SEC Comment Letter for REGIONAL HEALTH PROPERTIES, INC (RHEP, RHEPA, RHEPB, RHEPZ) (CIK 0001004724) (RHEP) — Jan 17, 2007
REGIONAL HEALTH PROPERTIES, INC (RHEP, RHEPA, RHEPB, RHEPZ) (CIK 0001004724)
Date: Jan. 17, 2007 · CIK: 0001004724 · Accession: 0000000000-07-002495
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-131542
Letter
Mail Stop 6010 June 6, 2006 Mr. David A. Tenwick Chairman Adcare Health Systems, Inc. 5057 Troy Road Springfield, Ohio 45502-9032
Re: Adcare Health Systems, Inc. Amendment No. 2 to Form SB -2 Registration Statement File No. 333-131542
Dear Mr. Tenwick:
We have reviewed your filing and have th e following comments. Where indicated, we think you should revise your document in response to these comments. If you disagree, we will consider your explanation as to why our commen t is inapplicable or a revision is unnecessary. Please be as detailed as necessa ry in your explanation. In some of our comments, we may ask you to provide us with supplemental informati on so we may better understand your disclosure. After reviewing this information, we ma y or may not raise additional comments.
Please understand that the purpose of our re view process is to assist you in your compliance with the applicable disclosure requir ements and to enhance the overall disclosure in your filing. We look forward to working with you in these respects. We welcome any questions you may have about our comments or on any other aspe ct of our review. Feel free to call us at the telephone numbers listed at the end of this letter.
Summary - page 1
1. Please refer to the first comment in our last letter in which we asked you to revise the discussion of the revenues earned by the facili ties you manage for third parties to explain the significance of this measure and the significance of the combined revenues of facilities you own and facilities you manage. We asked you to clarify how the revenues recognized by the facilities you manage for th ird parties affect your revenue. We noted your statement that the long-term care f acilities you own had annual revenues of $21,900,360. We also asked you to disclose th e revenues you recognized for managing
David A. Tenwick Adcare Health Systems, Inc. June 6, 2006 Page 2
facilities for third parties as well as where this amount appears on your income statement. In your response you indicate that you have deleted the discussion regarding revenues earned from facilities that you manage for th ird parties. However, the discussion we commented on remains in your document exactly as it appeared in the first amendment. Accordingly, we reissue the comment. Please note that we do not beli eve that deletion of a discussion of the revenue you receive from f acilities you manage for third parties is an appropriate response to this comment. Please explain how th e revenues earned by facilities you manage re sult in revenues for you. For example, are your management fees based on a percentage of these revenues, a perc entage of profits, or are they determined using some other calculation. Please quantif y the revenues you earne d based on the third parties’ revenues of $39,048,000.
2. Additionally, discussions of revenues should be balanced with a discus sion of net income or net losses and expenses. You need to pr ovide a balanced discus sion of your financial condition. It is not appropriate to selectively discuss specific aspects of your finances. If you discuss your revenues in the summary, we think you also need to discuss your net losses and expenses in order to provide a balanced picture.
3. In light of your losses and existing defaults on some of the covenants in your debt agreements, we think you need to balance your discussion of your goals in the next to last paragraph of the summary with an equally detailed discussi on of the potential impediments to your achievement of thes e goals. Please revise the disclosure accordingly.
4. Under “Use of Proceeds” on page 2, please delete the phrase “our only recently having achieved profitable operations.” We note th at you had losses in 2005 and that your net income in 2003 and 2004 was due primarily to th e gain recognized on the sale of real property.
Capitalization - page 14
5. Refer to your response to comment 3. Please ex plain to us why the increase in equity in the line item “Common Stock” does not agree with the ”Net Proceeds” disclosed in the “Use of Proceeds” portion of this document.
Management’s Discussion and Analysis – page 15
Overview – page 15
6. We think you need to expand this discussi on to include an explanation of how you generate revenue in each of your several se gments. Also, please include a table that
David A. Tenwick Adcare Health Systems, Inc. June 6, 2006 Page 3
shows how much revenue was generated by each segment. The table should also include the expenses attributable to each segment, the net income of each segment and any other information necessary to show the financia l contributions each segment makes to your overall financial condition.
7. In the second full paragraph of page 16 you st ate that your history of operating losses is primarily due to start-up costs and devel oping assisted living pr operties for your own account. Please disclose when you made the decision to change your focus and quantify the impact of that decision.
Liquidity and Capital Resources – page 19
8. Please expand the discussion at the top of page 22 of your failu re to comply with certain financial covenants with WesB anco. Please identify the fi nancial covenants you are not in compliance with. Disclose what the speci fic covenants require, and what your current status is in regards to each of them.
Cash Flow - page 24
9. Refer to your response to comment 4. We noted that the discussion of cash flows comparing fiscal 2005 to fiscal 2004 is no l onger provided. Please revise your liquidity discussion to include a discussion of cash flow s for each of the last two fiscal years. Refer to Item 303(b)(1)(ii) of Regulation S-B.
Business - page 25 10. Please revise to explain the differences betw een owning facilities and managing them for third parties. At a minimum, the disc ussion should address how your revenues for managed facilities are determined and whether expenses are paid by you or the third party owners.
Security Ownership of Certain Beneficial Owners and Management, page 44
11. In comment 5 we asked you to identify, in th e registration statement, the natural person possessing voting and investment rights over the securities held by Ca pital City Partners, LLC. Your response indicates that it is in cluded in footnote 8 on page 45. However, the footnote does not contain this information. Plea se revise the disclosu re as we previously requested.
David A. Tenwick Adcare Health Systems, Inc. June 6, 2006 Page 4
Alternate Prospectus Pages
12. We remind you again that the blank spaces here must be completed prior to any request for effectiveness of the registration statemen t. Please include this information in your next amendment. You need to allow suffi cient time for the staff to review this information prior to subm itting your acceleration request.
Financial Statements, page F-1
Consolidated Statements of Changes in Owner’s Equity, page F-5
13. Refer to your response to comment 9. Please no te that exposure drafts do not represent authoritative literature. Until the point in time that the exposure draft becomes approved, the current literature would appear to be paragraphs 14 and A5-A7 of SFAS 141. Please provide to us you analysis of the impact th at applying current aut horitative literature to these transactions would have to your financial statements.
Note 1. Description of Business, page F-8
14. Refer to your response to comment 10. Your assertion that this “is a contingent obligation, outside the control of the Company which is not certain to occur” does not appear to be a sufficient argument under the auth oritative literature ci ted in our previous response. Please provide a detailed analys is of all of the authoritative guidance separately, and demonstrate how you determin ed that the option to purchase the Van Wert interests does or does not fall under the guidance. If you should determine that the options do fall under one of the guidance, please tell us how your accounting and disclosure complies with the guidance, or pr ovide proposed language clarifying this fact. Further, if you decide that ther e is authoritative literature that is more applicable, please cite that literature and demonstr ate how you have complied with it.
Note 4. Discontinued Operations, page F-19
15. Refer to your response to comment 12. Please pr ovide to us a more detailed analysis of whether consummation as defined by paragra ph 6 of SFAS 66 has been achieved. In particular address the impact that the failure to transfer legal title to the property has on this determination.
Note 6. Note Receivable, page F-21
16. Refer to your response to comment 13. Pleas e explain to us in greater detail how you determined the amount that you feel will be u ltimately realized in relation to this note
David A. Tenwick Adcare Health Systems, Inc. June 6, 2006 Page 5
receivable. Explain how the fair value of these assets and the amount of the debt referenced in your prior response factor into the amount recorded in this allowance.
* * * * *
As appropriate, please amend your registration st atement in response to these comments. You may wish to provide us with marked copies of the amendment to expedite our review. Please furnish a cover letter with your amendment that keys your responses to our comments and provides any requested supplemental information. Detailed cover letters greatly facilitate our review. We may have additional comments after reviewing your amendment and responses to our comments.
You may contact Tabatha Akins at 202-551-3658 or James Atkinson at 202-551- 3674 if you have questions regarding comments on th e financial statements and related matters. Please contact Mary K. Fraser at 202-551-3609 or me at 202-551-3610 with any other questions.
R e g a r d s ,
J e f f r e y P . R i e d l e r A s s i s t a n t D i r e c t o r
Cc: Michael A. Smith, Esq. Carlile Patchen & Murphy LLP 366 East Broad Street Columbus, Ohio 43215
Show Raw Text
Mail Stop 6010
June 6, 2006
Mr. David A. Tenwick
Chairman
Adcare Health Systems, Inc.
5057 Troy Road
Springfield, Ohio 45502-9032
Re: Adcare Health Systems, Inc.
Amendment No. 2 to Form SB -2 Registration Statement
File No. 333-131542
Dear Mr. Tenwick:
We have reviewed your filing and have th e following comments. Where indicated, we
think you should revise your document in response to these comments. If you disagree, we will
consider your explanation as to why our commen t is inapplicable or a revision is unnecessary.
Please be as detailed as necessa ry in your explanation. In some of our comments, we may ask
you to provide us with supplemental informati on so we may better understand your disclosure.
After reviewing this information, we ma y or may not raise additional comments.
Please understand that the purpose of our re view process is to assist you in your
compliance with the applicable disclosure requir ements and to enhance the overall disclosure in
your filing. We look forward to working with you in these respects. We welcome any questions
you may have about our comments or on any other aspe ct of our review. Feel free to call us at
the telephone numbers listed at the end of this letter.
Summary - page 1
1. Please refer to the first comment in our last letter in which we asked you to revise the
discussion of the revenues earned by the facili ties you manage for third parties to explain
the significance of this measure and the significance of the combined revenues of
facilities you own and facilities you manage. We asked you to clarify how the revenues
recognized by the facilities you manage for th ird parties affect your revenue. We noted
your statement that the long-term care f acilities you own had annual revenues of
$21,900,360. We also asked you to disclose th e revenues you recognized for managing
David A. Tenwick
Adcare Health Systems, Inc.
June 6, 2006
Page 2
facilities for third parties as well as where this amount appears on your income statement.
In your response you indicate that you have deleted the discussion regarding revenues
earned from facilities that you manage for th ird parties. However, the discussion we
commented on remains in your document exactly as it appeared in the first amendment.
Accordingly, we reissue the comment. Please note that we do not beli eve that deletion of
a discussion of the revenue you receive from f acilities you manage for third parties is an
appropriate response to this comment. Please explain how th e revenues earned by
facilities you manage re sult in revenues for you. For example, are your management fees
based on a percentage of these revenues, a perc entage of profits, or are they determined
using some other calculation. Please quantif y the revenues you earne d based on the third
parties’ revenues of $39,048,000.
2. Additionally, discussions of revenues should be balanced with a discus sion of net income
or net losses and expenses. You need to pr ovide a balanced discus sion of your financial
condition. It is not appropriate to selectively discuss specific aspects of your finances. If
you discuss your revenues in the summary, we think you also need to discuss your net
losses and expenses in order to provide a balanced picture.
3. In light of your losses and existing defaults on some of the covenants in your debt
agreements, we think you need to balance your discussion of your goals in the next to last
paragraph of the summary with an equally detailed discussi on of the potential
impediments to your achievement of thes e goals. Please revise the disclosure
accordingly.
4. Under “Use of Proceeds” on page 2, please delete the phrase “our only recently having achieved profitable operations.” We note th at you had losses in 2005 and that your net
income in 2003 and 2004 was due primarily to th e gain recognized on the sale of real
property.
Capitalization - page 14
5. Refer to your response to comment 3. Please ex plain to us why the increase in equity in
the line item “Common Stock” does not agree with the ”Net Proceeds” disclosed in the
“Use of Proceeds” portion of this document.
Management’s Discussion and Analysis – page 15
Overview – page 15
6. We think you need to expand this discussi on to include an explanation of how you
generate revenue in each of your several se gments. Also, please include a table that
David A. Tenwick
Adcare Health Systems, Inc.
June 6, 2006
Page 3
shows how much revenue was generated by each segment. The table should also include
the expenses attributable to each segment, the net income of each segment and any other
information necessary to show the financia l contributions each segment makes to your
overall financial condition.
7. In the second full paragraph of page 16 you st ate that your history of operating losses is
primarily due to start-up costs and devel oping assisted living pr operties for your own
account. Please disclose when you made the decision to change your focus and quantify
the impact of that decision.
Liquidity and Capital Resources – page 19
8. Please expand the discussion at the top of page 22 of your failu re to comply with certain
financial covenants with WesB anco. Please identify the fi nancial covenants you are not
in compliance with. Disclose what the speci fic covenants require, and what your current
status is in regards to each of them.
Cash Flow - page 24
9. Refer to your response to comment 4. We noted that the discussion of cash flows
comparing fiscal 2005 to fiscal 2004 is no l onger provided. Please revise your liquidity
discussion to include a discussion of cash flow s for each of the last two fiscal years.
Refer to Item 303(b)(1)(ii) of Regulation S-B.
Business - page 25
10. Please revise to explain the differences betw een owning facilities and managing them for
third parties. At a minimum, the disc ussion should address how your revenues for
managed facilities are determined and whether expenses are paid by you or the third party
owners.
Security Ownership of Certain Beneficial Owners and Management, page 44
11. In comment 5 we asked you to identify, in th e registration statement, the natural person
possessing voting and investment rights over the securities held by Ca pital City Partners,
LLC. Your response indicates that it is in cluded in footnote 8 on page 45. However, the
footnote does not contain this information. Plea se revise the disclosu re as we previously
requested.
David A. Tenwick
Adcare Health Systems, Inc.
June 6, 2006
Page 4
Alternate Prospectus Pages
12. We remind you again that the blank spaces here must be completed prior to any request
for effectiveness of the registration statemen t. Please include this information in your
next amendment. You need to allow suffi cient time for the staff to review this
information prior to subm itting your acceleration request.
Financial Statements, page F-1
Consolidated Statements of Changes in Owner’s Equity, page F-5
13. Refer to your response to comment 9. Please no te that exposure drafts do not represent
authoritative literature. Until the point in time that the exposure draft becomes approved,
the current literature would appear to be paragraphs 14 and A5-A7 of SFAS 141. Please
provide to us you analysis of the impact th at applying current aut horitative literature to
these transactions would have to your financial statements.
Note 1. Description of Business, page F-8
14. Refer to your response to comment 10. Your assertion that this “is a contingent
obligation, outside the control of the Company which is not certain to occur” does not
appear to be a sufficient argument under the auth oritative literature ci ted in our previous
response. Please provide a detailed analys is of all of the authoritative guidance
separately, and demonstrate how you determin ed that the option to purchase the Van
Wert interests does or does not fall under the guidance. If you should determine that the
options do fall under one of the guidance, please tell us how your accounting and
disclosure complies with the guidance, or pr ovide proposed language clarifying this fact.
Further, if you decide that ther e is authoritative literature that is more applicable, please
cite that literature and demonstr ate how you have complied with it.
Note 4. Discontinued Operations, page F-19
15. Refer to your response to comment 12. Please pr ovide to us a more detailed analysis of
whether consummation as defined by paragra ph 6 of SFAS 66 has been achieved. In
particular address the impact that the failure to transfer legal title to the property has on
this determination.
Note 6. Note Receivable, page F-21
16. Refer to your response to comment 13. Pleas e explain to us in greater detail how you
determined the amount that you feel will be u ltimately realized in relation to this note
David A. Tenwick
Adcare Health Systems, Inc.
June 6, 2006
Page 5
receivable. Explain how the fair value of these assets and the amount of the debt
referenced in your prior response factor into the amount recorded in this allowance.
* * * * *
As appropriate, please amend your registration st atement in response to these comments. You
may wish to provide us with marked copies of the amendment to expedite our review. Please
furnish a cover letter with your amendment that keys your responses to our comments and
provides any requested supplemental information. Detailed cover letters greatly facilitate our
review. We may have additional comments after reviewing your amendment and responses to
our comments.
You may contact Tabatha Akins at 202-551-3658 or James Atkinson at 202-551-
3674 if you have questions regarding comments on th e financial statements and related matters.
Please contact Mary K. Fraser at 202-551-3609 or me at 202-551-3610 with any other questions.
R e g a r d s ,
J e f f r e y P . R i e d l e r
A s s i s t a n t D i r e c t o r
Cc: Michael A. Smith, Esq.
Carlile Patchen & Murphy LLP
366 East Broad Street
Columbus, Ohio 43215