10-Q/A 1 a13-9696_110qa.htm 10-Q/A

Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 1 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 September 30, 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)

 

(I.R.S. Employer Identification Number)

 

1145 Hembree Road, Roswell, GA 30076

(Address of principal executive offices)

 

(678) 869-5116

(Registrant’s telephone number, including area code)

 

Not Applicable

 (Former name, former address and 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 (§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 “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

Accelerated filer o

 

 

Non-accelerated filer o

Smaller reporting company x

(Do not check if a smaller reporting company)

 

 

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 October 31, 2012:  14,658,361 shares of common stock with no par value were outstanding.

 

 

 



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EXPLANATORY NOTE

 

In this Amendment No.1 on Form 10-Q/A to AdCare Health Systems, Inc. and subsidiaries (collectively “AdCare”, the “Company” or “we”) Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2012, we are restating the consolidated financial statements for the third 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 first and second 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:

 

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

 

·                                          The timing of certain revenue recognition adjustments to ensure proper recognition in the appropriate interim reporting period within the 2012 year.  The issues primarily relate to required adjustments due to changes in Medicaid reimbursement rates for certain facilities and the timing of recognition for state recoupments for Medicaid overpayments for certain facilities.

 

·                                          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 related to insufficient processes related to accounting for accrued vacation, the untimely identification and recognition of expenses associated with certain unemployment tax accrual adjustments, the untimely correction of a payroll accrual adjustment for a certain facility, and certain other resulting changes to the accrued performance-based incentive obligation due to the restatement impacts.

 

·                                          The timing of certain adjustments to the provision for bad debts in the appropriate interim reporting period within the 2012 year.  The issues primarily relate to required adjustments resulting from delays in collection efforts and lack of timely follow-up on patient accounts during 2012 for certain facilities and the timing of other necessary adjustments to the provision for bad debts.

 

·                                          The correction of certain operating and other costs incurred within the 2012 year that were incorrectly deferred or capitalized on the balance sheet that should have been expensed in the interim reporting period in which the costs were incurred.  The issues primarily relate to the misapplication of accounting principles related to two of the Company’s facilities.

 

·                                          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.  The issue primarily relates to the misapplication of accounting principles.  The related expense and obligation were being recorded over the perceived requisite service period until the anticipated payment date.  However, the obligations should have been expensed immediately in the period incurred as the obligation related to prior services rendered.

 

·                                          The adjustment of amortization expense associated with certain capitalized intangible assets to adjust for the reallocation of costs between an intangible subject to amortization and goodwill.

 

·                                          The timing of the write down to market value less cost to sell of an office building acquired through a 2011 acquisition that was vacated and abandoned in the first quarter of 2012.

 

·                  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, 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 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.

 

The restatements described above had an impact of decreasing the Company’s total revenues by $3.4 million and $10.0 million, respectively, and decreasing expenses by $1.2 million and $5.1 million, respectively, for the three and nine months ended September 30, 2012, and increasing the net loss attributable to AdCare Health Systems, Inc. by $2.8 million and $5.8 million, respectively, for the same period.  Basic and diluted earnings per share from continuing operations decreased by $0.20 and $.42 for the three and nine months ended September 30, 2012, respectively.

 

As of September 30, 2012, cash and cash equivalents decreased by $0.2 million, accounts receivable, net decreased by $2.7 million, prepaid expenses and other decreased by $0.1 million, property and equipment, net decreased $13.2 million, intangible assets — bed licenses decreased by $0.1 million, goodwill increased by $1.1 million, deferred loan costs, net decreased $0.5 million, current portion of notes payable and other debt increased $18.2 million, accounts payable decreased by $1.2 million, accrued expenses increased by $1.8 million, senior debt, net of discounts decreased $30.7 million, common stock and additional paid-in capital increased by $0.2 million, accumulated deficit increased by $5.7 million, and noncontrolling interest in subsidiaries decreased by $1.6 million.

 

On June 15, 2012, certain wholly owned subsidiaries of AdCare entered into a modification agreement with The PrivateBank and Trust Company (“PrivateBank”) to modify the terms of the loan agreement. The loan modification agreement, among other things, amended the loan agreement to reflect a maturity date of March 30, 2013. The Company anticipates that it will re-finance the Little Rock, Northridge and Woodland Hills facilities later this year with long-term financing. However, the Company does not have a formal noncancelable agreement with PrivateBank. As such, the entire balance is reflected as a current obligation at September 30, 2012 in the amount of $21.2 million.

 

On September 6, 2012, the Company’s Board of Directors declared a 5% stock dividend issued on October 22, 2012 to holders of the common stock as of October 8, 2012. As a result of the stock dividend, the number of outstanding shares of common stock increased by approximately 0.7 million shares in 2012.   As the dividend was declared before the release of the accompanying condensed consolidated financial statements, all references to the number of common shares and per-share amounts are restated based on the increased number of shares giving retroactive effect to the stock dividend on prior period amounts.

 

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This Amendment No. 1 on Form 10-Q/A (this “Amended Report”) amends the Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (the “Original Report”) of AdCare.  The effects of the restatements are more fully described in Note 2 to the unaudited consolidated financial statements included in this Amended Report.

 

The following sections have been amended from the Original Report as a result of the restatements described above:

 

·                  Part I - Item 1. Financial Statements (including the footnotes thereto);

·                  Part I - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations; and

·                  Part I - Item 4. Controls and Procedures

 

The Amended Report also includes as exhibits certifications from the Company’s Chief Executive Officer and Chief Financial Officer dated as of the date of the filing of the this Amended Report. Except as described above, no other sections have been amended from the Original Report.

 

This Form 10-Q/A continues to speak as of the date of the original filing, and the Company has not updated the disclosure contained herein to reflect information or events that have occurred since the November 13, 2012 filing date of the original filing, or modify or update disclosures set forth in the original filing, except to reflect the corrections discussed above and except as otherwise expressly stated herein. Accordingly, this Form 10-Q/A should be read in conjunction with the Company’s other filings made with the SEC subsequent to the filing of the original filing, including any amendments to those filings.

 

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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)

5

 

Consolidated Balance Sheets as of September 30, 2012 (unaudited) and December 31, 2011

5

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011 (unaudited)

6

 

Consolidated Statements of Stockholders’ Equity for the nine months ended September  30, 2012 (unaudited)

7

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (unaudited)

8

 

Notes to Consolidated Financial Statements (unaudited)

9

Item 2.

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

36

Item 4.

Controls and Procedures

48

Part II.

Other Information

 

Item 6.

Exhibits

50

Signatures

 

58

 

4



Table of Contents

 

Part I.  Financial Information

 

Item 1.  Financial Statements

 

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in 000’s)

 

 

 

September 30,

 

 

 

 

 

2012
Restated
(Note 2)

 

December 31,
2011

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

9,693

 

$

7,364

 

Restricted cash and investments

 

2,825

 

1,883

 

Accounts receivable, net of allowance of $3,360 and $1,346

 

27,698

 

18,782

 

Prepaid expenses and other

 

807

 

663

 

Assets of disposal group held for sale

 

 

47

 

Total current assets

 

41,023

 

28,739

 

 

 

 

 

 

 

Restricted cash and investments

 

5,748

 

4,870

 

Property and equipment, net

 

150,779

 

102,449

 

Intangible assets — bed licenses

 

2,471

 

1,189

 

Intangible assets — lease rights, net

 

7,658

 

8,460

 

Goodwill

 

4,745

 

3,600

 

Escrow deposits for acquisitions

 

812

 

3,172

 

Lease deposits

 

1,704

 

1,685

 

Deferred loan costs, net

 

6,151

 

4,818

 

Other assets

 

169

 

122

 

Total assets

 

$

221,260

 

$

159,104

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Current portion of notes payable and other debt

 

$

30,237

 

$

4,567

 

Revolving credit facilities and lines of credit

 

1,363

 

7,343

 

Accounts payable

 

19,089

 

12,075

 

Accrued expenses

 

14,406

 

9,881

 

Liabilities of disposal group held for sale

 

93

 

240

 

Total current liabilities

 

65,188

 

34,106

 

 

 

 

 

 

 

Notes payable and other debt, net of current portion:

 

 

 

 

 

Senior debt, net of discounts

 

103,318

 

87,771

 

Convertible debt, net of discounts

 

22,746

 

14,614

 

Revolving credit facilities

 

9,076

 

1,308

 

Other debt

 

887

 

1,400

 

Derivative liability

 

3,231

 

1,889

 

Other liabilities

 

1,728

 

2,437

 

Deferred tax liability

 

151

 

86

 

Total liabilities

 

206,325

 

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; 14,658 and 12,803 shares issued and outstanding

 

41,229

 

35,047

 

Accumulated deficit

 

(25,691

)

(18,713

)

Total stockholders’ equity

 

15,538

 

16,334

 

Noncontrolling interest in subsidiaries

 

(603

)

(841

)

Total equity

 

14,935

 

15,493

 

Total liabilities and equity

 

$

221,260

 

$

159,104

 

 

See accompanying notes to consolidated financial statements

 

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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 September 30,

 

Nine Months Ended September 30,

 

 

 

2012
Restated
(Note 2)

 

2011

 

2012
Restated
(Note 2)

 

2011

 

Revenues:

 

 

 

 

 

 

 

 

 

Patient care revenues

 

$

57,772

 

$

40,192

 

$

155,345

 

$

104,596

 

Management revenues

 

587

 

330

 

1,636

 

1,312

 

Total revenues

 

58,359

 

40,522

 

156,981

 

105,908

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

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

 

48,608

 

32,637

 

127,731

 

84,916

 

General and administrative

 

3,998

 

3,267

 

12,336

 

9,358

 

Facility rent expense

 

2,080

 

1,937

 

6,195

 

5,787

 

Depreciation and amortization

 

1,929

 

836

 

5,233

 

2,188

 

Salary retirement and continuation costs

 

38

 

 

38

 

622

 

Total expenses

 

56,653

 

38,677

 

151,533

 

102,871

 

 

 

 

 

 

 

 

 

 

 

Income from Operations

 

1,706

 

1,845

 

5,448

 

3,037

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(3,857

)

(2,223

)

(9,979

)

(5,511

)

Acquisition costs, net of gains

 

(342

)

(1,147

)

(1,160

)

(789

)

Derivative gain (loss)

 

(2,105

)

4,745

 

(1,342

)

807

 

Gain (loss) on extinguishment of debt

 

500

 

(58

)

500

 

(136

)

Other income (expense)

 

(229

)

(20

)

(256

)

567

 

Total other income (expense), net

 

(6,033

)

1,297

 

(12,237

)

(5,062

)

 

 

 

 

 

 

 

 

 

 

Income (Loss) from Continuing Operations Before Income Taxes

 

(4,327

)

3,142

 

(6,788

)

(2,025

)

Income Tax Expense

 

(111

)

(204

)

(129

)

(414

)

Income (Loss) from Continuing Operations

 

(4,438

)

2,938

 

(6,917

)

(2,439

)

Loss from Discontinued Operations, Net of Tax

 

(202

)

(158

)

(481

)

(285

)

Net Income (Loss)

 

(4,640

)

2,780

 

(7,398

)

(2,724

)

Net Loss Attributable to Noncontrolling Interests

 

134

 

748

 

420

 

1,090

 

Net Income (Loss) Attributable to AdCare Health Systems, Inc.

 

$

(4,506

)

$

3,528

 

$

(6,978

)

$

(1,634

)

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) per Common Share — Basic:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

(0.30

)

$

0.33

 

$

(0.47

)

$

(0.14

)

Discontinued Operations

 

(0.01

)

(0.01

)

(0.03

)

(0.03

)

 

 

$

(0.31

)

$

0.32

 

$

(0.50

)

$

(0.17

)

Net Income (Loss) per Common Share — Diluted:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

(0.30

)

$

0.28

 

$

(0.47

)

$

(0.14

)

Discontinued Operations

 

(0.01

)

(0.01

)

(0.03

)

(0.03

)

 

 

$

(0.31

)

$

0.27

 

$

(0.50

)

$

(0.17

)

 

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 Equity
Restated
(Note 2)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2012

 

12,803

 

$

35,047

 

$

(18,713

)

$

(841

)

$

15,493

 

 

 

 

 

 

 

 

 

 

 

 

 

Deconsolidation of variable interest entity — 1/1/12

 

 

 

 

660

 

660

 

Common stock dividend adjustment

 

88

 

 

 

 

 

 

 

 

 

Nonemployee warrants for services

 

 

644

 

 

 

644

 

Stock based compensation expense

 

 

 

538

 

 

 

538

 

Public stock offering, net

 

1,165

 

3,837

 

 

 

3,837

 

Exercises of options and warrants

 

95

 

137

 

 

 

137

 

Stock issued in acquisition

 

187

 

750

 

 

 

 

 

750

 

Issuance of restricted stock

 

320

 

276

 

 

 

276

 

Net loss

 

 

 

(6,978

)

(420

)

(7,398

)

Balance, September 30, 2012

 

14,658

 

$

41,229

 

$

(25,691

)

$

(603

)

$

14,935

 

 

See accompanying notes to consolidated financial statements

 

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ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in 000’s)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2012
Restated
(Note 2)

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(7,398

)

$

(2,724

)

Loss from discontinued operations, net of tax

 

481

 

285

 

Loss from continuing operations

 

(6,917

)

(2,439

)

Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

5,233

 

2,188

 

Warrants issued for services

 

2

 

162

 

Stock based compensation expense

 

639

 

579

 

Lease expense in excess of cash

 

419

 

558

 

Amortization of deferred financing costs

 

1,585

 

599

 

Amortization of debt discounts

 

646

 

663

 

Derivative (gain) loss

 

1,342

 

(807

)

Loss on debt extinguishment

 

(500

)

136

 

Deferred tax expense

 

151

 

163

 

(Gain) loss on disposal of assets

 

(18

)

126

 

Gain on acquisitions

 

 

(898

)

Provision for bad debts

 

2,754

 

593

 

Other noncash items

 

 

59

 

Changes in certain assets and liabilities, net of acquisitions:

 

 

 

 

 

Accounts receivable

 

(12,471

)

(8,305

)

Prepaid expenses and other

 

(181

)

(159

)

Other assets

 

189

 

(525

)

Accounts payable and accrued expenses

 

11,023

 

8,433

 

Net cash provided by operating activities — continuing operations

 

3,896

 

1,126

 

Net cash used in operating activities — discontinued operations

 

(554

)

(96

)

Net cash provided by operating activities

 

3,342

 

1,030

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from sale of property and equipment

 

3

 

 

Change in restricted cash and investments and escrow deposits for acquisitions

 

(1,820

)

546

 

Acquisitions

 

(52,482

)

(52,475

)

Purchase of property and equipment

 

(2,904

)

(2,732

)

Net cash used in investing activities — continuing operations

 

(57,203

)

(54,661

)

Net cash provided by investing activities — discontinued operations

 

50

 

 

Net cash used in investing activities

 

(57,153

)

(54,661

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from debt

 

58,788

 

48,738

 

Proceeds from convertible debt

 

7,500

 

 

Debt issuance costs

 

(2,763

)

(389

)

Change in lines of credit

 

1,787

 

5,770

 

Exercise of warrants and options

 

137

 

6,798

 

 

 

 

 

 

 

Proceeds from stock issuances, net

 

3,837

 

 

Refinanced debt

 

(5,000

)

 

Repayment of notes payable

 

(7,819

)

(1,013

)

Net cash provided by financing activities — continuing operations

 

56,467

 

59,904

 

Net cash used in financing activities — discontinued operations

 

(147

)

(134

)

Net cash provided by financing activities

 

56,320

 

59,770

 

 

 

 

 

 

 

Net Change in Cash

 

2,509

 

6,139

 

Cash, Beginning

 

7,364

 

3,911

 

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

 

(180

)

0

 

Cash, Ending

 

$

9,693

 

$

10,050

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

9,632

 

$

4,246

 

Income Taxes

 

$

 

$

197

 

Supplemental Disclosure of Non-cash Activities:

 

 

 

 

 

Acquisitions in exchange for debt and equity instruments

 

$

7,800

 

$

2,400

 

Warrants issued for financing costs

 

$

641

 

$

330

 

Restricted stock issued for financing costs

 

$

175

 

$

 

Other assets acquired in exchange for debt

 

$

 

$

5,063

 

 

See accompany notes to consolidated financial statements.

 

8



Table of Contents

 

ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

(Unaudited)

 

NOTE 1.                          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

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 or notes required for complete annual financial statements and should be read in conjunction with the AdCare Health Systems, Inc.’s audited consolidated financial statements and notes included in AdCare Health Systems, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “Annual Report”).  These statements include the accounts of AdCare Health Systems, Inc. (“AdCare”) and its controlled subsidiaries (collectively with AdCare, the “Company” or “we”).  Controlled subsidiaries include AdCare’s majority owned subsidiaries and variable interest entities (“VIE”) 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 and nine months ended September 30, 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 herein 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 or exercise of convertible or exercisable 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.

 

 

 

Three Months Ended September 30,

 

 

 

2012
Restated
(Note 2)

 

2011

 

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

 

Income
(loss)

 

Shares (1)

 

Per
Share

 

Income
(loss)

 


Shares (1)

 

Per Share

 

Continuing Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

 (4,438

)

 

 

 

 

$

 2,938

 

 

 

 

 

Net loss attributable to noncontrolling interests

 

134

 

 

 

 

 

748

 

 

 

 

 

Basic income (loss) from continuing operations

 

$

 (4,304

)

14,498

 

$

 (0.30

)

$

 3,686

 

11,275

 

$

 0.33

 

Effect from options, warrants and non-vested shares

 

 

 

 

 

 

1,111

 

 

 

Effect from assumed issuance of convertible shares (2)

 

 

 

 

 

 

938

 

 

 

Diluted net income (loss)from continuing operations

 

$

 (4,304

)

14,498

 

$

 (0.30

)

$

 3,686

 

13,324

 

$

 0.28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss from discontinued operations

 

$

 (202

)

14,498

 

$

 (0.01

)

$

 (158

)

11,275

 

$

 (0.01

)

Diluted loss from discontinued operations

 

$

 (202

)

14,498

 

$

 (0.01

)

$

 (158

)

11,275

 

$

 (0.01

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) Attributable to AdCare:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss)

 

$

 (4,506

)

14,498

 

$

 (0.31

)

$

 3,528

 

11,275

 

$

 0.32

 

Diluted net income (loss)

 

$

 (4,506

)

14,498

 

$

 (0.31

)

$

 3,528

 

13,324

 

$

 0.27

 

 

9



Table of Contents

 

 

 

Nine Months Ended September 30,

 

 

 

2012
Restated
(Note 2)

 

2011

 

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

 

Income
(loss)

 

Shares (1)

 

Per
Share

 

Income
(loss)

 

Shares
(1)

 

Per Share

 

Continuing Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

 (6,917

)

 

 

 

 

$

 (2,439

)

 

 

 

 

Net loss attributable to noncontrolling interests

 

420

 

 

 

 

 

1,090

 

 

 

 

 

Basic loss from continuing operations

 

$

 (6,497

)

13,825

 

$

 (0.47

)

$

 (1,349

)

9,923

 

$

 (0.14

)

Effect from options, warrants and non-vested shares

 

 

 

 

 

 

 

 

 

Effect from assumed issuance of convertible shares (2)

 

 

 

 

 

 

 

 

 

Diluted loss from continuing operations

 

$

 (6,497

)

13,825

 

$

 (0.47

)

$

 (1,349

)

9,923

 

$

 (0.14

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss from discontinued operations

 

$

 (481

)

13,825

 

$

 (0.03

)

$

 (285

)

9,923

 

$

 (0.03

)

Diluted loss from discontinued operations

 

$

 (481

)

13,825

 

$

 (0.03

)

$

 (285

)

9,923

 

$

 (0.03

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to AdCare:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss

 

$

 (6,978

)

13,825

 

$

 (0.50

)

$

 (1,634

)

9,923

 

$

 (0.17

)

Diluted loss

 

$

 (6,978

)

13,825

 

$

 (0.50

)

$

 (1,634

)

9,923

 

$

 (0.17

)

 


(1) The weighted average shares outstanding include retroactive adjustments for the stock dividends paid on October 22, 2012 and October 1, 2011 (See Note 11).

(2) The impact of the conversion of the subordinated convertible notes issued in 2010, 2011 and 2012 were excluded in those periods where the impact would be anti-dilutive.

 

Intangible Assets and Goodwill

 

There have been no impairment adjustments to intangible assets and goodwill during the nine months ended September 30, 2012.

 

Intangible assets consist of the following:

 

Amounts in (000’s)

 

Lease Rights

 

Bed Licenses 
(included in 
property and 
equipment)

 

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

 

 

13,670

 

1,282

 

14,952

 

Amortization expense

 

(802

)

(622

)

 

(1,424

)

Balances, September 30, 2012, net

 

$

 7,658

 

$

32,512

 

$

 2,471

 

$

42,641

 

 

For the nine months ended September 30, 2012, amortization expense was approximately $0.6 million for bed licenses included in property and equipment.  For the nine months ended September 30, 2012 and 2011, amortization expense was $0.8 million and $0.7 million, respectively, for lease rights.  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)

 

$

 207

 

$

 267

 

2013

 

828

 

1,069

 

2014

 

828

 

1,010

 

2015

 

828

 

885

 

2016

 

828

 

885

 

Thereafter

 

27,101

 

3,542

 

 

 

$

 30,620

 

$

 7,658

 

 

The following table summarizes the changes in the carrying amount of goodwill at September 30, 2012 as compared with December 31, 2011:

 

Amounts in (000’s)

 

September 30, 2012
Restated
(Note 2)

 

Balance, December 31, 2011

 

$

 3,600

 

Deconsolidation of variable interest entities

 

(1,122

)

Acquired in acquisitions

 

2,267

 

Impairment charge

 

 

Balance, September 30, 2012

 

$

 4,745

 

 

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 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

 

Compensated Absences

 

In 2012, the Company removed the ability for employees to accumulate earned but unused vacation beyond the current calendar year.  As a result, vacation time previously accumulated must be used by the employee by December 31, 2012 or it will be forfeited.  Management has estimated the potential forfeitures and has adjusted the vacation accrual accordingly.

 

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 and nine months ended September 30, 2012, we are restating the consolidated financial statements for the third 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 first and second 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 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 primarily related to non-routine items 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 for the three and nine months ended September 30, 2012:

 

·                                          Patient care revenues — Adjustments totaling $381,000 and $794,000 for the three and nine months ended September 30, 2012, respectively, 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 $381,000 for the three months ended September 30, 2012 related to the overstatement of $361,000 in managed care revenue due to billing errors and $20,000 reclassification to reduce managed care revenue due to the improper recognition of bad debt expense subsequently identified by the Company.  Adjustments totaling $794,000 for the nine months ended September 30, 2012 relating to the overstatement of $582,000 in managed care revenue due to billing errors and a $212,000 reclassification to reduce managed care revenue due to the improper recognition of bad debt expense subsequently identified by the Company.

 

·                                          Management revenues — Adjustments totaling $159,000 and $482,000 for the three and nine months ended September 30, 2012, respectively, related primarily 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 for each period.

 

·                                          Accounts receivable, net — Adjustments totaling $1,483,000 related primarily to the following:

 

The timing of certain revenue recognition adjustments to ensure proper recognition in the appropriate interim reporting period with in the 2012 year.  Adjustments totaling $582,000 related to the overstatement in managed care revenue due to billing errors, the timing of the correction of certain operating and other costs incurred within the

 

11



Table of Contents

 

2012 year that were deferred as accounts receivable on the balance sheet that should have been expensed in the interim reporting period in which the costs were incurred related to approximately $410,000,  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, increasing the accounts receivable valuation allowance due to the delays in collection efforts and lack of timely follow-up on open patient accounts in 2012 for certain facilities totaling $528,000, offset by the reversal of the eliminated management fee expense and other receivables associated with the correction in the application of the Company’s accounting for certain variable interest entities in the amount of $440,000.

 

·                                          Costs of services — Adjustments totaling $2,824,000 and $5,656,000 for the three and nine months ended September 30, 2012 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, this adjustment totaled approximately $525,000 and $1,185,000 for the three and nine months ended September 30, 2012, respectively.  The related expense and obligation were 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 $34,000 and $838,000 for the three and nine months ended September 30, 2012, respectively and the untimely identification and recognition of expenses associated with certain unemployment tax accrual adjustments of $41,000 and $123,000 for the three and nine months ended September 30, 2012, respectively.

 

The timing of the correction of certain operating and other costs incurred within the 2012 year that were incorrectly deferred or capitalized to the balance sheet that should have been expensed in the interim reporting period in which the costs were incurred totaled approximately $473,000 and $940,000 for the three and nine months ended September 30, 2012, respectively, the timing of the incorrect reversal of the expense associated with a state’s bed tax of $984,000 that should have been expensed in the interim reporting period in which the costs were incurred for the three months ended September 30, 2012, and the $82,000 of certain operating expenses that were not recorded in the interim reporting period for the nine months ended September 30, 2012.

 

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 resulted from the timing of recognition for state recoupments for Medicaid overpayments for certain facilities totaling $403,000 for the nine months ended September 30, 2012, the delays in collection efforts and lack of timely follow-up on open patient accounts in 2012 for certain facilities totaling $200,000 and $484,000 for the three and nine months ended September 30, 2012, respectively, offset by the improper recognition of bad debt expense relating to managed care revenue discussed above in the amount of $20,000 and $212,000 for the three and nine months ended September 30, 2012, respectively.

 

·                                          General and administrative - Adjustments totaling $330,000 and $852,000 for the three and nine months ended September 30, 2012, respectively, resulted primarily due to the following items:

 

The timing 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 timing of the reversal of expense of $443,000 and $1,143,000 for the three and nine months ended September 30, 2012, respectively, relating to changes to the accrued performance-based incentive obligation, offset by $25,000 of expense recognition related to an adjustment to the fair value of warrants granted to non-employees for the nine months ended September 30, 2012.

 

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Table of Contents

 

The timing of the expense incorrectly 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 of $20,000 and $94,000 for the three and nine months ended September 30, 2012, respectively.

 

The insufficient processes related to accounting for accrued vacation of $3,000 and $80,000 for the three and nine months ended September 30, 2012, respectively, the untimely identification and recognition of expenses associated with certain unemployment tax accrual adjustments of $2,000 for the nine months ended September 30, 2012 and the $25,000 expense originally miscoded to interest expense, net, reclassified to consulting fees in general and administrative for the nine months ended September 30, 2012.

 

·                                          Depreciation and amortization — Adjustments totaling a decrease of $50,000 and an increase $233,000 for the three and nine months ended September 30, 2012, respectively related primarily to 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 offset by $5,000 and $10,000 decrease in depreciation expense during the three and nine months ended September 30, 2012 related to the office building impairment in first quarter of 2012 and $45,000 and $146,000 for the three and nine months ended September 30, 2012, respectively, resulted 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 $3,389,000 related primarily to the $389,000 impairment of an office building acquired in 2011 acquisition partially offset by a $10,000 decrease in depreciation expense related to the office building impairment; $146,000 decrease in amortization of certain intangibles related to adjustments that decreased the underlying intangible asset values and increased the related goodwill resulted from the respective acquisitions of $2,180,000 and $976,000 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 - Adjustments of $2,267,000 related to an acquisition reclassification to goodwill from property and equipment of $2,180,000 and from the capitalized intangible assets bed licenses of $87,000 during the 2012 period.

 

·                                          Deferred loan costs, net — Adjustment of $34,000  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.

 

·                                          Current portion of notes payable and other debt — Reclassification of the PrivateBank loan from long-term debt to current as a result of a loan modification agreement with PrivateBank that, among other things, amended the loan agreement to reflect a maturity date of March 30, 2013. The Company anticipates that it will re-finance the PrivateBank loan later this year with long-term financing; however, the Company does not have a formal noncancelable agreement with PrivateBank. As such, the entire balance is reflected as a current obligation at September 30, 2012 in the amount of $21.2 million.

 

·                                          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 $43.5 million of debt incurred in conjunction with certain acquisitions and $7.5 million relating to convertible debt as cash provided by financing activities and cash used in investing activities.

 

13



Table of Contents

 

The following table presents the impact of the revisions on the Company’s previously issued (the “As Reported”) and restated (the “As Restated”) consolidated balance sheet as of September 30, 2012 (in thousands):

 

 

 

September 30, 2012

 

 

 

As Reported

 

Oklahoma 
Owners

 

Other 
Adjustments

 

As Restated

 

ASSETS

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 9,884

 

$

 (191

)

$

 —

 

$

 9,693

 

Restricted cash and investments

 

2,825

 

 

 

2,825

 

Accounts receivable, net

 

30,397

 

(1,216

)

(1,483

)

27,698

 

Prepaid expense and other

 

892

 

(72

)

(13

)

807

 

Total current assets

 

43,998

 

(1,479

)

(1,496

)

41,023

 

 

 

 

 

 

 

 

 

 

 

Restricted cash and investments

 

5,748

 

 

 

5,748

 

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

 

164,014

 

(9,846

)

(3,389

)

150,779

 

Intangible assets — bed licenses

 

2,558

 

 

(87

)

2,471

 

Intangible assets — lease rights, net

 

7,658

 

 

 

7,658

 

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

 

3,600

 

(1,122

)

2,267

 

4,745

 

Escrow deposits for acquisitions

 

812

 

 

 

812

 

Lease deposits

 

1,704

 

(1

)

1

 

1,704

 

Deferred loan costs, net

 

6,630

 

(513

)

34

 

6,151

 

Other assets

 

169

 

 

 

169

 

Total assets

 

$

 236,891

 

$

 (12,961

)

$

 (2,670

)

$

 221,260

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current portion of notes payable and other debt

 

$

 11,991

 

$

 (2,998

)

$

 21,244

 

$

 30,237

 

Revolving credit facilities and lines of credit

 

1,363

 

 

 

1,363

 

Accounts payable

 

20,324

 

(1,676

)

441

 

19,089

 

Accrued expenses

 

12,615

 

(484

)

2,275

 

14,406

 

Liabilities of disposal group held for sale

 

 

 

93

 

93

 

Total current liabilities

 

46,293

 

(5,158

)

24,053

 

65,188

 

 

 

 

 

 

 

 

 

 

 

Senior debt, net of discounts

 

134,003

 

(9,440

)

(21,245

)

103,318

 

Convertible debt, net of discounts

 

22,746

 

 

 

22,746

 

Revolving credit facilities

 

9,076

 

 

 

9,076

 

Other debt

 

887

 

 

 

887

 

Derivative liability

 

3,231

 

 

 

3,231

 

Other liabilities

 

1,728

 

 

 

1,728

 

Deferred tax liability

 

99

 

 

52

 

151

 

Total liabilities

 

218,063

 

(14,598

)

2,860

 

206,325

 

 

 

 

 

 

 

 

 

 

 

Common stock and additional paid-in capital

 

41,002

 

 

227

 

41,229

 

Accumulated deficit

 

(19,943

)

 

(5,748

)

(25,691

)

Total stockholders’ equity

 

21,059

 

 

(5,521

)

15,538

 

Non-controlling interest in subsidiaries

 

(2,231

)

1,637

 

(9

)

(603

)

Total liabilities and stockholders’ equity

 

$

 $236,891

 

$

 (12,961

)

$

 (2,670

)

$

 221,260

 

 

14



Table of Contents

 

The following tables present the Company’s previously issued (the “As Reported”) and restated (the “As Restated”) consolidated statements of operations for the three and nine months ended September 30, 2012 (in thousands, except per share information):

 

 

 

Three Months Ended September 30, 2012

 

 

 

As Reported

 

Oklahoma 
Owners

 

Other 
Adjustments

 

As Restated

 

Revenues

 

 

 

 

 

 

 

 

 

Patient care revenues

 

$

 61,342

 

$

 (3,189

)

$

 (381

)

$

 57,772

 

Management revenues

 

428

 

 

159

 

587

 

Total revenues

 

61,770

 

(3,189

)

(222

)

58,359

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

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

 

49,164

 

(3,380

)

2,824

 

48,608

 

General and administrative

 

4,328

 

 

(330

)

3,998

 

Facility rent expense

 

2,080

 

 

 

2,080

 

Depreciation and amortization

 

2,112

 

(133

)

(50

)

1,929

 

Salary retirement and continuation costs

 

38

 

 

 

38

 

Total expenses

 

57,722

 

(3,513

)

2,444

 

56,653

 

 

 

 

 

 

 

 

 

 

 

Income from Operations

 

4,048

 

324

 

(2,666

)

1,706

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(3,992

)

275

 

(140

)

(3,857

)

Acquisition costs, net of gains

 

(342

)

 

 

(342

)

Derivative loss

 

(2,105

)

 

 

(2,105

)

Gain/(loss) on disposal of asset

 

 

 

 

 

Other income

 

271

 

 

 

271

 

Total other income (expense), net

 

(6,168

)

275

 

(140

)

(6,033

)

 

 

 

 

 

 

 

 

 

 

Income/(Loss) from Continuing Operations Before Income Taxes

 

(2,120

)

599

 

(2,806

)

(4,327

)

Income tax expense

 

(118

)

 

7

 

(111

)

Income (Loss) from Continuing Operations

 

(2,238

)

599

 

(2,799

)

(4,438

)

Loss from discontinued operations, net of tax

 

(202

)

 

 

(202

)

Net Income (Loss)

 

(2,440

)

599

 

(2,799

)

(4,640

)

Net Loss Attributable to Noncontrolling Interest

 

738

 

(599

)

(5

)

134

 

Net Loss Attributable to AdCare Health Systems, Inc.

 

$

 (1,702

)

$

 —

 

$

 (2,804

)

$

 (4,506

)

 

 

 

 

 

 

 

 

 

 

Net Loss per Common Share - Basic:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

 (0.10

)

$

 —

 

$

 (0.20

)

$

 (0.30

)

Discontinued Operations

 

$

 (0.01

)

$

 —

 

$

 —

 

$

 (0.01

)

 

 

$

 (0.11

)

$

 —

 

$

 (0.20

)

$

 (0.31

)

 

 

 

 

 

 

 

 

 

 

Net Loss per Common Share - Basic:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

 (0.10

)

$

 —

 

$

 (0.20

)

$

 (0.30

)

Discontinued Operations

 

$

 (0.01

)

$

 —

 

$

 —

 

$

 (0.01

)

 

 

$

 (0.11

)

$

 —

 

$

 (0.20

)

$

 (0.31

)

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

14,508

 

 

(10

)

14,498

 

Diluted

 

14,508

 

 

(10

)

14,498

 

 

15



Table of Contents

 

 

 

Nine Months Ended September 30, 2012

 

 

 

As Reported

 

Oklahoma 
Owners

 

Other 
Adjustments

 

As Restated

 

Revenues

 

 

 

 

 

 

 

 

 

Patient care revenues

 

$

165,793

 

$

(9,654

)

$

(794

)

$

155,345

 

Management revenues

 

1,154

 

 

482

 

1,636

 

Total revenues

 

166,947

 

(9,654

)

(312

)

156,981

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

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

 

131,514

 

(9,439

)

5,656

 

127,731

 

General and administrative

 

13,188

 

 

(852

)

12,336

 

Facility rent expense

 

6,196

 

 

(1

)

6,195

 

Depreciation and amortization

 

5,370

 

(370

)

233

 

5,233

 

Salary retirement and continuation costs

 

38

 

 

 

38

 

Total expenses

 

156,306

 

(9,809

)

5,036

 

151,533

 

 

 

 

 

 

 

 

 

 

 

Income from Operations

 

10,641

 

155

 

(5,348

)

5,448

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(10,312

)

823

 

(490

)

(9,979

)

Acquisition costs, net of gains

 

(1,160

)

 

 

(1,160

)

Derivative gain (loss)

 

(1,342

)

 

 

(1,342

)

Gain/(loss) on disposal of asset

 

 

 

 

 

Other income

 

242

 

 

2

 

244

 

Total other income (expense), net

 

(12,572

)

823

 

(488

)

(12,237

)

 

 

 

 

 

 

 

 

 

 

Income/(Loss) from Continuing Operations Before Income Taxes

 

(1,931

)

978

 

(5,835

)

(6,788

)

Income tax expense

 

(217

)

 

88

 

(129

)

Income (Loss) from Continuing Operations

 

(2,148

)

978

 

(5,747

)

(6,917

)

Loss from discontinued operations, net of tax

 

(472

)

 

(9

)

(481

)

Net Income (Loss)

 

(2,620

)

978

 

(5,756

)

(7,398

)

Net Loss Attributable to Noncontrolling Interest

 

1,390

 

(978

)

8

 

420

 

Net Income (Loss) Attributable to AdCare Health Systems, Inc.

 

$

(1,229

)

$

 

$

(5,749

)

$

(6,978

)

 

 

 

 

 

 

 

 

 

 

Net Loss per Common Share - Basic:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

(0.05

)

$

 

$

(0.42

)

$

(0.47

)

Discontinued Operations

 

$

(0.03

)

$

 

$

 

$

(0.03

)

 

 

$

(0.08

)

$

 

$

(0.42

)

$

(0.50

)

 

 

 

 

 

 

 

 

 

 

Net Loss per Common Share - Basic:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

(0.05

)

$

 

$

(0.42

)

$

(0.47

)

Discontinued Operations

 

$

(0.03

)

$

 

$

 

$

(0.03

)

 

 

$

(0.08

)

$

 

$

(0.42

)

$

(0.50

)

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

13,820

 

 

5

 

13,825

 

Diluted

 

13,820

 

 

5

 

13,825

 

 

16



Table of Contents

 

The following table presents Company’s previously issued (the “As Reported”) and restated (the “As Restated”) consolidated statements of cash flows for the nine months ended September 30, 2012 (in thousands):

 

 

 

Nine Months Ended September 30,

 

 

 

2012
As Reported

 

Oklahoma 
Owners

 

Other 
Adjustments

 

2012
As Restated

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(2,620

)

$

979

 

$

(5,757

)

$

(7,398

)

Loss from discontinued operations, net of tax

 

472

 

 

9

 

481

 

Loss from continuing operations

 

(2,148

)

979

 

(5,748

)

(6,917

)

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

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

5,370

 

(370

)

233

 

5,233

 

Non cash settlement gain

 

(361

)

 

361

 

 

Warrants issued for services

 

1

 

 

1

 

2

 

Stock based compensation expense

 

615

 

 

24

 

639

 

Lease expense in excess of cash

 

419

 

 

 

419

 

Amortization of deferred financing costs

 

1,742

 

(149

)

(8

)

1,585

 

Amortization of debt discounts

 

646

 

 

 

646

 

Derivative (gain) loss

 

1,342

 

 

 

1,342

 

Loss on debt extinguishment

 

 

 

(500

)

(500

)

Deferred tax expense

 

13

 

 

138

 

151

 

(Gain) loss on disposal of assets

 

(2

)

 

(16

)

(18

)

Provision for bad debts

 

2,021

 

(185

)

918

 

2,754

 

Other noncash items

 

40

 

 

(40

)

 

Changes in certain assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

(13,199

)

601

 

127

 

(12,471

)

Prepaid expenses and other

 

(229

)

37

 

11

 

(181

)

Other assets

 

133

 

57

 

(1

)

189

 

Accounts payable and accrued expenses

 

9,368

 

(1,347

)

3,002

 

11,023

 

Net cash provided by operating activities — continuing operations

 

5,771

 

(377

)

(1,498

)

3,896

 

Net cash used in operating activities — discontinued operations

 

(648

)

 

94

 

(554

)

Net cash provided by operating activities

 

5,123

 

(377

)

(1,404

)

3,342

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Proceeds from sale of property and equipment

 

50

 

 

(47

)

3

 

Change in restricted cash and investments and escrow deposits for acquisitions

 

677