10-Q 1 ssy-20240331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2024

OR

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 1-12607

SUNLINK HEALTH SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Georgia

31-0621189

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

900 Circle 75 Parkway, Suite 690, Atlanta, Georgia 30339

(Address of principal executive offices)

(Zip Code)

(770) 933-7000

(Registrant’s telephone number, including area code)

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered Symbol(s)

Common Shares without par value

 

SSY

 

NYSE American

Preferred Share Purchase Rights

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings 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 (of 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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

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

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

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

The number of Common Shares, without par value, outstanding as of May 14, 2024 was 7,040,603.

 


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

SUNLINK HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

March 31,

 

 

 

 

 

 

2024

 

 

June 30,

 

 

 

(unaudited)

 

 

2023

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,211

 

 

$

4,486

 

Receivables - net

 

 

3,078

 

 

 

2,592

 

Inventory

 

 

1,561

 

 

 

1,628

 

Current assets held for sale

 

 

3,512

 

 

 

1,920

 

Prepaid expense and other assets

 

 

1,604

 

 

 

1,648

 

Total current assets

 

 

10,966

 

 

 

12,274

 

Property, plant and equipment, at cost

 

 

12,302

 

 

 

11,259

 

Less accumulated depreciation

 

 

(9,399

)

 

 

(8,542

)

Property, plant and equipment - net

 

 

2,903

 

 

 

2,717

 

Noncurrent Assets:

 

 

 

 

 

 

Intangible asset

 

 

1,180

 

 

 

1,180

 

Noncurrent assets held for sale

 

 

0

 

 

 

5,812

 

Right of use assets

 

 

592

 

 

 

798

 

Other noncurrent assets

 

 

503

 

 

 

487

 

Total noncurrent assets

 

 

2,275

 

 

 

8,277

 

TOTAL ASSETS

 

$

16,144

 

 

$

23,268

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,532

 

 

$

1,067

 

Accrued payroll and related taxes

 

 

857

 

 

 

1,027

 

Current liabilities held for sale

 

 

563

 

 

 

1,326

 

Current operating lease liabilities

 

 

332

 

 

 

334

 

Other accrued expenses

 

 

675

 

 

 

1,115

 

Total current liabilities

 

 

3,959

 

 

 

4,869

 

Long-Term Liabilities

 

 

 

 

 

 

Noncurrent liability for professional liability risks

 

 

231

 

 

 

138

 

Long-term operating lease liabilities

 

 

273

 

 

 

481

 

      Noncurrent liabilities held for sale

 

 

0

 

 

 

192

 

Other noncurrent liabilities

 

 

73

 

 

 

171

 

Total long-term liabilities

 

 

577

 

 

 

982

 

Commitments and Contingencies

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

Preferred Shares, authorized and unissued, 2,000 shares

 

 

0

 

 

 

0

 

Common Shares, without par value:

 

 

 

 

 

 

Issued and outstanding, 7,041 shares at March 31, 2024 and 7,032 at June 30, 2023

 

 

3,521

 

 

 

3,516

 

Additional paid-in capital

 

 

10,747

 

 

 

10,746

 

Retained earnings (deficit)

 

 

(2,810

)

 

 

3,005

 

Accumulated other comprehensive income

 

 

150

 

 

 

150

 

Total Shareholders’ Equity

 

 

11,608

 

 

 

17,417

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

16,144

 

 

$

23,268

 

 

See notes to condensed consolidated financial statements.

2


 

SUNLINK HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE EARNINGS (LOSS)

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net revenues

 

$

7,462

 

 

$

8,181

 

 

$

24,527

 

 

$

26,270

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

4,339

 

 

 

4,755

 

 

 

13,871

 

 

 

13,642

 

Salaries, wages and benefits

 

 

2,652

 

 

 

2,543

 

 

 

7,937

 

 

 

7,547

 

Supplies

 

 

36

 

 

 

39

 

 

 

109

 

 

 

104

 

Purchased services

 

 

265

 

 

 

302

 

 

 

832

 

 

 

788

 

Other operating expenses

 

 

589

 

 

 

601

 

 

 

2,279

 

 

 

1,854

 

Rent and lease expense

 

 

92

 

 

 

92

 

 

 

275

 

 

 

276

 

Depreciation and amortization

 

 

342

 

 

 

316

 

 

 

960

 

 

 

873

 

Operating Profit (Loss)

 

 

(853

)

 

 

(467

)

 

 

(1,736

)

 

 

1,186

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

Gains on sale of assets

 

 

0

 

 

 

0

 

 

 

2

 

 

 

13

 

Interest income (expense), net

 

 

19

 

 

 

8

 

 

 

70

 

 

 

13

 

Earnings (Loss) from Continuing Operations before income taxes

 

 

(834

)

 

 

(459

)

 

 

(1,664

)

 

 

1,212

 

Income Tax Benefit

 

 

(10

)

 

 

(6

)

 

 

(5

)

 

 

(7

)

Earnings (Loss) from Continuing Operations

 

 

(824

)

 

 

(453

)

 

 

(1,659

)

 

 

1,219

 

Loss from Discontinued Operations, net of tax

 

 

(572

)

 

 

(309

)

 

 

(4,156

)

 

 

(1,588

)

Net Loss

 

 

(1,396

)

 

 

(762

)

 

 

(5,815

)

 

 

(369

)

Other comprehensive income

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Comprehensive Loss

 

$

(1,396

)

 

$

(762

)

 

$

(5,815

)

 

$

(369

)

Loss Per Share:

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.12

)

 

$

(0.06

)

 

$

(0.24

)

 

$

0.17

 

Diluted

 

$

(0.12

)

 

$

(0.06

)

 

$

(0.24

)

 

$

0.17

 

Discontinued Operations:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.08

)

 

$

(0.04

)

 

$

(0.59

)

 

$

(0.23

)

Diluted

 

$

(0.08

)

 

$

(0.04

)

 

$

(0.59

)

 

$

(0.23

)

     Net Loss:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.20

)

 

$

(0.11

)

 

$

(0.83

)

 

$

(0.05

)

Diluted

 

$

(0.20

)

 

$

(0.11

)

 

$

(0.83

)

 

$

(0.05

)

Weighted-Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,041

 

 

 

7,032

 

 

 

7,038

 

 

 

7,015

 

Diluted

 

 

7,041

 

 

 

7,032

 

 

 

7,038

 

 

 

7,018

 

 

See notes to condensed consolidated financial statements.

3


 

SUNLINK HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

Common Shares

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings (Loss)

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Shareholders’
Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

JUNE 30, 2023

 

 

7,032

 

 

$

3,516

 

 

$

10,746

 

 

$

3,005

 

 

$

150

 

 

$

17,417

 

Share options exercised

 

 

9

 

 

 

5

 

 

 

1

 

 

 

0

 

 

 

0

 

 

 

6

 

Net loss

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(1,344

)

 

 

0

 

 

 

(1,344

)

SEPTEMBER 30, 2023

 

 

7,041

 

 

 

3,521

 

 

 

10,747

 

 

 

1,661

 

 

 

150

 

 

 

16,079

 

Net loss

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(3,075

)

 

 

0

 

 

 

(3,075

)

DECEMBER 31, 2023

 

 

7,041

 

 

 

3,521

 

 

 

10,747

 

 

 

(1,414

)

 

 

150

 

 

 

13,004

 

Net loss

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(1,396

)

 

 

0

 

 

 

(1,396

)

MARCH 31, 2024

 

 

7,041

 

 

$

3,521

 

 

$

10,747

 

 

$

(2,810

)

 

$

150

 

 

$

11,608

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

JUNE 30, 2022

 

 

6,954

 

 

$

3,478

 

 

$

10,736

 

 

$

4,800

 

 

$

106

 

 

$

19,120

 

Share options exercised

 

 

78

 

 

 

38

 

 

 

10

 

 

 

0

 

 

 

0

 

 

 

48

 

Net loss

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(1,558

)

 

 

0

 

 

 

(1,558

)

SEPTEMBER 30, 2022

 

 

7,032

 

 

 

3,516

 

 

 

10,746

 

 

 

3,242

 

 

 

106

 

 

 

17,610

 

Net earnings

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,951

 

 

 

0

 

 

 

1,951

 

DECEMBER 31, 2022

 

 

7,032

 

 

 

3,516

 

 

 

10,746

 

 

 

5,193

 

 

 

106

 

 

 

19,561

 

Net loss

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(762

)

 

 

0

 

 

 

(762

)

MARCH 31, 2023

 

 

7,032

 

 

$

3,516

 

 

$

10,746

 

 

$

4,431

 

 

$

106

 

 

$

18,799

 

 

See notes to condensed consolidated financial statements.

4


 

SUNLINK HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Nine Months

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Net Cash Used in Operating Activities

 

$

(2,592

)

 

$

(119

)

Cash Flows Provided by (Used in) Investing Activities:

 

 

 

 

 

 

Expenditures for property, plant and equipment - continuing operations

 

 

(1,089

)

 

 

(969

)

Expenditures for property, plant and equipment - discontinued operations

 

 

(91

)

 

 

(556

)

Proceeds from sale of property, plant and equipment - continuing operations

 

 

5

 

 

 

213

 

Proceeds from sale of Trace hospital operations - discontinued operations

 

 

500

 

 

 

0

 

Net Cash Used in Investing Activities

 

 

(675

)

 

 

(1,312

)

Cash Flows Provided by (Used in) Financing Activities:

 

 

 

 

 

 

Proceeds from share options exercises

 

 

6

 

 

 

49

 

Payments on long-term debt - discontinued operations

 

 

(14

)

 

 

(30

)

Net Cash Provided by (Used in) Financing Activities

 

 

(8

)

 

 

19

 

Net Decrease in Cash and Cash Equivalents

 

 

(3,275

)

 

 

(1,412

)

Cash and Cash Equivalents Beginning of Period

 

 

4,486

 

 

 

6,794

 

Cash and Cash Equivalents End of Period

 

$

1,211

 

 

$

5,382

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Cash Paid (Received) for:

 

 

 

 

 

Interest

 

$

(70

)

 

$

(46

)

Income taxes

 

$

105

 

 

$

(32

)

Non-cash investing and financing activities:

 

 

 

 

 

 

     Right-of-use assets obtained in exchange for operating lease liabilities

 

$

18

 

 

$

24

 

 

See notes to condensed consolidated financial statements.

5


 

SUNLINK HEALTH SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED MARCH 31, 2024

(all dollar amounts in thousands except per share amounts)

(Unaudited)

Note 1. –Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements as of March 31, 2024 and for the three and nine month periods ended March 31, 2024 and 2023 have been prepared in accordance with Rule 8-03 and Article 8-03 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and, as such, do not include all information required by accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated June 30, 2023 balance sheet included in this interim filing has been derived from the audited consolidated financial statements at that date but does not include all the information and related notes required by GAAP for complete consolidated financial statements. These Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements included in the SunLink Health Systems, Inc. (“SunLink”, “we”, “our”, “ours”, “us” or the “Company”) Annual Report on Form 10-K for the fiscal year ended June 30, 2023, filed with the SEC on September 28, 2023. In the opinion of management, the Condensed Consolidated Financial Statements, which are unaudited, include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for the periods indicated. The results of operations for the three and nine month periods ended March 31, 2024 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.

Throughout these notes to the condensed consolidated financial statements, SunLink Health Systems, Inc., and its consolidated subsidiaries are referred to on a collective basis as “SunLink”, “we”, “our”, “ours”, “us” or the “Company.” This drafting style is not meant to indicate that SunLink Health Systems, Inc. or any particular subsidiary of the Company owns or operates any particular asset, business or property. Each operation and business described in this filing is owned and operated by a distinct and indirect subsidiary of SunLink Health Systems, Inc.

Note 2. – Business Operations

 

The Company’s continuing operations are composed of a pharmacy business and an information technology (“IT”) business.

The pharmacy business, is composed of four operational areas conducted in three locations in southwest Louisiana:

 

· Retail pharmacy products and services, consisting of retail pharmacy sales.

· Institutional pharmacy services consisting of the provision of specialty and non-specialty pharmaceutical and biological products to institutional clients or to patients in institutional settings, such as extended care and rehabilitation centers, nursing homes, assisted living facilities, behavioral and specialty hospitals, hospice, and correctional facilities.

· Non-institutional Pharmacy services consisting of the provision of specialty and non-specialty pharmaceutical and biological products to clients or patients in non-institutional settings including private residential homes.

· Durable medical equipment products and services (“DME”), consisting primarily of the sale and rental of products for institutional clients or to patients in institutional settings and patient-administered home care.


A subsidiary, SunLink Health Systems Technology (“SHST Technology”), provides information technology (“IT”) services to outside customers and to SunLink subsidiaries. The Company also owns a subsidiary which owns approximately twenty-five (25) acres of unimproved land in Ellijay, Georgia.

Series C Redeemable Preferred Shares

 

On August 2, 2023, the Board of SunLink declared a non-cash dividend per Common Share of one fractional interest in one of the Corporation’s Series C Redeemable Preferred Shares (the “Series C Preferred Shares” and each such

6


 

fraction of a Series C Preferred Share, a “Series C Fractional Interest”). Each of the 7,032 Series C Preferred Shares issued was entitled to one million (1,000,000) votes and each Series C Fractional Interest in a Series C Preferred Share was entitled to one thousand (1,000) votes out of such one million votes. Series C Fractional Interests could not be transferred separately from the Common Shares and were represented by the Common Shares. A further description of the Series C Preferred Shares and the Series C Fractional Interests and the terms and provisions thereof is set forth in the Company’s Current Report on Form 8-K filed with the SEC on August 11, 2023. Each Common Share was entitled to one (1) vote as a Common Share and also one thousand (1,000) votes for the corresponding Series C Fractional Interest thereon, on each matter properly brought before a special shareholders’ meeting which was held on October 19, 2023 and at which the Corporation was reincorporated from the state of Ohio to Georgia (the “Special Meeting”). The Series C Fractional Interests were automatically redeemed and the Series C Preferred Shares cancelled.

 

COVID-19 Pandemic and CARES Act Funding

 

The Company continued to experience adverse after-effects of the COVID-19 pandemic in the quarter ended March 31, 2024 and believes such effects will likely continue to affect its assets and operations in the foreseeable future, particularly salaries and wages pressure, workforce shortages, supply chain disruption and broad inflationary pressures. Our ability to make estimates of any such continuing effects from current or evolving strains of COVID-19 on future revenues, expenses or changes in accounting judgments that have had or are reasonably likely to have a material effect on our financial statements is limited, depending, as they do, on the severity and length thereof; as well as any further government actions and/or regulatory changes intended to address such effects.

 

Note 3. – Discontinued Operations

 

All of the businesses discussed below are reported as discontinued operations and the condensed consolidated financial statements for all prior periods have been adjusted to reflect this presentation.

 

Sale of Trace Regional Hospital, medical office building and three patient clinics, Trace Extended Care operations –On January 22, 2024, the Company's indirect subsidiary, Southern Health Corporation of Houston, Inc. (“Southern”), reached a revised agreement for the sale of Trace Regional Hospital, a medical office building and three (3) patient clinics in Chickasaw County, MS, (collectively “Trace”) to Progressive Health of Houston, LLC (“Progressive”). Pursuant to those agreements, Southern sold certain personal and intangible property of Trace Regional Hospital and associated clinics to Progressive on January 22, 2024 for $500 pursuant to an asset purchase agreement ('Trace Assets Sale"), entered into a six-month net lease of certain hospital real property for $20 per month, and engaged Progressive under a management agreement to manage the operations of Trace pending receipt of certain regulatory approvals, which was received February 29, 2024. As a result of the transaction, Southern’s previous agreement with Progressive dated November 10, 2023, was terminated. Southern also entered into a real estate purchase agreement with Progressive ("Trace Hospital Sale") whereunder Progressive is to purchase certain real estate and improvements of Trace Regional Hospital, associated clinics and a vacant medical office building for $2,000 by July 31, 2024. As a result of the transactions ("Revised Agreement"), SunLink reported an impairment loss of $1,974 at December 31, 2023 to reduce the net value of the Trace hospital assets to the sale proceeds under the revised agreement and reported $58 of transaction expenses for the Revised Agreement during the quarter ended December 31, 2023. An impairment reserve of $1,695 remains at March 31, 2024 for the Trace Hospital Sale assets. During the quarter ended March 31, 2024, SunLink reported an additional loss on the sale of the Trace Hospital Sale of $613 and reported an additional $55 of transactions expenses. Southern is in the process of marketing the Trace Extended Care & Rehabilitation ("Trace Extended Care"), a skilled care nursing facility adjacent to the campus of Trace. Trace Extended Care, which Southern retains, is considered an asset held for sale at March 31, 2024. There can be no assurance that the Trace Real Estate purchase will be completed or that Trace Extended Care will be sold.

 

Sold Hospitals and Nursing Home– Subsidiaries of the Company have sold substantially all the assets of five (5) hospitals (“Sold Facilities”) during the period July 2, 2012 to March 17, 2019. The loss before income taxes of the Sold Facilities results primarily from the effects of retained professional liability insurance and claims expenses and settlement of a lawsuit.

 

Life Sciences and Engineering Segment —SunLink retained a defined benefit retirement plan which covered substantially all the employees of this segment when the segment was sold in fiscal year 1998. Effective February 28, 1997, the plan was amended to freeze participant benefits and close the plan to new participants. Pension expense and

7


 

related tax benefit or expense is reflected in the results of discontinued operations for this segment for the three and nine months ended March 31, 2024 and 2023, respectively.

The components of pension expense for the three and nine months ended March 31, 2024 and 2023, respectively, were as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Interest cost

 

$

10

 

 

$

13

 

 

$

32

 

 

$

39

 

Expected return on assets

 

 

(9

)

 

 

(11

)

 

 

(27

)

 

 

(32

)

Amortization of prior service cost

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Net pension expense

 

$

1

 

 

$

2

 

 

$

5

 

 

$

7

 

 

SunLink contributed $15 to the plan in the nine months ended March 31, 2024 and expects to contribute an additional $5 during the last three months of the fiscal year ending June 30, 2024.

 

Details of statements of operations from discontinued operations for the three and nine months ended March 31, 2024 and 2023, primarily reflecting the reporting of Trace as discontinued operations as a result of the Company's January 22, 2024 revised agreement to sell Trace and its plan to sell Trace Extended Care, are as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2024

 

 

 

2023

 

 

2024

 

 

2023

 

Net Revenues

 

$

1,886

 

 

 

$

3,357

 

 

$

7,329

 

 

$

10,709

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

 

917

 

 

 

 

1,907

 

 

 

4,659

 

 

 

6,975

 

Supplies

 

 

146

 

 

 

 

237

 

 

 

702

 

 

 

910

 

Purchased services

 

 

280

 

 

 

 

748

 

 

 

1,587

 

 

 

2,324

 

Other operating expense

 

 

452

 

 

 

 

664

 

 

 

1,509

 

 

 

1,782

 

Rent and lease expense

 

 

8

 

 

 

 

45

 

 

 

75

 

 

 

105

 

Depreciation and amortization

 

 

42

 

 

 

 

98

 

 

 

308

 

 

 

297

 

Operating Profit (Loss)

 

 

41

 

 

 

 

(342

)

 

 

(1,511

)

 

 

(1,684

)

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

Losses on sale of assets

 

 

(613

)

 

 

 

0

 

 

 

(613

)

 

 

1

 

Federal stimulus - Provider relief funds

 

 

0

 

 

 

 

0

 

 

 

0

 

 

 

61

 

Interest income (expense), net

 

 

0

 

 

 

 

33

 

 

 

0

 

 

 

34

 

Loss from Discontinued Operations before income taxes

 

 

(572

)

 

 

 

(309

)

 

 

(2,124

)

 

 

(1,588

)

Impairment loss of Trace Assets and related sale expenses before income taxes

 

 

0

 

 

 

 

0

 

 

 

(2,032

)

 

 

0

 

Loss from Discontinued Operations before income taxes

 

 

(572

)

 

 

 

(309

)

 

 

(4,156

)

 

 

(1,588

)

Income Tax Expense

 

 

0

 

 

 

 

0

 

 

 

0

 

 

 

0

 

Loss from Discontinued Operations, net of tax

 

$

(572

)

 

 

$

(309

)

 

$

(4,156

)

 

$

(1,588

)

 

Details of assets and liabilities held for sale at March 31, 2024 and June 30, 2023, which primarily reflect the Trace Extended Care's assets to be sold and liabilities to be assumed as a result of the Company's January 22, 2024 revised agreement to sell the Trace hospital assets and its plans to dispose of Trace Extended Care are as follows:

 

8


 

 

 

March 31,

 

 

June 30,

 

 

 

2024

 

 

2023

 

Receivables - net

 

$

667

 

 

$

1,659

 

Inventory

 

 

2

 

 

 

125

 

Prepaid expense and other assets

 

 

7

 

 

 

136

 

      Property, plant and equipment, net

 

 

4,529

 

 

 

5,564

 

Impairment reserve

 

 

(1,695

)

 

 

0

 

Right of use assets

 

 

0

 

 

 

246

 

Noncurrent assets

 

 

2

 

 

 

2

 

Total assets held for sale

 

$

3,512

 

 

$

7,732

 

Accounts payable

 

$

418

 

 

$

783

 

Accrued payroll and related taxes

 

 

91

 

 

 

361

 

Current operating lease liabilities

 

 

0

 

 

 

61

 

Other accrued expenses

 

 

54

 

 

 

121

 

Long-term operating lease liabilities

 

 

0

 

 

 

192

 

Total liabilities held for sale

 

$

563

 

 

$

1,518

 

 

Note 4. – Shareholders’ Equity

Stock-Based Compensation For the three and nine months ended March 31, 2024 and 2023, the Company recognized no stock-based compensation for options issued to employees and directors of the Company. There were 9,000 shares issued as a result of options exercised during the nine months ended March 31, 2024. There were 77,452 shares issued as a result of options exercised during the nine months ended March 31, 2023.

Note 5. – Revenue and Accounts Receivable

Revenues by payor were as follows for the three and nine months ended March 31, 2002 and 2023:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Medicare

 

$

3,207

 

 

$

3,521

 

 

$

11,021

 

 

$

10,377

 

Medicaid

 

 

1,506

 

 

 

1,802

 

 

 

4,898

 

 

 

5,048

 

Retail and Institutional Pharmacy

 

 

1,517

 

 

 

1,632

 

 

 

4,839

 

 

 

5,666

 

Managed Care & Other Insurance

 

 

1,022

 

 

 

1,032

 

 

 

3,179

 

 

 

4,572

 

Self-pay

 

 

189

 

 

 

180

 

 

 

532

 

 

 

564

 

Other

 

 

21

 

 

 

14

 

 

 

58

 

 

 

43

 

Total Net Revenues

 

$

7,462

 

 

$

8,181

 

 

$

24,527

 

 

$

26,270

 

 

The revenues for the three months ended March 31, 2024 includes $57 of prior period sales tax refunds as a result of a reduction in the accrued sales tax liability as described in Note 10. The revenues for nine months ended March 31, 2024 includes $437 of prior period sales tax refunds, compared to $2,615 increase in revenues in the nine months ended March 31, 2023 as a result of a reduction in the accrued sales tax liability as described in Note 10.

 

Accounts Receivable and Allowance for Doubtful Accounts

The Company adopted Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 326, Financial Statements – Credit Losses (“Topic 326”) with an adoption date of July 1, 2023. This standard requires a financial asset (or a group of financial assets) measured at amortized cost basis, to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial assets. The Company evaluates the valuation of accounts receivable concessions allowances based upon its historical collection trends, as well as its understanding of the nature and collectability of accounts based on their age and other

9


 

factors. The model is based on the credit losses expected to arise over the life of the asset based on the Company’s expectations as of the balance sheet date through analyzing historical customer data as well as taking into consideration current and estimated future economic trends. The Company adopted Topic 326 and determined it did not have a material financial impact.

The roll forward of the allowance for doubtful accounts for the three and nine months ended March 31, 2024 was as follows:

 

June 30, 2023 balance

 

$

532

 

Concession allowance expense

 

 

79

 

Write-offs

 

 

(203

)

September 30, 2023 balance

 

 

408

 

Concession allowance expense

 

 

67

 

Write-offs

 

 

(104

)

December 31, 2023 balance

 

 

371

 

Concession allowance expense

 

 

272

 

Write-offs

 

 

(363

)

March 31, 2024 balance

 

$

280

 

 

Note 6. – Intangible Assets

As of March 31, 2024 and June 30, 2023, intangible assets consist solely of an indefinite-lived trade name of $1,180 under the Pharmacy Segment.

 

Amortization expense was $0 and $6 for the three months ended March 31, 2024 and 2023, respectively. Amortization expense was $0 and $19 for the three months ended March 31, 2024 and 2023, respectively.

Note 7. – Long-Term Debt

Long-term debt of discontinued operations which is included in current liabilities held for sale consisted of the following:

 

 

 

March 31, 2024

 

 

June 30, 2023

 

Finance Lease Obligations

 

$

0

 

 

$

14

 

Less current maturities

 

 

0

 

 

 

(14

)

Long-term Debt

 

$

0

 

 

$

0

 

 

 

Note 8. – Income Taxes

Income tax benefit of $10 was recorded for continuing operations for the three months ended March 31, 2024. Income tax benefit of $6 (all state income benefit) was recorded for continuing operations for the three months ended March 31, 2023. Income tax benefit of $5 (all state income taxes) was recorded for continuing operations for the nine months ended March 31, 2024. Income tax benefit of $7 (all state income benefit) for continuing operations for the nine months ended March 31, 2023.

In accordance with the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 740, we evaluate our deferred taxes quarterly to determine if adjustments to our valuation allowance are required based on the consideration of available positive and negative evidence using a “more likely than not” standard with respect to whether deferred tax assets will be realized. Our evaluation considers, among other factors, our historical operating results, our expectation of future results of operations, the duration of applicable statuary carryforward periods and conditions of the healthcare industry. The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related temporary differences in the financial basis

10


 

and the tax basis of the assets become deductible. The value of our deferred tax assets will depend on applicable income tax rates.

At March 31, 2024, consistent with the above process, we evaluated the need for a valuation allowance against our deferred tax assets and determined that it was more likely than not that none of our deferred tax assets would be realized. As a result, in accordance with ASC 740, we recognized a valuation allowance of $9,499 against the deferred tax asset so that there is no net long-term deferred income tax asset at March 31, 2024. We conducted our evaluation by considering available positive and negative evidence to determine our ability to realize our deferred tax assets. In our evaluation, we gave more significant weight to evidence that was objective in nature as compared to subjective evidence. A long-term deferred tax liability of $69 is recorded within other noncurrent liabilities in the accompanying condensed consolidated balance sheet of March 31, 2024 to reflect the deferred tax liability for the non-amortizing trade name intangible asset.

The principal negative evidence that led us to determine at March 31, 2024 that all the deferred tax assets should have full valuation allowances was historical tax losses and the projected current fiscal year tax loss. For purposes of evaluating our valuations allowances, the Company’s history of losses represent significant historical negative evidence and we have recognized none of our federal income tax net operating loss carry-forward of approximately $29,862.

For federal income tax purposes, at March 31, 2024, the Company had approximately $29,862 of estimated net operating loss carry-forwards available for use in future years subject to the possible limitations of the provisions of Internal Revenue Code Section 382. These net operating loss carryforwards expire primarily in fiscal year 2023 through fiscal year 2038; however, with the enactment of the Tax Cut and Jobs Act on December 22, 2017, federal net operating loss carryforwards generated in taxable years beginning after December 31, 2017 now have no expiration date. The Company’s returns for the periods prior to the fiscal year ended June 30, 2020 are no longer subject to potential federal and state income tax examination. Net operating loss carry-forwards generated in tax years prior to June 30, 2020 are still subject to redetermination in potential federal income tax examination.

 

Note 9. – Leases

The Company, as lessee, has operating leases relating to its pharmacy operations, certain medical equipment, and office equipment. All lease agreements generally require the Company to pay maintenance, repairs, property taxes and insurance costs, all of which are variable amounts based on actual costs. Variable lease costs also include escalating rent payments that are not fixed at commencement but are based on an index determined in future periods over the lease term based on changes in the Consumer Price Index or other measure of cost inflation. Some leases include one or more options to renew the lease at the end of the initial term, with renewal terms that generally extend the lease at the then market rental rates. Leases may also include an option to buy the underlying asset at or a short time prior to the termination of the lease. All such options are at the Company’s discretion and are evaluated at the commencement of the lease, with only those that are reasonably certain of exercise included in determining the appropriate lease term. The components of lease cost and rent expense for the three and nine months ended March 31, 2024 and 2023 are as follows:

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Nine Months Ended

 

Lease Cost

 

March 31, 2024

 

 

March 31, 2023

 

 

March 31, 2024

 

 

March 31, 2023

 

Operating lease cost:

 

 

 

 

 

 

 

 

 

 

Operating lease cost

 

$

85

 

 

$

86

 

 

$

255

 

 

$

256

 

Short-term rent expense

 

 

7

 

 

 

5

 

 

 

19

 

 

 

18

 

Variable lease cost

 

 

0

 

 

 

1

 

 

 

1

 

 

 

2

 

Total operating lease cost

 

$

92

 

 

$

92

 

 

$

275

 

 

$

276

 

 

11


 

 

Supplemental balance sheet information relating to leases was as follows:

 

 

 

 

 

As of

 

As of

 

 

 

 

 

March 31,

 

June 30,

 

 

 

 

 

2024

 

2023

 

Operating Leases:

 

Balance Sheet Classifications

 

 

 

 

 

Operating lease ROU Assets

 

ROU Assets

 

$

592

 

$

798

 

Current operating lease liabilities

 

Current operating lease liabilities

 

 

332

 

 

334

 

Long-term operating lease liabilities

 

Long-term operating lease liabilities

 

$

273

 

$

481

 

 

Supplemental cash flow and other information related to leases as of and for the three and nine months ended March 31, 2024 and 2023 are as follows:

 

 

 

Three Months Ended