REGIONAL HEALTH PROPERTIES, INC - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020

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

For the transition period from to

Commission File Number 001-33135

Regional Health Properties, Inc.

(Exact name of registrant as specified in its charter)

Georgia

81-5166048

(State or other jurisdiction

of incorporation)

(I.R.S. Employer

Identification Number)

454 Satellite Boulevard NW, Suite 100, Suwanee, GA 30024

(Address of principal executive offices)

(678) 869-5116

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

RHE

NYSE American

10.875% Series A Cumulative Redeemable

Preferred Stock, no par value

RHE-PA

NYSE American

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of October 31, 2020: 1,688,219 shares of common stock, no par value, were outstanding.

Regional Health Properties, Inc.

Form 10-Q

Table of Contents

		Page Number
Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3
	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019	4
	Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2020 and 2019	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	6
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43

Signatures		46

Part I. Financial Information

Item 1.

Financial Statements

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in 000’s)

	September 30, 2020			December 31, 2019
	(Unaudited)
ASSETS
Property and equipment, net	$	53,097		$	54,672
Cash		4,646			4,383
Restricted cash		3,100			3,655
Accounts receivable, net of allowance of $1,176 and $615		1,795			963
Prepaid expenses and other		405			249
Notes receivable		464			840
Intangible assets - bed licenses		2,471			2,471
Intangible assets - lease rights, net		164			462
Right-of-use operating lease assets		34,652			37,287
Goodwill		1,585			1,585
Lease deposits and other deposits		517			517
Straight-line rent receivable		7,436			6,674
Total assets	$	110,332		$	113,758
LIABILITIES AND EQUITY
Senior debt, net	$	47,550		$	48,415
Bonds, net		6,330			6,409
Other debt, net		919			539
Accounts payable		2,939			3,699
Accrued expenses		2,288			2,613
Operating lease obligation		36,771			39,262
Other liabilities		1,430			1,078
Total liabilities		98,227			102,015
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 1,688 issued and outstanding at September 30, 2020 and December 31, 2019		62,029			61,992
Preferred stock, no par value; 5,000 shares authorized; 2,812 shares issued and outstanding, redemption amount $70,288 at September 30, 2020 and December 31, 2019		62,423			62,423
Accumulated deficit		(112,347	)		(112,672	)
Total stockholders’ equity		12,105			11,743
Total liabilities and stockholders’ equity	$	110,332		$	113,758

See accompanying notes to unaudited consolidated financial statements

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Revenues:
Rental revenues	$	4,308		$	4,590		$	12,898		$	14,746
Management fees		244			239			732			716
Other revenues		215			1			224			93
Total revenues		4,767			4,830			13,854			15,555
Expenses:
Facility rent expense		1,640			1,640			4,919			5,006
Cost of management fees		161			148			486			467
Depreciation and amortization		694			797			2,239			2,661
General and administrative expense		743			730			2,334			2,551
Doubtful accounts expense (recovery)		790			32			653			(214	)
Other operating expenses		109			191			630			821
Total expenses		4,137			3,538			11,261			11,292
Income from operations		630			1,292			2,593			4,263
Other expense (income):
Interest expense, net		692			1,157			2,091			4,535
Loss on extinguishment of debt		—			924			—			2,478
Gain on disposal of assets		—			(6,451	)		—			(7,141	)
Other expense (income), net		9			(48	)		144			6
Total other expense (income), net		701			(4,418	)		2,235			(122	)
(Loss) income from continuing operations before income taxes		(71	)		5,710			358			4,385
Income tax expense		—			—			—			44
(Loss) income from continuing operations	$	(71	)		5,710			358			4,341
(Loss) income from discontinued operations, net of tax		(2	)		101			(33	)		411
Net (Loss) income		(73	)		5,811			325			4,752
Preferred stock dividends - undeclared		(2,250	)		(2,250	)		(6,748	)		(6,748	)
Net (Loss) income attributable to Regional Health Properties, Inc. common stockholders	$	(2,323	)	$	3,561		$	(6,423	)	$	(1,996	)
Net (Loss) income per share of common stock attributable to Regional Health Properties, Inc.
Basic and diluted:
Continuing operations	$	(1.38	)	$	2.05		$	(3.79	)	$	(1.42	)
Discontinued operations		0.00			0.06			(0.02	)		0.24
	$	(1.38	)	$	2.11		$	(3.81	)	$	(1.18	)
Weighted average shares of common stock outstanding:
Basic and diluted		1,688			1,688			1,688			1,688

See accompanying notes to unaudited consolidated financial statements

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in 000’s)

(Unaudited)

For the Three and Nine Months ended September 30, 2020	Shares of Common Stock		Shares of Preferred Stock		Common Stock and Additional Paid-in Capital		Preferred Stock		Accumulated Deficit			Total
Balances, December 31, 2019		1,688		2,812	$	61,992	$	62,423	$	(112,672	)	$	11,743
Stock-based compensation		—		—		12		—		—			12
Net loss		—		—		—		—		(14	)		(14	)
Balances, March 31, 2020		1,688		2,812	$	62,004	$	62,423	$	(112,686	)	$	11,741
Stock-based compensation		—		—		12		—		—			12
Net income		—		—		—		—		412			412
Balances, June 30, 2020		1,688		2,812	$	62,016	$	62,423	$	(112,274	)	$	12,165
Stock-based compensation		—		—		13		—		—			13
Net loss		—		—		—		—		(73	)		(73	)
Balances, September 30, 2020		1,688		2,812	$	62,029	$	62,423	$	(112,347	)	$	12,105

For the Three and Nine Months ended September 30, 2019	Shares of Common Stock		Shares of Preferred Stock		Common Stock and Additional Paid-in Capital		Preferred Stock		Accumulated Deficit			Total
Balances, December 31, 2018		1,688		2,812	$	61,900	$	62,423	$	(118,172	)	$	6,151
Stock-based compensation		—		—		27		—		—			27
Net income		—		—		—		—		184			184
Balances, March 31, 2019		1,688		2,812	$	61,927	$	62,423	$	(117,988	)	$	6,362
Stock-based compensation		—		—		21		—		—			21
Net loss		—		—		—		—		(1,243	)		(1,243	)
Balances, June 30, 2019		1,688		2,812	$	61,948	$	62,423	$	(119,231	)	$	5,140
Stock-based compensation		—		—		22		—		—			22
Net income		—		—		—		—		5,811			5,811
Balances, September 30, 2019		1,688		2,812	$	61,970	$	62,423	$	(113,420	)	$	10,973

See accompanying notes to unaudited consolidated financial statements

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in 000’s)

(Unaudited)

	Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities:
Net Income	$	325		$	4,752
Loss (income) from discontinued operations, net of tax		33			(411	)
Income from continuing operations		358			4,341
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Depreciation and amortization		2,239			2,661
Stock-based compensation expense		37			70
Rent expense in excess of cash paid		144			252
Rent revenue in excess of cash rent		(765	)		(1,124	)
Amortization of deferred financing costs, debt discounts and premiums		96			166
Loss on debt extinguishment		—			2,478
Gain on disposal of assets		—			(7,141	)
Doubtful accounts expense (recovery)		653			(214	)
Deferred tax expense		—			44
Changes in operating assets and liabilities:
Accounts receivable		(1,482	)		578
Prepaid expenses		187			326
Other assets		377			(57	)
Accounts payable and accrued expenses		(256	)		(376	)
Other liabilities		345			161
Net cash provided by operating activities - continuing operations		1,933			2,165
Net cash used in operating activities - discontinued operations		(1,017	)		(980	)
Net cash provided by operating activities		916			1,185
Cash flows from investing activities:
Proceeds from disposal of lease assets, net		—			1,192
Proceeds from the sale of property and equipment, net		—			2,687
Purchase of property and equipment		(209	)		(243	)
Net cash (used in) provided by investing activities - continuing operations		(209	)		3,636
Net cash (used in) provided by investing activities		(209	)		3,636
Cash flows from financing activities:
Proceeds from debt issuance		229			—
Repayment on notes payable		(1,112	)		(2,585	)
Repayment on bonds payable		(116	)		(344	)
Debt extinguishment, forbearance and issuance costs		—			(1,254	)
Net cash used in financing activities - continuing operations		(999	)		(4,183	)
Net cash used in financing activities - discontinued operations		—			(34	)
Net cash used in financing activities		(999	)		(4,217	)
Net change in cash and restricted cash		(292	)		604
Cash and restricted cash, beginning		8,038			6,486
Cash and restricted cash, ending	$	7,746		$	7,090

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in 000’s)

(Unaudited)

	Nine Months Ended September 30,
	2020			2019
Supplemental disclosure of cash flow information:
Cash interest paid	$	1,718		$	4,105
Supplemental disclosure of non-cash activities:
Non-cash payments of short-term debt	$	—		$	(24,637	)
Non-cash debt issuance costs and prepayment penalties		—			(1,036	)
Non-cash surrender of security deposit		—			(140	)
Net payments through escrow	$	—		$	(25,813	)
Non-cash proceeds from sale of property and equipment		—			25,813
Net proceeds through escrow	$	—		$	25,813

Non-cash proceeds from vendor-financed insurance	$	339		$	250
Non-cash accruals for capex	$	(157	)	$	—
Non-cash settlement of Peach Line (notes receivable)	$	350		$	—
Non-cash proceeds from finance lease to purchase fixed assets	$	—		$	26

See accompanying notes to unaudited consolidated financial statements

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2020

NOTE 1.

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Regional Health Properties, Inc., a Georgia corporation (“Regional Health” or “Regional” and, together with its subsidiaries, the “Company” or “we”), is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living. The Company’s business primarily consists of leasing and subleasing healthcare facilities to third-party tenants, which in turn operate the facilities. The operators of the Company’s facilities provide a range of healthcare services to their patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.

As of September 30, 2020, the Company owned, leased, or managed for third parties 24 facilities, primarily in the Southeast United States. Of the 24 facilities, the Company: (i) leased 10 skilled nursing facilities (which the Company owns), and subleased nine skilled nursing facilities (which the Company leases), to third-party tenants; (ii) leased two assisted living facilities (which the Company owns) to third-party tenants; and (iii) managed, on behalf of third-party owners, two skilled nursing facilities and one independent living facility. See Note 6 – Leases, herein, and Note 7 – Leases in Part II, Item 8, “Financial Statements and Supplemental Data” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (“SEC”) on March 27, 2020 (the “Annual Report”), for a more detailed description of the Company’s leases.

The Company leases its currently-owned healthcare properties, and subleases its currently-leased healthcare properties, on a triple-net basis, meaning that the lessee (i.e., the third-party operator of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. These leases are generally long-term in nature with renewal options and annual rent escalation clauses.

Regional Health is successor to, and a former wholly owned subsidiary of, AdCare Health Systems, Inc. (“AdCare”). On September 29, 2017, AdCare merged (the “Merger”) with and into Regional Health, which was formed as a subsidiary of AdCare for the purpose of the Merger, with Regional Health continuing as the surviving corporation in the Merger. For a description of the Merger, see Part II, Item 8, “Financial Statements and Supplemental Data”, Note 1 – Summary of Significant Accounting Policies included in the Annual Report.

When used in this Quarterly Report on Form 10-Q (this “Quarterly Report”), unless otherwise specifically stated or the context otherwise requires, the terms:

•

“Board” or “Board of Directors” refers to the Board of Directors of AdCare with respect to the period prior to the Merger and to the Board of Directors of Regional Health with respect to the period after the Merger;

•

“common stock” refers to AdCare’s common stock with respect to the period prior to the Merger and to Regional Health’s common stock with respect to the period after the Merger;

•

“Series A Preferred Stock” refers to AdCare’s 10.875% Series A Cumulative Redeemable Preferred Stock with respect to the period prior to the Merger and to Regional Health’s 10.875% Series A Cumulative Redeemable Preferred Stock with respect to the period after the Merger; and

•

“Charter” refers to the Amended and Restated Articles of Incorporation of Regional Health.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations for the periods presented have been included. Operating results for the three and nine months ended September 30, 2020 and 2019 are not necessarily indicative of the results that may be expected for the fiscal year. The consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

You should read the unaudited consolidated financial statements in this Quarterly Report together with the historical audited consolidated financial statements of the Company for the year ended December 31, 2019, included in the Annual Report. See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 1 – Summary of Significant Accounting Policies included in the Annual Report, for a description of all significant accounting policies. During the three and nine months ended September 30, 2020, there were no material changes to the Company’s policies.

Risks and Uncertainties

On March 11, 2020, the World Health Organization declared the outbreak of the respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, also known as COVID-19, a global pandemic. The COVID-19 pandemic has led governments and other authorities in the United States to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. The COVID-19 pandemic and the measures to protect its spread have adversely affected our business in the quarter ended September 30, 2020, and we expect it will continue to adversely affect our business in the quarter ending December 31, 2020 and beyond, for a variety of reasons, including those discussed below and elsewhere in this Quarterly Report.

As of October 31, 2020, the Company is aware that most of our facilities have reported one or more positive cases of COVID-19 among the residents and/or operator employee populations. Many of our operators have reported incurring significant cost increases as a result of the COVID-19 pandemic, with dramatic increases for facilities with positive cases. We believe these increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of personal protective equipment, testing equipment, and processes and supplies. In terms of occupancy levels, many of our operators have reported experiencing declines, in part due to the elimination or suspension of elective hospital procedures, fewer discharges from hospitals to skilled nursing facilities (“SNF’s”), and higher hospital readmittances from SNFs.

The COVID-19 pandemic may also lead to temporary closures of nursing facilities, operated by our tenants, which also may affect our tenants’ ability to make their rental payments to us pursuant to their respective lease agreements. In addition, our tenants’ operations could be further disrupted if any of their employees, or the employees of their vendors, have, or are suspected of having, COVID-19. This could cause, and in some cases has already caused, our tenants or their vendors to experience staffing shortages, and this could potentially require our tenants and their vendors to close parts of or entire facilities, distribution centers, or other buildings to disinfect any affected areas.

We could also be adversely affected if government authorities impose upon our tenants, or their vendors, certain restrictions due to the COVID-19 pandemic. These restrictions may be in the form of mandatory closures, requested voluntary closures, bans on new admissions, restricted operations, or restrictions on the importation of necessary equipment or supplies which may adversely affect our tenants’ operations and their ability to make rental payments to us moving forward. In addition, family members may elect to keep nursing facility residents at home during the COVID-19 pandemic, thus reducing our tenants’ revenue. Currently, a number of our tenants have stopped admitting new patients due to rising COVID-19 infections resulting in decreased revenues.

As a result of the COVID-19 pandemic, our tenants may face lawsuits for alleged negligence associated with their responses to the emergency. The costs associated with defending, settling, or paying damages from such claims could negatively impact our tenants’ operating budgets and affect their ability to meet their obligations under our leases. Further, we may be subject to increased lawsuits arising out of our alleged actions or the alleged actions of our tenants for which they have agreed to indemnify, defend and hold us harmless. An unfavorable resolution of any such pending or future litigation could materially adversely affect us. The Company is not aware of any such lawsuits against our tenants.

If our tenants are unable to make rental payments to us pursuant to their lease obligations, whether due to the tenants’ decrease in revenues or otherwise, then, in some cases, we may be forced to either attempt to replace tenants or restructure tenants’ long-term rent obligations and may not be able to do so on terms that are as favorable to us as those currently in place.

COVID-19, and while we have requested reporting from operators of their numbers of cases and the U.S. Department of Health and Human Services Centers for Medicare and Medicaid Services (“CMS”) has required additional reporting by operators, we may not receive accurate information on the number of cases, which could result in a delay in reporting. We expect to see continued increased clinical protocols for infection control within facilities and increased monitoring of employees, guests and other individuals entering facilities; however, we do not yet know if future reimbursement rates will be sufficient to cover the increased costs of enhanced infection control and monitoring. The extent of the COVID-19 pandemic’s effect on our and our operators’ operational and financial performance will depend on future developments, including the ultimate duration, spread and intensity of the outbreak, which may depend on factors such as the development and implementation of an effective vaccine and treatments for COVID-19, government funds and other support for the senior care sector and the efficacy of other policies and measures that may mitigate the impact of the pandemic, all of which are uncertain and difficult to predict. Due to these uncertainties, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Revenue Recognition and Allowances

Triple-Net Leased Properties. The Company’s triple-net leases provide for periodic and determinable increases in rent. The Company recognizes rental revenues under these leases on a straight-line basis over the applicable lease term when collectability is probable. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in straight-line rent receivable on our consolidated balance sheets. In the event the Company cannot reasonably estimate the future collection of rent from one or more tenant(s) of the Company’s facilities, rental income for the affected facilities is thus recognized only upon cash collection, and any accumulated straight-line rent receivable is thus reversed in the period in which the Company deems rent collection to no longer be probable. Rental revenues for one facility in North Carolina (until operator transition on March 1, 2019) was recorded on a cash basis during the three months ended March 31, 2019. For additional information with respect to such facilities, see Note 6 – Leases.

Revenue from Contracts with Customers. The Company recognizes management fee revenues as services are provided. The Company has one contract to manage three facilities (the “Management Contract”), with payment for each month of service received in full on a monthly basis. The maximum penalty for service contract nonperformance under the Management Contract is $50,000 per year, payable after the end of the year. Further, the Company recognizes interest income from loans and investments, using the effective interest method when collectability is probable. The Company applies the effective interest method on a loan-by-loan basis.

Allowances. The Company assesses the collectability of its rent receivables, including straight-line rent receivables and working capital loans to tenants. The Company bases its assessment of the collectability of rent receivables and working capital loans to tenants on several factors, including payment history, the financial strength of the tenant and any guarantors, the value of the underlying collateral, and current economic conditions. If the Company’s evaluation of these factors indicates it is probable that the Company will be unable to receive the rent payments or payments on a working capital loan, then the Company provides a reserve against the recognized straight-line rent receivable asset or working capital loan for the portion that we estimate may not be recovered. Payments received on impaired loans are applied against the allowance. If the Company changes its assumptions or estimates regarding the collectability of future rent payments required by a lease or required from a working capital loan to a tenant, then the Company may adjust its reserve to increase or reduce the rental revenue or interest revenue from working capital loans to tenants recognized in the period the Company makes such change in its assumptions or estimates. See Note 6 – Leases.

As of September 30, 2020 and December 31, 2019, the Company reserved for approximately $1.2 million and $0.6 million, respectively, of uncollected receivables. Accounts receivable, net, totaled $1.8 million at September 30, 2020 and $1.0 million at December 31, 2019.

Pre-Paid Expenses and Other

As of September 30, 2020 and December 31, 2019, the Company had $0.4 million and $0.2 million, respectively, in pre-paid expenses and other, primarily for directors’ and officers’ insurance, NYSE American annual fees and mortgage insurance premiums.

Other Liabilities

As of September 30, 2020 and December 31, 2019, the Company had $1.4 million and $1.1 million, respectively, in Other liabilities, consisting of security lease deposits and sublease improvement funds.

Other Expenses, Net

The Company has retained professional services to assist with and evaluate a possible restructure of the Company’s capital structure.

Leases and Leasehold Improvements

The Company leases certain facilities and equipment in the normal course of business. At the inception of each lease, the Company performs an evaluation to determine whether the lease should be classified as an operating lease or capital lease. As of September 30, 2020, all of the Company’s leased facilities are accounted for as operating leases. For operating leases that contain scheduled rent increases, the Company records rent expense on a straight-line basis over the term of the lease. Leasehold improvements are amortized over the shorter of the useful life of the asset or the lease term.

On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) ASU 2016-02, Leases, as codified in ASC 842, using the non-comparative transition option pursuant to ASU 2018-11. The Company recognized both right of use assets and lease liabilities for leases in which we lease land, real property or other equipment, electing the practical expedient to maintain the prior operating lease classification. Effective January 1, 2019, we will assess any new contracts or modification of contracts in accordance with ASC 842 to determine the existence of a lease and its classification. We are reporting revenues and expenses for real estate taxes and insurance, prospectively where the lessee has not made those payments directly to a third party in accordance with their respective leases with us.

The following table summarizes real estate tax recognized on our consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				For the Nine Months Ended September 30,
(Amounts in 000’s)	2020		2019		2020		2019
Rental revenues	$	134	$	129	$	379	$	358
Other operating expenses	$	134	$	129	$	379	$	358

Additionally, we now expense certain leasing costs, other than leasing commissions, as they are incurred. Current GAAP provides for the deferral and amortization of such costs over the applicable lease term. Adoption of ASU 2016-02 has not had a material effect on the Company’s consolidated financial statements, other than the initial balance sheet impact of recognizing the right-of-use assets and the right-of-use lease liabilities. Upon adoption, we recognized operating lease assets of $39.8 million on our consolidated balance sheet for the period ended March 31, 2019, which represents the present value of minimum lease payments associated with such leases. Also upon adoption, we recognized operating lease liabilities of $41.5 million on our consolidated balance sheet for the period ended March 31, 2019. The present value of minimum lease payments was calculated on each lease using a discount rate that approximated our incremental borrowing rate and the current lease term and upon adoption we utilized a discount rate of 7.98% for the Company’s leases. See Note 6– Leases for the Company’s operating leases.

Self-Insurance

The Company is self-insured against professional and general liability claims since it discontinued its healthcare operations during 2014 and 2015 in connection with its transition from an owner and operator of healthcare properties to a healthcare property holding and leasing company (the “Transition”). See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 15 – Commitments and Contingencies in the Annual Report for more information. The Company evaluates quarterly the adequacy of its self-insurance reserve based on a number of factors, including: (i) the number of actions pending and the relief sought; (ii) analyses provided by defense counsel, medical experts or other information which comes to light during discovery; (iii) the legal fees and other expenses anticipated to be incurred in defending the actions; (iv) the status and likely success of any mediation or settlement discussions, including estimated settlement amounts and legal fees and other expenses anticipated to be incurred in such settlement, as applicable; and (v) the venues in which the actions have been filed or will be adjudicated. The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgment unless settlement is more advantageous to the Company. Accordingly, the self-insurance reserve reflects the Company’s estimate of settlement amounts for the pending actions, if applicable, and legal costs of settling or litigating the pending actions, as applicable. Because the self-insurance reserve is based on estimates, the amount of the self-insurance reserve may not be sufficient to cover the settlement amounts actually incurred in settling the pending actions, or the legal costs actually incurred in settling or litigating the pending actions. See Note 7 – Accrued Expenses.

In addition, the Company maintains certain other insurance programs, including commercial general liability, property, casualty, directors’ and officers’ liability, crime and employment practices liability.

Extinguishment of Debt

The Company recognizes extinguishment of debt when the criteria for a troubled debt restructure are not met and the change in the debt terms is considered substantial. The Company calculates the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt (including deferred finance fees) and recognizes a gain or loss on the income statement of the period of extinguishment.

Earnings Per Share

Basic earnings per share is computed by dividing net income or loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the respective period. Diluted earnings per share is similar to basic earnings per share except that the net income or loss is adjusted by the impact of the weighted-average number of shares of common stock outstanding including potentially dilutive securities (such as options, warrants and non-vested common stock) when such securities are not anti-dilutive. Potentially dilutive securities from options, warrants and unvested restricted shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options and warrants with exercise prices exceeding the average market value are used to repurchase common stock at market value. The incremental shares remaining after the proceeds are exhausted represent the potentially dilutive effect of the securities.

Securities outstanding that were excluded from the computation, because they would have been anti-dilutive were as follows:

	September 30,
(Share amounts in 000’s)	2020		2019
Stock options		13		15
Warrants - employee		49		49
Warrants - non employee		9		36
Total anti-dilutive securities		71		100

The weighted average contractual terms in years for these securities, with no intrinsic value, are 3.8 years for the stock options and 3.2 years for the warrants.

See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 1 – Summary of Significant Accounting Policies included in the Annual Report, for a description of the other accounting pronouncements the Company is currently evaluating.

NOTE 2.

LIQUIDITY

Overview

The Company is undertaking measures to grow its operations, streamline its cost infrastructure and otherwise increase liquidity by: (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; and (v) reducing other and general and administrative expenses.

Management anticipates access to several sources of liquidity, including cash on hand, cash flows from operations, and debt refinancing during the twelve months following the date of this filing. At September 30, 2020, the Company had $4.6 million in unrestricted cash. During the nine months ended September 30, 2020, the Company generated positive cash flow from continuing operations of $1.9 million, and anticipates continued positive cash flow from operations during the twelve months following the date of this filing, subject to the continued uncertainty of the COVID-19 pandemic and its impact on the Company’s business, financial condition and results of operations. As of September 30, 2020, one operator accounted for approximately $1.1 million of rent arrears recorded in “Accounts receivable, net of allowance” on our consolidated balance sheets. The Company has recorded an allowance of $0.9 million against a receivable of $2.0 million because the Company has determined that a full allowance is not presently warranted given that the Company has a uniform commercial code lien on the operator’s receivables. The Company continues to monitor collectability and negotiations are ongoing between the operator and the Company for resolution and collection of the receivables.

The Company is current with all of its debt and other financial obligations. The Company has benefited from various, now expired, stimulus measures made available to it through the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted by Congress in response to the COVID-19 pandemic which allowed for, among other things: (i) a deferral of debt service payments on U.S. Department of Agriculture (“USDA”) loans to maturity, (ii) an allowance for debt service payments to be made out of replacement reserve accounts for U.S. Department of Housing and Urban Development (“HUD”) loans and (iii) debt service payments to be made by the U.S. Small Business Administration (the “SBA”) on all SBA loans. For further information see Note 8 – Notes Payable and Other Debt.

Series A Preferred Dividend Suspension

On June 8, 2018, the Board indefinitely suspended quarterly dividend payments with respect to the Series A Preferred Stock. As of September 30, 2020, as a result of the suspension of the dividend payment on the Series A Preferred Stock commencing with the fourth quarter 2017 dividend period, the Company has $25.6 million of undeclared preferred stock dividends in arrears. The Board plans to revisit the dividend payment policy with respect to the Series A Preferred Stock on an ongoing basis. The Board believes that the dividend suspension will provide the Company with additional funds to meet, in part, its ongoing liquidity needs. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for more than four dividend periods, the annual dividend rate on the Series A Preferred Stock for the fifth and future missed dividend periods has increased to 12.875%, which is equivalent to $3.22 per share each year, commencing on the first day after the missed fourth quarterly payment (October 1, 2018) and continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash.

Debt

As of September 30, 2020, the Company had $54.8 million, net of $1.4 million deferred financing and unamortized discounts, in indebtedness. The Company anticipates net principal repayments of approximately $2.2 million during the next twelve-month period which include approximately $2.1 million of routine debt service amortization, and a $0.1 million payment of bond debt.

Debt Covenant Compliance

As of September 30, 2020, the Company was in compliance with the various covenants for 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 as well as 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.

NOTE 3.

CASH AND RESTRICTED CASH

The following presents the Company's cash and restricted cash:

(Amounts in 000’s)	September 30, 2020		December 31, 2019
Cash	$	4,646	$	4,383

Restricted cash:
Cash collateral		95		124
HUD and other replacement reserves		1,589		2,251
Escrow deposits		1,099		963
Restricted investments for debt obligations		317		317
Total restricted cash		3,100		3,655
Total cash and restricted cash	$	7,746	$	8,038

Cash collateral—In securing mortgage financing from certain lending institutions, the Company and certain of its wholly-owned subsidiaries are required to deposit cash to be held as collateral in accordance with the terms of such loan agreements.

HUD and other replacement reserves—The regulatory agreements entered into in connection with the financing secured through HUD require monthly escrow deposits for replacement and improvement of the HUD project assets

Escrow deposits—In connection with financing secured through the Company’s lenders, several wholly-owned subsidiaries of the Company are required to make monthly escrow deposits for taxes and insurance.

Restricted cash for other debt obligations—In compliance with certain financing and insurance agreements, the Company and certain wholly-owned subsidiaries of the Company are required to deposit cash held as collateral by the lender or in escrow with certain designated financial institutions.

NOTE 4.

PROPERTY AND EQUIPMENT

The following table sets forth the Company’s property and equipment:

(Amounts in 000’s)	Estimated Useful Lives (Years)		September 30, 2020			December 31, 2019
Buildings and improvements	5-40		$	65,353		$	65,533
Equipment and computer related	2-10			5,215			5,601
Land		—		2,779			2,779
Construction in process		—		315			58
				73,662			73,971
Less: accumulated depreciation and amortization				(20,565	)		(19,299	)
Property and equipment, net			$	53,097		$	54,672

The following table summarizes total depreciation and amortization expense for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				Nine Months Ended September 30,
(Amounts in 000’s)	2020		2019		2020		2019
Depreciation	$	537	$	571	$	1,631	$	1,906
Amortization		157		226		608		755
Total depreciation and amortization expense	$	694	$	797	$	2,239	$	2,661

NOTE 5.

INTANGIBLE ASSETS AND GOODWILL

Intangible assets consist of the following:

(Amounts in 000’s)	Bed licenses (included in property and equipment)^(a)			Bed Licenses - Separable		Lease Rights			Total
Balances, December 31, 2019
Gross	$	14,276		$	2,471	$	4,758		$	21,505
Accumulated amortization		(3,339	)		—		(4,296	)		(7,635	)
Net carrying amount	$	10,937		$	2,471	$	462		$	13,870
Amortization expense		(310	)		—		(298	)		(608	)
Gross fully amortized asset adjustments							(4,552	)		(4,552	)
Fully amortized asset amortization adjustments							4,552			4,552
Balances, September 30, 2020
Gross		14,276			2,471		206			16,953
Accumulated amortization		(3,649	)		—		(42	)		(3,691	)
Net carrying amount	$	10,627		$	2,471	$	164		$	13,262

(a)	Non-separable bed licenses are included in property and equipment as is the related accumulated amortization expense (see Note 4 – Property and Equipment).

The following table summarizes amortization expense for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				Nine Months Ended September 30,
(Amounts in 000’s)	2020		2019		2020		2019
Bed licenses	$	103	$	104	$	310	$	390
Lease rights		54		122		298		365
Total amortization expense	$	157	$	226	$	608	$	755

Expected amortization expense for all definite-lived intangibles for each of the years ended December 31 is as follows:

(Amounts in 000’s)	Bed Licenses		Lease Rights
2020^(a)	$	105	$	6
2021		414		24
2022		414		24
2023		414		23
2024		414		18
Thereafter		8,866		69
Total expected amortization expense	$	10,627	$	164

(a)	Estimated amortization expense for the year ending December 31, 2020, includes only amortization to be recorded after September 30, 2020.

The following table summarizes the carrying amount of goodwill:

(Amounts in 000’s)	September 30, 2020		December 31, 2019
Goodwill - balances, December 31, prior year	$	1,585	$	2,105
Assets sold		—		(520	)
Net carrying amount	$	1,585	$	1,585

The Company does not amortize indefinite-lived intangibles, which consist of separable bed licenses and goodwill.

NOTE 6.

LEASES

Operating Leases

The Company leases nine skilled nursing facilities from unaffiliated owners under non-cancelable leases, all of which have rent escalation clauses and provisions requiring payment of real estate taxes, insurance and maintenance costs by the lessee. Each of the skilled nursing facilities that are leased by the Company are subleased to and operated by third-party tenants. The Company also leases certain office space located in Suwanee, Georgia.

As of September 30, 2020, the Company is in compliance with all operating lease financial covenants.

Subleased Facilities

The weighted average remaining lease term for our nine subleased facilities is 7.1 years.

Covington Prime Lease. One of the Company’s facilities is leased under an agreement dated August 26, 2002, as subsequently amended (the “Covington Prime Lease”), by and between the Company and Covington Realty, LLC (“Covington”). On January 11, 2019, the Company and Covington entered into a forbearance agreement (the “Covington Forbearance Agreement”), whereby the Company and Covington agreed that: (i) the term of the lease shall be extended from April 30, 2025 until April 30, 2029 (the “Term”); (ii) the base rent was reduced by approximately $0.8 million over the remainder of the prior lease term; and (iii) the Company shall receive relief from approximately $0.5 million of outstanding lease amounts (the “Rent Due”) as of December 31, 2018. Without waiving any default by the Company or Covington’s rights and remedies, and subject to specified terms and conditions for so long as the Company or the Company’s subtenant are not in default under the lease and the sublease, as the case may be, Covington (including its subsidiaries, affiliates, successors and assigns) will forbear from pursuing its rights against the Company for so long as neither the Company nor its subtenant is not in default under the existing lease, as amended on January 11, 2019, or the new sublease dated November 30, 2018, on the final day of the third, fourth and fifth years following the execution of the new sublease. Covington will release and forever quit claim specified portions of the Rent Due as follows: one-third at the end of year three of the new sublease, one-third at the end of year four of the new sublease, and one-third at the end of year five of the new sublease. The forbearance period under the Covington Forbearance Agreement shall terminate as of the expiration of the Term. At Covington’s option in its sole and absolute business discretion, the Covington Forbearance Agreement and the forbearance period thereunder can be terminated upon the occurrence of certain specified events such as, the Company files a petition for bankruptcy or takes advantage of any other debtor relief law, or an involuntary petition for bankruptcy is filed against the Company, or any other judicial action is taken with respect to the Company by any creditor of the Company or the Company breaches or defaults in performance of any covenant or agreement

contained in the Covington Forbearance Agreement. Upon termination of the forbearance period under the Covington Forbearance Agreement, for any reason, Covington may take all steps it deems necessary or desirable to enforce its lease rights as permitted by law or equity.

Bonterra/Parkview Master Lease. The Company and certain of its subsidiaries terminated the Company’s lease and sublease of two skilled nursing facilities, an 115-bed skilled nursing facility located in East Point, Georgia and an 184-bed skilled nursing facility located in Atlanta, Georgia (the “Omega Facilities”), by mutual consent of the Company and the lessor (an affiliate of Omega Healthcare Investors, Inc.) and the sublessees (affiliates of Wellington Health Services, LP) of each of the Omega Facilities (the “Omega Lease Termination”). Prior to the Omega Lease Termination which was effective January 15, 2019, the Omega Facilities were leased under a single indivisible agreement (the “Bonterra/Parkview Master Lease”), which leases were due to expire August 2025 and which Omega Facilities the Company subleased to third party subtenants. Effective January 15, 2019, the Company’s leases for the Omega Facilities were terminated by mutual consent of the Company and the lessor of the Omega Facilities. For further information, see Note 9 - Discontinued Operations and Dispositions.

Wellington. Two of the Company’s eight Georgia facilities, leased under a prime lease, are subleased to affiliates of Wellington Health Services, LP (“Wellington Health Services”) under agreements dated January 31, 2015, as subsequently amended (the “Wellington Subleases”). The Wellington Subleases, which are due to expire August 31, 2027, relate to the Company’s 134-bed skilled nursing facility located in Thunderbolt, Georgia (the “Tara Facility”) and an 208-bed skilled nursing facility located in Powder Springs, Georgia (the “Powder Springs Facility”). Effective February 1, 2019, the Company agreed to a 10% reduction in base rent, or in aggregate approximately an average $31,000 per month cash rent reduction for the year ended December 31, 2019, and $48,000 per month decrease in straight-line revenue, respectively for the Tara Facility and the Powder Springs Facility combined. Additionally the Company modified the annual rent escalator to 1% per year from the prior scheduled increase from 1% to 2% previously due to commence of the 1^st day of the sixth lease year.

Future Minimum Lease Payments

Future minimum lease payments for each of the next five years ending December 31, are as follows:

(Amounts in 000’s)	Future rental payments		Accretion of lease liability ⁽¹⁾			Operating lease obligation
2020 ⁽²⁾	$	1,615	$	(21	)	$	1,594
2021		6,551		(399	)		6,152
2022		6,691		(887	)		5,804
2023		6,823		(1,358	)		5,465
2024		6,958		(1,811	)		5,147
Thereafter		19,832		(7,223	)		12,609
Total	$	48,470	$	(11,699	)	$	36,771

(1)	Weighted average discount rate 7.98%.

(2)	Estimated minimum lease payments for the year ending December 31, 2020 include only payments to be paid after September 30, 2020.

Leased and Subleased Facilities to Third-Party Operators

As of September 30, 2020, the Company leased or subleased 21 facilities (12 owned by the Company and nine leased to the Company), to third-party tenants on a triple net basis, meaning that the lessee (i.e., the third-party tenant of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. The weighted average remaining lease term for our facilities is 7.2 years.

Aspire. On November 30, 2018, the Company subleased five facilities located in Ohio to affiliates (collectively, “Aspire Sublessees”) of Aspire Regional Partners, Inc. (“Aspire”) management, formerly affiliated with MSTC Development Inc., pursuant to separate sublease agreements (the “Aspire Subleases”), whereby the Aspire Sublessees took possession of, and commenced operating, the facilities (the “Aspire Facilities”) as subtenant. The Aspire Subleases became effective on December 1, 2018 and are structured as triple net leases. 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, 2020.

Symmetry. Affiliates (the “Symmetry Tenants”) of Healthcare Management, LLC (“Symmetry” or “Symmetry Healthcare”) leased the following facilities from the Company, pursuant to separate lease agreements which expire in 2030 (the “Symmetry Leases”): (i) the Company’s 106-bed, skilled nursing facility located in Sylvia, North Carolina (the “Mountain Trace Facility”); (ii) the Company’s 96-bed, skilled nursing facility located in Sumter, South Carolina (the “Sumter Facility”); and (iii) the Company’s 84-bed, skilled nursing facility located in Georgetown, South Carolina (the “Georgetown Facility”). On June 27, 2018, the Company notified Blue Ridge of Sumter, LLC, the tenant with respect to the Sumter Facility (the “Sumter Tenant”), and Blue Ridge on the Mountain, LLC, the tenant with respect to the Mountain Trace Facility (the “Mountain Trace Tenant”), that continued breach of the payment terms of the applicable Symmetry Lease would constitute an event of default. The Symmetry Tenants had alleged that the Company was in material breach of each of the Symmetry Leases with regard to deferred maintenance and were withholding rental payments on the basis of such allegations.

On January 28, 2019, the Company reached an agreement, with the Symmetry Tenants with respect to the Symmetry Leases, pursuant to which the Symmetry Tenants agreed to a payment plan for the rent arrears (the “Symmetry Payment Plan”) and the Company agreed to a reduction in annualized rent of approximately $0.6 million, and waived approximately $0.2 million in rent arrears, upon which the Symmetry Tenants recommenced monthly rent payments of $0.1 million starting with the September 1, 2018 amounts due under the Symmetry Leases. There is no assurance that the Company will be able to obtain payment of all unpaid rents. During the year ended December 31, 2019, the Company recorded approximately $0.4 million allowance against the outstanding balance of payment plan receivables. On February 28, 2019, the Company and the Mountain Trace Tenant mutually terminated the lease with respect to the Mountain Trace Facility and operations at the facility were transferred to Vero Health X, LLC (“Vero Health”). During the three and nine months ended September 30, 2020, the Company released approximately $0.1 million and $0.2 million, respectively of the unpaid rent allowance.

Vero Health. On February 28, 2019, the Company entered into a lease agreement (the “Vero Health Lease”) with Vero Health, providing that Vero Health would take possession of and operate the Mountain Trace Facility located in North Carolina. The Vero Health Lease became effective, upon the termination of the prior Mountain Trace Tenant mutual lease termination on March 1, 2019. The Vero Health Lease is for an initial term of 10 years, with renewal options, is structured as a triple net lease and rent for the Mountain Trace Facility is approximately $0.5 million per year, with an annual 2.5 % rent escalation clause.

Peach Health. On June 18, 2016, the Company entered into a Master Sublease Agreement, as amended on March 30, 2018 (the “Peach Health Sublease”), with affiliates of Peach Health Group, LLC (“Peach Health”) (the affiliates collectively, “Peach Health Sublessee”), which provided that Peach Health Sublessee would take possession of and operate three facilities located in Georgia (the “Peach Facilities”) as subtenant.

In connection with the Peach Health Sublease, the Company extended a line of credit to Peach Health Sublessee for up to $1.0 million for operations at the Peach Facilities (the “Peach Line”), with an initial interest rate of 13.5% per annum, which increased by 1% per annum. The Peach Line had a maturity date one year from the date of the first disbursement and is secured by a first priority security interest in Peach Health Sublessee’s assets and accounts receivable (the “Peach Collateral”). On April 6, 2017, the Company modified certain terms of the Peach Line in connection with Peach Health Sublessee securing a $2.5 million revolving working capital loan from a third party lender (the “Peach Working Capital Facility”), subsequently capped at $1.75 million, which matured April 5, 2020. The Peach Working Capital Facility was secured by Peach Health Sublessee’s eligible accounts receivable, and all collections on the eligible accounts receivable were remitted to a lockbox controlled by the lender and was guaranteed by Regional. Payment of principal and interest under the Peach Line was previously governed by certain financial covenants limiting distributions under the Peach Working Capital Facility. The modifications of the Peach Line included: (i) reducing the loan balance to $0.8 million and restricting further borrowings; (ii) extending the maturity date to October 1, 2020 and adding a six month extension option by Peach Health Sublessee, subject to certain conditions; (iii) increasing the interest rate from 13.5% per annum by 1% per annum; and (iv) establishing a four-year amortization schedule. During May 2020, Peach Health Sublessee, having fully repaid their Peach Working Capital Facility according to its terms, recommenced monthly required payments toward the Peach Line outstanding balance.

On August 27, 2020, the Company and the Peach Health Sublessee modified the Peach Line, pursuant to that certain Amended Promissory Note and the accompanying Agreement Regarding Lease and Note, each by and between the Company and the Peach Health Sublessee to: (i) reduce the then $1.3 million outstanding balance under the Peach Line to approximately $0.5

million, in connection with which the Peach Health Sublessee paid to the Company $0.45 million in cash and the Company accepted $0.35 million non-cash payment for the Peach Health Sublessee assuming from the Company the Peach Facilities’ bed tax liability; (ii) extend the maturity date of the Peach Line to August 1, 2025; (iii) decrease the interest rate from 16.5% to 8% per annum. The remaining balance under the Peach Line shall be paid by the Peach Health Sublessee to the Company in 60 equal monthly installments; and (iv) Peach Health Sublessee agrees not to pledge, hypothecate or grant a security interest in the Peach Collateral to any other party, other than their current arrangement with the SBA, without the Company’s prior written consent.

At September 30, 2020, approximately $0.5 million was outstanding on the Peach Line.

Future minimum lease receivables, at September 30, 2020, from the Company’s facilities leased and subleased to third party tenants for each of the next five years ending December 31, are as follows:

	(Amounts in 000's)
2020 ^(a)	$	3,965
2021		16,100
2022		17,273
2023		17,588
2024		17,448
Thereafter		53,319
Total	$	125,693

(a)	Estimated minimum lease receivables for the year ending December 31, 2020 include only payments to be paid after September 30, 2020.

For further details regarding the Company’s leased and subleased facilities to third-party operators, including a full summary of the Company’s leases to third-parties and which comprise the future minimum lease receivables of the Company, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 7 - Leases and Note 10 – Acquisitions and Dispositions included in the Annual Report.

NOTE 7.

ACCRUED EXPENSES

Accrued expenses and other consist of the following:

(Amounts in 000’s)	September 30, 2020		December 31, 2019
Accrued employee benefits and payroll-related	$	178	$	239
Real estate and other taxes		404		883
Self-insured reserve ⁽¹⁾		202		453
Accrued interest		497		208
Unearned rental revenue		41		46
Other accrued expenses		966		784
Total accrued expenses	$	2,288	$	2,613

(1)	The Company self-insures against professional and general liability cases incurred prior to the Transition and uses a third party administrator and outside counsel to manage and defend the claims (see Note 12 - Commitments and Contingencies).

NOTE 8.

NOTES PAYABLE AND OTHER DEBT

See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 9 – Notes Payable and Other Debt included in the Annual Report for a detailed description of all the Company’s debt facilities.

Notes payable and other debt consists of the following:

(Amounts in 000’s)	September 30, 2020			December 31, 2019
Senior debt—guaranteed by HUD	$	31,331		$	31,996
Senior debt—guaranteed by USDA		13,164			13,298
Senior debt—guaranteed by SBA		634			650
Senior debt—bonds		6,500			6,616
Senior debt—other mortgage indebtedness		3,668			3,777
Other debt		919			539
Subtotal		56,216			56,876
Deferred financing costs		(1,279	)		(1,364	)
Unamortized discount on bonds		(138	)		(149	)
Notes payable and other debt	$	54,799		$	55,363

The following is a detailed listing of the debt facilities that comprise each of the above categories:

(Amounts in 000’s)
Facility	Lender	Maturity	Interest Rate ^(a)			September 30, 2020		December 31, 2019
Senior debt - guaranteed by HUD^(b)
The Pavilion Care Center	Orix Real Estate Capital	12/01/2027	Fixed	4.16	%	$	1,016	$	1,105
Hearth and Care of Greenfield	Orix Real Estate Capital	08/01/2038	Fixed	4.20	%		1,939		1,992
Woodland Manor	Midland State Bank	10/01/2044	Fixed	3.75	%		5,000		5,094
Glenvue	Midland State Bank	10/01/2044	Fixed	3.75	%		7,763		7,909
Autumn Breeze	KeyBank	01/01/2045	Fixed	3.65	%		6,748		6,876
Georgetown	Midland State Bank	10/01/2046	Fixed	2.98	%		3,416		3,480
Sumter Valley	KeyBank	01/01/2047	Fixed	3.70	%		5,449		5,540
Total						$	31,331	$	31,996
Senior debt - guaranteed by USDA ^(c)
Coosa ^(d)	Metro City	09/30/2035	Prime + 1.50%	5.50	%		5,149		5,212
Mountain Trace ^(e)	Community B&T	02/24/2037	Prime + 1.75%	5.75	%		3,972		4,009
Southland ^(f)	Cadence Bank, NA	07/27/2036	Prime + 1.50%	6.00	%		4,043		4,077
Total						$	13,164	$	13,298
Senior debt - guaranteed by SBA ^(g)
Southland	Cadence Bank, NA	07/27/2036	Prime + 2.25%	5.50	%		634		650
Total						$	634	$	650

(a)	Represents cash interest rates as of September 30, 2020 as adjusted for interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs, which range from 0.08% to 0.53% per annum.

(b)

For the seven skilled nursing facilities, the Company has term loans insured 100% by HUD with financial institutions. The loans are secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the underlying facility. The loans contain customary events of default, including fraud or material misrepresentations or material omission, the commencement of a forfeiture action or proceeding, failure to make required payments, and failure to perform or comply with certain agreements. Upon the occurrence of certain events of default, the lenders may, after receiving the prior written approval of HUD, terminate the loans and all amounts under the loans will become immediately due and payable. In connection with entering into each loan, the Company entered into a healthcare regulatory agreement and a promissory note, each containing customary terms and conditions. Pursuant to the CARES Act, up to three months of debt service payments for six of the credit facilities can be made from our restricted cash reserves.

(c)	For the three skilled nursing facilities, the Company has term loans insured 70% to 80% by the USDA with financial institutions. The loans have an annual renewal fee for the USDA guarantee of 0.25% of the guaranteed portion. The loans

have prepayment penalties of 1% through 2020, capped at 1% for the remainder of the first 10 years of the term and 0% thereafter.

(d)

Pursuant to the CARES Act, the monthly principal and interest payments due May 1, 2020 through September 1, 2020 for the loan for that certain 122-bed skilled nursing facility commonly known as Coosa, located in Glencoe, Alabama, were deferred (a part of the “USDA Payment Program”). Monthly payments commencing October 1, 2020 will be applied to current interest, then deferred interest until the deferred interest is paid in full. Upon expiration of the deferral period, the payments will be re-amortized over the remaining term of the loan.

(e)

Pursuant to the CARES Act, the monthly principal and interest payments due May 1, 2020 through August 1, 2020 for the Mountain Trace facility loan were deferred. Monthly payments commencing September 1, 2020 will be applied to current interest, then deferred interest until the deferred interest is paid in full, payments will be re-amortized over the extended term of the loan.

(f)

Pursuant to the CARES Act, the monthly principal and interest payments due May 1, 2020 through October 1, 2020 for the loan for that certain 126-bed skilled nursing facility commonly known as Southland, located in Dublin, Georgia, were deferred as a part of the USDA Payment Program. Monthly payments will recommence November 1, 2020 and the payments will be re-amortized over the remaining term of the loan.

(g)	For the one skilled nursing facility, the Company has a term loan with a financial institution, which is 75% insured by the SBA. The SBA funded six monthly debt payments, commencing on March 1, 2020 and ending on August 1, 2020.

(Amounts in 000’s)
Facility	Lender	Maturity	Interest Rate ^(a)			September 30, 2020		December 31, 2019
Senior debt - bonds
Eaglewood Bonds Series A	City of Springfield, Ohio	05/01/2042	Fixed	7.65	%	$	6,379	$	6,379
Eaglewood Bonds Series B	City of Springfield, Ohio	05/01/2021	Fixed	8.50	%		121		237
Total						$	6,500	$	6,616

(a)	Represents cash interest rates as of September 30, 2020. The rates exclude amortization of deferred financing of approximately 0.15% per annum.

(Amounts in 000’s)

Facility

Lender

Maturity

Interest Rate (a)

September 30,

2020

December 31,

2019

Senior debt - other mortgage indebtedness

Meadowood

Exchange Bank of Alabama

05/01/2022

Fixed

4.50

3,668

3,777

Total

3,668

3,777

(a)	Represents cash interest rates as of September 30, 2020 as adjusted for interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs of 0.30% per annum.

(Amounts in 000’s)
Lender	Maturity	Interest Rate			September 30, 2020		December 31, 2019
Other debt
First Insurance Funding	03/01/2021	Fixed	2.38	%	$	188	$	27
Key Bank	08/25/2021	Fixed	0.00	%		495		495
FountainHead Commercial Capital - PPP Loan	04/16/2022	Fixed	1.00	%		229		—
Marlin Covington Finance	03/11/2021	Fixed	20.17	%		7		17
Total					$	919	$	539

PPP Loan

On June 29, 2020, the Company received the proceeds of a promissory note dated April 16, 2020 (the “PPP Loan Agreement”), entered into between Adcare Administrative Services, LLC (“Borrower”), a wholly owned subsidiary of the Company, and Greater Nevada Credit Union, who subsequently sold the loan to Fountainhead Commercial Capital, as lender (the “Lender). Lender made this loan pursuant to the Paycheck Protection Program (the “PPP”), created by Section 1102 of the CARES Act and governed by the CARES Act, Section 7(a)(36) of the Small Business Act, any rules or guidance that has been issued by the SBA implementing the PPP and acting as guarantor, or any other applicable loan program requirements, as defined in 13 CFR § 120.10, as amended from time to time. Pursuant to the PPP Loan Agreement, the Lender made a loan to the Borrower with an aggregate principal amount of $228,700 (the “PPP Loan”), which is recorded in “Other debt, net” on the Company’s consolidated balance sheets.

The maturity date of the PPP Loan is April 16, 2022, which is two years from the date of the PPP Loan Agreement. The interest accrues from the date of disbursement of the PPP Loan (the “Effective Date”). The PPP Loan bears interest at a fixed rate equal to one percent (1%) per annum and interest will accrue from the Effective Date. PPP Loan payments will be deferred for the first six months from the Effective Date. Subject to any PPP Loan forgiveness granted by the CARES Act, the Company will subsequently pay 18 fully amortized monthly consecutive principal and interest payments for all principal and all accrued interest not yet paid, with the first PPP Loan payment due on the date that is seven months after the Effective Date. The proceeds of the PPP Loan shall be used for the following purposes only: (i) payroll costs as defined by the CARES Act, (ii) costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums; (iii) mortgage interest payments, (iv) rent payments, (v) utility payments, (vi) interest payments on any other debt obligations incurred before February 15, 2020, and/or (vii) refinancing a SBA Economic Injury Disaster Loan made between January 31, 2020 and April 3, 2020.

The PPP Loan and the related documentation contain customary events of default, including: (i) any representation or warranty made, or financial or other information provided, by the Borrower under the PPP Loan Agreement being false or misleading in any material respect; (ii) the failure by any Borrower to make required payments; (iii) the failure by the Borrower to perform or comply with certain agreements; and (iv) the (A) dissolution or termination of Borrower's existence as a going business, (B) insolvency of Borrower, (C) appointment of a receiver for any part of Borrower's property, (D) assignment for the benefit of creditors, any type of creditor workout, or (E) commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. Borrower also will pay any court costs, in addition to all other sums provided by law.

Should Borrower default on the PPP Loan, the SBA may be required to pay Lender under the SBA Guarantee between the SBA and Lender. The SBA may then seek recovery of the funds from Borrower and Borrower may not claim or assert against the SBA any immunities or defenses available under local law to defeat, modify or otherwise limit Borrower's obligation to repay to the SBA any funds advanced by Lender to Borrower. If Borrower defaults on the SBA-guaranteed loan and the SBA suffers a loss, the names of the small business will be referred for listing in the Credit Alert Verification Reporting System (CAIVRS) database, which may affect their edibility for further assistance.

Pursuant to the CARES Act, the loan may be forgiven by the SBA. The amount of loan forgiveness is determined by and is subject to the sole approval of the SBA. The amount of loan forgiveness may be reduced if loan proceeds are spent inappropriately. To receive loan forgiveness, borrower must apply for loan forgiveness and provide documentation as requested by the SBA. The loan will not be forgiven without Borrower’s submission of the proper application and documentation to Lender, to include all SBA requirements. Not more than 25% of the amount forgiven can be attributable to non-payroll costs. No assurance can be provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.

Debt Covenant Compliance

As of September 30, 2020, the Company had 18 credit related instruments outstanding that include various financial and administrative covenant requirements. Covenant requirements include, but are not limited to, fixed charge coverage ratios, debt service coverage ratios, minimum earnings before interest, taxes, depreciation, and amortization or earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs, and current ratios. Certain financial covenant requirements are based on consolidated financial measurements whereas others are based on measurements at the subsidiary level (i.e., facility, multiple facilities or a combination of subsidiaries). The subsidiary level requirements are as follows: (i) financial covenants measured against subsidiaries of the Company; and (ii) financial covenants measured against third-party operator performance. Some covenants are based on annual financial metric measurements whereas others are based on monthly and quarterly financial metric measurements. The Company routinely tracks and monitors its compliance with its covenant requirements.

As of September 30, 2020, the Company was in compliance with the various covenants for the Company’s outstanding credit related instruments.

Scheduled Maturities

The schedule below summarizes for each of the next five years and thereafter, the scheduled gross maturities for the twelve months ended September 30 of the respective year:

For the twelve months ended September 30,	(Amounts in 000’s)
2021	$	2,199
2022		5,287
2023		1,771
2024		1,856
2025		1,950
Thereafter		43,153
Subtotal	$	56,216
Less: unamortized discounts		(138	)
Less: deferred financing costs, net		(1,279	)
Total notes and other debt	$	54,799

NOTE 9.

DISCONTINUED OPERATIONS AND DISPOSITIONS

Discontinued Operations

For discontinued operations, cost of services, primarily accruals or releases of over accruals for professional and general liability claims and bad debt expense are classified in the activities below. For a historical listing and description of the Company’s discontinued entities, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 11 – Discontinued Operations included in the Annual Report.

The following table summarizes the activity of discontinued operations for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,						Nine Months Ended September 30,
(Amounts in 000’s)	2020			2019			2020			2019
Cost of services	$	2		$	(101	)	$	33		$	(411	)
Net income (loss)	$	(2	)	$	101		$	(33	)	$	411

The Company’s major classes of discontinued operation’s assets and liabilities included within the Company’s consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively are: (i) “Accounts receivable, net of allowance” of $0.1 million and $0.1 million; (ii) “Accounts payable” of $2.6 million and $3.4 million; and (iii) “Accrued Expenses” of $0.7 million and $1.0 million.

Dispositions

For the three and nine months ended September 30, 2020, the Company had no dispositions.

Omega

Effective January 15, 2019, the Company’s lease for the Omega Facilities, which leases were due to expire August 2025 and which Omega Facilities the Company subleased to third party subtenants, were terminated by mutual consent of the Company and the lessor of the Omega Facilities.

In connection with the Omega Lease Termination, the Company transferred approximately $0.4 million of all its integral physical fixed assets in the Omega Facilities to the lessor and on January 28, 2019 and received from the lessor gross proceeds of approximately $1.5 million, consisting of (i) a termination fee in the amount of $1.2 million and (ii) approximately $0.3 million to satisfy other net amounts due to the Company under the leases. The Company paid $1.2 million of such Omega Lease Termination proceeds to Pinecone Realty Partners II, LLC (“Pinecone”) on January 28, 2019, as required by the forbearance agreement in effect at that time, to reimburse Pinecone for approximately $0.3 million of certain unpaid expenses and partially prepay $0.9 million of one Pinecone loan made to AdCare Property Holdings, LLC.

The Omega Lease Termination contributed approximately $0.7 million income recorded in "Net loss attributable to Regional Health Properties, Inc. common stockholders" reported in the consolidated statement of operations for the nine months ended September 30, 2019.

Facilities Sale to MED

On April 15, 2019, the Company entered into a Purchase and Sale Agreement (the “PSA”) with affiliates of MED Healthcare Partners LLC (collectively “MED”), with respect to the four skilled nursing facilities owned by the Company outlined below.

Subject to the terms of the PSA, the Company agreed to sell, and MED agreed to purchase, all of the Company’s right, title and interest in: (a) that certain 182-bed skilled nursing facility commonly known as Attalla Health & Rehab, located in Attalla, Alabama; (b) that certain 100-bed skilled nursing facility commonly known as Healthcare at College Park, located in College Park, Georgia; (c) that certain 109-bed skilled nursing facility commonly known as Quail Creek Facility, located in Oklahoma City, Oklahoma; and (d) that certain 100-bed skilled nursing facility commonly known as Northwest Nursing Center, located in Oklahoma City, Oklahoma (the “Northwest Facility), (collectively, the “PSA Facilities”). In consideration therefor, MED agreed to pay to the Company the sum of approximately $28.5 million in cash. The disposition was completed in two parts (i) on August 1, 2019, when the Company received net proceeds of $0.4 million upon the repayment of the Company’s remaining three loans with Pinecone (the “Pinecone Credit Facility”), the Company’s loan with Congressional Bank (the “Quail Creek Credit Facility”) and associated expenses related to the transactions and (ii) on August 28, 2019, when the Company received net proceeds of $2.3 million upon the sale of the Northwest Facility.

For additional information regarding the Company’s dispositions, see Note – 10 Acquisitions and Dispositions and Note 11 – Discontinued Operations, Part II, Item 8, “Financial Statements and Supplementary Data” included in the Annual Report.

NOTE 10.

COMMON AND PREFERRED STOCK

Common Stock

There were no dividends paid on the common stock during the three and nine months ended September 30, 2020 and 2019.

Preferred Stock

No dividends were declared or paid on the Series A Preferred Stock for the three and nine months ended September 30, 2020 and 2019.

As of September 30, 2020, as a result of the suspension of the dividend payment on the Series A Preferred Stock commencing with the fourth quarter 2017 dividend period, the Company has $25.6 million of undeclared preferred stock dividends in arrears. Holders of the Series A Preferred Stock are entitled to receive, when and as declared by the Board out of funds of the Company legally available for the payment of distributions, cumulative preferential cash dividends at an annual rate equal to 10.875% of the $25.00 per share stated liquidation preference of the Series A Preferred Stock, which is equivalent to an annual rate of $2.72 per share or $1.9 million per quarter. Dividends on the Series A Preferred Stock, when and as declared by the Board, are payable quarterly in arrears, on March 31, June 30, September 30, and December 31 of each year. On June 8, 2018, the Board determined to continue suspension of the payment of the quarterly dividend on the Series A Preferred Stock

indefinitely. Under the terms of the Series A Preferred Stock, dividends on the Series A Preferred Stock shall continue to accrue and accumulate regardless of whether such dividends are declared by the Board. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for four dividends periods: (i) the annual dividend rate on the Series A Preferred Stock has increased to 12.875% ,which is equivalent to an annual rate of $3.22 or $2.2 million per quarter, commencing on the first day after the missed fourth quarterly payment (October 1, 2018) continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash; and (ii) the holders of the Series A Preferred Stock will be entitled to vote, as a single class, for the election of two additional directors to serve on the Board, as further described in the Charter.

As of September 30, 2020, the Company had 2,811,535 shares of the Series A Preferred Stock issued and outstanding.

The Company may, at its option, redeem the Series A Preferred Stock, in whole or in part, by paying $25.00 per share, plus any accrued and unpaid dividends to the redemption date.

For historical information regarding the Series A Preferred Stock, the Company’s former “at-the-market” offering program and prior share repurchase programs, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 12 – Common and Preferred Stock included in the Annual Report.

NOTE 11.

STOCK BASED COMPENSATION

For the three and nine months ended September 30, 2020 and 2019, the Company recognized stock-based compensation expense as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(Amounts in 000’s)	2020		2019		2020		2019
Non-employee compensation:
Board restricted stock	$	13	$	22	$	37	$	70
Total stock-based compensation expense	$	13	$	22	$	37	$	70

Stock Incentive Plan

The AdCare Health Systems, Inc. 2011 Stock Incentive Plan, as amended (the “2011 Stock Incentive Plan”), was assumed by Regional Health pursuant to the Merger. As a result of the Merger, all rights to acquire shares of AdCare common stock under any AdCare equity incentive compensation plan have been converted into rights to acquire Regional Health common stock pursuant to the terms of the equity incentive compensation plans and other related documents, if any. The 2011 Stock Incentive Plan expires March 28, 2021 and provides for a maximum of 168,950 shares of common stock to be issued. The 2011 Stock Incentive Plan permits the granting of incentive or nonqualified stock options and the granting of restricted stock. The plan is administered by the Compensation Committee of the Board (the “Compensation Committee”), pursuant to authority delegated to it by the Board. The Compensation Committee is responsible for determining the employees to whom awards will be made, the amounts of the awards, and the other terms and conditions of the awards. As of September 30, 2020, the number of securities remaining available for future issuance is 21,081.

In addition to the 2011 Stock Incentive Plan, the Company grants stock warrants to officers, directors, employees and certain consultants to the Company from time to time as determined by the Board and, when appropriate, the Compensation Committee.

For the three and nine months ended September 30, 2020 and 2019, there were no issuances of common stock options or warrants.

Restricted Stock

The following table summarizes the Company’s restricted stock activity for the nine months ended September 30, 2020:

	Number of Shares (000's)			Weighted Avg. Grant Date Fair Value
Unvested, December 31, 2019		29		$	4.63
Vested		(15	)	$	5.53
Unvested, September 30, 2020		14		$	3.60

For restricted stock unvested at September 30, 2020, $12,457 in compensation expense will be recognized over the next 0.3 years.

NOTE 12.

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, 2020, all of the Company’s facilities leased and subleased to third-party operators and managed for third-parties are certified by CMS and are operational. See Note 6 - 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 skilled nursing facilities 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 healthcare facilities, and the Company’s tenants now operate, in an industry that is extremely regulated. As such, in the ordinary course of business, the Company’s 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, we believe that there has been, and will continue to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in legal proceedings or governmental investigations against or involving the Company, for the Company’s prior operations, or the Company’s 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, 2020, 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 prior to the Transition. 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.

As of September 30, 2020, the Company is a defendant in 11 additional professional and general liability actions (including the one action filed during the three months ended September 30, 2020 and described below). These 11 additional professional and general liability actions which set forth claims relating to time periods after the Transition, on behalf of former patients of our current or prior tenants. These actions generally seek unspecified compensatory and punitive damages for former patients who were allegedly injured or died due to professional negligence or understaffing at the applicable facility operated by our tenants. These actions on behalf of former patients of our current or prior tenants all relate to events which occurred after the Company transitioned the operations of the facilities in question to a third-party operator (and of which four such actions relate to events which occurred after the Company sold such facilities) and are subject to such operators’ indemnification obligations in favor of the Company.

During the three months ended September 30, 2020, the following professional and general liability action was filed against the Company.

•

On July 27, 2020, a wrongful death action was filed in the State Court of Chatham County, Georgia, by Jerold Kaplan against affiliates of Peach Health and the Company, on behalf of, and alleging the wrongful death of a patient at the facility known as Oceanside Health and Rehab, which is operated by an affiliate of Peach Health. The plaintiff is seeking an amount in excess of $10,000 for pain and suffering and damages and an unspecified amount of punitive damages. The Company is indemnified by affiliates of Peach Health in this action. The Company believes that this action lacks merit and the Company intends to take action most favorable to the Company. There is no guarantee that the Company will prevail in this action

During the three months ended June 30, 2020, the following two professional and general liability actions were filed against the Company.

•

On May 21, 2020, a medical negligence action was filed in the State Court of Chatham County, Georgia, by Anthony Bowman against affiliates of Peach Health and the Company, on behalf of, and alleging wrongful death of a patient, at the facility known as Oceanside Health and Rehab operated by an affiliate of Peach Health. The plaintiff is seeking unspecified compensatory damages for the actual losses and unspecified punitive damages. The Company is indemnified by affiliates of Peach Health in this action. The Company believes that this action lacks merit and the Company intends to take action most favorable to the Company. There is no guarantee that the Company will prevail in this action.

•

On June 1, 2020, a wrongful death action was filed in the State Court of Chatham County, Georgia, by Sandi Postle against affiliates of Peach Health and the Company, on behalf of, and alleging the wrongful death of a patient at the facility known as Oceanside Health and Rehab operated by an affiliate of Peach Health. The plaintiff is requesting an amount in excess of $10,000 for pain and suffering and damages and an unspecified amount of punitive damages. The Company is indemnified by affiliates of Peach Health in this action. The Company believes that this action lacks merit and the Company intends to take action most favorable to the Company. There is no guarantee that the Company will prevail in this action.

During the three months ended June 30, 2020, one professional and general liability action was dismissed without prejudice as outlined below.

•

On May 26, 2020, the United States District Court Eastern District of Arkansas Central Division the court dismissed without prejudice a complaint filed on January 30, 2020 by Robert E. Rack in the Circuit Court of Pulaski County, State of Arkansas, against Joseph and Rosie Schwartz, who controlled Skyline Healthcare LLC (“Skyline”), a subsidiary of Regional, and CIBC Bancorp USA, Inc., on behalf of a deceased patient who received care at a facility known as the Woodland Hills facility located in Arkansas after the date of the Transition and after the sale of the facility to Skyline. The complaint alleged medical injury and improper care and treatment and that the Company is complicit in the medical injury and improper care because it sold the Woodland Hills facility to Skyline. The plaintiff was seeking unspecified compensatory damages for the actual losses and unspecified punitive damages.

During the three months ended March 31, 2020, the Company settled one professional and general liability action, as outlined below.

•

On January 29, 2020, the Company executed a settlement, in compromise of a complaint filed in the Circuit Court of Pulaski County, in the State of Arkansas, by a former patient at one of our facilities, against the Company on May 16, 2017. The plaintiff alleged medical negligence and injury. The settlement, in exchange for dismissal of the case with prejudice, is in the total amount of $40,000, which was paid in four monthly installments commencing February 2020.

As of September 30, 2019, the Company was a defendant in a total of 12 professional and general liability actions, primarily commenced on behalf of three of our former patients and nine of our current or prior tenant’s former patients.

The Company established a self-insurance reserve for its professional and general liability claims, included within “Accrued expenses” on the Company’s consolidated balance sheets of $0.2 million and $0.5 million as of September 30, 2020 and December 31, 2019, respectively. Additionally as of September 30, 2020 and December 31, 2019, $0.2 million and $0.3 million, respectively, was reserved for settlement amounts in “Accounts payable” in the Company’s consolidated balance sheets. For additional information regarding the Company’s self-insurance reserve, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 15 – Commitments and Contingencies included in the Annual Report.

Ohio Attorney General Action. On January 15, 2020, Ohio Attorney General (the “OAG”) voluntarily dismissed with prejudice all claims pending against the Company, certain subsidiaries of the Company and certain other parties, in the action they filed on October 27, 2016, in the Court of Common Pleas, Franklin County, Ohio. The lawsuit alleged that defendants submitted improper Medicaid claims for independent laboratory services for glucose blood tests and capillary blood draws and further alleged that defendants (i) engaged in deception, (ii) willfully received Medicaid payments to which they were not entitled or in a greater amount than that to which they were entitled, and (iii) obtained payments under the Medicaid program to which they were not entitled pursuant to their provider agreements and applicable Medicaid rules and regulations. The OAG sought, among other things, triple the amount of damages proven at trial (plus interest) and not less than $5,000 and not more than $10,000 for each deceptive claim or falsification. As previously disclosed, the Company received a letter from the OAG in February 2014 offering to settle its claims against the defendants for improper Medicaid claims related to glucose blood tests and capillary blood draws for a payment of approximately $1.0 million.

NOTE 13.

RELATED PARTY TRANSACTIONS

McBride Matter

During the three and nine months ended September 30, 2019, the Company paid $39,082 and $117,247, respectively to William McBride, who formerly served as the Company’s Chief Executive Officer and a director, pursuant to a settlement agreement.

Rimland Matter

During the three months ended September 30, 2019, the Company paid $85,000 to Allan Rimland, who formerly served as the Company’s Chief Executive Officer, Chief Financial Officer, President and a director, pursuant to a settlement agreement.

For additional information regarding the Company’s related party transactions, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 19 – Related Party Transactions included in the Annual Report.

NOTE 14.

SUBSEQUENT EVENTS

The Company has evaluated all subsequent events through the date the consolidated financial statements were issued and filed with the SEC.

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 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, through its subsidiaries, is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living. Our business primarily consists of leasing and subleasing healthcare facilities to third-party tenants. As of September 30, 2020, the Company owned, leased, or managed for third parties 24 facilities primarily in the Southeast United States.

The operators of the Company’s facilities provide a range of health care and related services to patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.

Risks and Uncertainties

On March 11, 2020, the World Health Organization declared the outbreak of the respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, also known as COVID-19, a global pandemic. The COVID-19 pandemic has led governments and other authorities in the United States to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. The COVID-19 pandemic and the measures to protect its spread have adversely affected our business in the quarter ended September 30, 2020, and we expect will continue to adversely affect our business in the quarter ending December 31, 2020 and beyond, for a variety of reasons, including those discussed below and elsewhere in this Quarterly Report.

As of October 31, 2020, the Company is aware that most of our facilities have reported one or more positive cases of COVID-19 among the residents and/or operator employee populations. Many of our operators have reported incurring significant cost increases as a result of the COVID-19 pandemic, with dramatic increases for facilities with positive cases. We believe these increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of personal protective equipment, testing equipment, and processes and supplies. In terms of occupancy levels, many of our operators have reported experiencing declines, in part due to the elimination or suspension of elective hospital procedures, fewer discharges from hospitals to SNF’s, and higher hospital readmittances from SNFs.

While the Company has received approximately 83% of its expected monthly rental receipts from tenants for the nine months ended September 30, 2020, there are a number of uncertainties the Company faces as it considers the potential impact of COVID-19 on its business, including the length of census disruption, elevated COVID-19 operating costs related to personal protection equipment, cleaning supplies, virus testing and increased overtime due to staff illness and the extent to which federal and state funding support will offset these incremental costs for our tenants. To the extent government support is not sufficient or timely to offset these impacts, or to the extent these trends continue or accelerate and are not offset by additional government relief that is sufficient or timely, the operating results of our operators are likely to be adversely affected, some may be unwilling or unable to pay their contractual obligations to us in full or on a timely basis, as has occurred with one of our operators. We also do not know the number of facilities that will ultimately experience widespread, high-cost outbreaks of COVID-19, and while we have requested reporting from operators of their numbers of cases and CMS has required additional reporting by operators, we may not receive accurate information on the number of cases, which could result in a delay in reporting. We expect to see continued increased clinical protocols for infection control within facilities and increased monitoring of employees, guests and other individuals entering facilities; however, we do not yet know if future reimbursement rates will be sufficient to cover the increased costs of enhanced infection control and monitoring. The extent of the COVID-19 pandemic’s effect on our and our operators’ operational and financial performance will depend on future developments, including the ultimate duration, spread and intensity of the outbreak, which may depend on factors such as the development and implementation of an effective vaccine and treatments for COVID-19, government funds and other support for the senior care sector and the efficacy of other policies and measures that may mitigate the impact of the pandemic, all of which are uncertain and difficult to predict. Due to these uncertainties, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material.

Portfolio

The following table provides summary information regarding the number of facilities and related licensed beds/units as of September 30, 2020:

	Owned				Leased				Managed for Third Parties				Total
	Facilities		Beds/Units		Facilities		Beds/Units		Facilities		Beds/Units		Facilities		Beds/Units
State
Alabama		2		230		—		—		—		—		2		230
Georgia		3		395		8		884		—		—		11		1,279
North Carolina		1		106		—		—		—		—		1		106
Ohio		4		291		1		99		3		332		8		722
South Carolina		2		180		—		—		—		—		2		180
Total		12		1,202		9		983		3		332		24		2,517
Facility Type
Skilled Nursing		10		1,016		9		983		2		249		21		2,248
Assisted Living		2		186		—		—		—		—		2		186
Independent Living		—		—		—		—		1		83		1		83
Total		12		1,202		9		983		3		332		24		2,517

The following table provides summary information regarding the number of facilities and related licensed beds/units by operator affiliation as of September 30 2020:

Operator Affiliation	Number of Facilities ⁽¹⁾		Beds / Units
C.R. Management		6		689
Aspire		5		390
Wellington Health Services		2		342
Peach Health		3		266
Symmetry Healthcare ⁽²⁾		2		180
Beacon Health Management		2		212
Vero Health ⁽²⁾		1		106
Subtotal		21		2,185
Regional Health Managed		3		332
Total		24		2,517

⁽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, see Note 6 – Leases located in Part I, Item 1, “Financial Statements”, of this Quarterly Report; Part II, Item 8, “Financial Statements and Supplementary Data”, Note 7 – Leases included in the Annual Report; and “Portfolio of Healthcare Investments” included in Part I, Item 1, “Business” included in the Annual Report.

⁽²⁾	On March 1, 2019, the Company transferred operations of the 106-bed Mountain Trace Facility to Vero Health, an affiliate of Vero Health Management, LLC. See Note 6 – Leases to our consolidated financial statements in Part I, Item 1, “Financial Statements (unaudited)” in this Quarterly Report.

Portfolio Occupancy Rates

The following table provides summary information regarding our portfolio facility-level occupancy rates for the periods shown:

For the Twelve Months Ended

Operating Metric ⁽¹⁾

December 31,

2019

March 31,

2020

June 30,

2020

September 30,

2020

Occupancy (%)

76.5

76.3

75.1

73.2

⁽¹⁾	Excludes three managed facilities in Ohio.

Lease Expiration

The following table provides summary information regarding our lease expirations for the years shown as of September 30, 2020:

			Licensed Beds					Annual Lease Revenue ⁽¹⁾
	Number of Facilities		Amount		Percent (%)			Amount '000's		Percent (%)
2023		1		62		2.8	%	$	263		1.6	%
2024		1		126		5.8	%		965		5.8	%
2025		2		269		12.3	%		2,221		13.3	%
2026		—		—		0.0	%		—		0.0	%
2027		8		884		40.4	%		7,748		46.4	%
2028		4		328		15.0	%		2,352		14.1	%
2029		1		106		4.9	%		538		3.2	%
Thereafter		4		410		18.8	%		2,601		15.6	%
Total		21		2,185		100.0	%	$	16,688		100.0	%

⁽¹⁾	Straight-line rent.

Acquisitions

There were no acquisitions during the three and nine months ended September 30, 2020 or September 30, 2019.

Divestitures

There were no divestitures during the three and nine months ended September 30, 2020.

Lease Termination. Effective January 15, 2019, the Company’s lease of two skilled nursing facilities, an 115-bed skilled nursing facility located in East Point, Georgia and an 184-bed skilled nursing facility located in Atlanta, Georgia, which leases were due to expire August 2025 and which Omega Facilities the Company subleased to third party subtenants, was terminated by mutual consent of the Company and the lessor (affiliate of Omega Healthcare) and the sublessees (affiliates of Wellington Health Services) of each of the Omega Facilities pursuant to the Omega Lease Termination. In connection with the Omega Lease Termination, the Company transferred approximately $0.4 million of its integral physical fixed assets at the Omega Facilities to the lessor and on January 28, 2019 received from the lessor gross proceeds of approximately $1.5 million, consisting of (i) a termination fee in the amount of $1.2 million and (ii) approximately $0.3 million to satisfy other net amounts due to the Company under the leases.

Facilities Sale to MED. On April 15, 2019, the Company entered into the PSA with MED, with respect to four skilled nursing facilities owned by the Company. Subject to the terms of the PSA, the Company agreed to sell, and MED agreed to purchase, all of the Company’s right, title and interest in the PSA Facilities. In consideration therefor, MED agreed to pay to the Company the sum of approximately $28.5 million in cash. The disposition was completed in two parts (i) on August 1, 2019, when the Company received net proceeds of $0.4 million after repayment of the Pinecone Credit Facility, the Quail Creek Credit Facility and associated expenses related to the transactions and (ii) on August 28, 2019, when the Company received net proceeds of $2.3 million upon the sale of the Northwest Facility.

For historical information regarding the Company’s divestitures, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 10 – Acquisitions and Dispositions and Note 11 – Discontinued Operations included in the Annual Report.

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 Company's Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report.

Results of Operations

The following table sets forth, for the periods indicated, 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,
(Amounts in 000’s)	2020			2019			Percent Change (*)			2020			2019			Percent Change (*)
Revenues:
Rental revenues	$	4,308		$	4,590			(6.1	)%	$	12,898		$	14,746			(12.5	)%
Management fees		244			239			2.1	%		732			716			2.2	%
Other revenues		215			1		NM				224			93			140.9	%
Total revenues		4,767			4,830			(1.3	)%		13,854			15,555			(10.9	)%
Expenses:
Facility rent expense		1,640			1,640			—			4,919			5,006			(1.7	)%
Cost of management fees		161			148			8.8	%		486			467			4.1	%
Depreciation and amortization		694			797			(12.9	)%		2,239			2,661			(15.9	)%
General and administrative expenses		743			730			1.8	%		2,334			2,551			(8.5	)%
Doubtful accounts expense (recovery)		790			32		NM				653			(214	)		NM
Other operating expenses		109			191			(42.9	)%		630			821			(23.3	)%
Total expenses		4,137			3,538			16.9	%		11,261			11,292			(0.3	)%
Income from operations		630			1,292			(51.2	)%		2,593			4,263			(39.2	)%
Other expense (income):
Interest expense, net		692			1,157			(40.2	)%		2,091			4,535			(53.9	)%
Loss on extinguishment of debt		—			924			(100.0	)%		—			2,478			(100.0	)%
Gain on disposal of assets		—			(6,451	)		(100.0	)%		—			(7,141	)		(100.0	)%
Other expense (income), net		9			(48	)	NM				144			6		NM
Total other expense (income), net		701			(4,418	)	NM				2,235			(122	)	NM
(Loss) income from continuing operations before income taxes		(71	)		5,710		NM				358			4,385		NM
Income tax expense		—			—		NM				—			44			(100.0	)%
(Loss) income from continuing operations		(71	)		5,710			(101.2	)%		358			4,341			(91.8	)%
(Loss) income from discontinued operations, net of tax		(2	)		101			(102.0	)%		(33	)		411			(108.0	)%
Net (Loss) income	$	(73	)	$	5,811			(101.3	)%	$	325		$	4,752			(93.2	)%

*	Not meaningful (“NM”).

Three Months Ended September 30, 2020 and 2019

Rental revenues—Rental revenue decreased by approximately $0.3 million, or 6.1%, to $4.3 million for the three months ended September 30, 2020, compared with $4.6 million for the same period in 2019. The decrease reflects approximately $0.3 million related to the sale of four of the Company’s facilities to MED during the third quarter of 2019.

Other revenues—Other revenue increased by approximately $0.2 million, for the three months ended September 30, 2020, compared to the same period in 2019. This increase is due to the previously deferred interest earned on the Peach Line pursuant to the Peach Line modification in the current quarter and the Peach Health Sublessees repaying its third-party Peach Working Capital Facility, to which the Peach Line was subordinated.

Depreciation and amortization—Depreciation and amortization expense decreased by approximately $0.1 million, or 12.9%, to $0.7 million for the three months ended September 30, 2020, compared with $0.8 million for the same period in 2019. The decrease is mainly due to the full depreciation of equipment and computer related assets and the cessation of depreciation and amortization on assets sold in the prior year.

Doubtful accounts expense (recovery) —The current period expense is related to a $0.9 million provision of outstanding rent arrears from one operator offset by $0.2 million of rent collection from the Symmetry Payment Plan. The prior period expense is the net result of the Company releasing all of the remaining provision for the previous rent arrears related to the prior tenants of the Aspire Facilities due to their timely monthly payments, which was offset by fully providing for the outstanding balances on the Symmetry Payment Plan due to non-payment.

Other operating expenses—Other operating expenses decreased by approximately $0.1 million, or 42.9%, to $0.1 million for the three months ended September 30, 2020, compared with $0.2 million for the same period in 2019. The decrease in the current year is due to the gain recorded on the transference of the bed tax liability to Peach Health pursuant to the Peach Line modification.

Interest expense, net—Interest expense decreased by approximately $0.5 million, or 40.2%, to $0.7 million for the three months ended September 30, 2020, compared with $1.2 million for the same period in 2019. The decrease is due to repayment of significant debt in the prior year.

Loss on extinguishment of debt—The loss from extinguishment of debt decreased by approximately $0.9 million, or 100.0% for the three months ended September 30, 2020. The prior period expenses were due to the repayment of all amounts due under the Pinecone Credit Facility and related expenses.

Gain on disposal of Assets—The gain on disposal of assets decreased by approximately $6.4 million for the three months ended September 30, 2020, The gain on disposal of assets of $6.4 million in the prior period is due to the sale of four facilities to MED.

Loss income from discontinued operations, net of tax—The income from discontinued operations decreased by $0.1 million, or 102.0%, for the three months ended September 30, 2020. In the prior period the Company recognized a $0.2 million credit for a settlement reached with one of the Company’s former attorneys for outstanding legal services related to the Company’s professional and general liability claims partially offset by approximately $0.1 million in legal and business expenses.

Nine Months Ended September 30, 2020 and 2019

Rental revenues—Rental revenue decreased by approximately $1.8 million, or 12.5%, to $12.9 million for the nine months ended September 30, 2020, compared with $14.7 million for the same period in 2019. The decrease reflects approximately $0.1 million related to the Omega Lease Termination and approximately $1.7 million related to the sale of four of the Company’s facilities during the third quarter of 2019. The Company recognizes all rental revenues on a straight line rent accrual basis, except with respect to the Mountain Trace Facility while operated by an affiliate of Symmetry for January and February 2019 and the four facilities from January 2019 until their sale during the prior year third quarter, for which rental revenue was recognized based on cash received.

Other revenues—Other revenue increased by approximately $0.1 million, or 140.9% to $0.2 million for the nine months ended September 30, 2020, compared to $0.1 million at September 30, 2019. The increase is due to the previously deferred interest earned on the Peach Line pursuant to the Peach line modification in the current quarter. During the prior year comparative period the Company suspended revenue recognition on the Peach line interest due pursuant to the subordination of the Peach Line to the Peach Health Sublessees third-party Peach Working Capital Facility.

Facility rent expense—Facility rent expense decreased by approximately $0.1 million, or 1.7%, to $4.9 million for the nine months ended September 30, 2020, compared with $5.0 million for the same period in 2019. The net decrease is due to the Omega Lease Termination and Covington Forbearance Agreement in the prior year comparative period.

Depreciation and amortization—Depreciation and amortization expense decreased by approximately $0.5 million, or 15.9%, to $2.2 million for the nine months ended September 30, 2020, compared with $2.7 million for the same period in 2019. The decrease is mainly due to the full depreciation of equipment and computer related assets and the cessation of depreciation and amortization on assets sold in the prior year.

General and administrative—General and administrative costs decreased by approximately $0.3 million or 8.5%, to $2.3 million for the nine months ended September 30, 2020, compared with $2.6 million for the same period in 2019. The decrease is due to approximately $0.3 million lower auditing and accounting expenses, lower business consulting and legal expenses incurred in relation to forbearance agreements with a prior lender in the prior year and other miscellaneous smaller savings, offset by an increase in employee related expenses of approximately $0.1 million.

Doubtful accounts expense (recovery) — The current period expense is related to a $0.9 million provision of outstanding rent arrears from one operator offset by $0.2 million of rent collection from the Symmetry Payment Plan. The prior period expense is the net result of the Company releasing all of the remaining provision for the previous rent arrears related to the prior tenants of the Aspire Facilities due to their timely monthly payments, which was offset by fully providing for the outstanding balances on the Symmetry Payment Plan due to non-payment.

Other operating expenses—Other operating expenses decreased by approximately $0.2 million, or 23.3%, to $0.6 million for the nine months ended September 30, 2020, compared with $0.8 million for the same period in 2019. The decrease in the current year is due to approximately $0.1 million gain recorded on the transference of the bed tax liability to Peach Health pursuant to the Peach Line modification and approximately $0.1 million net lower other expenses.

Interest expense, net—Interest expense decreased by approximately $2.4 million, or 53.9%, to $2.1 million for the nine months ended September 30, 2020, compared with $4.5 million for the same period in 2019. The decrease reflects the repayment of significant debt in the prior year resulting in approximately $2.1 million less interest expense, with the remaining $0.3 million predominantly due to the lower prime interest rate in the current period.

Loss on extinguishment of debt—The loss from extinguishment of debt decreased by approximately $2.4 million, or 100.0% for the nine months ended September 30, 2020. The prior period expenses were due to forbearance expenses and repayment of all amounts due under the Pinecone Credit Facility and related expenses.

Gain on disposal of assets—The gain on disposal of assets decreased by approximately $7.1 million for the nine months ended September 30, 2020, The gain on disposal of assets in the prior period is due to a $0.7 million gain from the Omega Lease Termination and $6.4 million gain for the sale of four facilities to MED.

Loss (income) discontinued operations, net of tax—The loss from discontinued operations increased by $0.4 million, or 108.0%, for the nine months ended September 30, 2020. The prior period gain is due to a $0.2 million credit from one of the Company’s former attorneys, a $0.1 million credit from legacy professional and general claims and approximately a $0.1 million refund of a workers’ compensation insurance plan premium and deposit.

Liquidity and Capital Resources

Overview

The Company is current with all of its debt and other financial obligations. The Company has benefited from various, now expired, stimulus measures made available to it through the CARES Act enacted by Congress in response to the COVID-19 pandemic which allowed for, among other things: (i) a deferral of debt service payments on USDA loans to maturity, (ii) an allowance for debt service payments to be made out of replacement reserve accounts for HUD loans and (iii) debt service payments to be made by the SBA on all SBA loans.

Debt Covenant Compliance

As of September 30, 2020, the Company was in compliance with the various covenants for the Company’s outstanding credit related instruments.

Series A Preferred Dividend Suspension

On June 8, 2018, the Board indefinitely suspended quarterly dividend payments with respect to the Series A Preferred Stock. Such dividends are currently in arrears with respect to the fourth quarter of 2017, all quarters of 2018, all quarters of 2019, and the first, second and third quarters of 2020. The Board plans to revisit the dividend payment policy with respect to the Series A Preferred Stock on an ongoing basis. The Board believes that the dividend suspension will provide the Company with additional funds to meet its ongoing liquidity needs. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for more than four dividend periods, the annual dividend rate on the Series A Preferred Stock for the fifth and future missed dividend periods has increased to 12.875%, which is equivalent to $3.22 per share each year, commencing on the first day after the missed fourth quarterly payment (October 1, 2018) and continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash.

Evaluation of the Company’s Ability to Continue as a Going Concern

For additional information regarding the Company’s liquidity, see Note 2 – Liquidity and Note 8 – Notes Payable and other debt, to the Company’s consolidated financial statements located in Part I, Item 1, Notes to Consolidated Financial Statements”, of this Quarterly Report.

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)	2020			2019
Net cash provided by operating activities - continuing operations	$	1,933		$	2,165
Net cash used in operating activities - discontinued operations		(1,017	)		(980	)
Net cash (used in) provided by investing activities - continuing operations		(209	)		3,636
Net cash used in financing activities - continuing operations		(999	)		(4,183	)
Net cash used in financing activities - discontinued operations		—			(34	)
Net change in cash and restricted cash		(292	)		604
Cash and restricted cash at beginning of period		8,038			6,486
Cash and restricted cash, ending	$	7,746		$	7,090

Nine Months Ended September 30, 2020

Net cash provided by operating activities—continuing operations for the nine months ended September 30, 2020 was approximately $1.9 million, consisting primarily of our income from operations less changes in working capital, and noncash charges (primarily, depreciation and amortization, lease revenue in excess of cash rent). The $0.2 million decrease compared to the same period in the prior year primarily reflects the decrease in interest payments of $2.4 million partially offset by approximately $2.0 million lower receivables and $0.2 million other net expense increases.

Net cash used in operating activities—discontinued operations for the nine months ended September 30, 2020 was approximately $1.0 million, excluding non-cash proceeds and payments. This amount was to fund legal and associated settlement costs related to our legacy professional and general liability claims and payment of legacy accounts payable.

Net cash used in investing activities—continuing operations for the nine months ended September 30, 2020 was approximately $0.2 million. This capital expenditure was for a new sprinkler system at one of our leased properties.

Net cash used in financing activities—continuing operations was approximately $1.0 million for the nine months ended September 30, 2020. This is the result of routine repayments of approximately $1.2 million towards our debt obligations partially offset by receipt of $0.2 million proceeds from the PPP Loan.

Nine Months Ended September 30, 2019

Net cash provided by operating activities—continuing operations for the nine months ended September 30, 2019 was approximately $2.2 million, consisting primarily of our income from operations less changes in working capital, and noncash charges (primarily gain on disposal of assets, depreciation and amortization, loss on debt extinguishment, and lease revenue in excess of cash received). The prior year had higher rent receipts partially offset by higher interest payments and legal and consulting expenses related to the Pinecone Credit Facility.

Net cash used in operating activities—discontinued operations for the nine months ended September 30, 2019 was approximately $1.0 million, excluding non-cash proceeds and payments. This amount was to fund legal and associated settlement costs related to our legacy professional and general liability claims.

Net cash provided by investing activities—continuing operations for the nine months ended September 30, 2019 was approximately $3.6 million. This is the result of the receipt of approximately $2.6 million net proceeds (excluding non-cash proceeds and payments) from the sale of the PSA Facilities in the current quarter and the $1.2 million Omega Lease Termination fee offset by $0.2 million capital expenditures on building improvements.

Net cash used in financing activities—continuing operations was approximately $4.2 million for the nine months ended September 30, 2019. Excluding non-cash proceeds and payments, this is the result of routine repayments of approximately $2.6 million of other existing debt obligations, $0.3 million repayment of bonds principal and approximately $1.3 million in relation to expenses and fees related to the Pinecone forbearance agreements, repayment of the Pinecone Credit Facility and settlement of the Surviving Obligations.

Net cash used in financing activities—discontinued operations for the nine months ended September 30, 2019 was for Medicaid and vendor note payments.

Notes Payable and Other Debt

For information regarding the Company’s debt financings, see Note 8 – Notes Payable and Other Debt, to the Company’s Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report and Note 9 – Notes Payable and Other Debt to our audited consolidated financial statements included in Part II, Item 8., “Financial Statements and Supplementary Data” in the Annual Report.

Receivables

Our operations could be adversely affected if we experience further significant delays in receipt of rental income from our tenants. As of September 30, 2020, one operator, who has at least one facility suffering from COVID-19, accounted for approximately $1.1 million of rent arrears recorded in “Accounts receivable, net of allowance” on our consolidated balance sheets. The Company has recorded an allowance of $0.9 million against a receivable of $2.0 million, because the Company has determined that a full allowance is not presently warranted given that the Company has a uniform commercial code lien on the operator’s receivables. The Company continues to monitor collectability and negotiations are ongoing between the operator and the Company for resolution and collection of the receivables.

As of September 30, 2020 and December 31, 2019, the Company reserved for approximately $1.2 million and approximately $0.6 million, respectively, of receivables. Accounts receivable, net totaled $1.8 million at September 30, 2020 and $1.0 million at December 31, 2019.

Operating Leases

For information regarding the Company’s operating leases, see Note 6 – Leases, to the Company’s Notes to consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report, and Note 7 – Leases located in Part II, Item 8, “Financial Statements and Supplementary Data”, included in the Annual Report.

Off-Balance Sheet Arrangements

Guarantee

During the three months ended September 30, 2020, the value of the Company’s guarantee is zero as Peach Health Sublessee’ repaid their Peach Working Capital Facility in full. For further information see Note 6 – Leases, to the Company’s Notes to consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report, and Note 7 – Leases located in Part II, Item 8, “Financial Statements and Supplementary Data”, included in the Annual Report.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Disclosure in response to Item 3. of Form 10-Q is not required to be provided by smaller reporting companies.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report (the “Evaluation Date”). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. Other Information

Item 1.

Legal Proceedings.

The Company is a defendant in various legal actions and administrative proceedings arising in the ordinary course of business, including claims that the services the Company provided during the time it operated skilled nursing facilities resulted in injury or death to patients. Although the Company settles cases from time to time when settlement can be achieved on a reasonable basis, the Company vigorously defends any matter in which it believes the claims lack merit and the Company has a reasonable chance to prevail at trial or in arbitration. Litigation is inherently unpredictable and there is risk in the Company's strategy of aggressively defending these cases. There is no assurance that the outcomes of these matters will not have a material adverse effect on the Company’s financial condition. Although arising in the ordinary course of the Company's business, certain of these matters are described below under "Professional and General Liability Claims."

Except as set forth in below in this Item 1, Legal Proceedings, and in Part II, Item 1, Legal Proceedings in the Company’s Quarterly Report for the quarter ended March 31, 2020, filed with the SEC on June 11, 2020 and amended by Amendment No. 1 thereto filed with the SEC on June 22, 2020 and in the Quarterly Report for the quarter ended June 30, 2020, filed with the SEC on August 11, 2020, there have been no new material legal proceedings and no material developments in the legal proceedings reported in Part I, Item 3, Legal Proceedings, in the Annual Report. For further information with respect to legal proceedings, see Note 12 - Commitments and Contingencies, to the Company’s Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report.

Professional and General Liability Claims. As of the date of filing of this Quarterly Report, 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 prior to the Transition. 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.

As of the date of filing of this Quarterly Report, the Company is a defendant in 11 additional professional and general liability actions (including the one action filed during the three months ended September 30, 2020 and described below) which set forth claims relating to time periods after the Transition, on behalf of former patients of our current or prior tenants. These actions generally seek unspecified compensatory and punitive damages for former patients who were allegedly injured or died due to professional negligence or understaffing at the applicable facility operated by our tenants. These actions on behalf of former patients of our current or prior tenants all relate to events which occurred after the Company transitioned the operations of the facilities in question to a third-party operator (and of which four such actions relate to events which occurred after the Company sold such facilities) and are subject to such operators’ indemnification obligations in favor of the Company.

During the three months ended September 30, 2020, the following one professional and general liability action was filed against the Company.

•

On July 27, 2020, a wrongful death action was filed in the State Court of Chatham County, Georgia, by Jerold Kaplan against affiliates of Peach Health and the Company, on behalf of, and alleging the wrongful death of a patient at the facility known as Oceanside Health and Rehab operated by an affiliate of Peach Health. The plaintiff is seeking an amount in excess of $10,000 for pain and suffering and damages and an unspecified amount of punitive damages. The Company is indemnified by affiliates of Peach Health in this action. The Company believes that this action lacks merit and the Company intends to take action most favorable to the Company. There is no guarantee that the Company will prevail in this action.

The Company established a self-insurance reserve for its professional and general liability claims, included within “Accrued expenses” on the Company’s consolidated balance sheets of $0.2 million and $0.5 million at September 30, 2020 and December 31, 2019, respectively. Additionally as of September 30, 2020 and December 31, 2019, $0.2 million and $0.3 million, respectively, was reserved for settlement amounts in “Accounts payable” in the Company’s consolidated balance sheets. For additional information regarding the Company’s self-insurance reserve, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 15 – Commitments and Contingencies included in the Annual Report.

Item 1A.

Risk Factors.

For a detailed description of certain risk factors that could affect our business, operations and financial condition, see Part I, Item 1A., Risk Factors, included in the Annual Report, as supplemented and modified by the risk factors set forth below in this Item 1A. The risk factors described in the Annual Report and this Quarterly Report (collectively, the “Risk Factors”) do not describe all risks applicable to our business, and we intend it only as a summary of certain material factors. The Risk Factors

should be considered in connection with evaluating the forward-looking statements contained in this Quarterly Report because the Risk Factors could cause the actual results and conditions to differ materially from those projected in forward-looking statements. If any of the risks actually occur, our business, financial condition or results of operations could be negatively affected. In that case, the trading price of the common stock and Series A Preferred Stock could decline.

COVID-19 Global Pandemic

The COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Our tenants’ operations have been, and we expect will continue to be, materially and adversely affected by the COVID-19 pandemic due to, among other things, decreased occupancy and increased operating costs (including costs due to the implementation of additional safety protocols and procedures, purchases of personal protective equipment, increased staffing to allow facilities to adhere to social distancing and infection control protocols, and premium pay and incentive pay for the staff), which may affect our tenants’ ability to make rental payments to us pursuant to their lease agreements.

The COVID-19 pandemic also could cause temporary closures of nursing facilities, operated by our tenants, which also may affect our tenants’ ability to make rental payments to us pursuant to their lease agreements. In addition, our tenants’ operations could be further disrupted if any of their employees, or the employees of their vendors, have, or are suspected of having, COVID-19. This could cause, and in some cases have caused, our tenants or their vendors to experience staffing shortages, and this could potentially require our tenants and their vendors to close parts of or entire facilities, distribution centers, or other buildings to disinfect any affected areas.

We could also be adversely affected if government authorities impose upon our tenants, or their vendors, certain restrictions due to COVID-19. These restrictions may be in the form of mandatory closures, requested voluntary closures, bans on new admissions, restricted operations, or restrictions on the importation of necessary equipment or supplies which may adversely affect our tenants’ operations and their ability to make rental payments to us. In addition, family members may elect to keep nursing facility residents at home during the COVID-19 pandemic, thus reducing our tenants’ revenue. Currently, a number of our tenants have stopped admitting new patients due to COVID-19 infections and hence their revenues have declined.

facilities and increased monitoring of employees, guests and other individuals entering facilities; however, we do not yet know if future reimbursement rates will be sufficient to cover the increased costs of enhanced infection control and monitoring. The extent of the COVID-19 pandemic’s effect on our and our operators’ operational and financial performance will depend on future developments, including the ultimate duration, spread and intensity of the outbreak, which may depend on factors such as the development and implementation of an effective vaccine and treatments for COVID-19, government funds and other support for the senior care sector and the efficacy of other policies and measures that may mitigate the impact of the pandemic, all of which are uncertain and difficult to predict. Due to these uncertainties, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material.

Risks Related to Our Capital Structure

We have substantial indebtedness, which may have a material adverse effect on our business and financial condition.

As of September 30, 2020, we had approximately $54.8 million, net of $1.4 million deferred financing and unamortized discounts, in indebtedness. We may also obtain additional short-term and long-term debt to meet future capital needs, subject to certain restrictions under our existing indebtedness, which would increase our total debt. Our substantial amount of debt could have negative consequences to our business. For example, it could:

•

increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;

•

require us to dedicate a substantial portion of cash flows from operations to interest and principal payments on outstanding debt, thereby limiting the availability of cash flow for dividends and other general corporate purposes;

•

require us to maintain certain debt coverage and other financial ratios at specified levels, thereby reducing our financial flexibility;

•

make it more difficult for us to satisfy our financial obligations;

•

expose us to increases in interest rates for our variable rate debt;

•

limit our ability to borrow additional funds on favorable terms, or at all, for working capital, debt service requirements, expansion of our business or other general corporate purposes;

•

limit our ability to refinance all or a portion of our indebtedness on or before maturity on the same or more favorable terms, or at all;

•

limit our flexibility in planning for, or reacting to, changes in our business and our industry;

•

limit our ability to make acquisitions or take advantage of business opportunities as they arise;

•

place us at a competitive disadvantage compared with our competitors that have less debt; and

•

limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity.

In addition, our ability to borrow funds in the future will depend in part on the satisfaction of the covenants in our debt agreements. If we are unable to satisfy the financial covenants contained in those agreements, or are unable to generate cash sufficient to make required debt payments, the lenders and other parties to those arrangements could accelerate the maturity of some or all of our outstanding indebtedness.

We depend on affiliates of C.R Management, Wellington and Aspire for a significant portion of our revenues and any inability or unwillingness by such entities to satisfy their obligations to us could have a material adverse effect on us.

As of the date of filing this Quarterly Report, our 21 properties (excluding the three facilities that are managed by us) are operated by a total of 21 separate tenants, with each of our tenants being affiliated with one of seven local or regionally-focused operators. We refer to our tenants who are affiliated with the same operator as a group of affiliated tenants. Each of our operators operate (through a group of affiliated tenants) between one and six of our facilities, with our most significant operators, C.R Management, Wellington and Aspire, each operating (through a group of affiliated tenants) six, two and five facilities, respectively. We, therefore depend, on tenants who are affiliated with C.R Management, Wellington and Aspire for a significant portion of our revenues. We cannot assure you that the tenants affiliated with C.R Management, Wellington and Aspire will have sufficient assets, income and access to financing to enable them to make rental payments to us or to otherwise satisfy their obligations under the applicable leases and subleases, and any inability or unwillingness by such tenants to do so could have a material adverse effect on us.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.

Defaults upon Senior Securities.

The Board suspended dividend payments with respect to the Series A Preferred Stock, commencing with the fourth quarter of 2017, and determined to continue such suspension indefinitely in June 2018. No dividends were declared or paid with respect to the Series A Preferred Stock for such dividend periods. As a result of such suspension, the Company has $25.6 million of undeclared preferred stock dividends in arrears, whose annual dividend rate has increased to 12.875% commencing with the fourth quarter of 2018, with respect to the Series A Preferred Stock as of the date of filing of this Quarterly Report. See Note 10 – Common and Preferred Stock, “Preferred Stock Offerings and Dividends”, to the Company’s Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

None.

Item 6.

Exhibits.

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

•

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

•

have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

•

may apply standards of materiality in a way that is different from what may be viewed as material to investors; and

•

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and should not be relied upon by investors.

EXHIBIT INDEX

Exhibit No.	Description	Method of Filing

3.1	Amended and Restated Articles of Incorporation of Regional Health Properties, Inc., effective September 21, 2017	Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017

3.2	Certificate of Merger, effective September 29, 2017	Incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017

3.3	Amended and Restated Bylaws of Regional Health Properties, Inc., effective September 21, 2017	Incorporated by reference to Exhibit 3.3 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017

4.1	Form of Common Stock Certificate of Regional Health Properties, Inc.	Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017

4.2	Description of Regional Health Properties, Inc. Capital Stock	Incorporated by reference to Exhibit 4.2 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018

4.3*	2005 Stock Option Plan of AdCare Health Systems, Inc.	Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011

4.4*	AdCare Health Systems, Inc. 2011 Stock Incentive Plan	Incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011

4.5*	Form of Non-Statutory Stock Option Agreement	Incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011

4.6*	Form of Incentive Stock Option Agreement	Incorporated by reference to Exhibit 4.5 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011

4.7	Form of Warrant to Purchase Common Stock of the Company	Incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3 (File No. 333-175541)

4.8	Warrant to Purchase 50,000 Shares of Common Stock, dated December 28, 2012, issued by AdCare Health Systems, Inc. to Strome Alpha Offshore Ltd.	Incorporated by reference to Exhibit 4.21 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012

4.10	Form of Warrant granted to management to Purchase Shares of AdCare Health Systems, Inc. dated November 20, 2007	Incorporated by reference to Exhibit 10.23.2 of the Registrant’s Annual Report on Form 10-KSB as amended March 31, 2008

10.1	Promissory Note, dated April 16, 2020, by and between AdCare Administrative Service, LLC and Greater Nevada Credit Union	Incorporated by reference to Exhibit 4.21 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020

10.2	Note Modification Agreement, dated as of May 1, 2020, by and between Coosa Nursing ADK, LLC and Metro City Bank	Incorporated by reference to Exhibit 4.12 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020

10.3	Extension Agreement, dated as of July 15, 2020, by and between Mountain Trace Nursing ADK, LLC and Community Bank & Trust – West Georgia	Incorporated by reference to Exhibit 4.13 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020

Exhibit No.	Description	Method of Filing

10.4	Note and Loan Modification Agreement, dated as of September 3, 2020, by and between Erin Property Holdings, LLC and Regional Health Property, Inc. and Cadence Bank, NA	Incorporated by reference to Exhibit 4.14 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020

10.5	Amended Promissory Note, dated as of August 27, 2020, by and between OS Tybee, LLC, SB Tybee, LLC, JV Jeffersonville, LLC and Regional Health Property, Inc.	Filed herewith

10.6	Agreement Regarding Lease and Note, dated as of August 27, 2020, by and between OS Tybee, LLC, SB Tybee, LLC, JV Jeffersonville, LLC and Regional Health Property, Inc.	Filed herewith

10.7	Consulting Agreement, dated as of August 16, 2020, by and between E. Clinton Cain and Regional Health Property, Inc.	Filed herewith

31.1	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act	Filed herewith

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

32.1	Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act	Filed herewith

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

101	The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019; (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (unaudited); (iii) Consolidated Statements of Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2020 and 2019 (unaudited); (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited); and (v) the Notes to Consolidated Financial Statements (unaudited).	Filed herewith

*	Identifies a management contract or compensatory plan or arrangement

SIGNATURES

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

		REGIONAL HEALTH PROPERTIES, INC.
		(Registrant)

Date:	November 13, 2020	/s/ Brent Morrison
		Brent Morrison
		Chief Executive Officer and Director (Principal Executive Officer)

Date:	November 13, 2020	/s/ Benjamin A. Waites
		Benjamin A. Waites
		Chief Financial Officer and Vice President (Principal Financial and Accounting Officer)