10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2021

☐ 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 001-13533

NOVATION COMPANIES, INC.

(Exact Name of Registrant as Specified in its Charter)

Maryland (State or Other Jurisdiction of Incorporation or Organization)	74-2830661 (I.R.S. Employer Identification No.)
9229 Ward Parkway, Suite 340, Kansas City, MO (Address of Principal Executive Office)	64114 (Zip Code)

Registrant's Telephone Number, Including Area Code: (816) 237-7000

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

The number of shares of the Registrant's Common Stock outstanding on November 11, 2021 was 116,155,893.

NOVATION COMPANIES, INC.

FORM 10-Q

For the Quarterly Period Ended September 30, 2021

TABLE OF CONTENTS

PART I	Financial Information
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Shareholders’ Deficit	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	13
PART II	Other Information	14
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Mine Safety Disclosures	15
Item 5.	Other Information	15
Item 6.	Exhibits	16
	Signatures	17

PART I. FINANCIAL INFORMATION

Item 1.     Financial Statements

NOVATION COMPANIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	September 30, 2021 (unaudited)			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	1,543		$	1,340
Accounts and unbilled receivables		3,516			5,008
Prepaid expenses		224			663
Other		14			53
Total current assets		5,297			7,064
Non-current assets:
Intangible assets, net		3,938			4,677
Property and equipment, net		80			92
Operating lease right-of-use asset		293			339
Other		4			4
Total non-current assets		4,315			5,112
Total assets	$	9,612		$	12,176
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable and accrued expenses	$	211		$	315
Accrued compensation and benefits payable		1,346			2,176
Operating lease liability		109			195
Accrued claim settlements		123			246
Other		8			4
Total current liabilities		1,797			2,936
Non-current liabilities:
Senior notes, net of unamortized debt premium of $6.7 million and $4.2 million as of September 30, 2021 and December 31, 2020, respectively		92,651			90,115
Accrued claim settlements		—			62
Operating lease liability		190			153
Total non-current liabilities		92,841			90,330
Total liabilities		94,638			93,266
Shareholders' deficit:
Common stock, $.01 par value per share, 780,000,000 shares authorized:
116,155,893 and 114,655,893 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		1,161			1,146
Additional paid-in capital		746,327			746,227
Accumulated deficit		(832,514	)		(828,463	)
Total shareholders' deficit		(85,026	)		(81,090	)
Total liabilities and shareholders' deficit	$	9,612		$	12,176

See notes to condensed consolidated financial statements.

1

NOVATION COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited; in thousands, except share and per share amounts)

	Nine Months Ended September 30,						Three Months Ended September 30,
	2021			2020			2021			2020
Service fee income	$	35,379		$	38,747		$	9,943		$	12,381
Cost and expenses:
Cost of services		31,670			34,416			8,794			10,628
General and administrative expenses		5,212			5,894			1,659			1,877
Goodwill impairment charge		—			3,905			—			—
Operating loss		(1,503	)		(5,468	)		(510	)		(124	)
Other income (expense)		2			28			(4	)		4
Interest expense		(2,545	)		(2,462	)		(864	)		(836	)
Loss before income taxes		(4,046	)		(7,902	)		(1,378	)		(956	)
Income tax expense		5			24			—			3
Net loss	$	(4,051	)	$	(7,926	)	$	(1,378	)	$	(959	)
Loss per share:
Basic	$	(0.04	)	$	(0.07	)	$	(0.01	)	$	(0.01	)
Diluted	$	(0.04	)	$	(0.07	)	$	(0.01	)	$	(0.01	)
Weighted average common shares outstanding:
Basic		113,605,893			110,197,754			113,608,581			110,216,273
Diluted		113,605,893			110,197,754			113,608,581			110,216,273

See notes to condensed consolidated financial statements.

2

NOVATION COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(unaudited; in thousands)

	Common Stock			Additional Paid-in Capital			Accumulated Deficit			Total Shareholders’ Deficit
Balance, December 31, 2020	$	1,146		$	746,227		$	(828,463	)	$	(81,090	)
Issuances and cancellations of nonvested stock		15			(15	)		—			—
Compensation recognized under stock compensation plans		—			115			—			115
Net loss		—			—			(4,051	)		(4,051	)
Balance, September 30, 2021	$	1,161		$	746,327		$	(832,514	)	$	(85,026	)
Balance, June 30, 2021	$	1,166		$	746,291		$	(831,136	)	$	(83,679	)
Cancellations of nonvested stock		(5	)		5			—			—
Compensation recognized under stock compensation plans		—			31			—			31
Net loss		—			—			(1,378	)		(1,378	)
Balance, September 30, 2021	$	1,161		$	746,327		$	(832,514	)	$	(85,026	)

	Common Stock		Additional Paid-in Capital			Accumulated Deficit			Total Shareholders’ Deficit
Balance, December 31, 2019	$	1,123	$	746,112		$	(819,294	)	$	(72,059	)
Issuances of nonvested stock		23		(23	)		—			—
Compensation recognized under stock compensation plans		—		127			—			127
Net loss		—		—			(7,926	)		(7,926	)
Balance, September 30, 2020	$	1,146	$	746,216		$	(827,220	)	$	(79,858	)
Balance, June 30, 2020	$	1,146	$	746,170		$	(826,261	)	$	(78,945	)
Compensation recognized under stock compensation plans		—		46			—			46
Net loss		—		—			(959	)		(959	)
Balance, September 30, 2020	$	1,146	$	746,216		$	(827,220	)	$	(79,858	)

See notes to condensed consolidated financial statements.

3

NOVATION COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in thousands)

	Nine Months Ended September 30,
	2021			2020
Cash flows from operating activities:
Net loss	$	(4,051	)	$	(7,926	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of intangible assets		739			861
Amortization of debt premium and prepaid interest into interest expense		2,536			2,453
Depreciation expense		22			40
Loss (gain) on disposal of fixed assets		5			(3	)
Lease expense		(3	)		(4	)
Allowance for doubtful accounts		10
Goodwill impairment		—			3,905
Compensation recognized under stock compensation plans		115			127
Changes in operating assets and liabilities
Accounts and unbilled receivables		1,482			683
Accounts payable and accrued expenses		(104	)		(195	)
Accrued compensation and benefits payable		(830	)		(315	)
Accrued health and wellness program payable		—			(492	)
Accrued claim settlements		(185	)		(184	)
Other current assets and liabilities, net		482			161
Net cash provided by (used in) operating activities		218			(889	)
Cash flows from investing activities:
Purchase of property and equipment		(15	)		(11	)
Net cash used in investing activities		(15	)		(11	)
Net increase (decrease) in cash and cash equivalents		203			(900	)
Cash and cash equivalents, beginning of period		1,340			2,032
Cash and cash equivalents, end of period	$	1,543		$	1,132
Supplemental disclosure of cash flow information:
Cash paid for interest	$	9		$	12
Cash paid for income taxes, net	$	—		$	45

See notes to condensed consolidated financial statements.

4

NOVATION COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of and for the period ended September 30, 2021 (unaudited)

Note 1. Condensed Consolidated Financial Statement Presentation

Description of Operations – Novation Companies, Inc. and its subsidiaries (the “Company,” “Novation,” “we,” or “us”), through Healthcare Staffing, Inc. ("HCS"), our wholly-owned subsidiary, provides outsourced health care staffing and related services in the State of Georgia. Our common stock, par value $0.01 per share, is traded on the OTC Pink marketplace of the OTC Markets Group, Inc. under the symbol “NOVC”.

Liquidity and Going Concern – During the nine months ended September 30, 2021, the Company incurred a net loss of $4.1 million and generated positive operating cash flow of $0.2 million. As of September 30, 2021, the Company had an overall shareholders deficit of $85.0 million, an aggregate of $1.5 million in cash and cash equivalents and total liabilities of $94.6 million. Of the $1.5 million in cash, $0.1 million is held by the Company's subsidiary NovaStar Mortgage LLC ("NMLLC"). This cash is available only to pay general creditors and expenses of NMLLC.

Prior to executing the Amendment with the Noteholders in August 2019 (Note 5), the Company had a significant on-going obligation to pay interest under its senior note agreements at LIBOR plus 3.5% per annum, payable quarterly in arrears until maturity on March 30, 2033, leading to a significant annual cash outflow. HCS has also experienced lower than anticipated cash flows in general due to increased costs and a decrease in business from certain customers. In addition, in June of 2021, two Community Service Board ("CSB") customers, one significant, notified us of their intent to terminate their contract services with HCS during the third quarter of 2021. These items have led to substantial doubt about the Company's ability to continue as a going concern.

Management continues to work toward expanding HCS’s customer base by increasing revenue from existing customers, looking at methods to reduce overall operating costs, both at HCS and the corporate level, and targeting new customers that have not previously been served by HCS. As disclosed in Note 5 to the condensed consolidated financial statements, the Company was successful in amending the senior note agreements to lower the interest rate and receive future credit for cash interest payments made in 2019 in exchange for the issuance of common stock and warrants. Based on the terms of the amendment, the Company is not required to make cash interest payments on the senior notes from August 2019 through March 2022, leading to significant cash savings for the Company. This amendment to the Note Purchase Agreement and waiver of interest payments through April 2022 has significantly improved our forecasted cash position.

In late March 2020, HCS started experiencing a reduction in Georgia CSB customer needs related to the COVID-19 pandemic. This resulted in the layoff of approximately 8% of the Company’s employees. As HCS relies on providing healthcare staffing services to generate income, this has decreased our service fee income, and direct cost of services, accordingly. While the majority of these employees were rehired when customer demand returned, there have been some permanent loss of staffing opportunities based on changes to programs and services offered by CSBs. In addition, there is still concern at the Company about the ongoing effects of COVID-19 on our services for the foreseeable future. The Company is also experiencing increased expenses related to corporate insurance coverage (professional and general liability commercial lines). This increase has resulted in a significant rise in costs, even with the loss of staffing headcount as noted above. HCS also experiences increased costs to provide health insurance for employees. While this expense is billed to our CSB customers, for employees staffed with them that elect coverage, the rise in cost impacts our ability to remain competitive in the market.

Our historical operating results and poor cash flow suggest substantial doubt exists related to the Company's ability to continue as a going concern. Furthermore, there is still uncertainty regarding the future impact that COVID-19 will have on our business. Based on these uncertainties, there is no guarantee the Company's cash position will cover current obligations. As a result, we have not been able to alleviate the substantial doubt about the Company's ability to continue as a going concern for at least one year after the date that these condensed consolidated financial statements are issued.

Earnings Per Share – For the nine months ended September 30, 2021 and 2020, potentially dilutive securities excluded from the computations of diluted weighted-average shares outstanding were 2.8 million and 4.4 million shares of restricted common stock, respectively.

Condensed Consolidated Financial Statement Presentation – The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expense during the period. The Company uses estimates and judgments in assessing the recoverability of its long-lived assets, impairments, and accounting for income taxes, including the determination of the timing of the establishment or release of the valuation allowance related to the deferred tax asset balances and reserves for uncertain tax positions. While these condensed consolidated financial statements and footnotes reflect the best estimates and judgments of management at the time, actual results could differ significantly from those estimates, and the amounts could be material.

The Company's condensed consolidated financial statements are unaudited. In the opinion of management, all necessary adjustments have been made, which were of a normal and recurring nature, for a fair presentation of the condensed consolidated financial statements. The Company's condensed consolidated financial statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included herein and the consolidated financial statements of the Company and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended  December 31, 2020 (the "2020 Form 10-K").

5

 

Note 2. Revenue; Accounts and Unbilled Receivables

Staffing services include the augmentation of customers' workforce with our contingent employees performing services under the customers' supervision, which provides our customers with a source of flexible labor at a competitive cost. Customer contracts are typically annual contracts but may be terminated upon 60 days' notice for any reason.

The Company recognizes revenue when control of the promised services is transferred to customers and for the amount that reflects the consideration we are entitled to receive in exchange for those services. Furthermore, revenue is recognized over time based on a fixed amount for each hour of staffing service provided as our customers benefit from our services and as we provide them.

Performance Obligations — A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s customer contracts have a single performance obligation to transfer the individual goods or services, and it is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Performance obligations are satisfied at the point in time the HCS employees work on behalf of the customer. Contract costs include compensation, benefits and overhead when appropriate. Because of the nature of the contracts and the fact that revenue is earned at the time the employee works for the customer, no contract estimates are necessary.

Contract Balances — The timing of revenue recognition, billings and cash collections results in accounts receivable and unbilled receivables (the "contract assets"). The Company bills customers generally every other week based on the work performed during the two-week period ended the week prior to billing. Generally, billing occurs after revenue recognition, resulting in contract assets. The Company does not receive advances or deposits from its customers.

Disaggregation of Revenue — All revenue is generated from customers that provide healthcare services in Georgia. The following is a disaggregation of the Company’s revenue, unaudited, in thousands, into categories that best depict how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors.

	Nine Months Ended September 30, 2021				Three Months Ended September 30, 2021				Nine Months Ended September 30, 2020				Three Months Ended September 30, 2020
Type of Customer
CSB	$	32,708	92.5	%	$	8,799	88.5	%	$	37,963	98.0	%	$	12,116	97.9	%
Other		2,671	7.5	%		1,144	11.5	%		784	2.0	%		265	2.1	%
Total	$	35,379	100.0	%	$	9,943	100.0	%	$	38,747	100.0	%	$	12,381	100.0	%

Accounts and unbilled receivables are summarized as follows, in thousands:

	September 30, 2021 (unaudited)			December 31, 2020
Accounts receivable	$	2,312		$	2,705
Unbilled receivables (Contract Assets)		1,214			2,303
Allowance for doubtful accounts		(10	)		—
Total	$	3,516		$	5,008

During the nine months ended September 30, 2021, 66% of service fee income was generated from four customers. For the nine months ended September 30, 2020, 72% of service fee income was generated from four customers. As of  September 30, 2021 and September 30, 2020, 52% and 65% of accounts receivables and unbilled receivables were due from two and four customers, respectively. At  September 30, 2021 and September 30, 2020, 77% and 96% of accounts receivables and unbilled receivables were due from 11 and 12 Community Service Board customers, respectively.

Note 3. Intangible Assets

	September 30, 2021 (unaudited)						December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Indefinite-lived assets (in thousands):
Tradenames	$	1,147	$	—	$	1,147	$	1,147	$	—	$	1,147
Total indefinite-lived assets	$	1,147	$	—	$	1,147	$	1,147	$	—	$	1,147
Finite-lived assets (in thousands):
Customer relationships		6,895		4,104		2,791		6,895		3,365		3,530
Non-compete agreement		627		627		—		627		627		—
Total finite-lived assets	$	7,522	$	4,731	$	2,791	$	7,522	$	3,992	$	3,530
Total indefinite-lived and finite-lived assets	$	8,669	$	4,731	$	3,938	$	8,669	$	3,992	$	4,677

6

 

Amortization expense (unaudited, in thousands)
Nine Months Ended September 30, 2021	$	739
Estimated future amortization expense (unaudited, in thousands)
2021	$	246
2022		985
2023		985
Thereafter		575
Total estimated amortization expense	$	2,791

As disclosed in Note 1, two CSB customers, one significant, terminated their contract services with HCS during the third quarter of 2021, with notice being provided in June of 2021. As a result, we determined that the loss of these customers resulted in a triggering event for analysis of impairment of our other indefinite and definite lived intangible assets balances as of June 30, 2021. It was determined that the fair value of the HCS intangible assets exceeded the carrying value, so no impairment was necessary.

Note 4. Leases

Our leases consist primarily of office space. Leases with an initial term of less than 12 months, and leases which are on a month-to-month basis, are not recorded on the condensed consolidated balance sheets. For these leases we recognize lease expense on a straight-line basis over the lease term. The Company does not have any finance leases.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to three years or more. The exercise of lease renewal options is at our discretion. Our lease agreements do not contain any variable lease payments, residual value guarantees or restrictive covenants. The components of lease expense for the three and nine months ended September 30, 2021 were immaterial.

As our leases do not provide an implicit interest rate, we use our incremental current borrowing rate in determining the present value of lease payments.

Maturities of lease liabilities were as follows (in thousands):

	September 30, 2021 (unaudited)
Remaining 2021	$	43
2022		97
2023		58
Thereafter		142
Total	$	340
Less interest		41
Present value of lease liabilities	$	299

Other information related to the Company's operating leases was as follows (in thousands):

	September 30, 2021 (unaudited)
Lease Term and Discount Rate
Weighted average remaining lease term (years)		3.71
Weighted average discount rate		6.75	%

7

 

Note 5. Borrowings

Note Refinancing and 2017 Notes — As of September 30, 2021, the Company had $85.9 million in aggregate borrowings outstanding under three senior secured promissory notes (the “2017 Notes”). The unpaid principal amounts of the 2017 Notes bear interest at the following rates until the maturity date on March 30, 2033, with interest payable quarterly in arrears as follows: 1% per annum from April 1, 2019 through December 31, 2023; 2% per annum from January 1, 2024 through December 31, 2028; and 10% per annum from January 1, 2029 through the maturity date. Commencing with the delivery to the Noteholders of the financial statements for the fiscal year ended December 31, 2020, the Company is required to remit 50% of excess cash flow each year to the Noteholders to be applied as a principal reduction to the outstanding balance of the debt. The 2017 Notes generally rank senior in right of payment to any existing or future subordinated indebtedness of the Credit Parties (as defined below). The Company may at any time upon 30 days’ notice to the Noteholders redeem all or part of the 2017 Notes at a redemption price equal to 101% of the principal amount redeemed plus any accrued and unpaid interest thereon. The 2017 Notes were entered into on July 27, 2017 as a result of a refinancing of the Company’s then outstanding senior notes with the same aggregate principal amount through the execution of the Senior Secured Note Purchase Agreement, dated as of the same date (as amended, the “Note Purchase Agreement”), with NHI and HCS as guarantors (together with the Company, collectively, the “Credit Parties”).

On April 1, 2019 and on July 1, 2019, the Company made payments under the 2017 Notes totaling $2.6 million. The actual aggregate amounts due for those dates totaled $0.4 million. Under the terms of the Amendment, the Company is permitted to apply the payment surplus of $2.2 million against future quarterly interest payments. Therefore, the Company will not have another quarterly interest payment due until April 1, 2022. The Note Purchase Agreement contains customary affirmative and negative covenants, including but not limited to certain financial covenants. Under the terms of the Amendment, the financial covenants have been waived until the quarter ending December 31, 2021. The Note Purchase Agreement also contains customary events of default, including but not limited to payment defaults, cross defaults with certain other indebtedness, breaches of covenants and bankruptcy events. In the case of an event of default, the Noteholders may, among other remedies, accelerate the payment of all obligations under the Note Purchase Agreement and the 2017 Notes. The Credit Parties entered into a Pledge and Security Agreement, dated as of the same date, pursuant to which each of the Credit Parties granted a first priority lien generally covering all of its assets, other than accounts receivable and inventory, for the benefit of the Noteholders, to secure the obligations under the Note Purchase Agreement and the 2017 Notes.

Under the terms of the Amendment, the Company issued to the Noteholders 9,000,000 shares of common stock of the Company and ten-year warrants allowing the Noteholders to purchase up to 22,250,000 shares of the Company’s common stock at an exercise price of $0.01 per share. These warrants can be exercised at any time prior to expiration. At the time of the Amendment, the outstanding principal balance of the notes were reduced by the fair value of the common stock and warrants issued by the Company, resulting in debt premium of $0.9 million, offset by accrued interest of $0.5 million. The Company will amortize the debt premium and prepaid interest over the amended term of the Note Purchase Agreement using the effective interest method.

The carrying value of the 2017 Notes is as follows (in thousands):

	September 30, 2021 (unaudited)		December 31, 2020
Principal balance	$	85,938	$	85,938
Unamortized debt premium		6,713		4,177
Total, 2017 Notes	$	92,651	$	90,115

Note 6. Commitments and Contingencies

Contingencies — Prior to 2016, the Company originated, purchased, securitized, sold, invested in and serviced residential nonconforming mortgage loans and mortgage securities. The Company has received indemnification and loan repurchase demands with respect to alleged violations of representations and warranties (“defects”) and with respect to other alleged misrepresentations and contractual commitments made in loan sale and securitization agreements. These demands have been received substantially beginning in 2006 and have continued into recent years. Prior to the Company ceasing the origination of loans in its mortgage lending business, it sold loans to securitization trusts and other third parties and agreed to repurchase loans with material defects and to otherwise indemnify parties to these transactions. Beginning in 1997 and ending in 2007, affiliates of the Company sold loans to securitization trusts and third parties with the potential of such obligations. The aggregate original principal balance of these loans was $43.1 billion at the time of sale or securitization. The remaining principal balance of these loans is not available as these loans are serviced by third parties and may have been refinanced, sold or liquidated. Claims to repurchase loans or to indemnify under securitization documents have not been acknowledged as valid by the Company. In some cases, claims were made against affiliates of the Company that have ceased operations and have no or limited assets. The Company has not repurchased any loans or made any such indemnification payments since 2010.

Historically, repurchases of loans or indemnification of losses where a loan defect has been alleged have been insignificant and any future losses for alleged loan defects have not been deemed to be probable or reasonably estimable; therefore, the Company has recorded no reserves related to these claims. The Company does not use internal groupings for purposes of determining the status of these loans. The Company is unable to develop an estimate of the maximum potential amount of future payments related to repurchase demands because the Company does not have access to information relating to loans sold and securitized and the number or amount of claims deemed probable of assertion is not known nor is it reasonably estimated. Further, the validity of claims received remains questionable. Also, considering that the Company completed its last sale or securitization of loans during 2007, the Company believes that it will be difficult for a claimant to successfully validate any additional repurchase demands. Management does not expect that the potential impact of claims will be material to the condensed consolidated financial statements.

8

 

Pending Litigation — The Company is a party to various legal proceedings. Except as set forth below, these proceedings are of an ordinary and routine nature. Any legal fees associated with these proceedings are expensed as incurred.

Although it is not possible to predict the outcome of any legal proceeding, in the opinion of management, other than the active proceedings described in detail below, proceedings and actions against the Company should not, individually, or in the aggregate, have a material effect on the Company’s financial condition, operations and liquidity. Furthermore, due to the uncertainty of any potential loss as a result of pending litigation and due to the Company's belief that an adverse ruling is not probable, the Company has not accrued a loss contingency related to the following matters in its condensed consolidated financial statements. However, a material outcome in one or more of the active proceedings described below could have a material impact on the results of operations in a particular quarter or fiscal year. 

On May 21, 2008, a purported class action case was filed in the Supreme Court of the State of New York, New York County, by the New Jersey Carpenters' Health Fund, on behalf of itself and all others similarly situated. Defendants in the case included NovaStar Mortgage Funding Corporation (“NMFC”) and NovaStar Mortgage, Inc. ("NMI"), wholly-owned subsidiaries of the Company, and NMFC's individual directors, several securitization trusts sponsored by the Company (“affiliated defendants”) and several unaffiliated investment banks and credit rating agencies. The case was removed to the United States District Court for the Southern District of New York. On June 16, 2009, plaintiff filed an amended complaint. Plaintiff seeks monetary damages, alleging that the defendants violated Sections 11, 12 and 15 of the Securities Act of 1933, as amended, by making allegedly false statements regarding mortgage loans that served as collateral for securities purchased by plaintiff and the purported class members. On August 31, 2009, the Company filed a motion to dismiss the plaintiff's claims, which the court granted on March 31, 2011, with leave to amend. Plaintiff filed a second amended complaint on May 16, 2011, and the Company again filed a motion to dismiss. On March 29, 2012, the court dismissed plaintiff's second amended complaint with prejudice and without leave to replead. Plaintiff filed an appeal in the United States Court of Appeals for the Second Circuit (the "Appellate Court"). On March 1, 2013, the Appellate Court reversed the judgment of the lower court, which had dismissed the case. Also, the Appellate Court vacated the judgment of the lower court which had held that plaintiff lacked standing, even as a class representative, to sue on behalf of investors in securities in which plaintiff had not invested, and the appellate court remanded the case back to the lower court for further proceedings. On April 23, 2013 plaintiff filed its memorandum with the lower court seeking a reconsideration of the earlier dismissal of plaintiff's claims as to five offerings in which plaintiff was not invested, and on February 5, 2015, the lower court granted plaintiff's motion for reconsideration and vacated its earlier dismissal. On March 8, 2017, the affiliated defendants and all other parties executed an agreement to settle the action, with the contribution of the affiliated defendants to the settlement fund being paid by their insurance carriers. The court certified a settlement class and granted preliminary approval to the settlement on May 10, 2017. One member of the settlement class objected to the settlement and sought a stay of the final settlement approval hearing on the ground that it did not receive notice of the settlement and had no opportunity to timely opt out of the class.  After the court rejected the motion for a stay, the objector filed an appeal and requested a stay of the district court proceedings pending disposition of the appeal. The court of appeals denied the temporary stay of the district court proceedings and on October 19, 2018 dismissed the appeal as moot.  Following the court of appeals’ denial of the objector’s petition for rehearing, the district court on March 7, 2019 held a fairness hearing. On March 8, 2019, the district court issued a memorandum and order approving the settlement as fair, reasonable and adequate, and dismissing the action with prejudice. Following entry of judgment, the objector filed a notice of appeal on March 26, 2019 and their opening brief was filed on June 28, 2019. The defendants answered on September 27, 2019, and the objector replied on October 18, 2019. An oral argument was held on February 19, 2020. Assuming the settlement approval becomes final, which is expected, the Company will incur no loss. The Company believes that the affiliated defendants have meritorious defenses to the case and, if the settlement approval does not become final, expects them to defend the case vigorously.

Note 7. Fair Value Accounting

Fair Value Measurements — The Company's valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs create the following fair value hierarchy:

• Level 1 - Valuations based on quoted prices in active markets for identical assets and liabilities.

• Level 2 - Valuations based on observable inputs in active markets for similar assets and liabilities, other than Level 1 prices, such as quoted interest or currency exchange rates, for substantially the full term of the asset or liability.

• Level 3 - Valuations based on significant unobservable inputs that are supported by little or no market activity, such as discounted cash flow methodologies based on internal cash flow forecasts.

9

 

The following table provides the estimated fair value of financial instruments and presents amounts that have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions or estimation methodologies could have a material impact on the estimated fair value amounts. The fair value of short-term financial assets and liabilities, such as service fees receivable, notes receivable, and accounts payable and accrued expenses are not included in the following table as their carrying value approximates their fair value.

The estimated fair values of the Company's financial instruments are (in thousands):

	September 30, 2021 (unaudited)				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial liabilities:
2017 Notes (Level 3)	$	92,651	$	13,632	$	90,115	$	11,365

The 2017 Notes in the table above are not measured at fair value in the condensed consolidated balance sheets but are required to be disclosed at fair value. The fair value of the 2017 Notes has been estimated using Level 3 methodologies, based on significant unobservable inputs that are supported by little or no market activity, such as discounted cash flow calculations based on internal cash flow forecasts. No assets or liabilities have been transferred between levels during any period presented. The fair value is estimated by discounting future projected cash flows using a discount rate commensurate with the risks involved. The interest rate on the senior notes is 1% per annum from April 1, 2019 through December 31, 2023; 2% per annum from January 1, 2024 through December 31, 2028; and 10% per annum from January 1, 2029 through the maturity date in March 2033. 

Prior to the Company's acquisition of HCS in 2017, the Company originated, purchased, securitized, sold, invested in and serviced residential nonconforming mortgage loans and mortgage securities. During 2018, the Company sold all but 33 non-performing mortgage securities. The Company retains clean-up call rights associated with prior servicing activities, and has determined these clean-up call rights have nofair value as of  September 30, 2021 and December 31, 2020.

Note 8. Income Taxes

Prior to 2018, the Company concluded that it was no longer more likely than not that it would realize a portion of its deferred tax assets. Therefore, as of  September 30, 2021 and December 31, 2020, the Company maintained a full valuation allowance against its net deferred tax assets of $169.6 million and $168.8 million, respectively. The Company's determination of the realizable deferred tax assets requires the exercise of significant judgment, based in part on business plans and expectations about future outcomes. In the event the actual results differ from these estimates in future periods, the Company may need to adjust the valuation allowance, which could materially impact our financial position and results of operations. The Company will continue to assess the need for a valuation allowance in future periods. Because of the full valuation allowance, the Company's effective tax rate is expected to be near 0% and therefore the income tax expense is not material for any period presented.

As of September 30, 2021, the Company had a federal NOL of approximately$732.1 million, including $250.3 million in losses on mortgage securities that have not been recognized for income tax purposes. The federal NOL may be carried forward to offset future taxable income, subject to applicable provisions of the Internal Revenue Code (the "Code"). If not used, these NOLs will expire in years 2025 through 2037. Due to tax reform enacted in 2017, NOLs created after 2017 carry forward indefinitely. The 2020 tax return has been filed as of the date of this report. The estimated federal NOL that does not expire included in the total above is $97.0 million. States may vary in their treatment of post 2017 NOLs. The Company has state NOL carryforwards arising from both combined and separate filings from as early as 2004. The state NOL carryforwards may expire as early as 2024 and as late as 2037.

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

Forward-Looking Statements

Statements in this report regarding Novation Companies, Inc. and its business that are not historical facts are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are those that predict or describe future events, do not relate solely to historical matters and include statements regarding management's beliefs, estimates, projections, and assumptions with respect to, among other things, our future operations, business plans and strategies, as well as industry and market conditions, all of which are subject to change at any time without notice. Words such as “believe,” “expect,” “anticipate,” “promise,” “plan,” and other expressions or words of similar meanings, as well as future or conditional auxiliary verbs such as “would,” “should,” “could,” or “may” are generally intended to identify forward-looking statements. Risks, uncertainties, contingencies, and developments, including those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and those identified in “Risk Factors” in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, (the "2020 Form 10-K"), could cause our future operating results to differ materially from those set forth in any forward-looking statement. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments.

Corporate Overview

Novation Companies, Inc. and its subsidiaries (the "Company," "Novation," "we," "us," or "our") through our wholly-owned subsidiary Healthcare Staffing, Inc. ("HCS"), acquired on July 27, 2017, provides outsourced health care staffing and related services in the State of Georgia. Our common stock, par value $0.01 per share, is traded on the OTC Pink marketplace of the OTC Markets Group, Inc. under the symbol “NOVC”.  

Financial Highlights and Key Performance Metrics

The following key performance metrics (in thousands, except per share amounts) are derived from our condensed consolidated financial statements for the periods presented and should be read in conjunction with the more detailed information therein and with the disclosure included in this report under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

	September 30, 2021 (unaudited)		December 31, 2020
Cash and cash equivalents	$	1,543	$	1,340

	Nine Months Ended September 30, (unaudited)						Three Months Ended September 30, (unaudited)
	2021			2020			2021			2020
Service fee income	$	35,379		$	38,747		$	9,943		$	12,381
General and administrative expenses	$	5,212		$	5,894		$	1,659		$	1,877
Net loss available to common shareholders, per basic share	$	(0.04	)	$	(0.07	)	$	(0.01	)	$	(0.01	)

Critical Accounting Policies

In our 2020 Form 10-K, we disclose critical accounting policies that require management to use significant judgment or that require significant estimates. Management regularly reviews the selection and application of our critical accounting policies. See Note 1 to the condensed consolidated financial statements for a discussion of significant accounting policies.

Results of Operations for the Three and Nine Month Period Ended September 30, 2021 as Compared to September 30, 2020

Service Fee Income and Cost of Services

HCS delivers outsourced full-time and part-time employees primarily to Community Service Boards (“CSBs”), quasi state organizations that provide behavioral health services at facilities across Georgia including mental health services, developmental disabilities programs and substance abuse treatments. The State of Georgia has a total of 25 CSBs. Each CSB has a number of facilities, including crisis centers, outpatient centers and 24-hour group homes that require a broad range of employees, such as registered nurses, social workers, house parents and supervisors. The CSB market in Georgia is large and growing steadily, as the demand for the services provided by the CSBs continues to grow. In addition to providing outsourced employees to CSBs, HCS also provides healthcare outsourcing and staffing services to hospitals, schools and a variety of privately-owned businesses. The services and positions provided to non CSB clients are similar to the ones provided to CSB clients. The service fee income and costs of services in the condensed consolidated statement of operations and comprehensive loss for the three and nine months ended September 30, 2021 are from the operations of HCS.

Future service fee income will be driven by the number of customers and the volume of associates employed by the CSBs and outsourced to HCS. Customer contracts typically establish a fixed markup on the pay rate for the associates, therefore cost of services will generally fluctuate consistently with fee income. HCS offers a health and welfare benefit plan to its associates. The cost of this benefit is passed through to customers plus a small markup to cover cost of administration.

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In June of 2021, two customers, one significant, notified HCS of their intent to terminate their contract services during the third quarter of 2021. As a result, we determined that the loss of this customers generated a triggering event for analysis of impairment of our other indefinite and definite lived intangible assets balance as of June 30, 2021. It was determined that the fair value of the HCS intangible assets exceeded the carrying value, so no impairment was necessary. In addition, due to the developments of COVID-19, and the resulting reduction of programs and staff utilized by CSBs, the Company experienced an impact to service fee income and cost of services starting during the second quarter of 2020 and continuing through the current quarter. However, HCS has continued to focus on growing the traditional staffing line of business in 2021, and has seen a positive impact to service fee income from this growth.

HCS revenue for the three and nine months ended September 30, 2021 was $9.9 million and $35.4 million, respectively, and for the three and nine months ended September 30, 2020 was $12.4 million and $38.7 million, respectively. This decrease is attributable to the loss of two customers during the third quarter of 2021, the reduction of programs and staff utilized by CSBs, and the developments of COVID-19 throughout 2020 and into 2021. Please see Note 1 to the condensed consolidated financial statements for a discussion regarding these impacts.

HCS cost of goods sold for the three and nine months ended September 30, 2021 was $8.8 million and $31.7 million, respectively, and for the three and nine months ended September 30, 2020 was $10.6 million and $34.4 million, respectively. This decrease in cost of goods sold is consistent with the decrease in revenue.

General and Administrative

General and administrative expenses consist of salaries, office costs, legal and professional expenses and other customary costs of corporate administration. For the three and nine months ended September 30, 2021, $1.3 million and $3.9 million of the total general and administrative expenses were incurred by HCS, as compared to $1.4 million and $4.3 million for the three and nine months ended September 30, 2020. Corporate-level general and administrative expenses for the three and nine months ended September 30, 2021 were $0.4 million and $1.3 million, respectively, as compared to $0.5 million and $1.5 million for the three and nine months ended September 30, 2020. The decrease in total general and administrative expenses results from a reduction in staffing, worker's compensation expense, and other costs of administration as the Company continues to focus on cost containment.

The future amount of corporate-level general and administrative expenses will depend largely on corporate activities, professional fees associated with those activities and staffing needs based on the evolving business strategy. For HCS, the amount of these expenses will depend on business growth.

Interest Expense

Interest expense remained static period over period, with the Company incurring $0.9 million and $2.5 million during the three and nine months ended September 30, 2021, respectively, compared to $0.8 million and $2.5 million during the three and nine months ended September 30, 2020, respectively. See Note 5 to the condensed consolidated financial statements for a discussion of the Note Purchase Agreement and the 2017 Notes, which were amended on August 9, 2019. The Amendment, among other things, significantly reduce the interest rate applicable from January 2019 through the end of 2028.

Income Tax Expense

Because of the Company's significant net operating losses and full valuation allowance, the income tax expense was not material for any period presented and is not expected to be material for the foreseeable future.

Liquidity and Capital Resources

Liquidity and Going Concern

See discussion of our liquidity and capital resources in Note 1 to the condensed consolidated financial statements.

Overview of Cash Flow for the nine months ended September 30, 2021

The following table provides a summary of our operating and investing cash flows as taken from our condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 (in thousands).

	Nine Months Ended September 30,
	2021			2020
Cash flows provided by (used in) operating activities	$	218		$	(889	)
Cash flows used in investing activities		(15	)		(11	)

Operating Activities – The change in net cash flows provided operating activities to approximately $0.2 million during the nine months ended September 30, 2021 from cash used of $0.9 million during the nine months ended September 30, 2020 was driven primarily by reductions in the accounts receivable and other current asset balances.

Investing Activities – The increase in the net cash flows used in investing activities is due to the purchase of fixed assets.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our chief executive officer and our chief financial officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on their evaluation of our disclosure controls and procedures, our chief executive officer and chief financial officer, with the participation of the Company’s management, concluded that our disclosure controls and procedures were not effective as of September 30, 2021, to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow for timely decisions regarding required disclosure.

Description of Material Weakness of Disclosure Controls

As discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations above and in Note 1 to the condensed consolidated financial statements, in July 2017, we acquired HCS, which now is our primary business activity. Prior to the HCS Acquisition, HCS was a privately-owned business with limited administrative and accounting resources, accounting software inappropriate for the size of the business and generally weak accounting processes, procedures and controls. Specifically, material weaknesses existed in HCS's processes, procedures and controls with respect to revenue, receivables, payment of payroll taxes and estimating various accrued expenses.

Remediation of Material Weakness

We are working to improve the processes, procedures and controls at HCS and remediate this material weakness. Since the HCS Acquisition in July 2017, we have implemented improvements in processes, procedures and controls and we will continue to do so. We are evaluating the accounting professionals at the Company and HCS and will determine if additional resources with relevant experience are needed. We will disclose in future periods the progress we have made in efforts to remediate this material weakness.

Changes in Internal Control Over Financial Reporting

As a result of the HCS acquisition and the generally weak controls at HCS discussed above, we determined that we have a material weakness in our disclosure controls and procedures. We are working to remediate this material weakness as discussed above.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In designing and operating a control system, one must consider the potential benefits of controls relative to their costs and the reality of limited resources available to allocate to control activities, particularly in smaller companies. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any control will meet its objectives under all potential future conditions. Because of such inherent limitations in any control system, there can be no absolute assurance that control issues, misstatements, and/or fraud will be prevented or detected.

13

FORM 10-Q

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is a party to various legal proceedings. Except as set forth below, these proceedings are of an ordinary and routine nature.

On May 21, 2008, a purported class action case was filed in the Supreme Court of the State of New York, New York County, by the New Jersey Carpenters' Health Fund, on behalf of itself and all others similarly situated. Defendants in the case included NovaStar Mortgage Funding Corporation (“NMFC”) and NovaStar Mortgage, Inc. ("NMI"), wholly-owned subsidiaries of the Company, and NMFC's individual directors, several securitization trusts sponsored by the Company (“affiliated defendants”) and several unaffiliated investment banks and credit rating agencies. The case was removed to the United States District Court for the Southern District of New York. On June 16, 2009, the plaintiff filed an amended complaint. Plaintiff seeks monetary damages, alleging that the defendants violated Sections 11, 12 and 15 of the Securities Act of 1933, as amended, by making allegedly false statements regarding mortgage loans that served as collateral for securities purchased by plaintiff and the purported class members. On August 31, 2009, the Company filed a motion to dismiss plaintiff's claims, which the court granted on March 31, 2011, with leave to amend. Plaintiff filed a second amended complaint on May 16, 2011, and the Company again filed a motion to dismiss. On March 29, 2012, the court dismissed plaintiff's second amended complaint with prejudice and without leave to replead. Plaintiff filed an appeal. On March 1, 2013, the United States Court of Appeals for the Second Circuit (the "Appellate Court") reversed the judgment of the lower court, which had dismissed the case. Also, the Appellate Court vacated the judgment of the lower court which had held that plaintiff lacked standing, even as a class representative, to sue on behalf of investors in securities in which plaintiff had not invested, and the appellate court remanded the case back to the lower court for further proceedings. On April 23, 2013 plaintiff filed its memorandum with the lower court seeking a reconsideration of the earlier dismissal of plaintiff's claims as to five offerings in which plaintiff was not invested, and on February 5, 2015 the lower court granted plaintiff's motion for reconsideration and vacated its earlier dismissal. On March 8, 2017, the affiliated defendants and all other parties executed an agreement to settle the action, with the contribution of the affiliated defendants to the settlement fund being paid by their insurance carriers. The court certified a settlement class and granted preliminary approval to the settlement on May 10, 2017. One member of the settlement class objected to the settlement and sought a stay of the final settlement approval hearing on the ground that it did not receive notice of the settlement and had no opportunity to timely opt out of the class.  After the court rejected the motion for a stay, the objector filed an appeal and requested a stay of the district court proceedings pending disposition of the appeal. The court of appeals denied the temporary stay of the district court proceedings and on October 19, 2018 dismissed the appeal as moot.  Following the court of appeals’ denial of the objector’s petition for rehearing, the district court on March 7, 2019 held a fairness hearing. On March 8, 2019, the district court issued a memorandum and order approving the settlement as fair, reasonable and adequate, and dismissing the action with prejudice. Following entry of judgment, the objector filed a notice of appeal on March 26, 2019 and their opening brief was filed on June 28, 2019.  The defendants answered on September 27, 2019, and the objector replied on October 18, 2019. Oral argument was held on February 19, 2020. Assuming the settlement approval becomes final, which is expected, the Company will incur no loss. The Company believes that the Affiliated Defendants have meritorious defenses to the case and, if the settlement approval does not become final, expects them to defend the case vigorously.

14

Item 1A. Risk Factors

There have been no material changes to the risk factors included in the 2020 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None

15

Item 6. Exhibits

Exhibit No.	Description of Document
31.1	Principal Executive Officer Certification filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Principal Financial Officer Certification filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Principal Executive Officer Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Principal Financial Officer Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial information from Novation Companies, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL (Inline eXtensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020, (iii) Condensed Consolidated Statements of Shareholders' Deficit for the nine months ended September 30, 2021 and 2020, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020, and (v) Notes to Condensed Consolidated Financial Statements.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

16

SIGNATURES

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

		NOVATION COMPANIES, INC.
DATE:	November 12, 2021	/s/ David W. Pointer
		David W. Pointer, Chief Executive Officer
		(Principal Executive Officer)
DATE:	November 12, 2021	/s/ Carolyn K. Campbell
		Carolyn K. Campbell, Chief Financial Officer
		(Principal Financial Officer)

17

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David W. Pointer, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Novation Companies, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

DATE:	November 12, 2021	/s/ David W. Pointer
		David W. Pointer
		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Carolyn K. Campbell, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Novation Companies, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

DATE:	November 12, 2021	/s/ Carolyn K. Campbell
		Carolyn K. Campbell
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 

In connection with the Quarterly Report of Novation Companies, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David W. Pointer, Chief Executive Officer of the Company, certify as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

DATE:	November 12, 2021	/s/ David W. Pointer
		David W. Pointer
		Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 

In connection with the Quarterly Report of Novation Companies, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Carolyn K. Campbell, Chief Financial Officer of the Company, certify as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

DATE:	November 12, 2021	/s/ Carolyn K. Campbell
		Carolyn K. Campbell
		Chief Financial Officer

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Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2021	Nov. 11, 2021
Document Information [Line Items]
Entity Central Index Key	0001025953
Entity Registrant Name	NOVATION COMPANIES, INC.
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2021
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2021
Document Transition Report	false
Entity File Number	001-13533
Entity Incorporation, State or Country Code	MD
Entity Tax Identification Number	74-2830661
Entity Address, Address Line One	9229 Ward Parkway, Suite 340
Entity Address, City or Town	Kansas City
Entity Address, State or Province	MO
Entity Address, Postal Zip Code	64114
City Area Code	816
Local Phone Number	237-7000
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		116,155,893

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Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 1,543	$ 1,340
Accounts and unbilled receivables	3,516	5,008
Prepaid expenses	224	663
Other	14	53
Total current assets	5,297	7,064
Non-current assets:
Intangible assets, net	3,938	4,677
Property and equipment, net	80	92
Operating lease right-of-use asset	293	339
Other	4	4
Total non-current assets	4,315	5,112
Total assets	9,612	12,176
Current liabilities:
Accounts payable and accrued expenses	211	315
Accrued compensation and benefits payable	1,346	2,176
Operating lease liability	109	195
Accrued claim settlements	123	246
Other	8	4
Total current liabilities	1,797	2,936
Non-current liabilities:
Senior notes, net of unamortized debt premium of $6.7 million and $4.2 million as of September 30, 2021 and December 31, 2020, respectively	92,651	90,115
Accrued claim settlements	0	62
Operating lease liability	190	153
Total non-current liabilities	92,841	90,330
Total liabilities	94,638	93,266
Shareholders' deficit:
Common stock, $.01 par value per share, 780,000,000 shares authorized:116,655,893 and 114,655,893 and shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively	1,161	1,146
Additional paid-in capital	746,327	746,227
Accumulated deficit	(832,514)	(828,463)
Total shareholders' deficit	(85,026)	(81,090)
Total liabilities and shareholders' deficit	$ 9,612	$ 12,176

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Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Millions	Sep. 30, 2021	Dec. 31, 2020
Unamortized debt premium	$ 6.7	$ 4.2
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	780,000,000	780,000,000
Common stock, shares issued (in shares)	116,155,893	114,655,893
Common stock, shares outstanding (in shares)	116,155,893	114,655,893

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Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Service fee income	$ 9,943	$ 12,381	$ 35,379	$ 38,747
Cost and expenses:
Cost of services	8,794	10,628	31,670	34,416
General and administrative expenses	1,659	1,877	5,212	5,894
Goodwill impairment charge	0	0	0	3,905
Operating loss	(510)	(124)	(1,503)	(5,468)
Other income (expense)	(4)	4	2	28
Interest expense	(864)	(836)	(2,545)	(2,462)
Loss before income taxes	(1,378)	(956)	(4,046)	(7,902)
Income tax expense	0	3	5	24
Net loss	$ (1,378)	$ (959)	$ (4,051)	$ (7,926)
Loss per share:
Basic (in dollars per share)	$ (0.01)	$ (0.01)	$ (0.04)	$ (0.07)
Diluted (in dollars per share)	$ (0.01)	$ (0.01)	$ (0.04)	$ (0.07)
Weighted average common shares outstanding:
Basic (in shares)	113,608,581	110,216,273	113,605,893	110,197,754
Diluted (in shares)	113,608,581	110,216,273	113,605,893	110,197,754

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Condensed Consolidated Statements of Shareholders' Deficit (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance at Dec. 31, 2019	$ 1,123	$ 746,112	$ (819,294)	$ (72,059)
Compensation recognized under stock compensation plans		127		127
Net loss			(7,926)	(7,926)
Issuances of nonvested stock	23	(23)
Balance at Sep. 30, 2020	1,146	746,216	(827,220)	(79,858)
Balance at Jun. 30, 2020	1,146	746,170	(826,261)	(78,945)
Compensation recognized under stock compensation plans		46		46
Net loss			(959)	(959)
Balance at Sep. 30, 2020	1,146	746,216	(827,220)	(79,858)
Balance at Dec. 31, 2020	1,146	746,227	(828,463)	(81,090)
Issuances and cancellations of nonvested stock	15	(15)
Compensation recognized under stock compensation plans		115		115
Net loss			(4,051)	(4,051)
Balance at Sep. 30, 2021	1,161	746,327	(832,514)	(85,026)
Balance at Jun. 30, 2021	1,166	746,291	(831,136)	(83,679)
Compensation recognized under stock compensation plans		31		31
Net loss			(1,378)	(1,378)
Cancellations of nonvested stock	(5)	5
Balance at Sep. 30, 2021	$ 1,161	$ 746,327	$ (832,514)	$ (85,026)

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Cash flows from operating activities:
Net loss	$ (4,051)	$ (7,926)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of intangible assets	739	861
Amortization of debt premium and prepaid interest into interest expense	2,536	2,453
Depreciation expense	22	40
Loss (gain) on disposal of fixed assets	5	(3)
Lease expense	(3)	(4)
Allowance for doubtful accounts	10
Goodwill impairment	0	3,905
Compensation recognized under stock compensation plans	115	127
Changes in operating assets and liabilities
Accounts and unbilled receivables	1,482	683
Accounts payable and accrued expenses	(104)	(195)
Accrued compensation and benefits payable	(830)	(315)
Accrued health and wellness program payable	0	(492)
Accrued claim settlements	(185)	(184)
Other current assets and liabilities, net	482	161
Net cash provided by (used in) operating activities	218	(889)
Cash flows from investing activities:
Purchase of property and equipment	(15)	(11)
Net cash used in investing activities	(15)	(11)
Net increase (decrease) in cash and cash equivalents	203	(900)
Cash and cash equivalents, beginning of period	1,340	2,032
Cash and cash equivalents, end of period	1,543	1,132
Supplemental disclosure of cash flow information:
Cash paid for interest	9	12
Cash paid for income taxes, net	$ 0	$ 45

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Note 1 - Condensed Consolidated Financial Statement Presentation

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note 1. Condensed Consolidated Financial Statement Presentation

Description of Operations – Novation Companies, Inc. and its subsidiaries (the “Company,” “Novation,” “we,” or “us”), through Healthcare Staffing, Inc. ("HCS"), our wholly-owned subsidiary, provides outsourced health care staffing and related services in the State of Georgia. Our common stock, par value $0.01 per share, is traded on the OTC Pink marketplace of the OTC Markets Group, Inc. under the symbol “NOVC”.

Liquidity and Going Concern – During the nine months ended September 30, 2021, the Company incurred a net loss of $4.1 million and generated positive operating cash flow of $0.2 million. As of September 30, 2021, the Company had an overall shareholders deficit of $85.0 million, an aggregate of $1.5 million in cash and cash equivalents and total liabilities of $94.6 million. Of the $1.5 million in cash, $0.1 million is held by the Company's subsidiary NovaStar Mortgage LLC ("NMLLC"). This cash is available only to pay general creditors and expenses of NMLLC.

Prior to executing the Amendment with the Noteholders in August 2019 (Note 5), the Company had a significant on-going obligation to pay interest under its senior note agreements at LIBOR plus 3.5% per annum, payable quarterly in arrears until maturity on March 30, 2033, leading to a significant annual cash outflow. HCS has also experienced lower than anticipated cash flows in general due to increased costs and a decrease in business from certain customers. In addition, in June of 2021, two Community Service Board ("CSB") customers, one significant, notified us of their intent to terminate their contract services with HCS during the third quarter of 2021. These items have led to substantial doubt about the Company's ability to continue as a going concern.

Management continues to work toward expanding HCS’s customer base by increasing revenue from existing customers, looking at methods to reduce overall operating costs, both at HCS and the corporate level, and targeting new customers that have not previously been served by HCS. As disclosed in Note 5 to the condensed consolidated financial statements, the Company was successful in amending the senior note agreements to lower the interest rate and receive future credit for cash interest payments made in 2019 in exchange for the issuance of common stock and warrants. Based on the terms of the amendment, the Company is not required to make cash interest payments on the senior notes from August 2019 through March 2022, leading to significant cash savings for the Company. This amendment to the Note Purchase Agreement and waiver of interest payments through April 2022 has significantly improved our forecasted cash position.

In late March 2020, HCS started experiencing a reduction in Georgia CSB customer needs related to the COVID-19 pandemic. This resulted in the layoff of approximately 8% of the Company’s employees. As HCS relies on providing healthcare staffing services to generate income, this has decreased our service fee income, and direct cost of services, accordingly. While the majority of these employees were rehired when customer demand returned, there have been some permanent loss of staffing opportunities based on changes to programs and services offered by CSBs. In addition, there is still concern at the Company about the ongoing effects of COVID-19 on our services for the foreseeable future. The Company is also experiencing increased expenses related to corporate insurance coverage (professional and general liability commercial lines). This increase has resulted in a significant rise in costs, even with the loss of staffing headcount as noted above. HCS also experiences increased costs to provide health insurance for employees. While this expense is billed to our CSB customers, for employees staffed with them that elect coverage, the rise in cost impacts our ability to remain competitive in the market.

Our historical operating results and poor cash flow suggest substantial doubt exists related to the Company's ability to continue as a going concern. Furthermore, there is still uncertainty regarding the future impact that COVID-19 will have on our business. Based on these uncertainties, there is no guarantee the Company's cash position will cover current obligations. As a result, we have not been able to alleviate the substantial doubt about the Company's ability to continue as a going concern for at least one year after the date that these condensed consolidated financial statements are issued.

Earnings Per Share – For the nine months ended September 30, 2021 and 2020, potentially dilutive securities excluded from the computations of diluted weighted-average shares outstanding were 2.8 million and 4.4 million shares of restricted common stock, respectively.

Condensed Consolidated Financial Statement Presentation – The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expense during the period. The Company uses estimates and judgments in assessing the recoverability of its long-lived assets, impairments, and accounting for income taxes, including the determination of the timing of the establishment or release of the valuation allowance related to the deferred tax asset balances and reserves for uncertain tax positions. While these condensed consolidated financial statements and footnotes reflect the best estimates and judgments of management at the time, actual results could differ significantly from those estimates, and the amounts could be material.

The Company's condensed consolidated financial statements are unaudited. In the opinion of management, all necessary adjustments have been made, which were of a normal and recurring nature, for a fair presentation of the condensed consolidated financial statements. The Company's condensed consolidated financial statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included herein and the consolidated financial statements of the Company and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended  December 31, 2020 (the "2020 Form 10-K").

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Note 2 - Revenue; Accounts and Unbilled Receivables

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 2. Revenue; Accounts and Unbilled Receivables

Staffing services include the augmentation of customers' workforce with our contingent employees performing services under the customers' supervision, which provides our customers with a source of flexible labor at a competitive cost. Customer contracts are typically annual contracts but may be terminated upon 60 days' notice for any reason.

The Company recognizes revenue when control of the promised services is transferred to customers and for the amount that reflects the consideration we are entitled to receive in exchange for those services. Furthermore, revenue is recognized over time based on a fixed amount for each hour of staffing service provided as our customers benefit from our services and as we provide them.

Performance Obligations — A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s customer contracts have a single performance obligation to transfer the individual goods or services, and it is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Performance obligations are satisfied at the point in time the HCS employees work on behalf of the customer. Contract costs include compensation, benefits and overhead when appropriate. Because of the nature of the contracts and the fact that revenue is earned at the time the employee works for the customer, no contract estimates are necessary.

Contract Balances — The timing of revenue recognition, billings and cash collections results in accounts receivable and unbilled receivables (the "contract assets"). The Company bills customers generally every other week based on the work performed during the two-week period ended the week prior to billing. Generally, billing occurs after revenue recognition, resulting in contract assets. The Company does not receive advances or deposits from its customers.

Disaggregation of Revenue — All revenue is generated from customers that provide healthcare services in Georgia. The following is a disaggregation of the Company’s revenue, unaudited, in thousands, into categories that best depict how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors.

	Nine Months Ended September 30, 2021				Three Months Ended September 30, 2021				Nine Months Ended September 30, 2020				Three Months Ended September 30, 2020
Type of Customer
CSB	$	32,708	92.5	%	$	8,799	88.5	%	$	37,963	98.0	%	$	12,116	97.9	%
Other		2,671	7.5	%		1,144	11.5	%		784	2.0	%		265	2.1	%
Total	$	35,379	100.0	%	$	9,943	100.0	%	$	38,747	100.0	%	$	12,381	100.0	%

Accounts and unbilled receivables are summarized as follows, in thousands:

	September 30, 2021 (unaudited)			December 31, 2020
Accounts receivable	$	2,312		$	2,705
Unbilled receivables (Contract Assets)		1,214			2,303
Allowance for doubtful accounts		(10	)		—
Total	$	3,516		$	5,008

During the nine months ended September 30, 2021, 66% of service fee income was generated from four customers. For the nine months ended September 30, 2020, 72% of service fee income was generated from four customers. As of  September 30, 2021 and September 30, 2020, 52% and 65% of accounts receivables and unbilled receivables were due from two and four customers, respectively. At  September 30, 2021 and September 30, 2020, 77% and 96% of accounts receivables and unbilled receivables were due from 11 and 12 Community Service Board customers, respectively.

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Note 3 - Intangible Assets

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

Note 3. Intangible Assets

	September 30, 2021 (unaudited)						December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Indefinite-lived assets (in thousands):
Tradenames	$	1,147	$	—	$	1,147	$	1,147	$	—	$	1,147
Total indefinite-lived assets	$	1,147	$	—	$	1,147	$	1,147	$	—	$	1,147
Finite-lived assets (in thousands):
Customer relationships		6,895		4,104		2,791		6,895		3,365		3,530
Non-compete agreement		627		627		—		627		627		—
Total finite-lived assets	$	7,522	$	4,731	$	2,791	$	7,522	$	3,992	$	3,530
Total indefinite-lived and finite-lived assets	$	8,669	$	4,731	$	3,938	$	8,669	$	3,992	$	4,677

Amortization expense (unaudited, in thousands)
Nine Months Ended September 30, 2021	$	739
Estimated future amortization expense (unaudited, in thousands)
2021	$	246
2022		985
2023		985
Thereafter		575
Total estimated amortization expense	$	2,791

As disclosed in Note 1, two CSB customers, one significant, terminated their contract services with HCS during the third quarter of 2021, with notice being provided in June of 2021. As a result, we determined that the loss of these customers resulted in a triggering event for analysis of impairment of our other indefinite and definite lived intangible assets balances as of June 30, 2021. It was determined that the fair value of the HCS intangible assets exceeded the carrying value, so no impairment was necessary.

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Note 4 - Leases

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

Note 4. Leases

Our leases consist primarily of office space. Leases with an initial term of less than 12 months, and leases which are on a month-to-month basis, are not recorded on the condensed consolidated balance sheets. For these leases we recognize lease expense on a straight-line basis over the lease term. The Company does not have any finance leases.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to three years or more. The exercise of lease renewal options is at our discretion. Our lease agreements do not contain any variable lease payments, residual value guarantees or restrictive covenants. The components of lease expense for the three and nine months ended September 30, 2021 were immaterial.

As our leases do not provide an implicit interest rate, we use our incremental current borrowing rate in determining the present value of lease payments.

Maturities of lease liabilities were as follows (in thousands):

	September 30, 2021 (unaudited)
Remaining 2021	$	43
2022		97
2023		58
Thereafter		142
Total	$	340
Less interest		41
Present value of lease liabilities	$	299

Other information related to the Company's operating leases was as follows (in thousands):

	September 30, 2021 (unaudited)
Lease Term and Discount Rate
Weighted average remaining lease term (years)		3.71
Weighted average discount rate		6.75	%

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Note 5 - Borrowings

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Debt Disclosure [Text Block]

Note 5. Borrowings

Note Refinancing and 2017 Notes — As of September 30, 2021, the Company had $85.9 million in aggregate borrowings outstanding under three senior secured promissory notes (the “2017 Notes”). The unpaid principal amounts of the 2017 Notes bear interest at the following rates until the maturity date on March 30, 2033, with interest payable quarterly in arrears as follows: 1% per annum from April 1, 2019 through December 31, 2023; 2% per annum from January 1, 2024 through December 31, 2028; and 10% per annum from January 1, 2029 through the maturity date. Commencing with the delivery to the Noteholders of the financial statements for the fiscal year ended December 31, 2020, the Company is required to remit 50% of excess cash flow each year to the Noteholders to be applied as a principal reduction to the outstanding balance of the debt. The 2017 Notes generally rank senior in right of payment to any existing or future subordinated indebtedness of the Credit Parties (as defined below). The Company may at any time upon 30 days’ notice to the Noteholders redeem all or part of the 2017 Notes at a redemption price equal to 101% of the principal amount redeemed plus any accrued and unpaid interest thereon. The 2017 Notes were entered into on July 27, 2017 as a result of a refinancing of the Company’s then outstanding senior notes with the same aggregate principal amount through the execution of the Senior Secured Note Purchase Agreement, dated as of the same date (as amended, the “Note Purchase Agreement”), with NHI and HCS as guarantors (together with the Company, collectively, the “Credit Parties”).

On April 1, 2019 and on July 1, 2019, the Company made payments under the 2017 Notes totaling $2.6 million. The actual aggregate amounts due for those dates totaled $0.4 million. Under the terms of the Amendment, the Company is permitted to apply the payment surplus of $2.2 million against future quarterly interest payments. Therefore, the Company will not have another quarterly interest payment due until April 1, 2022. The Note Purchase Agreement contains customary affirmative and negative covenants, including but not limited to certain financial covenants. Under the terms of the Amendment, the financial covenants have been waived until the quarter ending December 31, 2021. The Note Purchase Agreement also contains customary events of default, including but not limited to payment defaults, cross defaults with certain other indebtedness, breaches of covenants and bankruptcy events. In the case of an event of default, the Noteholders may, among other remedies, accelerate the payment of all obligations under the Note Purchase Agreement and the 2017 Notes. The Credit Parties entered into a Pledge and Security Agreement, dated as of the same date, pursuant to which each of the Credit Parties granted a first priority lien generally covering all of its assets, other than accounts receivable and inventory, for the benefit of the Noteholders, to secure the obligations under the Note Purchase Agreement and the 2017 Notes.

Under the terms of the Amendment, the Company issued to the Noteholders 9,000,000 shares of common stock of the Company and ten-year warrants allowing the Noteholders to purchase up to 22,250,000 shares of the Company’s common stock at an exercise price of $0.01 per share. These warrants can be exercised at any time prior to expiration. At the time of the Amendment, the outstanding principal balance of the notes were reduced by the fair value of the common stock and warrants issued by the Company, resulting in debt premium of $0.9 million, offset by accrued interest of $0.5 million. The Company will amortize the debt premium and prepaid interest over the amended term of the Note Purchase Agreement using the effective interest method.

The carrying value of the 2017 Notes is as follows (in thousands):

	September 30, 2021 (unaudited)		December 31, 2020
Principal balance	$	85,938	$	85,938
Unamortized debt premium		6,713		4,177
Total, 2017 Notes	$	92,651	$	90,115

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Note 6 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note 6. Commitments and Contingencies

Contingencies — Prior to 2016, the Company originated, purchased, securitized, sold, invested in and serviced residential nonconforming mortgage loans and mortgage securities. The Company has received indemnification and loan repurchase demands with respect to alleged violations of representations and warranties (“defects”) and with respect to other alleged misrepresentations and contractual commitments made in loan sale and securitization agreements. These demands have been received substantially beginning in 2006 and have continued into recent years. Prior to the Company ceasing the origination of loans in its mortgage lending business, it sold loans to securitization trusts and other third parties and agreed to repurchase loans with material defects and to otherwise indemnify parties to these transactions. Beginning in 1997 and ending in 2007, affiliates of the Company sold loans to securitization trusts and third parties with the potential of such obligations. The aggregate original principal balance of these loans was $43.1 billion at the time of sale or securitization. The remaining principal balance of these loans is not available as these loans are serviced by third parties and may have been refinanced, sold or liquidated. Claims to repurchase loans or to indemnify under securitization documents have not been acknowledged as valid by the Company. In some cases, claims were made against affiliates of the Company that have ceased operations and have no or limited assets. The Company has not repurchased any loans or made any such indemnification payments since 2010.

Historically, repurchases of loans or indemnification of losses where a loan defect has been alleged have been insignificant and any future losses for alleged loan defects have not been deemed to be probable or reasonably estimable; therefore, the Company has recorded no reserves related to these claims. The Company does not use internal groupings for purposes of determining the status of these loans. The Company is unable to develop an estimate of the maximum potential amount of future payments related to repurchase demands because the Company does not have access to information relating to loans sold and securitized and the number or amount of claims deemed probable of assertion is not known nor is it reasonably estimated. Further, the validity of claims received remains questionable. Also, considering that the Company completed its last sale or securitization of loans during 2007, the Company believes that it will be difficult for a claimant to successfully validate any additional repurchase demands. Management does not expect that the potential impact of claims will be material to the condensed consolidated financial statements.

Pending Litigation — The Company is a party to various legal proceedings. Except as set forth below, these proceedings are of an ordinary and routine nature. Any legal fees associated with these proceedings are expensed as incurred.

Although it is not possible to predict the outcome of any legal proceeding, in the opinion of management, other than the active proceedings described in detail below, proceedings and actions against the Company should not, individually, or in the aggregate, have a material effect on the Company’s financial condition, operations and liquidity. Furthermore, due to the uncertainty of any potential loss as a result of pending litigation and due to the Company's belief that an adverse ruling is not probable, the Company has not accrued a loss contingency related to the following matters in its condensed consolidated financial statements. However, a material outcome in one or more of the active proceedings described below could have a material impact on the results of operations in a particular quarter or fiscal year. 

On May 21, 2008, a purported class action case was filed in the Supreme Court of the State of New York, New York County, by the New Jersey Carpenters' Health Fund, on behalf of itself and all others similarly situated. Defendants in the case included NovaStar Mortgage Funding Corporation (“NMFC”) and NovaStar Mortgage, Inc. ("NMI"), wholly-owned subsidiaries of the Company, and NMFC's individual directors, several securitization trusts sponsored by the Company (“affiliated defendants”) and several unaffiliated investment banks and credit rating agencies. The case was removed to the United States District Court for the Southern District of New York. On June 16, 2009, plaintiff filed an amended complaint. Plaintiff seeks monetary damages, alleging that the defendants violated Sections 11, 12 and 15 of the Securities Act of 1933, as amended, by making allegedly false statements regarding mortgage loans that served as collateral for securities purchased by plaintiff and the purported class members. On August 31, 2009, the Company filed a motion to dismiss the plaintiff's claims, which the court granted on March 31, 2011, with leave to amend. Plaintiff filed a second amended complaint on May 16, 2011, and the Company again filed a motion to dismiss. On March 29, 2012, the court dismissed plaintiff's second amended complaint with prejudice and without leave to replead. Plaintiff filed an appeal in the United States Court of Appeals for the Second Circuit (the "Appellate Court"). On March 1, 2013, the Appellate Court reversed the judgment of the lower court, which had dismissed the case. Also, the Appellate Court vacated the judgment of the lower court which had held that plaintiff lacked standing, even as a class representative, to sue on behalf of investors in securities in which plaintiff had not invested, and the appellate court remanded the case back to the lower court for further proceedings. On April 23, 2013 plaintiff filed its memorandum with the lower court seeking a reconsideration of the earlier dismissal of plaintiff's claims as to five offerings in which plaintiff was not invested, and on February 5, 2015, the lower court granted plaintiff's motion for reconsideration and vacated its earlier dismissal. On March 8, 2017, the affiliated defendants and all other parties executed an agreement to settle the action, with the contribution of the affiliated defendants to the settlement fund being paid by their insurance carriers. The court certified a settlement class and granted preliminary approval to the settlement on May 10, 2017. One member of the settlement class objected to the settlement and sought a stay of the final settlement approval hearing on the ground that it did not receive notice of the settlement and had no opportunity to timely opt out of the class.  After the court rejected the motion for a stay, the objector filed an appeal and requested a stay of the district court proceedings pending disposition of the appeal. The court of appeals denied the temporary stay of the district court proceedings and on October 19, 2018 dismissed the appeal as moot.  Following the court of appeals’ denial of the objector’s petition for rehearing, the district court on March 7, 2019 held a fairness hearing. On March 8, 2019, the district court issued a memorandum and order approving the settlement as fair, reasonable and adequate, and dismissing the action with prejudice. Following entry of judgment, the objector filed a notice of appeal on March 26, 2019 and their opening brief was filed on June 28, 2019. The defendants answered on September 27, 2019, and the objector replied on October 18, 2019. An oral argument was held on February 19, 2020. Assuming the settlement approval becomes final, which is expected, the Company will incur no loss. The Company believes that the affiliated defendants have meritorious defenses to the case and, if the settlement approval does not become final, expects them to defend the case vigorously.

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Note 7 - Fair Value Accounting

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note 7. Fair Value Accounting

Fair Value Measurements — The Company's valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs create the following fair value hierarchy:

• Level 1 - Valuations based on quoted prices in active markets for identical assets and liabilities.

• Level 2 - Valuations based on observable inputs in active markets for similar assets and liabilities, other than Level 1 prices, such as quoted interest or currency exchange rates, for substantially the full term of the asset or liability.

• Level 3 - Valuations based on significant unobservable inputs that are supported by little or no market activity, such as discounted cash flow methodologies based on internal cash flow forecasts.

The following table provides the estimated fair value of financial instruments and presents amounts that have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions or estimation methodologies could have a material impact on the estimated fair value amounts. The fair value of short-term financial assets and liabilities, such as service fees receivable, notes receivable, and accounts payable and accrued expenses are not included in the following table as their carrying value approximates their fair value.

The estimated fair values of the Company's financial instruments are (in thousands):

	September 30, 2021 (unaudited)				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial liabilities:
2017 Notes (Level 3)	$	92,651	$	13,632	$	90,115	$	11,365

The 2017 Notes in the table above are not measured at fair value in the condensed consolidated balance sheets but are required to be disclosed at fair value. The fair value of the 2017 Notes has been estimated using Level 3 methodologies, based on significant unobservable inputs that are supported by little or no market activity, such as discounted cash flow calculations based on internal cash flow forecasts. No assets or liabilities have been transferred between levels during any period presented. The fair value is estimated by discounting future projected cash flows using a discount rate commensurate with the risks involved. The interest rate on the senior notes is 1% per annum from April 1, 2019 through December 31, 2023; 2% per annum from January 1, 2024 through December 31, 2028; and 10% per annum from January 1, 2029 through the maturity date in March 2033. 

Prior to the Company's acquisition of HCS in 2017, the Company originated, purchased, securitized, sold, invested in and serviced residential nonconforming mortgage loans and mortgage securities. During 2018, the Company sold all but 33 non-performing mortgage securities. The Company retains clean-up call rights associated with prior servicing activities, and has determined these clean-up call rights have nofair value as of  September 30, 2021 and December 31, 2020.

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Note 8 - Income Taxes

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 8. Income Taxes

Prior to 2018, the Company concluded that it was no longer more likely than not that it would realize a portion of its deferred tax assets. Therefore, as of  September 30, 2021 and December 31, 2020, the Company maintained a full valuation allowance against its net deferred tax assets of $169.6 million and $168.8 million, respectively. The Company's determination of the realizable deferred tax assets requires the exercise of significant judgment, based in part on business plans and expectations about future outcomes. In the event the actual results differ from these estimates in future periods, the Company may need to adjust the valuation allowance, which could materially impact our financial position and results of operations. The Company will continue to assess the need for a valuation allowance in future periods. Because of the full valuation allowance, the Company's effective tax rate is expected to be near 0% and therefore the income tax expense is not material for any period presented.

As of September 30, 2021, the Company had a federal NOL of approximately$732.1 million, including $250.3 million in losses on mortgage securities that have not been recognized for income tax purposes. The federal NOL may be carried forward to offset future taxable income, subject to applicable provisions of the Internal Revenue Code (the "Code"). If not used, these NOLs will expire in years 2025 through 2037. Due to tax reform enacted in 2017, NOLs created after 2017 carry forward indefinitely. The 2020 tax return has been filed as of the date of this report. The estimated federal NOL that does not expire included in the total above is $97.0 million. States may vary in their treatment of post 2017 NOLs. The Company has state NOL carryforwards arising from both combined and separate filings from as early as 2004. The state NOL carryforwards may expire as early as 2024 and as late as 2037.

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Liquidity and Going Concern [Policy Text Block]

Liquidity and Going Concern – During the nine months ended September 30, 2021, the Company incurred a net loss of $4.1 million and generated positive operating cash flow of $0.2 million. As of September 30, 2021, the Company had an overall shareholders deficit of $85.0 million, an aggregate of $1.5 million in cash and cash equivalents and total liabilities of $94.6 million. Of the $1.5 million in cash, $0.1 million is held by the Company's subsidiary NovaStar Mortgage LLC ("NMLLC"). This cash is available only to pay general creditors and expenses of NMLLC.

Prior to executing the Amendment with the Noteholders in August 2019 (Note 5), the Company had a significant on-going obligation to pay interest under its senior note agreements at LIBOR plus 3.5% per annum, payable quarterly in arrears until maturity on March 30, 2033, leading to a significant annual cash outflow. HCS has also experienced lower than anticipated cash flows in general due to increased costs and a decrease in business from certain customers. In addition, in June of 2021, two Community Service Board ("CSB") customers, one significant, notified us of their intent to terminate their contract services with HCS during the third quarter of 2021. These items have led to substantial doubt about the Company's ability to continue as a going concern.

Management continues to work toward expanding HCS’s customer base by increasing revenue from existing customers, looking at methods to reduce overall operating costs, both at HCS and the corporate level, and targeting new customers that have not previously been served by HCS. As disclosed in Note 5 to the condensed consolidated financial statements, the Company was successful in amending the senior note agreements to lower the interest rate and receive future credit for cash interest payments made in 2019 in exchange for the issuance of common stock and warrants. Based on the terms of the amendment, the Company is not required to make cash interest payments on the senior notes from August 2019 through March 2022, leading to significant cash savings for the Company. This amendment to the Note Purchase Agreement and waiver of interest payments through April 2022 has significantly improved our forecasted cash position.

In late March 2020, HCS started experiencing a reduction in Georgia CSB customer needs related to the COVID-19 pandemic. This resulted in the layoff of approximately 8% of the Company’s employees. As HCS relies on providing healthcare staffing services to generate income, this has decreased our service fee income, and direct cost of services, accordingly. While the majority of these employees were rehired when customer demand returned, there have been some permanent loss of staffing opportunities based on changes to programs and services offered by CSBs. In addition, there is still concern at the Company about the ongoing effects of COVID-19 on our services for the foreseeable future. The Company is also experiencing increased expenses related to corporate insurance coverage (professional and general liability commercial lines). This increase has resulted in a significant rise in costs, even with the loss of staffing headcount as noted above. HCS also experiences increased costs to provide health insurance for employees. While this expense is billed to our CSB customers, for employees staffed with them that elect coverage, the rise in cost impacts our ability to remain competitive in the market.

Our historical operating results and poor cash flow suggest substantial doubt exists related to the Company's ability to continue as a going concern. Furthermore, there is still uncertainty regarding the future impact that COVID-19 will have on our business. Based on these uncertainties, there is no guarantee the Company's cash position will cover current obligations. As a result, we have not been able to alleviate the substantial doubt about the Company's ability to continue as a going concern for at least one year after the date that these condensed consolidated financial statements are issued.

Earnings Per Share, Policy [Policy Text Block]

Earnings Per Share – For the nine months ended September 30, 2021 and 2020, potentially dilutive securities excluded from the computations of diluted weighted-average shares outstanding were 2.8 million and 4.4 million shares of restricted common stock, respectively.

Consolidation, Policy [Policy Text Block]

Condensed Consolidated Financial Statement Presentation – The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expense during the period. The Company uses estimates and judgments in assessing the recoverability of its long-lived assets, impairments, and accounting for income taxes, including the determination of the timing of the establishment or release of the valuation allowance related to the deferred tax asset balances and reserves for uncertain tax positions. While these condensed consolidated financial statements and footnotes reflect the best estimates and judgments of management at the time, actual results could differ significantly from those estimates, and the amounts could be material.

The Company's condensed consolidated financial statements are unaudited. In the opinion of management, all necessary adjustments have been made, which were of a normal and recurring nature, for a fair presentation of the condensed consolidated financial statements. The Company's condensed consolidated financial statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included herein and the consolidated financial statements of the Company and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended  December 31, 2020 (the "2020 Form 10-K").

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Note 2 - Revenue; Accounts and Unbilled Receivables (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Nine Months Ended September 30, 2021				Three Months Ended September 30, 2021				Nine Months Ended September 30, 2020				Three Months Ended September 30, 2020
Type of Customer
CSB	$	32,708	92.5	%	$	8,799	88.5	%	$	37,963	98.0	%	$	12,116	97.9	%
Other		2,671	7.5	%		1,144	11.5	%		784	2.0	%		265	2.1	%
Total	$	35,379	100.0	%	$	9,943	100.0	%	$	38,747	100.0	%	$	12,381	100.0	%

Contract with Customer, Contract Asset, Contract Liability, and Receivable [Table Text Block]

	September 30, 2021 (unaudited)			December 31, 2020
Accounts receivable	$	2,312		$	2,705
Unbilled receivables (Contract Assets)		1,214			2,303
Allowance for doubtful accounts		(10	)		—
Total	$	3,516		$	5,008

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Note 3 - Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Schedule of Intangible Assets and Goodwill [Table Text Block]

	September 30, 2021 (unaudited)						December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Indefinite-lived assets (in thousands):
Tradenames	$	1,147	$	—	$	1,147	$	1,147	$	—	$	1,147
Total indefinite-lived assets	$	1,147	$	—	$	1,147	$	1,147	$	—	$	1,147
Finite-lived assets (in thousands):
Customer relationships		6,895		4,104		2,791		6,895		3,365		3,530
Non-compete agreement		627		627		—		627		627		—
Total finite-lived assets	$	7,522	$	4,731	$	2,791	$	7,522	$	3,992	$	3,530
Total indefinite-lived and finite-lived assets	$	8,669	$	4,731	$	3,938	$	8,669	$	3,992	$	4,677

Finite-lived Intangible Assets Amortization Expense [Table Text Block]

Amortization expense (unaudited, in thousands)
Nine Months Ended September 30, 2021	$	739
Estimated future amortization expense (unaudited, in thousands)
2021	$	246
2022		985
2023		985
Thereafter		575
Total estimated amortization expense	$	2,791

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Note 4 - Leases (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

	September 30, 2021 (unaudited)
Remaining 2021	$	43
2022		97
2023		58
Thereafter		142
Total	$	340
Less interest		41
Present value of lease liabilities	$	299

Operating Lease, Other Information [Table Text Block]

	September 30, 2021 (unaudited)
Lease Term and Discount Rate
Weighted average remaining lease term (years)		3.71
Weighted average discount rate		6.75	%

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Note 5 - Borrowings (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

	September 30, 2021 (unaudited)		December 31, 2020
Principal balance	$	85,938	$	85,938
Unamortized debt premium		6,713		4,177
Total, 2017 Notes	$	92,651	$	90,115

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Note 7 - Fair Value Accounting (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Fair Value, by Balance Sheet Grouping [Table Text Block]

	September 30, 2021 (unaudited)				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial liabilities:
2017 Notes (Level 3)	$	92,651	$	13,632	$	90,115	$	11,365

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Note 1 - Condensed Consolidated Financial Statement Presentation (Details Textual) - USD ($) $ / shares in Units, $ in Thousands, shares in Millions	3 Months Ended			8 Months Ended	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Mar. 31, 2020	Aug. 31, 2019	Sep. 30, 2021	Sep. 30, 2020	Jun. 30, 2021	Dec. 31, 2020	Jun. 30, 2020	Dec. 31, 2019	Sep. 30, 2012
Common Stock, Par or Stated Value Per Share (in dollars per share)	$ 0.01				$ 0.01			$ 0.01			$ 0.01
Net Income (Loss) Attributable to Parent, Total	$ (1,378)	$ (959)			$ (4,051)	$ (7,926)
Net Cash Provided by (Used in) Operating Activities, Total					218	(889)
Stockholders' Equity Attributable to Parent, Ending Balance	(85,026)	$ (79,858)			(85,026)	$ (79,858)	$ (83,679)	$ (81,090)	$ (78,945)	$ (72,059)
Cash and Cash Equivalents, at Carrying Value, Ending Balance	1,543				1,543			1,340
Liabilities, Total	94,638				$ 94,638			$ 93,266
Workforce Reduction Due to Impact of COVID-19, Percent			8.00%
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares)					2.8	4.4
Senior Notes [Member] | The 2017 Notes [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate				3.50%
NovaStar Mortgage LLC [Member]
Cash and Cash Equivalents, at Carrying Value, Ending Balance	$ 100				$ 100

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Note 2 - Revenue; Accounts and Unbilled Receivables (Details Textual)	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Customer Contracts, Notice of Termination Period (Day)	60 days
Customer Concentration Risk [Member] | Revenue Benchmark [Member]
Number of Major Customers	4
Customer Concentration Risk [Member] | Revenue Benchmark [Member] | Three Customers [Member]
Concentration Risk, Percentage	66.00%	72.00%
Customer Concentration Risk [Member] | Accounts and Unbilled Receivables [Member]
Number of Major Customers	2	4
Customer Concentration Risk [Member] | Accounts and Unbilled Receivables [Member] | Four Non-CSB Customers [Member]
Concentration Risk, Percentage	52.00%	65.00%
Customer Concentration Risk [Member] | Accounts and Unbilled Receivables [Member] | Twelve CSB Customers [Member]
Concentration Risk, Percentage	77.00%	96.00%
Customer Concentration Risk [Member] | Accounts and Unbilled Receivables [Member] | CSB Customers [Member]
Number of Major Customers	11	12

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Note 2 - Revenue; Accounts and Unbilled Receivables - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Financial services revenue	$ 9,943	$ 12,381	$ 9,943	$ 12,381	$ 35,379	$ 38,747
Financial services revenue, percentage			100.00%	100.00%	100.00%	100.00%
CSB Customers [Member]
Financial services revenue			$ 8,799	$ 12,116	$ 32,708	$ 37,963
Financial services revenue, percentage			88.50%	97.90%	92.50%	98.00%
Non-CSB Customers [Member]
Financial services revenue			$ 1,144	$ 265	$ 2,671	$ 784
Financial services revenue, percentage			11.50%	2.10%	7.50%	2.00%

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Note 2 - Revenue; Accounts and Unbilled Receivables - Accounts and Unbilled Receivables (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Accounts receivable	$ 2,312	$ 2,705
Unbilled receivables (Contract Assets)	1,214	2,303
Allowance for doubtful accounts	(10)	0
Total	$ 3,516	$ 5,008

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Note 3 - Intangible Assets - Summary of Goodwill and Intangible Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Total indefinite-lived assets	$ 1,147	$ 1,147
Total finite-lived assets	7,522	7,522
Finite-lived intangible assets, accumulated amortization	4,731	3,992
Finite-lived intangible assets, net	2,791	3,530
Total indefinite-lived and finite-lived assets	8,669	8,669
Intangible assets, net	3,938	4,677
Customer Relationships [Member]
Total finite-lived assets	6,895	6,895
Finite-lived intangible assets, accumulated amortization	4,104	3,365
Finite-lived intangible assets, net	2,791	3,530
Noncompete Agreements [Member]
Total finite-lived assets	627	627
Finite-lived intangible assets, accumulated amortization	627	627
Finite-lived intangible assets, net	$ 0	$ 0

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Note 3 - Intangible Assets - Estimated Amortization Expense (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Nine Months Ended September 30, 2021	$ 739	$ 861
2021	246
2022	985
2023	985
Thereafter	575
Total estimated amortization expense	$ 2,791		$ 3,530

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Note 4 - Leases (Details Textual)	Sep. 30, 2021
Minimum [Member]
Lessee, Operating Lease, Renewal Term (Year)	1 year
Maximum [Member]
Lessee, Operating Lease, Renewal Term (Year)	3 years

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Note 4 - Leases - Maturities of Lease Liabilities (Details) $ in Thousands	Sep. 30, 2021 USD ($)
Remaining 2021	$ 43
2022	97
2023	58
Thereafter	142
Total	340
Less interest	41
Present value of lease liabilities	$ 299

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Note 4 - Leases - Operating Lease Information (Details)	Sep. 30, 2021
Weighted average remaining lease term (years) (Year)	3 years 8 months 15 days
Weighted average discount rate	6.75%

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Note 5 - Borrowings (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended	9 Months Ended		12 Months Ended	51 Months Ended	57 Months Ended	60 Months Ended
	Jul. 01, 2019	Jul. 01, 2019	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020	Mar. 30, 2033	Dec. 31, 2023	Dec. 31, 2028
Amortization of Debt Discount (Premium)			$ 2,536	$ 2,453
Warrants Issued in Debt Restructuring [Member]
Warrants and Rights Outstanding, Term (Year)			10 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)			22,250,000
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share)			$ 0.01
Common Stock [Member]
Stock Issued During Period, Shares, Issued for Debt Restructuring (in shares)			9,000,000
Senior Notes [Member] | Post-modification Notes [Member]
Debt Instrument, Face Amount			$ 85,900
Senior Notes [Member] | The 2017 Notes [Member]
Percentage of of Excess Cash Flow Each Year to Noteholders					50.00%
Debt Instrument, Redemption Notice, Number Of Days (Day)			30 days
Debt Instrument, Redemption Price, Percentage of Principal Amount Redeemed			101.00%
Interest Paid, Including Capitalized Interest, Operating and Investing Activities, Total		$ 2,600
Debt Instrument, Aggregate Amount Due	$ 400
Payments Against Future Quarterly Interest Payments	$ 2,200
Amortization of Debt Discount (Premium)			$ 900
Interest Payable			$ 500
Senior Notes [Member] | The 2017 Notes [Member] | Forecast [Member]
Debt Instrument, Interest Rate During Period						10.00%	1.00%	2.00%

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Note 5 - Borrowings - Schedule of Debt (Details) - The 2017 Notes [Member] - Senior Notes [Member] - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Principal balance	$ 85,938	$ 85,938
Unamortized debt premium	6,713	4,177
Total, 2017 Notes	$ 92,651	$ 90,115

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Note 6 - Commitments and Contingencies (Details Textual) $ in Billions	Dec. 31, 2007 USD ($)
Claims to Repurchase Securitized Loans [Member]
Principal Amount Outstanding on Loans Securitized or Asset-backed Financing Arrangement	$ 43.1

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Note 7 - Fair Value Accounting (Details Textual) - USD ($) $ in Thousands	Jan. 01, 2029	Jan. 01, 2024	Sep. 30, 2021	Dec. 31, 2020	Apr. 01, 2019
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Debt Securities, Available-for-sale, Total				$ 0
Senior Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage					1.00%
Senior Notes [Member] | Forecast [Member]
Debt Instrument, Interest Rate, Stated Percentage	10.00%	2.00%

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Note 7 - Fair Value Accounting - Carrying Values and Fair Values of Financial Instruments (Details) - Fair Value, Inputs, Level 3 [Member] - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Reported Value Measurement [Member]
2017 Notes (Level 3)	$ 92,651	$ 90,115
Estimate of Fair Value Measurement [Member]
2017 Notes (Level 3)	$ 13,632	$ 11,365

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Note 8 - Income Taxes (Details Textual) - USD ($) Pure in Thousands, $ in Millions	9 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Deferred Tax Assets, Valuation Allowance, Total	$ 169.6	$ 168.8
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	0.00%
Operating Loss Carryforwards, Total	$ 732.1
Operating Loss Carryforwards, Mortgage Securities	250.3
Operating Loss Carryforwards with No Expiration	$ 97.0
Domestic Tax Authority [Member] | Internal Revenue Service (IRS) [Member] | Earliest Tax Year [Member]
Operating Loss Carryforwards, Expiration Date	Dec. 31, 2025
Domestic Tax Authority [Member] | Internal Revenue Service (IRS) [Member] | Latest Tax Year [Member]
Operating Loss Carryforwards, Expiration Date	Dec. 31, 2037
State and Local Jurisdiction [Member] | Earliest Tax Year [Member]
Operating Loss Carryforwards, Expiration Date	Dec. 31, 2024
State and Local Jurisdiction [Member] | Latest Tax Year [Member]
Operating Loss Carryforwards, Expiration Date	Dec. 31, 2037