorously defend the claim.agreement.

~~For information with respect to the Aria bankruptcy proceeding, see Note 15 -~~ ~~Commitments and Contingencies.~~ ~~Also see Part I, Item 3,~~ ~~Legal Proceedings~~ ~~included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for a description of all significant legal proceedings.~~

~~Item 1A.~~

Item 1A.

Risk Factors.

If we lose our key management personnel, we may not be able to successfully manage our business or achieve our objectives, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We are dependent on our management team, and our future success depends largely upon the management experience, skill, and contacts of our management and the loss of any of our key management team could harm our business.

Recently, the Company has experienced the departure of certain key management personnel. As a result, the Company must now focus time and resources on recruiting new members for its executive management team. Changes in the Company’s executive management team may be disruptive to, or cause uncertainty in, the Company’s business, and any additional changes to the executive management team could have a negative impact on the Company’s ability to manage and grow its business effectively. Any such disruption or uncertainty or difficulty in efficiently and effectively filling key roles could have a material adverse effect on our business, financial condition, results of operations and prospects.

For a detailed description of certain risk factors that could affect our business, operations and financial condition, see Part I, ~~“Item~~Item 1A., Risk ~~Factors” of~~Factors, included in the Annual ~~Report.~~Report, as supplemented and modified by the risk factors set forth below in this Item 1A. The risk factors described in the Annual Report ~~(“Risk~~and this Quarterly Report (collectively, the “Risk Factors”) do not describe all risks applicable to our business, and we intend it only as a summary of certain material factors. The Risk Factors should be considered in connection with evaluating the forward-looking statements contained in this Quarterly Report because the Risk Factors could cause the actual results and conditions to differ materially from those projected in forward-looking statements. If any of the risks actually occur, our business, financial condition or results of operations could be negatively affected. In that case, the trading price of the common stock and Series A Preferred Stock could ~~continue~~decline.

Risks Related to ~~decline.~~ Our Capital Structure

We have substantial indebtedness, which may have a material adverse effect on our business and financial condition.

As of September 30, 2019, we had approximately $55.8 million in indebtedness. We may also obtain additional short-term and long-term debt to meet future capital needs, subject to certain restrictions under our existing indebtedness, which would increase our total debt. Our substantial amount of debt could have negative consequences to our business. For example, it could:

increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;

~~Item 2. Unregistered Sales~~

require us to dedicate a substantial portion of ~~Equity Securities~~cash flows from operations to interest and ~~Use~~principal payments on outstanding debt, thereby limiting the availability of ~~Proceeds.~~cash flow for dividends and other general corporate purposes;

require us to maintain certain debt coverage and other financial ratios at specified levels, thereby reducing our financial flexibility;

~~For information regarding~~

make it more difficult for us to satisfy our financial obligations;

expose us to increases in interest rates for our variable rate debt;

limit our ability to borrow additional funds on favorable terms, or at all, for working capital, debt service requirements, expansion of our business or other general corporate purposes;

limit our ability to refinance all or a portion of our indebtedness on or before maturity on the ~~Company’s new securities resulting from~~same or more favorable terms, or at all;

limit our flexibility in planning for, or reacting to, changes in our business and our industry;

limit our ability to make acquisitions or take advantage of business opportunities as they arise;

place us at a competitive disadvantage compared with our competitors that have less debt; and

limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity.

In addition, our ability to borrow funds in the ~~modification~~future will depend in part on the satisfaction of the covenants in our debt agreements. If we are unable to satisfy the financial covenants contained in those agreements, or are unable to generate cash sufficient to make required debt payments, the lenders and other parties to those arrangements could accelerate the maturity of some or all of our outstanding ~~securities~~, ~~see Item 5.~~ ~~- Other Information, located in Part II, Item 5,~~indebtedness.

We depend on affiliates of C.R Management, Wellington and Aspire for a significant portion of our revenues and any inability or unwillingness by such entities to satisfy their obligations to us could have a material adverse effect on us.

As of the date of filing this Quarterly Report, our 21 properties (excluding the three facilities that are managed by us) are operated by a total of 21 separate tenants, with each of our tenants being affiliated with one of seven local or regionally-focused operators. We refer to our tenants who are affiliated with the same operator as a group of affiliated tenants. Each of our operators operate (through a group of affiliated tenants) between one and six of our facilities, with our most significant operators, C.R Management, Wellington and Aspire, each operating (through a group of affiliated tenants) six, two and five facilities, respectively. We, therefore depend, on ~~Form 10-Q.~~

tenants who are affiliated with C.R Management, Wellington and Aspire for a significant portion of our revenues. We cannot assure you that the tenants affiliated with C.R Management, Wellington and Aspire will have sufficient assets, income and access to financing to enable them to make rental payments to us or to otherwise satisfy their obligations under the applicable leases and subleases, and any inability or unwillingness by such tenants to do so could have a material adverse effect on us.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.

Defaults upon Senior Securities.

The Board suspended dividend payments with respect to the Series A Preferred Stock, commencing with the fourth quarter of 2017, and determined to continue such suspension indefinitely in June 2018. No dividends were declared or paid with respect to the Series A Preferred Stock for such dividend periods. As a result of such suspension, the Company has $16.6 million of undeclared preferred stock dividends in arrears, whose annual dividend rate has increased to 12.875% commencing with the fourth quarter of 2018, with respect to the Series A Preferred Stock as of the date of filing of this Quarterly Report. See Note 11 – Common and Preferred Stock, “Preferred Stock Offerings and Dividends”, to the Company’s Notes to our consolidated financial statements located in Part I, Item ~~3. Defaults upon Senior Securities.~~

1, “Financial Statements (unaudited)”, of this Quarterly Report.

~~None.~~

~~Item 4.~~

Item 4.

Mine Safety Disclosures.

Not applicable.

~~Item 5.~~

Item 5.

Other Information.

None.

~~McBride Matters~~

Item 6.

Exhibits.

On September 26, 2017, the Company entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”), with Mr. McBride, our former Chief Executive officer and director, pursuant to which, among other things, and in lieu of any other rights or obligations under Mr. McBride’s employment agreement: (i) the Company agreed to pay Mr. McBride $60,000 in cash for wage claims; (ii) the Company issued to Mr. McBride an Unsecured Negotiable Promissory Note with an original principal amount of $300,000 (the “McBride Note”); (iii) Mr. McBride released the Company from all claims and liabilities, including those arising out of his employment, and his employment agreement, with the Company and his separation therefrom (but excluding claims to enforce the provisions of the Settlement Agreement, the McBride Note and the indemnification provisions under his employment agreement); (iv) the Company released Mr. McBride from all claims and liabilities arising out of his employment, and his employment agreement, with the Company and his separation therefrom (excluding (a) claims for intentional tortious conduct, fraud or arising out criminal misconduct other than in connection with such separation (provided such claims were not known to, or reasonably discoverable by the Company), and (b) claims to enforce the provisions of the Settlement Agreement and the restrictive covenants under the employment agreement); and (v) from after the effective date of the Settlement Agreement, the termination of Mr. McBride’s employment shall be deemed a resignation by Mr. McBride.

~~The McBride Note accrues interest at an annual rate of 4% and principal and interest is payable in 24 equal monthly installments of $13,027.42, which payments~~commenced on October 31, 2017 and shall end on September 30, 2019. Upon the existence and continuation of an Event of Default (as defined in the McBride Note), interest accrues at a default rate of eighteen percent 18% per annum.

~~Maturity date extension on convertible debt~~

On November 8, 2017, the Company entered into an Amendment No. 2 to Subordinated Convertible Note, with Cantone Asset Management LLC (“CAM”), which amended, effective October 31, 2017, the $1.5 million convertible promissory note originally issued by the Company to CAM in July 2012, as subsequently amended, to: (i) extend the maturity date from October 31, 2017 to April 30, 2018; (ii) increase the annual interest rate from 10.00% to 14.00%; and (iii) increase the default annual interest rate from 14.00% to 18.00%. In addition, the Company agreed to grant to CAM a second priority security interest in the Company’s College Park facility no later than December, 22, 2017. Failure to grant the security interest by December 22, 2017, will constitute an event of default under the promissory note.

The promissory note was issued, and subsequently amended, without registration under the Securities Act in reliance upon the private placement exemption set forth in Section 4(a)(2) of the Securities Act, based upon CAM’s status as an accredited investor, representations made by CAM, the isolated nature of the transaction and that the transaction did not involve a public offering. The promissory note may be converted to 352,941 shares of common stock at a conversion price of $4.25 at the option of the holder.

~~Item 6. Exhibits.~~

The agreements included as exhibits to this Quarterly Report are included to provide information regarding the terms of these agreements and are not intended to provide any other factual or disclosure information about the Company, its business or the other parties to these agreements. These agreements may contain representations and warranties by each of the parties to the

applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

may apply standards of materiality in a way that is different from what may be viewed as material to investors; and

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and should not be relied upon by investors.

EXHIBIT INDEX



Exhibit No.	~~Description~~	Description		Method of Filing

~~2.1~~ 3.1	~~Asset Purchase Agreement, dated March 8, 2017, by and between Meadowood Retirement Village, LLC, and Meadowood Properties, LLC, and AdCare Health Systems, Inc.~~	~~Incorporated by reference to Exhibit 2.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016~~
~~2.2~~	~~Agreement and Plan of Merger by and between AdCare Health Systems, Inc., and Regional Health Properties, Inc., dated July 7, 2017~~	~~Incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed on July 11, 2017~~
~~3.1~~	Amended and Restated Articles of Incorporation of Regional Health Properties, Inc., effective September 21, 2017		Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017
~~3.2~~
3.2		Certificate of Merger, effective September 29, 2017		Incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017
~~3.3~~
3.3		Amended and Restated Bylaws of Regional Health Properties, Inc., effective September 21, 2017		Incorporated by reference to Exhibit 3.3 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017
~~4.1~~
4.1		Form of Common Stock Certificate of Regional Health Properties, Inc.		Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017
~~4.2~~
4.2		Description of Regional Health Properties, Inc. Capital Stock		Incorporated by reference to Exhibit ~~4.1~~4.2 of the Registrant’s ~~Current~~Annual Report on Form ~~8-K12B filed on October 10, 2017~~10-K for the year ended December 31, 2018
4.3*
4.3*		2005 Stock Option Plan of AdCare Health Systems, Inc.		Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011
4.4*
4.4*		AdCare Health Systems, Inc. 2011 Stock Incentive Plan		Incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011
4.5*
4.5*		Form of Non-Statutory Stock Option Agreement		Incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011
4.6*
4.6*		Form of Incentive Stock Option Agreement		Incorporated by reference to Exhibit 4.5 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011
~~4.7~~	~~Form of 8% Subordinated Convertible Note Due 2015 issued by AdCare Health Systems, Inc.~~	~~Incorporated by reference to Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed July 5, 2012~~
~~4.8~~ 4.7		Form of Warrant to Purchase Common Stock of the Company		Incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3 (File No. 333-175541)
~~4.9~~
4.8		Warrant to Purchase 50,000 Shares of Common Stock, dated December 28, 2012, issued by AdCare Health Systems, Inc. to Strome Alpha Offshore Ltd.		Incorporated by reference to Exhibit 4.21 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012
~~4.10~~
4.9		Form of Warrant, dated March 28, 2014, issued by AdCare Health Systems, Inc. to the placement agent and its affiliates in connection with the offering of 10% Subordinated Convertible Notes Due April 30, 2015		Incorporated by reference to Exhibit 4.3 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2014
~~4.11~~
4.10		Form of Warrant granted to management to Purchase Shares of AdCare Health Systems, Inc. dated November 20, 2007		Incorporated by reference to Exhibit 10.23.2 of the Registrant’s Annual Report on Form 10-KSB as amended March 31, 2008
~~4.12~~	~~Registration Rights~~
10.1		Second Amended and Restated Forbearance Agreement dated March ~~31, 2015, by~~29, 2019 among CP Property Holdings, LLC, Northwest Property Holdings, LLC and ~~among~~Attalla Nursing ADK, LLC as Borrowers, Hearth & Home of Ohio, Inc., as Guarantor, AdCare Property Holdings, LLC, as Guarantor and Borrower, Regional Health ~~Systems,~~Properties, Inc., as Guarantor, and ~~the Purchasers of the Company’s 10% Convertible Subordinated Notes Due April 30, 2017~~Pinecone Reality Partners II, LLC as Lender		Incorporated by reference to Exhibit ~~4.1~~10.203 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018

Exhibit No.	Description	Method of Filing

10.2	Eighth Amendment to Loan and Security Agreement and Fourth Amendment to Promissory Note dated April 30, 2019 by and between QC Property Holdings, LLC, a Georgia limited liability company and Congressional Bank.	Incorporated by reference to Exhibit 10.205 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018

10.3	Forbearance Agreement, dated as of January 11, 2019, by and between Covington Realty, LLC and Regional Health Properties, Inc.	Incorporated by reference to Exhibit 10.212 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018

10.4	Lease Termination Agreement, dated as of January 15, 2019, by and between Bonterra/Parkview Inc. and ADK Bonterra/Parkview, LLC	Incorporated by reference to Exhibit 10.213 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018

10.5	Second Amendment to Sublease Agreement, dated as of February 15, 2019, by and between ADK Georgia, LLC. and 3460 Powder Springs Road Associates, L.P.	Incorporated by reference to Exhibit 10.214 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018

10.6	Second Amendment to Sublease Agreement, dated as of February 15, 2019, by and between ADK Georgia, LLC. and 3223 Falligant Avenue Associates, L.P.	Incorporated by reference to Exhibit 10.215 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018

10.7	Lease Agreement, dated as of February 28, 2019, by and between Mountain Trace Nursing ADK, LLC and Vero Health X, LLC.	Incorporated by reference to Exhibit 10.216 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018

10.8	Third Amendment to Sublease Agreement, dated as of March 13, 2019, by and between ADK Georgia, LLC. and 3460 Powder Springs Road Associates, L.P.	Incorporated by reference to Exhibit 10.217 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018

10.9	Third Amendment to Sublease Agreement, dated as of February 15, 2019, by and between ADK Georgia, LLC. and 3223 Falligant Avenue Associates, L.P.	Incorporated by reference to Exhibit 10.218 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018

10.10	Settlement Agreement and Release, dated as of March 13, 2019, by and between Regional Health Properties, Inc. and Chapter 7 Trustee	Incorporated by reference to Exhibit 10.219 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018

10.11	Purchase and Sale Agreement dated as of April 15, 2019, by and between Northwest Property Holdings, LLC, QC Property Holdings, LLC, Attalla Nursing ADK, LLC, and CP Property Holdings, LLC, and Attalla Realty LLC, College Park Realty LLC, Quail Creek Realty LLC, and Northwest Realty LLC	Incorporated by reference to Exhibit 2.0 of the Registrant’s Current Report on Form 8-K filed August 7, 2019

10.11	First Amendment to Second Amended and Restated Forbearance Agreement dated June 12, 2019 among CP Property Holdings, LLC, Northwest Property Holdings, LLC and Attalla Nursing ADK, LLC as Borrowers, Hearth & Home of Ohio, Inc., as Guarantor, AdCare Property Holdings, LLC, as Guarantor and Borrower, Regional Health Properties, Inc., as Guarantor, and Pinecone Reality Partners II, LLC as Lender	Incorporated by reference to Exhibit 10.11 of the Registrant’s Quarterly Report on Form 10-Q for the ~~quarter~~three months ended March 31, ~~2015~~

2019

~~4.13~~ 10.12	~~Form of 10% Convertible Subordinated Notes Due April 30, 2017~~	~~Incorporated by reference to Exhibit 4.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015~~
~~4.14~~	~~Form of 10% Convertible Subordinated Notes Due April 30, 2017 (Affiliate Form)~~	~~Incorporated by reference to Exhibit 4.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015~~
~~4.15~~	Second Amendment to ~~Subordinated Convertible Note Issued March 31, 2015, dated July 30, 2015, by~~Purchase and ~~between AdCare Health Systems, Inc., and Cantone Asset Management, LLC and Cantone Research, Inc.~~	~~Incorporated by reference to Exhibit 10.105 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015~~
~~4.16~~	~~Amendment No.2 to subordinated Convertible Note, Issued July 2, 2012, dated November 8, 2017 between Regional Health Properties Inc., and Cantone Asset Management LLC.~~	~~Filed herewith~~
~~4.17~~*	~~Unsecured Promissory Note, pursuant to Settlement~~Sale Agreement dated ~~September 26, 2017, effective October 4, 2017 by and between Regional Health Properties Inc., and William McBride, III~~	~~Filed herewith~~
~~10.1~~	~~Lease Agreement, dated March 22, 2017, by and between Meadowood Property Holdings, LLC and CRM~~as of ~~Meadowood, LLC~~	~~Incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017~~
~~10.2~~	~~Amendment to Promissory Note, dated April 7, 2017, issued by OS Tybee, LLC, SB Tybee, LLC and JV Jeffersonville, LLC, in favor of AdCare Health Systems, Inc.~~	~~Incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017~~
~~10.3~~	~~Loan Agreement, dated May 1, 2017, between Meadowood Property Holdings, LLC and the Exchange Bank of Alabama in the original amount of $4.1 million~~	~~Incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017~~
~~10.4~~	~~Guaranty Agreement, dated April 6, 2017, executed by AdCare Health Systems, Inc., in favor of Congressional Bank, a~~ ~~Maryland chartered commercial bank~~	~~Incorporated by reference to Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017~~
~~10.5~~	~~At Market Issuance Sales Agreement, dated May 26, 2017, between AdCare Health Systems, Inc. and JMP Securities LLC.~~	~~Incorporated by reference to Exhibit 1.1 of the Registrant's Current Report on Form 8-K filed on May 26, 2017~~
~~10.6~~	~~Amendment to Loan Agreement Issued September 27, 2013, dated August 10, 2017, by and between QC Property Holdings, LLC and the Congressional Bank, a~~ ~~Maryland chartered commercial bank~~	~~Incorporated by reference to Exhibit 10.6 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017~~
~~10.7~~	~~Amendment to Loan Agreement Issued December 31, 2012, dated~~ July 31, ~~2017,~~2019, by and between Northwest Property Holdings, LLC, QC Property Holdings, LLC, Attalla Nursing ADK, LLC, and ~~the First Commercial Bank~~CP Property Holdings, LLC, and Attalla Realty LLC, College Park Realty LLC, Quail Creek Realty LLC, and Northwest Realty LLC		Incorporated by reference to Exhibit ~~10.7~~2.2 of the Registrant’s ~~Quarterly~~Current Report on Form ~~10-Q for the quarter ended June 30, 2017~~8-K filed August 7, 2019
~~10.8~~	~~Settlement~~
10.13		Third Amendment to Purchase and Sale Agreement ~~Mutual Release and Form~~dated as of ~~Unsecured Promissory Note, dated September 26, 2017~~July 31, 2019, by and between ~~AdCare Health Systems~~Northwest Property Holdings, LLC, QC Property Holdings, LLC, Attalla Nursing ADK, LLC, and CP Property Holdings, LLC, and Attalla Realty LLC, College Park Realty LLC, Quail Creek Realty LLC, and Northwest Realty LLC		Incorporated by reference to Exhibit 2.3 of the Registrant’s Current Report on Form 8-K filed August 7, 2019

Exhibit No.		Description		Method of Filing

10.14		Fourth Amendment to Purchase and Sale Agreement dated as of July 31, 2019, by and between Northwest Property Holdings, LLC, QC Property Holdings, LLC, Attalla Nursing ADK, LLC, and CP Property Holdings, LLC, and Attalla Realty LLC, College Park Realty LLC, Quail Creek Realty LLC, and Northwest Realty LLC		Incorporated by reference to Exhibit 2.4 of the Registrant’s Current Report on Form 8-K filed August 7, 2019

10.15		Fifth Amendment to Purchase and Sale Agreement dated as of July 31, 2019, by and between Northwest Property Holdings, LLC, QC Property Holdings, LLC, Attalla Nursing ADK, LLC, and CP Property Holdings, LLC, and Attalla Realty LLC, College Park Realty LLC, Quail Creek Realty LLC, and Northwest Realty LLC		Incorporated by reference to Exhibit 2.5 of the Registrant’s Current Report on Form 8-K filed August 7, 2019

10.16		Sixth Amendment to Purchase and Sale Agreement dated as of July 31, 2019, by and between Northwest Property Holdings, LLC, QC Property Holdings, LLC, Attalla Nursing ADK, LLC, and CP Property Holdings, LLC, and Attalla Realty LLC, College Park Realty LLC, Quail Creek Realty LLC, and Northwest Realty LLC		Incorporated by reference to Exhibit 2.6 of the Registrant’s Current Report on Form 8-K filed August 7, 2019

10.17		Waiver and Release Agreement dated September 30, 2019 among CP Property Holdings, LLC, Northwest Property Holdings, LLC and Attalla Nursing ADK, LLC as Borrowers, Hearth & Home of Ohio, Inc., as Guarantor, AdCare Property Holdings, LLC, as Guarantor and ~~William McBride, III~~	~~Filed herewith~~
~~10.9~~	~~Joinder and First Amendment to Guarantee Issued September 27, 2013, dated September 28, 2017, by and among AdCare Health Systems Inc.,~~Borrower, Regional Health Properties, Inc., as Guarantor, and ~~Congressional Bank.~~Pinecone Reality Partners II, LLC as Lender		Filed herewith
~~10.10~~	~~Joinder and First Amendment to Guarantee Issued May 1, 2017, dated September 29, 2017, by and among AdCare Health Systems Inc., Regional Health Properties Inc., and Exchange Bank of Alabama~~	~~Filed herewith~~
~~10.11~~ 31.1	~~Affirmation and Assumption of Loan Documents, Limited Guarantees and Security Agreements Issued September 29, 2017, by and Between Regional Health Properties, Inc., and Red Mortgage Capital, LLC~~	~~Filed herewith~~



~~10.12~~	Consent to Merger Issued October 2, 2017, pursuant to Third Amendment and Restated Multiple Facilities Lease dated October 29, 2010, as amended by the First Amendment and Restated Multiple Facilities Lease dated June 14, 2013, and a Second Amendment to Third Amended and Restated Facilities Lease dated September 1, 2015 (as amended, the :Mater Lease”); by and between Bonterra/Parkview, Inc., a Maryland corporation and ADK Bonterra/Parkview, LLC	~~Filed herewith~~
~~31.1~~	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act		Filed herewith
~~31.2~~
31.2		Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act		Filed herewith
~~32.1~~
32.1		Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act		Filed herewith
~~32.2~~
32.2		Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act		Filed herewith
~~101~~
101		The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2017,~~2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, ~~2017~~2019 (unaudited) and December 31, ~~2016;~~2018; (ii) Consolidated Statements of Operations for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 (unaudited); (iii) Consolidated Statements of Stockholders’ ~~Deficit~~Equity (Deficit) for the nine months ended September 30, ~~2017~~2019 (unaudited); (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 (unaudited); and (v) the Notes to Consolidated Financial Statements (unaudited).		Filed herewith

*	Identifies a management contract or compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized.



		REGIONAL HEALTH PROPERTIES, INC.
			(Registrant)

Date:	November ~~14, 2017~~12, 2019		/s/ Brent Morrison
			Brent Morrison
		~~Interim~~	Chief Executive Officer and Director (Principal Executive Officer)

Date:	November ~~14, 2017~~12, 2019		/s/ E. Clinton Cain
			E. Clinton Cain
			Interim Chief Financial Officer, Senior Vice President and Chief Accounting Officer ~~and Controller~~ (Principal Financial and Accounting Officer)

Georgia		81-5166048

~~Georgia~~		~~81-5166048~~
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification Number)


☒
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


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



	September 30, 2017			December 31, 2016
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,115		$	14,045
Restricted cash	960			1,600
Accounts receivable, net of allowance of $2,946 and $7,529, respectively	1,086			2,429
Prepaid expenses and other	1,384			2,395
Total current assets	4,545			20,469
Restricted cash and investments	2,580			3,864
Property and equipment, net	82,441			79,168
Intangible assets - bed licenses	2,471			2,471
Intangible assets - lease rights, net	2,253			2,754
Goodwill	2,105			2,105
Lease deposits	808			1,411
Notes receivable	3,589			3,000
Other assets	6,407			4,244
Total assets	$	107,199		$	119,486
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Current portion of notes payable and other debt	$	6,828		$	4,018
Current portion of convertible debt, net	1,499			9,136
Accounts payable	3,617			3,037
Accrued expenses and other	8,582			9,077
Total current liabilities	20,526			25,268
Notes payable and other debt, net of current portion:
Senior debt, net	58,212			60,189
Bonds, net	6,548			6,586
Other debt, net	731			41
Other liabilities	3,785			3,677
Deferred tax liabilities	226			226
Total liabilities	90,028			95,987
Commitments and contingencies (Note 15)
Preferred stock, no par value; 5,000 shares authorized; 2,812 and 2,762 shares issued and outstanding, redemption amount $70,288 and $69,038 at September 30, 2017 and December 31, 2016, respectively	—			61,446
Stockholders’ equity (deficit):
Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 19,762 and 19,927 issued and outstanding at September 30, 2017 and December 31, 2016, respectively	61,738			61,643
Preferred stock, no par value; 5,000 shares authorized; 2,812 and 2,762 shares issued and outstanding, redemption amount $70,288 and $69,038 at September 30, 2017 and December 31, 2016, respectively	62,423			—
Accumulated deficit	(106,990		)	(99,590		)
Total stockholders’ equity (deficit)	17,171			(37,947		)
Total liabilities and stockholders’ equity (deficit)	$	107,199		$	119,486



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues:
Rental revenues	$	5,983		$	6,912		$	17,703		$	20,651
Management fee and other revenues	362			253			1,081			760
Total revenues	6,345			7,165			18,784			21,411

Expenses:
Facility rent expense	2,171			2,176			6,512			6,523
Depreciation and amortization	1,193			1,124			3,499			4,176
General and administrative expense	1,063			1,598			3,507			6,275
Other operating expenses	517			241			1,395			1,413
Total expenses	4,944			5,139			14,913			18,387

Income from operations	1,401			2,026			3,871			3,024

Other expense:
Interest expense, net	1,011			1,801			3,049			5,377
Loss on extinguishment of debt	—			—			63			—
Other expense	105			—			388			51
Total other expense, net	1,116			1,801			3,500			5,428

Income (loss) from continuing operations before income taxes	285			225			371			(2,404		)
Income tax expense	19			3			20			3
Income (loss) from continuing operations	266			222			351			(2,407		)

Loss from discontinued operations, net of tax	(1,032		)	(2,210		)	(2,049		)	(6,513		)
Net loss	(766		)	(1,988		)	(1,698		)	(8,920		)

Preferred stock dividends	1,912			1,879			5,702			5,457
Net loss attributable to Regional Health Properties, Inc. common stockholders	$	(2,678	)	$	(3,867	)	$	(7,400	)	$	(14,377	)

Net loss per share of common stock attributable to Regional Health Properties, Inc.
Basic and diluted:
Continuing operations	$	(0.08	)	$	(0.08	)	$	(0.27	)	$	(0.39	)
Discontinued operations	(0.05		)	(0.11		)	(0.10		)	(0.33		)
	$	(0.13	)	$	(0.19	)	$	(0.37	)	$	(0.72	)

Weighted average shares of common stock outstanding:
Basic and diluted	19,762			19,917			19,784			19,909



	Shares of Common Stock		Shares of Preferred Stock	Common Stock and Additional Paid-in Capital			Preferred Stock ^(a)		Accumulated Deficit			Total
Balances, December 31, 2016	19,927		—	$	61,643		$	—	$	(99,590	)	$	(37,947	)

Reclassification of preferred stock	—		2,812	—			62,423		—			62,423

Stock-based compensation	—		—	281			—		—			281

Common stock repurchase program	(118	)	—	(186		)	—		—			(186		)

Issuance of restricted stock, net of forfeitures	(47	)	—	—			—		—			—

Preferred stock dividends	—		—	—			—		(5,702		)	(5,702		)

Net loss	—		—	—			—		(1,698		)	(1,698		)
Balances, September 30, 2017	19,762		2,812	$	61,738		$	62,423	$	(106,990	)	$	17,171



	Three Months Ended September 30,						Nine Months Ended September 30,
(Amounts in 000’s, except per share data)	2017			2016			2017			2016
Numerator:
Income (loss) from continuing operations	$	266		$	222		$	351		$	(2,407	)
Preferred stock dividends	1,912			1,879			5,702			5,457
Basic and diluted loss from continuing operations	(1,646		)	(1,657		)	(5,351		)	(7,864		)

Loss from discontinued operations, net of tax	(1,032		)	(2,210		)	(2,049		)	(6,513		)
Net loss attributable to Regional Health Properties, Inc. common stockholders	$	(2,678	)	$	(3,867	)	$	(7,400	)	$	(14,377	)

Denominator:
Basic - weighted average shares	19,762			19,917			19,784			19,909
Diluted - adjusted weighted average shares ^(a)	19,762			19,917			19,784			19,909

Basic and diluted loss per share:
Loss from continuing operations attributable to Regional Health	$	(0.08	)	$	(0.08	)	$	(0.27	)	$	(0.39	)
Loss from discontinued operations	(0.05		)	(0.11		)	(0.10		)	(0.33		)
Loss attributable to Regional Health Properties, Inc. common stockholders	$	(0.13	)	$	(0.19	)	$	(0.37	)	$	(0.72	)



(Amounts in 000’s)	Estimated Useful Lives (Years)	September 30, 2017			December 31, 2016
Buildings and improvements	5-40	$	89,954		$	84,108
Equipment and computer related*	2-10	10,883			12,286
Land	—	4,248			3,988
Construction in process	—	—			602
		105,085			100,984
Less: accumulated depreciation and amortization*		(22,644		)	(21,816		)
Property and equipment, net		$	82,441		$	79,168



(Amounts in 000’s)	CON (included in property and equipment)			Bed Licenses - Separable		Lease Rights			Total
Balances, December 31, 2016
Gross	$	22,811		$	2,471	$	6,881		$	32,163
Accumulated amortization	(3,483		)	—		(4,127		)	(7,610		)
Net carrying amount	$	19,328		$	2,471	$	2,754		$	24,553

Amortization expense	(512		)	—		(501		)	(1,013		)

Balances, September 30, 2017
Gross	22,811			2,471		6,881			32,163
Accumulated amortization	(3,995		)	—		(4,628		)	(8,623		)
Net carrying amount	$	18,816		$	2,471	$	2,253		$	23,540



	(Amounts in 000’s)
2017 ^(a)	$	2,069
2018	8,331
2019	8,492
2020	8,671
2021	8,830
Thereafter	46,456
Total	$	82,849



	(Amounts in 000's)
2017 ^(a)	$	5,460
2018	22,281
2019	22,764
2020	23,299
2021	23,886
Thereafter	136,813
Total	$	234,503



(Amounts in 000’s)	Estimated Useful Lives (Years)	May 1, 2017
Buildings and improvements	15-32	$	4,700
Equipment and computer related	10	400
Land	—	100
Property and equipment		5,200
In place occupancy ^(a)	32	300
Purchase Price		$	5,500



		Number of Shares (000's)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in 000's)
Outstanding, December 31, 2016		355		$	3.21	5.6	$	—
	Granted	—		$	—
	Forfeited	—		$	—
	Expired	(110	)	$	2.62
Outstanding, September 30, 2017		245		$	3.48	5.8	$	—
Vested, September 30, 2017		210		$	3.41	5.5	$	—



		Number of Warrants (000's)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in 000's)
Outstanding, December 31, 2016		1,887		$	3.58	4.1	$	11
	Granted	—		$	—
	Forfeited	(100	)	$	4.49
	Expired	—		$	—
Outstanding, September 30, 2017		1,787		$	3.53	3.1	$	—
Vested, September 30, 2017		1,695		$	3.49	2.9	$	—



		Number of Shares (000's)		Weighted Avg. Grant Date Fair Value
Unvested, December 31, 2016		404		$	2.84
	Granted	23		$	1.07
	Vested	(78	)	$	3.21
	Forfeited	(70	)	$	4.29
Unvested, September 30, 2017		279		$	2.22



	Owned		Leased		Managed for Third Parties		Total
	Facilities	Beds/Units	Facilities	Beds/Units	Facilities	Beds/Units	Facilities	Beds/Units
State
Alabama	3	410	—	—	—	—	3	410
Georgia	4	463	10	1,168	—	—	14	1,631
North Carolina	1	106	—	—	—	—	1	106
Ohio	4	279	1	94	3	332	8	705
Oklahoma	2	197	—	—	—	—	2	197
South Carolina	2	180	—	—	—	—	2	180
Total	16	1,635	11	1,262	3	332	30	3,229
Facility Type
Skilled Nursing	14	1,449	11	1,262	2	249	27	2,960
Assisted Living	2	186	—	—	—	—	2	186
Independent Living	—	—	—	—	1	83	1	83
Total	16	1,635	11	1,262	3	332	30	3,229



Operator Affiliation	Number of Facilities ⁽¹⁾	Beds / Units
C.R. Management	8	936
Beacon Health Management	7	585
Wellington Health Services	4	641
Peach Health Group	3	252
Symmetry Healthcare	3	286
Southwest LTC	2	197
Subtotal	27	2,897
Regional Health Managed	3	332
Total	30	3,229



		Operational Beds			Annual Lease Revenue⁽¹⁾
	Number of Facilities	Amount	Percent (%)		Amount ($) '000's	Percent (%)
2024	1	126	4.3	%	965	4.0	%
2025	12	1,206	41.7	%	9,671	40.2	%
2026	—	—	—	%	—	—	%
2027	8	869	30.0	%	8,265	34.4	%
Thereafter	6	696	24.0	%	5,129	21.4	%
Total	27	2,897	100.0	%	24,030	100.0	%