As of September 30, 2025, the Company had $48.6 million in indebtedness, net of $0.9 million deferred financing costs and unamortized discounts. The Company anticipates net principal repayments of approximately $3.0 million during the next twelve-month period, approximately $2.2 million of routine debt service amortization, $0.6 million of insurance financing amortization, and $0.2 million payment of bond debt.
Debt Covenant Compliance
As of September 30, 2025, the Company was in compliance with the various financial and administrative covenants under all the Company's outstanding credit related instruments.
Evaluation of the Company's Ability to Continue as a Going Concern
Under the accounting guidance related to the presentation of financial statements, the Company is required to evaluate, on a quarterly basis, whether or not the Company's current financial condition, including its sources of liquidity at the date that the consolidated financial statements are issued, will enable the Company to meet its obligations as they come due arising within one year of the date of the issuance of the Company's consolidated financial statements and to make a determination as to whether or not it is probable, under the application of this accounting guidance, that the Company will be able to continue as a going concern. The Company's consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
In applying applicable accounting guidance, management considered the Company's current financial condition and liquidity sources, including current funds available, forecasted future cash flows, the Company's obligations due over the next twelve months, and the Company's recurring business operating expenses.
NOTE 3. BUSINESS COMBINATION
(Amounts in 000s)
Overview
Effective August 14, 2025, the Company closed on the merger with SunLink; whereas, SunLink merged with and into the Company, and the Company continuing as the surviving corporation. The primary reason for the combination was the combination of the Company and SunLink would result in the potential for a material and immediate and long-term upside to both company's current shareholders' valuation. The two companies had complimentary business lines and long-term experience of senior management provided a complimentary merger resulting in multiple business synergies.
On August 5, 2025, the Company filed Articles of Amendment (the “Articles of Amendment”) to its Amended and Restated Articles of Incorporation with the Secretary of State of the State of Georgia to establish its Series D 8% Cumulative Convertible Redeemable Participating Preferred Shares, no par value per share (the “Series D Preferred Stock”).
Pursuant to the Merger Agreement, at the effective time of the merger (the “Effective Time”), each five shares of common stock, no par value per share, of SunLink (“SunLink common stock”) issued and outstanding immediately prior to the Effective Time (other than excluded shares (as defined in the Merger Agreement)) were converted into the right to receive (i) 1.1330 validly issued, fully paid and nonassessable shares of the Company's common stock, and (ii) one validly issued, fully paid and nonassessable share of Series D Preferred Stock, no par value per share. Holders of SunLink common stock will receive cash (without interest) in lieu of fractional shares of the Company's common stock or Series D preferred stock in accordance with the terms of the Merger Agreement. The total aggregate consideration paid in the merger was 1,595,400 shares of the Company's common stock and 1,408,121 shares of Regional Series D preferred stock.
Accounting for the Merger
The merger is accounted for as a business combination pursuant to Accounting Standards Codification Topic 805, (“ASC 805”), where the Company, the legal acquiree, is determined to be the accounting acquirer of SunLink. After the closing of the merger transaction, SunLink ceased to exist.
The assets and liabilities of SunLink on the closing date were consolidated into the Company at their respective fair values, and the shortfall of the purchase price consideration over the fair value of SunLink’s net assets was recognized as a gain on bargain purchase. Fair value is defined in Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) as “the price that would be received to sell an asset or paid to transfer a liability in an orderly
NOTE 11. COMMON AND PREFERRED STOCK
On August 4, 2025, the Company reconvened its special meeting (the “Special Meeting”) of the holders of its common stock (the “Common Stock”), which Special Meeting was originally convened on July 29, 2025 and adjourned to August 4, 2025. The Special Meeting was called to consider the proposals set forth in the Company’s joint proxy statement/prospectus filed with the SEC on June 25, 2025 (as supplemented or amended, the “Joint Proxy Statement/Prospectus”) in connection with the proposed merger of SunLink, with and into the Company, with the Company surviving the merger as the surviving corporation.
Both of the required proposals in connection with the merger presented at the Special Meeting were approved by the requisite votes of the common stock shareholders of the Company as follows:
•the proposal to approve the Amended and Restated Agreement and Plan of Merger, dated as of April 14, 2025, as amended, by and between the Company and SunLink and the transactions contemplated thereby, including the merger; and
•the proposal to approve the issuance of shares of Common Stock and Series D Preferred Stock in connection with the merger.
On August 5, 2025, the Company filed Articles of Amendment to its Amended and Restated Articles of Incorporation with the Secretary of State of the State of Georgia to establish its Series D 8% Cumulative Convertible Redeemable Participating Preferred Shares, no par value per share. Shares of ours Series D Preferred Stock formed part of the merger consideration to be issued in connection with the closing of the merger.
On August 14, 2025, the Company issued 1,592,438 shares of the Company's common stock and 1,405,609 shares of the Company's Series D preferred stock as the purchase price consideration for the merger.
See Note 3 - Business Combination for more information on the merger.
Common Stock
As of September 30, 2025, the Company had 55,000,000 shares of Common Stock authorized and 3,934,677 shares issued and 3,923,797 shares outstanding. There were no dividends declared or paid on the common stock during the three and nine months ended September 30, 2025 and 2024.
Preferred Stock
As of September 30, 2025, the Company had 5,000,000 shares of Preferred Stock authorized and 3,805,785 shares issued and outstanding.
Series A Preferred Stock
As of September 30, 2025, the Company had 559,263 shares of Series A Preferred Stock issued and outstanding. No dividends were declared or paid on the Series A Preferred Stock for the three and nine months ended September 30, 2025 and 2024.
Series B Preferred Stock
On January 29, 2025, the board of directors of the Company declared a dividend to the holders of its 12.5% Series B Cumulative Redeemable Preferred Shares (the “Series B Preferred Stock”), on a pro rata basis in proportion to the number of shares of Series B Preferred Stock held by such holders of 250,000 shares of the Company’s common stock, rounded down to the nearest whole share of Common Stock. The dividend was paid on February 19, 2025 to holders of record of the Series B Preferred Stock as of the close of business on February 10, 2025 and 249,990 shares of the Company's common stock were issued. The Company is required to pay the dividend of Common Stock to such holders of Series B Preferred Stock pursuant to the terms of Regional’s Amended and Restated Articles of Incorporation, which governs the terms of the Series B Preferred Stock.
On September 17, 2025, the Company completed the repurchase of 366,359 shares of its Series B Preferred Stock through three privately negotiated transactions.
As of September 30, 2025, the Company had 1,885,913 shares of Series B Preferred Stock issued and outstanding. Except for the dividends declared on January 29, 2025, no other dividends were declared or paid on the Series B Preferred Stock for the three and nine months ended September 30, 2025 and 2024.
Series D Preferred Stock
Subject to the terms and conditions of the proposed The Company’s articles of amendment, beginning on July 1, 2027, holders of the Company’s Series D Preferred Stock receive, when, as, and if approved by the Company’s Board out of funds of the Company legally available for the payment of distributions and declared by the Company, cumulative preferential dividends at a rate per annum equal to the dividend rate (as defined below) of the liquidation preference (as defined below) of the Series D Preferred Stock in effect on the first calendar day of the applicable Dividend Period (as defined in the articles of amendment). The “dividend rate” shall mean (as a percentage of liquidation preference) 8% per annum, subject to adjustment as provided in the Company’s articles of amendment. The “liquidation preference” shall mean, with respect to the Company’s Series D preferred stock, $12.50 per share of the Company’s Series D preferred stock, subject to adjustment as provided in the Company’s articles of amendment.
Except as otherwise required by the proposed Company’s articles of amendment or law, the Company’s Series D Preferred Stock will not have voting rights. However, as long as any shares of the Company’s Series D Preferred Stock are outstanding, the Company will not, without the affirmative vote of the holders of at least (A) two-thirds of the Company’s Series D Preferred Stock outstanding at the time, if there are more than 200,000 shares of the Company’s Series D Preferred Stock outstanding at the time, or (B) a majority of the Company’s Series D Preferred Stock outstanding at the time, if there are 200,000 or fewer shares of the Company’s Series D Preferred Stock outstanding at the time, (i) authorize or create, or increase the authorized or issued amount of, any class or series of Senior Shares (as defined in the Company’s articles of amendment) or reclassify any of the authorized stock of the Company into such shares, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such shares; or (ii) amend, alter or repeal the provisions of the Company’s articles of incorporation, whether by merger, consolidation or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Company’s Series D preferred stock.
The Company’s articles of amendment further provide that, so long as at least 200,000 shares of Company’s Series D Preferred Stock remain outstanding, the holders of Company’s Series D Preferred Stock voting as a separate class at a meeting of such shareholders duly called for that purpose shall be entitled to elect two members of the Company’s board of directors (each, a “Company’s Series D Preferred Stock director”); provided, however, that the initial Company’s Series D Preferred Stock directors shall be the two individuals designated by SunLink prior to the closing of the merger pursuant to the terms and conditions of the merger agreement (the “SunLink Designees”). As of the SunLink record date, SunLink has designated Dr. Steven J. Baileys and Gene E. Burleson as the SunLink Designees and each of them has agreed to serve as SunLink Designees.
The Company’s articles of amendment further provide that, so long as at least 200,000 shares of Company’s Series D Preferred Stock remain outstanding, the Company will not, without the affirmative vote of (i) a majority of the Company’s Board and (ii) both the Company’s Series D Preferred Stock directors, affect any of the following actions by the Company, whether by amendment, merger, consolidation, operation of law or otherwise: (i) enter into any transaction or agreement that would result in any sale, merger, recapitalization or liquidation event if the transaction would result in (A) the issuance or assumption of any Senior Shares or (B) the holders of Company’s Series D Preferred Stock receiving less than the greater of: (i) the liquidation preference (including accumulated accrued and unpaid dividends) and (ii) an amount equal to the product of (A) the average closing price of the Company’s common stock on (x) the National Securities Exchange (as defined in the Company’s articles of amendment) on which the Company’s common stock is then-listed and traded for the 60 trading days (as defined in the Company’s articles of amendment) immediately preceding the record date, or (y) the OTC on which the Company’s common stock is then-traded for 90 days immediately preceding the record date if the Company’s common stock is not then listed or traded on a National Securities Exchange by (B) the number of shares of the Company’s common stock into which the Company’s Series D Preferred Stock are then-convertible; or (ii) declare or pay any dividend on any class of equity securities of the Company other than the Company’s Series B Preferred Stock and Company’s Series D Preferred Stock unless all dividends applicable to both the Company’s Series B Preferred Stock and Company’s Series D Preferred Stock have been declared and paid to date.
The Company’s articles of amendment further provide that, so long as at least 200,000 shares of Company’s Series D Preferred Stock remain outstanding, no new Senior Shares or new Parity Shares (as defined in the Company’s articles of amendment) shall be issued and, other than the Company’s Series B Preferred Stock and the Company’s Series A Preferred Stock, be permitted to be outstanding. The Company’s articles of amendment further provide that, so long as at least 200,000 shares of Company’s Series D Preferred Stock remain outstanding, the Company’s Series A Preferred Stock shall not be amended, and
Company shall not otherwise take action, to provide for (i) the accrual or payment of dividends on the Company’s Series A Preferred Stock, (ii) an increase of the liquidation preference of the Company’s Series A Preferred Stock, (iii) a right of conversion of the Company’s Series A Preferred Stock into the Company’s common stock or (iv) the exchange by the Company of the Company’s Series A Preferred Stock for the Company’s common stock. The Company’s articles of amendment further provide that, so long as at least 200,000 shares of Company’s Series D Preferred Stock remain outstanding, no Junior Shares (as defined in the Company’s articles of amendment) shall be issued or permitted to be outstanding by the Company which are convertible into the Company’s common stock with an effective (x) conversion price less than $20.00 per share of the Company’s common stock or (y) any conversion ratio more favorable to such Junior Shares than the substantial equivalent of the then-applicable conversion ratio (as defined below) for the Company’s Series D preferred stock. The Company’s Series D Preferred Stock is redeemable at the option of the Company, upon a change of control (as defined in the Company’s articles of amendment) and mandatorily on or before December 31, 2029, in each case subject to the terms and conditions of the Company’s articles of amendment.
The Company’s Series D Preferred Stock is convertible into shares of the Company’s common stock at the conversion ratio at the option of a holder of Company’s Series D Preferred Stock and mandatorily upon the following events: (i) there shall be 200,000 or fewer shares of Company’s Series B Preferred Stock outstanding; and (ii) the average closing price of the Company’s common stock on a National Securities Exchange is at least $20.00, as adjusted pursuant to the Company’s articles of amendment, over any 30 trading days following the date on which there are 200,000 or fewer shares of Company’s Series B Preferred Stock outstanding. The “conversion ratio” means 1.1330 shares of the Company’s common stock for every three shares of Company’s Series D preferred stock, subject to adjustment as provided in the Company’s articles of amendment. The Company’s Series D Preferred Stock shall not be entitled to the benefits of any retirement or sinking fund. The Company’s Series D Preferred Stock shall rank junior to the Company’s Series B Preferred Stock and on parity with the Company’s Series A Preferred Stock.
If a National Market Listing (as defined in the Company’s articles of amendment) of the Company’s common stock is not achieved by the Company on or before the last day of: (i) the sixth whole calendar month immediately after the merger (the “First Milestone Date”), or (ii) the twelfth whole calendar month immediately after the merger (the “Second Milestone Date”), or (iii) the eighteenth whole calendar month immediately after the merger (the “Third Milestone Date”) or (iv) the twenty-fourth whole calendar month immediately after the merger (the “Fourth Milestone Date”), then on the First Milestone Date the conversion ratio shall automatically be reduced, and on each succeeding Milestone Date automatically further reduced, by one-half of a share of Company’s Series D Preferred Stock in the number of shares of Company’s Series D Preferred Stock required for conversion into a share of the Company’s common stock. Each such reduction on any such Milestone Date once occurring shall not lapse or be subject to any correction event (as defined in the Company’s articles of amendment). “Milestone Date” shall mean, as applicable, the First Milestone Date, the Second Milestone Date, the Third Milestone Date or the Fourth Milestone Date.
For a further summary description of the material terms of the Company’s Series D preferred stock, see “Description of Company’s Series D preferred stock.” in the Registration Statement, Amendment No. 3 filed on Form S-4/A with the SEC on June 24, 2025.
As of September 30, 2025, the Company had 1,405,609 shares of Series D Preferred Stock issued and outstanding. No dividends were declared or paid on the Series D Preferred Stock for the three and nine months ended September 30, 2025.
NOTE 12. STOCK BASED COMPENSATION
Stock Incentive Plans
As of September 30, 2025, the number of securities remaining available for future issuance under the Company's 2023 Omnibus Incentive Plan ("2023 Equity Plan") was 76,000.
Common Stock Warrants
The following summarizes the Company's employee and non-employee common stock warrant nine months ended September 30, 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and Exercisable |
|
|
|
Number of
Shares (000's) |
|
|
Weighted
Average
Exercise
Price |
|
|
Weighted
Average
Remaining
Contractual
Term
(in years) |
|
Outstanding, December 31, 2024 |
|
|
15 |
|
|
$ |
51.00 |
|
|
|
0.2 |
|
Expired |
|
|
(15 |
) |
|
$ |
51.00 |
|
|
|
|
Outstanding, September 30, 2025 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
No warrants were granted during the nine months ended September 30, 2025. All vested warrants expired during the nine months ended September 30, 2025; thus, there are no outstanding common stock warrants as of September 30, 2025.
NOTE 13. COMMITMENTS AND CONTINGENCIES
Regulatory Matters
Laws and regulations governing federal Medicare and state Medicaid programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future governmental review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from certain governmental programs. As of September 30, 2025, all of the Company's facilities operated by Regional or leased and subleased to third-party operators are certified by CMS and are operational. See Note 8 - Leases.
Legal Matters
The Company is a party to various legal actions and administrative proceedings and is subject to various claims arising in the ordinary course of business, including claims that the services the Company provided during the time it operated SNFs resulted in injury or death to the patients of the Company's facilities and claims related to professional and general negligence, employment, staffing requirements and commercial matters. Although the Company intends to vigorously defend itself in these matters, there is no assurance that the outcomes of these matters will not have a material adverse effect on the Company's business, results of operations and financial condition.
The Company previously operated, and the Company and its tenants now operate, in an industry that is highly regulated. As such, in the ordinary course of business, the Company and its tenants are continuously subject to state and federal regulatory scrutiny, supervision and control. Such regulatory scrutiny often includes inquiries, investigations, examinations, audits, site visits and surveys, some of which are non-routine. In addition, the Company believes that there has been, and will continue to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare and Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in legal proceedings or governmental investigations against or involving the Company or its tenants, whether currently asserted or arising in the future, could have a material adverse effect on the Company's business, results of operations and financial condition.
Professional and General Liability Claims
As of September 30, 2025, the Company is a defendant in one professional and general liability action related directly to patient care that our current or prior tenants provided to their patients.
As of September 30, 2025, the Company is a defendant in one professional and general liability action commenced on behalf of one of our former patients who received care at one of our facilities. The plaintiff in this action alleges negligence due to failure to provide adequate and competent staff resulting in injuries, pain and suffering, mental anguish and malnutrition and seeks unspecified actual and compensatory damages, and unspecified punitive damages. This action is covered by insurance, except that any punitive damages awarded would be excluded from coverage.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This Quarterly Report and certain information incorporated herein by reference contain forward-looking statements and information within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). This information includes assumptions made by, and information currently available to management, including statements regarding future economic performance and financial condition, liquidity and capital resources, and management's plans and objectives. In addition, certain statements included in this Quarterly Report, in the Company's future filings with the SEC, in press releases, and in oral and written statements made by us or with our approval, which are not statements of historical fact, are forward-looking statements. Words such as "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "seek," "plan," "project," "continue," "predict," "will," and other words or expressions of similar meaning are intended by us to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are based on the Company's current expectations about future events or results and information that is currently available to us, involve assumptions, risks, and uncertainties, and speak only as of the date on which such statements are made.
All forward-looking statements are subject to the risks and uncertainties inherent in predicting the future. The Company's actual results may differ materially from those projected, stated or implied in these forward-looking statements as a result of many factors, including the Company's critical accounting policies and risks and uncertainties related to, but not limited to, the operating results of the Company's tenants, the overall industry environment, the Company's financial condition, and the impact of the COVID-19 pandemic on the Company's business. These and other risks and uncertainties are described in more detail in the Annual Report and in Part II, Item 1A "Risk Factors" of this Quarterly Report, as well as other reports that the Company files with the SEC.
Forward-looking statements speak only as of the date they are made and should not be relied upon as representing the Company's views as of any subsequent date. The Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by applicable laws, and you are urged to review and consider disclosures that the Company makes in this Quarterly Report and other reports that the Company files with the SEC that discuss factors germane to the Company's business.
Overview
Regional Health Properties, Inc., a Georgia corporation, operates businesses in Real Estate, Healthcare Services and Pharmacy Services. Our Real Estate segment consists of real estate investments in skilled nursing and senior housing facilities. We fund our real estate investments primarily through: (1) operational cash flow, (2) mortgages, and (3) sale of equity securities. Our Healthcare Services segment is comprised of entities set up to operate our facilities. Our Pharmacy Services segment consists of four operational areas, retail pharmacy products and services, institutional pharmacy services, which consists of specialty and non-specialty pharmaceutical and products to institutional clients or to patients in institutional settings, non-institutional pharmacy services consisting of the provision specialty and non-specialty pharmacy and biological products to clients or patients in non-institutional settings including private residential homes and durable medical equipment, consisting primarily of the sale and rental products for institutional clients or to patients and institutional settings and patient-administered home care. While the Company is a self-managed real estate investment company, the Company, when business conditions require, may undertake initiatives to take back facilities in order operate the facilities ourselves or using a third manager.
Real Estate Portfolio
As of September 30, 2025, we had investments of approximately $67.9 million in eleven health care real estate properties and one leased property. We currently own eleven properties, consisting of nine skilled nursing facilities and two multi-service facilities (of which one multi-service campus contains two co-located properties). Seven facilities are pursuant to triple-net leases and six facilities are managed by two external managers. The Company has one leased facility that is subleased pursuant to a triple-net lease.
Skilled nursing facilities. SNFs provide services that include daily nursing, therapeutic rehabilitation, social services, activities, housekeeping, nutrition, medication management and administrative services for individuals requiring certain assistance for
activities in daily living. A typical skilled nursing facility includes mostly one and two bed units, each equipped with a private or shared bathroom and community dining facilities.
Multi-Service Campuses. Multi-service campuses generally include some combination of co-located skilled nursing, independent living, assisted living and/or memory care units all housed at a single location and operated as a continuum of care. We also refer to continuing care retirement communities as multi-service campuses. These facilities are often marketed as an
opportunity for residents to “age in place,” and tend to attract couples where the individuals may require or benefit from differing levels of care.
Portfolio
The following table provides summary information regarding the number of facilities and related licensed beds/units as of September 30, 2025:
|
|
|
|
|
|
|
Location |
|
Skilled Nursing Facilities |
|
Multi Service Properties |
|
Total Properties |
Alabama (1) |
|
1 |
|
1 |
|
2 |
Georgia |
|
3 |
|
- |
|
3 |
North Carolina |
|
1 |
|
- |
|
1 |
Ohio (2) |
|
2 |
|
1 |
|
3 |
South Carolina |
|
2 |
|
- |
|
2 |
|
|
9 |
|
2 |
|
11 |
|
|
|
|
|
|
|
Location |
|
Skilled Nursing Beds/Units |
|
Multi Service Beds/Units |
|
Total Beds/Units |
Alabama (1) |
|
124 |
|
90 |
|
214 |
Georgia |
|
395 |
|
- |
|
395 |
North Carolina |
|
106 |
|
- |
|
106 |
Ohio (2) |
|
100 |
|
180 |
|
280 |
South Carolina |
|
180 |
|
- |
|
180 |
|
|
905 |
|
270 |
|
1,175 |
|
|
|
|
|
|
|
Location |
|
Skilled Nursing Investment |
|
Multi Service Investment |
|
Total Investment |
Alabama (1) |
|
$9,613,199 |
|
$5,224,561 |
|
$14,837,760 |
Georgia |
|
21,269,575 |
|
- |
|
21,269,575 |
North Carolina |
|
7,224,953 |
|
- |
|
7,224,953 |
Ohio (2) |
|
4,059,240 |
|
10,714,214 |
|
14,773,454 |
South Carolina |
|
9,830,884 |
|
- |
|
9,830,884 |
|
|
$51,997,850 |
|
$15,938,776 |
|
$67,936,626 |
|
(1) Meadowood Retirement Village offers assisted living, memory care, and independent living and is therefore considered a multi-service campus. |
(2) Eaglewood Village offers assisted living and Eaglewood Care Center offers skilled nursing. Both properties are co-located and are therefore considered a multi-service campus. |
The following table provides summary information regarding the number of facilities and related licensed beds/units by operator affiliation as of September 30, 2025:
|
|
|
|
|
|
|
|
|
Operator Affiliation |
|
Number of Facilities (1) |
|
|
Beds / Units |
|
C.R. Management |
|
|
2 |
|
|
|
233 |
|
Aspire Regional Partners |
|
|
3 |
|
|
|
280 |
|
Subtotal |
|
|
5 |
|
|
|
513 |
|
Manager Affiliation |
|
Number of Facilities |
|
|
Beds / Units |
|
Cavalier Senior Living |
|
|
1 |
|
|
|
90 |
|
CJM Advisors |
|
|
5 |
|
|
|
572 |
|
Subtotal |
|
|
6 |
|
|
|
662 |
|
Total |
|
|
11 |
|
|
|
1,175 |
|
(1)Represents the number of facilities leased or subleased to separate tenants, of which each tenant is an affiliate of the entity named in the table above.
For a more detailed discussion of the above information, see Note 7 - Leases to the consolidated financial statements included in Part I, Item 1 herein. Additionally, see "Portfolio of Healthcare Investments" included in Part I, Item 1 "Business" in the Annual Report.
Portfolio Occupancy Rates
The following table provides summary information regarding our portfolio facility-level occupancy rates for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Metric (1) |
December 31, 2024 |
|
|
March 31, 2025 |
|
|
June 30, 2025 |
|
|
September 30, 2025 |
|
Occupancy (%) |
|
68.1 |
% |
|
|
67.7 |
% |
|
|
67.1 |
% |
|
|
67.3 |
% |
(1)Meadowood's current and historical calculations have been changed from 161 licensed beds to 90 beds. This change reflects the actual total beds available by the business.
Lease Expiration
The following table provides summary information regarding our lease expirations for the years shown as of December 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensed Beds |
|
Annual Lease Revenue (2) |
|
|
Number of Facilities |
|
Count |
|
Percent (%) |
|
Amount ($)
'000's (1) |
|
Percent (%) |
|
2025 |
1 |
|
|
124 |
|
|
19.4 |
% |
|
1,071 |
|
|
22.1 |
% |
2026 |
0 |
|
|
- |
|
|
0.0 |
% |
|
- |
|
|
0.0 |
% |
2027 |
0 |
|
|
- |
|
|
0.0 |
% |
|
- |
|
|
0.0 |
% |
2028 |
5 |
|
|
405 |
|
|
63.5 |
% |
|
2,761 |
|
|
57.1 |
% |
2029 |
0 |
|
|
- |
|
|
0.0 |
% |
|
- |
|
|
0.0 |
% |
2030 |
1 |
|
|
109 |
|
|
17.1 |
% |
|
1,006 |
|
|
20.8 |
% |
2031 |
0 |
|
|
- |
|
|
0.0 |
% |
|
- |
|
|
0.0 |
% |
Thereafter |
0 |
|
|
- |
|
|
0.0 |
% |
|
- |
|
|
0.0 |
% |
Total |
|
7 |
|
|
638 |
|
|
100.0 |
% |
|
4,838 |
|
|
100.0 |
% |
(2)See Note 6 - Leases to the consolidated financial statements included in Part I, Item 1 herein for a discussion of lease terminations.
Pharmacy Services
The pharmacy business is composed of four operational areas conducted in three locations in southwest Louisiana:
Retail pharmacy products and services, consisting of retail pharmacy sales.
Institutional pharmacy services consisting of the provision of specialty and non-specialty pharmaceutical and biological products to institutional clients or to patients in institutional settings, such as extended care and rehabilitation centers, nursing homes, assisted living facilities, behavioral and specialty hospitals, hospice, and correctional facilities.
Non-institutional pharmacy services consisting of the provision of specialty and non-specialty pharmaceutical and biological products to clients or patients in non-institutional settings including private residential homes.
Durable medical equipment products and services (“DME”), consisting primarily of the sale and rental of products for institutional clients or to patients in institutional settings and patient-administered home care.
Results of Operations
The following table sets forth, for the periods indicated, an unaudited statement of operations items and the amounts and percentages of change of these items. The results of operations for any particular period are not necessarily indicative of results for any future period. The following data should be read in conjunction with our consolidated financial statements and the notes thereto, which are included herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
2025 |
|
|
2024 |
|
|
Percent
Change |
|
|
2025 |
|
|
2024 |
|
|
Percent
Change |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient care revenues |
$ |
9,831 |
|
|
$ |
2,585 |
|
|
|
280.3 |
% |
|
$ |
24,247 |
|
|
$ |
7,418 |
|
|
|
226.9 |
% |
Rental revenues |
|
1,303 |
|
|
|
1,640 |
|
|
|
(20.5 |
)% |
|
|
4,134 |
|
|
|
5,257 |
|
|
|
(21.4 |
)% |
Pharmacy revenues |
|
4,004 |
|
|
|
— |
|
|
n/m |
|
|
|
4,004 |
|
|
|
— |
|
|
n/m |
|
Total revenues |
|
15,138 |
|
|
|
4,225 |
|
|
|
258.3 |
% |
|
|
32,385 |
|
|
|
12,675 |
|
|
|
155.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
2,470 |
|
|
|
— |
|
|
n/m |
|
|
|
2,470 |
|
|
|
— |
|
|
n/m |
|
Patient care expense |
|
8,639 |
|
|
|
2,179 |
|
|
|
296.5 |
% |
|
|
20,224 |
|
|
|
6,462 |
|
|
|
213.0 |
% |
Facility rent expense |
|
197 |
|
|
|
149 |
|
|
|
32.2 |
% |
|
|
552 |
|
|
|
446 |
|
|
|
23.8 |
% |
Depreciation and amortization |
|
547 |
|
|
|
474 |
|
|
|
15.4 |
% |
|
|
1,351 |
|
|
|
1,499 |
|
|
|
(9.9 |
)% |
General and administrative expense |
|
3,713 |
|
|
|
1,224 |
|
|
|
203.3 |
% |
|
|
8,375 |
|
|
|
4,085 |
|
|
|
105.0 |
% |
Loss on lease termination |
|
— |
|
|
|
— |
|
|
n/m |
|
|
|
303 |
|
|
|
— |
|
|
n/m |
|
Credit loss expense |
|
166 |
|
|
|
499 |
|
|
|
(66.7 |
)% |
|
|
636 |
|
|
|
563 |
|
|
|
13.0 |
% |
Gain on operations transfer |
|
— |
|
|
|
— |
|
|
n/m |
|
|
|
(106 |
) |
|
|
— |
|
|
n/m |
|
Total costs and expenses |
|
15,732 |
|
|
|
4,525 |
|
|
|
247.7 |
% |
|
|
33,805 |
|
|
|
13,055 |
|
|
|
158.9 |
% |
Loss from operations |
|
(594 |
) |
|
|
(300 |
) |
|
|
98.0 |
% |
|
|
(1,420 |
) |
|
|
(380 |
) |
|
|
273.7 |
% |
Other (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
751 |
|
|
|
677 |
|
|
|
10.9 |
% |
|
|
2,019 |
|
|
|
2,021 |
|
|
n/m |
|
Gain on bargain purchase |
|
(5,311 |
) |
|
|
— |
|
|
n/m |
|
|
|
(5,311 |
) |
|
|
— |
|
|
n/m |
|
Other expense, net |
|
584 |
|
|
|
5 |
|
|
|
11580.0 |
% |
|
|
1,201 |
|
|
|
249 |
|
|
|
382.3 |
% |
Total other expense, net |
|
(3,976 |
) |
|
|
682 |
|
|
|
(683.0 |
)% |
|
|
(2,091 |
) |
|
|
2,270 |
|
|
|
(192.1 |
)% |
Net Income (Loss) |
$ |
3,382 |
|
|
$ |
(982 |
) |
|
|
(444.4 |
)% |
|
$ |
671 |
|
|
$ |
(2,650 |
) |
|
|
(125.3 |
)% |
Three Months Ended September 30, 2025 and 2024
Patient care revenues—Patient care revenues for the Healthcare Services segment, as a result of the Company operating the Georgetown, Glenvue, Meadowood, Mountain Trace, Southland, and Sumter facilities, were $9.8 million for the three months ended September 30, 2025, compared to $2.6 million for the same period in 2024. The 280.3% increase is primarily due to the Company taking over the operations of four previously leased facilities since October 1, 2024.
Rental revenues—Rental revenue for our Real Estate Services segment decreased by approximately $0.3 million to $1.3 million for the three months ended September 30, 2025, compared with $1.6 million for the same period in 2024. The decrease in rental revenue this year results from the reduction of the four leased facilities that the Company now operates.
Pharmacy revenues —Pharmacy revenues of $4.0 million for the three months ended September 30, 2025 is the revenue generated during the post SunLink merger period.
Costs of goods sold — Costs of goods sold is the cost of Pharmacy products sold or rented during the post SunLink merger period.
Patient care expense—Patient care expense increased to $8.6 million for the three months ended September 30, 2025 compared to $2.2 million for the three months ended September 30, 2024. The increase results from the increase in the number of facilities operated by the Company this year.
Facility rent expense—Facility rent remained consisted totaling $0.2 million for the three months ended September 30, 2025 and 2024.
Depreciation and amortization—Depreciation and amortization remained consistent totaling $0.5 million for the three months ended September 30, 2025 and 2024.
General and administrative expenses—General and administrative expenses were $3.7 million for the three months ended September 30, 2025 compared with $1.2 million for the same period in 2024. The increased expense this year resulted from the increased cost of the four facilities being operated this year that were rented last year.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
(Amounts in 000’s) |
2025 |
|
|
2024 |
|
|
Percent
Change |
|
General and administrative expenses: |
|
|
|
|
|
|
|
|
Real Estate Services |
$ |
1,094 |
|
|
$ |
897 |
|
|
|
22.0 |
% |
Healthcare Services |
|
1,674 |
|
|
|
327 |
|
|
|
411.9 |
% |
Pharmacy Services |
|
945 |
|
|
|
— |
|
|
n/m |
|
Total |
$ |
3,713 |
|
|
$ |
1,224 |
|
|
|
203.3 |
% |
Credit loss expense—Credit loss expense was $0.2 million for the three months ended September 30, 2025 compared to $0.5 million for the same period in 2024. Credit loss expense represents reserves taken against patient accounts receivable at the Glenvue facility, reserves taken against rental accounts receivable at the Southland facility and a write off of approximately $0.4 million of notes receivable at Lumber City.
Other expense—Other expense of $0.6 million for the three months ending September 30, 2025 was legal and other expenses incurred for the SunLink merger.
Gain on bargain purchase - The gain on bargain purchase of $5.3 million for the three months ended September 30, 2025 resulted from the SunLink merger completed on August 14, 2025.
Nine Months Ended September 30, 2025 and 2024
Patient care revenues—Patient care revenues for the Healthcare Services segment, as a result of the Company operating the Georgetown, Glenvue, Meadowood, Mountain Trace, Southland, and Sumter facilities, totaled $24.2 million for the nine months ended September 30, 2025, compared to $7.4 million for the same period in 2024. The increase is due to the increased number of facilities operated in the current year nine months.
Rental revenues—Rental revenue for our Real Estate Services segment decreased by approximately $1.2 million to $4.1 million for the nine months ended September 30, 2025, compared with $5.3 million for the same period in 2024. The (21.4)% decrease is primarily due to the reduction in rental facilities resulting from the transition to operating facilities this year.
Pharmacy revenues —Pharmacy revenues of $4.0 million for the nine months ended September 30, 2025 is the revenue generated during the post SunLink merger period.
Costs of goods sold — Costs of goods sold is the cost of Pharmacy products sold or rented during the post SunLink merger period.
Patient care expense—Patient care expense was $20.2 million for the nine months ended September 30, 2025 compared to $6.5 million for the nine months ended September 30. 2024. The increase this year resulted from the increased number of facilities operated this year
Facility rent expense—Facility rent expense increased to $0.6 million for the nine months ended September 30, 2025 compared to $0.4 million for the nine months ended September 30, 2024.
Depreciation and amortization—Depreciation and amortization was $1.4 million for the nine months ended September 30, 2025, compared to $1.5 million for the same period in 2024.
General and administrative expenses—General and administrative expenses were $8.4 million for the nine months ended September 30, 2025, compared with $4.1 million for the same period in 2024. The increased expense this year resulted from the increased cost of the four facilities being operated this year that were rented last year.
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
(Amounts in 000’s) |
2025 |
|
|
2024 |
|
|
Percent
Change |
|
General and administrative expenses: |
|
|
|
|
|
|
|
|
Real Estate Services |
$ |
2,844 |
|
|
$ |
3,034 |
|
|
|
(6.3 |
)% |
Healthcare Services |
|
4,586 |
|
|
|
1,051 |
|
|
|
336.3 |
% |
Pharmacy Services |
|
945 |
|
|
|
— |
|
|
n/m |
|
Total |
$ |
8,375 |
|
|
$ |
4,085 |
|
|
|
105.0 |
% |
Credit loss expense—Credit loss expense was $0.6 million for nine months ended September 30, 2025, compared to $0.6 million for the same period in 2024. Credit loss expense represents reserves taken against patient accounts receivable at the Glenvue facility, reserves taken against rental accounts receivable at the Southland facility and a write off of approximately $0.4 million of notes receivable at Lumber City.
Other expense, net—Other expense, net was 1.2 million for nine months ended September 30, 2025, compared to $0.2 million for the same period in 2024. The expenses were predominantly legal and other expenses incurred for the SunLink merger.
Gain on bargain purchase - The gain on bargain purchase of $5.3 million for the nine months ended September 30, 2025 resulted from the SunLink merger completed on August 14, 2025.
NON-GAAP Financial Measures
The following table summarizes the Company's non-GAAP financial measure of results based on EBITDA for the three and nine months ended September 30, 2025 and 2024. EBITDA attributable to the Company's financial measure represents net income (loss) before interest expense (including amortization of deferred financing costs), amortization of stock-based compensation, and depreciation and amortization. Adjusted EBITDA represents EBITDA further adjusted to eliminate the impact of certain items that the Company does not consider indicative of core operating performance, such as recovery of previously reversed rent, lease termination revenue, property operating expenses, gains or losses from dispositions of real estate, real estate impairment charges, provision for loan losses, non-routine transaction costs, loss on extinguishment of debt, unrealized loss on other real estate related investments and provision for credit losses and lease restructuring, as applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REGIONAL HEALTH PROPERTIES, INC. |
|
RECONCILIATION OF NET LOSS TO NON-GAAP FINANCIAL MEASURES |
|
(in thousands) |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
3,382 |
|
|
$ |
(982 |
) |
|
$ |
671 |
|
|
$ |
(2,650 |
) |
Depreciation and amortization |
|
547 |
|
|
|
474 |
|
|
|
1,351 |
|
|
|
1,499 |
|
Interest expense, net |
|
751 |
|
|
|
677 |
|
|
|
2,019 |
|
|
|
2,021 |
|
Amortization of employee stock compensation |
|
124 |
|
|
|
19 |
|
|
|
171 |
|
|
|
85 |
|
EBITDA |
|
4,804 |
|
|
|
188 |
|
|
|
4,212 |
|
|
|
955 |
|
Credit loss expense |
|
166 |
|
|
|
499 |
|
|
|
636 |
|
|
|
563 |
|
Other expense (income), net |
|
584 |
|
|
|
5 |
|
|
|
1,201 |
|
|
|
249 |
|
Gain (loss) from write-off of liabilities and other credit balances from discontinued operations |
|
- |
|
|
|
3 |
|
|
|
- |
|
|
|
180 |
|
Gain from bargain purchase |
|
(5,311 |
) |
|
|
- |
|
|
|
(5,311 |
) |
|
|
- |
|
Expenses related to preferred stock recapitalization |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other one-time costs |
|
170 |
|
|
|
179 |
|
|
|
366 |
|
|
|
319 |
|
Project costs |
|
- |
|
|
|
20 |
|
|
|
- |
|
|
|
85 |
|
Tail insurance on legacy facilities |
|
- |
|
|
|
55 |
|
|
|
74 |
|
|
|
262 |
|
One-time income adjustment - quality incentive program (1) |
|
- |
|
|
|
49 |
|
|
|
(196 |
) |
|
|
(49 |
) |
Adjusted EBITDA from operations |
$ |
413 |
|
|
$ |
998 |
|
|
$ |
982 |
|
|
$ |
2,564 |
|
(1) Amounts represent adjustments needed for historical and estimated future amounts along with reconciling for timing differences. |
|
Liquidity and Capital Resources
Overview
The Company intends to pursue measures to grow its operations, streamline its cost infrastructure and otherwise increase liquidity, including: (i) refinancing or repaying debt to reduce interest costs and mandatory principal repayments, with such repayment to be funded through potentially expanding borrowing arrangements with certain lenders; (ii) increasing future lease revenue through acquisitions and investments in existing properties; (iii) modifying the terms of existing leases; (iv) replacing certain tenants who default on their lease payment terms;(v) reducing other and general and administrative expenses and (vi) integrating the SunLink businesses to reduce duplicative expenses.
On July 30, 2025, the Company, Coosa, and the Purchaser entered into a binding asset purchase agreement, or APA, whereby Coosa would sell the Coosa Facility to the Purchaser, subject to a 45-day due diligence window in favor of the Purchaser. Under the terms contemplated by the APA, the Purchaser would acquire the Coosa Facility for a purchase price of $10.6 million. The sale of the Coosa Facility was completed on November 6, 2025.For further information see Note 6 - Assets Held for Sale and Note 15 - Subsequent Events to the consolidated financial statements included in Part I, Item 1 herein.
Effective August 14, 2025, the Company closed on the merger with SunLink; whereas, SunLink merged with and into the Company, and the Company continuing as the surviving corporation. The Company issued 1,592,438 shares of the Company's common stock and 1,405,609 shares of the Company's Series D preferred stock as the purchase price consideration for the merger. Unrestricted cash acquired from SunLink was $6.0 million. For further information see Note 3 - Business Combination.to the consolidated financial statements included in Part I, Item 1 herein.
Separately, the Company experienced changes in its listing status. Until February 5, 2025, Regional’s common stock and Series A Preferred Stock were listed on the NYSE American under the ticker symbols “RHE” and “RHE-PA,” respectively. Trading was suspended on that date due to noncompliance with listing standards. On June 11, 2025, the NYSE American formally delisted both securities. They now trade on the OTC Markets under the symbols “RHEP” (common stock) and “RHEPA”
(Series A Preferred Stock).
Trading on the OTC Markets presents challenges, including reduced liquidity, wider bid-ask spreads, and limited analyst coverage. In addition, broker-dealers face greater regulatory burdens, which may further discourage trading activity. These limitations could depress trading prices and negatively impact the Company’s ability to raise capital through equity or debt offerings. Such constraints may impair the Company’s ability to invest in future growth or refinance upcoming debt maturities.
During the nine months ended September 30, 2025, the Company's net cash used by operating activities was $1.0 million primarily due to fluctuations in working capital. Management anticipates collecting a portion of the past due rent after the filing date and is currently negotiating various methods to collect the remaining unpaid rent.
As of September 30, 2025, the Company had $1.0 million in unrestricted cash and $7.7 million of net accounts receivable, mainly consisting of patient and rent receivables. Net accounts receivable consist of gross accounts receivable of $8.6 million offset by a recorded estimated allowance of $0.9 million
As of September 30, 2025, the Company had $48.6 million in indebtedness, net of $0.9 million deferred financing costs and unamortized discounts. The Company anticipates net principal repayments of approximately $3.0 million during the next twelve-month period, approximately $2.2 million of routine debt service amortization, $0.6 million of insurance financing amortization, and $0.2 million payment of bond debt.
Management anticipates access to several sources of liquidity, including cash on hand, cash flows from operations, cash flows from investing and debt refinancing during the twelve months following the date of this filing.
Debt Covenant Compliance
As of September 30, 2025, the Company was in compliance with the various financial and administrative covenants under the Company's outstanding credit related instruments.
Evaluation of the Company's Ability to Continue as a Going Concern
Under the accounting guidance related to the presentation of financial statements, the Company is required to evaluate, on a quarterly basis, whether or not the Company's current financial condition, including its sources of liquidity at the date that the consolidated financial statements are issued, will enable the Company to meet its obligations as they come due arising within one year of the date of the issuance of the Company's consolidated financial statements and to make a determination as to whether or not it is probable, under the application of this accounting guidance, that the Company will be able to continue as a going concern. The Company's consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In applying applicable accounting guidance, management considered the Company's current financial condition and liquidity sources, including current funds available, forecasted future cash flows, the Company's obligations due over the next twelve months, and the Company's recurring business operating expenses.
The Company concludes that it is probable that the Company will be able to meet its obligations arising within one year of the date of issuance of these consolidated financial statements within the parameters set forth in the accounting guidance.
For additional information regarding the Company's liquidity, see Note 2 – Liquidity and Note 10 – Notes Payable and Other Debt, to the consolidated financial statements included in Part I, Item 1 herein.
Cash Flows
The following table presents selected data from our consolidated statements of cash flows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
(Amounts in 000’s) |
|
2025 |
|
|
2024 |
|
Net cash (used in) provided by operating activities |
|
$ |
(994 |
) |
|
$ |
990 |
|
Net cash (used in) provided by investing activities |
|
|
5,332 |
|
|
|
(430 |
) |
Net cash (used in) financing activities |
|
|
(3,818 |
) |
|
|
(1,242 |
) |
Net change in cash and restricted cash |
|
|
520 |
|
|
|
(682 |
) |
Cash and restricted cash at beginning of period |
|
|
3,472 |
|
|
|
4,184 |
|
Cash and restricted cash, ending |
|
$ |
3,992 |
|
|
$ |
3,502 |
|
Nine Months Ended September 30, 2025
Net cash used in operating activities—was approximately $1.0 million. The negative cash flow from operating activities was mainly due to the timing of working capital accounts.
Net cash provided by investing activities—was approximately $5.3 million. This includes $6.0 million of cash acquired in the SunLink merger.
Net cash used in financing activities—was approximately $3.8 million. Cash of $2.7 million was used to repurchase Series B Preferred shares and make routine payments totaling 1.3 million for our senior debt obligations.
Nine Months Ended September 30, 2024
Net cash provided by operating activities—was approximately $1.0 million. The positive cash flow from operating activities was mainly due to the timing of working capital accounts.
Net cash used in investing activities—was approximately $0.4 million. This capital expenditure was primarily for leasehold improvements.
Net cash used in financing activities—was approximately $1.2 million. The cash was used to make routine payments totaling 1.0 million for our senior debt obligations, and $0.2 million for other debt.
Subsequent Events
On November 6, 2025, the Company's wholly=owned subsidiary Coosa Nursing ADK LLC sold its Coosa Valley Health and Rehab (“the Coosa facility”) to an unaffiliated company for cash of $10.6 million. A gain on the sale of the property of approximately $3.7 million is expected to be reported in Regional’s results for the quarter ended December 31, 2025. Debt of approximately $4.9 million was repaid at closing. Cash of approximately $4.7 million was received at closing, after payments of $0.6 million of transaction expenses and $ $0.4 million deposited to escrow accounts for future tax payment related to the sold assets. The cash received at closing will be used by Regional for general corporate and other purposes.
Off-Balance Sheet Arrangements
Guarantee
The Company subleased five facilities located in Ohio to the Aspire Sublessees, formerly affiliated with MSTC Development Inc., pursuant to the Aspire Subleases, whereby the Aspire Sublessees took possession of, and commenced operating, the Aspire Facilities as subtenant. The Company agreed to indemnify Aspire against any and all liabilities imposed on them as arising from the former operator, capped at $8.0 million. The Company has assessed the fair value of the indemnity agreements as not material to the financial statements at September 30, 2025. For further information see Note 6 – Leases, to the consolidated financial statements included in Part I, Item 1 herein and also and Note 6 – Leases included in Part II, Item 8 of the Annual Report.
Effective on August 14, 2025, the Company assumed by operation of law all of the prior debts, liabilities, obligations and duties of SunLink, and such debts, liabilities, obligations and duties may be enforced against the Company to the same extent as if the Company had itself incurred or contracted all such debts, liabilities, obligations and duties. For further information see Note 3 - Business Combination to the consolidated financial statements included in Part I, Item 1 herein.
Critical Accounting Policies
We prepare our financial statements in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Article 8 of Regulation S-X. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. On an ongoing basis, we review our judgments and estimates, including, but not limited to, those related to doubtful accounts, income taxes, stock compensation, intangible assets and loss contingencies. We base our estimates on historical experience, business knowledge and on various other assumptions that we believe to be reasonable under the circumstances at the time. Actual results may vary from our estimates. These estimates are evaluated by management and revised as circumstances change.
For a discussion of our critical accounting policies, see Note 1 – Organization and Significant Accounting Policies to the consolidated financial statements included in Part I, Item 1 herein.
payment levels.
The operations of our Pharmacy business has historically derived approximately 65% respectively, of its net revenues from government payors, principally Medicare and Medicaid.
There is no assurance that the reimbursement methodology used by Medicare will not be extended to the provision of all specialty pharmaceuticals or to the specialty pharmaceuticals most often sold by the Pharmacy operations or that the Pharmacy operations will continue to be able to operate our Pharmacy Services segment profitably at either existing or at lower reimbursement rates. Likewise, we cannot assure you that the Part B CAP program will not be extended to rural or exurban areas in general or to the areas in which the Pharmacy segment operates, or may seek to operate, in particular or the Pharmacy business would be able to meet the qualifications to become a Part B CAP vendor either now or at any time in the future.
The operations of our Pharmacy business could be harmed by further changes in government purchasing methodologies and reimbursement rates for Medicare or Medicaid.
In addition to the impact of Medicare Prescription Drug Improvement and Modernization Act (“MMA”), in order to deal with budget shortfalls, some states are attempting to create state administered prescription drug discount plans, to limit the number of prescriptions per person that are covered, to raise Medicaid co-pays and deductibles, and are proposing more restrictive formularies and reductions in pharmacy reimbursement rates. Any reductions in amounts reimbursable by other government programs for pharmacy services or changes in regulations governing such reimbursements could materially and adversely affect our Pharmacy business, financial condition, and results of operations.
Louisiana, where our Pharmacy business operates, has implemented a managed Medicaid program which is administered by outside contractors. These managed Medicaid programs are designed to reduce the State’s administrative costs and the cost of the products and services provided to beneficiaries.
The Durable Medical Equipment(“DME”) service line of the Pharmacy business may be adversely affected by further changes in government reimbursement regulations and payment levels, especially if the DME service line becomes subject to additional competitive bidding procedures.
The Pharmacy business is currently subject to the expanded provisions of the Medicare competitive bidding program which have had a negative impact on the prices we receive for DME. The current provisions could be expanded or changed in the future. Any additional changes in government reimbursement or payment amounts could have a further adverse effect on our consolidated results of operations.
The operations of our Pharmacy business depend on a continuous supply of key products. Any shortages of key products could adversely affect the business of the Pharmacy operations.Many of the products distributed by the operations of our Pharmacy business are manufactured with ingredients that are susceptible to supply shortages. In addition, the manufacturers of these products may not have adequate manufacturing capability to meet rising demand. If any products distributed by the Pharmacy business are in short supply for extended periods of time, this could result in a material adverse effect on our business and results of operations.
The operations of our Pharmacy business are highly dependent on our relationship with and the stability of one key supplier, and the loss of such key supplier could adversely affect the business of the Pharmacy business.Any termination of, or adverse change in, our relationships with our key supplier, or the loss of supply of one of our key products for any other reason, could have a material adverse effect on the business of the Pharmacy operations and our consolidated results of operations. The largest supplier for the Pharmacy business has historically accounted for approximately 75% of the segment’s cost of goods sold In addition, the Pharmacy business has few long-term contracts with its suppliers. Arrangements with most of its suppliers may be canceled by either party, without cause and on minimal notice; and many of these arrangements are not governed by written agreements.
The loss of one or more of larger institutional pharmacy customers could hurt our business by reducing the revenues and profitability of the operations of our Pharmacy business.As is customary in the institutional pharmacy industry, the institutional pharmacy service line of our Pharmacy business has customer contracts, but generally not long-term contracts, with its institutional pharmacy customers. Loss of existing contracts or significant declines in the level of purchases by one or more of the larger institutional pharmacy customers could have a material adverse effect on the business of the Pharmacy operations and our consolidated results of operations.
The failure of the Pharmacy business to maintain eligibility as a Medicare and Medicaid supplier could materially adversely affect its competitive position. Likewise, its failure to maintain and expand relationships with private payors, who can
effectively determine the pharmacy source for their members, could materially adversely affect its competitive position.
Changes in average wholesale prices (“AWP”) could reduce our pricing and margins.
Many government payors, including Medicare and Medicaid, have paid, or continue to pay, the operations of our Pharmacy business directly or indirectly at a rate based upon a drug’s AWP less a percentage factor. The Pharmacy business also has contracted with some private payors to sell drugs at AWP or at AWP less a percentage factor. For most drugs, AWP is compiled and published by several private companies, including First DataBank, Inc. Several states have filed lawsuits against pharmaceutical manufacturers for allegedly inflating reported AWP for prescription drugs. In addition, class action lawsuits have been brought by consumers against pharmaceutical manufacturers alleging overstatement of AWP. We are not responsible for such calculations, reports or payments; however, there can be no assurance that the ability of our Pharmacy business to negotiate discounts from drug manufacturers will not be materially adversely affected by such investigations or lawsuits.
The federal government also has entered into settlement agreements with several drug manufacturers relating to the calculation and reporting of AWP pursuant to which the drug manufacturers, among other things, have agreed to report new pricing information, the “average sales price”, to government healthcare programs. The average sales price is calculated differently than AWP and may be expected to have the effect of indirectly reducing reimbursement.
The Pharmacy business faces numerous competitors and potential competitors in the market in which our Pharmacy business operates, many of whom are significantly larger and who have significantly greater financial resources.
Large national companies operate in the existing market in which our Pharmacy business operates. We cannot assure you that one or more of such companies or other healthcare companies will not seek to compete or intensify their level of competition in the areas in which we conduct or may seek to conduct one or more of the components of the operations of our Pharmacy business.
The operations of our Pharmacy business may be adversely affected by industry trends in managed care contracting and consolidation. growing number of health plans are contracting with a single provider of Pharmacy services. Likewise, manufacturers may not be eager to contract with regional providers of Pharmacy services. If the Pharmacy business is unable to obtain managed care contracts in the areas in which we provide Pharmacy services or are unable to obtain pharmacy products at reasonable costs or at all, the business operations of our Pharmacy business could be adversely affected.
The Pharmacy business market may grow slower than expected, which could adversely affect our revenues.We cannot predict the rate of actual future growth in product availability and spending, the extent to which patient demand or spending for specialty drug services in rural or exurban areas will match national averages or whether government payors will provide reimbursement for new products under Medicare or Medicaid on a timely basis, at what rates, or at all. Adverse developments in any of these areas could have an adverse impact on the business operations of our Pharmacy business.
The profitability of our Pharmacy business can be adversely affected by a decrease in the introduction of new brand name and generic prescription drugs.Sales and profit margins of the Pharmacy business are materially affected by the introduction of new brand name and generic drugs. New brand name drugs can result in increased drug utilization and associated sales revenues, while the introduction of lower priced generic alternatives typically result in relatively lower sales revenues, but higher gross profit margins. Accordingly, a decrease in the number of significant new brand name drugs or generics successfully introduced could adversely affect our business and results of operations.
There are no other material changes to the risk factors set forth in Part I, Item 1A, in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 31, 2025.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.