This Annual Report and the documents that are incorporated by reference in this Annual Report contain certain forward-looking statements within the meaning of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts and may be identified by the use of words such as "may," "believe," "will," "seeks to", "expect," "project," "estimate," "anticipate," "plan" or "continue." These forward-looking statements are based on the current plans and expectations and are subject to a number of risks, uncertainties and other factors which could significantly affect current plans and expectations and our future financial condition and results. For a listing and a discussion of such factors, which could cause actual results, performance and achievements to differ materially from those anticipated, see Certain Cautionary Statements-Forward Looking Information and Item 1A.
Critical Accounting Estimates
The preparation of financial statements in accordance withU.S. generally accepted accounting principles requires us to make estimates and assumptions that affect reported amounts and related disclosures. We consider an accounting estimate to be critical if:
• it requires assumptions to be made that were uncertain at the time the
estimate was made; and
• changes in the estimate or different estimates that could have been made
could have a material impact on our consolidated statement of earnings or
financial condition.
The table of critical accounting estimates that follows is not intended to be a comprehensive list of all of our accounting policies that require estimates. We believe that of our significant accounting policies, as discussed in Note 2 of our Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for the fiscal year endedJune 30, 2022 , the estimates discussed below involve a higher degree of judgment and complexity. We believe the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations and financial condition. 34
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The table that follows presents information about our critical accounting estimates, as well as the effects of hypothetical changes in the material assumptions used to develop each estimate:
Balance Sheet or Statement of Operations and Comprehensive Earnings and Loss Caption/Nature of Assumption / Approach Used Critical Estimate Item (dollar amounts in thousands, except Sensitivity Analysis (dollar amounts in thousands, except per (dollar amounts in thousands, except per share) share) per share) Receivables-net and Provision for Concession Adjustments Receivables-net for our Healthcare The largest component of concessions A significant increase in our Services segment primarily consists of adjustments in our patient accounts provision for doubtful accounts (as amounts due from third-party payors receivable for our Healthcare a percentage of revenues) would and patients from providing healthcare Services and Pharmacy segments lower our earnings. This would services to healthcare facility relates to accounts for which adversely affect our results of patients. Receivables for our Pharmacy patients are responsible, which we operations, financial condition, segment primarily consists of amounts refer to as patient responsibility liquidity and potentially our future due from third-party payors; accounts. These accounts include access to capital. institutions such as extended care and both amounts payable by uninsured If net revenues during fiscal year rehabilitation centers, nursing homes, patients and co-payments and 2022 were changed by 1%, our 2022 home health, hospice, hospitals; deductibles payable by insured after-tax income from continuing Medicaid Part D program; and customers patients. In general, we attempt to operations would change by from the sale of pharmacy services and collect deductibles, co-payments and approximately$413 or diluted merchandise. Our ability to collect self-pay accounts prior to the time earnings per share of$0.06 . outstanding receivables is critical to of service for non-emergency care. This is only one example of our results of operations and cash If we do not collect these patient reasonably possible sensitivity flows. The primary uncertainty lies responsibility accounts prior to the scenarios. The process of with accounts for which patients are delivery of care, the accounts are determining the allowance requires responsible, which we refer to as handled through our billing and us to estimate uncollectible patient patient responsibility accounts. These collections processes. accounts that are highly uncertain accounts include both amounts payable We attempt to verify each patient's and requires a high degree of by uninsured patients and co-payments insurance coverage as early as judgment. It is impacted by, among and deductibles payable by insured possible before a scheduled other things, changes in regional patients. non-emergency admission or
economic conditions, business office
procedure, including with respect to operations, payor mix and trends in Our provision for concession eligibility, benefits and private and federal or state adjustments, included in our results authorization/pre-certification
governmental healthcare coverage.
of continuing operations for the years requirements, in order to notify
ended
patients of the estimated amounts 2022-$967; and for which they will be responsible. 2021-$726 Our hospital does not operate an emergency room. We attempt to verify insurance coverage within a reasonable amount of time for all non-emergency urgent admissions in compliance with the Emergency Medical Treatment and Active Labor Act. In general, we utilize the following steps in collecting accounts receivable: if possible, cash collection of all or a portion of deductibles, co-payments and self-pay accounts prior to or at the time service is provided; billing and follow-up with third party payors; collection calls; utilization of collection agencies; sue to collect if the patient has the means to pay and chooses not to pay; and if collection efforts are unsuccessful, write off the accounts. 35
-------------------------------------------------------------------------------- Balance Sheet or Statement of Operations and Comprehensive Earnings and Loss Caption/Nature of Assumption / Approach Used Critical Estimate Item (dollar amounts in thousands, except Sensitivity Analysis (dollar amounts in thousands, except per (dollar amounts in thousands, except per share) share) per share) Our policy is to write off accounts after all collection efforts have failed, which is typically no longer than 120 days after the date of discharge of the patient or service to the patient or customer. Patient responsibility accounts represent the majority of our write-offs. Our subsidiary hospital retains third-party collection agencies for billing and collection of delinquent accounts; the use of one or more collection agencies promotes competition and improved performance. Generally, we do not write off accounts prior to utilizing the services of a collection agency. Once collection efforts have proven unsuccessful, an account is written off from our patient accounting system. We monitor our revenue trends by payor classification on a quarter-by-quarter basis along with the composition of our accounts receivable agings. This review is focused primarily on trends in self-pay revenues, self-pay accounts receivable, co-payment receivables and historic payment patterns. In addition, we analyze other factors such as day's revenue in accounts receivable and we review admissions and charges by physicians, primarily focusing on recently recruited physicians. 36
-------------------------------------------------------------------------------- Balance Sheet or Statement of Operations and Comprehensive Earnings and Loss Caption/Nature of Assumption / Approach Used Critical Estimate Item (dollar amounts in thousands, Sensitivity Analysis (dollar amounts in thousands, except except per (dollar amounts in thousands, except per share) share) per share) Revenue recognition /Net Patient Service Revenues
For our Healthcare Services segment, Revenues are recorded at estimated we recognize revenues in the period amounts due from patients, third- in which services are provided. For party payors, institutions, and our Pharmacy segment, we recognize others for healthcare and pharmacy revenues in the period in which services and goods provided net of services are provided and at the time contractual discounts pursuant to the customer takes possession of contract or government payment merchandise. Patient receivables rates. Estimates for contractual primarily consist of amounts due from allowances are calculated using third-party payors and patients. computerized and manual processes Amounts we receive for treatment of depending on the type of payor patients covered by governmental involved. In our hospital, the programs, such as Medicare and contractual allowances are Medicaid, and other third-party calculated by a computerized payors, such as HMOs, PPOs and other system based on payment terms for private insurers, are determined each payor and certain manual pursuant to contracts or established estimates are used in calculating government rates and are generally contractual allowances based on less than our established billing historical collections from payors rates. Accordingly, our gross
that are not significant or have
revenues and patient receivables are not entered into a contract with reduced to net amounts receivable us. All contractual adjustments pursuant to such contracts or
regardless of type of payor or
government payment rates through an method of calculation are reviewed
allowance for contractual discounts. and compared to actual experience
The sources of these revenues were as on a periodic basis.
follows for the year ended
party payors, institutions, and Medicare-48.4%; patients. Amounts we receive for Medicaid-25.4%; and the treatment of patients covered Commercial insurance and other by HMOs, PPOs and other private sources-8.8%. insurers are generally less than our established billing rates. We include contractual allowances as a reduction to revenues in our financial statements based on payor specific identification and payor specific factors for rate increases and denials. 37
-------------------------------------------------------------------------------- Balance Sheet or Statement of Operations and Comprehensive Earnings and Loss Caption/Nature Assumption / Approach Used of Critical Estimate Item (dollar amounts in Sensitivity Analysis (dollar amounts in thousands, thousands, except per (dollar amounts in thousands, except except per share) share) per share) Governmental payors Governmental payors The majority of services Because the laws and regulations performed on Medicare and
governing the Medicare and Medicaid
Medicaid patients are programs are complex and subject to reimbursed at predetermined change, the estimates of contractual reimbursement rates.
discounts we record could change by
material amounts. Adjustments The differences between the related to final settlements for established billing rates revenues retrospectively increased (i.e., gross charges) and (decreased) our revenues from the predetermined continuing operations by the reimbursement rates are
following amounts for the years
recorded as contractual endedJune 30 : discounts and deducted from 2022-$33 and gross charges. Under this 2021-$69. prospective reimbursement system, there is no adjustment or settlement of the difference between the actual cost to provide the service and the predetermined reimbursement rates. Discounts for retrospectively cost-based revenues are estimated based on historical and current factors and are adjusted in future periods when settlements of filed cost reports are received. Final settlements under all programs are subject to adjustment based on administrative review and audit by third party intermediaries, which can take several years to resolve completely.Commercial Insurance Commercial Insurance For most managed care If our overall estimated contractual plans, contractual discount percentage on all of our allowances estimated at the
commercial revenues during 2022 were
time of service are changed by 1%, our 2022 after-tax adjusted to actual income from continuing operations contractual allowances as would change by approximately$95 . cash is received and claims This is only one example of are reconciled.
reasonably possible sensitivity
scenarios. The process of
We evaluate the following
determining the allowance requires
criteria in developing the us to estimate the amount expected estimated contractual to be received and requires a high allowance percentages: degree of judgment. It is impacted historical contractual by
changes in managed care contracts
allowance trends based on and other related factors. actual claims paid by A significant increase in our managed care payors; review estimate of contractual discounts of contractual allowance would
lower our earnings. This would
information reflecting
adversely affect our results of
current contract terms;
operations, financial condition,
consideration and analysis
liquidity and future access to
of changes in payor mix capital. reimbursement levels; and other issues that may impact contractual allowances. 38
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Balance Sheet or Statement of Operations and Comprehensive Assumption / Approach Earnings and Loss Caption/Nature
Used of Critical Estimate Item (dollar amounts in Sensitivity Analysis (dollar amounts in thousands, thousands, except per (dollar amounts in thousands, except except per share) share) per share) Intangible assets and accounting for business combinations
Our intangible assets by business In accordance with segment included in our
Financial Accounting consolidated balance sheets as of Standards Board June 30 for the following years ("FASB") Accounting was as follows: Standards Codification 350-10, "Intangibles-Goodwill and Other," ("ASC 350-10") goodwill and intangible assets with indefinite lives are reviewed by us at least annually for impairment. For purposes of these analyses, the estimate of fair value is based on the income approach, which estimates the fair value based on future discounted cash flows. The estimate of future discounted cash flows is based on assumptions and projections that are believed to be currently reasonable and supportable. If it is determined the carrying value of goodwill or other intangible assets to be impaired, then the carrying value is reduced. The purchase price of acquisitions is allocated to the assets acquired and liabilities assumed based upon their respective fair values and are subject to change during the twelve-month period subsequent to the acquisition date. We engage independent third-party valuation firms to assist us in determining the fair values of assets acquired and liabilities assumed at the time of acquisition. Such valuations require us to make significant estimates and assumption, including projections of future events and operating performance. 2022 2021 Pharmacy Trade name$ 1,180 $ 1,180 Customer relationships 1,089 1,089 Medicare License 623 623 2,892 2,892 Accumulated amortization (1,691) (1,665) Total$ 1,201 $ 1,227 39
-------------------------------------------------------------------------------- Balance Sheet or Statement of Operations and Comprehensive Earnings and Loss Caption/Nature of Critical Estimate Item Assumption / Approach Used Sensitivity Analysis (dollar amounts in thousands, except (dollar amounts in thousands, (dollar amounts in thousands, except per share) except per share) per share) Fair value estimates are derived from independent appraisals, established market values of comparable assets, or internal calculations of estimated future net cash flows. Our estimate of future cash flows is based on assumptions and projections we believe to be currently reasonable and supportable. Our assumptions take into account revenue and expense growth rates, patient volumes, changes in payor mix, and changes in legislation and other payor payment patterns. Professional and general liability claims We are subject to potential medical The reserve for professional and Actuarial calculations include a malpractice lawsuits and other general liability claims is large number of variables that may claims as part of providing based upon independent actuarial significantly impact the estimate of healthcare and pharmacy related calculations, which consider ultimate losses recorded during a services. To mitigate a portion of historical claims data, reporting period. In determining this risk, we have maintained demographic considerations, loss estimates, professional insurance for individual malpractice severity factors and other judgment is used by each actuary by claims exceeding a self-insured actuarial assumptions in the selecting factors that are retention amount. Our self-insurance determination of reserve considered appropriate by the retention amount was$1,000 on estimates. actuary for our specific individual malpractice claims for circumstances. Changes in each contract year commencing The reserve for professional and assumptions used by our independent March 1, 2011 through February 29, general liability claims actuary with respect to demographics 2016 and was reduced to$750 from reflects the current estimate of and geography, Industry trends, March 1, 2016 through March 31, all outstanding losses, development patterns and judgmental 2021. A tail insurance policy has including incurred but not selection of other factors may been purchased for claims occurring reported losses, based upon impact our recorded reserve levels on or before March 31, 2021 which actuarial calculations as of the and our results of operations. has a$750 per incident self-insured balance sheet date. The loss Changes in our initial estimates of retention. For claims occurring estimates included in the professional and general liability after March 31, 2021, claims made actuarial claims are non-cash charges and insurance policies have been calculations may change in the accordingly, there would be no purchased with$1,000 on individual future based upon updated facts material impact currently on our malpractice claims for the contract and circumstances. liquidity or capital resources. years commencingApril 1, 2021 through March 31, 2023. We revise our reserve estimation process by obtaining independent Each year, we obtain quotes from actuarial calculations various malpractice insurers with quarterly. respect to the cost of obtaining medical malpractice insurance coverage. We compare these quotes to our most recent actuarially determined estimates of losses at various self-insured retention levels. Accordingly, changes in insurance costs affect the self-insurance retention level we choose each year. As insurance costs increase, we may accept a higher level of risk in self-insured retention levels. 40
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Balance Sheet or Statement of Operations and Comprehensive Assumption / Approach Earnings and Loss Caption/Nature
Used of Critical Estimate Item (dollar amounts in Sensitivity Analysis (dollar amounts in thousands, thousands, except (dollar amounts in thousands, except except per share) per share) per share) The reserve for professional and Our estimated reserve general liability claims included for in our consolidated balance sheets professional and general as of June 30 was as follows: liability claims will be 2022-$111 and significantly affected 2021-$37 if current and future The total increases for claims differ from
professional and general liability historical trends. While coverage, included in our
we monitor reported consolidated results of operations claims closely and for the years endedJune 30 , was consider potential as follows: outcomes as estimated by 2022-$454; and our independent 2021-$211. actuaries when determining our professional and general liability reserves, the complexity of the claims, the extended period of time to settle the claims and the wide range of potential outcomes complicates the estimation process. In addition, certain states, includingGeorgia , have passed varying forms of tort reform which attempt to limit the number and types of claims and the amount of some medical malpractice awards. If enacted limitations remain in place or if similar laws are passed in the states where our other medical facilities are located, our loss estimates could decrease. Conversely, liberalization of the number and type of claims and damage awards permitted under any such law applicable to our operations could cause our loss estimates to increase. 41
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Balance Sheet or Statement of Operations and Comprehensive Assumption / Approach Earnings and Loss Caption/Nature
Used of Critical Estimate Item (dollar amounts in Sensitivity Analysis (dollar amounts in thousands, thousands, except (dollar amounts in thousands, except except per share) per share) per share) Accounting for income taxes
Deferred tax assets generally The first step in Our deferred tax assets were
June 30, 2022, excluding the impact of in a tax deduction in future years deferred tax asset valuation allowances. At June 30, 2022, for which we have already recorded valuation allowance is the Company evaluated the need for a the tax benefit in our Statement identifying reporting valuation allowance against our of Operations and Comprehensive jurisdictions where we deferred tax assets and determined that Earnings and Loss. We assess the have a history of tax it was more likely than not that likelihood that deferred tax and operating losses or none of our deferred tax assets would assets will be recovered from are projected to have be realized. As a result, in future taxable income. To the losses in future accordance with ASC 740, we recognized extent we believe that recovery is periods as a result of a total valuation allowance of$7,919 not probable, a valuation changes in operational against the deferred tax asset so that allowance is established. To the performance. We then the net tax deferred asset was$0 at extent we establish a valuation determine if a June 30, 2022. We conducted our allowance or increase this valuation allowance evaluation by considering available allowance, we must include an should be established positive and negative evidence to expense as part of the income tax against the deferred determine our ability to realize our provision in our results of tax assets for that deferred tax assets. In our evaluation, operations. Our net deferred tax reporting jurisdiction. we gave more significant weight to asset (liability) balance (net of evidence that was objective in nature valuation allowance) in our The second step is to as compared to subjective evidence. consolidated balance sheets as of determine the amount of Also, more significant weight was given June 30 for the following years the valuation to evidence we judged directly related was as follows: allowance. We will to our current financial performance as 2022-$(69); and generally establish a compared to less current evidence and 2021-$0. valuation allowance future
plans.
Our valuation allowances for equal to the net The
deferred tax asset items we have failed to identify as tax consolidated balance sheets as of (deferred tax assets contingencies. If the IRS were to June 30 for the following years less deferred tax propose and sustain assessments equal were as follows: liabilities) related to to 10% of our taxable income for 2022, 2022-$7,919; and the jurisdiction we would incur approximately$0 of 2021-$6,700. identified in the first additional tax expense for 2022 plus In addition, significant judgment step of the analysis. applicable penalties and interest. is required in determining and In certain cases, we assessing the impact of certain may not reduce the tax-related contingencies. We valuation allowance by establish accruals when, despite the amount of the our belief that our tax return deferred tax positions are fully supportable, liabilities depending it is probable that we have on the nature and incurred a loss related to tax timing of future contingencies and the loss or taxable income range of loss can be reasonably attributable to estimated. deferred tax We adjust the accruals related to liabilities. tax contingencies as part of our provision for income taxes in our In assessing tax results of operations based upon contingencies, we changing facts and circumstances, identify tax issues such as the progress of a tax that we believe may be audit, development of industry challenged upon related examination issues, as examination by the well as legislative, regulatory or taxing authorities. We judicial developments. A number of also assess the years may elapse before a likelihood of particular matter, for which we sustaining tax benefits have established an accrual, is associated with tax audited and resolved. planning strategies and reduce tax benefits based on management's judgment regarding such likelihood. We compute the tax on each contingency. We then determine the amount of loss, or reduction in tax benefits based upon the foregoing and reflects such amount as a component of the provision for income taxes in the reporting period. During each reporting period, we assess the facts and circumstances related to recorded tax contingencies. If tax contingencies are no longer deemed probable based upon new facts and circumstances, the contingency is reflected as a reduction of the provision for income taxes in the current period. 42
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Financial Summary
The results of continuing operations shown in the historical summary below are for our two business segments, Healthcare Services and Pharmacy.
2022
2021
Net Revenues-Healthcare Services$ 13,409 $ 13,613 Net Revenues-Pharmacy 27,935 27,072 Total Net Revenues 41,344 40,685 Costs and expenses (46,684 ) (38,814 ) Operating profit (loss) (5,340 ) 1,871 Federal stimulus - Pandemic relief funds 720
4,880
Forgiveness of PPP loans and accrued interest 3,010 264 Interest Expense (15 ) (28 ) Gain on sale of assets 10 13 Earnings (loss) from continuing operations before income taxes$ (1,615 ) $
7,000
Healthcare Services segment: Hospital and Extended Care and Rehabilitation Center Admissions
528
281
Hospital andExtended Care and Rehabilitation Center Patient Days 22,165 19,577 Results of Operations
Our net revenues are principally from our two business segments, Healthcare
Services and Pharmacy. The Company's net revenues by payor were as follows for
the years ended
2022 2021 Medicare$ 20,025 $ 18,194 Medicaid 10,493 10,522 Retail and Institutional Pharmacy 5,879 6,090 Managed Care & Other Insurance 3,642 5,094 Self-pay 1,199 510 Other 106 275 Total Net Revenues$ 41,344 $ 40,685 Healthcare Services net revenues in the current year are composed of revenues from its hospital, clinics, extended care and rehabilitation center, and a subsidiary which provides information technology services to outside customers and SunLink subsidiaries. Healthcare Services net revenues decreased$204 , or 1.5% in the year endedJune 30, 2022 compared to the year endedJune 30, 2021 . The decrease in net revenues for fiscal 2022 resulted from primarily from decreased extended care and rehabilitation center revenues due to unfavorable payer mix. Hospital days increased 42.9%, extended care and rehabilitation center patient days increased 7.4% and clinic visits increased 34.4% in the fiscal year endedJune 30, 2022 compared to the prior year. Settlements of prior year Medicare and Medicaid cost reports contributed net revenues from continuing operations of$33 for the year endedJune 30, 2022 and$69 for the year endedJune 30, 2021 . Pharmacy Segment net revenues for the year endedJune 30, 2022 of$27,935 increased 3.2% from the prior year. The increased net revenues resulted from increased demand compared to the COVID-19 pandemic period of the year endedJune 20, 2021 . Total scripts filled increased 1.8% and Durable Medical Equipment ("DME") sales orders increased 3.8% for the year endedJune 30, 2022 from the prior year.Retail and Institutional Pharmacy revenues increased for the year endedJune 30, 2022 from the prior year while, although DME sales orders increased, DME revenues decreased 1.5% due to the difficulty of purchasing certain higher margin DME products as a result of supply chain issues. 43 -------------------------------------------------------------------------------- Costs and expenses, including depreciation and amortization, were$46,684 and$38,814 for the fiscal years endedJune 30, 2022 and 2021, respectively. Costs and expenses as a percentage of net revenues were: 2022 2021 Cost of goods sold 39.7 % 38.4 % Salaries, wages and benefits 46.0 % 33.9 % Supplies 3.1 % 2.4 % Purchased services 8.6 % 6.1 % Other operating expenses 10.5 % 9.9 % Rent and lease expense 1.3 % 1.4 %
Depreciation and amortization expense 3.7 % 3.4 %
Cost of goods sold as a percent of net revenues increased 1.3% in the fiscal year endedJune 30, 2022 compared to the prior fiscal year due to the higher cost of certain pharmaceuticals and DME products which resulted from supply chain issues. Salaries, wages and benefits expense as a percent of net revenues increased 12% this year compared to the prior fiscal year due to higher salaries and wages required in connection with current labor markets and operating challenges of labor allocation relating to the pandemic, including the use of contract labor, and recognition last year of$3,586 CARES Act Employer Retention Credits ("ERC") which the company qualified for when the program was amended effectiveJanuary 1, 2021 . ERC were recognized as reductions of salaries, wages and benefits. Purchased services cost increased this year due to increased cost of fuel, outsourcing at our Healthcare Services facility of certain services (due to challenges in hiring labor locally) and increased costs of software support services. Other operating expenses increased 0.6% of net revenues due to increased professional liability and other insurance expenses. Operating loss was$5,340 for the year endedJune 30, 2022 compared to operating profit of$1,871 for the year endedJune 30, 2021 . The operating loss in the year endedJune 30, 2022 compared to the prior fiscal year resulted from increased cost of certain Pharmacy segments products, increased salaries, wages and benefit, purchased services, supplies and other expense this year, and the non-recurrence of ERC of$3,586 in the current fiscal year.
Forgiveness of PPP loan and accrued interest
During the year endedJune 30, 2022 ,$2,972 of our PPP loans and related$38 of accrued interest were forgiven by the SBA and recorded as income relating to the PPP loan forgiveness compared to$261 of PPP loans and$3 of accrued interest for the year endedJune 20, 2021 . As ofJune 30, 2022 , all PPP loans were forgiven by the SBA.
Other Income - Federal stimulus - Pandemic relief funds
As part of CARES, two subsidiaries received total payments of$6,173 under theProvider Relief Fund ("PRF"). The Company recognized income when it was able to comply with the relevant conditions of the grants. During the fiscal year endedJune 30, 2022 ,$720 of these funds were recognized as Other Income for reimbursement of Lost Revenues and for COVID-19 related expenses compared to$4,880 for the fiscal year endedJune 30, 2021 .
Interest Expense-net
Interest expense, net was
Income Taxes We recorded income tax expense of$107 ($60 federal and$47 state tax expense) for the year endedJune 30, 2022 compared to an income tax expense of$63 ($63 state tax expense) for the year endedJune 30, 2021 . Of the CARES Act provisions, the most material income tax considerations related to the Company are related to the amounts for ERC and amounts received as general and targeted PRF. Based on the latest publishedIRS guidance as of the preparation of theJune 30, 2022 financial statements, PRF (to the extent the applicable terms and conditions required to retain the funds are met "Retainable PRF") are fully includable in taxable income in the Company's tax returns in the fiscal year received. ERC are included in tax income in the Company's tax returns in the quarter in which the payroll expenses for which the credits offset are deductible. ERC results in qualified wages being disallowed as a deduction for the portion of the wages paid equal to the sum of the payroll tax credit taken in the associated quarter. For amounts received and forgiven under the PPP loans, due to the enactment of the Consolidated Appropriations Act, 2021, onDecember 27, 2020 ,Congress specifically allows the deduction of any expenses associated with 44
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forgiven PPP loan proceeds. It is the Company's assumption at
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 and the tax basis of the assets become deductible. The value of our deferred tax assets will depend on applicable income tax rates. The principal negative evidence that led us to determine atJune 30, 2022 that all the deferred tax assets should have full valuation allowances was the projected current fiscal year tax loss disregarding unusual items associated with the CARES Act discussed above, history of losses as well as the underlying negative business conditions for rural healthcare businesses in which our Healthcare Services Segment businesses operate and the Federal income tax net operating loss carry-forward of approximately$21,653 . For Federal income tax purposes, atJune 30, 2022 , the Company had approximately$21,653 of estimated net operating loss carry-forwards available for use in future years subject to the limitations of the provisions of Internal Revenue Code Section 382. These net operating loss carryforwards expire primarily in fiscal 2023 through fiscal 2038; however, with the enactment of the Tax Cut and Jobs Act onDecember 22, 2017 , federal net operating loss carryforwards generated in taxable years beginning afterDecember 31, 2017 now have no expiration date. The Company's returns for the periods prior to the fiscal year endedJune 30, 2019 are no longer subject to potential federal and state income tax examination. Discontinued Operations Loss from discontinued operations net of income tax was$287 for the year endedJune 30, 2022 , and loss from discontinued operations net of income taxes were$47 for the year endedJune 30, 2021 . The results of all the businesses in discontinued operations are presented below: Sold Hospitals - Subsidiaries of the Company have sold substantially all of the assets of five hospitals ("Other Sold Hospitals") during the periodJuly 2, 2012 toMarch 17, 2019 . The income before income taxes for the fiscal year endedJune 30 , 2021of the Other Sold Hospitals resulted primarily from the positive effects of prior year Medicare and Medicaid cost report settlements. The loss before income taxes for the fiscal year endedJune 30, 2020 resulted primarily from retained professional liability claims expenses and from the negative effects of prior year Medicare and Medicaid cost report settlements. Life Sciences and Engineering Segment -SunLink retained a defined benefit retirement plan which covered substantially all of the employees of this segment when the segment was sold in fiscal 1998. EffectiveFebruary 28, 1997 , the plan was amended to freeze participant benefits and close the plan to new participants. Pension expense and related tax benefit or expense is reflected in the results of operations for this segment for the fiscal years endedJune 30, 2022 and 2021.
Discontinued Operations-Summary Statement of Earnings Information
2022 2021 Net Revenues: Sold Hospitals$ 24 $ 191 $ 24 $ 191 Earnings (Loss) before Income Taxes: Sold Hospitals$ (243 ) $ 33 Life sciences and engineering (44 ) (80 ) Earnings (loss) before income taxes (287 ) (47 ) Income tax expense 0 0
Earnings (Loss) from discontinued operations
45
-------------------------------------------------------------------------------- Net Earnings (Loss) - Net loss for the year endedJune 30, 2022 was$2,009 (or a loss of$0.29 per fully diluted share) compared to net earnings for the year endedJune 30, 2021 of$6,890 ($0.99 per fully diluted share).
Liquidity and Capital Resources
Overview
Our primary source of liquidity is unrestricted cash on hand, which was$6,794 atJune 30, 2022 . The Company and its subsidiaries currently are funding working capital needs primarily from cash on hand. From time-to-time, nevertheless, we may seek to obtain financing for the liquidity needs or the Company or individual subsidiaries based on anticipated needs. However, currently, the Company believes, currently, that its ability to raise capital (debt or equity) in the public or private markets on what it considers acceptable terms is uncertain. CARES Act Funds- The CARES Act was enacted by theU.S. government onMarch 27, 2020 . Among the relief to health care providers under the CARES Act are grant of funds under PRF and forgivable loans under the PPP. We have received a total of$9,407 under the CARES Act programs consisting of$6,173 in general and targeted PRF and$3,234 of PPP loans. During the first two calendar quarters of 2021, the Company became eligible for, and we applied for$3,586 of ERC amended our quarterly payroll tax filing. Through the date of this filing, we have received$1,803 of ERC for which we filed amended payroll tax returns. Subject to the effects, risks and uncertainties associated with the COVID-19 pandemic and our right to retain the CARES described above, we believe we have adequate financing and liquidity to support our current level of operations through the next twelve months. 46
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Contractual Obligations, Commitments and Contingencies
Contractual obligations related to long-term debt, non-cancelable operating leases and interest on outstanding debt from continuing operations atJune 30, 2022 is shown in the following table. The interest on variable interest debt is calculated at the interest rate in effect atJune 30, 2022 . Interest on Payments Long-Term Long-Term due in: Debt Debt 1 year$ 40 $ 3 2 years 14 0 3 years 0 0 4 years 0 0 5 years 0 0 More than 5 years 0 0$ 54 $ 3
Long-term Debt -At
AtJune 30, 2022 , the Company has approximately$350 of commitments for future capital expenditures for our Trace hospital under its Trace Forward Capital Plan which was announced inMarch 2021 . This Plan expands, upgrades and improves the physical plant, patient care, ancillary services and support areas of the Trace hospital. The Company also expects to purchase approximately$1,100 of additional capitalizable DME by the Pharmacy segment (to be rented to customers) during fiscal 2023. The timing and actual amount which will be expended is difficult to predict due to various factors including varying demand for such equipment as well as its availability given current supply sourcing challenges. The Company anticipates funding such expenditures primarily from cash on hand. The Company has$3,586 receivable from the filing of ERC claimed in amended payroll tax returns of which we have collected$1,802 . through the date of this filing. We expect to collect the remaining$1,839 receivable in the next 12 months. Other cash expenditures for the next 12 months currently are expected to be in-line with expenditures for the quarter endedJune 30, 2022 , subject to further operating and administrative cost increases, and other settlements of cost reports in the ordinary course of business, and the Company's ability to retain unrecognized CARES Act grants, PPP funds and ERC funds received or previously received.The Small Business Administration which administers PPP loans has requested certain additional information with regards to one of the forgiven PPP loans which we are in the process of supplying. Other than reported above, there have been no material changes outside the ordinary course of business relating to our upcoming cash obligations which have occurred during the nine months endedJune 30, 2022 . Other than with respect to scheduled cash expenditures (based on current operating levels) for long-term debt, operating leases, and interest on current outstanding debt, the debt, the specific items previously disclosed here, as well as continued uncertainties relating to the continuing impact of the COVID-19 pandemic, the Company is currently unaware of other trends or unusual uncertainties that are likely to cause a material change in its cash expenditures in periods beyond the next twelve months. See Notes 6, 9 and 13 to our financial statements. The Company is also unaware of events that are reasonably likely to cause a material change in the relationship between its costs and revenues (such as known or reasonably likely future increases in costs of labor or materials, price increases or inventory adjustments, beyond those discussed herein); however, we are unable to predict with any degree of accuracy whether, or the extent to which, recent inflationary price trends in 2021 and 2022 are transitory or reflect the beginning of an inflationary cycle, which would likely have continuing negative effects on our liquidity and results of operations. Related Party Transactions A director of the Company is a member of a law firm which provides services to SunLink. The Company has expensed an aggregate of$141 and$182 to the law firm in the fiscal years endedJune 30, 2022 and 2021, respectively. Included in the Company's consolidated balance sheets atJune 30, 2022 and 2021 is$15 and$21 of amounts payable to the law firm.
Inflation
During periods of inflation and labor shortages, employee salaries, wages and benefits increase and suppliers pass along rising costs to us in the form of higher prices for their supplies and services. We have limited ability to, and frequently are unable to, offset increases in operating costs by increasing prices for our services and products due to, among other things, our reliance on Medicare and Medicaid payments for a large proportion of our revenues or to implement sufficient cost control measures due to, among other things, our operations in a highly regulated industry. We are thus unable to predict our ability to control future cost increases or offset future cost increases by passing along the increased cost to customers.
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