Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 2 on

 

FORM 10-Q/A

 

(Mark One)

 

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

 

For the quarterly period ended March 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)

 

1145 Hembree Road, Roswell, GA  30076

(Address of principal executive offices)

 

(678) 869-5116

(Registrant’s telephone number)

 

5057 Troy Rd, Springfield, OH 45502-9032

(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”, “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
(Do not check if a smaller reporting company)

 

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 April 30, 2012:  13,320,013 shares of common stock with no par value were outstanding.

 

 

 



Table of Contents

 

EXPLANATORY NOTE

 

This Amendment No. 2 on Form 10-Q/A (this “Amendment No. 2”) of AdCare Health Systems, Inc. and subsidiaries (collectively, the “Company” or “we”) amends the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, originally filed with the Securities and Exchange Commission (the “Commission”) on May 10, 2012 (the “Original Filing Date”), as amended by Amendment No. 1 thereto (“Amendment No. 1”) filed with the Commission on July 8, 2013 (as so amended by Amendment No. 1, the “Original Report”). This Amendment No. 2 amends the Original Report to revise Note 9, Notes Payable and Other Debt, to the unaudited consolidated financial statements included therein and Item 2., Management’s Discussion and Analysis of Financial Condition and Results of Operations, to include certain disclosure regarding debt covenant compliance.

 

This Amendment No. 2 also includes as exhibits certifications from the Company’s Chief Executive Officer and Chief Financial Officer dated as of the date of filing of this Amendment No. 2. Except as described above, no other portions of the Original Filing have been revised by this Amendment No. 2.

 

The Original Report continues to speak as of the Original Filing Date, and the Company has not updated disclosures contained therein to reflect information or events that have occurred since the Original Filing Date, except to reflect the revisions set forth in Amendment No. 1 and as discussed above. Accordingly, this Amendment No. 2 should be read in conjunction with the Company’s other filings made with the Commission subsequent to the Original Filing Date, including any amendments to those filings.

 

2



Table of Contents

 

AdCare Health Systems, Inc.

Form 10-Q/A

Table of Contents

 

 

 

Page
Number

Part I.

Financial Information

 

Item 1.

Financial Statements (Unaudited)

4

 

Consolidated Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011

4

 

Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011 (unaudited)

5

 

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2012 (unaudited)

6

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (unaudited)

7

 

Notes to Consolidated Financial Statements (unaudited)

8

Item 2.

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

25

Item 4.

Controls and Procedures

34

Part II.

Other Information

 

Item 6.

Exhibits

37

Signatures

 

43

 

3



Table of Contents

 

Part I.  Financial Information

 

Item 1.  Financial Statements

 

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in 000’s)

 

 

 

March 31,

 

 

 

 

 

2012
Restated
(Note 2)

 

December 31,
2011

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

11,000

 

$

7,364

 

Restricted cash and investments

 

1,208

 

1,883

 

Accounts receivable, net of allowance of $2,081 and $1,346

 

20,116

 

18,782

 

Prepaid expenses and other

 

827

 

663

 

Assets of disposal group held for sale

 

42

 

47

 

Total current assets

 

33,193

 

28,739

 

 

 

 

 

 

 

Restricted cash and investments

 

4,980

 

4,870

 

Property and equipment, net

 

102,703

 

102,449

 

Intangible assets — bed licenses

 

2,377

 

1,189

 

Intangible assets — lease rights, net

 

8,193

 

8,460

 

Goodwill

 

2,565

 

3,600

 

Escrow deposits for acquisitions

 

3,604

 

3,172

 

Lease deposits

 

1,685

 

1,685

 

Deferred loan costs, net

 

4,301

 

4,818

 

Other assets

 

72

 

122

 

Total assets

 

$

163,673

 

$

159,104

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Current portion of notes payable and other debt

 

$

7,462

 

$

4,567

 

Revolving credit facilities and lines of credit

 

8,095

 

7,343

 

Accounts payable

 

13,998

 

12,075

 

Accrued expenses

 

11,565

 

9,881

 

Liabilities of disposal group held for sale

 

192

 

240

 

Total current liabilities

 

41,312

 

34,106

 

 

 

 

 

 

 

Notes payable and other debt, net of current portion:

 

 

 

 

 

Senior debt, net of discounts

 

84,824

 

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

 

95

 

86

 

Total liabilities

 

145,803

 

143,611

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

 

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

 

39,177

 

35,047

 

Accumulated deficit

 

(20,981

)

(18,713

)

Total stockholders’ equity

 

18,196

 

16,334

 

Noncontrolling interest in subsidiaries

 

(326

)

(841

)

Total equity

 

17,870

 

15,493

 

Total liabilities and equity

 

$

163,673

 

$

159,104

 

 

See accompanying notes to consolidated financial statements

 

4



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ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2012
Restated
(Note 2)

 

2011

 

Revenues:

 

 

 

 

 

Patient care revenues

 

$

46,307

 

$

30,532

 

Management revenues

 

524

 

498

 

Total revenues

 

46,831

 

31,030

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

Cost of services (exclusive of facility rent, depreciation and amortization)

 

38,807

 

25,175

 

General and administrative

 

3,993

 

2,924

 

Facility rent expense

 

2,065

 

1,903

 

Depreciation and amortization

 

1,710

 

647

 

Total expenses

 

46,575

 

30,649

 

 

 

 

 

 

 

Income from Operations

 

256

 

381

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

Interest expense, net

 

(2,678

)

(1,436

)

Acquisition costs, net of gains

 

(293

)

979

 

Derivative gain (loss)

 

410

 

(1,350

)

Other (expense) income

 

(14

)

606

 

Total other expense, net

 

(2,575

)

(1,201

)

 

 

 

 

 

 

Loss from Continuing Operations Before Income Taxes

 

(2,319

)

(820

)

Income tax benefit (expense)

 

15

 

(86

)

Loss from Continuing Operations

 

(2,304

)

(906

)

Loss from Discontinued Operations, Net of Tax

 

(109

)

(35

)

Net Loss

 

(2,413

)

(941

)

Net Loss Attributable to Noncontrolling Interests

 

145

 

176

 

Net Loss Attributable to AdCare Health Systems, Inc.

 

$

(2,268

)

$

(765

)

 

 

 

 

 

 

Net Loss per Common Share — Basic:

 

 

 

 

 

Continuing Operations

 

$

(0.18

)

$

(0.08

)

Discontinued Operations

 

(0.01

)

(0.01

)

 

 

$

(0.19

)

$

(0.09

)

Net Loss per Common Share — Diluted:

 

 

 

 

 

Continuing Operations

 

$

(0.18

)

$

(0.08

)

Discontinued Operations

 

(0.01

)

(0.01

)

 

 

$

(0.19

)

$

(0.09

)

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

Basic

 

12,225

 

8,767

 

Diluted

 

12,225

 

8,767

 

 

See accompanying notes to consolidated financial statements

 

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ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in 000’s)

(Unaudited)

 

 

 

Common Stock
Shares

 

Common
Stock and
Additional
Paid-in
Capital
Restated
(Note 2)

 

Accumulated
Deficit
Restated
(Note 2)

 

Noncontrolling
Interests
Restated
(Note 2)

 

Total
Restated
(Note 2)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2012

 

12,193

 

$

35,047

 

$

(18,713

)

$

(841

)

$

15,493

 

Deconsolidation of variable interest entities

 

 

 

 

660

 

660

 

Nonemployee warrants for services

 

 

276

 

 

 

276

 

Stock-based compensation expense

 

 

190

 

 

 

190

 

Public stock offering, net

 

1,100

 

3,641

 

 

 

3,641

 

Exercises of options and warrants

 

15

 

23

 

 

 

23

 

Net loss

 

 

 

(2,268

)

(145

)

(2,413

)

Balance, March 31, 2012

 

13,308

 

$

39,177

 

$

(20,981

)

$

(326

)

$

17,870

 

 

See accompanying notes to consolidated financial statements

 

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Table of Contents

 

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in 000’s)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2012
Restated
(Note 2)

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net Loss

 

$

(2,413

)

$

(941

)

Loss from discontinued operations, net of tax

 

109

 

35

 

Loss from continuing operations

 

(2,304

)

(906

)

Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

1,710

 

647

 

Warrants issued for services

 

 

32

 

Stock-based compensation expense

 

190

 

358

 

Lease expense in excess of cash

 

157

 

193

 

Amortization of deferred financing costs

 

337

 

132

 

Amortization of debt discounts

 

213

 

216

 

Derivative (gain) loss

 

(410

)

1,350

 

Deferred tax expense

 

9

 

45

 

(Gain) loss on disposal of assets

 

(2

)

21

 

Gain on acquisitions

 

 

(1,104

)

Provision for bad debts

 

918

 

102

 

Other noncash items

 

 

24

 

Changes in certain assets and liabilities, net of acquisitions:

 

 

 

 

 

Accounts receivable

 

(3,051

)

(2,587

)

Prepaid expenses and other

 

(200

)

(487

)

Other assets

 

180

 

(128

)

Accounts payable and accrued expenses

 

3,860

 

2,715

 

Net cash provided by operating activities — continuing operations

 

1,607

 

623

 

Net cash (used in) provided by operating activities — discontinued operations

 

(105

)

160

 

Net cash provided by operating activities

 

1,502

 

783

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from sale of property and equipment

 

3

 

 

Change in restricted cash and investments and escrow deposits for acquisitions

 

566

 

573

 

Acquisitions

 

(7,919

)

(5,595

)

Purchase of property and equipment

 

(463

)

(468

)

Net cash used in investing activities — continuing operations

 

(7,813

)

(5,490

)

Net cash used in investing activities — discontinued operations

 

 

 

Net cash used in investing activities

 

(7,813

)

(5,490

)

Cash flows from financing activities:

 

 

 

 

 

Proceeds from debt

 

8,488

 

8,138

 

Debt issuance costs

 

(206

)

(123

)

Change in lines of credit

 

(556

)

3,013

 

Exercise of warrants and options

 

23

 

 

Proceeds from stock issuances, net

 

3,641

 

 

Repayment of notes payable

 

(1,215

)

(482

)

Net cash provided by financing activities — continuing operations

 

10,175

 

10,546

 

Net cash used in financing activities — discontinued operations

 

(48

)

(46

)

Net cash provided by financing activities

 

10,127

 

10,500

 

Net Change in Cash

 

3,816

 

5,793

 

Cash, Beginning

 

7,364

 

3,911

 

Cash decrease due to deconsolidation of variable interest entities (Note 2)

 

(180

)

 

Cash, Ending

 

$

11,000

 

$

9,704

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

2,554

 

$

1,017

 

Income taxes

 

$

 

$

 

Supplemental Disclosure of Non-cash Activities:

 

 

 

 

 

Acquisitions in exchange for debt and equity instruments

 

$

5,000

 

$

 

Warrants issued for financings costs

 

$

276

 

$

330

 

Non-cash debt issuance costs

 

$

 

$

361

 

 

See accompanying notes to consolidated financial statements

 

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ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(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. and its controlled subsidiaries (collectively, “AdCare”, the “Company” or “we”).  Controlled subsidiaries include AdCare’s majority owned subsidiaries and variable interest entities in which AdCare has control as primary beneficiary.  The Company delivers skilled nursing, assisted living and home health 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, 2011 (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 three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.  Certain prior year amounts have been reclassified to conform to the current year presentation.

 

As described in the Explanatory Note to this Form 10-Q/A and in Note 2, the interim consolidated financial statements for 2012 presented herein have been restated from those previously issued.

 

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 securities 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 options, 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 three months ended March 31, 2012 and 2011, due to the net loss for both periods, no potentially dilutive securities were included in the diluted earnings per share calculation because to do so would be anti-dilutive.

 

Intangible Assets and Goodwill

 

There have been no impairment adjustments to intangible assets and goodwill during the three months ended March 31, 2012 and 2011.

 

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Intangible assets consist of the following:

 

Amounts in (000’s)

 

Lease Rights

 

Bed Licenses
(included in
property and
equipment)
Restated
(Note 2)

 

Bed Licenses -
Separable

 

Total

 

Balances, December 31, 2011, net

 

$

8,460

 

$

22,922

 

$

1,189

 

$

32,571

 

Deconsolidation of Oklahoma Owners

 

 

(3,458

)

 

(3,458

)

Acquisitions

 

 

 

1,188

 

1,188

 

Amortization expense

 

(267

)

(134

)

 

(401

)

Balances, March 31, 2012, net

 

$

8,193

 

$

19,330

 

$

2,377

 

$

29,900

 

 

The following table summarizes the changes in the carrying amount of goodwill at March 31, 2012 as compared with December 31, 2011:

 

Amounts in (000’s)

 

March 31, 2012
Restated
(Note 2)

 

Balance, December 31, 2011

 

$

3,600

 

Deconsolidation of Oklahoma Owners

 

(1,123

)

Acquisitions

 

88

 

Impairment charge

 

 

Balance, March 31, 2012

 

$

2,565

 

 

Goodwill as previously reported in the 2011 consolidated financial statements was $0.9 million.   In 2012, a reclassification adjustment was made to the December 31, 2011 balance sheet to recognize $2.7 million of goodwill from 2011 acquisitions that was previously reported as bed licenses included in property and equipment.  The Company does not amortize goodwill or indefinite lived intangibles.

 

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Table of Contents

 

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)

 

Amortization expense was approximately $134,000 for bed licenses included in property and equipment 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:

 

(Amounts in 000’s)

 

Bed Licenses
Restated
(Note 2)

 

Lease Rights

 

2012 (remainder)

 

$

401

 

$

802

 

2013

 

534

 

1,069

 

2014

 

534

 

1,010

 

2015

 

534

 

885

 

2016

 

534

 

885

 

Thereafter

 

16,793

 

3,542

 

Total

 

$

19,330

 

$

8,193

 

 

NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

 

In this Amendment No.1 on Form 10-Q/A to the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2012, we are restating the consolidated financial statements for the first quarter of 2012.  Concurrent with the filing of this Form 10-Q/A, we are also filing amended quarterly reports on Form 10-Q/A for each of the second and third quarters of 2012 to restate our consolidated financial statements therein.  The effects of these restatements, to the extent applicable, are reflected in the items revised herein.  The restatements relate to the following:

 

·                  Correction in the application of the Company’s accounting for certain variable interest entities further described as follows:

 

As further discussed in Note 19, Variable Interest Entities, and Note 21, Related Party Transactions, found in 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, 2011 (the “Annual Report”), effective August 1, 2011 entities (the “Oklahoma Owners”) controlled by Christopher Brogdon and his spouse, Connie Brogdon (related parties to the Company) acquired five skilled nursing facilities located in Oklahoma (the “Oklahoma Facilities”).  The Company entered into a Management Agreement with the Oklahoma Owners pursuant to which a wholly-owned subsidiary of the Company supervises the management of the Oklahoma Facilities for a monthly fee equal to 5% of the monthly gross revenues of the Oklahoma Facilities.  Upon acquisition, the Company concluded it was the primary beneficiary of the Oklahoma Owners and pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 810-10, Consolidation-Overall, consolidated the Oklahoma Owners in its 2011 consolidated financial statements.

 

During the process of finalizing the 2012 consolidated financial statements, the Company re-assessed its prior conclusion that it should consolidate the Oklahoma Owners.  In the reassessment process, the Company concluded that it should not have consolidated the Oklahoma Owners.  In the accompanying consolidated financial statements, the Company has deconsolidated the Oklahoma Owners effective January 1, 2012 and the balance sheet, operations and cash flows of the Oklahoma Owners are not included in the Company’s first quarter 2012 consolidated financial statements.  The Company further concluded that including the Oklahoma Owners in its 2011 consolidated financial statements was not material to such consolidated financial statements and therefore no adjustments have been made to the previously issued quarterly and annual 2011 consolidated financial statements.

 

·                  Accounting errors and certain accounting estimates that were identified in the process of finalizing our consolidated financial statements for the year ended December 31, 2012.  These matters include the following:

 

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·                                          Patient care revenues and Accounts receivable, net   Adjustments totaling $276,000 related primarily to the following items:

 

The timing of certain revenue recognition adjustments to ensure proper recognition in the appropriate interim reporting period with in the 2012 year.  Adjustments totaling $276,000 related to the overstatement of $140,000 in managed care revenue due to billing errors and a $136,000 reclassification to reduce managed care revenue due to the improper recognition of bad debt expense subsequently identified by the Company.

 

·                                          Costs of services — Adjustments totaling $1,617,000 related primarily to the following items:

 

The timing of expense recognition related to direct care compensation obligations incurred for the facilities located in Arkansas to reflect proper recognition in the appropriate interim reporting period within the 2012 year totaling approximately $918,000.  The related expense and obligation was being recognized over the period until the respective payment date.  However, the obligations should have been expensed immediately in the period incurred as the obligation related to prior services rendered.

 

The timing of recognition of certain payroll related operating expenses and other necessary adjustments to related accrued liabilities to ensure proper recognition in the appropriate interim reporting period within the 2012 year.  The issues primarily relate to insufficient processes related to accounting for accrued vacation of $162,000 and the untimely identification and recognition of expenses associated with certain unemployment tax accrual adjustments of $42,000.

 

The timing of certain adjustments to the provision for bad debts in the appropriate interim reporting period within the 2012 year.  The issues primarily related to required adjustments resulting from the timing of recognition for state recoupments for Medicaid overpayments for certain facilities totaling $403,000 and the delays in collection efforts and lack of timely follow-up on open patient accounts in 2012 for certain facilities totaling $67,000 offset by the improper recognition of bad debt expense relating to managed care revenue discussed above in the amount of $136,000.

 

Additional adjustment of $161,000 related to the reversal of the eliminated management fee expense associated with  the correction in the application of the Company’s accounting for certain variable interest entities which also has been recorded in costs of services.

 

·                                          General and administrative - Adjustments totaling $62,000 resulted primarily from $25,000 of expense recognition related to an adjustment to the fair value of warrants granted to non-employees, $22,000 of expense inadvertently capitalized on the balance sheet that should have been expensed in the interim reporting period in which the costs were incurred during the 2012 period, and $15,000 due to the insufficient processes related to accounting for accrued vacation.

 

·                                          Depreciation and amortization — The impairment of an office building of $389,000 acquired through a 2011 acquisition that was vacated and abandoned in first quarter of 2012 to market value less cost to sell was offset by $68,000 resulting from a decrease in amortization of certain intangibles related to adjustments that decreased the underlying intangible asset values and increased the related goodwill resulting from the respective acquisitions.

 

·                                          Property and equipment, net — Adjustments of $343,000 related primarily to the $389,000 impairment of an office building acquired in 2011 acquisition offset by $68,000 resulting from a decrease in amortization of certain intangibles related to adjustments that decreased the underlying intangible asset values and increased the related goodwill resulting from the respective acquisitions and $22,000 of expense inadvertently capitalized on the balance sheet that should have been expensed in the interim reporting period in which the costs were incurred during the 2012 period.

 

·                                          Goodwill and Intangible assets bed licenses - Adjustment of $88,000 related to an acquisition reclassification to goodwill from the capitalized intangible assets bed licenses during the 2012 period.

 

11



Table of Contents

 

·                                          Deferred loan costs, net — Adjustment of $85,000  related to an adjustment to the fair value of warrants granted to non-employees which related to the costs incurred in connection with loan costs.

 

·                                          Statement of cash flows — Adjustments to the statement of cash flows result primarily from the adjustments related to the Oklahoma Owners as discussed above; changes in net loss and the related adjustments to the various working capital related balance sheet accounts resulting from the other adjustments described above; and adjustments to show $4.7 million of debt incurred in conjunction with certain acquisitions as cash provided by financing activities and cash used in investing activities.

 

The following table presents the Company’s previously issued (the “As Reported”) and restated (the “As Restated”) consolidated balance sheet as of March 31, 2012 (in thousands):

 

 

 

March 31, 2012

 

 

 

As Reported

 

Oklahoma
Owners

 

Other
Adjustments

 

As Restated

 

ASSETS

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,328

 

$

(328

)

$

 

$

11,000

 

Restricted cash and investments

 

1,208

 

 

 

1,208

 

Accounts receivable, net

 

21,396

 

(1,006

)

(274

)

20,116

 

Prepaid expenses and other

 

1,038

 

(211

)

 

827

 

Assets of disposal group held for sale receivable, net

 

42

 

 

 

42

 

Total current assets

 

35,012

 

(1,545

)

(274

)

33,193

 

 

 

 

 

 

 

 

 

 

 

Restricted cash and investments

 

4,980

 

 

 

4,980

 

Property and equipment, net (net of reclassification of $2,694 — Note 1)

 

112,965

 

(9,919

)

(343

)

102,703

 

Intangible assets — bed licenses

 

2,464

 

 

(88

)

2,377

 

Intangible assets — lease rights, net

 

8,193

 

 

 

8,193

 

Goodwill (reclassification of $2,694 — Note 1)

 

3,600

 

(1,123

)

88

 

2,565

 

Escrow deposits for acquisitions

 

3,604

 

 

 

3,604

 

Lease deposits

 

1,686

 

 

(1

)

1,685

 

Deferred loan costs, net

 

4,826

 

(610

)

85

 

4,301

 

Other assets

 

74

 

 

(2

)

72

 

Total assets

 

$

177,404

 

$

(13,197

)

$

(534

)

$

163,673

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current portion of notes payable and other debt

 

$

7,655

 

$

(193

)

$

 

$

7,462

 

Revolving credit facilities and lines of credit

 

8,095

 

 

 

8,095

 

Accounts payable

 

14,655

 

(988

)

331

 

13,998

 

Accrued expenses

 

10,952

 

(429

)

1,042

 

11,565

 

Liabilities of disposal group held for sale

 

192

 

 

 

192

 

Total current liabilities

 

41,549

 

(1,610

)

1,373

 

41,312

 

 

 

 

 

 

 

 

 

 

 

Senior debt, net of discounts

 

97,163

 

(12,339

)

 

84,824

 

Convertible debt, net of discounts

 

14,824

 

 

 

14,824

 

Other debt

 

1,150

 

 

 

1,150

 

Derivative liability

 

1,479

 

 

 

1,479

 

Other liabilities

 

2,119

 

 

 

2,119

 

Deferred tax liability

 

67

 

 

28

 

95

 

Total liabilities

 

158,351

 

(13,949

)

1,401

 

145,803

 

Common stock and additional paid-in capital

 

39,068

 

 

109

 

39,177

 

Accumulated deficit

 

(18,919

)

 

(2,062

)

(20,981

)

Total stockholders’ equity

 

20,149

 

 

(1,953

)

18,196

 

Noncontrolling interest in subsidiaries

 

(1,096

)

752

 

18

 

(326

)

Total equity

 

19,053

 

752

 

(1,935

)

17,870

 

Total liabilities and equity

 

$

177,404

 

$

(13,197

)

$

(534

)

$

163,673

 

 

12



Table of Contents

 

NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The following table presents the Company’s previously issued (the “As Reported”) and restated (the “As Restated”) consolidated statement of operations for the three months ended March 31, 2012 (in thousands, except per share information):

 

 

 

Three Months Ended March 31, 2012

 

 

 

As Reported

 

Oklahoma
Owners

 

Other
Adjustments

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

Patient care revenues

 

$

49,808

 

$

(3,225

)

$

(276

)

$

46,307

 

Management revenues

 

363

 

 

161

 

524

 

Total revenues

 

50,171

 

(3,225

)

(115

)

46,831

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Cost of services (Exclusive of facility rent, depreciation and amortization)

 

40,123

 

(2,933

)

1,617

 

38,807

 

General and administrative

 

3,931

 

 

62

 

3,993

 

Facility rent expense

 

2,065

 

 

 

2,065

 

Depreciation and amortization

 

1,497

 

(108

)

321

 

1,710

 

Total expenses

 

47,616

 

(3,041

)

2,000

 

46,575

 

 

 

 

 

 

 

 

 

 

 

Income from Operations

 

2,555

 

(184

)

(2,115

)

256

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(2,954

)

276

 

 

(2,678

)

Acquisition costs, net of gains

 

(293

)

 

 

(293

)

Derivative gain

 

410

 

 

 

410

 

Other expense

 

(16

)

 

2

 

(14

)

Total other expense, net

 

(2,853

)

276

 

2

 

(2,575

)

 

 

 

 

 

 

 

 

 

 

Loss from Continuing Operations Before Income Taxes

 

(298

)

92

 

(2,113

)

(2,319

)

Income tax benefit (expense)

 

(54

)

 

69

 

15

 

Loss from Continuing Operations

 

(352

)

92

 

(2,044

)

(2,304

)

Loss from discontinued operations, net of tax

 

(109

)

 

 

(109

)

Net Loss

 

(461

)

92

 

(2,044

)

(2,413

)

Net Loss Attributable to Noncontrolling Interest

 

255

 

(92

)

(18

)

145

 

Net Loss Attributable to AdCare Health Systems, Inc.

 

$

(206

)

$

 

$

(2,062

)

$

(2,268

)

 

 

 

 

 

 

 

 

 

 

Net Loss per Common Share - Basic:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

(0.01

)

 

$

(0.17

)

$

(0.18

)

Discontinued Operations

 

$

(0.01

)

 

 

$

(0.01

)

 

 

$

(0.02

)

 

$

(0.17

)

$

(0.19

)

 

 

 

 

 

 

 

 

 

 

Net Loss per Common Share - Diluted

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

(0.01

)

 

$

(0.17

)

$

(0.18

)

Discontinued Operations

 

$

(0.01

)

 

 

$

(0.01

)

 

 

$

(0.02

)

 

$

(0.17

)

$

(0.19

)

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

12,204

 

 

21

 

12,225

 

Diluted

 

12,204

 

 

21

 

12,225

 

 

13



Table of Contents

 

NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The following table presents the Company’s previously issued (the “As Reported”) and restated (the “As Restated”) statement of cash flows for the three months ended March 31, 2012 (in thousands):

 

 

 

Three Months Ended March 31, 2012

 

 

 

As Reported

 

Oklahoma
Owners

 

Other
Adjustments

 

As Restated

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(461

)

$

92

 

$

(2,044

)

$

(2,413

)

Loss from discontinued operations, net of tax

 

109

 

 

 

109

 

Loss from continuing operations

 

(352

)

92

 

(2,044

)

(2,304

)

Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

1,497

 

(108

)

321

 

1,710

 

Warrants issued for services

 

 

 

 

 

Stock based compensation expense

 

165

 

 

25

 

190

 

Lease expense in excess of cash

 

157

 

 

 

157

 

Amortization of deferred financing costs

 

381

 

(52

)

8

 

337

 

Amortization of debt discounts

 

213

 

 

 

213

 

Derivative gain

 

(410

)

 

 

(410

)

Deferred tax (benefit) expense

 

(19

)

 

28

 

9

 

Gain on disposal of assets

 

(2

)

 

 

(2

)

Provision for bad debts

 

615

 

(26

)

329

 

918

 

Other noncash items

 

16

 

 

(16

)

 

Changes in certain assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

(3,151

)

231

 

(131

)

(3,051

)

Prepaid expenses and other

 

(373

)

175

 

(2

)

(200

)

Other assets

 

(22

)

57

 

145

 

180

 

Accounts payable and accrued expenses

 

3,351

 

(601

)

1,110

 

3,860

 

Net cash provided by operating activities — continuing operations

 

2,066

 

(232

)

(227

)

1,607

 

Net cash used in operating activities — discontinued operations

 

(204

)

 

99

 

(105

)

Net cash provided by operating activities

 

1,862

 

(232

)

(128

)

1,502

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Proceeds from sale of property and equipment

 

3

 

 

 

3

 

Change in restricted cash and investments and escrow deposits for acquisitions

 

637

 

 

(71

)

566

 

Acquisitions

 

(3,130

)

 

(4,789

)

(7,919

)

Purchase of property and equipment

 

(522

)

38

 

21

 

(463

)

Net cash used in investing activities — continuing operations

 

(3,012

)

38

 

(4,839

)

(7,813

)

Net cash used in investing activities — discontinued operations

 

 

 

 

 

Net cash used in investing activities

 

(3,012

)

38

 

(4,839

)

(7,813

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from debt

 

3,523

 

 

272

 

3,795

 

Proceeds from debt used in acquisitions

 

 

 

4,693

 

4,693

 

Debt issuance costs

 

 

 

(206

)

(206

)

Change in line of credit

 

(556

)

 

 

(556

)

Exercise of warrants and options

 

23

 

 

 

23

 

Proceeds from stock issuances, net

 

3,642

 

 

(1

)

3,641

 

Repayment of notes payable

 

(1,470

)

46

 

209

 

(1,215

)

Net cash provided by financing activities — continuing operations

 

5,162

 

46

 

4,967

 

10,175

 

Net cash used in financing activities — discontinued operations

 

(48

)

 

 

(48

)

Net cash provided by financing activities

 

5,114

 

46

 

4,967

 

10,127

 

 

 

 

 

 

 

 

 

 

 

Net Change in cash

 

3,964

 

(148

)

 

3,816

 

Cash, Beginning

 

7,364

 

(180

)

 

7,184

 

Cash, Ending

 

$

11,328

 

$

(328

)

$

 

$

11,000

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

Interest

 

$

2,238

 

$

 

$

316

 

$

2,554

 

Income taxes

 

$

13

 

$

 

$

(13

)

$

 

Supplemental Disclosure of Non-cash Activities:

 

 

 

 

 

 

 

 

 

Acquisitions in exchange for debt and equity instruments

 

$

9,800

 

$

 

$

(4,800

)

$

5,000

 

Warrants issued for financings costs

 

$

191

 

$

 

$

85

 

$

276

 

Noncash debt issuance costs

 

$

164

 

$

 

$

(164

)

$

 

 

14



Table of Contents

 

NOTE 3.      LIQUIDITY AND PROFITABILITY

 

The Company had a net loss of approximately $2,413,000 for the three months ended March 31, 2012, and had negative working capital of approximately $8,119,000 at March 31, 2012.  The Company’s ability to achieve sustained profitable operations is dependent on continued growth in revenue and controlling costs.

 

Management’s plans for increasing liquidity and profitability in future years encompass the following:

 

·            refinancing debt where possible to obtain more favorable terms;

·            increasing facility occupancy and improving the occupancy mix by increasing Medicare patients;

·            acquiring additional long term care facilities with existing cash flowing operations to expand our operations; and

·            adding additional management contracts.

 

Management believes that the foregoing actions, if taken by the Company, should provide the opportunity for the Company to improve liquidity and achieve profitability; however, there is no assurance that such actions will occur.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

NOTE 4.      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 represented 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 000’s)

 

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

 

 

15



Table of Contents

 

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

NOTE 5.      SEGMENTS

 

The Company reports its operations in three segments:  Skilled Nursing Facility (“SNF”), Assisted Living Facility (“ALF”), and 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 Corporate & Other segment engages in the management of facilities and accounting and IT services. We evaluate financial performance and allocate resources primarily based upon segment operating income (loss). Segment operating results exclude interest expense and other non-operating income and expenses. The table below contains our segment information for the three months ended March 31, 2012 and 2011.

 

 

 

 

 

 

 

Corporate

 

 

 

 

 

(Amounts in 000’s)

 

SNF

 

ALF

 

& Other

 

Eliminations

 

Total

 

Three months ended March 31, 2012 Restated (Note 2)

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

43,044

 

$

3,263

 

$

2,849

 

$

(2,325

)

$

46,831

 

Cost of services

 

38,763

 

2,369

 

 

(2,325

)

38,807

 

General and administrative

 

36

 

 

3,957

 

 

3,993

 

Facility rent expense

 

2,065

 

 

 

 

2,065

 

Depreciation and amortization

 

1,330

 

210

 

170

 

 

1,710

 

Operating income/(loss)

 

$

850

 

$

684

 

$

(1,278

)

$

 

$

256

 

Total assets, March 31, 2012

 

$

105,663

 

$

27,389

 

$

40,470

 

$

(9,849

)

$

163,673

 

 

 

 

 

 

 

 

 

 

 

 

 

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, December 31, 2011

 

$

110,532

 

$

22,328

 

$

35,792

 

$

(9,548

)

$

159,104

 

 

NOTE 6.  PROPERTY AND EQUIPMENT

 

(Amounts in 000’s)

 

Estimated Useful
Lives (Years)

 

March 31,
2012
Restated
(Note 2)

 

December 31,
2011

 

Buildings and improvements

 

5-40

 

$

94,514

 

$

93,371

 

Equipment

 

2-10

 

7,501

 

7,108

 

Land

 

 

7,346

 

7,636

 

Computer related

 

2-10

 

2,433

 

2,414

 

Construction in process

 

 

245

 

77

 

 

 

 

 

112,039

 

110,606

 

Less: accumulated depreciation expense

 

 

 

8,761

 

7,624

 

Less: accumulated amortization expense

 

 

 

575

 

533

 

Property and equipment, net

 

 

 

$

102,703

 

$

102,449

 

 

For the quarters ended March 31, 2012 and 2011, depreciation and amortization expense was approximately $1,710,000 and $647,000, respectively.

 

In 2012, a reclassification adjustment was made to the December 31, 2011 balance sheet to recognize $2.7 million of goodwill acquired in acquisitions that was previously reported as bed licenses included in property and equipment.  The Company does not amortize goodwill or indefinite lived intangibles.

 

During the quarter ended March 31, 2012, the Company recognized a $389,000 impairment charge to write down the carrying value of an office building located in Rogers, Arkansas.  The office building was acquired in a 2011 acquisition.  The purchase price allocation for that acquisition was deemed to be final as of December 31, 2011.  Subsequent to December 31, 2011, it was determined that the acquired office building would not be utilized and the building was not in use as of March 31, 2012.  The impairment charge represents a change in fair value from value recognized in the purchase price allocation.  The impairment charge is classified as depreciation expense in the consolidated statement of operations and is included in the Company’s Skilled Nursing Facility segment.

 

16



Table of Contents

 

NOTE 7.  RESTRICTED CASH AND INVESTMENTS

 

The following table sets forth the Company’s various restricted cash, escrow deposits and investments:

 

 

 

March 31,

 

December 31,

 

(Amounts in 000’s)

 

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

 

 

Refundable escrow deposit — 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 refunded.

 

NOTE 8.  ACCRUED EXPENSES

 

Accrued expenses consist of the following:

 

(Amounts in 000’s)

 

March 31,
2012
Restated
(Note 2)

 

December 31,
2011

 

Accrued payroll related

 

$

5,146

 

$

5,040

 

Accrued employee benefits

 

3,224

 

2,023

 

Real estate and other taxes

 

1,166

 

982

 

Other accrued expenses

 

2,029

 

1,836

 

Total accrued expenses

 

$

11,565

 

$

9,881

 

 

NOTE 9.  NOTES PAYABLE AND OTHER DEBT

 

Notes payable and other debt consists of the following:

 

(Amounts in 000’s)

 

March 31,
2012
Restated
(Note 2)

 

December 31,
2011

 

Revolving credit facilities and lines of credit

 

$

8,095

 

$

8,651

 

Senior debt - guaranteed by HUD

 

15,869

 

15,738

 

Senior debt - guaranteed by USDA

 

28,796

 

38,717

 

Senior debt - guaranteed by SBA

 

5,040

 

5,087

 

Senior debt - bonds, net of discount

 

6,179

 

6,176

 

Senior debt - other mortgage indebtedness

 

31,043

 

23,823

 

Other debt

 

6,508

 

4,197

 

Convertible debt issued in 2010, net of discount

 

10,316

 

10,105

 

Convertible debt issued in 2011

 

4,509

 

4,509

 

Total notes payable and other debt

 

116,355

 

117,003

 

Less current portion

 

15,557

 

11,910

 

Notes payable and other debt, net of current portion

 

$

100,798

 

$

105,093

 

 

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Table of Contents

 

NOTE 9.  NOTES PAYABLE AND OTHER DEBT (continued)

 

Scheduled Maturities

 

The following is a summary of the scheduled maturities of indebtedness as of March 31, 2012 for each of the next five years and thereafter:

 

 

 

(Amounts in 000’s)

 

2013

 

$

15,557

 

2014

 

19,606

 

2015

 

1,898

 

2016

 

1,979

 

2017

 

2,140

 

Thereafter

 

76,695

 

Subtotal

 

117,875

 

Less: unamortized discounts

 

(1,520

)

Total notes payable and other debt

 

$

116,355

 

 

Debt Covenant Compliance

 

As of March 31, 2012, the Company (including its consolidated variable interest entity) had 26 different credit facilities (credit facilities, mortgage notes, bonds and other credit obligations) outstanding that include various financial and administrative covenant requirements. Covenant requirements include, but are not limited to, fixed charge coverage ratios, debt service coverage ratios, minimum EBITDA or EBITDAR, current ratios and tangible net worth requirements. Certain financial covenant requirements are based on consolidated financial measurements whereas others are based on subsidiary level (i.e., facility, multiple facilities or a combination of subsidiaries comprising less than the Company's consolidated financial measurements). Some covenants are based on annual financial metric measurements whereas others are based on monthly or quarterly financial metric measurements. The Company routinely tracks and monitors its compliance with its covenant requirements, In recent periods, including as of March 31, 2012, the Company has not been in compliance with certain financial and administrative covenants. For each instance of such non-compliance, the Company has obtained waivers or amendments to such requirements, including, as necessary, modifications to future covenant requirements or the elimination of certain requirements in future periods.

 

Senior debt — other mortgage indebtedness

 

Hearth and Home of Vandalia

 

In January 2012, the Company refinanced the Hearth and Home of Vandalia facility through the issuance of a term loan insured by U.S. Department of Housing and Urban Development (“HUD”) with a financial institution for a total amount of $3,721,500 that matures in 2041.  The HUD term loan requires monthly principal and interest payments of approximately $17,500 with a fixed interest rate of 3.74%.  Deferred financing costs incurred on the term loan amounted to approximately $201,000 and are being amortized to interest expense over the life of the HUD term loan.  The HUD term loan has a prepayment penalty of 8% through 2014 declining by 1% each year through 2022.

 

Woodland Manor

 

In connection with the January 2012 acquisition of the skilled nursing facility located in Springfield, Ohio, known as Woodland Manor, the Company entered into a loan agreement for $4,800,000.  The loan matures in December 2016 with a required final payment of approximately $4,300,000 and accrues interest at the LIBOR rate plus 4% with a minimum rate of 6% per annum.  The loan requires monthly principal payments of $8,500 plus interest for total current monthly payments of approximately $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 the loan.  The loan has a prepayment penalty of 5% through 2012 declining by 1% each year through 2015.  The loan is secured by the Woodland Manor facility and guaranteed by AdCare.

 

Eaglewood Village

 

In connection with 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 this short-term obligation on April 12, 2012 (see Note 15).

 

Other Debt

 

Eaglewood Village Promissory Note

 

In connection with the January 2012 acquisition of Eaglewood Village, 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 note matures in January 2014 and bears interest at 6.5% per annum payable monthly beginning February 2012.  The note requires monthly principal and interest payments of $3,700.  The note may be prepaid without penalty at any time.

 

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Table of Contents

 

NOTE 9.  NOTES PAYABLE AND OTHER DEBT (continued)

 

Other Debt (continued)

 

Cantone Promissory Note

 

In March 2012, the Company issued a promissory note to Cantone Asset Management LLC in the amount of $3,500,000.  The promissory note bears interest at 10% per annum and matures in October 2012.  The interest rate increases 1% each month beginning in July 2012 through October 2012.  The note may also be prepaid without penalty at 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 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.

 

NOTE 10.  ACQUISITIONS

 

Summary of 2012 Acquisitions

 

During the quarter ended March 31, 2012, the Company acquired one skilled nursing facility and one assisted living facility described further below and is pursuing a number of other acquisitions.  The Company has incurred a total of approximately $293,000 of acquisition costs in the “Other Income (Expense)” section of the Consolidated Statements of Operations.

 

Woodland Manor and Eaglewood Village

 

On January 1, 2012, the Company acquired one skilled nursing facility and one assisted living facility both located in Springfield, Ohio.  The total purchase price was $12,412,000 after final closing adjustments.

 

 

 

(Amounts in
000’s)

 

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

 

1,188

 

Goodwill

 

87

 

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 control.  Combined revenue for all 2012 acquisitions is approximately $2,474,000 and resulted in income from operations of approximately $401,000.

 

The following table represents pro forma results of consolidated operations as if all of the 2011 and 2012 acquisitions had occurred at the beginning of the earliest fiscal year being presented, after giving effect to certain adjustments.

 

 

 

Three Months Ended March 31,

 

(Amounts in 000’s)

 

2012

 

2011

 

Pro Forma Revenue

 

$

46,831

 

$

45,843

 

Pro Forma Operating Expenses

 

$

46,570

 

$

44,336

 

Pro Forma Income from Operations

 

$

260

 

$

1,507

 

 

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Table of Contents

 

NOTE 10.  ACQUISITIONS (continued)

 

Unaudited Pro forma 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 11.  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 expired on May 11, 2012.

 

NOTE 12.  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 429,200 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.  During the restatement process (Note 2), the fair value of the warrants was reviewed, and the Company determined that the warrants should be revalued using an estimated life correlating to the legal term of the warrant.  The revised fair value was estimated to be $0.92; the additional expense is included in deferred loan costs and is being amortized as interest expense over the life of the promissory note.

 

NOTE 13.  VARIABLE INTEREST ENTITIES

 

As further described in Note 19 to the consolidated financial statements in the Annual Report, the Company has certain variable interest entities that are required to be consolidated.  In connection with the restatement process (Note 2), the Company has determined that certain entities which the Company had previously recognized as variable interest entities and consolidated their results with the results of the Company during the first three quarters of 2012 as well as the third and fourth quarter of 2011, should not have been consolidated. These entities are the five skilled nursing facilities located in Oklahoma which are managed by the Company (known as the “Oklahoma Owners”).  As a result of the restatements described in Note 2, the Company’s consolidated financial statements for the first quarter of 2012 do not include the results of the Oklahoma Owners.  The Company concluded that including the Oklahoma Owners in its 2011 consolidated financial statements was not material to such consolidated financial statements and therefore no adjustments have been made to the previously issued quarterly and annual 2011 consolidated financial statements.  The following summarizes the assets and liabilities of the variable interest entities included in the consolidated balance sheets at March 31, 2012 and December 31, 2011:

 

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NOTE 13.          VARIABLE INTEREST ENTITIES (continued)

 

Riverchase Village Facility - Assets and Liabilities:

 

(Amounts in 000’s)

 

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

 

227

 

173

 

Notes payable

 

6,179

 

6,176

 

Noncontrolling interest

 

(326

)

(181

)

Total liabilities

 

$

6,906

 

$

6,908

 

 

The balances related to the Oklahoma Owners variable interest entities that were consolidated as of December 31, 2011 but that the Company subsequently determined should not be consolidated were as follows:

 

(Amounts in 000’s)

 

 

 

December 31, 2011

 

Cash

 

 

 

$

180

 

Accounts receivable

 

 

 

800

 

Property and equipment, net

 

 

 

9,988

 

Goodwill

 

 

 

1,123

 

Other assets

 

 

 

641

 

Total assets

 

 

 

$

12,732

 

 

 

 

 

 

 

Accounts Payable

 

 

 

$

458

 

Accrued expenses

 

 

 

356

 

Notes payable

 

 

 

12,578

 

Noncontrolling interest

 

 

 

(660

)

Total liabilities

 

 

 

$

12,732

 

 

NOTE 14.          FAIR VALUE MEASUREMENTS

 

The following are the major categories of assets and liabilities measured at fair value on a recurring basis during the three months ended 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).

 

(Amounts in 000’s)

 

Level 1:

 

Level 2:

 

Level 3:

 

Total at March 31,
2012

 

Derivative Liability

 

$

 

$

 

$

1,479

 

$

1,479

 

 

Following is a reconciliation of the beginning and ending balances for the derivative liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period ended March 31, 2012:

 

(Amounts in 000’s)

 

Derivative
Liability

 

Beginning Balance

 

$

1,889

 

Additions

 

 

Total gain

 

(410

)

Ending Balance

 

$

1,479

 

 

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NOTE 15.   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 or requiring disclosure based on management’s evaluation of the probability of loss from known claims.

 

Commitments

 

Arkansas - Little Rock, Northridge and Woodland Hills

 

On December 29, 2011, the Company entered into a Purchase and Sale Agreement to purchase three skilled nursing facilities located in Little Rock, Arkansas for a total purchase price of` $27,280,000.  Subsequent to December 31, 2011, the Company was required to deposit $1,100,000 into escrow to be held as earnest money. If the agreement is terminated due to the sellers’ failure to satisfy certain conditions set forth therein, then the deposit shall be returned to the Company. If the Company does not consummate the purchase, the sellers will retain the deposit.  The Company extended the closing to March 31, 2012, with the payment of an additional $500,000 in earnest money, and also deposited $1,200,000 into escrow to be held as an earnest deposit.

 

Arkansas - Abington

 

On January 3, 2012, the Company entered into a Purchase and Sale Agreement with SCLR, LLC to acquire certain land, buildings, improvements, furniture, fixtures, operating agreements and equipment comprising Abington Place Health and Rehab Center, a 120-bed skilled nursing facility located in Little Rock, Arkansas, for an aggregate purchase price of $3,600,000.  Pursuant to the agreement, the Company deposited $150,000 into escrow to be held as earnest money. Upon consummation of the purchase, the deposit will be retained by the Abington Place Seller and applied against the purchase price.  The closing of the Abington Place purchase is expected to occur on April 1, 2012. The Company may extend the closing until April 30, 2012, subject to payment of an additional $100,000 in earnest money.

 

Westlake / Quail Creek

 

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

 

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, the Company and Tulsa Christian Care, Inc. entered into an interim management agreement for this skilled nursing facility effective April 1, 2012.

 

NOTE 16. SUBSEQUENT EVENTS

 

Strome Promissory Note

 

On April 1, 2012, the Company issued a promissory note to Strome Alpha Offshore Ltd., in the amount of $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 issuance of the promissory note, the Company 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 warrant was estimated at $0.61 per share and will be included in financing costs and expensed over the life of the promissory note issued in connection with the financing.  During the restatement process, the fair value of the warrants was reviewed, and the Company determined that the warrants should be revalued using a life equal to the term of the warrant.  The revised fair value was estimated to be $0.88; the additional expense is included in deferred loan costs and is being amortized as interest expense over the life of the promissory note.

 

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Table of Contents

 

NOTE 16. SUBSEQUENT EVENTS (continued)

 

Arkansas Acquisition

 

On April 1, 2012, we completed the acquisition of: (i) Little Rock Health & Rehab, a 154-bed skilled nursing facility located in Little Rock, Arkansas; (ii) Northridge Healthcare and Rehabilitation, a 140-bed skilled nursing facility located in 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 $27,280,000.  In connection with the closing of this acquisition, Little Rock HC&R Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, and Woodland 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 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.

 

Glennville PSA

 

On April 3, 2012, the Company entered into an agreement to acquire a 160-bed skilled nursing facility located in Glennville, Georgia for an aggregate purchase price of $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 Commercial 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.

 

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Table of Contents

 

NOTE 16. SUBSEQUENT EVENTS (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.

 

Sumter Valley PSA

 

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 to 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 $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 loan 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 payable on September 1, 2012.  The loan is secured by a first mortgage on the real property and improvements constituting the facility.  We assigned to Metro City Bank a certificate of deposit in the amount of $1,000,000 as additional security for the loan.

 

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 Acquisition Officer.

 

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Table of Contents

 

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

 

Special Note Regarding Forward Looking Statements

 

Certain statements in this Quarterly Report on Form 10-Q/A (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.  This information includes assumptions made by, and information currently available to management, including statements regarding future economic performance and financial condition, liquidity and capital resources, and management’s plans and objectives.  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 revise any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by applicable laws.  You should read this Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the consolidated financial statements and related notes included in this Quarterly Report and in the Annual Report on Form 10-K, as well as other reports that we file with the SEC.

 

Change in Accounting for Variable Interest Entities

 

As further discussed in Note 19, Variable Interest Entities, and Note 21, Related Party Transactions, found in the Company’s audited consolidated financial statements and notes included in the Company’s Annual Report, effective August 1, 2011 entities (the “Oklahoma Owners”) controlled by Christopher Brogdon and his spouse, Connie Brogdon (related parties to the Company), acquired five skilled nursing facilities located in Oklahoma (the “Oklahoma Facilities”).  The Company entered into a Management Agreement with the Oklahoma Owners pursuant to which a wholly-owned subsidiary of the Company supervises the management of the Oklahoma Facilities for a monthly fee equal to 5% of the monthly gross revenues of the Oklahoma Facilities.  Upon acquisition, the Company concluded it was the primary beneficiary of the Oklahoma Owners and pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810-10, Consolidation - Overall, consolidated the Oklahoma Owners in its 2011 consolidated financial statements.

 

During the process of finalizing the 2012 consolidated financial statements, the Company re-assessed its prior conclusion that it should consolidate the Oklahoma Owners.  In the reassessment process, the Company concluded that it should not have consolidated the Oklahoma Owners.  In the accompanying consolidated financial statements the Company has deconsolidated the Oklahoma Owners effective January 1, 2012 and the balance sheet, operations and cash flows of the Oklahoma Owners are not included in the Company’s first quarter 2012 consolidated financial statements.  The Company further concluded that including the Oklahoma Owners in its 2011 consolidated financial statements was not material to such consolidated financial statements and therefore no adjustments have been made to the previously issued quarterly and annual 2011 consolidated financial statements.

 

Overview

 

The Company owns and manages skilled nursing facilities and assisted living facilities.  We deliver skilled nursing, assisted living and home health services through wholly owned separate operating subsidiaries.  During the first quarter of 2012, we acquired two facilities (one skilled nursing facility and one assisted living facility), bringing our Company’s total bed count to 4,794 at March 31, 2012.  The following tables provide summary information regarding our recent acquisitions and facility composition.

 

 

 

March 31, 2012

 

December 31, 2011

 

December 31, 2010

 

Cumulative number of facilities

 

52

 

44

(*)

27

 

Cumulative number of operational beds

 

4,794

 

3,916

(*)

2,484

 

 


(*) Including the five Oklahoma Facilities which are not consolidated in 2012 as discussed in Note 2.  The Oklahoma Facilities included 314 operational beds.

 

 

 

Number of

 

Number of Facilities at March 31, 2012

 

State

 

Operational
Beds/Units

 

Owned

 

VIE

 

Leased

 

Managed for
Third Parties

 

Total

 

Arkansas

 

964

 

9

 

 

 

 

9

 

Alabama

 

408

 

2

 

1

 

 

 

3

 

Georgia

 

1,497

 

3

 

 

10

 

 

13

 

Missouri

 

80

 

 

 

1

 

 

1

 

North Carolina

 

106

 

1

 

 

 

 

1

 

Ohio

 

981

 

10

 

 

1

 

4

 

15

 

Oklahoma

 

758

 

 

 

 

10

 

10

 

Total

 

4,794

 

25

 

1

 

12

 

14

 

52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Facility Type

 

 

 

 

 

 

 

 

 

 

 

 

 

Skilled Nursing

 

4,299

 

17

 

 

12

 

13

 

42

 

Assisted Living

 

412

 

8

 

1

 

 

 

9

 

Independent Living

 

83

 

 

 

 

1

 

1

 

Total

 

4,794

 

25

 

1

 

12

 

14

 

52

 

 

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Table of Contents

 

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.  During 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 3,602 at March 31, 2012.

 

·                  On December 30, 2011, we acquired a skilled nursing facility and an assisted living facility both located in Springfield, Ohio, for an aggregate adjusted purchase price of $12,412,000.

 

Subsequent to March 31, 2012, the following acquisitions were completed:

 

·                  On April 1, 2012, we acquired three skilled nursing facilities located in Little Rock, Arkansas.  The total purchase price was $27,280,000.

 

·                  On April 30, 2012, we acquired a skilled nursing facility located in Little Rock, Arkansas for an aggregate purchase price of $3,600,000.  We will obtain effective control and plan to commence operations on June 1, 2012.

 

In addition, the following potential acquisitions have been announced during the three months ended March 31, 2012:

 

·                  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 Acquisition Officer.

 

·                  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.

 

·                  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.  Beginning April 1, 2012, we entered into a management agreement to operate the facility in the interim period.

 

For information regarding purchase and sale agreements of facilities that have been entered into subsequent to March 31, 2012, see Note 16 in the “Notes to Consolidated Financial Statements” section of Part I, Item 1 of this Quarterly Report.

 

We are currently evaluating potential acquisition opportunities in addition to those described above and we continue to seek new opportunities to further our growth strategy.  No assurance is made that any of these potential acquisition opportunities will be determined to be appropriate for us or that we will complete any of such acquisitions on terms acceptable to us, or at all.

 

Segments

 

The Company reports its operations in three segments:  Skilled Nursing Facilities (“SNF”), Assisted Living Facilities (“ALF”), and Corporate & Other.  The Company delivers 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 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 exclude interest expense and other non-operating income and expenses.  See Note 5 in the “Notes to Consolidated Financial Statements” section of Part I, Item 1 of this Quarterly Report.

 

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Table of Contents

 

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 (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 by approximately $14,853,000 compared to March 31, 2011, as a result of acquisitions during the year.  This segment had income from operations of $850,000 as a result of improved quality mix as well as expense control.  We expect to continue to implement and refine strategies designed to sustain these goals.  Total assets increased by $4,869,000 due to acquisitions made since March 31, 2011.

 

“Same Facilities” results represent those owned and leased facilities we began to operate prior to January 1, 2011.

 

“Recently Acquired Facilities” results represents those owned and leased facilities we began to operate subsequent to January 1, 2011.

 

Average Occupancy

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Same Facilities

 

85.9

%

86.8

%

Recently Acquired Facilities

 

76.3

%

n/a

 

Total

 

82.4

%

86.8

%

 

We continue our work towards maximizing the number of patients covered by Medicare where our operating margins are higher.

 

Patient Mix

Three Months Ended March 31,

 

 

 

 

 

 

 

Recently

 

 

 

 

 

 

 

 

 

 

 

Acquired

 

 

 

 

 

 

 

Same Facilities

 

Facilities

 

Total

 

 

 

2012

 

2011

 

2012

 

2011

 

2012

 

2011

 

Medicare

 

15.2

%

15.5

%

14.3

%

n/a

 

14.9

%

15.5

%

Medicaid

 

73.2

%

76.4

%

71.5

%

n/a

 

72.6

%

76.4

%

Other

 

11.6

%

8.1

%

14.2

%

n/a

 

12.5

%

8.1

%

Total

 

100.0

%

100.0

%

100.0

%

n/a

 

100.0

%

100.0

%

 

For the Three Months Ended March 31, 2012:

 

 

 

Operational

 

Period’s

 

 

 

Medicare

 

 

 

 

 

 

 

 

 

Beds at

 

Average

 

Occupancy

 

Utilization

 

2012 Q1

 

Medicare

 

 

 

 

 

Period

 

Operational

 

(Operational

 

(Skilled

 

Total

 

(Skilled)

 

Medicaid

 

State (SNF Only)

 

End(1)

 

Beds

 

Beds)

 

%ADC)(2)

 

Revenues

 

$PPD(3)

 

$PPD(3)

 

Alabama

 

304

 

304

 

83.7

%

12.8

%

$

4,881

 

$

372.31

 

$

182.77

 

Arkansas

 

932

 

498

 

70.9

%

12.8

%

$

6,411

 

$

352.68

 

$

171.31

 

Georgia

 

1,497

 

1,497

 

86.6

%

14.7

%

$

23,690

 

$

456.78

 

$

145.68

 

Missouri

 

80

 

80

 

61.3

%

24.1

%

$

918

 

$

394.89

 

$

134.01

 

North Carolina

 

106

 

106

 

89.0

%

18.1

%

$

1,904

 

$

464.29

 

$

154.91

 

Ohio

 

293

 

293

 

82.9

%

17.7

%

$

5,240

 

$

456.46

 

$

158.76

 

Total

 

3,212

 

2,778

 

82.4

%

14.9

%

$

43,044

 

$

433.06

 

$

155.22

 

 


(1)         Excludes managed beds which are not consolidated.

(2)         ADC is the Average Daily Census

(3)         PPD is the Per Patient Day equivalent

 

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Table of Contents

 

Assisted Living Facilities

 

For the three months ended March 31, 2012, revenue in our ALF segment increased by approximately $922,000 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 $684,000.  Total assets increased by approximately $5,061,000 primarily due to acquisitions since March 31, 2011 and other building improvements made during the last 12 months.

 

 

 

Average Occupancy

 

 

 

Three Months Ended
March 31
,

 

 

 

2012

 

2011

 

Total

 

81.4

%

74.5

%

 

Residents of our assisted living facilities rely on their personal investments and wealth to pay for their stay.  Although many of the risks still remain, such as declines in market values of investments, depressed market for the sale of private homes, and adult children caring for their elderly at home, we have seen an increase in census.

 

Corporate & Other

 

We manage eight skilled nursing facilities and one independent living campus for third party owners under management 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 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 management 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

 

 

 

Three Months Ended March 31,

 

Skilled Nursing (Amounts in 000’s)

 

2012

 

2011

 

Same Facilities

 

$

28,833

 

$

28,191

 

Recently Acquired Facilities

 

14,211

 

n/a

 

Total

 

$

43,044

 

$

28,191

 

 

 

 

Three Months Ended March 31,

 

Assisted Living (Amounts in 000’s)

 

2012

 

2011

 

Same Facilities

 

$

2,596

 

$

2,341

 

Recently Acquired Facilities

 

667

 

n/a

 

Total

 

$

3,263

 

$

2,341

 

 

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Table of Contents

 

Comparison for the three months ended March 31, 2012 and 2011

 

Patient Care Revenues - For the periods presented, total patient care revenues increased by $15.8 million, or 51%.

 

Revenue in our SNF segment increased approximately $14,853,000 when compared to the three months ended March 31, 2011, primarily as a result of additional facilities acquired since March, 2011.  In addition, quality mix improved at existing facilities.  This segment had income from operations of $850,000 which is $345,000 higher compared to the three months ended March 31, 2011 as a result of higher revenue due to acquisitions and improved reimbursement rates. We are seeking to increase facility occupancy and to increase the number of patients covered by Medicare.  We seek to continue to implement and refine strategies designed to achieve these goals.

 

Revenue in our ALF segment increased by approximately $922,000 when compared to the three months ended March 31, 2011, as a result of increased census and levels of 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 $684,000 which is $480,000 more than the same period in 2011 from increased occupancy and an annual increase in rates charged to residents of the facilities.

 

Management Revenue - For the periods presented, management revenues (net of eliminations) increased $26,000, or 5%.

 

Cost of Services - For the periods presented, cost of services was approximately $38,807,000 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 Administrative - For the periods presented, general and administrative costs have increased by $1,069,000 due to additional management staff necessary to direct the growth and maximize the results of the newly acquired facilities.

 

Three Months Ended March 31, 2012

 

(Amounts in 000’s)

 

Same
Facilities

 

Recently
Acquired
Facilities

 

Total

 

SNF Other Operating Expenses

 

$

28,530

 

$

13,664

 

$

42,194

 

ALF Other Operating Expenses

 

2,065

 

514

 

2,579

 

Management/Corporate Other Operating Expenses

 

4,127

 

 

4,127

 

Eliminations

 

(1,580

)

(745

)

(2,325

)

Total Other Operating Expenses

 

$

33,142

 

$

13,433

 

$

46,575

 

 

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 in.  These costs are included in the consolidated statement of operations (included elsewhere in this Quarterly Report) under General and Administrative Expenses. Infrastructure costs were approximately $159,000 and $117,000 for the three months ended March 31, 2012 and 2011, respectively.

 

Facility Rent Expense - For the periods presented, lease expenses increased by $162,000 due to annual increases in rental rates and the addition of the one new leased facility in the fourth quarter of 2011.

 

 

 

Three Months Ended March 31

 

(Amounts in 000’s)

 

2012

 

2011

 

Lease Expense

 

$

2,065

 

$

1,903

 

 

Depreciation and Amortization - For the periods presented, depreciation and amortization increased by $1,063,000.  The depreciation increase is directly related to acquisition activity that was not included in the 2011 results as it occurred in later periods and a $389,000 impairment charge recognized by the Company on an office building located in Rogers, Arkansas.

 

Interest Expense, net - For the periods presented, interest expense, net increased by $1,242,000, or 86%.  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 and an increase in the amortization of deferred loan costs associated with the new debt agreements.

 

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Table of Contents

 

Acquisition 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 acquisition of the two Ohio facilities and other costs incurred on potential future acquisitions.  For the period ended March 31, 2011, the amount was the result of gains recognized on the acquisition of the Sylva, North Carolina facility during the first quarter of 2011.

 

Derivative Gain/Loss - For the period ended March 31, 2012, the derivative gain was $410,000, compared to a loss of $1,350,000 for the same period in 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 March 31, 2012.

 

Other Income/(Expense) - For the periods presented, other income decreased by $620,000.  There was a recovery of receivables recorded in the prior year which did not occur in the three months ended March 31, 2012.

 

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Table of Contents

 

Critical Accounting Policies and Use of Estimates

 

Except for the re-assessment of our application of FASB ASC Topic 810, Consolidation - Overall, related to the Oklahoma Owners, there have been no significant changes during the three months ended March 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.

 

As further discussed in Note 19, Variable Interest Entities, and Note 21, Related Party Transactions, found in the Company’s audited consolidated financial statements and notes included in the Company’s Annual Report, effective August 1, 2011 entities (the “Oklahoma Owners”) controlled by Christopher Brogdon and his spouse, Connie Brogdon (related parties to the Company), acquired five skilled nursing facilities located in Oklahoma (the “Oklahoma Facilities”).  The Company entered into a Management Agreement with the Oklahoma Owners pursuant to which a wholly-owned subsidiary of the Company supervises the management of the Oklahoma Facilities for a monthly fee equal to 5% of the monthly gross revenues of the Oklahoma Facilities.  Upon acquisition, the Company concluded it was the primary beneficiary of the Oklahoma Owners and pursuant to FASB ASC Topic 810, Consolidation - Overall, consolidated the Oklahoma Owners in its 2011 consolidated financial statements.

 

During the process of finalizing the 2012 consolidated financial statements, the Company re-assessed its prior conclusion that it should consolidate the Oklahoma Owners.  In the reassessment process, the Company concluded that it should not have consolidated the Oklahoma Owners.  In the accompanying consolidated financial statements the Company has deconsolidated the Oklahoma Owners effective January 1, 2012 and the balance sheet, operations and cash flows of the Oklahoma Owners are not included in the Company’s first quarter 2012 consolidated financial statements.  The Company further concluded that including the Oklahoma Owners in its 2011 consolidated financial statements was not material to such consolidated financial statements and therefore no adjustments have been made to the previously issued quarterly and annual 2011 consolidated financial statements.

 

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Table of Contents

 

Liquidity and Capital Resources

 

Overview

 

Liquidity 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 requirements through a combination of net cash flow from operations, debt from third party lenders and issuances of other debt and equity securities.

 

We have negative working capital of approximately $8,119,000 at March 31, 2012.  Our ability to sustain profitable operations is dependent on continued growth in revenue and controlling costs.

 

During the next twelve months, 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 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 raise additional capital through the issuance of debt or equity securities on terms acceptable 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

 

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Table of Contents

 

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.

 

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Table of Contents

 

For information on financings that have been entered into subsequent to March 31, 2012, see Note 16 in the “Notes to Consolidated Financial Statements” section of Part I, Item 1 of this Quarterly Report.

 

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

 

 

 

Three Months Ended March 31

 

 

 

2012
As Restated
(Note 2)

 

2011

 

Net cash provided by operating activities - continuing operations

 

$

1,607

 

$

623

 

Net cash (used in) provided by operating activities - discontinued operations

 

(105

)

160

 

Net cash used in investing activities - continuing operations

 

(7,813

)

(5,490

)

Net cash provided by financing activities - continuing operations

 

10,175

 

10,546

 

Net cash used in financing activities - discontinued operations

 

(48

)

(46

)

Net change in cash and cash equivalents

 

3,816

 

5,793

 

Cash and cash equivalents at beginning of period

 

7,364

 

3,911

 

Cash decrease due to deconsolidation of variable interest entities

 

(180

)

 

Cash and cash equivalents at end of period

 

$

11,000

 

$

9,704

 

 

Three months ended March 31, 2012

 

Net cash provided by operating activities for the three months ended March 31, 2012, was approximately $1,502,000 consisting primarily of our net loss and changes in working capital, offset by noncash charges (primarily depreciation and amortization, 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 three months ended March 31, 2012, was approximately $7,813,000.  This is primarily the result of funding our acquisitions, including making escrow deposits and purchase of property and equipment.

 

Net cash provided by financing activities was approximately $10,127,000 for the three months ended March 31, 2012.  This is primarily the result of cash proceeds received from warrant exercises, the public stock offering, and proceeds from debt financings to fund our acquisitions, partially offset by repayments of existing debt obligations.

 

Three months ended March 31, 2011

 

Net cash used in operating activities for the three months ended March 31, 2011 was approximately $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 three months ended March 31, 2011 was approximately $5,490,000.  This is primarily the result of deposits for acquisitions and the purchase of additional equipment offset partially by reductions in restricted cash and investments.

 

Net cash provided by financing activities was approximately $10,500,000 for the three months ended 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 partially offset by repayments of existing debt obligations.

 

Debt Covenant Compliance

 

As of March 31, 2012, the Company (including its consolidated variable interest entity) had 26 different credit facilities (credit facilities, mortgage notes, bonds and other credit obligations) outstanding that include various financial and administrative covenant requirements. Covenant requirements include, but are not limited to, fixed charge coverage ratios, debt service coverage ratios, minimum EBITDA or EBITDAR, current ratios and tangible net worth requirements. Certain financial covenant requirements are based on consolidated financial measurements whereas others are based on subsidiary level (i.e., facility, multiple facilities or a combination of subsidiaries comprising less than the Company’s consolidated financial measurements). Some covenants are based on annual financial metric measurements whereas others are based on monthly or quarterly financial metric measurements. The Company routinely tracks and monitors its compliance with its covenant requirements. In recent periods, including as of March 31, 2012, the Company has not been in compliance with certain financial and administrative covenants. For each instance of such non-compliance, the Company has obtained waivers or amendments to such requirements, including, as necessary, modifications to future covenant requirements or the elimination of certain requirements in future periods.

 

The following table includes financial covenant requirements as of the last measurement date as of or prior to March 31, 2012 where the Company was not in compliance with the financial covenant or it achieved compliance with the covenant requirement by a margin of 10% or less. The table also identifies the related credit facility, outstanding balance at March 31, 2012 and the next applicable future financial covenant requirement inclusive of adjustments to covenant requirements resulting from amendments executed subsequent to March 31, 2012.

 

Period Ended

 

 

 

 

 

 

 

 

 

March 31, 2012

 

Credit Facility

 

Balance at
March 31, 2012
(000’s)

 

Consolidated or
Subsidiary Level
Covenant Requirement

 

Financial Covenant

 

Measurement
Period

 

Min/Max
Financial
Covenant
Required

 

As Reported
Financial
Covenant Metric
Achieved

 

As Restated
Financial
Covenant Metric
Achieved

 

Gemino - Line of Credit

 

$

6,717

 

Consolidated

 

Fixed Charge Coverage Ratio (FCCR)

 

Quarterly

 

1.10

 

0.53

 

3.49

*

PrivateBank - Line of Credit (Bentonville LOC)

 

$

1,308

 

Subsidiary

 

FCCR

 

Quarterly

 

1.05

 

2.16

 

0.89

*

PrivateBank - Mortgage Note - Homestead, Valley River, Bentonville

 

$

11,678

 

Subsidiary

 

EBITDAR(000’s)

 

Quarterly

 

$

450

 

$

702

 

$

-4

*

 

 

 

Consolidated

 

DSCR

 

Annual

 

n/a

 

n/a

 

n/a

 

Square 1 USDA - Term Note - Homestead

 

$

3,578

 

Subsidiary

 

Current ratio

 

Quarterly

 

1.00

 

0.37

 

0.27

*

 

 

 

Subsidiary

 

Maximum debt to net worth

 

Quarterly

 

9.00

 

7.57

 

14.34

*

 

 

 

 

Subsidiary

 

Tangible net worth

 

Quarterly

 

10.0

%

11.7

%

6.5

%*

PrivateBank - Mortgage Note - Woodland Manor

 

$

4,783

 

Subsidiary

 

Minimum quarterly EBITDAR (000’s)

 

Quarterly

 

$

250

 

$

301

 

$

280

 

 

 

 

 

Subsidiary

 

Minimum trailing twelve month FCCR

 

Quarterly

 

1.10

 

1.83

 

1.92

 

 


*     — Waiver or amendment for violation of covenant obtained.

 

Item 4.  Controls and Procedures

 

As previously disclosed, the Audit Committee, in consultation with management, concluded in March 2013 that: (i) the Company’s previously issued financial statements for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012 (the “Relevant Financial Statements”) should no longer be relied upon due to errors in the Relevant Financial Statements identified in connection with the audit of the Company’s consolidated financial statements for the year ended December 31, 2012; and (ii) the Company would restate the Relevant Financial Statements.

 

The Audit Committee initiated a further review of, and inquiry with respect to, the accounting and financial issues related to these and other potential errors and engaged counsel to assist the Audit Committee with such matters. The Audit Committee completed its

 

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inquiry and, in connection therewith, assisted in the correction of certain errors relating to accounting and financial matters and identified certain material weaknesses in the Company’s internal control over financial reporting, including weakness in the Company’s ability to appropriately account for complex or non-routine transactions and in the quality and sufficiency of the Company’s finance and accounting resources.

 

On July 8, 2013, the Company restated the Relevant Financial Statements by filing with the SEC amendments to its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our 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.

 

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report (the “Evaluation Date”). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective.

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures that are intended to:

 

(1)           maintain records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

(2)           provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

 

(3)           provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs.

 

Management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this evaluation, management used the framework and criteria set forth in the report entitled Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  The COSO framework summarizes each of the components of a company’s internal control system, including: (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication and (v) monitoring.

 

Consistent with the results of the Audit Committee’s review and inquiry, management identified material weaknesses in the Company’s ability to appropriately account for complex or non-routine transactions and the quality and sufficiency of the Company’s finance and accounting resources in relation to the increasing complexity and growth of the Company’s operations.

 

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As a result of the material weaknesses described above, management has concluded that our internal control over financial reporting was not effective at December 31, 2012 based on the guidelines established in Internal Control—Integrated Framework issued by COSO.

 

Changes in Internal Control over Financial Reporting and Remediation

 

In response to the material weaknesses in the Company’s internal control over financial reporting, and based in part on recommendations made by the Audit Committee to the Board of Directors following the completion of the Audit Committee’s review and inquiry, we have implemented, or plan to implement, the changes to our internal control over financial reporting discussed below.

 

·                  We hired Ronald W. Fleming to serve as Chief Financial Officer of the Company effective May 15, 2013.  Mr. Fleming has relevant industry experience as well as experience with generally accepted accounting principles and SEC reporting and compliance.

 

·                  We have empowered Mr. Fleming to hire additional accounting and finance staff to ensure adequate internal control over financial reporting and operations.

 

·                  We are seeking to hire a permanent Chief Accounting Officer, as further discussed below.

 

·                  We have expanded the scope of our annual internal audit plan to include quarterly internal audit procedures with emphasis on the review of journal entries and non-recurring transactions.

 

In April 2013, we engaged an Interim Chief Accounting Officer on a contract basis. We are currently discussing with our Interim Chief Accounting regarding the terms of her employment as the Company’s Chief Accounting Officer and believe that we will reach agreement on such terms in the near term.

 

Since January 2013, the Company has hired eight new finance and accounting personnel, including a Vice President of Facility Accounting Operations. Our new finance and accounting leadership continue to evaluate the qualifications and sufficiency of our accounting and finance department. The expanded internal audit scope has commenced and will be completed prior to the Company filing its Quarterly Reports on Form 10-Q for each of the 2013 quarterly periods.

 

Due to the short time period since we commenced our efforts to remediate our material weaknesses, and because we have not fully completed our financial reporting process for the quarter ended March 31, 2013, we have not yet been able to fully evaluate the effectiveness of such efforts.  We have incurred, and will continue to incur, additional incremental costs associated with our remediation efforts, primarily due to hiring new finance and accounting personnel and external consultants and the implementation and validation of improved accounting and financial reporting procedures. If we are not successful in remediating our material weaknesses, or if we determine in future fiscal periods that we have additional material weaknesses in our internal control over financial reporting, then the reliability of our financial reports may be adversely impacted, we may be unable to file our reports with the SEC in a timely fashion and we could be required to restate our financial results. This could cause our investors to lose confidence in our financial reporting, which could adversely affect the trading price of our stock.

 

Other than the remediation efforts discussed above, which occurred in 2013 and have included the involvement of our new finance and accounting leadership in the preparation, review, and approval of the consolidated financial statements included in this Quarterly Report, there have not been any 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)  since January 1, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

In addition, there were not any 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 the first quarter of 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

 

Part II.  Other Information

 

Item 6.  Exhibits

 

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

 

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

 

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·                  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 January 3, 2012, between SCLR, LLC and AdCare Property Holdings, LLC

 

Incorporated by reference from Exhibit 2.9 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011

 

 

 

 

 

2.2

 

Purchase and Sale Agreement, dated as of January 17, 2012, between Gyman Properties, LLC and AdCare Property Holdings, LLC

 

Incorporated by reference from Exhibit 2.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011

 

 

 

 

 

2.3

 

Purchase and Sale Agreement, dated March 12, 2012, by and between Westlake Nursing Home Limited and AdCare Property Holdings, LLC

 

Incorporated by reference from Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed March 15, 2012

 

 

 

 

 

2.4

 

Purchase and Sale Agreement, dated March 14, 2012, by and between F & F Ventures, LLC, Tulsa Christian Care, Inc., d/b/a/ Companions Specialized Care Center and AdCare Property Holdings, LLC

 

Incorporated by reference from Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed March 15, 2012

 

 

 

 

 

2.5

 

Purchase and Sale Agreement, dated as of April 3, 2012, between Evans Memorial Hospital, Inc. and AdCare Property Holdings, LLC.

 

Incorporated by reference from Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed April 9, 2012

 

 

 

 

 

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 Incorporation

 

Incorporated by reference from Exhibit 3.1 of the Registrant’s Registration Statement Form SB (Registration No. 333-131542)

 

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Table of Contents

 

Exhibit No.

 

Description

 

Method of Filing

 

 

 

 

 

 

 

 

 

filed February 3, 2006

 

 

 

 

 

3.2

 

Code of Regulations

 

Incorporated by reference from Exhibit 3.2 of the Registrant’s Registration Statement Form SB (Registration No. 333-131542) filed February 3, 2006

 

 

 

 

 

3.3

 

Amendment to Amended and Restated Articles of Incorporation

 

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.

 

Previously 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

 

Previously filed

 

 

 

 

 

10.1

 

Mortgage Deed, recorded January 31, 2012, executed by Hearth and Home of Vandalia, Inc. in favor of Red Mortgage Capital, LLC

 

Previously filed

 

 

 

 

 

10.2

 

Mortgage Note, dated January 1, 2012, entered into by Hearth & Home of Vandalia, Inc. in favor of Red Mortgage Capital, LLC

 

Previously filed

 

 

 

 

 

10.3

 

Security Agreement, dated January 1, 2012, by and between Hearth and Home of Vandalia, Inc. and Red Mortgage Capital, LLC

 

Previously filed

 

 

 

 

 

10.4

 

Lessee Security Agreement, dated January 1, 2012, by and among AdCare Health Systems, Inc., Hearth & Home of Vandalia, Inc. and Red Mortgage Capital, LLC

 

Previously filed

 

 

 

 

 

10.5

 

Modification Agreement, dated as of March 9, 2012, by and among Benton Nursing, LLC, Park Heritage Nursing, LLC, Valley River Nursing, LLC, Homestead Nursing, LLC, Woodland Manor Nursing, LLC, Mountain View Nursing, LLC, AdCare Health Systems, Inc. and the PrivateBank and Trust Company

 

Incorporated by reference from Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed March 15, 2012

 

 

 

 

 

10.6

 

Loan Agreement, dated as of March 30, 2012, by and among Little Rock HC&R Property Holdings, LLC, Northridge HC&R Property Holdings, LLC, Woodland Hills HC Property Holdings, LLC and The PrivateBank and Trust Company

 

Previously filed

 

 

 

 

 

10.7

 

Promissory Note, dated as of March 30, 2012, issued by Little Rock HC&R Property Holdings, LLC, Northridge HC&R Property Holdings, LLC and Woodland Hills HC Property Holdings, LLC in favor of The PrivateBank and Trust Company in the amount of $21,800,000

 

Previously filed

 

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Table of Contents

 

Exhibit No.

 

Description

 

Method of Filing

 

 

 

 

 

10.8

 

Promissory Note, dated April 1, 2012, issued by AdCare Health Systems, Inc. in favor of Strome Alpha Offshore Ltd., in the amount of $5,000,000

 

Previously filed

 

 

 

 

 

10.9

 

Promissory Note, dated March 30, 2012, issued by AdCare Health Systems, Inc. in favor of Cantone Asset Management LLC, in the amount of $3,500,000

 

Previously filed

 

 

 

 

 

10.10

 

Note Purchase Agreement, dated March 29, 2012, by and between AdCare Health Systems, Inc. and Cantone Asset Management LLC

 

Previously filed

 

 

 

 

 

10.11

 

Guaranty of Payment and Performance, dated as of March 30, 2012, made by AdCare Health Systems, Inc., Little Rock HC&R Property Holdings, LLC, Northridge HC&R Property Holdings, LLC and Woodland Hills HC Property Holdings, LLC, to and for the benefit of The PrivateBank and Trust Company

 

Previously filed

 

 

 

 

 

10.12

 

Mortgage, Security Agreement, Assignment of Rents and Leases & Fixture Filing, dated as of April 1, 2012, executed by Little Rock HC&R Property Holdings, LLC to and for the benefit of The PrivateBank and Trust Company

 

Previously filed

 

 

 

 

 

10.13

 

Mortgage, Security Agreement, Assignment of Rents and Leases & Fixture Filing, dated as of April 1, 2012, executed by Northridge HC&R Property Holdings, LLC to and for the benefit of The PrivateBank and Trust Company

 

Previously filed

 

 

 

 

 

10.14

 

Mortgage, Security Agreement, Assignment of Rents and Leases & Fixture Filing, dated as of April 1, 2012, executed by Woodland Hills HC Property Holdings, LLC to and for the benefit of The PrivateBank and Trust Company

 

Previously filed

 

 

 

 

 

10.15

 

Absolute Assignment of Rents and Leases, dated as of April 1, 2012, executed by Little Rock HC&R Property Holdings, LLC to and for the benefit of The PrivateBank and Trust Company

 

Previously filed

 

 

 

 

 

10.16

 

Absolute Assignment of Rents and Leases, dated as of April 1, 2012, executed by Northridge HC&R Property Holdings, LLC to and for the benefit of The PrivateBank and Trust Company

 

Previously filed

 

 

 

 

 

10.17

 

Absolute Assignment of Rents and Leases, dated as of April 1, 2012, executed by Woodland Hills HC Property Holdings, LLC to and for the benefit of The PrivateBank and Trust Company

 

Previously filed

 

 

 

 

 

10.18

 

Loan Agreement, dated as of April 12, 2012, between the City of Springfield, Ohio and Eaglewood Property Holdings, LLC

 

Previously filed

 

 

 

 

 

10.19

 

Guaranty Agreement, dated as of April 12, 2012, made and entered into by AdCare Health Systems, Inc., to and for the benefit of BOKF, NA dba Bank of Oklahoma

 

Previously filed

 

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Table of Contents

 

Exhibit No.

 

Description

 

Method of Filing

 

 

 

 

 

10.20

 

Land Use Restriction Agreement, dated as of April 12, 2012, by and between BOKF, NA dba Bank of Oklahoma and Eaglewood Property Holdings, LLC

 

Previously filed

 

 

 

 

 

10.21

 

Open-End Mortgage, Assignment of Leases and Security Agreement, dated April 12, 2012, from Eaglewood Property Holdings, LLC to BOKF, NA dba Bank of Oklahoma

 

Previously filed

 

 

 

 

 

10.22

 

Loan Agreement, dated April 30, 2012, by and between APH&R Property Holdings, LLC and Metro City Bank

 

Incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed May 3, 2012

 

 

 

 

 

10.23

 

Promissory Note, dated April 30, 2012, issued by APH&R Property Holdings, LLC in favor of Metro City Bank in the amount of $3,425,500

 

Incorporated by reference from Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed May 3, 2012

 

 

 

 

 

10.24

 

Mortgage and Security Agreement, dated April 30, 2012, between APH&R Property Holdings, LLC and Metro City Bank

 

Incorporated by reference from Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed May 3, 2012

 

 

 

 

 

10.25

 

Security Agreement, dated April 30, 2012, between APH&R Property Holdings, LLC and Metro City Bank

 

Incorporated by reference from Exhibit 99.4 to the Registrant’s Current Report on Form 8-K filed May 3, 2012

 

 

 

 

 

10.26

 

Guaranty, dated as of April 30, 2012, between APH&R Property Holdings, LLC in favor of Metro City Bank

 

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 Bank

 

Incorporated by reference from Exhibit 99.6 to the Registrant’s Current Report on Form 8-K filed May 3, 2012

 

 

 

 

 

10.28

 

Collateral Assignment of Certificate of Deposit, dated April 30, 2012, by and between APH&R Property Holdings, LLC and Metro City Bank

 

Incorporated by reference from Exhibit 99.7 to the Registrant’s Current Report on Form 8-K filed May 3, 2012

 

 

 

 

 

10.29

 

Promissory Note, dated April 27, 2012, issued by Cantone Asset Management LLC in favor of AdCare Health Systems, Inc. in the amount of $1,500,000

 

Incorporated by reference from Exhibit 99.8 to the Registrant’s Current Report on Form 8-K filed May 3, 2012

 

 

 

 

 

10.30

 

Assignment of Purchase and Sale Agreement, dated May 9, 2012, between AdCare Property Holdings, LLC and GL Nursing, LLC

 

Previously filed

 

 

 

 

 

31.1

 

Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act.

 

Filed herewith

 

 

 

 

 

31.2

 

Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act

 

Filed herewith

 

 

 

 

 

32.1

 

Certification of CEO pursuant to Section 906 of the Sarbanes-

 

Filed herewith

 

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Table of Contents

 

Exhibit No.

 

Description

 

Method of Filing

 

 

 

 

 

 

 

Oxley Act

 

 

 

 

 

 

 

32.2

 

Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act

 

Filed herewith

 

 

 

 

 

101

 

The following financial information from AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the quarter ended March, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i)  Consolidated Statements of Operations for the three ended March 31, 2012 and 2011, (ii) Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011, (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011, (iv) Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2012 and (i) the Notes to Consolidated Financial Statements.

 

Filed herewith

 

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SIGNATURES

 

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

 

 

 

 

ADCARE HEALTH SYSTEMS, INC.

 

 

 

(Registrant)

 

 

 

 

Date:

October 22, 2013

 

/s/ Boyd P. Gentry

 

 

 

Boyd P. Gentry

 

 

 

Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 

 

Date:

October 22, 2013

 

/s/ Ronald W. Fleming

 

 

 

Ronald W. Fleming

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial and Accounting Officer)

 

43