LIQUIDITY AND PROFITABILITY	12 Months Ended
Dec. 31, 2012
LIQUIDITY AND PROFITABILITY
LIQUIDITY AND PROFITABILITY	NOTE 2. LIQUIDITY AND PROFITABILITY For the year ended and as of December 31, 2012, we had a net loss of $7.5 million and negative working capital of $5.9 million. At December 31, 2012, we had $15.9 million in cash and cash equivalents and $171.9 million in indebtedness, including current maturities and discontinued operations, of which $23.0 million is current debt (including the Company's outstanding convertible promissory notes with a principal amount in the aggregate of $11.7 million which mature in October 2013 and approximately $3.7 million of mortgage notes included in liabilities of disposal group). Our ability to achieve profitable operations is dependent on continued growth in revenue and controlling costs. We anticipate that scheduled debt service (excluding outstanding convertible promissory notes but including principal, interest, collateral and capital improvement fund or other escrow deposits) will total approximately $17.2 million and cash outlays for acquisition costs, maintenance capital expenditures, dividends on our Series A Preferred Stock and income taxes will total approximately $4.7 million for the year ending December 31, 2013. Debt service requirements for the year ending December 31, 2013 include approximately $1.9 million of bullet maturities that the Company believes could be refinanced on a longer term basis. In recent periods, we have refinanced shorter term acquisition debt, including seller notes, with traditional longer term mortgage notes, some of which have been executed under government guaranteed lending programs. Although, we anticipate the conversion to common stock of the Company's outstanding convertible promissory notes with a principal amount in the aggregate of $11.7 million which mature in October 2013, we believe that our anticipated cash flow and committed funding sources would allow us to pay these notes in cash. These promissory notes are convertible into shares of common stock of the Company at $3.73 per share. The closing price of the common stock exceeded $4.00 per share from January 1, 2013 through July 5, 2013, except for the last three trading days in March 2013. As discussed further below, if we were required to pay these notes in cash, then the Company may be required to restructure its outstanding indebtedness, implement further cost reduction initiatives, sell assets, or delay, modify, or abandon its expansion plans due to our limited liquidity in such an event. We estimate that cash flow from operations, including approximately $2.0 million cash outlay for costs with respect to the Audit Committee review and inquiry discussed in Part II, Item 9A. "Controls and Procedures," and other working capital changes will be approximately $17.8 million for the year ending December 31, 2013. The Company expanded its existing credit facility with Gemino Healthcare Finance, LLC ("Gemino"): (i) in May 2013, to refinance and include one of the facilities the Company acquired in December 2012; and (ii) in June 2013, to refinance and include two additional facilities the Company also acquired in December 2012. We routinely have ongoing discussions with existing and potential new lenders to refinance current debt on a longer term basis. We have been successful in recent years in raising new equity capital and believe, based on recent discussions that these markets will continue to be available to us for raising capital in 2013. Based on existing cash balances, anticipated cash flows for the year ending December 31, 2013, and new sources of capital, we believe there will be sufficient funds for our operations, scheduled debt service, and capital expenditures at least through the next 12 months. On a longer term basis, we have approximately $80.4 million of debt payments and maturities due between 2014 and 2016, excluding convertible promissory notes which are convertible into shares of common stock. We believe our long-term liquidity needs will be satisfied by these same sources, as well as borrowings as required to refinance indebtedness. In order to satisfy these capital needs, we intend to: (i) improve our operating results by increasing facility occupancy, optimizing our payor mix by increasing the proportion of sub-acute patients within our skilled nursing facilities, continuing our cost optimization and efficiency strategies and acquiring additional long-term care facilities with existing operating cash flow; (ii) expand our borrowing arrangements with certain existing lenders; (iii) refinance current debt where possible to obtain more favorable terms; and (iv) raise capital through the issuance of debt or equity securities. We anticipate that these actions, if successful, will provide the opportunity for us to maintain liquidity on a short and long term basis, thereby permitting us to meet our operating and financing obligations for the next 12 months and provide for the continuance of our acquisition strategy. However, there is no guarantee that such actions will be successful or that anticipated operating results will be achieved. We currently have limited borrowing availability under our existing revolving credit facilities. If the Company is unable to improve operating results, expand existing borrowing agreements, refinance current debt, or raise capital through the issuance of securities, or the convertible promissory notes due October 2013 are not converted into common stock and are required to be repaid by us in cash, then the Company may be required to restructure its outstanding indebtedness, implement further cost reduction initiatives, sell assets, or delay, modify, or abandon its expansion plans.

NOTE 2. LIQUIDITY AND PROFITABILITY

For the year ended and as of December 31, 2012, we had a net loss of $7.5 million and negative working capital of $5.9 million. At December 31, 2012, we had $15.9 million in cash and cash equivalents and $171.9 million in indebtedness, including current maturities and discontinued operations, of which $23.0 million is current debt (including the Company's outstanding convertible promissory notes with a principal amount in the aggregate of $11.7 million which mature in October 2013 and approximately $3.7 million of mortgage notes included in liabilities of disposal group). Our ability to achieve profitable operations is dependent on continued growth in revenue and controlling costs.

We anticipate that scheduled debt service (excluding outstanding convertible promissory notes but including principal, interest, collateral and capital improvement fund or other escrow deposits) will total approximately $17.2 million and cash outlays for acquisition costs, maintenance capital expenditures, dividends on our Series A Preferred Stock and income taxes will total approximately $4.7 million for the year ending December 31, 2013. Debt service requirements for the year ending December 31, 2013 include approximately $1.9 million of bullet maturities that the Company believes could be refinanced on a longer term basis. In recent periods, we have refinanced shorter term acquisition debt, including seller notes, with traditional longer term mortgage notes, some of which have been executed under government guaranteed lending programs. Although, we anticipate the conversion to common stock of the Company's outstanding convertible promissory notes with a principal amount in the aggregate of $11.7 million which mature in October 2013, we believe that our anticipated cash flow and committed funding sources would allow us to pay these notes in cash. These promissory notes are convertible into shares of common stock of the Company at $3.73 per share. The closing price of the common stock exceeded $4.00 per share from January 1, 2013 through July 5, 2013, except for the last three trading days in March 2013. As discussed further below, if we were required to pay these notes in cash, then the Company may be required to restructure its outstanding indebtedness, implement further cost reduction initiatives, sell assets, or delay, modify, or abandon its expansion plans due to our limited liquidity in such an event.

We estimate that cash flow from operations, including approximately $2.0 million cash outlay for costs with respect to the Audit Committee review and inquiry discussed in Part II, Item 9A. "Controls and Procedures," and other working capital changes will be approximately $17.8 million for the year ending December 31, 2013. The Company expanded its existing credit facility with Gemino Healthcare Finance, LLC ("Gemino"): (i) in May 2013, to refinance and include one of the facilities the Company acquired in December 2012; and (ii) in June 2013, to refinance and include two additional facilities the Company also acquired in December 2012. We routinely have ongoing discussions with existing and potential new lenders to refinance current debt on a longer term basis. We have been successful in recent years in raising new equity capital and believe, based on recent discussions that these markets will continue to be available to us for raising capital in 2013.

Based on existing cash balances, anticipated cash flows for the year ending December 31, 2013, and new sources of capital, we believe there will be sufficient funds for our operations, scheduled debt service, and capital expenditures at least through the next 12 months. On a longer term basis, we have approximately $80.4 million of debt payments and maturities due between 2014 and 2016, excluding convertible promissory notes which are convertible into shares of common stock. We believe our long-term liquidity needs will be satisfied by these same sources, as well as borrowings as required to refinance indebtedness.

In order to satisfy these capital needs, we intend to: (i) improve our operating results by increasing facility occupancy, optimizing our payor mix by increasing the proportion of sub-acute patients within our skilled nursing facilities, continuing our cost optimization and efficiency strategies and acquiring additional long-term care facilities with existing operating cash flow; (ii) expand our borrowing arrangements with certain existing lenders; (iii) refinance current debt where possible to obtain more favorable terms; and (iv) raise capital through the issuance of debt or equity securities. We anticipate that these actions, if successful, will provide the opportunity for us to maintain liquidity on a short and long term basis, thereby permitting us to meet our operating and financing obligations for the next 12 months and provide for the continuance of our acquisition strategy. However, there is no guarantee that such actions will be successful or that anticipated operating results will be achieved. We currently have limited borrowing availability under our existing revolving credit facilities. If the Company is unable to improve operating results, expand existing borrowing agreements, refinance current debt, or raise capital through the issuance of securities, or the convertible promissory notes due October 2013 are not converted into common stock and are required to be repaid by us in cash, then the Company may be required to restructure its outstanding indebtedness, implement further cost reduction initiatives, sell assets, or delay, modify, or abandon its expansion plans.