UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011March 31, 2012
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-33135
AdCare Health Systems, Inc.
(Exact name of registrant as specified in its charter)
Ohio |
| 31-1332119 |
(State or Other Jurisdiction of Incorporation) |
| (IRS Employer Identification Number) |
5057 Troy Rd, Springfield, OH 45502-9032
(Address of principal executive offices)
(937) 964-8974
(Registrant’s telephone number)
NA
(Former name, former address, or former fiscal year, if changed since last report)
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 x 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 (§(section 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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,”filer”, “accelerated filer” and or “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
| Accelerated filer o |
|
|
|
Non-accelerated filer o |
| Smaller reporting company x |
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of SeptemberApril 30, 2011: 12,169,8522012: 13,320,013 shares of common stock with no par value were outstandingoutstanding.
AdCare Health Systems, Inc.
Form 10-Q
|
| Page |
3 | ||
| 3 | |
| 4 | |
| 5 | |
| 6 | |
| 7 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |
26 | ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
|
|
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
(Amounts in 000s)
|
| September 30, |
| December 31, |
| ||
|
| 2011 |
| 2010 |
| ||
|
| (Unaudited) |
|
|
| ||
ASSETS |
|
|
|
|
| ||
Current Assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 10,049,883 |
| $ | 3,911,140 |
|
Restricted cash and cash equivalents |
| 3,313,000 |
| 1,047,454 |
| ||
Accounts receivable: |
|
|
|
|
| ||
Long-term care resident receivables, net |
| 18,708,063 |
| 10,943,963 |
| ||
Management receivables, net |
| 189,534 |
| 271,224 |
| ||
Prepaid expenses and other |
| 1,312,394 |
| 1,243,663 |
| ||
Total current assets |
| 33,572,874 |
| 17,417,444 |
| ||
|
|
|
|
|
| ||
Restricted cash and investments |
| 4,455,568 |
| 3,099,936 |
| ||
Property and equipment, net |
| 83,802,347 |
| 37,606,301 |
| ||
Intangibles, net |
| 26,336,253 |
| 16,159,845 |
| ||
Goodwill |
| 2,679,482 |
| 2,679,482 |
| ||
Escrow deposits for acquisitions |
| 700,000 |
| 1,725,086 |
| ||
Lease deposits |
| 2,193,442 |
| 1,670,282 |
| ||
Other assets |
| 4,545,571 |
| 2,600,530 |
| ||
Total assets |
| $ | 158,285,537 |
| $ | 82,958,906 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
| ||
Current portion of notes payable and other debt |
| $ | 11,078,424 |
| $ | 3,633,401 |
|
Accounts payable |
| 10,094,939 |
| 3,411,772 |
| ||
Accrued expenses |
| 11,798,044 |
| 9,664,325 |
| ||
Total current liabilities |
| 32,971,407 |
| 16,709,498 |
| ||
|
|
|
|
|
| ||
Notes payable and other debt, net of current portion |
| 101,148,162 |
| 47,210,995 |
| ||
Derivative liability |
| 2,057,152 |
| 2,905,750 |
| ||
Other liabilities |
| 1,641,269 |
| 1,267,429 |
| ||
Deferred tax liability |
| 491,294 |
| 255,141 |
| ||
Total liabilities |
| 138,309,284 |
| 68,348,813 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies (Note 4) |
| — |
| — |
| ||
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
| ||
Preferred stock, no par value; 1,000,000 shares authorized; no shares issued or outstanding |
| — |
| — |
| ||
Common stock and additional paid-in capital, no par value; 29,000,000 shares authorized; 12,169,852 and 8,766,657 shares issued and outstanding |
| 34,701,655 |
| 26,611,870 |
| ||
Accumulated deficit |
| (14,183,047 | ) | (12,548,870 | ) | ||
Total stockholders’ equity |
| 20,518,608 |
| 14,063,000 |
| ||
Noncontrolling interest in subsidiaries |
| (542,355 | ) | 547,093 |
| ||
Total equity |
| 19,976,253 |
| 14,610,093 |
| ||
Total liabilities and stockholders’ equity |
| $ | 158,285,537 |
| $ | 82,958,906 |
|
|
| March 31, |
| December 31, |
| ||
|
| 2012 |
| 2011 |
| ||
|
| (Unaudited) |
|
|
| ||
ASSETS |
|
|
|
|
| ||
Current Assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 11,328 |
| $ | 7,364 |
|
Restricted cash and cash equivalents |
| 1,208 |
| 1,883 |
| ||
Accounts receivable, net of allowance of $1,974 and $1,346 |
| 21,396 |
| 18,759 |
| ||
Prepaid expenses and other |
| 1,038 |
| 663 |
| ||
Assets of disposal group held for sale |
| 42 |
| 47 |
| ||
Total current assets |
| 35,012 |
| 28,716 |
| ||
|
|
|
|
|
| ||
Restricted cash and investments |
| 4,980 |
| 4,870 |
| ||
Property and equipment, net |
| 115,659 |
| 105,143 |
| ||
Intangible assets — bed licenses |
| 2,464 |
| 1,189 |
| ||
Intangible assets — lease rights, net |
| 8,193 |
| 8,460 |
| ||
Goodwill |
| 906 |
| 906 |
| ||
Escrow deposits for acquisitions |
| 3,604 |
| 3,172 |
| ||
Lease deposits |
| 1,686 |
| 1,685 |
| ||
Deferred loan costs, net |
| 4,826 |
| 4,818 |
| ||
Other assets |
| 74 |
| 122 |
| ||
Total assets |
| $ | 177,404 |
| $ | 159,081 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
| ||
Current portion of notes payable and other debt |
| $ | 7,655 |
| $ | 4,567 |
|
Revolving credit facilities and lines of credit |
| 8,095 |
| 7,343 |
| ||
Accounts payable |
| 14,655 |
| 12,075 |
| ||
Accrued expenses |
| 10,952 |
| 9,858 |
| ||
Liabilities of disposal group held for sale |
| 192 |
| 240 |
| ||
Total current liabilities |
| 41,549 |
| 34,083 |
| ||
|
|
|
|
|
| ||
Notes payable and other debt, net of current portion: |
|
|
|
|
| ||
Senior debt, net of discounts |
| 97,163 |
| 87,771 |
| ||
Convertible debt, net of discounts |
| 14,824 |
| 14,614 |
| ||
Revolving credit facilities |
| — |
| 1,308 |
| ||
Other debt |
| 1,150 |
| 1,400 |
| ||
Derivative liability |
| 1,479 |
| 1,889 |
| ||
Other liabilities |
| 2,119 |
| 2,437 |
| ||
Deferred tax liability |
| 67 |
| 86 |
| ||
Total liabilities |
| 158,351 |
| 143,588 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies (Note 14) |
| — |
| — |
| ||
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
| ||
Preferred stock, no par value; 1,000 shares authorized; no shares issued or outstanding |
| — |
| — |
| ||
Common stock and additional paid-in capital, no par value; 29,000 shares authorized; 13,308 and 12,193 shares issued and outstanding |
| 39,068 |
| 35,047 |
| ||
Accumulated deficit |
| (18,919 | ) | (18,713 | ) | ||
Total stockholders’ equity |
| 20,149 |
| 16,334 |
| ||
Noncontrolling interest in subsidiaries |
| (1,096 | ) | (841 | ) | ||
Total equity |
| 19,053 |
| 15,493 |
| ||
Total liabilities and stockholders’ equity |
| $ | 177,404 |
| $ | 159,081 |
|
See notes to consolidated financial statements
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000s, except per share data)
(Unaudited)
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
| ||||
Patient care revenues |
| $ | 40,543,732 |
| $ | 12,741,701 |
| $ | 105,879,393 |
| $ | 24,308,760 |
|
Management revenues |
| 328,731 |
| 532,985 |
| 1,312,254 |
| 1,564,657 |
| ||||
Total revenues |
| 40,872,463 |
| 13,274,686 |
| 107,191,647 |
| 25,873,417 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Expenses: |
|
|
|
|
|
|
|
|
| ||||
Payroll and related payroll costs |
| 21,963,988 |
| 8,243,065 |
| 59,182,571 |
| 16,269,039 |
| ||||
Other operating expenses |
| 14,372,765 |
| 4,618,960 |
| 36,547,834 |
| 8,810,591 |
| ||||
Lease expense |
| 1,981,332 |
| 869,400 |
| 5,830,923 |
| 1,158,933 |
| ||||
Depreciation and amortization |
| 840,116 |
| 303,190 |
| 2,201,083 |
| 779,164 |
| ||||
Salary retirement and continuation costs |
| — |
| — |
| 621,605 |
| — |
| ||||
Total expenses |
| 39,158,201 |
| 14,034,615 |
| 104,384,016 |
| 27,017,727 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income (Loss) from Operations |
| 1,714,262 |
| (759,929 | ) | 2,807,631 |
| (1,144,310 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Other Income (Expense): |
|
|
|
|
|
|
|
|
| ||||
Interest expense, net |
| (2,230,211 | ) | (420,448 | ) | (5,524,682 | ) | (1,005,908 | ) | ||||
Acquisition costs, net of gains |
| (1,146,651 | ) | (402,850 | ) | (789,432 | ) | 1,226,854 |
| ||||
Derivative gain |
| 4,744,694 |
| — |
| 806,657 |
| — |
| ||||
Loss on extinguishment of debt |
| (58,440 | ) | — |
| (135,840 | ) | — |
| ||||
Other income (expense) |
| (28,846 | ) | (49,795 | ) | 558,101 |
| (79,352 | ) | ||||
Total other income (expense) |
| 1,280,546 |
| (873,093 | ) | (5,085,196 | ) | 141,594 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income (Loss) Before Income Taxes |
| 2,994,808 |
| (1,633,022 | ) | (2,277,565 | ) | (1,002,716 | ) | ||||
Income Tax Expense |
| (214,424 | ) | (10,641 | ) | (446,060 | ) | (31,925 | ) | ||||
Net Income (Loss) |
| 2,780,384 |
| (1,643,663 | ) | (2,723,625 | ) | (1,034,641 | ) | ||||
Net Loss (Income) Attributable to Noncontrolling Interests |
| 747,605 |
| 143,899 |
| 1,089,448 |
| (665,663 | ) | ||||
Net Income (Loss) Attributable to AdCare Health Systems |
| $ | 3,527,989 |
| $ | (1,499,764 | ) | $ | (1,634,177 | ) | $ | (1,700,304 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Net Income (Loss) Per Share, Basic |
| $ | 0.33 |
| $ | (0.18 | ) | $ | (0.17 | ) | $ | (0.25 | ) |
Net Income (Loss) Per Share, Diluted |
| $ | 0.29 |
| $ | (0.18 | ) | $ | (0.17 | ) | $ | (0.25 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Weighted Average Common Shares Outstanding, |
|
|
|
|
|
|
|
|
| ||||
Basic |
| 10,738,093 |
| 8,321,768 |
| 9,450,507 |
| 6,754,786 |
| ||||
Diluted |
| 12,689,231 |
| 8,321,768 |
| 9,450,507 |
| 6,754,786 |
|
|
| Three Months Ended March 31, |
| ||||
|
| 2012 |
| 2011 |
| ||
Revenues: |
|
|
|
|
| ||
Patient care revenues |
| $ | 49,808 |
| $ | 30,532 |
|
Management revenues |
| 363 |
| 498 |
| ||
Total revenues |
| 50,171 |
| 31,030 |
| ||
|
|
|
|
|
| ||
Expenses: |
|
|
|
|
| ||
Cost of services (exclusive of facility rent, depreciation and amortization) |
| 40,123 |
| 25,175 |
| ||
General and administrative |
| 3,931 |
| 2,924 |
| ||
Facility rent expense |
| 2,065 |
| 1,903 |
| ||
Depreciation and amortization |
| 1,497 |
| 647 |
| ||
Total expenses |
| 47,616 |
| 30,649 |
| ||
|
|
|
|
|
| ||
Income from Operations |
| 2,555 |
| 381 |
| ||
|
|
|
|
|
| ||
Other Income (Expense): |
|
|
|
|
| ||
Interest expense, net |
| (2,954 | ) | (1,436 | ) | ||
Acquisition costs, net of gains |
| (293 | ) | 979 |
| ||
Derivative gain (loss) |
| 410 |
| (1,350 | ) | ||
Other (expense) income |
| (16 | ) | 606 |
| ||
Total other expense, net |
| (2,853 | ) | (1,201 | ) | ||
|
|
|
|
|
| ||
Loss from Continuing Operations Before Income Taxes |
| (298 | ) | (820 | ) | ||
Income Tax Expense |
| (54 | ) | (86 | ) | ||
Loss from Continuing Operations |
| (352 | ) | (906 | ) | ||
Loss from Discontinued Operations |
| (109 | ) | (35 | ) | ||
Net Loss |
| (461 | ) | (941 | ) | ||
Net Loss Attributable to Noncontrolling Interests |
| 255 |
| 176 |
| ||
Net Loss Attributable to AdCare Health Systems |
| $ | (206 | ) | $ | (765 | ) |
|
|
|
|
|
| ||
Net Loss per Common Share — Basic: |
|
|
|
|
| ||
Continuing Operations |
| $ | (0.01 | ) | $ | (0.08 | ) |
Discontinued Operations |
| (0.01 | ) | (0.01 | ) | ||
|
| $ | (0.02 | ) | $ | (0.09 | ) |
Net Loss per Common Share — Diluted: |
|
|
|
|
| ||
Continuing Operations |
| $ | (0.01 | ) | $ | (0.08 | ) |
Discontinued Operations |
| (0.01 | ) | (0.01 | ) | ||
|
| $ | (0.02 | ) | $ | (0.09 | ) |
|
|
|
|
|
| ||
Weighted Average Common Shares Outstanding: |
|
|
|
|
| ||
Basic |
| 12,204 |
| 8,767 |
| ||
Diluted |
| 12,204 |
| 8,767 |
|
See notes to consolidated financial statements
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in 000s)
(Unaudited)
|
| Common Stock |
| Common |
| Accumulated |
| Noncontrolling |
| Total |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, January 1, 2012 |
| 12,193 |
| $ | 35,047 |
| $ | (18,713 | ) | $ | (841 | ) | $ | 15,493 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Nonemployee warrants for services |
| — |
| 191 |
| — |
| — |
| 191 |
| ||||
Stock based compensation expense |
| — |
| 165 |
| — |
| — |
| 165 |
| ||||
Public stock offering, net |
| 1,100 |
| 3,642 |
| — |
| — |
| 3,642 |
| ||||
Exercises of options and warrants |
| 15 |
| 23 |
| — |
| — |
| 23 |
| ||||
Net loss |
| — |
| — |
| (206 | ) | (255 | ) | (461 | ) | ||||
Balance, March 31, 2012 |
| 13,308 |
| $ | 39,068 |
| $ | (18,919 | ) | $ | (1,096 | ) | $ | 19,053 |
|
See notes to consolidated financial statements
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000s)
(Unaudited)
|
| Nine Months Ended |
|
| Three Months Ended March 31, |
| ||||||||
|
| 2011 |
| 2010 |
|
| 2012 |
| 2011 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
| $ | (2,723,625 | ) | $ | (1,034,641 | ) | |||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
| |||||||||
Net Loss |
| $ | (461 | ) | $ | (941 | ) | |||||||
Net Loss from discontinued operations |
| 109 |
| 35 |
| |||||||||
Net Loss from continuing operations |
| (352 | ) | (906 | ) | |||||||||
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities: |
|
|
|
|
| |||||||||
Depreciation and amortization |
| 2,201,082 |
| 779,164 |
|
| 1,497 |
| 646 |
| ||||
Warrants issued for services |
| 162,496 |
| 9,626 |
|
| — |
| 32 |
| ||||
Stock based compensation expense |
| 578,969 |
| 637,705 |
|
| 165 |
| 358 |
| ||||
Provision for leases in excess of cash |
| 558,069 |
| — |
|
| 157 |
| 193 |
| ||||
Amortization of deferred financing costs |
| 599,318 |
| 37,674 |
|
| 381 |
| 132 |
| ||||
Amortization of debt discounts |
| 663,279 |
| — |
|
| 213 |
| 216 |
| ||||
Derivative gain |
| (806,657 | ) | — |
| |||||||||
Loss on debt extinguishment |
| 135,840 |
| — |
| |||||||||
Deferred tax expense |
| 236,153 |
| 31,925 |
| |||||||||
Loss on disposal of assets |
| 126,015 |
| 1,303 |
| |||||||||
Derivative (gain) loss |
| (410 | ) | 1,350 |
| |||||||||
Deferred tax (benefit) expense |
| (19 | ) | 45 |
| |||||||||
(Gain) loss on disposal of assets |
| (2 | ) | 21 |
| |||||||||
Gain on acquisitions |
| (1,104,486 | ) | (1,805,740 | ) |
| — |
| (1,104 | ) | ||||
Noncash acquisition costs |
| 206,394 |
| 171,961 |
| |||||||||
Provision for bad debts |
| 585,404 |
| 17,806 |
|
| 615 |
| 102 |
| ||||
Other noncash items |
| 58,638 |
| — |
|
| 16 |
| 24 |
| ||||
Changes in certain assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable |
| (8,267,814 | ) | (1,451,473 | ) |
| (3,151 | ) | (2,587 | ) | ||||
Prepaid expenses and other |
| (166,147 | ) | (173,162 | ) |
| (373 | ) | (487 | ) | ||||
Other assets |
| (524,813 | ) | (806,378 | ) |
| (22 | ) | (128 | ) | ||||
Accounts payable and accrued expenses |
| 8,775,946 |
| 2,591,366 |
|
| 3,351 |
| 2,716 |
| ||||
Other liabilities |
| (264,458 | ) | (95,504 | ) | |||||||||
Net cash provided by (used in) operating activities |
| 1,029,603 |
| (1,088,368 | ) | |||||||||
Net cash provided by operating activities — continuing operations |
| 2,066 |
| 623 |
| |||||||||
Net cash (used in) provided by operating activities — discontinued operations |
| (204 | ) | 160 |
| |||||||||
Net cash provided by operating activities |
| 1,862 |
| 783 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
| ||||
Proceeds from property and equipment |
| 3 |
| — |
| |||||||||
Change in restricted cash and investments |
| 546,222 |
| 158,716 |
|
| 637 |
| 573 |
| ||||
Escrow deposits for acquisitions |
| (990,000 | ) | (2,735,301 | ) | |||||||||
Acquisitions |
| (10,059,914 | ) | (3,730,747 | ) |
| (3,130 | ) | (650 | ) | ||||
Purchase of property and equipment |
| (2,732,034 | ) | (692,492 | ) |
| (522 | ) | (468 | ) | ||||
Net cash used in investing activities — continuing operations |
| (3,012 | ) | (545 | ) | |||||||||
Net cash used in investing activities — discontinued operations |
| — |
| — |
| |||||||||
Net cash used in investing activities |
| (13,235,726 | ) | (6,999,824 | ) |
| (3,012 | ) | (545 | ) | ||||
|
|
|
|
|
| |||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
| ||||
Proceeds from debt |
| 7,312,954 |
| 3,096,015 |
|
| 3,523 |
| 3,193 |
| ||||
Proceeds from exercise of warrants/options |
| 6,797,758 |
| 331,100 |
| |||||||||
Debt issuance costs |
| (388,389 | ) | — |
|
| — |
| (123 | ) | ||||
Change in line of credit |
| 5,770,283 |
| — |
|
| (556 | ) | 3,013 |
| ||||
Proceed from public stock offering |
| — |
| 6,109,725 |
| |||||||||
Exercise of warrants and options |
| 23 |
| — |
| |||||||||
Proceeds from stock issuances, net |
| 3,642 |
| — |
| |||||||||
Repayment of notes payable |
| (1,147,740 | ) | (475,034 | ) |
| (1,470 | ) | (482 | ) | ||||
Net cash provided by financing activities — continuing operations |
| 5,162 |
| 5,601 |
| |||||||||
Net cash used in financing activities — discontinued operations |
| (48 | ) | (46 | ) | |||||||||
Net cash provided by financing activities |
| 18,344,866 |
| 9,061,806 |
|
| 5,114 |
| 5,555 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Net Change in Cash |
| 6,138,743 |
| 973,614 |
|
| 3,964 |
| 5,793 |
| ||||
Cash, Beginning |
| 3,911,140 |
| 4,481,100 |
|
| 7,364 |
| 3,911 |
| ||||
Cash, Ending |
| $ | 10,049,883 |
| $ | 5,454,714 |
|
| $ | 11,328 |
| $ | 9,704 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
| ||||
Cash paid during the period for income taxes |
| $ | 197,000 |
| — |
| ||||||||
Cash paid during the period for interest |
| $ | 4,246,116 |
| $ | 997,343 |
| |||||||
Supplemental Disclosure of Noncash Activities: |
|
|
|
|
| |||||||||
Noncash change in fair value of PP&E from acquisition |
| $ | — |
| $ | 750,287 |
| |||||||
Acquisitions in exchange for debt |
| 48,825,540 |
| 6,365,000 |
| |||||||||
Cash paid during the period for: |
|
|
|
|
| |||||||||
Interest |
| $ | 2,238 |
| $ | 1,017 |
| |||||||
Income Taxes |
| $ | 13 |
| $ | — |
| |||||||
Supplemental Disclosure of Non-cash Activities: |
|
|
|
|
| |||||||||
Acquisitions in exchange for debt and equity instruments |
| $ | 9,800 |
| $ | 4,945 |
| |||||||
Warrants issued for financings costs |
| 329,901 |
| — |
|
| $ | 191 |
| $ | 330 |
| ||
Other assets acquired in exchange for debt |
| 5,062,656 |
| — |
| |||||||||
Noncash debt issuance costs |
| $ | 164 |
| $ | 361 |
|
See notes to consolidated financial statements.
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
|
|
|
| Common Stock |
|
|
| ||||
|
|
|
| Accumulated |
| and Additional |
| Noncontrolling |
| ||||
|
| Total |
| Deficit |
| Paid-in Capital |
| Interest |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Balance, January 1, 2011 |
| $ | 14,610,093 |
| $ | (12,548,870 | ) | $ | 26,611,870 |
| $ | 547,093 |
|
|
|
|
|
|
|
|
|
|
| ||||
Nonemployee warrants for services |
| 394,981 |
| — |
| 394,981 |
| — |
| ||||
Nonemployee stock issuance for services |
| 206,394 |
| — |
| 206,394 |
| — |
| ||||
Stock based compensation expense |
| 578,969 |
| — |
| 578,969 |
| — |
| ||||
Exercises of options and warrants |
| 6,797,757 |
| — |
| 6,797,757 |
| — |
| ||||
Stock issued from debt conversion |
| 111,684 |
|
|
| 111,684 |
|
|
| ||||
Net loss |
| (2,723,625 | ) | (1,634,177 | ) | — |
| (1,089,448 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Balance, September 30, 2011 |
| $ | 19,976,253 |
| $ | (14,183,047 | ) | $ | 34,701,655 |
| $ | (542,355 | ) |
See notes to consolidated financial statements
ADCAREADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Unaudited)
NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States. These statements include the accounts of AdCare Health Systems, Inc. (“AdCare”) and its controlled subsidiaries (collectively, the “Company” or “we”). Controlled subsidiaries include AdCare’s majority owned subsidiaries and variable interest entities in which we haveAdCare has control as the primary beneficiary. The Company delivers skilled nursing, assisted living and home health services.services through wholly owned separate operating subsidiaries. All inter-company accounts and transactions were eliminated in the consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete annual financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20102011 (the “Annual Report”). In the opinion of the Company’s management, all adjustments considered for a fair presentation are included and are of a normal recurring nature. Operating results for the ninethree months ended September 30, 2011March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.2012. Certain prior year amounts have been reclassified to conform to the current year presentation.
Earnings per Share
Basic earnings per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is similar to basic earnings per share except net income or loss is adjusted by the impact of the assumed issuance of common shares upon conversion of convertible sharessecurities and the weighted-average number of common shares outstanding includes potentially dilutive securities, such as options, warrants, non-vested shares, and additional shares issuable under convertible notes outstanding during the period when such potentially dilutive securities are not anti-dilutive. Potentially dilutive securities from option, warrants and non-vested 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 ninethree months ending September 30,ended March 31, 2012 and 2011, anddue to the three and nine monthnet loss for both periods, ending September 30, 2010, no potentially dilutive securities were included in the diluted earnings per share calculation because to do so would be anti-dilutive. The following table provides a reconciliation of net income (loss) and the number of common shares used in the computation of diluted earnings per share:
|
| Three Months Ended September 30, |
| ||||||||||||||
|
| 2011 |
| 2010 |
| ||||||||||||
|
| Income |
| Shares (1) |
| Per |
| Income |
| Shares |
| Per Share |
| ||||
Net income (loss) attributable to AdCare Health Systems |
| $ | 3,527,989 |
| 10,738,093 |
| $ | 0.33 |
| $ | (1,499,764 | ) | 8,321,768 |
| $ | (0.18 | ) |
Effect from options, warrants and non-vested shares |
| — |
| 1,057,905 |
|
|
| — |
| — |
|
|
| ||||
Effect from assumed issuance of convertible shares (2) |
| 159,309 |
| 893,233 |
|
|
| — |
| — |
|
|
| ||||
Diluted net income (loss) |
| $ | 3,687,298 |
| 12,689,231 |
| $ | 0.29 |
| $ | (1,499,764 | ) | 8,321,768 |
| $ | (0.18 | ) |
Earnings per Share (continued)
|
| Nine Months Ended September 30, |
| ||||||||||||||
|
| 2011 |
| 2010 |
| ||||||||||||
|
| Income |
| Shares |
| Per |
| Income |
| Shares |
| Per Share |
| ||||
Net income (loss) attributable to AdCare Health Systems |
| $ | (1,634,177 | ) | 9,450,507 |
| $ | (0.17 | ) | $ | (1,700,304 | ) | 6,754,786 |
| $ | (0.25 | ) |
Effect from options, warrants and non-vested shares |
| — |
| — |
|
|
| — |
| — |
|
|
| ||||
Effect from assumed issuance of convertible shares |
| — |
| — |
|
|
| — |
| — |
|
|
| ||||
Diluted net income (loss) |
| $ | (1,634,177 | ) | 9,450,507 |
| $ | (0.17 | ) | $ | (1,700,304 | ) | 6,754,786 |
| $ | (0.25 | ) |
(1) - The weighted average shares outstanding includes retroactive adjustments from the stock dividend (see Note 13).
(2) - The impacts of the conversion of the 2010 convertible note were excluded as the impact would be anti-dilutive.
Intangible Assets and Goodwill
There have been no required impairment adjustments to intangible assets and goodwill during the ninethree months ended September 30, 2011March 31, 2012 and 2010.2011.
Intangible assets consist of the following:
|
| September 30, 2011 |
| December 31, 2010 |
| ||||||||||||||
|
| Gross |
|
|
| Net |
| Gross |
|
|
| Net |
| ||||||
|
| Carrying |
| Accumulated |
| Carrying |
| Carrying |
| Accumulated |
| Carrying |
| ||||||
|
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount |
| ||||||
Bed Licenses |
| $ | 18,149,307 |
| $ | — |
| $ | 18,149,307 |
| $ | 7,309,307 |
| $ | — |
| $ | 7,309,307 |
|
Lease Rights |
| 9,020,018 |
| (833,072 | ) | 8,186,946 |
| 9,020,018 |
| (169,480 | ) | 8,850,538 |
| ||||||
Totals |
| $ | 27,169,325 |
| $ | (833,072 | ) | $ | 26,336,253 |
| $ | 16,329,325 |
| $ | (169,480 | ) | $ | 16,159,845 |
|
Amortization expense was approximately $663,600 for the nine months ended September 30, 2011. Estimated amortization expense for each of the years ending December 31 is as follows:
2011 (remainder) |
| $ | 221,200 |
|
2012 |
| 884,800 |
| |
2013 |
| 884,800 |
| |
2014 |
| 884,800 |
| |
2015 |
| 884,800 |
| |
Thereafter |
| 4,426,546 |
| |
|
| $ | 8,186,946 |
|
|
| March 31, 2012 |
| December 31, 2011 |
| ||||||||||||||
|
| Gross |
|
|
| Net |
| Gross |
|
|
| Net |
| ||||||
|
| Carrying |
| Accumulated |
| Carrying |
| Carrying |
| Accumulated |
| Carrying |
| ||||||
Amounts in (000s) |
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount |
| ||||||
Lease Rights |
| $ | 9,545 |
| $ | 1,352 |
| $ | 8,193 |
| $ | 9,545 |
| $ | 1,085 |
| $ | 8,460 |
|
Bed Licenses (included in property and equipment) |
| 26,149 |
| 759 |
| 25,390 |
| 26,149 |
| 533 |
| 25,616 |
| ||||||
Bed Licenses - Separable |
| 2,464 |
| — |
| 2,464 |
| 1,189 |
| — |
| 1,189 |
| ||||||
Totals |
| $ | 38,158 |
| $ | 2,111 |
| $ | 36,047 |
| $ | 36,883 |
| $ | 1,618 |
| $ | 35,265 |
|
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
Intangible Assets and Goodwill(continued)
Recently IssuedAmortization expense was approximately $226,000 for bed licenses included in property and Adopted Accounting Pronouncementsequipment and $267,000 for lease rights for the three months ended March 31, 2012. Estimated amortization expense for each of the following years ending December 31 is as follows:
In July 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-07, which is included in the Codification under ASC 954, “Health Care Entities.” This ASU requires health care entities to separately present bad debt expense related to patient care revenue as a reduction of patient care revenue (net of contractual allowances and discounts) on the statement of operations for which the ultimate collection of all or a portion of the amounts billed or billable cannot be determined at the time services are rendered. This ASU also requires certain qualitative disclosures about the Company’s policy for recognizing revenue and bad debt expense for patient care services. This ASU will be applied retrospectively effective for interim and annual periods beginning after December 15, 2011. The Company is currently assessing the potential impact of the adoption but believes that the adoption will not have a material impact on the Company’s consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, (“ASU 2011-08”), which amends the guidance in ASC 350-20, Intangibles — Goodwill and Other. Under ASU 2011-08, entities have the option of performing a qualitative assessment before calculating the fair value of the reporting unit when testing goodwill for impairment. If the fair value of the reporting unit is determined, based on qualitative factors, to be more likely than not less than the carrying amount of the reporting unit, then entities are required to perform the two-step goodwill impairment test. ASU 2011-08 will be effective for the Company’s fiscal year beginning January 1, 2012, with early adoption permitted. Although ASU 2011-08 will change our accounting policy for our review for impairment, the adoption of this ASU will not impact the Company’s consolidated financial statements.
(Amounts in 000s) |
| Lease Rights |
| Bed Licenses |
| ||
2012 (remainder) |
| $ | 802 |
| $ | 679 |
|
2013 |
| 1,069 |
| 905 |
| ||
2014 |
| 1,010 |
| 905 |
| ||
2015 |
| 885 |
| 905 |
| ||
2016 |
| 885 |
| 905 |
| ||
Thereafter |
| 3,542 |
| 21,091 |
| ||
|
| $ | 8,193 |
| $ | 25,390 |
|
NOTE 2.LIQUIDITY AND PROFITABILITY
The Company had a net loss of approximately $2.7 million and $1.0 million$206,000 for the ninethree months ended September 30, 2011March 31, 2012, and 2010, respectively, and had negative working capital of approximately $601,000$6,537,000 at September 30, 2011.March 31, 2012. The Company’s ability to achieve sustained profitable operations is dependent on continued growth in revenuesrevenue and controlling operating costs.
Management’s plans to improvefor increasing liquidity and profitability in the future includeyears encompass the following:
· increase existing facility occupancy;refinancing debt where possible to obtain more favorable terms;
· acquire skilled nursing properties that have not traditionally concentrated on providing Medicare and post-acute services, and once acquired, to optimize patient care,increasing facility occupancy and quality mix; andimproving the occupancy mix by increasing Medicare patients;
· acquireacquiring additional long term care facilities with existing cash flowing operations to expand the Company’s operationsour operations; and branch out into other related areas of business.
·adding additional management contracts.
Management believes that the foregoing actions, that will beif taken by the Company, should provide the opportunity for the Company to improve liquidity and achieve profitability. However,profitability, however, there can beis no assurance that such eventsactions will occur. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
9NOTE 3. DISCONTINUED OPERATIONS
As part of the Company’s strategy to focus on the growth of its skilled nursing segment, the Company decided in the fourth quarter of 2011 to exit the home health segment of the business. This segment represents less than 2% of total revenues for the Company over the past year.
As a result of the decision to exit the home health business, the assets and liabilities that are expected to be sold are reflected as assets and liabilities held for sale and are comprised of the following:
(Amounts in 000s) |
| March 31, 2012 |
| December 31, 2011 |
| ||
Property and equipment, net |
| $ | 40 |
| $ | 45 |
|
Other assets |
| 2 |
| 2 |
| ||
Assets of disposal group held for sale |
| $ | 42 |
| $ | 47 |
|
|
|
|
|
|
| ||
Current portion of debt |
| $ | 192 |
| $ | 197 |
|
Notes payable |
| — |
| 43 |
| ||
Liabilities of disposal group held for sale |
| $ | 192 |
| $ | 240 |
|
NOTE 3.ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 4. SEGMENTS
The Company reports its operations in fourthree segments: skilled nursing facilitiesSkilled Nursing Facility (“SNF”), assisted living facilitiesAssisted Living Facility (“ALF”), home-based care (“Home Health”), and management/corporate (“Management/Corporate”).Corporate & Other. The SNF and ALF segments provide services to individuals needing long-term care in a nursing home or assisted living setting and management of those facilities. The Home Health segment provides home health care services to patients while they are living in their own homes. The Management/Corporate & Other segment engages in the management of facilities and accounting and IT services. We evaluate financial performance and allocate resources primarily based onupon segment operating income (loss). Segment operating results excludes interest expense and other non-operating income and expenses. The table below contains our segment information for the three and nine months ended September 30, 2011March 31, 2012 and 2010.2011.
Amounts in 000’s
|
| SNF |
| ALF |
| Home |
| Management |
| Eliminations |
| Total |
| ||||||
Three months ended September 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net Revenues |
| $ | 38,174 |
| $ | 2,519 |
| $ | 351 |
| $ | 2,348 |
| $ | (2,520 | ) | $ | 40,872 |
|
Payroll and Related Costs |
| 18,459 |
| 1,134 |
| 356 |
| 2,071 |
| (56 | ) | 21,964 |
| ||||||
Other Operating Expenses |
| 14,373 |
| 751 |
| 141 |
| 1,173 |
| (2,065 | ) | 14,373 |
| ||||||
Lease Expense |
| 2,372 |
| 56 |
| 10 |
| 45 |
| (502 | ) | 1,981 |
| ||||||
Depreciation & Amortization |
| 632 |
| 158 |
| 4 |
| 46 |
| — |
| 840 |
| ||||||
Salary Continuation Costs |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||
Operating Income (Loss) |
| $ | 2,338 |
| $ | 420 |
| $ | (160 | ) | $ | (987 | ) | $ | 103 |
| $ | 1,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Three months ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net Revenues |
| $ | 9,942 |
| $ | 2,231 |
| $ | 568 |
| $ | 1,552 |
| $ | (1,018 | ) | $ | 13,275 |
|
Payroll and Related Costs |
| 5,566 |
| 1,151 |
| 479 |
| 1,380 |
| (333 | ) | 8,243 |
| ||||||
Other Operating Expenses |
| 2,990 |
| 1,136 |
| 113 |
| 1,065 |
| (685 | ) | 4,619 |
| ||||||
Lease Expense |
| 870 |
| — |
| — |
| — |
| — |
| 870 |
| ||||||
Depreciation & Amortization |
| 102 |
| 161 |
| 5 |
| 35 |
|
|
| 303 |
| ||||||
Salary Continuation Costs |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||
Operating Income (Loss) |
| $ | 414 |
| $ | (217 | ) | $ | (29 | ) | $ | (928 | ) | — |
| $ | (760 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Nine months ended September 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net Revenues |
| $ | 98,028 |
| $ | 7,382 |
| $ | 1,283 |
| $ | 7,646 |
| $ | (7,147 | ) | $ | 107,192 |
|
Payroll and Related Costs |
| 49,395 |
| 3,405 |
| 1,119 |
| 6,312 |
| (1,049 | ) | 59,182 |
| ||||||
Other Operating Expenses |
| 36,099 |
| 2,335 |
| 442 |
| 3,059 |
| (5,387 | ) | 36,548 |
| ||||||
Lease Expense |
| 6,358 |
| 167 |
| 30 |
| 90 |
| (814 | ) | 5,831 |
| ||||||
Depreciation & Amortization |
| 1,595 |
| 471 |
| 13 |
| 122 |
| — |
| 2,201 |
| ||||||
Salary Continuation Costs |
| — |
| — |
| — |
| 622 |
| — |
| 622 |
| ||||||
Operating Income (Loss) |
| $ | 4,581 |
| $ | 1,004 |
| $ | (321 | ) | $ | (2,559 | ) | $ | 103 |
| $ | 2,808 |
|
Total Assets |
| $ | 104,547 |
| $ | 21,113 |
| $ | 1,002 |
| $ | 31,624 |
| — |
| $ | 158,286 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Nine months ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net Revenues |
| $ | 16,480 |
| $ | 5,997 |
| $ | 1,832 |
| $ | 3,566 |
| $ | (2,002 | ) | $ | 25,873 |
|
Payroll and Related Costs |
| 8,984 |
| 2,989 |
| 1,455 |
| 3,631 |
| (790 | ) | 16,269 |
| ||||||
Other Operating Expenses |
| 4,842 |
| 3,008 |
| 359 |
| 1,813 |
| (1,212 | ) | 8,810 |
| ||||||
Lease Expense |
| 1,159 |
| — |
| — |
| — |
| — |
| 1,159 |
| ||||||
Depreciation & Amortization |
| 263 |
| 414 |
| 14 |
| 88 |
| — |
| 779 |
| ||||||
Salary Continuation Costs |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||
Operating Income (Loss) |
| $ | 1,232 |
| $ | (414 | ) | $ | 4 |
| $ | (1,966 | ) | — |
| $ | (1,144 | ) | |
Total Assets |
| $ | 15,195 |
| $ | 22,504 |
| $ | 2,392 |
| $ | 9,097 |
| — |
| $ | 49,188 |
|
|
|
|
|
|
| Corporate |
|
|
|
|
| |||||
(Amounts in 000s) |
| SNF |
| ALF |
| & Other |
| Eliminations |
| Total |
| |||||
Three months ended March 31, 2012 |
|
|
|
|
|
|
|
|
|
|
| |||||
Net Revenue |
| $ | 46,545 |
| $ | 3,261 |
| $ | 2,850 |
| $ | (2,485 | ) | $ | 50,171 |
|
Cost of services |
| 40,277 |
| 2,357 |
| (26 | ) | (2,485 | ) | 40,123 |
| |||||
General and Administrative |
| 36 |
| — |
| 3,895 |
| — |
| 3,931 |
| |||||
Facility rent expense |
| 2,026 |
| — |
| 39 |
| — |
| 2,065 |
| |||||
Depreciation and Amortization |
| 1,116 |
| 210 |
| 171 |
| — |
| 1,497 |
| |||||
Operating Income/(Loss) |
| $ | 3,090 |
| $ | 694 |
| $ | (1,229 | ) | $ | — |
| $ | 2,555 |
|
Total Assets |
| $ | 119,787 |
| $ | 27,359 |
| $ | 40,439 |
| $ | (10,181 | ) | $ | 177,404 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Three months ended March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
| |||||
Net Revenue |
| $ | 28,191 |
| $ | 2,341 |
| $ | 2,712 |
| $ | (2,214 | ) | $ | 31,030 |
|
Cost of services |
| 25,324 |
| 1,985 |
| 80 |
| (2,214 | ) | 25,175 |
| |||||
General and Administrative |
| — |
| — |
| 2,924 |
| — |
| 2,924 |
| |||||
Facility rent expense |
| 1,903 |
| — |
| — |
| — |
| 1,903 |
| |||||
Depreciation and Amortization |
| 459 |
| 152 |
| 36 |
| — |
| 647 |
| |||||
Operating Income/(Loss) |
| $ | 505 |
| $ | 204 |
| $ | (328 | ) | $ | — |
| $ | 381 |
|
Total Assets |
| $ | 63,810 |
| $ | 22,256 |
| $ | 12,169 |
| $ | — |
| $ | 98,235 |
|
NOTE 4. COMMITMENTS AND CONTINGENCIES
Legal Matters
The skilled nursing business involves a significant risk of liability due to the age and health of the Company’s patients and residents and the services the Company provides. The Company and others in the industry are subject to an increasing number of claims and lawsuits, including professional liability claims, which may allege that services have resulted in personal injury, elder abuse, wrongful death or other related claims. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards.
In addition to the potential lawsuits and claims described above, the Company is also subject to potential lawsuits under the Federal False Claims Act and comparable state laws alleging submission of fraudulent claims for services to any healthcare program (such as Medicare) or payer. A violation may provide the basis for exclusion from federally funded healthcare programs. As of September 30, 2011, the Company does not have any material loss contingencies recorded based on management’s evaluation of the probability of loss from known claims.
Special Termination Benefits
At June 30, 2011, the Company accrued certain salary retirement and continuation costs of $622,000 related to separation agreements with the Company’s former Chief Executive Officer and Chief Financial Officer. The benefits include wage continuation and fringe benefits which are to be paid out to these former employees over a 24-month period beginning June 30, 2011. The remaining accrued balance as of September 30, 2011 is $508,122.
NOTE 5. PROPERTY AND EQUIPMENT
|
| Estimated Useful |
| September 30, |
| December 31, |
| |||||||||||
(Amounts in 000s) |
| Estimated Useful |
| March 31, |
| December 31, |
| |||||||||||
Buildings and improvements |
| 5-40 |
| $ | 76,508,117 |
| $ | 33,748,211 |
|
| 5-40 |
| $ | 105,880 |
| $ | 96,065 |
|
Equipment |
| 2-10 |
| 6,294,503 |
| 4,444,077 |
|
| 2-10 |
| 8,401 |
| 7,108 |
| ||||
Land |
| — |
| 7,345,588 |
| 4,719,390 |
|
| — |
| 8,007 |
| 7,636 |
| ||||
Computer related |
| 2-10 |
| 2,464 |
| 2,414 |
| |||||||||||
Construction in process |
| — |
| 654,061 |
| 196,589 |
|
| — |
| 245 |
| 77 |
| ||||
|
|
|
| 90,802,269 |
| 43,108,267 |
|
|
|
| 124,997 |
| 113,300 |
| ||||
Less: accumulated depreciation |
|
|
| 6,999,922 |
| 5,501,966 |
| |||||||||||
Less: accumulated depreciation expense |
|
|
| 8,579 |
| 7,624 |
| |||||||||||
Less: accumulated amortization expense |
|
|
| 759 |
| 533 |
| |||||||||||
Property and equipment, net |
|
|
| $ | 83,802,347 |
| $ | 37,606,301 |
|
|
|
| $ | 115,659 |
| $ | 105,143 |
|
For the quarter ended March 31, 2012, depreciation and amortization expense was approximately $1,497,000.
NOTE 6:6. RESTRICTED CASH AND INVESTMENTS
|
| September 30, |
| December 31, |
| ||
HUD escrow deposits |
| $ | 260,745 |
| $ | 336,993 |
|
Funds held in trust for residents |
| 51,463 |
| 113,835 |
| ||
Self-restricted cash |
| 792 |
| 596,626 |
| ||
Restricted accounts for other debt obligations |
| 3,000,000 |
| — |
| ||
Total current portion |
| 3,313,000 |
| 1,047,454 |
| ||
HUD and other reserves for capital improvements |
| 2,514,077 |
| 1,035,851 |
| ||
Restricted investments for other debt obligations |
| 1,941,491 |
| 2,064,085 |
| ||
Total noncurrent portion |
| 4,455,568 |
| 3,099,936 |
| ||
Total restricted cash and investments |
| $ | 7,768,568 |
| $ | 4,147,390 |
|
The following table sets forth the Company’s various restricted cash, escrow deposits and investments:
|
| March 31, |
| December 31, |
| ||
(Amounts in 000s) |
| 2012 |
| 2011 |
| ||
HUD escrow deposits |
| $ | 172 |
| $ | 326 |
|
Funds held in trust for residents |
| 24 |
| 45 |
| ||
Refundable escrow deposit |
| — |
| 500 |
| ||
Collateral certificates of deposit |
| 1,012 |
| 1,012 |
| ||
Total current portion |
| 1,208 |
| 1,883 |
| ||
|
|
|
|
|
| ||
HUD reserve replacement |
| 1,143 |
| 1,130 |
| ||
Reserves for capital improvements |
| 1,836 |
| 1,767 |
| ||
Restricted investments for other debt obligations |
| 2,001 |
| 1,973 |
| ||
Total noncurrent portion |
| 4,980 |
| 4,870 |
| ||
|
|
|
|
|
| ||
Total restricted cash and investments |
| $ | 6,188 |
| $ | 6,753 |
|
During 2011,Refundable escrow deposits — In March 2012, the Company terminated an agreement to acquire or lease 15 skilled nursing facilities and, as a result of such termination, the deposit was required to maintain new restricted cash and investment accounts because of new debt financing agreements (see Note 8).
NOTE 7. ACCRUED EXPENSES
|
| September 30, |
| December 31, |
| ||
Accrued payroll related expenses |
| $ | 3,899,117 |
| $ | 3,386,110 |
|
Accrued employee benefits |
| 2,816,578 |
| 1,405,384 |
| ||
Real estate and other taxes |
| 1,434,659 |
| 760,999 |
| ||
Third party overpayments and accrued cost report settlements |
| 53,763 |
| 943,335 |
| ||
Other accrued expenses |
| 3,593,927 |
| 3,168,497 |
| ||
Accrued expenses |
| $ | 11,798,044 |
| $ | 9,664,325 |
|
Accrued expenses consist of the following:
|
| March 31, |
| December 31, |
| ||
(Amounts in 000s) |
| 2012 |
| 2011 |
| ||
Accrued Payroll Related |
| $ | 5,241 |
| $ | 5,040 |
|
Accrued Employee Benefits |
| 2,507 |
| 2,023 |
| ||
Real Estate and Other Taxes |
| 1,485 |
| 982 |
| ||
Other Accrued Expenses |
| 1,719 |
| 1,813 |
| ||
|
| $ | 10,952 |
| $ | 9,858 |
|
NOTE 8. NOTES PAYABLE AND OTHER DEBT
|
| September 30, |
| December 31, |
| ||
Lines of credit |
| $ | 7,720,415 |
| $ | 1,950,132 |
|
Mortgage notes payable |
| 82,263,087 |
| 32,378,012 |
| ||
Convertible debt, net of discount |
| 14,466,781 |
| 9,379,761 |
| ||
Bonds payable, net of discount |
| 6,173,600 |
| 6,165,553 |
| ||
Other debt |
| 1,602,703 |
| 970,938 |
| ||
Total notes payable and other debt |
| 112,226,586 |
| 50,844,396 |
| ||
|
|
|
|
|
| ||
Less current portion |
| 11,078,424 |
| 3,633,401 |
| ||
Total notes payable and other debt, net of current portion |
| $ | 101,148,162 |
| $ | 47,210,995 |
|
LinesNotes payable and other debt consists of Creditthe following:
Gemino Healthcare Finance
On February 25, 2011, AdCare and five of its subsidiaries joined as additional borrowers under the Credit Agreement that was initially entered into on October 29, 2010, with Gemino Healthcare Finance, LLC (“Gemino”). The additional borrowers increased the amount of credit available to the Company and the maximum amount of the credit facility increased from $5,000,000 to $7,500,000. On April 26, 2011, the original terms of the Credit Agreement with Gemino were modified to reduce the maximum amount of the credit facility to $5,500,000 and a new $2,000,000 revolving note was issued under an affiliated credit agreement by adding two additional subsidiaries. On June 2, 2011, AdCare joined two additional subsidiaries as additional borrowers under the Credit Agreement with Gemino. The combined total maximum debt with Gemino remains at $7,500,000.
The Credit Agreement with Gemino contains various financial covenants and other restrictions, including a fixed charge coverage ratio and maximum loan turn days. The Company is required to maintain a fixed charge coverage ratio of 1.1:1, which was not met at September 30, 2011; therefore, the Company was not in compliance with this covenant. However, the Company received a waiver of compliance from Gemino on November 8, 2011.
Private Bank
On September 30, 2011, Benton Nursing, LLC, Park Heritage Nursing, LLC and Valley River Nursing, LLC, each wholly owned subsidiaries of AdCare, entered into a Loan and Security Agreement with Private Bank and Trust Company (“Private Bank”) in an aggregate principal amount of $2,000,000. The loan is revolving and will be used to fund the working capital requirements of the three facilities.
The loan matures on September 29, 2012. Interest accrues on the principal balance at an annual rate equal to the greater of: (i) the floating per annum rate of interest most recently announced by Private Bank as its prime plus one percent (1.0%); or (ii) six percent (6.0%). Interest on the loan is payable in equal monthly installments beginning on November 1, 2011, and continuing until maturity.
|
| March 31, |
| December 31, |
| ||
(Amounts in 000s) |
| 2012 |
| 2011 |
| ||
Revolving credit facilities and lines of credit |
| $ | 8,095 |
| $ | 8,651 |
|
Senior debt HUD |
| 15,869 |
| 15,738 |
| ||
Senior debt USDA |
| 38,529 |
| 38,717 |
| ||
Senior debt SBA |
| 5,040 |
| 5,087 |
| ||
Senior debt Bonds, net of discount |
| 6,179 |
| 6,176 |
| ||
Senior debt other mortgage indebtedness |
| 32,996 |
| 23,823 |
| ||
Other debt |
| 7,354 |
| 4,196 |
| ||
Convertible debt issued in 2010, net of discount |
| 10,316 |
| 10,105 |
| ||
Convertible debt issued in 2011 |
| 4,509 |
| 4,509 |
| ||
Total |
| 128,887 |
| 117,002 |
| ||
Less current portion |
| 15,750 |
| 11,909 |
| ||
Notes payable and other debt, net of current portion |
| $ | 113,137 |
| $ | 105,093 |
|
NOTE 8. NOTES PAYABLE AND OTHER DEBT (continued)(continued)
Pre-payment is permitted, if any such pre-payment includes the payment of all accrued and unpaid interest on the loan. The loan is secured by a first priority security interest on all assets of the borrowers, and the Company has guaranteed the loan.Scheduled Maturities
The agreement with Private Bank contains various financial covenantsfollowing is a summary of the scheduled maturities of indebtedness as of March 31, 2012 for each of the next five years and other restrictions, including a fixed charge coverage ratio and a minimum quarterly EBITDAR. The Company is required to maintain a fixed charge coverage ratio of 1.01:1, beginning in the fourth quarter.thereafter:
(Amounts in 000s) |
|
|
| |
2013 |
| $ | 15,750 |
|
2014 |
| 22,608 |
| |
2015 |
| 2,112 |
| |
2016 |
| 2,204 |
| |
2017 |
| 2,394 |
| |
Thereafter |
| 85,339 |
| |
|
| 130,407 |
| |
Less: unamortized discounts |
| (1,520 | ) | |
|
| $ | 128,887 |
|
Mortgage Notes
Mountain TraceHearth and Home of Vandalia
In February 2011,January 2012, the Company refinanced the Mountain TraceHearth and Home of Vandalia facility through the issuance of a mortgage note payable toterm loan insured by U.S. Department of Housing and Urban Development (“HUD”) with a financial institution for a total amount of $5,000,000$3,721,500 that matures in 2036, 80% of which is insured by the United States Department of Agriculture (the “USDA”).2041. The USDA mortgage noteHUD term loan requires monthly principal and interest payments of $31,700 adjusted quarterlyapproximately $17,500 with a variablefixed interest rate of prime plus 1.75% with a floor of 5.75%3.74%. Deferred financing costs incurred on the term loan amounted to $174,000approximately $201,000 and are being amortized to interest expense over the life of the notes. In addition, theHUD term loan. The HUD term loan has an annual renewal fee for the USDA guaranteea prepayment penalty of 0.25% of the guaranteed portion. The loan has prepayment penalties of 10%8% through 20112014 declining by 1% each year capped at 1% for the first ten years. The loan has certain financial covenants of which the Company was in compliance at September 30, 2011.through 2022.
Southland Care CenterWoodland Manor
To complete the April 29, 2011January 2012 acquisition of the senior livingskilled nursing facility located in Dublin, Georgia,Springfield, Ohio, known as the Southland Care Center,Woodland Manor, the Company issuedentered into a secured promissory noteloan agreement for $5,800,000$4,800,000. The loan matures in December 2016 with a maturity daterequired final payment of April 30, 2012. The noteapproximately $4,300,000 and accrues interest at the LIBOR rate plus 4% with a variableminimum rate of LIBOR6% per annum. The loan requires monthly principal payments of $8,500 plus 3.75% per annum and may be repaid without penalty with the principal amount due at maturity. The Company received net proceedsinterest for total current monthly payments of approximately $5,723,000 net$33,000. Deferred financing costs incurred on the loan amounted to approximately $107,300 and are being amortized to interest expense over the life of legal and other financing costs.the loan. The noteloan has a prepayment penalty of 5% through 2012 declining by 1% each year through 2015. The loan is secured by the Southland Care CenterWoodland Manor facility and guaranteed by AdCare.
On July 27, 2011,Eaglewood Village
To complete the January 2012 acquisition of the assisted living facility located in Springfield, Ohio, known as Eaglewood Village, the Company entered into a loan agreement for $4,500,000. The loan matures in June 2012 and accrues interest at 6.5% per annum from January 1, 2012 through February 29, 2012, 8.5% per annum from March 1, 2012 through April 30, 2012 and 10.5% per annum after May 1, 2012. The loan may be prepaid at any time without penalty. The loan is secured by the Eaglewood Village facility and guaranteed by AdCare. The loan is due within one year but has been classified as long-term because the Company refinanced thethis short-term note with long-term financing, consisting of: (i) a Termobligation on April 12, 2012 (see Note in favor of Bank of Atlanta for an aggregate principal amount of $5,000,000, under the provisions of the USDA Renewal Development Guarantee program (the “SCC USDA Loan”); and (ii) a Note in favor of Bank of Atlanta for an aggregate principal amount of $800,000, under the guidelines of the U.S. Small Business Administration (“SBA”) 7(a) Loan Program (the “SCC SBA Loan” and, together with the SCC USDA Loan, the “SCC Secured Loans”). The proceeds of the SCC Secured Loans were used to repay in its entirety the debt incurred to fund its April 2011 acquisition.
Each of the SCC Secured Loans mature on July 27, 2036. Interest on the SCC USDA Loan and the SCC SBA Loan accrues on the principal balance thereof at an annual variable rate equal to the published Wall Street Journal prime rate plus 1.5% (for the SCC USDA Loan) and 2.25% (for the SCC SBA Loan). The interest rate of the SCC Secured Loans shall be adjusted every calendar quarter. At no time shall the annual interest rate for the SCC USDA Loan be less than 6.0%15).
Other Debt
Eaglewood Village Promissory Note
In January 2012, Eaglewood Village, LLC and Eaglewood Property Holdings, LLC, each, a wholly owned subsidiary of AdCare, issued a promissory note in the amount of $500,000. The SCC Secured Loans arenote matures in January 2014 and bears interest at 6.5% per annum payable in equal monthly installments ofbeginning February 2012. The note requires monthly principal and interest based on a twenty-five (25) year amortization schedule. With respect to the SCC USDA Loan, $32,513 was payable on September 1, 2011, and is payable monthly through maturity. With respect to the SCC SBA Loan, $4,921 is payable every month beginning two months from the month the SCC SBA Loan is dated.payments of $3,700. The SCC Secured Loans are re-amortizednote may be prepaid without penalty at least annually to amortize the principal over the remaining term.
The SCC USDA Loan has a prepayment penalty of 10% for any prepayment made prior to the first anniversary of the date of the SCC USDA Loan, which penalty is reduced by 1% each year until the tenth anniversary of such date, after which there is no prepayment penalty. Under the SCC SBA Loan, a prepayment fee is incurred if more than 25% of the outstanding principal balance is prepaid in any one of the first three years after the date of the SCC SBAtime.
NOTE 8. NOTES PAYABLE AND OTHER DEBT (continued)
Loan as follows: (i) 5% of the total prepayment amount for prepayment made during the first year; (ii) 3% of the total prepayment amount for prepayment made during the second year; and (iii) 1% of the total prepayment amount for prepayment made during the third year. The SCC USDA Loan is subject to certain financial covenants.
The SCC USDA Loan requires $250,000 of renovations to the Southland Care Center by July 2013, of which $125,000 was required to be deposited into a restricted reserve account. One-time origination and guaranty costs totaling $126,000 were incurred. In addition, the SCC USDA Loan has an annual renewal fee equal to.25% of the SCC USDA guaranteed portion of the outstanding principal balance of the SCC USDA Loan as of December 31 of each year.
The SCC Secured Loans are secured by a first mortgage on the real property and improvements of the Southland Care Center. The USDA has conditionally guaranteed 70% of all amounts owing under the SCC USDA Loan, and the SBA has conditionally guaranteed 75% of all amounts owing under the SCC SBA Loan. In addition, AdCare has guaranteed the SCC Secured Loans.
Autumn Breeze Healthcare Center(continued)
To complete the April 29, 2011 acquisition of the skilled nursing facility located in Marietta, Georgia, known as the Autumn Breeze Healthcare Center, Mt. Kenn Property Holdings, LLC, a wholly owned subsidiary of AdCare (“Mt. Kenn Property”), issued a secured promissory note for $4,500,000. The note matures on April 30, 2012, accrues interest at a variable rate of LIBOR plus 3.75% per annum and may be prepaid at any time without penalty. The note is secured by the Autumn Breeze Healthcare Center. The Company received net proceeds of $2,436,000, net of $2,000,000 held in a restricted trust account and $64,000 of legal and other financing costs.
The Autumn Breeze Healthcare Center short-term note is due within one year but has been classified as long-term notes because the Company is in the process of refinancing this short-term obligation into a long-term note and has demonstrated the ability to consummate the current refinancing agreement.
College Park Healthcare Center
To complete the May 31, 2011 acquisition of the skilled nursing facility located in College Park, Georgia, known as the College Park Healthcare Center, the Company entered into loan agreement for $2,840,000. The loan matures on May 1, 2031, accrues interest at the prime rate plus 2% with a minimum rate of 6.25% per annum and may be repaid without penalty with required monthly payments of principal and interest of approximately $21,000. The loan is secured by the facility and guaranteed by AdCare, and by Christopher Brogdon, Vice Chairman and Chief Acquisition Officer of the Company, and his spouse. Additionally, the Company entered a short-term loan agreement for $2,034,000, which matures on February 28, 2012, and accrues interest at 10% with the principal amount due at maturity. This loan is secured by the College Park Healthcare Center well as the Autumn Breeze Healthcare Center. From both of these loans, the Company received net proceeds of approximately $4,280,000, net of approximately $487,000 held in a restricted escrow account for required facility improvements at College Park and $107,000 of legal and other financing costs. Additionally, the Company has assigned certificates of deposit as additional collateral of $500,000. The Company was required to pledge additional certificates of deposit over the next eight months until the loan is refinanced and, on August 1, 2011, the Company pledged additional cash collateral of $500,000. This loan is also guaranteed by Christopher Brogdon, Vice Chairman and Chief Acquisition Officer of the Company, and his spouse.
On September 6, 2011, the Company refinanced a portion of the debt with respect to the College Park Healthcare Center. To this end, CP Property Holdings, LLC (“CP Property”), a wholly owned subsidiary of AdCare, entered into a Loan Agreement (the “CP Loan Agreement”) with the Economic Development Corporation of Fulton County (the “CDC”), an economic development corporation working with the SBA, pursuant to the SBA’s 504 Loan Program. Pursuant to the CP Loan Agreement, CP Property issued a Promissory Note in favor of the CDC in an aggregate principal amount of $2,034,000 (the “CP SBA Loan”). The funding of the CP SBA Loan occurred on October 12, 2011 (the “CP Funding Date”).
NOTE 8. NOTES PAYABLE AND OTHER DEBT (continued)
The CP SBA Loan matures on October 1, 2031 (the “CP Maturity Date”). Interest on the CP SBA Loan accrues on the principal balance thereof, beginning on the CP Funding Date, at an annual fixed rate, which rate was determined on the CP Funding Date. The CP SBA Loan is payable in equal monthly installments of principal and interest based on a twenty (20) year amortization schedule through maturity.
CP Property is permitted, upon 45 days prior written notice to the CDC, to prepay the CP SBA Loan in full (along with any other fees and expenses due and payable under the CP SBA Loan); however, partial prepayments are not permitted. The CP SBA Loan has a prepayment premium for any prepayment made during the first ten years of such loan. In the event prepayment occurs during the first ten years of the CP SBA Loan, the prepayment premium is equal to the prepayment amount multiplied by the interest rate on the CP SBA Loan multiplied by a predetermined factor based on the year of prepayment. In the event the CP SBA Loan is prepaid during the first year of the loan, the predetermined factor is 1.00, and for each subsequent year thereafter (through year ten), the predetermined factor is reduced by ten percent (10%).
The CP SBA Loan has: (i) an annual fee payable to the agent servicing such loan equal to one-tenth of one percent (1/10 of 1%) of the outstanding balance of the CP SBA Loan; (ii) an annual fee payable to the CDC equal to one percent (1%) of the outstanding balance of the CP SBA Loan; and (iii) an annual, ongoing guarantee fee payable to the SBA equal to seven hundred forth nine one thousandths of one percent (0.749 of 1%) of the outstanding balance of the CP SBA Loan ((i) through (iii) collectively, the “CP Annual Fees”). Each of the CP Annual Fees is recalculated every five years.
The CP SBA Loan is secured by: (i) a second deed to secure debt on the real property and improvements of College Park Healthcare Center (subject only to a prior lien held by The Bank of Las Vegas); (ii) a first priority security interest on all equipment of CP Property and CP Nursing, LLC, a wholly owned subsidiary of AdCare and operator of the College Park Healthcare Center, used or useful in their businesses and any products and/or proceeds thereof; and (iii) and an assignment of all CP Property’s right, title and interest in, to and under all existing and future leases and rental agreements with respect to the College Park Healthcare Center. The SBA has guaranteed all amounts owing under the CP SBA Loan. In addition, AdCare has guaranteed the CP SBA Loan.
Homestead Manor, River Valley Center, Bentonville Manor and Heritage Park Center
On September 1, 2011, certain wholly owned subsidiaries of AdCare acquired (the “Pinnacle Acquisition”)- four skilled nursing facilities located in Arkansas, known as Homestead Manor; River Valley Center; Bentonville Manor; and Heritage Park Center; along with the home office property located at 7 Halsted Circle, Rogers, Arkansas (the “Pinnacle Home Office”). In connection with the Pinnacle Acquisition, (a) Homestead Property Holdings, LLC, a wholly owned subsidiary of AdCare (“Homestead Property”), entered into a Loan Agreement with Metro City Bank for an aggregate principal amount of $3,600,000 (the “Metro Bank Loan”); (b) Benton Property Holdings, LLC (“Benton Property”), Park Heritage Property Holdings, LLC (“Park Heritage Property”) and Valley River Property Holdings, LLC (“Valley River Property,” each wholly owned subsidiaries of AdCare, entered into a Loan Agreement with Private Bank, pursuant to which Benton Property, Park Heritage Property and Valley River Property jointly and severally issued a Promissory Note in favor of Private Bank for an aggregate principal amount of $11,800,000 (the “Private Bank Loan”); and (c) Benton Property, Valley River Property, Homestead Property, Park Heritage Property and Home Office Property Holdings, LLC, a wholly owned subsidiary of AdCare (“Home Office Property”), jointly and severally issued a Promissory Note in favor of KMJ Management, LLC, the seller of the Pinnacle Acquisition (the “Pinnacle Seller”), for an aggregate principal amount of $2,400,000 (the “Pinnacle Seller Loan”). The proceeds of the Metro Bank Loan, the Private Bank Loan and the Pinnacle Seller Loan (collectively, the “Pinnacle Credit Facilities”) were used to fund the purchase price of the Pinnacle Acquisition.
The Metro Bank Loan matures on December 1, 2011. Interest on the Metro Bank Loan accrues on the principal balance thereof at a fixed annual rate of 6.0% and is payable monthly, commencing on October 1, 2011 and ending on December 1, 2011. The entire outstanding principal balance of the Metro Bank Loan, together with all accrued but unpaid interest thereon, is payable on December 1, 2011. The Metro Bank Loan is secured by a first mortgage
NOTE 8. NOTES PAYABLE AND OTHER DEBT (continued)
on the real property and improvements constituting Homestead Manor and a certificate of deposit with Metro City Bank for $1,000,000 as additional security. The Company received net proceeds of approximately $3,220,000 net of approximately $300,000 held in a restricted escrow account for required facility improvements and $80,000 of legal and other financing costs. AdCare and Christopher F. Brogdon, Vice Chairman and Chief Acquisition Officer of the Company, have guaranteed the Metro Bank Loan. Subsequent to September 30, 2011, the Company refinanced the Metro Bank Loan. (See Note 15.)
The Private Bank Loan matures on September 1, 2016. Interest accrues on the principal balance at an annual variable rate equal to the greater of: (i) the per annum rate of interest equal to LIBOR plus 3.50%; or (ii) 6.0%. The interest rate of the loan is adjusted monthly and the loan is to be repaid in equal monthly installments of principal and interest based on a twenty (20) year amortization schedule. Principal payments of $20,335 are payable on October 1, 2011, and on the same day of each month thereafter through and including the maturity date. Any prepayment of the loan is subject to the following prepayment premiums: (a) 5% of the total prepayment amount for prepayment made prior to September 1, 2012; (b) 4% of the total prepayment amount for prepayment made on or after September 1, 2012, but prior to September 1, 2013; (c) 3% of the total prepayment amount for prepayment made on or after September 1, 2013, but prior to September 1, 2014; and (d) 2% of the total prepayment amount for prepayment made on or after September 1, 2014, but prior to September 1, 2015. The prepayment premiums shall not apply in the event that the entire outstanding principal amount of the Private Bank Loan is prepaid in whole from the proceeds of a loan insured, guaranteed or extended by any agency of the United States of America. The loan is secured by a first mortgage on the real property and improvements of Bentonville Manor, Heritage Park Center and River Valley Center, and AdCare has guaranteed the loan. The Company received net proceeds of approximately $11,362,000, net of approximately $380,000 held in a restricted escrow account for required facility improvements and $58,000 of legal and other financing costs. The Company paid approximately $120,000 in additional financing fees.
Interest on the principal amount of the Pinnacle Seller Loan accrues at a fixed annual rate of 7.0%. Principal payments under the Pinnacle Seller Loan of $250,000 plus accrued interest are due and payable quarterly, beginning on December 1, 2011, and continuing until all principal and accrued interest is paid in full. The loan is secured by a second mortgage on Bentonville Manor, Heritage Park Center and River Valley Center and title to the Pinnacle Home Office.
The Living Center, Kenwood Manor, Enid Senior Care, Betty Ann Nursing Center, Grand Lake Villa (“Oklahoma VIE’s”)
On August 1, 2011, certain consolidated variable interest entities acquired five skilled nursing facilities in Oklahoma. The transactions were primarily funded by an interim short-term loan in the amount of $6,640,000 from Metro City Bank for all facilities excluding Grand Lake Villa. The Oklahoma VIEs, excluding Grand Lake Villa, received net proceeds of approximately $6,359,000 for the acquisition, net of restricted collateral accounts of $238,000 and $43,000 of financing costs. The interim financing was subsequently refinanced by USDA guaranteed permanent financing on September 1, 2011. At such time, the $238,000 restricted amounts were paid as additional financing costs. The permanent financing was also provided by Metro City Bank with an 80% guarantee of principal provided by the USDA and matures on September 1, 2036. These loans accrue interest at a variable rate of prime plus 1.5% with a floor of 5.5% adjusted quarterly. Required monthly payments of principal and interest of approximately $41,000 are required beginning October 1, 2011. The loan is subject to certain financial covenants.
The Grand Lake Villa facility acquired was funded by permanent financing provided by the Bank of Atlanta for $3,200,000 with an 80% guarantee of principal provided by the USDA and matures on August 1, 2036. The loan accrues interest at a variable rate of prime plus 1.75% with a floor of 5.75% adjusted quarterly. Required monthly payments of principal and interest of $20,308 was required beginning September 1, 2011 with a balloon payment due at maturity. Net proceeds obtained were approximately $3,100,000 net of $100,000 loan fees. The loan is subject to certain financial covenants.
In addition, on July 28, 2011 Oklahoma Operating, LCC (and entity controlled by Christopher Brogdon) entered into a promissory note with Oklahoma Financial, LLC, a lender controlled by Cantone Research, Inc. The amount of the note is $2,800,000. Net proceeds from the note were $2,483,000 net of costs of $391,000. The note accrues interest at 10% and matures on July 15, 2013. Interest is payable quarterly with the total principal due at maturity.
NOTE 8. NOTES PAYABLE AND OTHER DEBT (continued)
In the event the principal is not paid in full at maturity, contingent payment requirements exist. From and after July 15, 2013, a semiannual payment is required in the amount equal or greater to $108,000 or 35% of the aggregate cash flow of the owners for the preceding six month period. If the payments are not made in an amount of at least $108,000, the amount of the shortfall will continue as an obligation.
Convertible Debt Issuance
On March 31, 2011, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Purchasers”) to sell and issue to the Purchasers an aggregate of $2,115,000 in principal amount of the Company’s Subordinated Convertible Notes (the “Notes”). On April 29, 2011, the Company issued an additional $1,783,700 in principal amount of the convertible debt issuance. On May 6, 2011, the Company issued an additional $610,000 in principal amount of the Notes. The total outstanding principal amount of the Notes is $4,508,700. Approximately $1,427,000 of the proceeds obtained was used to repay a short-term promissory note and related accrued interest. Net proceeds obtained, after issuance costs, was approximately $2,627,000.
The Notes bear a 10% interest per annum and are payable quarterly in cash in arrears beginning June 30, 2011. The Notes mature on March 31, 2014. Debt issuance costs of $559,100 are being amortized over the life of the Notes.
The Notes are convertible into shares of common stock of the Company at a conversion price of $5.30. The initial conversion price is subject to adjustment for any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar events. The Notes are unsecured and subordinated in right of payment to existing and future senior indebtedness.
Other Debt (continued)
Cantone Promissory Note Issued March 31, 2011
OnIn March 31, 2011,2012, the Company issued a Promissory Notepromissory note to Cantone Asset Management LLC in the amount of $1,385,000.$3,500,000. The promissory note bears interest at 12%10% per annum and matures on July 1, 2011. The Company paid a commitment fee of 4%, or $55,400, in connection with the promissory note. Subsequent to March 31, 2011, the Company obtained additional proceeds from additional issuances of the Notes. A portion of the net proceeds obtained were used to repay this promissory note.
Mountain Trace Promissory Notes
On June 10, 2011, Mountain Trace ADK, LLC, a wholly owned subsidiary of AdCare, issued promissory notes in the aggregate principal amount of $1,000,000. The notes mature April 1, 2013, and bear interest at 11% payable quarterly in arrears the first day of each January, April, July and October beginning July 1, 2011. The notes are subject to mandatory prepayment in the aggregate principal amount of $250,000 on each of October 1, 2011, April 1, 2012 and October 1, 2012. The notesinterest rate increases 1% each month beginning in July 2012 through October 2012. The note may also be prepaid without penalty by providing fifteen days prior notice. Theat any time. In connection with the issuance of the note, Cantone Research, Inc. has agreed to provide us with certain consulting services for a monthly fee if the Company received proceedsand Cantone Asset Management LLC (or an affiliated entity) do not agree to the terms of $895,000 net of legal and otheran additional financing costs.arrangement pursuant to which it (or affiliated entity) would loan to us at least $4,000,000 for a four-year term.
NOTE 9. ACQUISITIONS
Summary of 20112012 Acquisitions
During the nine monthsquarter ended September 30, 2011,March 31, 2012, the Company has acquired a total of 13one skilled nursing facilities asfacility and one assisted living facility described further below and is pursuing a number of pending acquisitions are in process. For the nine months ending September 30, 2011, theother acquisitions. The Company has incurred a total of approximately $1,894,000$293,000 of acquisition costs that are presented net of bargain purchase gains in the “Other Income”Income (Expense)” section of the Consolidated Statements of Operations. Acquisition costs include non-cash charges of $206,000 from the issuance of 36,337 shares of common stock with a per share market value of $5.68.
NOTE 9. ACQUISITIONS (continued)
Mountain Trace
On December 30, 2010, Mountain Trace Nursing ADK, LLC, a wholly owned subsidiary of AdCare, completed the acquisition of Mountain Trace, a skilled nursing facility located in Sylva, North Carolina, for a purchase price of $6,200,000. The Company obtained control of the facility effective January 1, 2011. In connection with the acquisition, the Company recognized a total gain of approximately $1,100,000, as the transaction resulted in a bargain purchase because the seller was motivated to sell the facility in order to retire and restructure the composition of their facilities in certain of the states in which they operate.
To complete the acquisition, the Company issued various notes (see Note 8) with the balance of the consideration transferred in cash. The following table summarizes the consideration transferred and the amounts of the assets acquired and recognized at fair value on the acquisition date:
Consideration Transferred: |
|
|
| |
Net proceeds from Loans |
| $ | 4,945,428 |
|
Cash from earnest money deposits |
| 250,000 |
| |
Cash |
| 975,086 |
| |
Total consideration transferred |
| $ | 6,170,514 |
|
Assets Acquired: |
|
|
| |
Land |
| 320,000 |
| |
Building |
| 5,746,200 |
| |
Equipment and Furnishings |
| 148,800 |
| |
Intangibles — Bed Licenses |
| 1,060,000 |
| |
Total identifiable net assets |
| 7,275,000 |
| |
Less: gain on bargain purchase |
| (1,104,486 | ) | |
Total consideration |
| $ | 6,170,514 |
|
Autumn Breeze Healthcare Center, Southland Care Center and College Park Healthcare Center
On April 29, 2011, Erin Property acquired the Southland Care Center, a skilled nursing facility located in Dublin, Georgia. In addition, on April 29, 2011, Mt. Kenn Property acquired the Autumn Breeze Healthcare Center, a skilled nursing facility located in Marietta, Georgia. On May 31, 2011, CP Property acquired the College Park Healthcare Center, a skilled nursing facility located in College Park, Georgia. The total purchase price for all three facilities was $17,943,000 after final closing adjustments.
Through separate Operations Transfer Agreements, the Company obtained control of Autumn Breeze Healthcare and Southland Care Center effective May 1, 2011. The Company had paid $500,000 in earnest money upon entering the purchase agreement and an additional $400,000 to extend the closing date to April 29, 2011. A final Operations Transfer Agreement allowed the Company to obtain control of the College Park Care Center effective June 1, 2011.
To complete the acquisition, the Company issued various notes (see Note 8) with the balance of the consideration transferred in cash. The following table summarizes the consideration transferred and the amounts of the assets acquired and recognized at fair value on the acquisition date:
Consideration Transferred: |
|
|
| |
Net proceeds from Loans |
| $ | 12,438,990 |
|
Cash from earnest money deposits |
| 900,000 |
| |
Cash |
| 4,603,527 |
| |
Total consideration transferred |
| $ | 17,942,517 |
|
Assets Acquired: |
|
|
| |
Land |
| 675,000 |
| |
Building |
| 11,011,017 |
| |
Equipment and Furnishings |
| 226,500 |
| |
Intangibles — Bed Licenses |
| 6,030,000 |
| |
Total identifiable net assets |
| $ | 17,942,517 |
|
NOTE 9. ACQUISITIONS (continued)
The Living Center, Kenwood Manor, Enid Senior Care, Betty Ann Nursing Center, and Grand Lake Villa (“Oklahoma VIE’s”)
On August 1, 2011, five skilled nursing facilities located in Oklahoma, were purchased for an aggregate purchase price of $11,250,000 by companies owned and operated by Christopher Brogdon, the Company’s Vice Chairman and Chief Acquisition Officer, and others. These facilities are known as the Living Center, Kenwood Manor, Enid Senior Care, Betty Ann Nursing Center and Grand Lake Villa.
Even though the Company does not have any equity interest in these facilities, the Company determined that it is a variable interest entity as the ownership entity does not have sufficient equity at risk under the Variable Interest Entities accounting pronouncements (See Note 10). Given the related party relationship with Christopher Brogdon, the common shareholder and other variable interests, the Company determined that it is the primary beneficiary and consolidation of the facilities is required. The Company initially consolidated the Oklahoma VIE’s on August 1, 2011, the date of acquisition and initial operations.
To complete the acquisition, the Oklahoma VIE’s issued various notes (see Note 8) with the balance of the consideration transferred in cash. The following table summarizes the consideration transferred and the amounts of the assets acquired and recognized at fair value as recorded by the Company on the acquisition date:
Consideration Transferred: |
|
|
| |
Net proceeds from Loans |
| $ | 9,459,017 |
|
Cash from earnest money deposits |
| 200,000 |
| |
Cash at closing |
| 1,559,538 |
| |
Total consideration transferred |
| $ | 11,218,555 |
|
Assets Acquired: |
|
|
| |
Land |
| 660,658 |
| |
Building |
| 7,958,092 |
| |
Equipment and Furnishings |
| 846,250 |
| |
Bed Licenses |
| 1,785,000 |
| |
Total assets acquired |
| 11,250,000 |
| |
Liabilities Assumed: |
|
|
| |
Real estate taxes |
| (31,445 | ) | |
Total identifiable net assets |
| $ | 11,218,555 |
|
The estimated fair values of the assets acquired are provisional and are based on the information that was available as of the acquisition date. The Company believes that the information provides a reasonable basis for estimating the fair values of the assets acquired but the Company is awaiting additional information necessary to finalize those fair values. Therefore, the provisional measurements of fair value reflected are subject to changes and such changes could be significant. The Company expects to finalize the valuation and complete the purchase price allocation before December 31, 2011.
Homestead Manor, River Valley Center, Benton Manor and Heritage Park Center
On September 1, 2011, certain wholly owned subsidiaries of AdCare completed the Pinnacle Acquisition, pursuant to that certain Purchase and Sale Agreement, by and between the Pinnacle Seller and Arkansas ADK, LLC, a wholly owned subsidiary of AdCare (“Arkansas ADK”), dated March 14, 2011 and amended as of July 1, 2011 (as so amended, the “Pinnacle Purchase Agreement”). Pursuant to the Pinnacle Purchase Agreement, such subsidiaries acquired certain land, buildings, improvements, furniture, fixtures and equipment comprising: (i) Homestead Manor; (ii) River Valley Center; (iii) Bentonville Manor; (iv) Heritage Park Center; and (v) the Pinnacle Home Office, for an aggregate adjusted purchase price of $19,448,955. Additionally, if within twelve months following September 1, 2011 the Pinnacle Seller delivers documents satisfactory to authorize Rose Missouri Nursing, LLC (“Rose Nursing”), a wholly owned subsidiary of AdCare, to become the tenant and/or operator of the skilled nursing facility located in Cassville, Missouri (the “Leased Facility”), then Rose Nursing is required to pay to the Pinnacle Seller an additional $500,000 and Rose Nursing shall become the tenant and/or operator of the Leased Facility. Subsequent to September 30, 2011, Rose Nursing became the tenant and operator of the Leased Facility. (See Note 15.)
NOTE 9. ACQUISITIONS (continued)
Through an Operations Transfer Agreement, the Company obtained control of the four facilities and the Home Office effective September 1, 2011.
To complete the acquisition, subsidiaries of AdCare issued various notes (see Note 8) with the balance of the consideration transferred in cash. The following table summarizes the consideration transferred and the amounts of the assets acquired and recognized at fair value on the acquisition date:
Consideration Transferred: |
|
|
| |
Net proceeds from Loans |
| $ | 14,582,106 |
|
Seller note |
| 2,400,000 |
| |
Cash from earnest money deposits |
| 350,000 |
| |
Cash |
| 2,116,849 |
| |
Total consideration transferred |
| $ | 19,448,955 |
|
Assets Acquired: |
|
|
| |
Land |
| 1,010,100 |
| |
Building |
| 16,228,500 |
| |
Equipment and Furnishings |
| 296,400 |
| |
Intangibles — Bed Licenses |
| 1,965,000 |
| |
Total assets acquired |
| 19,500,000 |
| |
Liabilities Assumed: |
|
|
| |
Real estate taxes |
| (51,045 | ) | |
Total identifiable net assets |
| $ | 19,448,955 |
|
The estimated fair values of the assets acquired are provisional and are based on the information that was available as of the acquisition date. The Company believes that the information provides a reasonable basis for estimating the fair values of the assets acquired but the Company is awaiting additional information necessary to finalize those fair values. Therefore, the provisional measurements of fair value reflected are subject to changes and such changes could be significant. The Company expects to finalize the valuation and complete the purchase price allocation before December 31, 2011.
Potential Acquisitions
North Carolina, South Carolina, Tennessee and Virginia
On June 27, 2011, the Company entered into a purchase agreement for the asset purchase of two skilled nursing facilities located in North Carolina and South Carolina, the acquisition of lease agreements for nine skilled nursing facilities that are located in North Carolina, South Carolina, Tennessee and Virginia, and the acquisition of management agreements to manage four skilled nursing facilities located in Tennessee. The purchase price consists of $21,650,000 in cash, common stock of the Company with an aggregate value of $5,000,000, and a five-year promissory note in the principal amount of $3,217,000. The Company paid a $500,000 earnest money deposit upon signing the purchase agreement. The earnest money deposit is refundable subject to certain terms and conditions. If this transaction closes, the Company expects to obtain control of such facilities by the end of the first quarter of 2012.
Eaglewood Care Center and Eaglewood Village
On August 15, 2011, a wholly-owned subsidiaryJanuary 1, 2012, the Company obtained effective control of AdCare entered into a purchase agreement to acquire Woodland Manor (also known as Eaglewood Care Center), aone skilled nursing facility and Eaglewood Village, an assisted living facility located in Springfield, Ohio, for an aggregate purchase price of $13.5 million. The Company deposited $200,000 into escrow to be held as earnest money.
The closing of the purchase of Eaglewood Care Center and Eaglewood Village is expected to occur on December 1, 2011. AdCare may extend the closing until January 1, 2012 or February 1, 2012, with a payment of an additional $50,000 in earnest money.
NOTE 9. ACQUISITIONS (continued)
Subsequent to September 30, 2011, the purchase agreement was amended to reduce the purchase price, increase the amount of cash payable at closing and reduce the principal amount of the seller financing. (See Note 13.)
Stone County Nursing and Rehabilitation and Stone County Residential Care Facility
On August 15, 2011, a wholly-owned subsidiary of AdCare entered into a purchase agreement to acquire the Stone County Nursing and Rehabilitation Facility, a skilled nursing facility, and Stone County Residential Care Facility, a skilled nursing facility/one assisted living facility both located in Mountain View, Arkansas, for aSpringfield, Ohio. The total purchase price of an aggregate of $4.2 million. AdCare has deposited $200,000 into escrow to be held as earnest money.was $12,412,000 after final closing adjustments.
The closing of the purchase of Stone County Nursing and Rehabilitation Facility and Stone County Residential Care Facility is expected to occur on December 1, 2011. AdCare may extend the closing subject to payment of an additional $50,000 in earnest money.
(Amounts in 000s) |
|
|
| |
Consideration Transferred: |
|
|
| |
Net proceeds from Loans |
| $ | 4,693 |
|
Seller notes |
| 5,000 |
| |
Cash from earnest money deposits |
| 250 |
| |
Cash (prepaid on December 30, 2011) |
| 2,469 |
| |
Total consideration transferred |
| $ | 12,412 |
|
Assets Acquired: |
|
|
| |
Land |
| $ | 370 |
|
Building |
| 9,656 |
| |
Equipment and Furnishings |
| 1,199 |
| |
Intangible Assets — bed licenses |
| 1,275 |
| |
Total assets acquired |
| 12,500 |
| |
Liabilities Assumed: |
|
|
| |
Real estate taxes and other |
| (88 | ) | |
Total identifiable net assets |
| $ | 12,412 |
|
Unaudited Pro forma Financial Information
Acquisitions have been included in the consolidated financial statements since the dates the Company gained effective control. For 2011, combinedCombined revenue for all 2012 acquisitions since gaining effective control is approximately $16,455,000$2,493,000 and resulted in an income from operations of approximately $1,027,000.$208,000.
The following table represents pro forma results of consolidated operations as if all of the 20102011 and 20112012 acquisitions had occurred at the beginning of the earliest fiscal year being presented, after giving effect to certain adjustments.
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
| ||||||||
|
| 2011 |
| 2010 |
| |||||||||
(Amounts in 000s) |
| 2012 |
| 2011 |
| |||||||||
Pro Forma Revenue |
| $ | 133,261,655 |
| $ | 126,183,714 |
|
| $ | 50,171 |
| $ | 48,856 |
|
Pro Forma Operating Expenses |
| $ | 128,250,197 |
| $ | 125,254,104 |
|
| $ | 47,616 |
| $ | 48,466 |
|
Pro Forma Income from Operations |
| $ | 5,011,458 |
| $ | 926,610 |
|
| $ | 2,555 |
| $ | 390 |
|
Revenue and operating expense assumptions used in the Company’s pro12
NOTE 9. ACQUISITIONS (continued)
Unaudited Pro forma financial information primarily include those related to enhancement and efficiencies that were identified prior to the acquisition of the facilities and expected to occur under the Company’s management of the operations of the facilities.Financial Information (continued)
The forgoing pro forma information is not indicative of what the results of operations would have been if the acquisitions had actually occurred at the beginning of the periods presented and is not intended as a projection of future results or trends.
NOTE 10. STOCKHOLDERS’ EQUITY
2012 Public Stock Offering
In March 2012, the Company closed a firm commitment underwritten public offering of 1,100,000 shares of common stock at an offering price to the public of $3.75 per share. The Company received net proceeds of approximately $3.6 million after deducting underwriting discounts, and other offering-related expenses of approximately $0.5 million. The Company has also granted the underwriter in the offering an option for 45 days to purchase up to an additional 165,000 shares of common stock to cover over-allotments, if any. This overallotment option expires on May 11, 2012.
NOTE 11. STOCK BASED COMPENSATION
Employee Common Stock Warrants & Options
In February 2012, the Company granted non-qualified stock options to Christopher Brogdon, the Company’s Vice Chairman and Chief Acquisition Officer, pursuant to the Company’s 2011 Stock Incentive Plan (the “2011 Plan”). A total of 50,000 options were granted with an exercise price per share of $7.00 and 100,000 options were granted with an exercise price of $8.00. The options vest in September of 2013 and 2014, respectively. The options are exercisable until the term expires in February, 2022. The fair value of the options was estimated at $1.19 and $1.03 per share, respectively, and is being recognized as share-based compensation expense over the requisite service period of the awards.
In March 2012, the Company granted incentive stock options to certain members of management pursuant to the 2011 Plan. A total of 439,200 options were granted with an exercise price per share of $4.13. The options vest ratably on the day before each of the three subsequent anniversaries. The options are exercisable until the term expires in March, 2017. The fair value of the options was estimated at $1.34 per share and is being recognized as share-based compensation expense over the requisite service period of the awards.
Nonemployee Common Stock Warrants
On March 29, 2012, in connection with the issuance of the $3,500,000 promissory note to Cantone Asset Management LLC, the Company granted to Cantone Asset Management LLC a warrant to purchase 300,000 shares of common stock at an exercise price per share of $4.00. The warrant is exercisable until the term expires in March, 2015. The fair value of the warrant was estimated at $0.64 per share and is included in deferred loan costs and will be amortized as interest expense over the life of the promissory note.
NOTE 10.12. VARIABLE INTEREST ENTITIES
Riverchase Village (VIE) Extension
On April 9, 2010, Riverchase Village ADK, LLC (“Riverchase”), a wholly owned subsidiary of AdCare entered into a Purchase Agreement with a company controlled by a bank,As further described in Note 19 to acquirethe consolidated financial statements in the Annual Report, the Company has certain variable interest entities that are required to be consolidated. There have been no significant changes in these relationship or new variable interest entity relationship in 2012. The following summarizes the assets of Riverchase Village, an assisted living facility located in Hoover, Alabama. The right to acquire Riverchase Village was assigned to Chris Brogdon, Vice Chairman and Chief Acquisitions Officerliabilities of the Company, on June 22, 2010, and the transaction closed on June 25, 2010. As consideration for the assignment, Chris Brogdon granted the Company a one-year option with a $100,000 exercise price to acquire Riverchase Village under the same terms and conditions as set forthvariable interest entities included in the Purchase Agreement. In addition, the Company entered into a five-year management contract to manage Riverchase. In June 2011, AdCare’s option to purchase Riverchase Village was extended by one year.consolidated balance sheets:
NOTE 10. 12.VARIABLE INTEREST ENTITIES(continued)
Oklahoma Facilities (VIE’s)Riverchase Village Facility - Assets and Liabilities:
In August, 2011, the Company began providing certain administrative services to the Oklahoma VIE Facilities. The Company is currently negotiating an option agreement that would give the Company the option to acquire the Oklahoma VIE Facilities from the Oklahoma VIEs, subject to approval by the Company’s Board of Directors.
On August 1, 2011, the Oklahoma VIEs (which are owned and controlled by Christopher Brogdon, Vice Chairman and Chief Acquisition Officer of the Company) purchased the Oklahoma VIE Facilities (five skilled nursing facilities located in Oklahoma known as the Living Center, Kenwood Manor, Enid Senior Care, Betty Ann Nursing Center and Grand Lake Villa). Even though the Company does not have any equity interest in the Oklahoma VIE Facilities, the Company determined that these facilities constitute a variable interest entity, as the ownership entity does not have sufficient equity at risk under the Variable Interest Entities accounting pronouncements. Given the related party relationship with the common shareholder, the Company determined that it is the primary beneficiary of the Oklahoma VIE Facilities and that consolidation of the Oklahoma VIE Facilities is required. As such, the Company initially consolidated the Oklahoma VIE Facilities on August 1, 2011, the date of their acquisition by the Oklahoma VIEs and initial operations. As the primary beneficiary of the Oklahoma VIE Facilities, the Company has included the assets, liabilities and results of operations of the Oklahoma VIE Facilities in the Company’s consolidated financial statements beginning August 1, 2011. As the Company does not have any equity interest in the Oklahoma VIE Facilities, the other equity holder’s 100% interest is reflected in “Net Loss (Income) Attributable to Noncontrolling Interests” in the consolidated statement of operations and “Noncontrolling interest in subsidiaries” in the consolidated balance sheet.
The following summarizes the carrying amounts of the facility’s assets and liabilities included in the consolidated balance sheet at September 30, 2011:
(Amounts in 000s) |
| March 31, 2012 |
| December 31, 2011 |
| ||
Cash |
| $ | 4 |
| $ | 16 |
|
Accounts receivable |
| 21 |
| 10 |
| ||
Restricted investments |
| 470 |
| 451 |
| ||
Property and equipment, net |
| 5,959 |
| 5,999 |
| ||
Other assets |
| 452 |
| 432 |
| ||
Total assets |
| $ | 6,906 |
| $ | 6,908 |
|
|
|
|
|
|
| ||
Accounts Payable |
| $ | 826 |
| $ | 740 |
|
Accrued expenses |
| 229 |
| 175 |
| ||
Notes payable |
| 6,179 |
| 6,176 |
| ||
Noncontrolling interest |
| (328 | ) | (183 | ) | ||
Total liabilities |
| $ | 6,906 |
| $ | 6,908 |
|
Oklahoma Facilities - Assets and Liabilities:
(Amounts in 000’s) |
| September 30, |
| |
Cash |
| $ | 469 |
|
Accounts receivable |
| 606 |
| |
Intangibles |
| 1,785 |
| |
Property and equipment, net |
| 9,422 |
| |
Other assets |
| 633 |
| |
Total assets |
| $ | 12,915 |
|
|
|
|
| |
Accounts Payable |
| $ | 435 |
|
Accrued expenses |
| 448 |
| |
Notes payable |
| 12,618 |
| |
Noncontrolling interest |
| (586 | ) | |
Total liabilities |
| $ | 12,915 |
|
NOTE 11. SHARE-BASED COMPENSATION
Employee Common Stock Warrants & Options
The Company entered an employment agreement with its Chief Executive Officer effective January 10, 2011. Terms of the agreement included equity compensation of a warrant to purchase up to 250,000 shares of common stock with an exercise price equal to $4.13 per share. One third of the warrants vested on January 10, 2011, and the remaining two thirds shall vest ratably on the day before each of the two subsequent anniversaries. The warrant is exercisable until the term expires in January, 2021. Using the Black Scholes option-pricing model, the fair value of the warrant was estimated at $2.72 per share and is being recognized as share-based compensation expense over the requisite service period of the award.
NOTE 11. SHARE-BASED COMPENSATION (continued)
Employee Common Stock Warrants & Options (continued)
On June 3, 2011, the Company’s shareholders approved the 2011 Stock Option and Incentive Plan (“2011 Plan”) which provides for the granting of a maximum of 1,000,000 shares of common stock. The 2011 Plan is intended to further the growth and profitability of the Company by providing increased incentives to and encourage share ownership on the part of key employees, officers and directors of, and consultants and advisers who render services to the Company, and any future parent or subsidiary of the Company. The 2011 Plan permits the granting of stock options and restricted stock awards (collectively, “Awards”) to eligible participants. If an Award expires or is canceled without having been fully exercised or vested, the unvested or canceled shares will be available again for grants of Awards.
On June 3, 2011, the Company granted incentive stock options to certain members of management pursuant to the 2011 plan. A total of 147,000 options were granted with an exercise price per share of $5.75. The options vest ratably on the day before each of the three subsequent anniversaries. The options are exercisable until the term expires in June, 2016. The fair value of the options was estimated at $3.18 per share and is being recognized as share-based compensation expense over the requisite service period of the awards. Subsequently, 25,000 shares have forfeited prior to vesting.
On August 26, 2011, the Company granted incentive stock options to certain members of management pursuant to the 2011 plan. A total of 130,000 options were granted with an exercise price per share of $4.96. Subsequently, 50,000 shares have forfeited prior to vesting. The options vest ratably on the day before each of the three subsequent anniversaries. The options are exercisable until the term expires in August, 2016. The fair value of the options was estimated at $2.63 per share and is being recognized as share-based compensation expense over the requisite service period of the awards.
Nonemployee Common Stock Warrants
On March 31, 2011, the Company issued a promissory note up to a maximum of $5,500,000. In connection with this financing arrangement, the Company issued to the placement agent a warrant to purchase up to 250,000 shares of common stock with an exercise price per share equal to $5.30. The warrant is exercisable until the term expires in March, 2014. Using the Black Scholes option-pricing model, the fair value of the warrant was estimated at $1.32 per share and is being recognized as expense over the term of the related promissory note.
On May 1, 2011, the Company entered into a consulting agreement with Noble Finance. In connection with this agreement, the Company issued 50,000 warrants to purchase common stock with an exercise price per share equal to $4.50. The warrants vest over an eight-month period from May through December 2011. The warrants are exercisable until the term expires in May 2016. The fair value of the warrants was estimated at $2.08 per share and is being recognized as expense over the term of the agreement.
(Amounts in 000s) |
| March 31, 2012 |
| December 31, 2011 |
| ||
Cash |
| $ | 328 |
| $ | 181 |
|
Accounts receivable |
| 1,007 |
| 800 |
| ||
Property and equipment, net |
| 11,012 |
| 11,111 |
| ||
Other assets |
| 821 |
| 642 |
| ||
Total assets |
| $ | 13,168 |
| $ | 12,734 |
|
|
|
|
|
|
| ||
Accounts Payable |
| $ | 988 |
| $ | 458 |
|
Accrued expenses |
| 416 |
| 357 |
| ||
Notes payable |
| 12,532 |
| 12,578 |
| ||
Noncontrolling interest |
| (768 | ) | (659 | ) | ||
Total liabilities |
| $ | 13,168 |
| $ | 12,734 |
|
NOTE 12.13. FAIR VALUE MEASUREMENTS
The following are the major categories of assets and liabilities measured at fair value on a recurring basis during the ninethree months ended September 30, 2011,March 31, 2012, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3).
|
| Level 1: |
| Level 2: |
| Level 3: |
|
|
| ||||
|
| Active Markets |
| Significant Other |
| Significant |
| Total at |
| ||||
Derivative Liability |
| $ | — |
| $ | — |
| $ | 2,057,152 |
| $ | 2,057,152 |
|
NOTE 12.FAIR VALUE MEASUREMENTS (continued)
(Amounts in 000s) |
| Level 1: |
| Level 2: |
| Level 3: |
| Total at March 31, |
| ||||
Derivative Liability |
| $ | — |
| $ | — |
| $ | 1,479 |
| $ | 1,479 |
|
Following is a reconciliation of the beginning and ending balances for assets and liabilitiesthe derivative liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period ended September 30, 2011:March 31, 2012:
|
| Derivative |
| |
Beginning Balance |
| $ | 2,905,750 |
|
Gains included in loss on debt extinguishment |
| 41,941 |
| |
Derivative gain |
| 806,657 |
| |
Ending Balance |
| $ | 2,057,152 |
|
During 2010, the Company issued subordinated convertible notes in which it was determined that the conversion feature was required to be bifurcated from the debt host and accounted for separately as a derivative liability recorded at fair value. The Company estimates the fair value of the derivative liability using the Black-Scholes option-pricing model with changes in fair value being reported in the consolidated statement of operations. The impact of any conversion activity is recognized net of any loss from the debt extinguishment.
NOTE 13. STOCK DIVIDEND
On August 31, 2011, the Company’s Board of Directors declared a 5% stock dividend, issued on October 14, 2011 (see Note 15) to stockholders of record at the close of business on September 30, 2011. As a result of the payment of the stock dividend, the number of outstanding shares of common stock increased by 579,516 as of September 30, 2011. As the Company is in a deficit position, there is no recorded impact to the reported amounts of stockholders’ equity in the accompanying consolidated balance sheet. As the stock dividend was declared before the release of the accompanying consolidated financial statements, all references to the number of common shares and per-share amounts are restated based on the increased number of shares giving retroactive effect to the stock dividend to prior period reported amounts.
NOTE 14. WARRANT CALL
On August 17, 2011, the Company gave notice that it was exercising its option to call for redemption of the outstanding: (i) warrants to purchase shares of common stock, sold in the Company’s initial public offering in November 2006 (the “IPO Warrants”); and (ii) warrants to purchase shares of common stock sold in a private placement in December 2009 (the “Private Placement Warrants” and, together with the IPO Warrants, the “Warrants”). Registered holders of the Warrants had until September 19, 2011 (the “Call Exercise Period”) to exercise each Warrant for 1.05 shares of common stock at a price of $2.38 per share. On September 14, 2011, the Company announced that it extended the last day of the Call Exercise Period to September 26, 2011. Any Warrants not exercised by the registered holders thereof within the Call Exercise Period automatically expired on the last day of the Call Exercise Period, and AdCare remitted to the registered holders of such expired Warrants the sum of ten cents ($.10) per underlying share of common stock.
In connection with the warrant call, 2,759,174 Warrants were exercised by the holders thereof and the Company issued 2,897,149 shares of common stock. The Company received aggregate net proceeds of $6.3 million upon such exercises including issuance costs of approximately $0.6 million. On September 26, 2011, the remaining 29,376 warrants expired requiring the Company to pay the aggregate call amount of approximately $3,000.
(Amounts in 000s) |
| Derivative |
| |
Beginning Balance |
| $ | 1,889 |
|
Additions |
| — |
| |
Total gain |
| (410 | ) | |
Ending Balance |
| $ | 1,479 |
|
NOTE 14. COMMITMENTS AND CONTINGENCIES
Legal Matters
The skilled nursing business involves a significant risk of liability given the age and health of the Company’s patients and residents and the services the Company provides. The Company and others in the industry are subject to an increasing number of claims and lawsuits, including professional liability claims, which may allege that services have resulted in personal injury, elder abuse, wrongful death or other related claims. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards.
In addition to the potential lawsuits and claims described above, the Company is also subject to potential lawsuits under the Federal False Claims Act and comparable state laws alleging submission of fraudulent claims for services to any healthcare program (such as Medicare) or payor. A violation may provide the basis for exclusion from federally-funded healthcare programs. As of March 31, 2012, the Company does not have any material loss contingencies recorded based on management’s evaluation of the probability of loss from known claims.
Commitments
Westlake / Quail Creek PSA
On March 12, 2012, we entered into a Purchase and Sale Agreement with Westlake Nursing Home Limited to acquire a 118-bed skilled nursing facility located in Oklahoma City, Oklahoma, for an aggregate purchase price of $5,800,000. Pursuant to the Purchase and Sale Agreement, we deposited $25,000 into escrow to be held as earnest money. We expect the closing of the acquisition to occur on May 15, 2012.
Tulsa Companion Care PSA
On March 14, 2012, we entered into a Purchase and Sale Agreement with F & F Ventures, LLC and Tulsa Christian Care, Inc., doing business as Companions Specialized Care Center to acquire a 121-bed skilled nursing facility located in Tulsa, Oklahoma for an aggregate purchase price of $5,750,000. The purchase price consists of a $5,000,000 cash payment and the issuance of shares of our common stock with an aggregate value of $750,000, with such shares valued at the average closing price of our common stock for the ten-day period ending on the last business day prior to the closing of the acquisition. Pursuant to the Purchase and Sale Agreement, we deposited $150,000 into escrow to be held as earnest money. We expect the closing of the acquisition to occur on or before June 30, 2012. In addition, an interim management agreement is in place which may result in the facility being incorporated in our financial statements as a variable interest entity beginning on April 1, 2012.
Convacare
On January 17, 2012, we entered into a Purchase and Sale Agreement with Gyman Properties, LLC to acquire a 141-bed skilled nursing facility located in Lonoke, Arkansas, for an aggregate purchase price of $6,486,000. Pursuant to the Purchase and Sale Agreement, we deposited $250,000 into escrow to be held as earnest money. On May 9, 2012, the Company assigned all of its rights under the Purchase and Sale Agreement to GL Nursing, LLC, an entity affiliated with Christopher Brogdon, the Company’s Vice Chairman and Chief Acquisitions Officer.
NOTE 15. SUBSEQUENT EVENTS
The Company has evaluated for disclosure all subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission.
Mortgage NotesStrome Promissory Note
College Park Healthcare Center
The funding of the CP SBA Loan occurred on October 12, 2011, the CP Funding Date. Interest on the CP SBA Loan accrues on the principal balance thereof, beginning on the CP Funding Date, at an annual fixed rate of 2.80737%, which rate was determined on the CP Funding Date. CP Property used the proceeds of the CP SBA Loan to repay in its entirety the debt incurred by CP Property and payable to Apax Capital, LLC, which debt was used to partially fund CP Property’s acquisition in May 2011 of the College Park Healthcare Center.
Homestead Manor
On October 14, 2011,April 1, 2012, the Company refinanced the Metro Bank Loan. To this end, Homestead Property and Homestead Nursing, LLC, the operator of Homestead Manor and a wholly owned subsidiary of AdCare (“Homestead Nursing”), issued a Term Notepromissory note to Strome Alpha Offshore Ltd., in favor of Square 1 Bank for an aggregate principalthe amount of $3,600,000, under$5,000,000. The promissory note bears interest at 10% per annum and matures in November 2012. The note may also be prepaid without penalty at any time. In connection with the provisionsissuance of the USDA Rural Development Guarantee program (the “Homestead USDA Loan”). Homestead Property usedpromissory note, the proceedsCompany granted to Strome Alpha Offshore Ltd. a warrant to purchase 312,500 shares of common stock at an exercise price per share of $4.00. The warrant is exercisable until April, 2015. The fair value of the Homestead USDA Loan to repaywarrant was estimated at $0.64 per share and is included in financing costs and expensed over the debt it incurred to fund its acquisition of Homestead Manor, which debt had been guaranteed by AdCare.
The Homestead USDA Loan matures on October 14, 2036 (the “Homestead Maturity Date”). Interest on the Homestead USDA Loan accrues on the principal balance thereof at an annual variable rate equal to the published Wall Street Journal prime rate plus 1.0%, and the interest ratelife of the Homestead USDA Loan shall be adjusted every calendar quarter. At no time shall the annual interest rate for the Homestead USDA Loan be less than 5.75%.
The Homestead USDA Loan shall be repaid in equal monthly installments of principal and interest based on a twenty-five (25) year amortization schedule. The amount of $25,648 payable on December 1, 2011, and on the same day of each month thereafter through and including the Homestead Maturity Date. The Homestead USDA Loan is to be re-amortized annually so as to amortize the principal over the remaining term thereof.
The Homestead USDA Loan has a prepayment penalty of 10% for any prepayment made prior to the first anniversary of the date of the Homestead USDA Loan, which penalty is reduced by 1% each year thereafter until the tenth anniversary of such date, after which there is no prepayment penalty. The Homestead USDA Loan had one-time origination and guaranty fees totaling $93,600 and an annual renewal fee payable by Homestead Property and Homestead Nursing in an amount equal to .25% of the USDA guaranteed portion of the outstanding principal balance of the Homestead USDA Loan as of December 31 of each year, beginning December 31, 2012.
The Homestead USDA Loan is secured by a first mortgage on the real property and improvements of Homestead Property (including Homestead Manor), a first priority security interest on all furnishings, fixtures, equipment and inventory associated with Homestead Manor, and an assignment of all rents paid under any and all leases and rental agreements, existing now or in the future, with respect to the real property. The USDA has conditionally guaranteed 80% of all amounts owing under the Homestead USDA Loan, and AdCare has unconditionally guaranteed all amounts owing under the Homestead USDA Loan.
In addition,promissory note issued in connection with obtaining the Homestead USDA Loan, Homestead Property and Homestead Nursing entered into an Escrow Agreement with Square 1 Bank, as both lender and escrow agent pursuant to which Homestead Property and Homestead Nursing deposited $300,000 into an escrow account. These escrow funds will be used to complete certain ongoing capital improvements being made to Homestead Manor.financing.
NOTE 15. SUBSEQUENT EVENTS(continued)
Acquisitions
Red Rose LeaseArkansas Acquisition
Pursuant to the Pinnacle Purchase Agreement and subject to the satisfaction of certain conditions, Rose Nursing was required to become the tenant and/or operator of the Leased Facility, a 90 bed skilled nursing located in Cassville, Missouri. On October 31, 2011, Rose Nursing entered into an Assignment of Lease and Landlord’s Consent (the “Assignment Agreement”) with Cassville Real Estate, Inc. (f/k/a/ Cassville Manor, Inc.), the landlord of the Leased Facility (“Cassville”), and KMJ Enterprises Cassville, LLC, and an affiliate of KMJ (“KMJ Enterprises”), pursuant to which KMJ Enterprises assigned to Rose Nursing its interest, as tenant, in and to the Red Rose Facility under that certain Lease, dated December 1, 1983, as amended pursuant to that certain Amendment and Extension to Lease Agreement effective September 27, 1999 and as assigned pursuant to that certain Lease Assumption Agreement and Guaranty effective January 1, 2003 (as assigned and amended, the “Lease”). Additionally, on November 1, 2011, Rose Nursing entered into an Operations Transfer Agreement (the “OTA”) with KMJ, pursuant to which KMJ assigned to Rose Nursing all of its right, title and interest in and to certain assets located at, and held by KMJ for use in connection with the operation of, the Red Rose Facility.
As a result of entering into the Assignment Agreement and OTA, Rose Nursing became the tenant and operator, respectively, of the Leased Facility, and in connection therewith paid to KMJ Enterprises: (i) the amount of $500,000 pursuant to the Pinnacle Purchase Agreement; and (ii) the amount of $13,500, which represents the amount paid by KMJ Enterprises to Cassville as a security deposit under the Lease, the rights to which were assigned by KMJ Enterprises to Rose Nursing pursuant to the Assignment Agreement. The term of the Lease expires on September 30, 2014.
Each of the Company, Christopher F. Brogdon, the Company’s Vice Chairman and Chief Acquisition Officer, and his spouse has jointly, severally and unconditionally guaranteed all amounts owing by Rose Nursing under the Lease and the full, prompt and complete performance by Rose Nursing of all covenants, conditions and provisions contained in the Lease.
Potential Acquisitions
Eaglewood Care Center and Eaglewood Village
On August 15, 2011,April 1, 2012, we completed the acquisition of: (i) Little Rock Health & Rehab, a wholly-owned subsidiary of AdCare entered into a purchase agreement to acquire Woodland Manor (also known as Eaglewood Care Center), a157-bed skilled nursing facility located in Little Rock, Arkansas; (ii) Northridge Healthcare and Eaglewood Village, an assisted livingRehabilitation, a 140-bed skilled nursing facility located in Springfield, Ohio,North Little Rock, Arkansas; and (iii) Woodland Hills Healthcare and Rehabilitation, a 140-bed skilled nursing facility located in Little Rock, Arkansas from Little Rock Aviv, L.L.C., Woodland Arkansas, L.L.C. and Northridge Arkansas, L.L.C., pursuant to the previously announced Purchase and Sale Agreement, between the sellers and AdCare Property Holdings, LLC, dated as of December 29, 2011, for an aggregate purchase price of $13.5 million. Subsequent to September 30, 2011,$27,280,000. In connection with the purchase agreement was amended to reduce the purchase price, increase the amountclosing of cash payable at closingthis acquisition, Little Rock HC&R Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, and reduce theWoodland Hills HC Property Holdings, LLC, each our wholly owned subsidiary, entered into a Loan Agreement with The PrivateBank and Trust Company in an aggregate principal amount of $21,800,000.
The loan matures on March 30, 2017. Interest on the seller financing.loan accrues on the principal balance thereof at an annual rate of the greater of (i) 6.0% per annum or (ii) the LIBOR rate plus 4.0% per annum, and payments for the interest and a portion of the principal balance are payable monthly, commencing on May 1, 2012. The entire outstanding principal balance of the loan, together with all accrued but unpaid interest thereon, is payable on March 30, 2017. The loan is secured by a first mortgage on the real property and improvements constituting the facilities and guaranteed by AdCare.
Oklahoma First Commercial BankGlennville PSA
On October 14, 2011, AdCare Property HoldingsApril 3, 2012, the Company entered into an Amendment and Assignment of Purchase and Sale Agreement, effective September 30, 2011, with First Commercial Bank and Brogdon Family pursuantagreement to which AdCare Property Holdings assumed all of Brogdon Family’s rights under that certain Purchase and Sale Agreement, made and entered into as of May 5, 2011, by and between First Commercial Bank and Brogdon Family, as amended by that certain First Amendment to Purchase and Sale Agreement, made and entered into as of June 13, 2011, by and between First Commercial Bank and Brogdon Family (as so amended and assigned to AdCare Property Holdings, the “Oklahoma Purchase Agreement”). Pursuant to the Oklahoma Purchase Agreement, and subject to the satisfaction or waiver of the conditions set forth therein, AdCare Property Holdings will acquire land, buildings, improvements, furniture, fixtures, operating agreements and equipment comprising fivea 160-bed skilled nursing facilitiesfacility located in Oklahoma: Edwards Redeemer Nursing Center, Harrah Nursing Center, Northwest Nursing Center, McLoud Nursing Center and Meeker Nursing CenterGlennville, Georgia for an aggregate purchase price of $16 million.$8,240,000.
Springfield Bond Financing
On April 12, 2012, the Company entered into a bond loan agreement with the City of Springfield in the State of Ohio (“Springfield”), pursuant to which Springfield lent to the Company the proceeds from the sale of its Series 2012 Bonds, which consists of the (i) $6,610,000 The City of Springfield, Ohio, First Mortgage Revenue Bonds (Eaglewood Property Holdings, LLC Project), Series 2012A (the “Series 2012A Bonds”); and (ii) $620,000 The City of Springfield, Ohio, First Mortgage Revenue Bonds (Eaglewood Property Holdings, LLC Project), Taxable Series 2012B (the “Series 2012B Bonds”; collectively, the “Series 2012 Bonds”). The Series 2012A Bonds mature on May 1, 2042 and bear interest at 7.65% annually. The Series 2012B Bonds mature on May 1, 2021 and bear interest at 8.50% annually. The Company utilized the proceeds from the issuance of the Series 2012 Bonds to repay the $4.5 million loan entered into to complete the acquisition of Eaglewood Village; make certain repairs and improvements to the Eaglewood Village facility; fund certain reserves; and pay the cost of the issuance of the Series 2012 Bonds.
Oklahoma PSA Amendment
On April 17, 2012, the Company amended its agreement with First Commercial Bank, to acquire six skilled nursing facilities located in Oklahoma. The amendment requires an additional deposit of $50,000 into escrow to be used as earnest money; amends the closing date to the date which is sixty (60) days after all required licenses are received, but in no event later than September 30, 2012; and releases $200,000 from escrow to First Commercial Bank. Upon the closing of the purchase, the Company shall receive a $200,000 credit against the purchase price; however if the transaction fails to be consummated for any reason other than (i) default by First Commerical Bank; (ii) the failure of a condition to closing to be satisfied; or (iii) an event of casualty or condemnation, First Commercial Bank shall be entitled to retain the $200,000 disbursed from escrow. If the transaction fails to be consummated for any reason other than as described in the preceding sentence, First Commercial Bank shall return the $200,000 to the Company upon demand.
NOTE 15. SUBSEQUENT EVENTS(continued)
(continued)Cantone Promissory Note — April 2012
On April 27, 2012, we issued a promissory note in favor of Cantone Asset Management LLC for an aggregate principal amount of $1,500,000. The note matures on the earlier of: (i) October 1, 2012; or (ii) the date on which we receive proceeds, in an amount not less than $6,000,000, from a public offering or private placement of our common stock or debt securities. Interest on the note accrues on the principal balance thereof at an annual rate of 10%; provided, however, if the entire principal amount of the note is not paid by July 1, 2012, the interest rate shall increase by 1% for each month or part thereof during which any principal amount of the note shall remain unpaid. We may prepay the note in whole or in part, at any time, without notice or penalty; provided, however, if the note is prepaid prior to October 1, 2012, then we shall continue to pay interest on the note through such date. Payments of all amounts under the note are subordinate and junior in right of priority to the prior payment in full of a promissory note we issued to Cantone Asset Management LLC, dated March 30, 2012, in the principal amount of $3,500,000.
Potential AcquisitionsSumter Valley PSA (continued)
On April 27, 2012, we entered into a Purchase and Sale Agreement with Pinewood Holdings, LLC to acquire the Sumter Valley Nursing and Rehab Center, a 96-bed skilled nursing facility located in Sumter, South Carolina, for an aggregate purchase price of $5,500,000. The purchase price consists of: (i) $5,250,000 cash consideration; and (ii) a $250,000 promissory note to be issued by AdCare Propertyto Pinewood Holdings LLC that shall bear interest at a fixed rate of 6% based on a 15 year amortization schedule. Pursuant to the Purchase and Sale Agreement, we deposited $200,000$100,000 into escrow to be held as earnest money. We expect the closing of the acquisition to occur on July 31, 2012.
Abington Acquisition
On April 30, 2012, we completed the acquisition of Abington Place Health and Rehab Center, a 120-bed skilled nursing facility located in Little Rock, Arkansas from SCLR, LLC, pursuant to that certain previously announced Purchase and Sale Agreement, between SCLR, LLC and AdCare Property Holdings, LLC, dated as of January 3, 2012, for an aggregate purchase price of $3,600,000. In connection with the closing of this acquisition, APH&R Property Holdings, LLC, our wholly owned subsidiary, entered into a Loan Agreement with Metro City Bank in an aggregate principal amount of $3,425,500. We will take effective control over operations on June 1, 2012.
The closingloan matures on September 1, 2012. Interest on the loan accrues on the principal balance thereof at an annual rate of 2.25% per annum plus the prime interest rate, to be adjusted on a monthly basis (but in no event shall the total interest be less than 6.25% per annum), and payments for the interest are payable monthly, commencing on June 1, 2012 and ending on September 1, 2012. The entire outstanding principal balance of the loan, together with all accrued but unpaid interest thereon, is expectedpayable on September 1, 2012. The loan is secured by a first mortgage on the real property and improvements constituting the facility. We assigned to occur no later than four months after the date AdCare Property Holdings files its application forMetro City Bank a certificate of need withdeposit in the Oklahoma State Departmentamount of Health.$1,000,000 as additional security for the loan.
Equity ActivityConvacare
On October 14, 2011,January 17, 2012, we entered into a 5% stock dividend was paidPurchase and Sale Agreement with Gyman Properties, LLC to stockholdersacquire a 141-bed skilled nursing facility located in Lonoke, Arkansas, for an aggregate purchase price of record at$6,486,000. Pursuant to the closePurchase and Sale Agreement, we deposited $250,000 into escrow to be held as earnest money. On May 9, 2012, the Company assigned all of business on September 30, 2011. As a result ofits rights under the payment ofPurchase and Sale Agreement to GL Nursing, LLC, an entity affiliated with Christopher Brogdon, the stock dividend, the number of outstanding shares of common stock increased by approximately 579,500.Company’s Vice Chairman and Chief Acquisition Officer.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Special Note Regarding Forward Looking Statements
Certain statements in this reportQuarterly Report on Form 10-Q (this “Quarterly Report”) constitute “forward-looking statements.” These forward-looking statements involve known or unknown risks, uncertainties and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Specifically, the actions of competitors and customers and our ability to execute the Company’s business plan, and our ability to increase revenues is dependent upon our ability to continue to expand our current business and to expand into new markets, general economic conditions, and other factors. You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues,” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise. You should read this Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the financial statements and related notes included in this Form 10-Q (“Quarterly Report”)Report and included onin the Annual Report.
Overview
We are an ownerown and manager ofmanage retirement communities, assisted living facilities, and nursing homes. We deliver skilled nursing, assisted living and home health services through wholly owned separate operating subsidiaries. AsDuring the first quarter of September 30, 2011,2012, we operated 40acquired two facilities comprised of 32(one skilled nursing centers, sevenfacility and one assisted living residencesfacility), bringing our Company’s total bed count to 3,916 at March 31, 2012. The following tables provide summary information regarding our recent acquisitions and one independent living/senior housing facility totaling approximately 3,600 beds/units. Our facilities are located in Arkansas, Alabama, Georgia, North Carolina, Ohio and Oklahoma (via VIE).composition.
Facility History
|
| March 31, 2012 |
| December 31, 2011 |
| December 31, 2010 |
|
Cumulative number of facilities |
| 44 |
| 42 |
| 27 |
|
Cumulative number of operational beds |
| 3,916 |
| 3,737 |
| 2,428 |
|
|
| September 30, |
| December 31, |
| ||
|
| 2011 |
| 2010 |
| 2009 |
|
Cumulative number of facilities |
| 40 |
| 27 |
| 14 |
|
Cumulative number of operational beds |
| 3,579 |
| 2,428 |
| 852 |
|
Facility Breakdown at September 30, 2011
|
| Number of |
| Number of Facilities |
|
| Number of |
| Number of Facilities at March 31, 2012 |
| ||||||||||||||||
State |
| Operational |
| Owned |
| VIE |
| Leased |
| Managed for |
| Total |
|
| Operational |
| Owned |
| VIE |
| Leased |
| Managed for |
| Total |
|
Arkansas |
| 402 |
| 4 |
| — |
| — |
| — |
| 4 |
|
| 530 |
| 6 |
| — |
| — |
| — |
| 6 |
|
Alabama |
| 408 |
| 2 |
| 1 |
| — |
| — |
| 3 |
|
| 408 |
| 2 |
| 1 |
| — |
| — |
| 3 |
|
Georgia |
| 1,497 |
| 3 |
| — |
| 10 |
| — |
| 13 |
|
| 1,497 |
| 3 |
| — |
| 10 |
| — |
| 13 |
|
Missouri |
| 80 |
| — |
| — |
| 1 |
| — |
| 1 |
| |||||||||||||
North Carolina |
| 106 |
| 1 |
| — |
| — |
| — |
| 1 |
|
| 106 |
| 1 |
| — |
| — |
| — |
| 1 |
|
Ohio |
| 852 |
| 8 |
| — |
| 1 |
| 5 |
| 14 |
|
| 981 |
| 10 |
| — |
| 1 |
| 4 |
| 15 |
|
Oklahoma (VIE) |
| 314 |
| — |
| 5 |
| — |
| — |
| 5 |
| |||||||||||||
Oklahoma |
| 314 |
| — |
| 5 |
| — |
| — |
| 5 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total |
| 3,579 |
| 18 |
| 6 |
| 11 |
| 5 |
| 40 |
|
| 3,916 |
| 22 |
| 6 |
| 12 |
| 4 |
| 44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Facility Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Skilled Nursing |
| 3,196 |
| 12 |
| 5 |
| 11 |
| 4 |
| 32 |
|
| 3,421 |
| 14 |
| 5 |
| 12 |
| 3 |
| 34 |
|
Assisted Living |
| 300 |
| 6 |
| 1 |
| — |
| 0 |
| 7 |
|
| 412 |
| 8 |
| 1 |
| — |
| — |
| 9 |
|
Independent Living |
| 83 |
| — |
| — |
| — |
| 1 |
| 1 |
|
| 83 |
| — |
| — |
| — |
| 1 |
| 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total |
| 3,579 |
| 18 |
| 6 |
| 11 |
| 5 |
| 40 |
|
| 3,916 |
| 22 |
| 6 |
| 12 |
| 4 |
| 44 |
|
2011 Acquisitions
We have embarked on a strategy to grow our business through acquisitions and leases of senior care facilities and businesses providing services to those facilities. For a detailed discussion of acquisition activity through DecemberDuring the first quarter 2012, we acquired two facilities (one skilled nursing facility and one assisted living facility), bringing our Company’s total bed count to 3,916 at March 31, 2010, see the Management’s Discussion and Analysis included in the Annual Report.
The facilities acquired during the nine months ended September 30, 2011 are as follows:2012.
· Effective January 1,On December 30, 2011, we acquired Mountain Trace, a 106 bed skilled nursing facility and an assisted living facility both located in Sylva, North Carolina.Springfield, Ohio, for an aggregate adjusted purchase price of $12,412,000. We obtained effective control and commenced operating these facilities on January 1, 2012.
Subsequent to March 31, 2012, the following acquisitions were completed:
·On March 30, 2012, we acquired three skilled nursing facilities located in Little Rock, Arkansas. The total purchase price was $27,280,000. We obtained effective control and operations commenced on April 1, 2012.
· On April 29, 2011,30, 2012, we acquired Southland Care Center, a 126 bed skilled nursing facility located in Dublin, Georgia. ThroughLittle Rock, Arkansas for an Operations Transfer Agreement, we obtainedaggregate purchase price of $3,600,000. We will obtain effective control ofand plan to commence operations on June 1, 2012.
In addition, the facility effective May 1, 2011.following potential acquisitions have been announced during the three months ended March 31, 2012:
· On April 29, 2011,January 17, 2012, we acquired Autumn Breeze Healthcare Center,entered into a 109 bedPurchase and Sale Agreement with Gyman Properties, LLC to acquire a 141-bed skilled nursing facility located in Marietta, Georgia. Through an Operations Transfer Agreement, we obtained control of the facility effective May 1, 2011.
·On May 31, 2011, we acquired College Park Healthcare Center, a 100 bed skilled nursing facility located in College Park, Georgia. Through an Operations Transfer Agreement, we obtained control of the facility effective June 1, 2011.
·On August 1, 2011, we acquired (through a VIE subject to pending agreement — see Note 10) The Living Center, a 50 bed nursing facility; Kenwood Manor, a 45 bed nursing facility; Enid Senior Care, a 102 bed nursing facility; Betty Ann Nursing Center, a 60 bed nursing facility; and Grand Lake Villa, a 100 bed nursing facility, all located in Oklahoma.
·On September 1, 2011, we acquired Homestead Manor, a 94 bed skilled nursing facility located in Stamps, Arkansas; River Valley Center, a 117 bed skilled nursing facility located in Fort Smith, Arkansas; Bentonville Manor, a 95 bed skilled nursing facility located in Bentonville, Arkansas; and Heritage Park, a 93 bed nursing facility located in Benton, Arkansas.
Potential Acquisitions
Existing purchase agreements to acquire facilities are as follows:
·North Carolina, South Carolina, Tennessee and Virginia
On June 27, 2011, the Company entered into a purchase agreement for the asset purchase of two skilled nursing facilities located in North Carolina and South Carolina, the acquisition of lease agreements for nine skilled nursing facilities that are located in North Carolina, South Carolina, Tennessee and Virginia, and the acquisition of management agreements to manage four skilled nursing facilities located in Tennessee. The purchase price consists of $21,650,000 in cash, common stock of the Company with an aggregate value of $5,000,000, and a five-year promissory note in the principal amount of $3,217,000. If this transaction closes, the Company expects to obtain control of such facilities by the end of the first quarter of 2012.
·Eaglewood Care Center and Eaglewood Village
On August 15, 2011, the Company entered into a purchase agreement to acquire Woodland Manor (also known as Eaglewood Care Center), a skilled nursing facility, and Eaglewood Village, an assisted living facility located in Springfield, Ohio,Lonoke, Arkansas, for an aggregate purchase price of $13.5 million. Subsequent$6,486,000. Pursuant to September 30, 2011, the purchase agreement was amended to reduce the purchase price, increase the amount of cash payable at closingPurchase and reduce the principal amount of the seller financing. The closing of the purchase of the Eaglewood Care Center and Eaglewood Village is expected to occur on December 1, 2011.
·Stone County Nursing and Rehabilitation and Stone County Residential Care Facility
On August 15, 2011, a wholly owned subsidiary of AdCare entered into a purchase agreement to acquire the Stone County Nursing and Rehabilitation Facility, a skilled nursing facility, and Stone County Residential Care Facility, a skilled nursing facility/assisted living facility, both located in Mountain View, Arkansas, for a purchase price of an aggregate of $4.2 million. AdCare hasSale Agreement, we deposited $200,000$250,000 into escrow to be held as earnest money. The closingOn May 9, 2012, the Company assigned all of its rights under the purchase ofPurchase and Sale Agreement to GL Nursing, LLC, an entity affiliated with Christopher Brogdon, the Stone County NursingCompany’s Vice Chairman and Rehabilitation Facility and Stone County Residential Care Facility is expected to occur on December 1, 2011.Chief Acquisition Officer.
· Oklahoma First Commercial Bank
On October 14, 2011 AdCare Property HoldingsMarch 12, 2012, we entered into an agreementa Purchase and Sale Agreement with First Commercial Bank and Brogdon Family, pursuant to which the Company assumed all of Brogdon Family’s rights under a purchase and sale agreement entered into as of May 5, 2011, by and between First Commercial Bank and Brogdon Family, as amended as of June 13, 2011. AdCare plansWestlake Nursing Home Limited to acquire fivea 118-bed skilled nursing facilitiesfacility located in Oklahoma City, Oklahoma, for an aggregate purchase price of $16 million. The$5,800,000. Pursuant to the Purchase and Sale Agreement, we deposited $25,000 into escrow to be held as earnest money. We expect the closing is expectedof the acquisition to occur no later than four months afteron May 15, 2012.
·On March 14, 2012, we entered into a Purchase and Sale Agreement with F & F Ventures, LLC and Tulsa Christian Care, Inc., doing business as Companions Specialized Care Center to acquire a 121-bed skilled nursing facility located in Tulsa, Oklahoma for an aggregate purchase price of $5,750,000. The purchase price consists of a $5,000,000 cash payment and the date AdCare Property Holdings files its applicationissuance of shares of our common stock with an aggregate value of $750,000, with such shares valued at the average closing price of our common stock for the ten-day period ending on the last business day prior to the closing of the acquisition. Pursuant to the Purchase and Sale Agreement, we deposited $150,000 into escrow to be held as earnest money. We expect the closing of the acquisition to occur on May 30, 2012. Beginning April 1, 2012, we entered into a certificatemanagement agreement to operate the facility in the interim period which will result in the consolidation of need with the Oklahoma State Departmentresults of Health.operations as a variable interest entity.
For information regarding purchase and sale agreements of facilities that have been entered into subsequent to March 31, 2012, see Note 15 in the “Notes to Consolidated Financial Statements” section of Part I, Item 1 of this Quarterly Report.
We are currently evaluating severalpotential acquisition opportunities in addition to those described above and we plan to continue to seek new opportunities to further our growth strategy. No assurances can beassurance is made that any of these potential acquisition opportunities will be determined to be appropriate for us or that they may be acquiredwe will complete any of such acquisitions on terms acceptable to us.us, or at all.
Segments
The Company reports its operations in fourthree segments: SNF, ALF, Home Health, and Management/Corporate.Corporate & Other. The Company delivers skilled nursing, assisted living and home health services through wholly owned separate operating subsidiaries. The SNF and ALF segments provide services to individuals needing long-term care in a nursing home or assisted living setting and management of those facilities. The Home Health segment provides home health care services to patients while they are living in their own homes. The Management/Corporate & Other segment engages in the management of facilities and accounting and IT services. We evaluate financial performance and allocate resources primarily based on segment operating income (loss). Segment operating results excludes interest expense and other non-operating income and expenses. Segment operating results excludes interest expense and other non-operating income and expenses. See Note 34 in the “Notes to Consolidated Financial Statements” section of Part I, Item 1 of this Quarterly Report.
Skilled Nursing Facilities
We focus on two primary indicators in evaluating the financial performance in this segment. Those indicators are facility occupancy and patient mix. Facility occupancy is important as higher occupancy generally leads to higher revenues. In addition, concentrating on increasing the number of Medicare covered admissions (“patient(the “patient mix”) helps in increasing revenues. We include commercial insurance covered admissions that are reimbursed at the same level as those covered by Medicare in our Medicare utilization percentages and analysis.
For the three months ended March 31, 2012, revenue in our skilled nursing segment increased approximately $18,354,000 compared to March 31, 2011, as a result of acquisitions during the year. This segment had an income from operations of $3,090,000 as a result of optimization of occupancy and quality mix as well as expense control. We expect to continue to implement and refine strategies designed to sustain these goals. Total assets increased $54,991,000 due to acquisitions made since March 31, 2011.
“Same Facilities” results represent those owned and leased facilities we began to operate prior to OctoberApril 1, 2010.2011.
“Recently Acquired Facilities” results represents those owned and leased facilities we began to operate subsequent to OctoberApril 1, 2010.2011.
Average Occupancy |
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
|
Same Facilities |
| 85.5 | % | 84.1 | % | 85.8 | % | 83.5 | % |
Recently Acquired Facilities |
| 85.3 | % | n/a |
| 86.7 | % | n/a |
|
Total |
| 85.4 | % | 84.1 | % | 86.2 | % | 83.5 | % |
|
| Three Months Ended March 31, |
| ||
|
| 2012 |
| 2011 |
|
Same Facilities |
| 85.9 | % | 86.8 | % |
Recently Acquired Facilities |
| 74.6 | % | n/a |
|
Total |
| 81.1 | % | 86.8 | % |
We continue our work towards maximizing the number of patients covered by Medicare where our profitoperating margins are higher.
Patient Mix
Three Months Ended September 30,March 31,
|
|
|
|
|
| Recently |
|
|
|
|
| |||||||||||||||
|
|
|
|
|
| Acquired |
|
|
|
|
| |||||||||||||||
|
| Same Facilities |
| Recently Acquired Facilities |
| Total |
|
| Same Facilities |
| Facilities |
| Total |
| ||||||||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| 2011 |
| 2010 |
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
Medicare |
| 16.3 | % | 11.8 | % | 11.5 | % | n/a |
| 13.6 | % | 11.8 | % |
| 15.0 | % | 15.5 | % | 13.2 | % | n/a |
| 14.3 | % | 15.5 | % |
Medicaid |
| 71.9 | % | 77.5 | % | 79.6 | % | n/a |
| 76.3 | % | 77.5 | % |
| 73.2 | % | 76.4 | % | 73.8 | % | n/a |
| 73.4 | % | 76.4 | % |
Other |
| 11.8 | % | 10.7 | % | 8.9 | % | n/a |
| 10.1 | % | 10.7 | % |
| 11.8 | % | 8.1 | % | 13.0 | % | n/a |
| 12.3 | % | 8.1 | % |
Total |
| 100.0 | % | 100.0 | % | 100.0 | % | n/a |
| 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % | 100.0 | % | n/a |
| 100.0 | % | 100.0 | % |
NineFor the Three Months Ended September 30,March 31, 2012:
|
| Same Facilities |
| Recently Acquired Facilities |
| Total |
| ||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| 2011 |
| 2010 |
|
Medicare |
| 16.6 | % | 12.4 | % | 12.3 | % | n/a |
| 14.5 | % | 12.4 | % |
Medicaid |
| 72.7 | % | 74.0 | % | 79.8 | % | n/a |
| 76.2 | % | 74.0 | % |
Other |
| 10.7 | % | 13.6 | % | 7.9 | % | n/a |
| 9.3 | % | 13.6 | % |
Total |
| 100.0 | % | 100.0 | % | 100.0 | % | n/a |
| 100.0 | % | 100.0 | % |
|
| Operational |
| Period’s |
|
|
| Medicare |
|
|
|
|
|
|
| |||
|
| Beds at |
| Average |
| Occupancy |
| Utilization |
| 2012 Q1 |
| Medicare |
|
|
| |||
|
| Period |
| Operational |
| (Operational |
| (Skilled |
| Total |
| (Skilled) |
| Medicaid |
| |||
Region (SNF Only) |
| End(1) |
| Beds |
| Beds) |
| %ADC)(2) |
| Revenues |
| $PPD(3) |
| $PPD(3) |
| |||
Alabama |
| 304 |
| 304 |
| 83.7 | % | 12.8 | % | $ | 4,920 |
| $ | 385.43 |
| $ | 182.77 |
|
Arkansas |
| 498 |
| 498 |
| 70.9 | % | 12.8 | % | $ | 6,422 |
| $ | 355.28 |
| $ | 171.31 |
|
Georgia |
| 1,497 |
| 1,497 |
| 86.6 | % | 14.5 | % | $ | 23,868 |
| $ | 468.73 |
| $ | 145.70 |
|
Missouri |
| 80 |
| 80 |
| 61.3 | % | 24.1 | % | $ | 923 |
| $ | 399.28 |
| $ | 134.01 |
|
North Carolina |
| 106 |
| 106 |
| 89.0 | % | 18.1 | % | $ | 1,906 |
| $ | 465.60 |
| $ | 154.91 |
|
Ohio |
| 293 |
| 293 |
| 82.9 | % | 17.7 | % | $ | 5,282 |
| $ | 467.15 |
| $ | 158.76 |
|
Oklahoma |
| 314 |
| 314 |
| 69.3 | % | 9.4 | % | $ | 3,225 |
| $ | 430.04 |
| $ | 123.94 |
|
Total |
| 3,092 |
| 3,092 |
| 81.1 | % | 14.3 | % | $ | 46,547 |
| $ | 442.03 |
| $ | 152.21 |
|
Medicare reimbursement rates and procedures(1)Excludes managed beds which are subject to change from time to time, which could materially impact our revenues. Medicare reimburses our skilled nursing facilities under a prospective payment system (“PPS”) for certain inpatient-covered services. Undernot consolidated.
(2)ADC is the PPS, facilities are paid a predetermined amount per patient, per day, based onAverage Daily Census
(3)PPD is the anticipated costs of treating patients. The amount to be paid is determined by classifying each patient into a resource utilization group (“RUG”) category that is based upon each patient’s acuity level. On July 29, 2011, the Centers for Medicare and Medicaid Services (“CMS”) announced a final rule reducing Medicare skilled nursing facility PPS payments in fiscal year 2012 by $3.87 billion, or 11.1% lower than payments for fiscal year 2011. CMS announced it is recalibrating the case-mix indexes (“CMIs”) for fiscal year 2012 to restore overall payments to their intended levels on a prospective basis. Each RUG group consists of CMIs that reflect a patient’s severity of illness and the services that a patient requires in the skilled nursing facility. In transitioning from the previous classification system to the new RUG-IV, CMS adjusted the CMIs for fiscal year 2011 based on forecasted utilization under this new classification system to establish parity in overall payments. The fiscal year 2011 recalibration of the CMIs will result in a reduction to skilled nursing facility payments of $4.47 billion, or 12.6%. However, this reduction would be partially offset by the fiscal year 2012 update to Medicare payments to skilled nursing facilities. The update, a 1.7% or $600 million increase, reflects a 2.7% market basket increase, reduced by a 1.0% multi-factor productivity (“MFP”) adjustment mandated by the Affordable Care Act. The combined MFP-adjusted market basket increase and the fiscal year 2012 recalibration will yield a net reduction of $3.87 billion, or 11.1%.Per Patient Day equivalent
Assisted Living Facilities
We focus on facility occupancy and staffingFor the three months ended March 31, 2012, revenue in our ALF segment.segment increased approximately $920,000 compared to March 31, 2011 as a result of increased revenue from acquisitions, an annual increase in rates charged to privately paying residents and increasing occupancy. This segment had income from operations of $694,000. Total assets increased $5,103,000 primarily due to acquisitions since March 31, 2011 and other building improvements made during the last 12 months.
|
| Average Occupancy |
| ||||||
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
|
Total |
| 77.5 | % | 72.0 | % | 75.9 | % | 79.1 | % |
|
| Average Occupancy |
| ||
|
| Three Months Ended |
| ||
|
| 2012 |
| 2011 |
|
Total |
| 81.4 | % | 74.5 | % |
Comparison for the three months ended March 31, 2012 and 2011
|
| Total Patient |
| ||||
Assisted Living |
| 2012 |
| 2011 |
| ||
Same Facilities |
| $ | 2,596 |
| 2,341 |
| |
Recently Acquired Facilities |
| 665 |
| n/a |
| ||
Total |
| $ | 3,261 |
| $ | 2,341 |
|
Residents of our assisted living facilities rely on their personal investments and wealth to pay for their stay. RecentAlthough many of the risks still remain, such as declines in market values of investments, could limit their ability to pay for services or shorten the period of time for which they can pay privately for their stay. The current depressed market for the sale of private homes, could limit their ability to sell their personal assets further reducing their ability to remain in our facilities. Furthermore,and adult children who have recently become unemployed
may decide to carecaring for their parentelderly at home, so that their parent’s income may help offset some of their own financial burdens. We do not believe this is a trend and we believe facility occupancy will improve.have seen an increase in census.
Home Health Care
In addition to providing home health care services to patients in their homes, we are utilizing our Home Health services in our assisted living and independent living properties in Ohio. For the three months ended September 30, 2011, the percentage of our home health patients covered by Medicare has decreased 14.8% compared to the three months ended September 30, 2010. We are reviewing our current strategies to attempt to correct the downturn of results in this segment.
Management/Corporate & Other
We manage three skilled nursing facilities one assisted living facility and one independent living campus for third party owners under contractsmanagement agreements that either are for a fixed monthly fee or for a percentage of revenue generated by the managed facility. Depending on the type of contract,management agreement, our revenues increase annually according to inflationary adjustments stipulated in our management agreements or they increase as the facility’s revenue increases for the contractsmanagement agreements that are based on a percentage of revenue. This segment includes our corporate overhead expenses, which are made up of salaries of our senior management team members and various other corporate expenses, including, but not limited to, corporate office operating expenses, audit fees, legal fees and board activities. Additionally, non-cash charges for compensation expense related to warrants, restricted stock and stock options are included in corporate overhead. We do not allocate these expenses to the divisions or separate them from management and development business for management review purposes.
Results of Operations
|
| Total Patient Care Revenues |
|
| Total Patient Care Revenues |
| ||||||||||||||||
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| |||||||||||||||||
(Amounts in 000s) |
| Three Months Ended March 31, |
| |||||||||||||||||||
Skilled Nursing |
| 2011 |
| 2010 |
| 2011 |
| 2010 |
|
| 2012 |
| 2011 |
| ||||||||
Same Facilities |
| $ | 17,598,000 |
| $ | 9,942,000 |
| $ | 52,130,000 |
| $ | 16,480,000 |
|
| $ | 29,090 |
| $ | 28,191 |
| ||
Recently Acquired Facilities |
| $ | 20,576,000 |
| n/a |
| $ | 45,898,000 |
| n/a |
|
| 17,455 |
| n/a |
| ||||||
Total |
| $ | 38,174,000 |
| $ | 9,942,000 |
| $ | 98,028,000 |
| $ | 16,480,000 |
|
| $ | 46,545 |
| $ | 28,191 |
| ||
|
|
|
|
|
| |||||||||||||||||
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| |||||||||||||||||
Assisted Living |
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| |||||||||||||
Total |
| $ | 2,520,000 |
| $ | 2,231,000 |
| $ | 7,382,000 |
| $ | 5,997,000 |
|
|
| Three Months Ended March 31, |
| ||||
Assisted Living |
| 2012 |
| 2011 |
| ||
Same Facilities |
| $ | 2,596 |
| $ | 2,341 |
|
Recently Acquired Facilities |
| 665 |
| n/a |
| ||
Total |
| $ | 3,261 |
| $ | 2,341 |
|
Comparison for the three months ended September 30,March 31, 2012 and 2011 compared to the three months ended September 30, 2010
Patient Care Revenues - For the periods presented, total patient care revenues increased $28$19.3 million, or 218%63%.
Revenue in our SNF segment increased approximately $28,232,000$18,354,000 when compared to the three months ended September 30, 2010,March 31, 2011, primarily as a result of acquisitions that occurred after September 30, 2010.additional facilities acquired since March, 2011. In addition, census and quality mix improved existing facilities. This segment had a net income from operations of $2,338,000$3,090,000 which is $1,924,000$2,585,000 higher compared to the three months ended September 30, 2010March 31, 2011 as a result of higher revenue due to acquisitions increased occupancy and more residents covered by Medicare.improved reimbursement. We planare seeking to increase facility occupancy and to increase the number of patients covered by Medicare. We expectseek to continue to implement and refine strategies designed to achieve these goals.
Revenue in our ALF segment increased approximately $288,000$920,000 when compared to the three months ended September 30, 2010,March 31, 2011, as a result of increased census and levels of care.care as well as the addition of one new facility in 2012 and one new facility in the fourth quarter of 2011. This segment had income from operations of $411,000$694,000 which is $627,000$490,000 more than the same period in 20102011 from increased occupancy and an annual increase in rates charged to residents of the facilities.
Revenue in our Home Health segment declined when compared to the same period in 2010, as a result of fewer patients and fewer patients covered by Medicare. The decline in revenues resulted in a loss from operations of approximately $160,000, compared with operating loss of $29,000 for the same period in 2010.
Management Revenue - For the periods presented, management revenues (net of eliminations) decreased $204,000,$135,000, or 38%27%, as a result of fewer managed facilities.
PayrollCost of Sales — For the periods presented, cost of sales was approximately $40,123,000 compared to $25,175,000 for the same period a year ago. This is the result of numerous acquisitions over the past 12 months.
General and Related Payroll CostsAdministrative - For the periods presented, payrollgeneral and related payrolladministrative costs have increased $13.8 million, or 168%, resulting primarily from$1,007,000 due to additional management staff necessary to direct the acquisitiongrowth and maximize the results of 16 skilled nursing facilities and six variable interest entities. We also increased our corporate overhead structure and opened an accounting service center located in Roswell, Georgia during the second quarter of 2011.newly acquired facilities.
Other Operating Expenses -Three Months Ended March 31, 2012 For the periods presented, other operating costs increased $9.7 million, or 210%. The increase is primarily attributable to the operations of the recently acquired skilled nursing facilities.
|
|
| Same |
| Recently |
| Total |
| |||||||||||||
(Amounts in 000s) |
| Same |
| Recently |
| Total |
| |||||||||||||
SNF Other Operating Expenses |
| $ | 6,993,000 |
| $ | 5,488,000 |
| $ | 12,481,000 |
|
| $ | 27,482 |
| $ | 15,973 |
| $ | 43,455 |
|
ALF Other Operating Expenses |
| 594,000 |
| — |
| 594,000 |
|
| 2,055 |
| 512 |
| 2,567 |
| ||||||
Home Health Other Operating Expenses |
| 125,000 |
| — |
| 125,000 |
| |||||||||||||
Management/Corporate Other Operating Expenses |
| 967,000 |
| 206,000 |
| 1,173,000 |
|
| 4,079 |
| — |
| 4,079 |
| ||||||
Eliminations |
| (1,579 | ) | (906 | ) | (2,485 | ) | |||||||||||||
Total Other Operating Expenses |
| $ | 8,679,000 |
| $ | 5,694,000 |
| $ | 14,373,000 |
|
| $ | 32,037 |
| $ | 15,579 |
| $ | 47,616 |
|
Infrastructure Costs -Company management separately identifies certain costs, which the companyCompany has incurred that we believe are directly related to the growth of the company.Company. These “infrastructure costs” include, but are not limited to, additional management and staff necessary to support our operational teams in our newly acquired facilities, including those in states that we have not previously operated. These costs are included on the Consolidated Statement of Operations (included elsewhere in this Quarterly Report) under both PayrollGeneral and Related Costs, and under Other OperatingAdministrative Expenses. Infrastructure costs are estimated as $514,000$159,000 and $117,000 for the three months ending September 30, 2011. These are newly identified expensesended March 31, 2012 and therefore there are no comparable costs for the same period of 2010.2011, respectively.
LeaseFacility Rent Expense - - For the periods presented, lease expenses increased $1.1 million. The lease expense increase resulted from$162,000 due to annual increases and the acquisitions of ten leased facilities in Georgia. We recorded lease expense for the third quarter of 2011 on all ten facilities, but only had lease expense during the third quarter of 2010. Fiveaddition of the facilities were acquiredone new leased facility in August of 2010, three facilities were acquired in September of 2010, and the remaining two were acquired during the fourth quarter of 2010.2011.
|
| Three Months Ended September 30 |
| ||||
|
| 2011 |
| 2010 |
| ||
Lease Expense |
| $ | 1,981,000 |
| $ | 869,400 |
|
|
| Three Months Ended March 31 |
| ||||
(Amounts in 000s) |
| 2012 |
| 2011 |
| ||
Lease Expense |
| $ | 2,065 |
| $ | 1,903 |
|
Depreciation and Amortization - For the periods presented, depreciation and amortization increased $537,000.$850,000. The depreciation increase is directly related to acquisition activity that was not included in the 20102011 results as it occurred in later periods. In addition, the acquisitions resulted in financing costs and intangibles that are being amortized during the period (see tables presented below).period.
Interest Expense, net - For the periods presented, interest expense, net increased $1.8$1.5 million, or 430%106%. We have entered into numerous debt instruments in relation to our growth strategy for the acquisition of the facilities which began in the third quarter of 2010. In addition, several of the arrangements are short term in nature resulting in higher interest rates than previously experienced.
Acquisition Costs, netexperienced and an increase in the amortization of Gains - Fordeferred loan costs associated with the period ended September 30, 2011, acquisition costs, net of gains was an expense of $1,146,700, compared to a net loss of $402,900 for the comparative period. For the period ended September 30, 2011,new debt agreements.
$990,300Acquisition Costs, net of Gains - For the period ended March 31, 2012, acquisition costs, net of gains was an expense of $293,000, compared to a net gain of $979,000 for the comparative period. For the period ended March 31, 2012, the total acquisition costs were legal fees directly related to the August Oklahoma VIE transactionacquisition of the two Ohio facilities and September 1, 2011 Pinnacle Acquisition in Arkansas.The remaining $156,400 ofother costs forincurred on potential future acquisitions. For the period were IT consulting expenses,ended March 31, 2011, the amount was the result of gains recognized on the acquisition expenses, and accounting costs related to the change of ownership requirements. The facilities were purchased at fair market value; therefore, there were no bargain purchase gains recognized. For the same period in 2010, the Company recognized a net loss of approximately $402,900 resulting from acquisition costs related to the lease of ten facilities in Georgia. The Company began operating five of the ten facilities on August 1, 2010 and three additional facilities on September 1, 2010. The remaining two facilities were a fourthSylva, North Carolina facility during the first quarter, transaction.2011.
Derivative Gain/Loss -For the period ended September 2011,March 31, 2012, the derivative gain was $4.74 million, and there were no costs recorded$410,000, compared to a loss of $1,350,000 for the same period in the comparative period.2011. The derivative is a product of a convertible debt instrument entered into during the third quarter of 2010. The expense associated with the derivative increases as the stock price climbs, and conversely decreases as the stock price declines. The price of the common stock of the Company declined during the three-month period ended September 30, 2011.
Loss on Debt Extinguishment - For the period ended September 2011, the loss on debt extinguishment was $58,400 and there were no costs recorded in the comparative period. In June 2011, we recorded a $13,100 loss on debt extinguishment resulting from unamortized deferred financing costs related to a $75,000 conversion of debt. In August 2011, the refinance of Erin Property resulted in a $45,300 loss on debt extinguishment related to the unamortized deferred financing costs for the interim financing that was refinanced.March 31, 2012.
Other Income/(Expense) - For the periods presented, other expenses decreased $21,000. .
Income Tax Expense - For the periods presented, income tax expense increased $204,000. In the last two quarters of 2010, we acquired certain facilities which resulted in the recognition of indefinite lived intangible assets. Due to the nature of these assets and the tax treatment associated with it, we record a deferred tax liability which was not present in the September 2010 quarter. In addition, we generated taxable income for the three months ended September 30, 2011. This income is offset at the federal level by loss carry forwards, however we owe taxes in a number of states in which we operate.
Comparison for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010
Patient Care Revenues - For the periods presented, total patient care revenues increased $81.6 million, or 336%.
For the nine months ended September 30, 2011, revenue in our SNF segment increased approximately $81,548,000 compared to the nine months ended September 30, 2010, primarily as a result of acquisitions that occurred after September 30, 2010. This segment had a net income from operations of $4,581,000, which is $3,349,000 greater than net income from operations for this segment for the nine months ended September 30, 2010 as a result of higher revenue due to the acquisition of sixteen new facilities and five variable interest entities, as well as, increased occupancy and a greater number of residents covered by Medicare.
For the nine months ended September 30, 2011, revenue in our ALF segment increased approximately $1,385,000 compared to the nine months ended September 30, 2010, from increased revenue from a VIE acquisition. This segment had income from operations of $1,004,000, which is $1,418,000 greater than income from operations for the same period in 2010 because of the acquisition and an annual increase in rates charged to residents of the facilities.
For the nine-month period ended September 30, 2011, revenue in our Home Health segment declined compared to the same period in 2010, as a result of fewer patients and fewer patients covered by Medicare. The decline in revenues for the nine months ended September 30, 2011, resulted in a loss from operations of approximately $321,000, compared with operating income of $4,000 for the same period in 2010.
Management Revenues - For the periods presented, management revenues (net of eliminations) decreased $252,000, or 16%, as a result of fewer managed facilities.
Payroll and Related Payroll Costs - For the periods presented, payroll and related payroll costs increased $42.9 million, or 264%, resulting primarily from the acquisition of 16 skilled nursing facilities and five variable interest entities. We also increased our corporate overhead structure and opened an accounting service center located in Roswell, Georgia during the second quarter of 2011.
Other Operating Expense - For the periods presented, other operating costs increased $27.7 million, or 315%. The increase is directly related to the operationsincome decreased $622,000. There was a recovery of the recently acquired skilled nursing facilities, as well as minor increases in other segments.
Nine Months Ended September 30, 2011 | ||||||||||
|
|
|
|
|
|
|
| |||
|
| Same |
| Recently |
| Total |
| |||
SNF Other Operating Expenses |
| $ | 19,888,000 |
| $ | 11,359,000 |
| $ | 31,247,000 |
|
ALF Other Operating Expenses |
| 1,881,000 |
| n/a |
| 1,881,000 |
| |||
Home Health Other Operating Expenses |
| 361,000 |
| n/a |
| 361,000 |
| |||
Management/Corporate Other Operating Expenses |
| 2,799,000 |
| 260,000 |
| 3,059,000 |
| |||
Total Other Operating Expenses |
| $ | 24,929,000 |
| $ | 11,619,000 |
| $ | 36,548,000 |
|
Infrastructure Costs - Company management separately identifies certain costs, which the company has incurred that we believe are directly related to the growth of the company. These “infrastructure costs” include, but are not limited to, additional management and staff necessary to support our operational teams in our newly acquired facilities, including those in states that we have not previously operated. These costs are included on the Statement of Operations under both Payroll and Related Costs, and under Other Operating Expenses. Infrastructure costs are estimated as $939,000 for the nine months ending September 30, 2011. These are newly identified expenses and therefore there are no comparable costs for the same period of 2010.
Lease Expense - For the periods presented, lease expenses increased $4.7 million. The lease expense increase resulted from the acquisition of ten leased facilities in Georgia.
|
| Nine Months Ended September 30 |
| ||||
|
| 2011 |
| 2010 |
| ||
Lease Expense |
| $ | 5,830,900 |
| $ | 1,158,900 |
|
Depreciation and Amortization - For the periods presented, depreciation and amortization increased $1,422,000. The depreciation increase is directly related to acquisition activity that was not includedreceivables recorded in the 2010 results. In addition, the acquisitions resulted in financing costs and intangibles that are being amortized during the period.prior year.
Retirement and Salary Continuation Costs - For the period ended June 2011, we accrued retirement and salary continuation costs of approximately $622,000 related to separation agreements with the Company’s former Chief Executive Officer and Chief Financial Officer.
Interest Expense, net - For the periods presented, interest expense, net increased $4.5 million, or 449%. We have entered into numerous debt instruments in relation to our growth strategy for the acquisition of the facilities which began in the third quarter of 2010. In addition, several of the arrangements are short term in nature resulting in higher interest rates than previously experienced.
Acquisition Costs, net of Gains - For the period ended September 30, 2011, acquisition costs, net of gains was a net loss of $789,400, compared to a net gain of $1,226,900 for the comparative period. The $789,400 acquisition costs, net of gains for the nine months ended September 30, 2011, were the result of a $1,039,000 gain on the purchase of the Mountain Trace facility. The transaction resulted in a bargain purchase because the seller was motivated to sell the facility. This net gain was offset by $1,537,200 of legal fees and finder’s fees directly related to the purchase of Autumn Breeze Healthcare Center, Southland Care Center, and College Park Healthcare Center. Additional acquisition costs resulted from the Oklahoma VIE transaction and the Pinnacle Acquisition. The remaining $291,600 were IT consulting expenses, acquisition expenses, and accounting costs related to the change of ownership requirements. The facilities were purchased at fair market value; therefore there were no bargain purchase gains recognized. In comparison, in the same period of 2010 we acquired our partner’s 50% noncontrolling interest in three assisted living facilities. The combined purchase price for the acquisition was $500,000. As a result, we recognized a gain of approximately $826,000. We also recognized a net gain of approximately $808,000 resulting from the purchase of Riverchase Village. The gains were offset by $407,000 of acquisition costs related to the lease of ten facilities in Georgia.
Derivative Gain/Loss - For the period ended September 2011, the derivative gain was $807,000; there were no costs recorded in the comparative period. The derivative is a product of a debt instrument entered into during the third quarter of 2010. The expense associated with the derivative increases as the stock price climbs, and conversely decreases as the stock price declines. The price of the common stock of the Company declined during the-nine month period ended September 30, 2011.
Loss on Debt Extinguishment - For the period ended September 2011, the loss on debt extinguishment was $136,000; there were no costs recorded in the comparative period. In March 2011, we issued a promissory note in the amount of $1,385,000 and paid a commitment fee of $55,400. Subsequent to March 31, 2011, we repaid this promissory note, and recorded a loss on debt extinguishment resulting from unamortized deferred financing costs. In June 2011, we recorded a $13,100 loss on debt extinguishment resulting from unamortized deferred financing costs related to a $75,000 conversion of debt. In August 2011, the refinance of Erin Property resulted in a $45,300 loss on debt extinguishment related to the unamortized deferred financing costs for the interim financing that was refinanced.
Other Income/(Expense) - For the period ended September 30, 2011, other income of $558,000 was recorded, compared with other expense of $79,000 for the comparative period, a net change of $637,000. In the acquisition of five leased facilities in 2010, we purchased receivables and recorded them at the estimated value at the time of acquisition. We collected substantially more of the receivables than expected by $632,000, resulting in the additional income for 2011.
Income Tax Expense - For the periods presented, income tax expense increased $414,000. The increase over prior year is partly due to the acquisition of certain facilities which resulted in the recognition of indefinite lived intangible assets. Due to the nature of these assets and the tax treatment associated with it, we record a deferred tax liability which was not present in the September 2010 quarter. In addition, we generated taxable income through September 30, 2011. This income is offset at the federal level by loss carry forwards, however we owe taxes in a number of states that we operate.
Critical Accounting Policies and Use of Estimates
There have been no significant changes during the three-month periodthree months ended September 30, 2011March 31, 2012 to the items that we disclosed as our critical accounting policies and use of estimates in our discussion and analysis of financial condition and results of operation contained in the Annual Report.
Liquidity and Capital Resources
Overview
Our primary sourcesLiquidity is the measure of the Company’s ability to have adequate cash or access to cash at all times in order to meet financial obligations when due, as well as to fund corporate expansion and other activities. Historically, the Company has met its liquidity have historically been derived from ourrequirements through a combination of net cash flow from operations, our revolving credit facilities, long-term debt secured by our real propertyfrom third party lenders and proceeds from stock activity.
Since 2010, we have financed the majorityissuances of our facility acquisitions primarily through bridgeother debt and permanent financings secured by the acquired facility, unsecured corporate obligations, and cash generated from operations.equity securities.
We believe our current cash balances, our cash flow fromhave negative working capital of approximately $6,537,000 at March 31, 2012. Our ability to sustain profitable operations is dependent on continued growth in revenue and the revolving line of credit facilities currently in place will be sufficient to cover our operating needs for at leastcontrolling costs.
During the next twelve months. Wemonths, the Company believes it will require additional financing to satisfy its financial obligations and implement its expansion strategy. The Company is currently exploring several financing alternatives and may in the future seek to raise additional capital through the sale of additional debt or equity securities, although there is no assurance that the Company will be able to fund our growth, capital renovations, operations and for other activities associated with our business; however, suchraise additional capital may not be availablethrough the issuance of debt or equity securities on terms acceptable terms, on a timely basis,to it, or at all. If the Company is unable to secure such additional financing, then the Company may be required to restructure its outstanding indebtedness and delay or modify its expansion plans.
Eaglewood Facilities Financing
On January 1, 2012, Woodland Holdings, LLC, our wholly owned subsidiary, entered into a loan agreement with The PrivateBank and Trust Company in an aggregate principal amount of $4,800,000. The loan was used to fund the acquisition of the Woodland Manor facility located in Springfield, Ohio.
The loan matures on December 30, 2016. Interest on the loan accrues on the principal balance thereof at an annual rate of the greater of (i) 6.0% per annum or (ii) the LIBOR rate plus 4.0% per annum, and payments for the interest and a portion of the principal balance are payable monthly, commencing on February 1, 2012 and ending on December 1, 2016. The entire outstanding principal balance of the loan, together with all accrued but unpaid interest thereon, is payable on December 30, 2016. The loan is secured by a first mortgage on the real property and improvements constituting the Woodland Manor facility and guaranteed by AdCare.
In addition, on January 1, 2012, Eaglewood Holdings, LLC and Eaglewood Village, LLC, our wholly owned subsidiaries, jointly and severally issued two promissory notes to Eaglewood Villa, Ltd. in the amount of $4,500,000 and $500,000. Proceeds from the notes were used to fund the acquisition of the Eaglewood Village facility located in Springfield, Ohio.
The $500,000 note matures on December 30, 2016 and the $4,500,000 note matures on June 30, 2012. Interest on the $500,000 note accrues at a rate of 6.5% per annum and interest on the $4,500,000 Eaglewood Loan accrues at a rate of (i) 6.5% per annum from January 1, 2012 to February 29, 2012; (ii) 8.5% per annum from March 1, 2012 to April 30, 2012; and (iii) 10.5% per annum from May 1, 2012 to June 30, 2012. Principal and interest payments under the notes shall be due and payable monthly, beginning on February 1, 2012. The notes are secured by a mortgage on the real property and improvements constituting the Eaglewood Village facility.
HUD Financing
On January 31, 2012, we refinanced the mortgage on our Home & Hearth of Vandalia facility to obtain a term note guaranteed by HUD. The HUD mortgage note requires monthly principal and interest payments with an annual fixed interest rate of 3.74%. The note matures in 2041. The note has a prepayment penalty of 8% for any prepayment made prior to March 1, 2014, which penalty is reduced by 1% each year thereafter until the eighth anniversary of such date, after which there is no prepayment penalty.
Cantone Promissory Note — March 2012
On March 29, 2012, we issued a promissory note in favor of Cantone Asset Management LLC for an aggregate principal amount of $3,500,000. The note matures on the earlier of: (i) October 1, 2012; or (ii) the date on which we shall receive proceeds, in an amount not less than $6,000,000, from a public offering or private placement of our common stock. Interest on the note accrues on the principal balance thereof at an annual rate of 10%; provided, however, if the entire principal amount of the note is not paid by July 1, 2012, the interest rate shall increase by 1% for each month or part thereof during which any principal amount of the note shall remain unpaid. We may prepay the note in whole or in part, at any time, without notice or penalty; provided, however, if the note is prepaid prior to October 1, 2012, then we shall continue to pay interest on the note through such date.
In connection with the issuance of the note, Cantone Research, Inc. has agreed to provide us with certain consulting services for a monthly fee if the Company and Cantone Asset Management LLC (or an affiliated entity) do not agree to the terms of an additional financing arrangement pursuant to which it (or affiliated entity) would loan to us at least $4,000,000 for a four-year term.
2012 Public Stock Offering
In March 2012, we completed a firm commitment underwritten public offering of 1,100,000 shares of our common stock at a public offering price of $3.75 per share. We received net proceeds of approximately $3.6 million after deducting underwriting discounts, and other offering-related expenses of approximately $0.5 million. We intend to use the net proceeds from this offering for working capital and other general corporate purposes.
The Company has also granted the underwriters in the offering an option for 45 days to purchase an additional 165,000 shares of common stock to cover over-allotments, if any. This over-allotment option expires on May 11, 2012.
For information on financings that have been entered into subsequent to fund the operations of the HUD financed property. In January and July each year, we are permitted to withdraw cash from these properties if a calculation of cash flow determines that the properties have generated cash in excess of what is needed to fund the expenses of the propertyMarch 31, 2012, see Note 15 in the short term. When the calculation indicates there is available cash, we withdraw the funds from the property and deposit them in an interest bearing checking account and hold them for future use in operations. Of our unrestricted cash balance“Notes to Consolidated Financial Statements” section of approximately $10,050,000, there was approximately $1,606,000Part I, Item 1 of cash that was subject to these requirements as of September 30, 2011.this Quarterly Report.
The following table presents selected data from our consolidated statement of cash flows for the periods presented:
|
| Nine Months Ended |
|
| Three Months Ended March 31 |
| ||||||||
|
| 2011 |
| 2010 |
|
| 2012 |
| 2011 |
| ||||
|
| (In thousands) |
| |||||||||||
Net cash provided by (used in) operating activities |
| $ | 1,030 |
| $ | (1,088 | ) | |||||||
Net cash used in investing activities |
| (13,236 | ) | (7,000 | ) | |||||||||
Net cash provided by financing activities |
| 18,345 |
| 9,062 |
| |||||||||
Net cash provided by operating activities - continuing operations |
| $ | 2,066 |
| $ | 623 |
| |||||||
Net cash (used in) provided by operating activities - discontinued operations |
| (204 | ) | 160 |
| |||||||||
Net cash used in investing activities - continuing operations |
| (3,012 | ) | (545 | ) | |||||||||
Net cash provided by financing activities - continuing operations |
| 5,162 |
| 5,601 |
| |||||||||
Net cash used in financing activities - discontinued operations |
| (48 | ) | (46 | ) | |||||||||
Net change in cash and cash equivalents |
| 6,139 |
| 974 |
|
| 3,964 |
| 5,793 |
| ||||
Cash and cash equivalents at beginning of period |
| 3,911 |
| 4,481 |
|
| 7,364 |
| 3,911 |
| ||||
Cash and cash equivalents at end of period |
| $ | 10,050 |
| $ | 5,455 |
|
| $ | 11,328 |
| $ | 9,704 |
|
NineThree months ended September 30, 2011March 31, 2012
Net cash provided by operating activities for the ninethree months ended September 30, 2011,March 31, 2012, was approximately $1,030,000$1,862,000 consisting primarily of our income from operations less the noncash gain on acquisitions,net loss and changes in working capital, andoffset by noncash charges (primarily depreciation and amortization, the derivative loss, share-based compensation, difference between straight-line rent and rent paid, and amortization of debt discounts and related deferred financing costs); all primarily the result of routine operating activity.
Net cash used in investing activities for the ninethree months ended September 30, 2011,March 31, 2012, was approximately $13,236,000.$3,012,000. This is primarily the result of funding our acquisitions, including making escrow deposits.
Net cash provided by financing activities was approximately $18,345,000$5,114,000 for the ninethree months ended September 30, 2011.March 31, 2012. This is primarily the result of cash proceeds received from warrant exercises, increases in borrowings on the line of credit,public stock offering, and proceeds from debt financings to fund our acquisitions, partially offset by repayments of existing debt obligations.
NineThree months ended September 30, 2010March 31, 2011
Net cash used in operating activities for the ninethree months ended September 30, 2010March 31, 2011 was approximately $1,088,000$783,000 consisting primarily of our net loss from operations and changes in working capital partially offset by noncash charges, all primarily the result of routine operating activity.
Net cash used in investing activities for the ninethree months ended September 30, 2010March 31, 2011 was approximately $7,000,000.$545,000. This is primarily the result of escrow deposits for the acquisition of two facilities, the purchase of the remaining 50% noncontrolling interest in Community’s Hearth & Home and Hearth & Home of Urbana assisted living facilities,acquisitions and the purchase of additional equipment offset partially offset by a decreasereductions in restricted cash due to proceeds received from HUD required escrow accounts.and investments.
Net cash provided by financing activities was approximately $9,062,000$5,555,000 for the ninethree months ended September 30, 2010.March 31, 2011. This is primarily the result of proceeds from the convertible debt issuance net of issuance costs on March 31, 2011, and increases in borrowings on the line of credit proceeds from debt financings to fund our acquisitions, partially offset by repayments of existing debt obligations.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not required.
Item 4. 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 Securities and Exchange Commission and that such information is accumulated and communicated to our management, including our Chief Executive Officer and 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.
As required by Rule 13a-15(b) of Rule 15d-15(b) of the Exchange Act, we carried out an evaluation, under the supervision andOur Management, with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, ofhas evaluated the effectiveness of the design and operation of our disclosure controls and procedures as required by Rule(as such term is defined in Rules 13a-15(e) of Ruleand 15d-15(e) ofunder the Exchange ActAct) as of the end of the period covered by this Quarterly Report.Report (the “Evaluation Date”). Based on the foregoing,such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures wereare effective.
During the second quarter of 2011, AdCare’s regional accounting office began to provide accounting, human resources and payroll services to the majority of our facilities. Additionally, we are in the process of implementing a new accounting software system that should be fully operational in the fourth quarter to provide more efficient access to information and more robust reporting. Other than the aforementioned, there hasThere have not been no changeany changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscalthe quarter ended March 31, 2012 that hashave been materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
We are party to various legal actions and administrative proceedings and are subject to various claims arising in the ordinary course of business, including claims that our services have resulted in injury or death to the residents of our facilities and claims related to employment, staffing requirements and commercial matters. Although we intend to vigorously defend ourselves in these matters, there can be no assurance that the outcomes of these matters will not have a material adverse effect on our results of operations and financial condition.
We operate in an industry that is extremely regulated. As such, in the ordinary course of business, we 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 to being subject to direct regulatory oversight of state and federal regulatory agencies, our industry is frequently subject to the regulatory practices, which could subject us to civil, administrative or criminal fines, penalties or restitutionary relief, and reimbursement authorities could also seek the suspension or exclusion of the provider or individual from participation in their program. 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 us, whether currently asserted or arising in the future, could have a material adverse effect on our financial position, results of operations and cash flows.
Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows, and trading price of our common stock. Please refer to our Annual Report for additional information concerning these and other uncertainties that could negatively impact the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 17, 2011, the Company gave notice that it was exercising its option to call for redemption the outstanding IPO Warrants and Private Placement Warrants. Registered holders of the Warrants had until September 19, 2011 to exercise each Warrant for 1.05 shares of common stock at a price of $2.38 per share. On September 14, 2011, the Company announced that it extended the last day of the Call Exercise Period to September 26, 2011. Any Warrants not exercised by the registered holders thereof within the Call Exercise Period automatically expired on the last day of the Call Exercise Period, and AdCare remitted to the registered holders of such expired Warrants the sum of ten cents ($.10) per underlying share of common stock.
ISSUER PURCHASES OF EQUITY SECURITIES
Period |
| Total Number of |
| Average Price |
| Total Number |
| Maximum |
| |
July 1, 2011 to July 31, 2011 |
| — |
| — |
| — |
| — |
| |
August 1, 2011 to August 31, 2011 |
| — |
| — |
| — |
| — |
| |
September 1, 2011 to September 30, 2011 |
| 29,326 |
| $ | 0.10 | (1) | 29,326 |
| — |
|
Total |
| 29,326 |
| $ | 0.10 | (1) | 29,326 |
| — |
|
(1)Each warrant redeemed had 1.05 underlying shares of common stock, and each such share was redeemed for $0.10. The aggregate amount paid in redemption of all expired warrants was approximately $3,000.
TheOn May 9, 2012, we entered into an Assignment of Purchase and Sale Agreement with GL Nursing, LLC (“GL Nursing”), pursuant to which we assigned all of our rights, and GL Nursing assumed all of our obligations, under that certain Purchase and Sale Agreement, as amended, made and entered into as of January 17, 2012, by and between AdCare Property Holdings, LLC and Gyman Properties, LLC.
Pursuant to the Purchase and Sale Agreement and as previously disclosed: (i) we had the right to acquire land, buildings, improvements, furniture, fixtures and equipment comprising a 141-bed skilled nursing facility known as Golden Years Manor located in Lonoke, Arkansas for an aggregate purchase price of $6,486,000; and (ii) in connection therewith, deposited $250,000 into escrow as a deposit and extension fee. Pursuant to the Assignment of Purchase and Sale Agreement, GL Nursing has agreed to reimburse us the $250,000 deposit and all of our out-of-pocket costs relating to the Golden Years Manor facility upon the closing of the acquisition.
Christopher Brogdon, the Company’s Vice Chairman and Chief Acquisition Officer and a beneficial owner of greater than 10% of the Company’s common stock, beneficially owns and controls GL Nursing. For a further description of the Company’s relationship with Mr. Brogdon, see the information set forth in Note 11in: (i) the section entitled “Certain Information and Related Party Transactions” of our Proxy Statement on Schedule 14A filed with the Notes to Consolidated Financial Statements included in Part I,Securities and Exchange Commission on March 30, 2012; (ii) the Annual Report; and (iii) Item 1,1.01 of this report regardingour Current Report on Form 8-K filed with the issuances of incentive stock options to certain members of managementSecurities and Exchange Commission on August 26, 2011, isApril 23, 2012, which sections and items are incorporated herein by reference. The issuances were made without registration under the Securities Act of 1933, as amended, in reliance upon the exemption set forth in Section 4(2) thereof.
The information set forth in Note 8 and Note 10 of this report captioned “The Living Center, Kenwood Manor, Enid Senior Care, Betty Ann Nursing Center, Grand Lake Village” and “Oklahoma VIE Facilities” respectively, is incorporated herein by reference.
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 No. |
| Description |
| Method of Filing |
2.1 |
| Purchase and Sale Agreement, dated as of |
| Incorporated by reference from Exhibit |
|
|
|
|
|
2.2 |
| Purchase and Sale Agreement, dated as of |
| Incorporated by reference from Exhibit |
|
|
|
|
|
2.3 |
| Purchase and Sale Agreement, |
| Incorporated by reference from Exhibit |
|
|
|
|
|
2.4 |
|
|
| Incorporated by reference from Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed |
|
|
|
|
|
2.5 |
|
|
| Incorporated by reference from Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed |
2.6 | Third Amendment to Purchase and Sale Agreement, dated as of April 17, 2012, by and between First Commercial Bank and AdCare Property Holdings, LLC. | Incorporated by reference from Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed April 23, 2012 | ||
2.7 | Purchase Agreement, dated as of April 27, 2012, between AdCare Property Holdings, LLC and Pinewood Holdings, LLC | Incorporated by reference from Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed May 3, 2012 | ||
2.8 | Second Amendment to Purchase and Sale Agreement, dated April 30, 2012, by and between Gyman Properties, LLC and AdCare Property Holdings, LLC | Incorporated by reference from Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed May 3, 2012 | ||
|
|
|
|
|
3.1 |
| Amended and Restated Articles of |
| Incorporated by reference from Exhibit 3.1 of the Registrant’s Registration Statement Form SB (Registration No. 333-131542) |
Exhibit No. | Description | Method of Filing | ||
filed February 3, | ||||
|
|
|
|
|
3.2 |
| Code of |
| Incorporated by reference from Exhibit 3.2 of the Registrant’s Registration Statement Form SB |
| ||||
|
|
|
|
|
3.3 |
| Amendment to Amended and Restated Articles of | Incorporated by reference to Exhibit 3.3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 | |
4.1 | Warrant to Purchase 312,500 Shares of Common Stock, dated April 1, 2012, issued by AdCare Health Systems, Inc. to Strome Alpha Offshore Ltd. |
| Filed | |
4.2 | Warrant to Purchase 300,000 Shares of Common Stock, dated March 30, 2012, issued by AdCare Health Systems, Inc. to Cantone Asset Management LLC | Filed herewith | ||
|
|
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
10.2 |
| Mortgage Note, dated |
|
|
|
|
|
|
|
10.3 |
|
|
|
|
|
|
|
|
|
10.4 |
|
|
|
|
|
|
|
|
|
10.5 |
|
|
| Incorporated by reference from Exhibit |
|
|
|
|
|
10.6 |
|
|
|
|
|
|
|
|
|
10.7 |
|
|
|
|
Exhibit | Description | Method of Filing | ||
|
|
|
|
|
10.8 |
|
|
|
|
|
|
|
|
|
10.9 |
|
|
|
|
|
|
|
|
|
10.10 |
|
|
|
|
|
|
|
|
|
10.11 |
|
|
|
|
|
| |||
|
|
|
|
|
10.12 |
| Mortgage, Security Agreement, Assignment of Rents and Leases & Fixture Filing, dated |
|
|
|
|
|
|
|
10.13 |
|
|
|
|
|
|
|
|
|
10.14 |
|
|
|
|
|
|
|
|
|
10.15 |
|
|
|
|
|
|
|
|
|
10.16 |
|
|
|
|
|
|
|
|
|
10.17 |
|
|
|
|
|
|
|
|
|
10.18 |
|
|
|
|
|
|
|
|
|
10.19 |
|
|
|
|
Exhibit | Description | Method of Filing | ||
|
|
|
|
|
10.20 |
|
|
|
|
|
|
|
|
|
10.21 |
|
|
|
|
|
|
|
|
|
10.22 |
|
|
| Incorporated by reference from Exhibit |
|
|
|
|
|
10.23 |
|
|
| Incorporated by reference from Exhibit |
| Current Report on Form 8-K filed | |||
|
|
|
|
|
10.24 |
| Mortgage and Security Agreement, dated |
| Incorporated by reference from Exhibit |
|
|
|
|
|
10.25 |
|
|
| Incorporated by reference from Exhibit |
|
|
|
|
|
10.26 |
| Guaranty, dated as of |
| Incorporated by reference from Exhibit |
|
|
|
|
|
10.27 |
| Guaranty, dated as of |
| Incorporated by reference from Exhibit |
|
|
|
|
|
10.28 |
|
|
| Incorporated by reference from Exhibit |
|
|
|
|
|
10.29 |
| Promissory Note, dated |
| Incorporated by reference from Exhibit |
|
|
|
|
|
10.30 |
|
|
| |
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
|
| |||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| Filed | |
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
|
|
31.1 |
| Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act. |
| Filed |
31.2 |
| Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley |
| Filed |
|
|
|
|
|
32.1 |
| Certification of CEO pursuant to Section 906 of the |
| Filed |
Exhibit No. | Description | Method of Filing | ||
Oxley Act | ||||
|
|
|
|
|
32.2 |
| Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley |
| Filed |
|
|
|
|
|
101 |
| The following financial information from AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the quarter ended |
| Filed |
In accordance withPursuant 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.
|
| ||
| (Registrant) | ||
|
| ||
Date: |
|
| /s/Boyd P. Gentry |
| Boyd P. Gentry | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
|
| ||
Date: |
|
| /s/Martin D. Brew |
| Martin D. Brew | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
EXHIBIT INDEX
Exhibit No. |
| Description |
| Method of Filing |
|
|
|
|
|
2.1 |
| Purchase and Sale Agreement, dated as of |
| Incorporated by reference from Exhibit |
|
|
|
|
|
2.2 |
| Purchase and Sale Agreement, dated as of |
| Incorporated by reference from Exhibit |
|
|
|
|
|
2.3 |
| Purchase and Sale Agreement, |
| Incorporated by reference from Exhibit |
|
|
|
|
|
2.4 |
|
|
| Incorporated by reference from Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed |
|
|
|
|
|
2.5 |
|
|
| Incorporated by reference from Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed |
2.6 | Third Amendment to Purchase and Sale Agreement, dated as of April 17, 2012, by and between First Commercial Bank and AdCare Property Holdings, LLC. | Incorporated by reference from Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed April 23, 2012 | ||
2.7 | Purchase Agreement, dated as of April 27, 2012, between AdCare Property Holdings, LLC and Pinewood Holdings, LLC | Incorporated by reference from Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed May 3, 2012 | ||
2.8 | Second Amendment to Purchase and Sale Agreement, dated April 30, 2012, by and between Gyman Properties, LLC and AdCare Property Holdings, LLC | Incorporated by reference from Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed May 3, 2012 | ||
|
|
|
|
|
3.1 |
| Amended and Restated Articles of |
| Incorporated by reference from Exhibit 3.1 of the Registrant’s Registration Statement Form SB (Registration No. 333-131542) filed February 3, |
|
|
|
|
|
3.2 |
| Code of |
| Incorporated by reference from Exhibit 3.2 of the Registrant’s Registration Statement Form SB (Registration No. 333-131542) filed February 3, |
|
|
|
|
|
3.3 |
| Amendment to Amended and Restated Articles of | Incorporated by reference to Exhibit 3.3 of the Company’s |
Exhibit No. | Description | Method of Filing | ||
Incorporation | Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 | |||
4.1 | Warrant to Purchase 312,500 Shares of Common Stock, dated April 1, 2012, issued by AdCare Health Systems, Inc. to Strome Alpha Offshore Ltd. |
| Filed | |
4.2 | Warrant to Purchase 300,000 Shares of Common Stock, dated March 30, 2012, issued by AdCare Health Systems, Inc. to Cantone Asset Management LLC | Filed herewith | ||
|
|
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
10.2 |
| Mortgage Note, dated |
|
|
|
|
|
|
|
10.3 |
|
|
|
|
|
| |||
|
|
|
|
|
10.4 |
|
|
|
|
|
|
|
|
|
10.5 |
|
|
| Incorporated by reference from Exhibit |
|
|
|
|
|
10.6 |
|
|
|
|
|
|
|
|
|
10.7 |
|
|
|
|
|
|
|
|
|
10.8 |
|
|
|
|
|
|
|
|
|
10.9 |
|
|
|
|
|
|
|
|
|
10.10 |
|
|
|
|
Exhibit | Description | Method of Filing | ||
Management LLC | ||||
|
|
|
|
|
10.11 |
|
|
|
|
|
|
|
|
|
10.12 |
| Mortgage, Security Agreement, Assignment of Rents and Leases & Fixture Filing, dated |
|
|
|
|
|
|
|
10.13 |
|
|
|
|
|
|
|
|
|
10.14 |
|
|
|
|
|
|
|
|
|
10.15 |
|
|
|
|
|
| |||
|
|
|
|
|
10.16 |
|
|
|
|
|
|
|
|
|
10.17 |
|
|
|
|
|
|
|
|
|
10.18 |
|
|
|
|
|
|
|
|
|
10.19 |
|
|
|
|
|
|
|
|
|
10.20 |
|
|
|
|
|
|
|
|
|
10.21 |
|
|
|
|
|
|
|
|
|
10.22 |
|
|
| Incorporated by reference from Exhibit |
Exhibit No. | Description | Method of Filing | ||
May 3, 2012 | ||||
|
|
|
|
|
10.23 |
|
|
| Incorporated by reference from Exhibit |
|
|
|
|
|
10.24 |
| Mortgage and Security Agreement, dated |
| Incorporated by reference from Exhibit |
|
|
|
|
|
10.25 |
|
|
| Incorporated by reference from Exhibit |
|
|
|
|
|
10.26 |
| Guaranty, dated as of | Incorporated by reference from Exhibit 99.5 to the Registrant’s Current Report on Form 8-K filed May 3, 2012 | |
10.27 | Guaranty, dated as of April 30, 2012, between AdCare Health Systems, Inc. in favor of Metro City |
| Incorporated by reference from Exhibit 99.6 to the Registrant’s Current Report on Form 8-K filed |
|
|
| ||
|
|
|
|
|
10.28 |
|
|
| Incorporated by reference from Exhibit |
|
|
|
|
|
10.29 |
| Promissory Note, dated |
| Incorporated by reference from Exhibit |
|
|
|
|
|
10.30 |
|
|
| |
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
| ||||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
| ||||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| Filed | |
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
|
|
31.1 |
| Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act. |
| Filed |
|
|
|
|
|
31.2 |
| Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley |
| Filed |
|
|
|
|
|
32.1 |
| Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley |
| Filed |
|
|
|
|
|
32.2 |
| Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley |
| Filed |
Exhibit No. | Description | Method of Filing | ||
|
|
|
|
|
101 |
| The following financial information from AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the quarter ended |
|
Stockholders’ Equity for the |
| Filed herewith |