Item
1. Consolidated Financial Statements (Unaudited)
GLOBAL
HEALTHCARE REIT, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
(UNAUDITED)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Property and Equipment, Net
|
|
$
|
37,376,050
|
|
|
$
|
36,394,587
|
|
Cash and Cash Equivalents
|
|
|
854,834
|
|
|
|
641,215
|
|
Restricted Cash
|
|
|
383,760
|
|
|
|
351,298
|
|
Accounts Receivable, Net
|
|
|
1,429,063
|
|
|
|
1,188,100
|
|
Investments in Debt Securities
|
|
|
24,387
|
|
|
|
24,387
|
|
Intangible Assets
|
|
|
-
|
|
|
|
15,258
|
|
Goodwill
|
|
|
379,479
|
|
|
|
379,479
|
|
Prepaid Expenses and Other
|
|
|
653,443
|
|
|
|
883,839
|
|
Total Assets
|
|
$
|
41,101,016
|
|
|
$
|
39,878,163
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Debt, Net of discount of $462,162 and $493,353, respectively
|
|
$
|
38,122,480
|
|
|
$
|
36,954,184
|
|
Debt – Related Parties, Net of discount of $6,160 and $0, respectively
|
|
|
1,118,840
|
|
|
|
1,025,000
|
|
Accounts Payable and Accrued Liabilities
|
|
|
1,158,377
|
|
|
|
1,241,573
|
|
Accounts Payable – Related Parties
|
|
|
-
|
|
|
|
32,156
|
|
Dividends Payable
|
|
|
7,500
|
|
|
|
7,500
|
|
Lease Security Deposit
|
|
|
252,100
|
|
|
|
251,100
|
|
Total Liabilities
|
|
|
40,659,297
|
|
|
|
39,511,513
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Preferred Stock:
|
|
|
|
|
|
|
|
|
Series A - No Dividends, $2.00 Stated Value, Non-Voting; 2,000,000 Shares Authorized, 200,500 Shares Issued and Outstanding
|
|
|
401,000
|
|
|
|
401,000
|
|
Series D - 8% Cumulative, Convertible, $1.00 Stated Value, Non-Voting; 1,000,000 Shares Authorized, 375,000 Shares Issued and Outstanding
|
|
|
375,000
|
|
|
|
375,000
|
|
Common Stock - $0.05 Par Value; 50,000,000 Shares Authorized, 27,441,040 and 27,441,040 Shares Issued and Outstanding at March 31, 2020 and December 31, 2019, respectively
|
|
|
1,372,052
|
|
|
|
1,372,052
|
|
Additional Paid-In Capital
|
|
|
10,405,179
|
|
|
|
10,385,417
|
|
Accumulated Deficit
|
|
|
(11,908,620
|
)
|
|
|
(11,962,220
|
)
|
Total Global Healthcare REIT, Inc. Stockholders’ Equity
|
|
|
644,611
|
|
|
|
571,249
|
|
Noncontrolling Interests
|
|
|
(202,892
|
)
|
|
|
(204,599
|
)
|
Total Equity
|
|
|
441,719
|
|
|
|
366,650
|
|
Total Liabilities and Equity
|
|
$
|
41,101,016
|
|
|
$
|
39,878,163
|
|
See
accompanying notes to unaudited consolidated financial statements.
GLOBAL
HEALTHCARE REIT, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Rental Revenue
|
|
$
|
521,012
|
|
|
$
|
895,288
|
|
Healthcare Revenue
|
|
|
3,330,589
|
|
|
|
379,791
|
|
Total Revenue
|
|
|
3,851,601
|
|
|
|
1,275,079
|
|
Expenses
|
|
|
|
|
|
|
|
|
General and Administrative
|
|
|
343,063
|
|
|
|
193,479
|
|
Property Taxes, Insurance and Other Operating
|
|
|
2,331,744
|
|
|
|
349,188
|
|
Provision for Bad Debts
|
|
|
206,608
|
|
|
|
-
|
|
Acquisition Costs
|
|
|
14,891
|
|
|
|
-
|
|
Depreciation
|
|
|
387,218
|
|
|
|
322,925
|
|
Total Expenses
|
|
|
3,283,524
|
|
|
|
865,592
|
|
Income from Operations
|
|
|
568,077
|
|
|
|
409,487
|
|
Other (Income) Expense
|
|
|
|
|
|
|
|
|
Gain on Warrant Liability
|
|
|
-
|
|
|
|
(103
|
)
|
Gain on Sale of Investments
|
|
|
-
|
|
|
|
(1,069
|
)
|
Gain on Proceeds from Insurance Claim
|
|
|
-
|
|
|
|
(270,264
|
)
|
Interest Income
|
|
|
-
|
|
|
|
(5,467
|
)
|
Interest Expense
|
|
|
505,270
|
|
|
|
526,235
|
|
Total Other (Income) Expense
|
|
|
505,270
|
|
|
|
249,332
|
|
Net Income
|
|
|
62,807
|
|
|
|
160,155
|
|
Net (Income) Loss Attributable to Noncontrolling Interests
|
|
|
(1,707
|
)
|
|
|
4,141
|
|
Net Income Attributable to Global Healthcare REIT, Inc.
|
|
|
61,100
|
|
|
|
164,296
|
|
Series D Preferred Dividends
|
|
|
(7,500
|
)
|
|
|
(7,500
|
)
|
Net Income Attributable to Common Stockholders
|
|
$
|
53,600
|
|
|
$
|
156,796
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
Net Income per Share Attributable to Common Stockholders:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
27,441,040
|
|
|
|
26,895,586
|
|
Diluted
|
|
|
27,441,040
|
|
|
|
26,895,586
|
|
See
accompanying notes to unaudited consolidated financial statements.
GLOBAL
HEALTHCARE REIT, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
|
|
Series A Preferred
Stock
|
|
|
Series D Preferred
Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Global
Healthcare
REIT, Inc.
|
|
|
Non-
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Accumulated Deficit
|
|
|
Stockholders’
Equity
|
|
|
controlling Interests
|
|
|
Total Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
200,500
|
|
|
$
|
401,000
|
|
|
|
375,000
|
|
|
$
|
375,000
|
|
|
|
27,441,040
|
|
|
$
|
1,372,052
|
|
|
$
|
10,385,417
|
|
|
$
|
(11,962,220
|
)
|
|
$
|
571,249
|
|
|
$
|
(204,599
|
)
|
|
$
|
366,650
|
|
Relative Fair Value of Warrants Issued with Senior Secured Notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,762
|
|
|
|
-
|
|
|
|
19,762
|
|
|
|
-
|
|
|
|
19,762
|
|
Series D Preferred Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,500
|
)
|
|
|
(7,500
|
)
|
|
|
-
|
|
|
|
(7,500
|
)
|
Net Income (Loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61,100
|
|
|
|
61,100
|
|
|
|
1,707
|
|
|
|
62,807
|
|
Balance, March 31, 2020
|
|
|
200,500
|
|
|
$
|
401,000
|
|
|
|
375,000
|
|
|
$
|
375,000
|
|
|
|
27,441,040
|
|
|
$
|
1,372,052
|
|
|
$
|
10,405,179
|
|
|
$
|
(11,908,620
|
)
|
|
$
|
644,611
|
|
|
$
|
(202,892
|
)
|
|
$
|
441,719
|
|
|
|
Series A Preferred
Stock
|
|
|
Series D Preferred
Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Global
Healthcare
REIT,
Inc.
|
|
|
Non-
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Accumulated Deficit
|
|
|
Stockholders’
Equity
|
|
|
controlling Interests
|
|
|
Total Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
200,500
|
|
|
$
|
401,000
|
|
|
|
375,000
|
|
|
$
|
375,000
|
|
|
|
26,804,677
|
|
|
$
|
1,340,234
|
|
|
$
|
10,137,148
|
|
|
$
|
(11,070,606
|
)
|
|
$
|
1,182,776
|
|
|
$
|
(198,182
|
)
|
|
$
|
984,594
|
|
Share Based Compensation – Restricted Stock Awards
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
272,727
|
|
|
|
13,636
|
|
|
|
36,893
|
|
|
|
-
|
|
|
|
50,529
|
|
|
|
-
|
|
|
|
50,529
|
|
Series D Preferred Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,500
|
)
|
|
|
(7,500
|
)
|
|
|
-
|
|
|
|
(7,500
|
)
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
164,296
|
|
|
|
164,296
|
|
|
|
(4,141
|
)
|
|
|
160,155
|
|
Balance, March 31, 2019
|
|
|
200,500
|
|
|
$
|
401,000
|
|
|
|
375,000
|
|
|
$
|
375,000
|
|
|
|
27,077,404
|
|
|
$
|
1,353,870
|
|
|
$
|
10,174,041
|
|
|
$
|
(10,913,810
|
)
|
|
$
|
1,390,101
|
|
|
$
|
(202,323
|
)
|
|
$
|
1,187,778
|
|
See
accompanying notes to unaudited consolidated financial statements.
GLOBAL
HEALTHCARE REIT, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
62,807
|
|
|
$
|
160,155
|
|
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
387,218
|
|
|
|
322,925
|
|
Amortization of Deferred Loan Costs and Debt Discount
|
|
|
44,793
|
|
|
|
33,124
|
|
Provision for Bad Debt
|
|
|
206,608
|
|
|
|
-
|
|
Stock Based Compensation
|
|
|
-
|
|
|
|
50,529
|
|
Gain on Sale of Investments
|
|
|
-
|
|
|
|
(1,069
|
)
|
Gain on Derivative Liability
|
|
|
-
|
|
|
|
(103
|
)
|
Changes in Operating Assets and Liabilities, Net of Assets and Liabilities Acquired:
|
|
|
|
|
|
|
|
|
Accounts and Rents Receivable
|
|
|
(447,571
|
)
|
|
|
(268,963
|
)
|
Prepaid Expenses and Other Assets
|
|
|
126,038
|
|
|
|
38,085
|
|
Deferred Rent Receivable
|
|
|
(13,142
|
)
|
|
|
(22,089
|
)
|
Accounts Payable and Accrued Liabilities
|
|
|
(115,327
|
)
|
|
|
(46,455
|
)
|
Lease Security Deposits
|
|
|
1,000
|
|
|
|
-
|
|
Cash Provided by Operating Activities
|
|
|
252,424
|
|
|
|
266,139
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Issuance of Note Receivable
|
|
|
-
|
|
|
|
(143,666
|
)
|
Proceeds from Sale of Investment in Debt Securities
|
|
|
-
|
|
|
|
151,041
|
|
Net Cash Paid in Higher Call Asset Acquisition
|
|
|
(1,045,767
|
)
|
|
|
-
|
|
Capital Expenditures for Property and Equipment
|
|
|
(40,156
|
)
|
|
|
(962,254
|
)
|
Cash Used in Investing Activities
|
|
|
(1,085,923
|
)
|
|
|
(954,879
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from Issuance of Debt, Related Party
|
|
|
100,000
|
|
|
|
-
|
|
Proceeds from Issuance of Debt, Non-Related Party
|
|
|
1,111,721
|
|
|
|
159,875
|
|
Payments on Debt, Non-Related Party
|
|
|
(124,641
|
)
|
|
|
(147,318
|
)
|
Deferred Loan Costs Paid
|
|
|
-
|
|
|
|
(8,885
|
)
|
Dividends Paid on Preferred Stock
|
|
|
(7,500
|
)
|
|
|
(7,500
|
)
|
Cash Provided by (Used in) Financing Activities
|
|
|
1,079,580
|
|
|
|
(3,828
|
)
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash
|
|
|
246,081
|
|
|
|
(692,568
|
)
|
Cash and Cash Equivalents and Restricted Cash at Beginning of the
Period
|
|
|
992,513
|
|
|
|
1,307,207
|
|
Cash and Cash Equivalents and Restricted Cash at End of the Period
|
|
$
|
1,238,594
|
|
|
$
|
614,639
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash Paid for Interest
|
|
$
|
460,478
|
|
|
$
|
506,367
|
|
Cash Paid for Income Taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
854,834
|
|
|
$
|
386,124
|
|
Restricted Cash
|
|
|
383,760
|
|
|
|
228,515
|
|
Total Cash and Cash Equivalents and Restricted Cash
|
|
$
|
1,238,594
|
|
|
$
|
614,639
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
Dividends Declared on Series D Preferred Stock
|
|
$
|
7,500
|
|
|
$
|
7,500
|
|
Non-cash owner financing for fixed assets purchase
|
|
|
150,000
|
|
|
|
-
|
|
Prepaid deposit exchanged for fixed asset acquisition
|
|
|
117,500
|
|
|
|
-
|
|
Relative Fair Value of Warrants Issued with Senior Secured Notes
|
|
$
|
19,762
|
|
|
$
|
-
|
|
See
accompanying notes to unaudited consolidated financial statements.
GLOBAL
HEALTHCARE REIT, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
and Description of the Business
Global
Healthcare REIT, Inc. (the “Company” or “Global”) was organized with the intent of operating as a real
estate investment trust (REIT) for the purpose of investing in real estate and other assets related to the healthcare industry.
The Company’s focus has shifted toward owning and operating its real estate assets. Prior to the Company changing its name
to Global Healthcare REIT, Inc. on September 30, 2013, the Company was known as Global Casinos, Inc. Global Casinos, Inc. operated
two gaming casinos which were split-off and sold on September 30, 2013. Simultaneous with the split-off and sale of the gaming
operations, the Company acquired West Paces Ferry Healthcare REIT, Inc. (WPF) in a transaction accounted for as a reverse acquisition
whereby WPF was deemed to be the accounting acquirer.
The
Company acquires, develops, leases, manages, operates and disposes of healthcare real estate. As of March 31, 2020, the Company
owned twelve healthcare properties which are primarily leased or managed by third-party operators under triple-net operating terms.
However, the Company operates the facilities internally when advantageous and expedient.
Basis
of Presentation
The
accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles (U.S. GAAP) for interim financial information and in conjunction with the rules and regulations of the Securities
Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete
financial statements. In the opinion of management, all adjustments considered necessary to make the consolidated financial statements
not misleading have been included. Operating results for the three months ended March 31, 2020 are not necessarily indicative
of the results that may be expected for the entire year. The unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2019 filed with the Securities and Exchange Commission.
Recently
Issued Accounting Pronouncements
The
Financial Accounting Standards Board and other entities issued new or modifications to, or interpretations of, existing accounting
guidance during 2020. Management has carefully considered the new pronouncements that altered generally accepted accounting principles
and does not believe that any other new or modified principles will have a material impact on the Company’s reported financial
position or operations in the near term.
Reclassification
Certain
amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial
statements. These reclassifications had no effect on the previously reported net loss.
2.
GOING CONCERN
The
accompanying consolidated financial statements and notes have been prepared assuming the Company will continue as a going concern.
For
the three months ended March 31, 2020, the Company had net income of $62,807 and reported net cash provided by operations of $252,424.
However, the Company has incurred net losses in each of the previous five fiscal years and, as of March 31, 2020, had an accumulated
deficit of $11,908,620. These circumstances raise substantial doubt as to the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern is dependent upon the Company’s ability to generate sufficient
revenues and cash flows to operate profitably and meet contractual obligations or raise additional capital through debt financing
or through sales of common stock.
Failure
to achieve the necessary levels of profitability and cash flows or obtain additional funding would be detrimental to the Company.
The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue
as a going concern.
3.
ASSET ACQUISITION – HIGHER CALL NURSING CENTER
Effective
March 2, 2020 (the “acquisition date”), the Company, through its wholly-owned subsidiary, Global Quapaw, LLC
(“Quapaw”), completed the acquisition of an 86-licensed bed, long-term care facility known as Higher Call Nursing
Center (“Higher Call”) located in Quapaw, Oklahoma for the purchase price of $1.3 million. Quapaw has entered into
an operating lease agreement with Global Higher Call Nursing, LLC, a wholly-owned subsidiary of the Company, as lessee, to be
the operator of the facility. The acquisition represents the consummation of an Asset Purchase Agreement dated October 21, 2019
between Higher Call Nursing Center, Inc., as Seller, and Quapaw, as Buyer. The purchase was accounted for as an asset acquisition
in accordance with ASC 805. Accordingly, on the acquisition date, the Company recorded property and equipment in the amount of
$1.3 million in connection with the asset acquisition which consists of the purchase consideration of $1.3 million and acquisition
costs of $13,267. In connection with the acquisition, the Company paid net cash of $1,045,767, relinquished prepaid cash deposit
pf $117,500, and agreed to non-cash owner financing debt of $150,000.
4.
PROPERTY AND EQUIPMENT
The
gross carrying amount and accumulated depreciation of the Company’s property and equipment as of March 31, 2020 and December
31, 2019 are as follows:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
1,676,692
|
|
|
$
|
1,597,500
|
|
Land Improvements
|
|
|
242,000
|
|
|
|
242,000
|
|
Buildings and Improvements
|
|
|
39,596,202
|
|
|
|
38,362,127
|
|
Furniture, Fixtures and Equipment
|
|
|
1,748,081
|
|
|
|
1,707,925
|
|
Construction in Progress
|
|
|
3,185,068
|
|
|
|
3,185,068
|
|
|
|
|
46,448,043
|
|
|
|
45,094,620
|
|
|
|
|
|
|
|
|
|
|
Less Accumulated Depreciation
|
|
|
(7,511,993
|
)
|
|
|
(7,140,033
|
)
|
Less Impairment
|
|
|
(1,560,000
|
)
|
|
|
(1,560,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,376,050
|
|
|
$
|
36,394,587
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Depreciation Expense
|
|
$
|
371,960
|
|
|
$
|
322,925
|
|
Cash Paid for Capital Expenditures
|
|
$
|
40,156
|
|
|
$
|
962,254
|
|
5.
INVESTMENTS IN DEBT SECURITIES
At
March 31, 2020 and December 31, 2019, the Company held investments in debt securities that were classified as held-to-maturity
and carried at amortized costs. Held-to-maturity securities consisted of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
States and Municipalities
|
|
$
|
24,387
|
|
|
$
|
24,387
|
|
Contractual
maturity of held-to-maturity securities at March 31, 2020 is $24,387, all due in one year or less, and total value of securities
at their respective maturity dates is $24,387. Actual maturities may differ from contractual maturities because some borrowers
have the right to call or prepay obligations with or without call or prepayment penalties.
6.
INTANGIBLE ASSETS
As
part of the acquisition of the operations on December 1, 2019 at Southern Hills Rehab Center, LLC (“SHR”),
the Company recognized certain intangible assets related to the potential net income from the existing patients in the facility.
The Company estimated the value of these contracts to be $42,185 based on historical net revenues and census information provided
by the seller. The asset was depreciated on a straight-line basis over 47 days, starting from December 1, 2019. Accordingly,
the Company recognized depreciation expense of $15,258 during the three months ended March 31, 2020. The intangible asset was
fully depreciated as of March 31, 2020.
7.
GOODWILL
The
Company recorded Goodwill as a result of the acquisition of the operations at SHR in December 2019. Goodwill is tested for impairment
at a reporting unit level on an annual basis or when an event occurs, or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying amount. During the three months ended March 31, 2020, the Company
recorded no impairment of Goodwill.
8.
DEBT AND DEBT-RELATED PARTIES
The
following is a summary of the Company’s debt outstanding as of March 31, 2020 and December 31, 2019:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Senior Secured Promissory Notes
|
|
$
|
1,545,000
|
|
|
$
|
1,485,000
|
|
Senior Unsecured Promissory Notes
|
|
|
300,000
|
|
|
|
300,000
|
|
Senior Secured Promissory Notes - Related Parties
|
|
|
975,000
|
|
|
|
875,000
|
|
Fixed-Rate Mortgage Loans
|
|
|
22,306,946
|
|
|
|
22,427,949
|
|
Variable-Rate Mortgage Loans
|
|
|
5,669,727
|
|
|
|
4,618,006
|
|
Line of Credit, Senior Secured
|
|
|
7,226,969
|
|
|
|
7,230,582
|
|
Other Debt, Subordinated Secured
|
|
|
1,536,000
|
|
|
|
1,386,000
|
|
Other Debt, Subordinated Secured - Related Parties
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,709,642
|
|
|
|
38,472,537
|
|
|
|
|
|
|
|
|
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
(468,322
|
)
|
|
|
(493,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,241,320
|
|
|
$
|
37,979,184
|
|
|
|
|
|
|
|
|
|
|
As presented in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt, Net
|
|
$
|
38,122,480
|
|
|
$
|
36,954,184
|
|
|
|
|
|
|
|
|
|
|
Debt - Related Parties, Net
|
|
|
1,118,840
|
|
|
|
1,025,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,241,320
|
|
|
$
|
37,979,184
|
|
Corporate
Senior and Senior Secured Promissory Notes
In
2017, $600,000 in notes were sold and issued, of which $425,000 were to related parties. At December 31, 2017, there were outstanding
an aggregate of $1.2 million in senior secured notes. The maturity date of all the senior secured notes was extended to December
31, 2018 prior to their original maturity date. For every $1.00 in principal amount of note, investors got one warrant exercisable
for one year to purchase an additional share of common stock at an exercise price of $0.75 per share. The warrants have
a cashless exercise provision and were valued using the Black-Scholes pricing model. The maturity date of the 1.2 million warrants
issued along with the notes was extended to December 31, 2018, 225,000 warrants of which occurred in 2018. As of December 31,
2019, the Company had not renewed or repaid $125,000 in 10% notes with a maturity date of December 31, 2018, and those notes were
technically in default. Effective January 28, 2020, the Company exchanged $100,000 in outstanding senior secured 10% Notes and
Warrants that had matured on December 31, 2018 for 11% Senior Secured Promissory Notes and issued 100,000 cashless exercise
warrants for purchase of company stock at $0.50, expiring October 31, 2021. As of March 31, 2020 the Company had not renewed
or repaid $25,000 in 10% notes with a maturity date of December 31, 2018, and those notes were technically in default.
In
October 2017, the Company sold an aggregate of $300,000 in senior unsecured notes. The notes bear interest at the rate of 10%
per annum and are due October 31, 2020. For every $1.00 in principal amount of note, investors got one warrant exercisable for
one year to purchase an additional share of common stock at an exercise price of $0.75 per share. The warrants have a cashless
exercise provision. All notes remain outstanding as of March 31, 2020.
In
October 2018, the Company, through a registered broker-dealer acting as Placement Agent, undertook a private offering to accredited
investors of Units, each Unit consisting of an 11% Senior Secured Note, due in three years, (October 31, 2021) and one Warrant
for each $1.00 in principal amount of Note exercisable for three years to purchase a share of Common Stock at an exercise price
of $0.50 per share. The Company and the Placement Agent completed the Offering in December 2018 having sold an aggregate of $1,160,000
in Notes and Warrants. The net proceeds to the Company were $1,092,400, after deducting Placement Agent fees of $67,600, and issued
111,000 warrants to the Placement Agent with $21,453 of the fair value of the warrants recorded as loan cost. The Offering also
included the exchange of an aggregate of $1.075 million in outstanding senior secured 10% Notes and Warrants for Units in the
Offering. No proceeds were realized from the exchange and no fees were paid to the Placement Agent for such exchanges. During
2018, among the $1.075 million senior secured notes that were extended to October 31, 2021 by virtue of the exchange, $875,000
were to related parties.
On
January 17, 2020, the Board of Directors agreed to increase the total offering amount and extend the period of its 2018 Offering
of 11% Senior Secured Notes. The total amount of the Offering has been increased to $2,500,000 and the offering period will continue
until terminated by the Board of Directors. Effective February 5, 2020 and March 3, 2020, the Company completed the sale of $60,000
and $100,000, respectively, of Units in the Offering. The sale of $100,000 Units on March 3, 2020 was to a related party. No fees
or commissions were paid on the sale of the Units. The proceeds will be used for general working capital.
The
value of the warrants issued to the note holders during the three months ended March 31, 2020 was calculated using the Black-Scholes
pricing model using the following significant assumptions:
Volatility
|
|
|
115.2% - 117.3
|
%
|
Risk-free Interest Rate
|
|
|
0.71%
- 1.45
|
%
|
Exercise Price
|
|
$
|
0.50
|
|
Fair Value of Common Stock
|
|
$
|
0.20 - $0.24
|
|
Expected Life
|
|
|
1.7 – 1.8 years
|
|
During
the year ended December 31, 2018, the Company issued 1,160,000 warrants with a value on the issue date estimated to be $207,025
bifurcated from the value of the note and exchanged 1,075,000 existing warrants for new ones in connection with its note offerings.
During the three months ended March 31, 2020, the Company issued 160,000 warrants, 100,000 of which to related parties,
with a value on the issue date estimated to be $11,616 bifurcated from the value of the note, and exchanged 100,000 existing
warrants for new ones with a value on the issue date estimated to be $8,146 in connection with its note offerings. For
all notes issued with warrants, the relative fair value of the warrants issued were recorded as debt discounts. As of March
31, 2020, the unamortized balance of discount on notes was $111,310. Amortization expense was $19,688 and $16,261 for the three
months ended March 31, 2020 and 2019, respectively.
Mortgage
Loans and Lines of Credit Secured by Real Estate
Mortgage
loans and other debts such as line of credit here are collateralized by all assets of each nursing home property and an assignment
of its rents. Collateral for certain mortgage loans includes the personal guarantee of Christopher Brogdon. Mortgage loans for
the periods presented consisted of the following:
|
|
Face
|
|
|
Principal Outstanding
at
|
|
|
Stated
|
|
Maturity
|
Property
|
|
Amount
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Interest Rate
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern
Hills Retirement Center Line of Credit(1)(2)
|
|
$
|
7,227,074
|
|
|
$
|
7,226,969
|
|
|
$
|
7,230,582
|
|
|
4.75% Fixed
|
|
June 18, 2023
|
Eastman Nursing Home
(1)(3)
|
|
|
3,570,000
|
|
|
|
3,423,170
|
|
|
|
3,451,593
|
|
|
5.50% Fixed
|
|
October 26, 2021
|
Goodwill Nursing Home
(1)(4)
|
|
|
4,268,878
|
|
|
|
4,268,878
|
|
|
|
4,286,237
|
|
|
4.75% Fixed
|
|
April 12, 2025
|
Warrenton Nursing Home
(5)
|
|
|
3,768,600
|
|
|
|
3,722,532
|
|
|
|
3,739,942
|
|
|
3.73% Fixed
|
|
July 1, 2049
|
Edward Redeemer Health
& Rehab(6)
|
|
|
2,065,804
|
|
|
|
2,065,773
|
|
|
|
2,074,958
|
|
|
4.75% Fixed
|
|
June 29, 2021
|
Glen Eagle Health and
Rehab(7)
|
|
|
3,119,214
|
|
|
|
3,066,376
|
|
|
|
3,083,006
|
|
|
5.50% Fixed
|
|
May 25, 2021
|
Providence of Sparta
Nursing Home (8)
|
|
|
3,039,300
|
|
|
|
2,908,417
|
|
|
|
2,923,013
|
|
|
3.50% Fixed
|
|
November 1, 2047
|
Meadowview Healthcare
Center (9)
|
|
|
3,000,000
|
|
|
|
2,851,800
|
|
|
|
2,869,200
|
|
|
6.00% Fixed
|
|
October 30, 2022
|
GL Nursing Home(10)
|
|
|
5,000,000
|
|
|
|
4,618,006
|
|
|
|
4,618,006
|
|
|
Prime Plus 1.50%/ 5.75% Floor
|
|
August 3, 2037
|
Higher
Call Nursing Center(11)
|
|
|
1,051,721
|
|
|
|
1,051,721
|
|
|
|
-
|
|
|
Prime Plus 2.00%
|
|
March 3, 2040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,203,642
|
|
|
$
|
34,276,537
|
|
|
|
|
|
|
(1)
|
Mortgage loans are
non-recourse to the Company except for (i) the senior loan held by ServisFirst Bank on Meadowview (Ohio), (ii) the loans held
by Colony Bank on Eastman and Glen Eagle, and (iii) the Southern Hills line of credit and Goodwill loan owed to Southern Bank
(formerly First Commercial Bank).
|
|
(2)
|
On October 31, 2017,
the Company, through its wholly-owned subsidiaries Southern Tulsa, LLC and Southern Tulsa TLC, LLC, as Co-Borrowers, consummated
a new Line of Credit with Southern Bank (formerly First Commercial Bank) pursuant to a Promissory Note in the principal amount
of $7,229,052 (the “Line of Credit”). Under the Line of Credit, the Company refinanced the prior mortgage on its
skilled nursing facility in Tulsa for $1,546,801, funded open market and tender offer purchases of its Industrial Revenue
Bonds covering the ALF and ILF as well as provided working capital for improvements to the ALF and ILF. As of March 31, 2020,
a total of $7,226,969 was drawn under the Line of Credit, and as of December 31, 2019, a total of $7,230,582 was drawn under
the Line of Credit.
|
|
|
The
interest rate on the Line of Credit increased from 5.25% to 5.75% effective April 28, 2019 and subsequently was reduced to
4.75% as part of a new three-year loan renewal. Monthly payments of interest began on November 30, 2017 and continue
until the Promissory Note is paid in full on the Maturity Date. The Maturity Date was been extended multiple times in three
month increments initially from April 30, 2018 to May 5, 2020, and subsequently to June 18, 2023 with a principal amount of
$7,227,074. The Credit Note is secured by a First Mortgage and Assignment of Rents on Real Property for Southern Hills Rehabilitation
Center, a Junior Lien and Assignment of Rents on Real Property for its Southern Hills Independent Living Facility location
and a Junior Lien on Real Property for its Southern Hills Assisted Living Facility location. With the retirement of the Tulsa
Industrial Authority Bonds effective November 1, 2018, Southern Bank (formerly First Commercial Bank) moved into a senior
position on the ALF and ILF properties.
|
|
(3)
|
The loan at Eastman
was renewed on November 26, 2018 with the maturity extended to October 26, 2021. For the three months ended March 31, 2020,
amortization expense related to loan costs totaled $322.
|
|
(4)
|
The
maturity for the loan at Goodwill Nursing was extended on April 28, 2020 to April 12, 2025 in June 2020. The face
value of the note was adjusted to the principal outstanding at the time of 4,268,878, and the interest rate was decreased to
4.75%, from 5.50%.
|
|
(5)
|
The original loan
was extended on January 19, 2019 to January 20, 2020 and the Company capitalized $8,885 in loan costs paid. The loan was refinanced
in June 2019. The Company has incurred $156,671 in unamortized loan costs to refinance this debt with another lender. The
refinance was treated as debt extinguishment, with a new maturity date of July 1, 2049 and an interest rate of 3.73%. For
the three months ended March 31, 2020, amortization expense related to loan costs totaled $1,306.
|
|
(6)
|
The
maturity for the loan at Edwards Redeemer was extended to June 29, 2021 in June 2020. The face value of the note was adjusted
to the principal outstanding at the time of the modification, $2,065,804, and the interest rate was decreased from
5.50% to 4.75%.
|
|
(7)
|
Amortization expense
related to loan costs of this loan totaled $219 for the three months ended March 31, 2020. Amortizing payments began in January
2019. In June 2018 the Company converted the original note to a fixed note which qualified as debt extinguishment, unamortized
debt discount on the original note was expensed as a loss on extinguishment of $27,794. In April 2018, the Company capitalized
$22,800 in fees and interest and added it to principal. The Company is subject to financial covenants and customary affirmative
and negative covenants, including compliance with the covenants of all other notes and bonds. As of March 31, 2020, the Company
was not in compliance with some unrelated notes and bonds, which is considered to be a technical Event of Default as defined
in the note agreement, but the Company believes that it is in good standing with the Lender. In October 2018 the Lender extended
the Company a line of credit with a limit of $200,365 to provide working capital to scale operations at the facility. The
line of credit was expanded in February 2019 to $400,000 with a maturity date of September 30, 2019. Prior to September 30,
2019, the Company had drawn $400,000 on the line which was subsequently merged into the amortizing note due May 25, 2021.
|
|
(8)
|
The senior debt
and subordinated debt owed in relation to Providence of Sparta was refinanced into a single senior HUD note during 2017. Amortization
expense related to loan costs totaled $1,246 for the three months ended March 31, 2020. The interest rate was reduced from
3.88% to 3.50% as part of a refinance completed in April 2020.
|
|
(9)
|
Amortization expense
related to loan costs of this loan totaled $2,326 for the three months ended March 31, 2020. The Company is subject to financial
covenants and customary affirmative and negative covenants, including compliance with the covenants of all other notes and
bonds. As of March 31, 2020, the Company was not in compliance with some unrelated notes and bonds, which is considered to
be a technical Event of Default as defined in the note agreement, but the Company believes that it is in good standing with
the Lender.
|
|
(10)
|
The
mortgage loan collateralized by the GL Nursing Home is 80% guaranteed by the USDA and requires an annual renewal fee payable
in the amount of 0.25% of the USDA guaranteed portion of the outstanding principal balance as of December 31 of each year.
The Company is subject to financial covenants and customary affirmative and negative covenants. As of March 31, 2020, the
Company was not in compliance with certain of these financial and non-financial covenants which is considered to be a technical
Event of Default as defined in the note agreement. The Company is also delinquent in installment payments due under the mortgage.
Remedies available to the lender in the event of a continuing Event of Default, at its option, include, but are not necessarily
limited to the following (1) lender may declare the principal and all accrued interest on the note due and payable; and (2)
lender may exercise additional rights and remedies under the note agreement to include taking possession of the collateral
or seeking satisfaction from the guarantors. The Company has been notified by the lender regarding the Events of Default.
Guarantors under the mortgage loan include Christopher Brogdon. With our consent, Mr. Brogdon has assumed operations of the
facility and is making payment of interest on the loan. The Company is not obligated to repay the interest.
|
|
(11)
|
In
connection with the acquisition of Higher Call, the Company entered into a senior loan agreement with Security Bank in the
principal amount of $1,051,721. This loan accrues interest at the rate of 6.5% per annum and is payable in monthly installments
of $7,907. The loan is secured by a senior Mortgage, Security Agreement and Assignment of Rents covering the Higher Call facility
and a UCC Security Interest covering the personal property and other non-real estate assets. The Company is subject to
financial covenants and customary affirmative and negative covenants. As of March 31, 2020, the Company was in compliance
with these covenants.
|
Other
mortgage loans contain non-financial covenants, including reporting obligations, with which the Company has not complied in some
instances or in an untimely manner. These mortgage loans are technically in default; however, our relationship with these
lenders is considered good.
Other
Debt
Other
debt due at March 31, 2020 and December 31, 2019 includes unsecured notes payable issued to entities controlled by the Company
used to facilitate the acquisition of the nursing home properties.
|
|
Face
|
|
|
Principal Outstanding at
|
|
|
Stated Interest
|
|
Maturity
|
Property
|
|
Amount
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Rate
|
|
Date
|
Goodwill Nursing Home
|
|
$
|
2,180,000
|
|
|
$
|
1,536,000
|
|
|
$
|
1,536,000
|
|
|
13% (1) Fixed
|
|
December 31, 2019
|
Higher Call Nursing Center(2)
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
-
|
|
|
8% Fixed
|
|
April 1, 2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,686,000
|
|
|
$
|
1,536,000
|
|
|
|
|
|
|
(1)
|
The
subordinated note on Goodwill matured on July 1, 2015. Investors in the Goodwill note were entitled to an additional 5% equity
in Goodwill Hunting, LLC every six months if the note is not paid when due. Effective December 31, 2015, the investors holding
the subordinated debt executed an Agreement Among Lenders pursuant to which they (i) agreed to waive any and all equity ratchets
and (ii) agreed to extend the maturity date of the subordinated debt to June 30, 2017. In exchange, Goodwill Hunting agreed
to pay the investors an additional one-time premium equal to 5% of the principal amount of the individual note at such time
as the note is repaid. Effective May 3, 2017, we entered into an Allonge and Modification Agreement with the Goodwill investors
pursuant to which they agreed to (i) waive all accrued interest through December 31, 2017, (ii) reduce interest rate to 13%
beginning January 1, 2018 and (iii) extend the maturity date of the notes to December 31, 2019. In exchange, the Company agreed
that upon repayment of the notes, the investors would be entitled to a one-time premium payment in the amount of 15% of the
principal balance of the notes. On June 30, 2020, the Company purchased from four former investors in GWH Investors, LLC their
notes in favor of Goodwill Hunting, LLC in the aggregate amount of $402,000 for an equal amount of cash. The Company has not
repaid or renewed the note as of March 31, 2020 and it is technically in default.
|
|
(2)
|
In connection with
the acquisition of Higher Call, the Company executed a promissory note in favor of the Seller, Higher Call Nursing Center,
Inc., in the principal amount of $150,000 which accrues interest at the rate of 8% per annum and is payable in equal monthly
installments, principal and interest. This note is secured by a corporate guaranty of Global.
|
Our
corporate debt at March 31, 2020 and December 31, 2019 includes unsecured notes and notes secured by all assets of the Company
not serving as collateral for other notes.
|
|
Face
|
|
|
Principal Outstanding at
|
|
|
Stated Interest
|
|
|
Series
|
|
Amount
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Rate
|
|
Maturity Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10% Senior Secured Promissory Note
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
10.0% Fixed
|
|
December 31, 2018
|
10% Senior Unsecured Promissory Notes
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
300,000
|
|
|
10.0% Fixed
|
|
October 31, 2020
|
11% Senior Secured Promissory Notes
|
|
|
1,520,000
|
|
|
|
1,520,000
|
|
|
|
1,460,000
|
|
|
11.0% Fixed
|
|
October 31, 2021
|
11% Senior Secured Promissory Notes – Related Party
|
|
|
975,000
|
|
|
|
975,000
|
|
|
|
875,000
|
|
|
11.0% Fixed
|
|
October 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,820,000
|
|
|
$
|
2,660,000
|
|
|
|
|
|
Effective
January 28, 2020, the Company exchanged $100,000 in outstanding senior secured 10% Notes that had matured on December 31,
2018 for an 11% Senior Secured Note with a maturity date of October 31, 2021 and issued 100,000 cashless exercise warrants
for purchase of company stock at $0.50, expiring October 31, 2021.
For
the three months ended March 31, 2020 and 2019, the Company received proceeds from the issuance of debt of $1,211,721 and
$159,875, respectively. Proceeds from the issuance of debt in 2020 includes $100,000 from related parties. Cash payments
on debt totaled $124,641 and $147,318 for the three months ended March 31, 2020 and 2019, respectively. Amortization expense for
deferred loan costs and debt discounts totaled $44,793 and $33,124 for the three months ended March 31, 2020 and 2019,
respectively.
Future
maturities and principal reduction payments of all notes and bonds payable listed above for the next five years and thereafter
are as follows:
Years
|
|
|
|
2020
|
|
$
|
12,793,414
|
(1)
|
2021
|
|
|
8,150,530
|
|
2022
|
|
|
350,121
|
|
2023
|
|
|
7,594,853
|
|
2024
|
|
|
352,542
|
|
2025 and after
|
|
|
10,468,182
|
|
|
|
|
|
|
|
|
$
|
39,709,642
|
|
|
(1)
|
Any note or bond
that is not in compliance with all financial and non-financial covenants is considered to have an immediate maturity, including
those that require compliance with covenants on any and all other notes. The notes secured by the facilities at GL Nursing
Home, Meadowview and Abbeville have such covenants which were in technical non-compliance at March 31, 2020, but the Company
believes that its relationships with these lenders is good.
|
9.
STOCKHOLDERS’ EQUITY
Preferred
Stock
The
Company has authorized 10,000,000 shares of preferred stock. These shares may be issued in series with such rights and preferences
as may be determined by the Board of Directors.
Series
A Convertible Redeemable Preferred Stock
The
Company’s Board of Directors has authorized 2,000,000 shares of $2.00 stated value, Series A Preferred Stock. The preferred
stock has a senior liquidation preference value of $2.00 per share, has no voting or redemption rights and does not accrue dividends.
As
of March 31, 2020, and December 31, 2019, the Company has 200,500 shares of Series A Preferred stock outstanding.
Series
D Convertible Preferred Stock
The
Company has established a class of preferred stock designated “Series D Convertible Preferred Stock” (Series D preferred
stock) and authorized an aggregate of 1,000,000 non-voting shares with a stated value of $1.00 per share. Holders of the Series
D preferred stock are entitled to receive dividends at the annual rate of eight percent (8%) based on the stated value per share
computed on the basis of a 360-day year and twelve 30-day months. Dividends are cumulative, shall be declared quarterly, and are
calculated from the date of issue and payable on the fifteenth day of April, July, October and January. The dividends may be paid,
at the option of the holder either in cash or by the issuance of shares of the Company’s common stock valued at the market
price on the dividend record date. Shares of the Series D preferred stock are redeemable at the Company’s option. At the
option of the holder, shares of the Series D preferred stock plus any declared and unpaid dividends are convertible to shares
of the Company’s common stock at a conversion rate of $1.00 per share.
As
of March 31, 2020, and December 31, 2019, the Company had 375,000 shares of Series D preferred stock outstanding.
During
the three months ended March 31, 2020 and 2019, the Company paid $7,500 and $7,500, respectively, for Series D preferred stock
dividends. Dividends of $7,500 and $7,500 were declared during the three months ended March 31, 2020 and 2019, respectively, with
dividends of $7,500 accrued and payable as of March 31, 2020 and 2019. All quarterly dividends previously declared have been paid.
Restricted
Stock Awards
The
following table summarizes the restricted stock unit activity during the three months ended March 31, 2020 and 2019.
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
Outstanding Non-Vested Restricted Stock Units, Beginning
|
|
|
75,000
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
272,727
|
|
Vested
|
|
|
(75,000
|
)
|
|
|
(68,182
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding Non-Vested Restricted Stock Units, Ending
|
|
|
-
|
|
|
|
204,545
|
|
In
connection with these director and executive restricted stock grants, the Company recognized stock-based compensation of $22,500
for the three months ended March 31, 2019. No stock-based compensation was recognized for the three months ended March 31, 2020.
Common
Stock Warrants
As
of March 31, 2020 and December 31, 2019, the Company had 2,858,130 and 2,598,130, respectively, of outstanding warrants to purchase
common stock at a weighted average exercise price of $0.53 and $0.54, respectively, and weighted average remaining term of
1.58 years and 2.10 years, respectively. During the three months ended March 31, 2020, an aggregate of 260,000 warrants with
a weighted average exercise price of $0.50 were issued in connection with a private offering of the Company’s 11% Senior
Secured Notes. During the three-month period ended March 31, 2019, an aggregate of 427,668 warrants with a weighted average exercise
price of $0.75 expired. The aggregate intrinsic value of the common stock warrants outstanding at March 31, 2020 was $0.
Common
Stock Options
As
of March 31, 2020 and December 31, 2019, the Company had 600,000 and 600,000, respectively, of outstanding options to purchase
common stock at a weighted average exercise price of $0.36 and a weighted average remaining term of 3.00 years and 3.25 years,
respectively. During the three-month period ended March 31, 2020 and 2019, no options expired. The aggregate intrinsic value
of the common stock options outstanding at March 31, 2020 was $0.
Earnings
per Share
Basic
earnings per share are based on the weighted-average number of shares of common stock outstanding. FASB ASC Topic 260, “Earnings
per Share”, requires the Company to include additional shares in the computation of earnings per share, assuming dilution.
Diluted
earnings per share are based on the assumption that all dilutive options and warrants were converted or exercised by applying
the treasury stock method and that all convertible preferred stock were converted into common shares by applying the if-converted
method. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period or at
the time of issuance, if later, and as if funds obtained thereby were used to purchase common stock at the average market price
during the period. Under the if-converted method, the preferred dividends applicable to convertible preferred stock shall be added
back to the numerator. The convertible preferred stock shall be assumed to have been converted at the beginning of the period
or at time of issuance, if later, and the resulting common shares shall be included in the denominator.
We
calculate basic earnings per share by dividing net income attributable to common stockholders (the “numerator”) by
the weighted average number of common shares outstanding (the “denominator”) during the reporting period. Diluted
earnings per share is calculated similarly but reflects the potential impact of outstanding options, warrants and other commitments
to issue common stock, including shares issuable upon the conversion of convertible preferred stock outstanding, except where
the impact would be anti-dilutive.
The
following table sets forth the computation of basic and diluted earnings per share:
|
|
Three Months Ended
|
|
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
Numerator for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
Net Income Attributable to Global Healthcare REIT, Inc.
|
|
$
|
61,100
|
|
|
$
|
164,296
|
|
Series D Preferred Dividends
|
|
|
(7,500
|
)
|
|
|
(7,500
|
)
|
Net Income Attributable to Common Stockholders
|
|
$
|
53,600
|
|
|
$
|
156,796
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding
|
|
|
27,441,040
|
|
|
|
26,895,586
|
|
|
|
|
|
|
|
|
|
|
Net Income per Share Attributable to Common Stockholders:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
Options
to purchase 600,000 shares of common stock were outstanding during each of the three months ended March 31, 2020 and March 31,
2019 but were not included in the computation of diluted earnings per share because they are anti-dilutive due to the options’
exercise price being greater than the average market price of the common shares. Warrants to purchase 2,858,130 and 2,714,918
shares of common stock were outstanding during each of the three months ended March 31, 2020 and March 31, 2019, respectively,
but were not included in the computation of diluted earnings per share because they are anti-dilutive due to the warrants’
exercise price being greater than the average market price of the common shares. The computation of diluted earnings per share
for each of the three months ended March 31, 2020 and March 31, 2019 does not include 375,000 shares of common stock assumed to
be issued upon conversion of Series D Preferred Stock because they are anti-dilutive.
10.
RELATED PARTIES
Clifford
Neuman provides office space for the Company’s Controller at no charge. As of March 31, 2020 and December 31, 2019, the
Company owed Mr. Neuman for legal services rendered $0 and $32,156, respectively.
Creative
Cyberweb developed and maintains the Company’s website and is affiliated with former CFO Zvi Rhine’s family.
The ongoing upkeep is $450 per month.
In
January 2018, the Directors modified the Directors’ Compensation Plan to provide the annual grants be subject to ratable
vesting over 12 months. In March 2019, the Board approved an annual grant to three of its Directors without other compensation
plans, restricted stock awards of 90,909 shares each, subject to vesting. In July 2019, the Board approved a pro-rated annual
grant to two of its Directors without other compensation plans restricted stock awards of 90,909 shares in aggregate, subject
to vesting. In connection with these director restricted stock grants, the Company recognized stock-based compensation of $22,500
for the three months ended March 31, 2019. No stock-based compensation was recognized for the three months ended March 31, 2020.
11.
FACILITY LEASES
The
following table summarizes our leasing arrangements related to the Company’s healthcare facilities at March 31, 2020:
Facility
|
|
Monthly Lease
Income (1)
|
|
|
Lease Expiration
|
|
Renewal Option, if any
|
Eastman (2)
|
|
$
|
-
|
|
|
-
|
|
None
|
Warrenton
|
|
$
|
55,724
|
|
|
June 30, 2026
|
|
Term may be extended for one
additional ten-year term.
|
Goodwill (3)
|
|
$
|
48,125
|
|
|
February 1, 2027
|
|
Term may be extended for one
additional five-year term.
|
Edwards Redeemer (4)
|
|
$
|
|
|
|
|
|
None
|
Providence
|
|
$
|
42,519
|
|
|
June 30, 2026
|
|
Term may be extended for one
additional ten-year term.
|
Meadowview (5)
|
|
$
|
-
|
|
|
|
|
None
|
GL Nursing (6)
|
|
$
|
-
|
|
|
-
|
|
None
|
Glen Eagle (7)
|
|
$
|
-
|
|
|
-
|
|
None
|
Southern Hills SNF
(8)
|
|
$
|
-
|
|
|
-
|
|
Term may be extended for two
additional five-year term.
|
Southern Hills ALF
(9)
|
|
$
|
-
|
|
|
-
|
|
None
|
Southern Hills ILF (10)
|
|
$
|
-
|
|
|
-
|
|
None
|
(1)
Monthly lease income reflects rent income on a straight-line basis over, where applicable, the term of each lease.
(2)
On October 18, 2019, the Company terminated the lease at its Eastman property. A Receivership was appointed to assume the operations
of the facility. The receivership was discharged on July 1, 2020 and the Company is currently operating the building independently.
(3)
In January 2016, the Goodwill facility was closed by Georgia regulators and all residents were removed. In a transaction related
to the sale of the Greene Point facility, an affiliate of the buyer of Greene Point executed a ten-year operating lease covering
Goodwill. After investing approximately $2.0 million in capital improvements in the property, the lease operator obtained all
regulatory approvals and began admitting patients in December 2016. The lease became effective on February 1, 2017, and the facility
began generating rental revenue thereafter.
(4)
Cadence informed the Company that it intended to close the Edwards Redeemer facility due to unprofitable operations. In violation
of the operating lease, Cadence began moving patients from the facility and, as of October 18, 2019, all patients had been removed.
In response to our Petition, on October 17, 2019, the District Court of Oklahoma County, State of Oklahoma issued a Temporary
Order Appointing Receiver (the “Order”) pursuant to a Motion to Appoint Receiver filed by Edwards Redeemer Property
Holdings, LLC (“Edwards Property”), a wholly-owned subsidiary of the Company, with respect as a skilled nursing facility.
The Order was issued due to the violations by Cadence of the business-preservation obligations contained in the lease between
Edwards Property and the Operator. The Company will allow Edwards Redeemer to remain closed for the purpose of undertaking extensive
renovations to the facility. The renovations are expected to take up to 12 months.
(5)
The lease was generating $33,000 in monthly gross rent; however, the operator experienced adverse results in late 2017 and throughout
2018. In April 2018 the Company recognized a bad debt expense of $56,000 related to rent receivables previously booked in 2018
at the Meadowview facility. Effective December 1, 2018, the Company completed the operations transfer to an affiliate of Infinity
Health Interests, LLC (“Infinity”). The lease was structured with a lower base rent component than the prior operator
but included occupancy-based escalators that were intended to better align facility operations with future rental payments. The
Company did not receive any cash rent for the facility and has not recorded any rental revenues or receivables for this facility
since the inception of the lease. On August 7, 2020, the facility was served with a Notice of Immediate Imposition of Remedies
from the Centers for Medicare and Medicaid Services (“CMS”), as well as a Notice of Imposition of Remedies by the
Ohio Department of Health (“ODH”) ordering the facility to relocate all residents no later than August 9, 2020. The
actions of the CMS and ODH were the result of ongoing operating deficiencies which the operator failed to cure. All residents
of the Meadowview facility were relocated by the August 9, 2020 deadline, and as a result the facility has been closed. The
Company has submitted an application with the ODH for a new nursing home license which is pending. The Company has not determined
what future courses of action may be required or appropriate.
(6)
Effective January 1, 2016, the GL Nursing facility was leased to another operator for a period of ten years at a monthly base
rent of $30,000 which was subject to increases based on census levels. Under the terms of the lease, the Company agreed to fund
certain capital expenditures, which it was unable to fulfill. In July 2016, the new tenant served notice that it was terminating
the lease effective August 31, 2016. The Company entered into a Lease Termination Agreement under which it paid the tenant $145,000
and is obligated to make future payments. Effective August 30, 2016, the Company entered into a new lease agreement with another
nursing home operator. The lease term was to commence at the end of a straddle period. During the straddle period, the Company
made working capital advances to enable the operator to cover cash flow deficits resulting from initial operations of the facility.
Prior to the end of the straddle period, the lease operator informed the Company that it would vacate the facility. An entity
affiliated with Mr. Brogdon, who is a guarantor of the mortgage, assumed operations of the facility in March 2018 under an OTA.
We do not expect the facility to generate any future revenue for the Company.
(7)
The Company entered into a management agreement with Cadence Healthcare Solutions to operate Glen Eagle after expending approximately
$1.0 million in capital improvements. The facility passed its licensure survey and began admitting patients in June 2018. Effective
October 12, 2018, the facility gained its certification and started collecting revenues from Medicare and Medicaid in April 2019.
On October 17, 2019, the Company terminated its management with Cadence Healthcare Solutions and is currently operating the building
independently.
(8)
Lease agreement dated May 21, 2014 with lease payments commencing February 1, 2015. On May 10, 2016, the Company obtained a Court
Order appointing a Receiver to control and operate the Southern Hills SNF. The former lease operator represented that it was unable
to meet the financial commitments of the facility, including the payment of rent, payroll and other operating requirements. In
October 2017, the Receiver engaged a new manager for the facility at the request of the Company. In May 2019 the lease expired,
and in July 2019 the facility was leased to Southern Hills Rehab Center LLC, a wholly owned subsidiary of the Company, to conduct
operations. The approval of the transfer of the Certificates of Need and appropriate licenses to operate the facility was granted
on December 1, 2019. The Company is currently operating the building independently.
(9)
The Company plans to operate the Southern Hills ALF independently once construction is complete and a state license is secured.
(10)
The Company has been operating the Southern Hills Independent Living Facility (ILF) directly since September 2019. The facility
does not provide healthcare services. It consists of private one- and two-bedroom units leased separately to individual tenants.
Lessees
are responsible for payment of insurance, taxes and other charges while under the lease. Should the lessees not pay all such charges
as required under the leases, or if there is no tenant, or the Company is operating a facility itself, the Company may
become liable for such operating expenses. We have been required to cover those expenses at Glen Eagle as well as the Southern
Hills SNF, ALF and ILF, Meadowview, Higher Call, and Edwards properties.
Future
cash payments for rent to be received during the initial terms of the leases for the next five years and thereafter are as follows
(excludes Abbeville, Edwards Redeemer, Southern Tulsa SNF and Southern Tulsa ALF and ILF, and Higher Call due to properties
being independently operated, and GL Nursing):
Years
|
|
|
|
2020
|
|
$
|
1,303,890
|
|
2021
|
|
|
1,764,942
|
|
2022
|
|
|
1,796,400
|
|
2023
|
|
|
1,828,480
|
|
2024
|
|
|
1,860,867
|
|
2025 and Thereafter
|
|
|
3,223,628
|
|
|
|
|
|
|
|
|
$
|
11,778,207
|
|
12.
FAIR VALUE MEASUREMENTS
Financial
assets and liabilities recorded at fair value in our consolidated balance sheets are categorized based upon a fair value hierarchy
established by GAAP, which prioritizes the inputs used to measure fair value into the following levels:
Level
1— Quoted market prices in active markets for identical assets or liabilities at the measurement date.
Level
2— Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and
liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.
Level
3— Inputs reflecting management’s best estimates and assumptions of what market participants would use in pricing
assets or liabilities at the measurement date. The inputs are unobservable in the market and significant to the valuation of the
instruments.
A
financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant
to the fair value measurement.
Our
consolidated balance sheets include the following financial instruments: cash and cash equivalents, accounts receivable, restricted cash, accounts payable, debt and lease security deposit. We consider the carrying values of our short-term
financial instruments to approximate fair value because they generally expose the Company to limited credit risk, because of the
short period of time between origination of the financial assets and liabilities and their expected settlement, or because of
their proximity to acquisition date fair values. The carrying value of debt approximates fair value based on borrowing rates currently
available for debt of similar terms and maturities.
Upon
acquisition of real estate properties, the Company determines the total purchase price of each property and allocates this price
base on the fair value of the tangible assets and intangible assets, if any, acquired and any liabilities assumed based on Level
3 inputs. These Level 3 inputs can include comparable sales values, discount rates, and capitalization rate assumptions from a
third-party appraisal or other market sources.
The
table presented below is a summary of changes in the fair value of the Company’s Level 3 valuation for the three months
ended March 31, 2020 and 2019:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Beginning Balance January 1
|
|
$
|
-
|
|
|
$
|
2,785
|
|
|
|
|
|
|
|
|
|
|
Change in Fair Value of Warrant Liability
|
|
|
-
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
Ending Balance, March 31
|
|
$
|
-
|
|
|
$
|
2,682
|
|
13.
SEGMENT REPORTING
The
Company had two primary reporting segments during the three months ended March 31, 2020, which include real estate services and
healthcare services. The Company reports segment information based on the “management approach” defined in ASC
280, Segment Reporting. The management approach designates the internal reporting used by management for making decisions
and assessing performance as the source of our reportable segments.
Total
assets for the healthcare services and real estate services segments were $6,318,565 and $34,782,451, respectively, as of March
31, 2020 and $4,654,845 and $35,223,318, respectively, as of December 31, 2019.
|
|
Statements
of Operations Items for the Three Months Ended
|
|
|
|
March
31, 2020
|
|
|
March
31, 2019
|
|
|
|
Real
Estate
Services
|
|
|
Healthcare
Services
|
|
|
Consolidated
|
|
|
Real
Estate
Services
|
|
|
Healthcare
Services
|
|
|
Consolidated
|
|
Rental Revenue
|
|
$
|
521,012
|
|
|
$
|
-
|
|
|
$
|
521,012
|
|
|
$
|
895,288
|
|
|
$
|
-
|
|
|
$
|
895,288
|
|
Healthcare Revenue
|
|
|
-
|
|
|
|
3,330,589
|
|
|
|
3,330,589
|
|
|
|
-
|
|
|
|
379,791
|
|
|
|
379,791
|
|
Total Revenue
|
|
|
521,012
|
|
|
|
3,330,589
|
|
|
|
3,851,601
|
|
|
|
895,288
|
|
|
|
379,791
|
|
|
|
1,275,079
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative
|
|
|
148,570
|
|
|
|
194,493
|
|
|
|
343,063
|
|
|
|
112,215
|
|
|
|
81,264
|
|
|
|
193,479
|
|
Property Taxes, Insurance and Other Operating
|
|
|
145,840
|
|
|
|
2,185,904
|
|
|
|
2,331,744
|
|
|
|
62,655
|
|
|
|
286,533
|
|
|
|
349,188
|
|
Provision for Bad Debt
|
|
|
-
|
|
|
|
206,608
|
|
|
|
206,608
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition Costs
|
|
|
14,891
|
|
|
|
-
|
|
|
|
14,891
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Depreciation
|
|
|
335,359
|
|
|
|
51,859
|
|
|
|
387,218
|
|
|
|
319,456
|
|
|
|
3,469
|
|
|
|
322,925
|
|
Total Expenses
|
|
|
644,660
|
|
|
|
2,638,864
|
|
|
|
3,283,524
|
|
|
|
494,326
|
|
|
|
371,266
|
|
|
|
865,592
|
|
Income (Loss) from Operations
|
|
|
(123,648
|
)
|
|
|
691,725
|
|
|
|
568,077
|
|
|
|
400,962
|
|
|
|
8,525
|
|
|
|
409,487
|
|
Other (Income) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on Warrant Liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(103
|
)
|
|
|
-
|
|
|
|
(103
|
)
|
Gain on Sale of Investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,069
|
)
|
|
|
-
|
|
|
|
(1,069
|
)
|
Gain from Insurance Claim
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(270,264
|
)
|
|
|
-
|
|
|
|
(270,264
|
)
|
Interest Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,467
|
)
|
|
|
-
|
|
|
|
(5,467
|
)
|
Interest Expense
|
|
|
477,763
|
|
|
|
27,507
|
|
|
|
505,270
|
|
|
|
526,235
|
|
|
|
-
|
|
|
|
526,235
|
|
Total Other (Income) Expense
|
|
|
477,763
|
|
|
|
27,507
|
|
|
|
505,270
|
|
|
|
249,332
|
|
|
|
-
|
|
|
|
249,332
|
|
Net Income (Loss)
|
|
|
(601,411
|
)
|
|
|
664,218
|
|
|
|
62,807
|
|
|
|
151,630
|
|
|
|
8,525
|
|
|
|
160,155
|
|
Net (Income) Loss Attributable to Noncontrolling
Interests
|
|
|
(1,707
|
)
|
|
|
-
|
|
|
|
(1,707
|
)
|
|
|
4,141
|
|
|
|
-
|
|
|
|
4,141
|
|
Net Income (Loss) Attributable
to Global Healthcare REIT, Inc.
|
|
$
|
(603,118
|
)
|
|
$
|
664,218
|
|
|
$
|
61,100
|
|
|
$
|
155,771
|
|
|
$
|
8,525
|
|
|
$
|
164,296
|
|
14.
LEGAL PROCEEDINGS
The
Company and/or its affiliated subsidiaries are or were involved in the following litigation:
Bailey
v. GL Nursing, LLC, et. al in the Circuit Court of Lonoke County, Arkansas, 23rd Circuit, 43CV-19-151.
In
April 2019, the Company’s wholly-owned subsidiary was named as a co-defendant in the action arising out of a claimed personal
injury suffered by the plaintiff while a resident of the skilled nursing home owned, but not operated, by GL Nursing. As of this
date, we have engaged legal counsel, but no further information is known regarding the merits of the claim. After initial inquiry,
it does not appear that the lease operator of the facility had in effect general liability insurance covering the GL Nursing,
as landlord, as required by the operating lease.
As
we simply were the owners of the property and not the operators, we believe that primary responsibility, if any, falls with the
operator at the time. Under the terms of the lease, the operator has a duty to indemnify the Company, a claim which we intend
to assert.
While
it is too early to assess the Company’s exposure, we believe at this time that the likelihood of an adverse outcome is remote.
Thomas
v. Edwards Redeemer Property Holdings, LLC, et.al., District Court for Oklahoma County, Oklahoma, Case No. CJ 2016-2160.
This
action arises from a personal injury claim brought by heirs of a former resident of our Edwards Redeemer facility, filed in April
2016. We are entitled to indemnification from the lease operator and should be covered under the lease operator’s general
liability policy. As we are not the operators of the facility and believe we have indemnity coverage, we believe we have no exposure.
The lease operator’s insurance carrier is providing a defense and indemnity and, as a result, we believe the likelihood
of a material adverse result is remote.
Edwards
Redeemer Property Holdings LLC v. Edwards Redeemer Healthcare & Rehab, LLC, District Court of Oklahoma County, State of
Oklahoma, Case No. CJ-19-5883.
This
action was brought by us against the former lease operator for breaching the lease agreement, removing all the patients and closing
the facility. On October 17, 2019, the Court entered an Order Appointing a Receiver. Other claims against the former operator
are pending.
Dodge
NH, LLC v. Eastman Healthcare & Rehab, LLC, Superior Court of Dodge County, State of Georgia, File No. 19V-8716.
This
action was brought by us against the former lease operator for numerous violations of the operating lease, including violation
of the cross-default provisions with Edwards Redeemer, which had been operated by an affiliate of the Eastman operator. We also
served a Notice of Termination with respect to the operating lease. On October 18, 2019, the Court entered an Order granting to
us a Temporary Restraining Order requiring the lease operator to maintain the status quo of the facility. On November 21, 2019,
the prior Temporary Restraining Order was superseded by an Order Appointing Receiver requested by the Company’s subsidiary
Dodge NH, LLC. Under the Order, a Receiver designated by us and approved by the Court will oversee the operations at the facility.
This Order will mitigate any potential disruption to the facility’s ongoing operations in light of the various disputes
between the Company and the former operator, Eastman Healthcare & Rehab LLC, an affiliate of Cadence Healthcare Solutions,
LLC. On January 15, 2020, the Receiver filed a Motion for the Court to authorize the Receiver to negotiate an Operations Transfer
Agreement with the Company, which Motion was granted. On July 2nd, 2020, the court approved the Operations Transfer Agreement
(“OTA”) from the receiver to Global Eastman, LLC, newly formed subsidiary of the Company. On the same date, Global
Eastman, LLC secured an operating license from the state. Pursuant to the terms of the OTA, Global Eastman will assume all receivables
and select critical liabilities associated with the prior operator.
Village
of Seville v. High Street Nursing, LLC, Wadsworth Municipal Court, State of Ohio, Case No 20-CRB-58.
This
is an action filed March 2020 for sanctions against our subsidiary arising from a claimed nuisance activity (assaults on patients)
at the skilled nursing facility. As we lease the facility to an operator, we have retained an attorney and entered a plea of Not
Guilty. We are the landlord and don’t believe we have any liability in this matter. The action was subsequently dismissed
without prejudice.
Cadence
Healthcare Solutions, LLC.
We
received a demand letter in February 2020 from an attorney representing Cadence Healthcare Solutions, LLC (“Cadence”)
claiming unpaid management fees incurred at our Glen Eagle Healthcare facility in Abbeville, Georgia. Cadence is the same manager
that is involved in the matters related to Edwards Redeemer in Oklahoma City and Eastman in Eastman, Georgia, as Cadence was the
manager in all three facilities until it was terminated in Q4 2019. We believe we have significant defenses and offsets to this
claim and intend to defend vigorously. We believe the likelihood of a material adverse outcome is extremely remote.
15.
SUBSEQUENT EVENTS
On
April 20, 2020, the Company through its subsidiaries received a loan of $574,975 pursuant to the Paycheck Protection Program (the
“PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan
matures on April 20, 2022 (the “Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in
part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during
the initial six-month period is due and payable, together with the principal, on the Maturity Date. The Company intends to use
all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity
throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions of the
CARES Act.
On
May 4, 2020, the Company through its subsidiaries received loans of $324,442 and $710,752 pursuant to the Paycheck Protection
Program (the “PPP Loans”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
Both PPP Loans mature on May 4, 2022 (the “Maturity Date”), accrue interest at 1% per annum and may be prepaid in
whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loans. The interest accrued
during the initial six-month period is due and payable, together with the principal, on the Maturity Date. The Company intends
to use all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business
continuity throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions
of the CARES Act.
As
of June 30, 2020, the Company purchased from former GWH Investors, LLC their notes issued by Goodwill Hunting LLC in the aggregate
principal amount of $402,000 for an equal amount of cash. The notes matured on December 31, 2019 and were in default. The Company
will recognize a gain from elimination of the premium owed to the note holders. The notes cannot be retired until all interests
are repaid.
On
July 2, 2020, the court approved the Operations Transfer Agreement (“OTA”) from the receiver to Global Eastman, LLC,
newly formed subsidiary of the Company. The OTA will be effective as of the date that Global Eastman, LLC secures an operating
license from the state. Pursuant to the terms of the OTA, Global Eastman will assume all receivables and select critical liabilities
associated with the prior operator.
Effective
July 23, 2020, Global Fairland Property, LLC (“Fairland Property”), a newly formed wholly-owned subsidiary of the
Company, signed a definitive Asset Purchase Agreement (the “Agreement’) pursuant to which Fairland Property intends
to purchase a skilled nursing facility located in Fairland, Oklahoma consisting of 29 licensed beds and commonly known as “Family
Care Center of Fairland” (the “Facility”). The purchase price of the Facility will be $796,500. The purchase
and sale of the Facility is subject to numerous conditions, including satisfactory due diligence, financing and other conditions
customary in transactions of this nature. There can be no assurance that the transaction will be consummated.
Effective
July 31, 2020 the Company received a line of credit of $500,000 and a construction loan of $750,000 to be used for renovation
and capital investment in its Edwards facility from Southern Bank. Both loans carry an interest rate of 4.75% on principal
balance and mature July 30, 2021.
On
August 7, 2020, the Meadowview skilled-nursing facility owned by the Company was served with a Notice of Immediate Imposition
of Remedies from the Centers for Medicare and Medicaid Services (“CMS”), as well as a Notice of Imposition of Remedies
by the Ohio Department of Health (“ODH”) ordering the facility to relocate all residents no later than August 9, 2020.
The actions of the CMS and ODH were the result of ongoing operating deficiencies which the operator failed to cure. All residents
of the Meadowview facility were relocated by the August 9, 2020 deadline and, as a result, the facility has been closed. The Company
has submitted an application with the ODH for a new nursing home license which is pending. The Company has not determined what
other future courses of action may be required or appropriate.
On
August 18, 2020, the Company’s Board of Directors approved the repurchase for redemption of 443,431 shares of common stock
for $75,385 or $0.17 per share in a privately negotiated transaction. The redemption has been completed and the shares of common
stock cancelled.
On September 29, 2020, the Company’s
President and Chief Financial Officer and a member of the Board of Directors resigned from all positions with the Company. The
resignations were prompted by regulatory issues not involving the Company or its subsidiaries.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be
read in conjunction with our interim financial statements and notes thereto contained elsewhere in this report. This section contains
forward-looking statements, including estimates, projections, statements relating to our business plans, objectives and expected
operating results, and the assumptions upon which those statements are based. These forward-looking statements generally are identified
by the words “believes,” “project,” “expects,” “anticipates,” “estimates,”
“intends,” “strategy,” “plan,” “may,” “will,” “would,”
“will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking
statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual
results to differ materially from the forward-looking statements. Forward-looking statements that were true at the time made may
ultimately prove to be incorrect or false. We undertake no obligation to update or revise publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. All forward-looking statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2019 as filed with the SEC.
Our
actual future results and trends may differ materially from expectations depending on a variety of factors discussed in our filings
with the SEC. These factors include without limitation:
●
macroeconomic conditions, such as a prolonged period of weak economic growth, and volatility in capital markets;
●
changes in national and local economic conditions in the real estate and healthcare markets specifically;
●
legislative and regulatory changes impacting the healthcare industry, including the implementation of the healthcare reform legislation
enacted in 2010;
●
the availability of debt and equity capital;
●
changes in interest rates;
●
competition in the real estate industry; and,
●
the supply and demand for operating properties in our market areas.
COVID-19
Pandemic
In
December 2019, a novel strain of coronavirus (“COVID-19”) emerged in China. On March 11, 2020, the World Health Organization
declared the outbreak of COVID-19 a pandemic. The outbreak has now spread to the United States and infections have been reported
globally.
Starting
in March, the COVID-19 pandemic and measures to prevent its spread began to affect us in a number of ways. In our operating portfolio,
occupancy trended lower in the second half of the month as government policies and implementation of infection control best practices
began to materially limit or close communities to new resident move-ins. In addition, starting in mid-March, operating costs began
to rise materially, including for services, labor and personal protective equipment and other supplies, as our operators took
appropriate actions to protect residents and caregivers. These trends accelerated in April and May, and are expected to continue
through at least September, impacting revenues and net operating income.
Our
triple-net tenants experienced similar trends, which has put them under increased operational and financial pressure. Without
financial support or other government assistance, certain of our triple-net tenants will likely experience worsening financial
conditions through the third quarter, which would pressure their rent coverage ratios and may affect their ability to pay us contractual
rent in full on a timely basis.
As
of the date of this Report, two of our facilities have reported “presumptive positive” cases of COVID-19. The Centers
for Disease Control & Prevention (“CDC”) will provide final confirmation of the cases. The Company is engaging
in aggressive mitigation efforts in accordance with CDC and state Department of Health guidelines to protect the health and safety
of residents while respecting their rights. Employees at both locations are taking several precautions as they care for residents,
including, among other things, monitoring themselves for symptoms upon leaving and returning home, and upon arriving at and leaving
the skilled nursing facility. They are also wearing masks and other personal protective equipment while caring for residents.
Additionally, as of the date of this Report, none of our other operators have reported any occurrences of COVID-19 in any of the
buildings they are managing. Our operators have also reported to us that they currently have adequate supply levels, including
appropriate quantities of Personal Protective Equipment (PPE) for staff. Additionally, as of the date of filing the Company has
received no additional information.
The
federal government, as well as state and local governments, have implemented or announced programs to provide financial and other
support to businesses affected by the COVID-19 pandemic, some of which benefit or could benefit our company, tenants, operators,
borrowers and managers. While these government assistance programs are not expected to fully offset the negative financial impact
of the pandemic, and there can be no assurance that these programs will continue or the extent to which they will be expanded,
we are monitoring them closely and have been in active dialogue with our tenants, operators, borrowers and managers regarding
ways in which these programs could benefit them or us.
In
April and May, we applied for and were approved for an aggregate of $1,610,169 in PPP loans issued by the SBA. As a result of
newly adopted amendments to the PPP program, 60% of the PPP loan amount must be expended on payroll in the 24 week-period
following the loan date. We believe that most if not all of the PPP loans will be eligible to be forgiven under the PPP
guidelines. Any portion that is not forgiven must be repaid over two years.
The
COVID-19 pandemic is rapidly evolving. The information in this Report is based on data currently available to us and will likely
change as the pandemic progresses. As COVID-19 continues to spread throughout areas in which we operate, we believe the outbreak
has the potential to have a material negative impact on our operating results and financial condition. The extent of the impact
of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread
of the outbreak, impact on our operators, employees and vendors, and impact on the facilities we manage, all of which are uncertain
and cannot be predicted. Given these uncertainties, we cannot reasonably estimate the related impact to our business, operating
results and financial condition.
We
expect the trends highlighted above with respect to the impact of the COVID-19 pandemic to continue and, in some cases, accelerate.
The extent of the COVID-19 pandemic’s continued effect on our operational and financial performance will depend on future
developments, including the duration, spread and intensity of the outbreak, the pace at which jurisdictions across the country
re-open and restrictions begin to lift, the availability of government financial support to our business, tenants and operators
and whether a resurgence of the outbreak occurs. Due to these uncertainties, we are not able at this time to estimate the ultimate
impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows but it could be material.
Overview
Global
Healthcare REIT, Inc. (“Global” or “we” or the “Company”) was organized for the purpose of
investing in real estate related to the long-term care industry.
We
acquire, develop, lease, manage, operate and dispose of healthcare real estate. Our portfolio will be comprised of investments
in the following five healthcare segments: (i) senior housing, (ii) life science, (iii) medical office, (iv) post-acute/skilled
nursing and (v) hospital. We will make investments within our healthcare segments using the following five investment products:
(i) properties under lease, (ii) debt investments, (iii) developments and redevelopments, (iv) investment management and (v) the
Housing and Economic Recovery Act of 2008 (“RIDEA”), which represents investments in senior housing operations utilizing
the structure permitted by RIDEA.
The
delivery of healthcare services requires real estate and, as a result, tenants and operators depend on real estate, in part, to
maintain and grow their businesses. We believe that the healthcare real estate market provides investment opportunities due to
the following:
●
|
Compelling
demographics driving the demand for healthcare services;
|
●
|
Specialized
nature of healthcare real estate investing; and
|
●
|
Ongoing
consolidation of a fragmented healthcare real estate sector.
|
Health
Care Regulatory Climate
The
Centers for Medicare & Medicaid Services (“CMS”) annually updates Medicare skilled nursing facility prospective
payment system rates and other policies. On July 30, 2019, CMS issued its final fiscal year 2020 Medicare skilled nursing facility
update. Under the final rule, CMS projects aggregate payments to skilled nursing facilities will increase by $851 million, or
2.4%, for fiscal year 2020 compared with fiscal year 2019. The final rule also addresses implementation of the new Patient-Driven
Payment Model case mix classification system that became effective on October 1, 2019, changes to the group therapy definition
in the skilled nursing facility setting, and various skilled nursing facility Value-Based Purchasing and quality reporting program
policies. On April 10, 2020, CMS issued a proposed rule to update skilled nursing facility rates and policies for fiscal year
2021, which starts October 1, 2020. CMS estimates that payments to skilled nursing facilities would increase by $784 million,
or 2.3%, for fiscal year 2021 compared to fiscal year 2020. CMS also proposes to revise the geographic wage index and apply a
cap on wage index decreases used in setting skilled nursing facility rates. The proposal would also make changes to the patient
classifications under the Patient Driven Payment Model and certain minor policy changes to the Value-Based Purchasing program.
CMS is expected to release the final rule by August 1, 2020.
Since
the announcement of the COVID-19 pandemic and beginning as of March 13, 2020, CMS has issued numerous temporary regulatory waivers
and new rules to assist health care providers, including skilled nursing facilities, respond to the COVID-19 pandemic. These include,
waiving the skilled nursing facility’s 3-day qualifying inpatient hospital stay requirement, flexibility in calculating
a new Medicare benefit period, waiving timing for completing functional assessments, waiving requirements for health care professional
licensure, survey and certification, provider enrollment, and reimbursement for services performed by telehealth, among many others.
CMS also announced a temporary expansion of its Accelerated and Advance Payment Program to allow skilled nursing facilities and
certain other Medicare providers to request accelerated or advance payments in an amount up to 100% of the Medicare Part A payments
they received from October–December 2019; this expansion was suspended April 26, 2020 in light of other CARES Act funding
relief. In addition, CMS has also enhanced requirements for nursing facilities to report COVID-19 infections to local, state and
federal authorities.
On
March 26, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”),
sweeping legislation intended to bolster the nation’s response to the COVID-19 pandemic. In addition to offering economic
relief to individuals and impacted businesses, the law expands coverage of COVID-19 testing and preventative services, addresses
health care workforce needs, eases restrictions on telehealth services during the crisis, and increases Medicare regulatory flexibility,
among many other provisions. Notably, the CARES Act temporarily suspends the 2% across-the-board “sequestration” reduction
during the period May 1, 2020 through December 31, 2020, and extends the current Medicare sequester requirement through fiscal
year 2030. In addition, the law provides $100 billion in grants to eligible health care providers for health care related expenses
or lost revenues that are attributable to COVID-19. On April 10, 2020, CMS announced the distribution of $30 billion in funds
to Medicare providers based upon their 2019 Medicare fee for service revenues. Eligible providers must agree to certain terms
and conditions in receiving these grants. In addition, the Department of Health and Human Services (“HHS”) has authorized
$20 billion of additional funding for providers that have already received funds from the initial distribution of $30 billion.
Unlike the first round of funds, which came automatically, providers have to apply for these additional funds and submit the required
supporting documentation, using the online portal provided by HHS. Providers must attest to and agree to specific terms and conditions
for the use of such funds. HHS will make the additional distributions with the goal of allocating the whole $50 billion proportionally
across all providers based on those providers’ proportional share of 2018 net Medicare fee-for-service revenue. CMS is expected
to distribute additional funding to Medicaid and potentially other providers, but the details are not yet known.
On
July 18, 2019, CMS published a final rule that eliminates the prohibition on pre-dispute binding arbitration agreements between
long-term care facilities and their residents. The rule also strengthens the transparency of arbitration agreements and makes
other changes to arbitration requirements for long-term care facilities. There can be no assurance that these rules or future
regulations modifying Medicare skilled nursing facility payment rates or other requirements for Medicare and/or Medicaid participation
will not have an adverse effect on the financial condition of our borrowers and lessees which could, in turn, adversely impact
the timing or level of their payments to us.
Congress
periodically considers legislation revising Medicare and Medicaid policies, including legislation that could have the impact of
reducing Medicare reimbursement for skilled nursing facilities and other Medicare providers, limiting state Medicaid funding allotments,
encouraging home and community-based long-term care services as an alternative to institutional settings, or otherwise reforming
payment policy for post-acute care services. Congress continues to consider further legislative action in response to the COVID-19
pandemic. There can be no assurances that enacted or future legislation will not have an adverse impact on the financial condition
of our lessees and borrowers, which subsequently could materially adversely impact our company.
Additional
reforms affecting the payment for and availability of health care services have been proposed at the federal and state level and
adopted by certain states. Increasingly, state Medicaid programs are providing coverage through managed care programs under contracts
with private health plans, which is intended to decrease state Medicaid costs. State Medicaid budgets may experience shortfalls
due to increased costs in addressing the COVID-19 pandemic. Congress and state legislatures can be expected to continue to review
and assess alternative health care delivery systems and payment methodologies. Changes in the law, new interpretations of existing
laws, or changes in payment methodologies may have a dramatic effect on the definition of permissible or impermissible activities,
the relative costs associated with doing business and the amount of reimbursement by the government and other third-party payors.
Acquisitions
Effective
March 2, 2020, the Company, through its wholly-owned subsidiary, Global Quapaw, LLC (“Quapaw”), completed the
acquisition of an 86-licensed bed, long-term care facility known as Higher Call Nursing Center (“Higher Call”)
located in Quapaw, Oklahoma for the purchase price of $1.3 million. Quapaw has entered into an operating lease agreement with
Global Higher Call Nursing, LLC, a wholly owned subsidiary of the Company, as lessee, to be the operator of the facility. The
acquisition represents the consummation of an Asset Purchase Agreement dated October 21, 2019 between Higher Call Nursing
Center, Inc., as Seller, and Quapaw, as Buyer.
In
connection with the acquisition of Higher Call, the Company entered into two credit facilities, summarized as follows:
The
Company entered into a senior loan agreement with Security Bank in the principal amount of $1.1 million (the “Senior Loan”).
The Senior Loan accrues interest at the rate of 6.5% per annum and is payable in monthly installments of $7,907. The Senior Loan
matures in 2040. The Senior Loan is secured by a senior Mortgage, Security Agreement and Assignment of Rents (“Mortgage”)
covering the Higher Call facility and a UCC Security Interest covering the personal property and other non-real estate assets.
The
Company also executed a promissory note in favor of the Seller, Higher Call Nursing Center, Inc., in the principal amount of $150,000
(the “Seller Note”). The Seller Note accrues interest at the rate of 8% per annum and is payable in equal monthly
installments, principal and interest, and matures in April 2024. The Seller Note is secured by a Corporate Guaranty of Global.
Properties
As
of March 31, 2020, we owned twelve long-term care facilities including a campus of three buildings in Tulsa, OK. The following
table provides summary information regarding these facilities at March 31, 2020:
Property Name
|
|
Location
|
|
Effective
Percentage
Equity
Ownership
|
|
|
Date
Acquired
|
|
Gross
Square Feet
|
|
|
Purchase
Price
|
|
|
Outstanding
Debt at
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastman Nursing Home (a/k/a Crescent Ridge)
|
|
Eastman, GA
|
|
|
100
|
%
|
|
3/15/2013
|
|
|
28,808
|
|
|
$
|
5,000,000
|
|
|
$
|
3,423,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrenton Health and Rehabilitation
|
|
Warrenton, GA
|
|
|
100
|
%
|
|
12/31/2013
|
|
|
26,894
|
|
|
$
|
3,500,000
|
|
|
$
|
3,722,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern Hills Retirement Center
|
|
Tulsa, OK
|
|
|
100
|
%
|
|
2/7/2014
|
|
|
104,192
|
|
|
$
|
2,000,000
|
|
|
$
|
7,226,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill Nursing Home
|
|
Macon, GA
|
|
|
85
|
%
|
|
5/19/2014
|
|
|
46,314
|
|
|
$
|
7,185,000
|
|
|
$
|
5,804,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edwards Redeemer Health & Rehab
|
|
Oklahoma City, OK
|
|
|
100
|
%
|
|
9/16/2014
|
|
|
31,939
|
|
|
$
|
3,142,233
|
|
|
$
|
2,065,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Providence of Sparta Nursing Home
|
|
Sparta, GA
|
|
|
100
|
%
|
|
9/16/2014
|
|
|
19,441
|
|
|
$
|
2,836,930
|
|
|
$
|
2,908,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meadowview Healthcare Center
|
|
Seville, OH
|
|
|
100
|
%
|
|
9/30/2014
|
|
|
27,500
|
|
|
$
|
3,000,000
|
|
|
$
|
2,851,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Prairie Nursing Home
|
|
Lonoke, AR
|
|
|
100
|
%
|
|
9/16/2014
|
|
|
40,737
|
|
|
$
|
6,742,767
|
|
|
$
|
4,618,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glen Eagle Healthcare & Rehab
|
|
Abbeville, GA
|
|
|
100
|
%
|
|
5/25/2016
|
|
|
29,393
|
|
|
$
|
2,100,000
|
|
|
$
|
3,066,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Higher Call Nursing Center
|
|
Quapaw, OK
|
|
|
100
|
%
|
|
3/2/2020
|
|
|
20,694
|
|
|
$
|
1,300,000
|
|
|
$
|
1,201,721
|
|
Property Name
|
|
2020 Base Revenue
Per Lease
|
|
|
Operating Lease Expiration
|
|
|
|
|
|
|
|
|
Eastman Nursing Home (a/k/a Crescent Ridge)
|
|
$
|
720,000
|
|
|
|
October 31, 2022
|
|
Warrenton Health and Rehabilitation
|
|
$
|
642,846
|
|
|
|
June 30, 2026
|
|
Southern Hills Retirement Center
|
|
$
|
12,000
|
|
|
|
-
|
|
Goodwill Nursing Home
|
|
$
|
560,138
|
|
|
|
February 1, 2027
|
|
Edwards Redeemer Health & Rehab
|
|
$
|
574,958
|
|
|
|
October 31, 2022
|
|
Providence of Sparta Nursing Home
|
|
$
|
494,496
|
|
|
|
June 30, 2026
|
|
Meadowview Healthcare Center
|
|
$
|
-
|
|
|
|
November 30, 2023
|
|
Grand Prairie Nursing Home
|
|
$
|
-
|
|
|
|
-
|
|
Glen Eagle Healthcare & Rehab
|
|
$
|
-
|
|
|
|
-
|
|
Higher Call Nursing Center
|
|
$
|
-
|
|
|
|
-
|
|
Going
Concern
The
accompanying consolidated financial statements and notes have been prepared assuming the Company will continue as a going concern.
For the three months ended March 31, 2020, the Company had net income of $62,807 and reported net cash provided by operations
of $252,424. However, the Company has incurred net losses in each of the previous five fiscal years and, as of March 31,
2020, had an accumulated deficit of $11,908,620. These circumstances raise substantial doubt as to the Company’s ability
to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s
ability to generate sufficient revenues and cash flows to operate profitably and meet contractual obligations or raise additional
capital through debt financing or through sales of common stock.
Failure
to achieve the necessary levels of profitability and cash flows or obtain additional funding would be detrimental to the Company.
The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue
as a going concern.
Results
of Operations
The
following discussion of the financial condition, results of operations, cash flows, and changes in our financial position should
be read in conjunction with our interim consolidated financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q.
Results
of Operations - Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019
Rental
revenues for the three-month periods ended March 31, 2020 and March 31, 2019 totaled $521,012 and $895,288, respectively, a decrease
of 374,276. The Company also had healthcare revenue of $3,330,589 for the three months ended March 31, 2020, compared to $379,791
for the three months ended March 31, 2019. Factors that contributed to the decrease in rental revenue included the appointment
of a receivership at Eastman as well as the closure of Edwards Redeemer. Also, the Southern Tulsa facility is operated directly
by the Company as of December 1, 2019, increasing Healthcare revenues but decreasing rental revenues. The acquisition of the Higher
Call Nursing Center also increased healthcare revenues. Looking forward, we anticipate growing the rental revenue at the Southern
Hills ILF facility in 2020 and beyond, but the shift toward healthcare revenue will continue as we operate more facilities directly.
General
and administrative expenses were $343,063 and $193,479 for the three-month periods ended March 31, 2020 and 2019, respectively,
an increase of $149,584 primarily due to additional expenses with the Southern Tulsa facility being operated directly by the Company
as of December 1, 2019 and Higher Call Nursing Center as of March 1, 2020. The Company stringently reviews its costs regularly
but believes its cost structure has been optimized for its current portfolio. For the three months ended March 31, 2020 and March
31, 2019, respectively, general and administrative expenses included $0 and $50,529 of share-based compensation related to restricted
stock and common stock awards.
Property
taxes, insurance, and other operating expenses totaled $2,331,744 and $349,188 for the three-month periods ended March 31, 2020
and 2019, respectively. Lessees are responsible for the payment of insurance, taxes and other charges while under the lease. Should
the lessee not pay all such charges, as required under the leases, we may be liable for such operating expenses. We are also responsible
for all working capital related to our Glen Eagle as well as the Southern Hills SNF, ALF and ILF, Meadowview,
Higher Call, and Edwards properties.
Expenses
related to the provision for bad debt increased $206,608 from $0 for the three months ended March 31, 2019 to $206,608 for the
three months ended March 31, 2020. The company’s greatly increased Healthcare Services operations require more complicated
billing and less certain collection, and the company anticipates and preemptively records bad debt expense as a proportion of
revenues.
Depreciation
expense increased $64,293 from $322,925 for the three months ended March 31, 2019 to $387,218 for three months ended March 31,
2020.
The
Company had no interest income for the three months ended March 31, 2020 and $5,467 interest income for the three months ended
March 31, 2019.
Interest
expense decreased $20,965 from $526,235 for the three months ended March 31, 2019 to $505,270 for the three months ended March
31, 2020. We capitalized $25 of interest during the three months ended March 31, 2020.
Liquidity
and Capital Resources
Throughout
its history, the Company has experienced shortages in working capital and has relied, from time to time, upon sales of debt and
equity securities to meet cash demands generated by our acquisition activities.
Our
liquidity is expected to increase from potential equity and debt offerings and decrease as net offering proceeds are expended
in connection with our various property improvement projects. Our continuing short-term liquidity requirements consisting primarily
of operating expenses and debt service requirements, excluding balloon payments at maturity, are expected to be achieved from
rental revenues received and existing cash on hand. We plan to renew secured obligations that mature during 2020, as our projected
cash flow from operations will be insufficient to retire the debt. Our restricted cash approximated $383,760 as of March 31, 2020
and is to be expended on insurance, taxes, repairs, and capital expenditures associated with Providence of Sparta Nursing Home.
Cash
provided by operating activities was $252,424 for the three months ended March 31, 2020 compared to cash provided by operating
activities of $266,139 for the three months ended March 31, 2019. Cash flows from operations were beneficially impacted by net
income and a decrease in prepaid expenses offset by an increase in accounts receivable and a decrease in accounts payable and
accrued liabilities during the first three months of 2020.
Cash
used in investing activities was $1,085,923 for the three-month period ended March 31, 2020 compared to cash used in investing
activities of $954,879 for the three-month period ended March 31, 2019. The increase is primarily due to net cash paid in the
acquisition of Higher Call assets offset by decreased spending on property renovations and refurbishments.
Cash
provided by financing activities was $1,079,580 for the three months ended March 31, 2020 compared to cash used in financing
activities of $3,828 for the three months ended March 31, 2019. During the first three months of 2020, we received proceeds from
the issuance of debt of $1,211,721 and made payments on debt of $124,641. During the first three months of 2019, we issued
$159,875 in debt in cash and made cash payments on debt of $147,318.
As
of March 31, 2020, and December 31, 2019, our debt balances consisted of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Senior Secured Promissory Notes
|
|
$
|
1,545,000
|
|
|
$
|
1,485,000
|
|
Senior Unsecured Promissory Notes
|
|
|
300,000
|
|
|
|
300,000
|
|
Senior Secured Promissory Notes - Related Parties
|
|
|
975,000
|
|
|
|
875,000
|
|
Fixed-Rate Mortgage Loans
|
|
|
22,306,946
|
|
|
|
22,427,949
|
|
Variable-Rate Mortgage Loans
|
|
|
5,669,727
|
|
|
|
4,618,006
|
|
Line of Credit, Senior Secured
|
|
|
7,226,969
|
|
|
|
7,230,582
|
|
Other Debt, Subordinated Secured
|
|
|
1,536,000
|
|
|
|
1,386,000
|
|
Other Debt, Subordinated Secured - Related Parties
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,709,642
|
|
|
|
38,472,537
|
|
|
|
|
|
|
|
|
|
|
Premium, Unamortized Discount and Debt Issuance Costs
|
|
|
(468,322
|
)
|
|
|
(493,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,241,320
|
|
|
$
|
37,979,184
|
|
|
|
|
|
|
|
|
|
|
As presented in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt, Net
|
|
$
|
38,122,480
|
|
|
$
|
36,954,184
|
|
|
|
|
|
|
|
|
|
|
Debt - Related Parties, Net
|
|
|
1,118,840
|
|
|
|
1,025,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,241,320
|
|
|
$
|
37,979,184
|
|
The
weighted average interest rate and term of our fixed rate debt are 5.88% and 7.66 years, respectively, as of March 31, 2020. The
weighted average interest rate and term of our variable rate debt are 5.89% and 17.83 years, respectively, as of March 31, 2020.
Mortgage
Loans and Lines of Credit Secured by Real Estate
Mortgage
loans and other debts such as lines of credit are collateralized by all assets of each nursing home property and an assignment
of its rents. Collateral for certain mortgage loans includes the personal guarantee of Christopher Brogdon or corporate guarantees.
Mortgage loans for the periods presented consisted of the following:
|
|
Face
|
|
|
Principal Outstanding at
|
|
|
Stated
|
|
Maturity
|
Property
|
|
Amount
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Interest Rate
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern Hills Retirement Center Line of Credit(1)(2)
|
|
$
|
7,227,074
|
|
|
$
|
7,226,969
|
|
|
$
|
7,230,582
|
|
|
4.75% Fixed
|
|
June 18, 2023
|
Eastman Nursing Home (1)(3)
|
|
|
3,570,000
|
|
|
|
3,423,170
|
|
|
|
3,451,593
|
|
|
5.50% Fixed
|
|
October 26, 2021
|
Goodwill Nursing Home (1)(4)
|
|
|
4,268,878
|
|
|
|
4,268,878
|
|
|
|
4,286,237
|
|
|
4.75% Fixed
|
|
April 12, 2025
|
Warrenton Nursing Home (5)
|
|
|
3,768,600
|
|
|
|
3,722,532
|
|
|
|
3,739,942
|
|
|
3.73% Fixed
|
|
July 1, 2049
|
Edward Redeemer Health & Rehab(6)
|
|
|
2,065,804
|
|
|
|
2,065,773
|
|
|
|
2,074,958
|
|
|
4.75% Fixed
|
|
June 29, 2021
|
Glen Eagle Health and Rehab(7)
|
|
|
3,119,214
|
|
|
|
3,066,376
|
|
|
|
3,083,006
|
|
|
5.50% Fixed
|
|
May 25, 2021
|
Providence of Sparta Nursing Home (8)
|
|
|
3,039,300
|
|
|
|
2,908,417
|
|
|
|
2,923,013
|
|
|
3.50% Fixed
|
|
November 1, 2047
|
Meadowview Healthcare Center (9)
|
|
|
3,000,000
|
|
|
|
2,851,800
|
|
|
|
2,869,200
|
|
|
6.00% Fixed
|
|
October 30, 2022
|
GL Nursing Home(10)
|
|
|
5,000,000
|
|
|
|
4,618,006
|
|
|
|
4,618,006
|
|
|
Prime Plus 1.50%/ 5.75% Floor
|
|
August 3, 2037
|
Higher Call Nursing Center(11)
|
|
|
1,051,721
|
|
|
|
1,051,721
|
|
|
|
-
|
|
|
Prime Plus 2.00%
|
|
March 3, 2040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,203,642
|
|
|
$
|
34,276,537
|
|
|
|
|
|
|
(1)
|
Mortgage
loans are non-recourse to the Company except for (i) the senior loan held by ServisFirst Bank on Meadowview (Ohio), (ii) the
loans held by Colony Bank on Eastman and Glen Eagle, and (iii) the Southern Hills line of credit and Goodwill loan owed to
Southern Bank (formerly First Commercial Bank).
|
|
(2)
|
On
October 31, 2017, the Company, through its wholly-owned subsidiaries Southern Tulsa,
LLC and Southern Tulsa TLC, LLC, as Co-Borrowers, consummated a new Line of Credit with
Southern Bank (formerly First Commercial Bank) pursuant to a Promissory Note in the principal
amount of $7,229,052 (the “Line of Credit”). Under the Line of Credit, the
Company refinanced the prior mortgage on its skilled nursing facility in Tulsa for $1,546,801,
funded open market and tender offer purchases of its Industrial Revenue Bonds covering
the ALF and ILF as well as provided working capital for improvements to the ALF and ILF.
As of March 31, 2020, a total of $7,226,969 was drawn under the Line of Credit, and as
of December 31, 2019, a total of $7,230,582 was drawn under the Line of Credit.
The
interest rate on the Line of Credit increased from 5.25% to 5.75% effective April 28, 2019 and subsequently was changed
to 4.75%. Monthly payments of interest began on November 30, 2017 and continue until the Promissory Note is paid in full
on the Maturity Date. The Maturity Date was been extended multiple times in three month increments initially from April
30, 2018 to May 5, 2020, and subsequently to June 18, 2023 with a principal amount of $7,227,074. The Credit Note is secured
by a First Mortgage and Assignment of Rents on Real Property for Southern Hills Rehabilitation Center, a Junior Lien and
Assignment of Rents on Real Property for its Southern Hills Independent Living Facility location and a Junior Lien on
Real Property for its Southern Hills Assisted Living Facility location. With the retirement of the Tulsa Industrial Authority
Bonds effective November 1, 2018, Southern Bank (formerly First Commercial Bank) moved into a senior position on the ALF
and ILF properties.
|
|
(3)
|
The
loan at Eastman was renewed on November 26, 2018 with the maturity extended to October 26, 2021. For the three months ended
March 31, 2020, amortization expense related to loan costs totaled $322.
|
|
(4)
|
The
maturity for the loan at Goodwill Nursing was extended on April 28, 2020 to April 12, 2025. The face value of the note
was adjusted to the principal outstanding at the time of 4,268,878, and the interest rate was decreased to 4.75%, from 5.50%.
|
|
(5)
|
The
original loan was extended on January 19, 2019 to January 20, 2020 and the Company capitalized $8,885 in loan costs paid.
The loan was refinanced in June 2019. The Company has incurred $156,671 in unamortized loan costs to refinance this debt with
another lender. The refinance was treated as debt extinguishment, with a new maturity date of July 1, 2049 and an interest
rate of 3.73%. For the three months ended March 31, 2020, amortization expense related to loan costs totaled $1,306.
|
|
(6)
|
The
maturity for the loan at Edwards Redeemer was extended to June 29, 2021 in June 2020. The face value of the note was adjusted
to the principal outstanding at the time of the modification, $2,065,804, and the interest rate was decreased from
5.50% to 4.75%.
|
|
(7)
|
Amortization
expense related to loan costs of this loan totaled $219 for the three months ended March 31, 2020. Amortizing payments began
in January 2019. In June 2018 the Company converted the original note to a fixed note which qualified as debt extinguishment,
unamortized debt discount on the original note was expensed as a loss on extinguishment of $27,794. In April 2018, the Company
capitalized $22,800 in fees and interest and added it to principal. The Company is subject to financial covenants and customary
affirmative and negative covenants, including compliance with the covenants of all other notes and bonds. As of March 31,
2020, the Company was not in compliance with some unrelated notes and bonds, which is considered to be a technical Event of
Default as defined in the note agreement, but the Company believes that it is in good standing with the Lender. In October
2018 the Lender extended the Company a line of credit with a limit of $200,365 to provide working capital to scale operations
at the facility. The line of credit was expanded in February 2019 to $400,000 with a maturity date of September 30, 2019.
Prior to September 30, 2019, the Company had drawn $400,000 on the line which was subsequently merged into the amortizing
note due May 25, 2021.
|
|
(8)
|
The
senior debt and subordinated debt owed in relation to Providence of Sparta was refinanced into a single senior HUD note during
2017. Amortization expense related to loan costs totaled $1,246 for the three months ended March 31, 2020. The interest rate
was reduced from 3.88% to 3.50% as part of a refinance completed in April 2020.
|
|
(9)
|
Amortization
expense related to loan costs of this loan totaled $2,326 for the three months ended March 31, 2020. The Company is subject
to financial covenants and customary affirmative and negative covenants, including compliance with the covenants of all other
notes and bonds. As of March 31, 2020, the Company was not in compliance with some unrelated notes and bonds, which is considered
to be a technical Event of Default as defined in the note agreement, but the Company believes that it is in good standing
with the Lender.
|
|
(10)
|
The
mortgage loan collateralized by the GL Nursing Home is 80% guaranteed by the USDA and requires an annual renewal fee payable
in the amount of 0.25% of the USDA guaranteed portion of the outstanding principal balance as of December 31 of each year.
The Company is subject to financial covenants and customary affirmative and negative covenants. As of March 31, 2020, the
Company was not in compliance with certain of these financial and non-financial covenants which is considered to be a technical
Event of Default as defined in the note agreement. The Company is also delinquent in installment payments due under the mortgage.
Remedies available to the lender in the event of a continuing Event of Default, at its option, include, but are not necessarily
limited to the following (1) lender may declare the principal and all accrued interest on the note due and payable; and (2)
lender may exercise additional rights and remedies under the note agreement to include taking possession of the collateral
or seeking satisfaction from the guarantors. The Company has been notified by the lender regarding the Events of Default.
Guarantors under the mortgage loan include Christopher Brogdon. With our consent, Mr. Brogdon has assumed operations of the
facility and is making payment of interest on the loan. The Company is not obligated to repay the interest.
|
|
(11)
|
In
connection with the acquisition of Higher Call, the Company entered into a senior loan agreement with Security Bank in the
principal amount of $1,051,721. This loan accrues interest at the rate of 6.5% per annum and is payable in monthly installments
of $7,907. The loan is secured by a senior Mortgage, Security Agreement and Assignment of Rents covering the Higher Call facility
and a UCC Security Interest covering the personal property and other non-real estate assets. The Company is subject to
financial covenants and customary affirmative and negative covenants. As of March 31, 2020, the Company was in compliance
with these covenants.
|
We
have $1.9 million of debt maturing and expect principal reduction payments of approximately $527,000 in the next twelve months.
There is also $10.5 million in debt in technical default maturing after March 31, 2021 but shown due immediately. While we anticipate
being able to refinance all the loans at reasonable market terms upon maturity, inability to do so may impact our financial position
and results of operations. We expect to refinance $1.5 million in mortgage loans maturing in 2020 as the associated properties
meet loan to value requirements currently being employed in commercial lending markets. We have $325,000 in note obligations maturing
in 2020. Following is a summary of our subordinated debt and corporate debt at March 31, 2020 and December 31, 2019.
Subordinated
and Corporate Debt
Our
subordinated debt at March 31, 2020 and December 31, 2019 includes unsecured notes payable issued to entities controlled by the
Company used to facilitate the acquisition of the nursing home properties.
|
|
Face
|
|
|
Principal Outstanding at
|
|
|
Stated Interest
|
|
Maturity
|
|
Property
|
|
Amount
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Rate
|
|
Date
|
|
Goodwill Nursing Home
|
|
$
|
2,180,000
|
|
|
$
|
1,536,000
|
|
|
$
|
1,536,000
|
|
|
13% (1) Fixed
|
|
|
December 31, 2019
|
|
Higher Call Nursing Center(2)
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
-
|
|
|
8% Fixed
|
|
|
April 1, 2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,686,000
|
|
|
$
|
1,536,000
|
|
|
|
|
|
|
|
|
(1)
|
The
subordinated note on Goodwill matured on July 1, 2015. Investors in the Goodwill note were entitled to an additional 5% equity
in Goodwill Hunting, LLC every six months if the note is not paid when due. Effective December 31, 2015, the investors holding
the subordinated debt executed an Agreement Among Lenders pursuant to which they (i) agreed to waive any and all equity ratchets
and (ii) agreed to extend the maturity date of the subordinated debt to June 30, 2017. In exchange, Goodwill Hunting agreed
to pay the investors an additional one-time premium equal to 5% of the principal amount of the individual note at such time
as the note is repaid. Effective May 3, 2017, we entered into an Allonge and Modification Agreement with the Goodwill investors
pursuant to which they agreed to (i) waive all accrued interest through December 31, 2017, (ii) reduce interest rate to 13%
beginning January 1, 2018 and (iii) extend the maturity date of the notes to December 31, 2019. In exchange, the Company agreed
that upon repayment of the notes, the investors would be entitled to a one-time premium payment in the amount of 15% of the
principal balance of the notes. On June 30, 2020, the Company purchased from four former investors in GWH Investors, LLC their
notes issued by Goodwill Hunting, LLC in the aggregate principal amount of $402,000 for an equal amount of cash. The Company
has not repaid or renewed the note as of March 31, 2020 and it is technically in default.
|
|
(2)
|
In
connection with the acquisition of Higher Call, the Company executed a promissory note in favor of the Seller, Higher Call
Nursing Center, Inc., in the principal amount of $150,000 which accrues interest at the rate of 8% per annum and is payable
in equal monthly installments, principal and interest. This note is secured by a corporate guaranty of Global.
|
Our
corporate debt at March 31, 2020 and December 31, 2019 includes unsecured notes and notes secured by all assets of the Company
not serving as collateral for other notes.
|
|
Face
|
|
|
Principal Outstanding at
|
|
|
Stated Interest
|
|
Maturity
|
|
Series
|
|
Amount
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Rate
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10% Senior Secured Promissory Note
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
10.0% Fixed
|
|
|
December 31, 2018
|
|
10% Senior Unsecured Promissory Notes
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
300,000
|
|
|
10.0% Fixed
|
|
|
October 31, 2020
|
|
11% Senior Secured Promissory Notes
|
|
|
1,520,000
|
|
|
|
1,520,000
|
|
|
|
1,460,000
|
|
|
11.0% Fixed
|
|
|
October 31, 2021
|
|
11% Senior Secured Promissory Notes – Related Party
|
|
|
975,000
|
|
|
|
975,000
|
|
|
|
875,000
|
|
|
11.0% Fixed
|
|
|
October 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,820,000
|
|
|
$
|
2,660,000
|
|
|
|
|
|
|
|
Contractual
Obligations
As
of March 31, 2020, we had the following contractual obligations:
|
|
Total Contractual Terms
|
|
|
Less Than
1 Year
|
|
|
1 – 3 Years
|
|
|
3 – 5 Years
|
|
|
More Than
5 Years
|
|
Notes Payable - Principal
|
|
$
|
39,709,642
|
|
|
$
|
12,930,156
|
|
|
$
|
8,454,163
|
|
|
$
|
7,945,024
|
|
|
$
|
10,380,299
|
|
Notes Payable – Interest
|
|
|
7,638,137
|
|
|
|
1,554,656
|
|
|
|
1,985,567
|
|
|
|
1,034,212
|
|
|
|
3,063,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations
|
|
$
|
47,347,779
|
|
|
$
|
14,484,812
|
|
|
$
|
10,439,730
|
|
|
$
|
8,979,236
|
|
|
$
|
13,444,001
|
|
Revenues
from operations are sufficient to meet the working capital needs of the Company for the foreseeable future. Cash on hand and revenues
generated from operations are in excess of operating expenses and debt service requirements. Debt maturities are expected to be
refinanced at reasonable terms upon maturity. The Company anticipates a combination of conventional mortgage loans, at market
rates, issuance of revenue bonds and possibly additional equity injections to fund the acquisition cost of any additional properties.
Except for renovations at Grand Prairie and Southern Hills Retirement Center, there are no material capital improvement or recurring
capital expenditure commitments at the properties.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that we consider material.
Critical
Accounting Policies
Set
forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated
financial statements. Certain of these accounting policies are particularly important for an understanding of the financial position
and results of operations presented in the consolidated financial statements set forth elsewhere in this report. These policies
require the application of judgment and assumptions by management and, as a result, are subject to a degree of uncertainty. Actual
results could differ as a result of such judgment and assumptions.
Property
Acquisitions
We
allocate the purchase price of acquired properties to net tangible and identified intangible assets and any liabilities based
on relative fair values. Fair value estimates are based on information obtained from independent appraisals, other market data,
information obtained during due diligence and information related to the marketing and leasing at the specific property. Acquisition-related
costs such as due diligence, legal and accounting fees are expensed as incurred and not applied in determining the purchase price
or fair value of an acquired property.
Impairment
of Long-Lived Assets
When
circumstances indicate the carrying value of property may not be recoverable, the Company reviews the asset for impairment. This
review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the
property’s use and eventual disposition. This estimate considers factors such as expected future operating income, market
and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment
exists, due to the inability to recover the carrying amount of the property, an impairment loss is recorded to the extent that
the carrying value exceeds the estimated fair value of the property. Estimated fair value is determined with the assistance from
independent valuation specialists using recent sales of similar assets, market conditions and projected cash flows of properties
using standard industry valuation techniques.
Goodwill
Goodwill
represents the excess of the cost of an acquired business over the amounts assigned to its net assets. Goodwill is not amortized
but is tested for impairment at a reporting unit level on an annual basis or when an event occurs or circumstances change that
would more likely than not reduce the fair value of a reporting unit below its carrying amount. Events or changes in circumstances
that may trigger interim impairment reviews include significant changes in business climate, operating results, planned investments
in the reporting unit, or an expectation that the carrying amount may not be recoverable, among other factors.
The
Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company determines it
is more likely than not that the fair value of the reporting unit is greater than its carrying amount, an impairment test is unnecessary.
If an impairment test is necessary, the Company will estimate the fair value of its related reporting units. If the carrying value
of a reporting unit exceeds its fair value, the goodwill of that reporting unit is determined to be impaired and the Company will
proceed with recording an impairment charge equal to the excess of the carrying value over the related fair value.
Recently
Adopted Accounting Pronouncements
None.
Recently
Issued Accounting Pronouncements
The
Financial Accounting Standards Board and other entities issued new or modifications to, or interpretations of, existing accounting
guidance during 2020. Management has carefully considered the new pronouncements that altered generally accepted accounting principles
and does not believe that any other new or modified principles will have a material impact on the Company’s reported financial
position or operations in the near term.
Subsequent
Events
On
April 20, 2020, the Company through its subsidiaries received a loan of $574,975 pursuant to the Paycheck Protection Program (the
“PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan
matures on April 20, 2022 (the “Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in
part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during
the initial six-month period is due and payable, together with the principal, on the Maturity Date. The Company intends to use
all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity
throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions of the
CARES Act.
On
May 4, 2020, the Company through its subsidiaries received loans of $324,442 and $710,752 pursuant to the Paycheck Protection
Program (the “PPP Loans”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
Both PPP Loans mature on May 4, 2022 (the “Maturity Date”), accrue interest at 1% per annum and may be prepaid in
whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loans. The interest accrued
during the initial six-month period is due and payable, together with the principal, on the Maturity Date. The Company intends
to use all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business
continuity throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions
of the CARES Act.
As
of June 30, 2020, the Company purchased from former GWH Investors, LLC their notes issued by Goodwill Hunting LLC in the aggregate
principal amount of $402,000 for an equal amount of cash. The notes matured on December 31, 2019 and were in default. The Company
will recognize a gain from elimination of the premium owed to the note holders. The notes cannot be retired until all interests
are repaid.
On
July 2, 2020, the court approved the Operations Transfer Agreement (“OTA”) from the receiver to Global Eastman, LLC,
newly formed subsidiary of the Company. The OTA will be effective as of the date that Global Eastman, LLC secures an operating
license from the state. Pursuant to the terms of the OTA, Global Eastman will assume all receivables and select critical liabilities
associated with the prior operator.
Effective
July 23, 2020, Global Fairland Property, LLC (“Fairland Property”), a newly formed wholly-owned subsidiary of the
Company, signed a definitive Asset Purchase Agreement (the “Agreement’) pursuant to which Fairland Property intends
to purchase a skilled nursing facility located in Fairland, Oklahoma consisting of 29 licensed beds and commonly known as “Family
Care Center of Fairland” (the “Facility”). The purchase price of the Facility will be $796,500. The purchase
and sale of the Facility is subject to numerous conditions, including satisfactory due diligence, financing and other conditions
customary in transactions of this nature. There can be no assurance that the transaction will be consummated.
Effective
July 31, 2020 the Company received a line of credit of $500,000 and a construction loan of $750,000 to
be used for renovation and capital investment in its Edwards facility from Southern Bank. Both loans carry an interest
rate of 4.75% on principal balance and mature July 30, 2021.
On August 7, 2020, the Meadowview skilled-nursing
facility owned by the Company was served with a Notice of Immediate Imposition of Remedies from the Centers for Medicare and Medicaid
Services (“CMS”), as well as a Notice of Imposition of Remedies by the Ohio Department of Health (“ODH”)
ordering the facility to relocate all residents no later than August 9, 2020. The actions of the CMS and ODH were the result of
ongoing operating deficiencies which the operator failed to cure. All residents of the Meadowview facility were relocated by the
August 9, 2020 deadline and, as a result, the facility has been closed. The Company has submitted an application with the ODH
for a new nursing home license which is pending. The Company has not determined what additional future courses of action may be
required or appropriate.
On August 18, 2020, the Company’s
Board of Directors approved the repurchase for redemption of 443,431 shares of common stock for $75,385 or $0.17 per share in
a privately negotiated transaction. The redemption has been completed and the shares of common stock cancelled.
On September 29, 2020, the Company’s
President and Chief Financial Officer and a member of the Board of Directors resigned from all positions with the Company. The
resignations were prompted by regulatory issues not involving the Company or its subsidiaries.