SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
-----------
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- - ---------
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDING MARCH 31, 1995 OR
--------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- - ---------
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
--------- ---------
COMMISSION FILE NUMBER: 33-11863
--------
HARBOR AMERICAN HEALTH CARE TRUST, INC.
---------------------------------------
(Exact name of small business issuer as
specified in its charter)
MARYLAND 86-0576027
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2990 N. SWAN ROAD, STE. 228, TUCSON, ARIZONA 85712
---------------------------------------------------
(Address of principal executive offices)
ISSUER'S TELEPHONE NUMBER: (520) 326-2000
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO
BE FILED BY SECTION 13 OR 15(d) OF THE EXCHANGE ACT DURING THE
PAST 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--------- ---------
THE NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S COMMON
STOCK AS OF MAY 5, 1995 IS 397,600.
----------- -------
Page 1
<PAGE>
HARBOR AMERICAN HEALTH CARE TRUST, INC.
FORM 10-QSB
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
(Unaudited) (Audited)
----------- ------------
ASSETS:
- - -------
<S> <C> <C>
Real Estate Properties:
Land $466,301 $466,301
Building and improvements, net
of accumulated depreciation
of $3,738,083 and $3,697,274
at March 31, 1995 and
December 31, 1994, respectively 4,619,017 4,659,826
Loan costs, net 8,891 11,184
Rent and other receivables 170,608 202,465
Cash and cash equivalents 77,849 106,979
----------- -----------
TOTAL ASSETS $5,342,666 $5,446,755
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
- - -------------------------------------
Mortgage notes payable $5,246,235 $5,297,096
Accounts payable and accrued
expenses 272,681 318,460
----------- -----------
TOTAL LIABILITIES 5,518,916 5,615,556
----------- -----------
Stockholders' Equity:
Common stock, $.01 par value;
10,000,000 shares authorized;
issued and outstanding,
397,600 shares 3,976 3,976
Paid in capital 3,652,823 3,652,823
Distributions in excess of
net earnings (3,833,049) (3,825,600)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (176,250) (168,801)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,342,666 $5,446,755
=========== ===========
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
HARBOR AMERICAN HEALTH CARE TRUST, INC.
FORM 10-QSB
PART I: FINANCIAL INFORMATION
STATEMENTS OF EARNINGS AND DISTRIBUTIONS
IN EXCESS OF NET EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND MARCH 31, 1994
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31, Ended March 31,
1995 1994
(Unaudited) (Unaudited)
--------------- ---------------
REVENUES:
- - ---------
<S> <C> <C>
Rental income $221,207 $275,176
Miscellaneous income 119
Interest income 3,691 52
------------ ------------
224,898 275,347
------------ ------------
EXPENSES:
- - ---------
Depreciation and amortization 48,602 59,038
Loss on sale of real property 15,385
Interest expense 127,269 131,623
Advisory and other fees 7,770 16,725
Directors fees and expenses 12,304 11,800
Other operating expenses 36,402 36,169
------------ ------------
Total expenses 232,347 270,740
------------ ------------
INCOME/(LOSS) BEFORE
EXTRAORDINARY ITEM (7,449) 4,607
EXTRAORDINARY ITEM - gain
on extinguishment of debt ------------ ------------
NET INCOME (LOSS) ($7,449) $4,607
============ ============
NET INCOME (LOSS) PER SHARE ($0.02) $0.01
============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 397,600 397,600
============ ============
Distributions in excess of
earnings - beginning of period ($3,825,600) ($3,498,430)
Net income/(loss) (7,449) 4,607
Distributions during the period
------------- ------------
Distributions in excess of
earnings - end of period ($3,833,049) ($3,493,823)
============= ============
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
HARBOR AMERICAN HEALTH CARE TRUST, INC.
FORM 10-QSB
PART I: FINANCIAL INFORMATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31, Ended March 31,
1995 1994
(Unaudited) (Unaudited)
--------------- ---------------
CASH FLOWS FROM OPERATIONS:
- - ---------------------------
<S> <C> <C>
Net income/(loss) ($7,449) $4,607
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 48,602 59,038
Write off of loan costs 44,850
Changes in assets and liabilities:
Contract, rents and other
receivables 31,857 (89,269)
Accounts payable and accrued
expenses (45,778) (155,903)
Due to Advisor 0 (75)
------------ ------------
Net cash provided by (used in)
operating activities 27,232 (136,752)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- - -------------------------------------
Increase in loan costs (5,500) (2,500)
Disposition of real property 1,638,304
------------ ------------
Net cash provided by (used in)
investing activities (5,500) 1,635,804
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- - -------------------------------------
Payments on long-term
borrowings (50,862) (49,987)
Long-term borrowings relieved
through sale of property 0 (1,417,131)
Distributions made 0 0
------------ ------------
Net cash provided by (used in)
financing activities (50,862) (1,467,118)
------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (29,130) 31,934
CASH AND CASH EQUIVALENTS -
Beginning of year 106,979 14,659
------------ ------------
CASH AND CASH EQUIVALENTS -
END OF YEAR $77,849 $46,593
============ ============
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
HARBOR AMERICAN HEALTH CARE TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND THE YEAR
ENDED DECEMBER 31, 1994
NOTE 1: ORGANIZATION
- - ---------------------
Harbor American Health Care Trust, Inc. (the "Trust") is a Real
Estate Investment Trust ("REIT"). The affairs of the Trust are
managed by its Advisor, Harbor American Capital Group, a
California Limited Partnership (the "Advisor"). The Trust
engages in acquiring and leasing health care facilities (nursing
homes and intermediate care mental retardation developmental
disabled nursing facilities) under long-term leases.
The Trust's financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course
of business. During 1993, the Trust incurred a net loss of
$1,293,450. During 1994 and 1993, the Trust was unable to pay
certain expenses as they became due. The Trust has a deficiency
in assets of $176,250 at March 31, 1995. On March 9, 1994, the
Michigan Property was sold. The Trust has three properties
remaining under lease, thus limiting cash flows available to pay
operating expenses. As discussed in Note 4 to the financial
statements, a mortgage note on the Florida Property was
originally due on March 31, 1994; however, the mortgage holder
has extended the due date of the mortgage note until October 31,
1996. The Trust may be required to sell or refinance the
Property by the new maturity date. These factors, among others,
indicate that the Trust may be unable to continue as a going
concern for a reasonable period of time.
Management's plans include continuing to seek sources to
refinance the loan on the Florida Property and/or to sell the
Florida Property, developing alternative uses to retain the
economic viability of the Colorado Properties, and minimizing
operating costs.
The financial statements do not include any adjustments relating
to the recoverability of recorded asset amounts or the amount of
liabilities that might be necessary should the Trust be unable to
continue as a going concern.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ---------------------------------------------------
a. BUILDINGS AND IMPROVEMENTS - Depreciation of these assets is
--------------------------
computed by the straight-line method over the useful lives of
the assets which have been estimated to be 20 to 40 years.
The Trust periodically evaluates the net realizable value of
its properties and provides a valuation allowance when it
becomes probable there has been a permanent impairment of
value.
b. LOAN COSTS - Loan costs have been deferred and are being
----------
amortized using the straight-line method over the term of
the related borrowing.
c. REVENUE RECOGNITION - Rental income from operating leases is
-------------------
recognized as earned over the life of the lease agreements.
d. INCOME TAXES - The Trust qualifies as a REIT under the
------------
provisions of the Internal Revenue Code. As such, the Trust
is not subject to federal income taxes on amounts
distributed to stockholders provided distributions to
stockholders are at least 95% of the Trust's real estate
investment trust taxable income and the Trust meets certain
other conditions.
5
<PAGE>
NOTE 3: REAL ESTATE PROPERTIES AND LEASES
- - ------------------------------------------
At March 31, 1995, the Trust owned three nursing homes ("the
Properties"), two of which are located in Colorado ("the Colorado
Properties"), and one in Florida ("the Florida Property").
THE MICHIGAN PROPERTY
On March 9, 1994, the Trust sold the Marshall Manor property.
The sale resulted in a loss of $150,280.
Included in the caption "Rent and other receivables" is the
discounted contract balance of $123,211 at March 31, 1995 and
December 31, 1994 resulting from the sale of the Marshall Manor
facility. The contract, requiring quarterly payments of $12,500,
has been discounted using an implicit interest rate of 7.5% and
results in principal maturities of $41,920, $45,153, and $36,137
in 1995, 1996, and 1997, respectively. The contract is
subordinated to other debt secured by the Marshall Manor
property.
THE COLORADO PROPERTIES
Effective October 1, 1992, the Trust entered into three year
operating leases with Res-Care, Inc. ("Res-Care"). The lessee
has the option to renew the leases for three, one-year terms.
The leases provide for a basic rent equal to 115% of the annual
fair rental allowance as determined by the State of Colorado, to
be adjusted by the percentage decrease or increase in the "client
base" at each facility, resulting in an "adjusted monthly rent".
The annual base rents at the inception of the leases were
$300,396 ($25,033 per month). The base monthly rent will be
adjusted annually upon the issuance of a new annual fair rental
allowance by the State of Colorado.
The State of Colorado is interpreting certain federal guidelines
pertaining to active treatment of mentally retarded,
developmentally disabled ("MRDD") patients, such as those
receiving care at the Colorado Properties. The State's
interpretation is requiring these patients to be moved into
private housing, which is expected to be completed during a three
year period. The client base for the purposes of determining
rental payments includes patients who have been moved into
private housing.
It is management's belief that the Colorado Properties will have
to be used for purposes other than the present MRDD use after the
expiration of the initial three year lease term. Accordingly,
the carrying value of the Colorado Properties was reduced to the
undiscounted cash flows expected to be realized from the
properties by a charge to operations in 1992 of $1,721,000 ($4.33
per share) and an additional $770,000 in 1993 ($1.94 per share).
On March 22, 1994, The Colorado Department of Health, Division of
Administration (the "Division") issued a Notice of Violation and
Cease and Desist Order (the "Order") to the Trust. The Order
alleged that in connection with monthly discharge monitoring
reports based on influent and effluent samples of the wastewater
treatment system at one of the Colorado Properties, the Trust was
in violation of maximum effluents and concentrations of tested
substances, and required minimum removals of tested substances.
The Order, among other items, required that within 60 days the
Trust submit an engineering report to the Division identifying
structural corrections to the system and the costs and timing
related thereto. The Trust satisfied all requirements of the
Order, paid a $5,000 penalty in March, 1995, and does not expect
to incur any further costs to repair the system.
6
<PAGE>
THE FLORIDA PROPERTY
Effective May 1, 1993, the Trust entered into a five year lease
with a Successor Lessee. The Successor Lessee has the option to
renew for five, five year terms. The lease provides for monthly
rentals consisting of an equity component of $7,000 and a debt
component equal to the amount of the Trust's mortgage payment.
Minimum annual lease payments expected to be received by the
Trust on all leased properties during the lease terms are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, FLORIDA COLORADO
PROPERTY PROPERTIES TOTAL
<S> <C> <C> <C>
1995 $ 547,915 $ 225,297 $ 773,212
1996 547,915 547,915
1997 547,915 547,915
1998 182,600 182,600
---------- ---------- ----------
Total $1,826,345 $ 225,297 $2,051,642
========== ========== ==========
</TABLE>
The Colorado Properties' rentals are based on the adjusted
monthly rent at the inception of the Lease. The Florida Property
rental includes a debt component equal to the debt service on the
Trust's existing mortgage loan.
The Trust is contingently liable for unpaid property taxes which
are the obligation of the lessees.
NOTE 4: MORTGAGE NOTES PAYABLE
- - -------------------------------
<TABLE>
<CAPTION>
3/31/95 12/31/94
------- --------
<S> <C> <C>
Bank mortgage note - Florida
Property, payable in monthly
installments of $38,660, including
interest at 10.25%, through
October 1996, at which date
the unpaid balance is due. $3,473,320 $3,499,840
Bank mortgage note - Colorado
Properties, interest at 7%;
payable in monthly installments
of $18,111, including interest,
through September 30, 1995, at
which date the unpaid balance is
due in full. 1,732,250 1,756,592
Note payable to bank, interest
at prime (9.00% at March 31,
1995), due December 20, 1995. 40,665 40,665
---------- ----------
Total mortgage notes payable $5,246,235 $5,297,097
========== ==========
</TABLE>
The bank mortgage notes on the Colorado and Florida Properties
are secured by first mortgages, assignment of the lease and rents
thereunder. The bank mortgage note on the Colorado Properties is
also secured, to the extent of $800,000, by a second mortgage on
the Florida Property. The bank mortgage note on the Florida
Property was payable on March 31, 1994 and was extended to
October 31, 1996.
7
<PAGE>
The remaining annual principal payment requirements on all loans
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- - -----------------------
<S> <C>
1995 (nine months remaining) $1,856,660
1996 3,389,575
----------
Total $5,246,235
==========
</TABLE>
NOTE 5: RELATED PARTY TRANSACTIONS
- - -----------------------------------
The Trust has entered into agreements with the Advisor, and
affiliates of the Advisor, to provide various services to the
Trust in exchange for fees, as follows:
a. Advisory fees at an annual rate of .3% of average invested
assets, as defined; additional fees may be paid based on
earnings.
b. Property management, acquisition and disposition fees to be
paid based upon contractual agreements between the parties.
c. Incentive advisory service fees, payable annually in an
amount equal to 5% of the cash available for distribution to
stockholders for the fiscal year. The Advisor has agreed to
subordinate its incentive advisory fee to a cumulative
noncompounding return to the stockholders of 12% on average
adjusted invested capital beginning November 3, 1990, one
year after the termination of the public offering. The
Trust has paid no incentive advisory fees to date.
d. Mortgage servicing fees, at varying rates dependent upon the
types of loans serviced. The Trust has paid no mortgage
servicing fees to date.
Leasing transactions with related parties are described in Notes
3 and 4.
In 1993, the Successor Lessee of the Florida Property made a
$47,921 payment of interest which had been accrued on the related
mortgage loan. This amount is being amortized over the term of
the lease. The unamortized portion ($27,947 at March 31, 1995
and $31,942 at December 31, 1994) has been included in the
balance sheet in the caption "Accounts payable and accrued
expenses".
NOTE 6: CASH RESERVES AND DISTRIBUTIONS TO STOCKHOLDERS
- - --------------------------------------------------------
Under the terms of the public offering, at least 5% of paid-in-
capital is required to be set aside to pay for normal repairs,
replacements, working capital and contingencies. At March 31,
1995, the Trust has not met this requirement.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
-----------------------------------------------
(a) Not Applicable
--------------
(b) Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
- - ------------------------------------
RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 1995
----------------------------------------------------
Operations for the fiscal quarter ended March 31, 1995
reflect rental income and interest income. The rental income is
a result of the lease of the three long term care facilities
owned by the Trust. Each of these facilities is leased on long
term leases and one of the leases is leased to an affiliate of
the Advisor, Harbor American Capital Group, a California Limited
Partnership. Such affiliation results from common ownership by
James R. Sellers of Heritage Advisory Corporation, (the Managing
General Partner of the Advisor) and the lessee of the Florida
Property. This lessee is Bayshore Healthcare Services, Inc.
("BHS"). Two of the nursing homes are located in Colorado (the
"Colorado Properties"), and one is located in Florida (the
"Florida Property").
The Colorado Properties are leased to Res-Care, Inc. of
Louisville, Kentucky ("Res-Care"). Res-Care has kept its lease
payments current since inception of the leases (the "Colorado
Leases") on October 1, 1992. The mortgage payments on the
Colorado Properties are current.
The Current Colorado Leases have original terms of three (3)
years and provide for three (3) one year options to extend, thus
ending on September 30, 1998 if all options are exercised. The
primary term of these leases expires September 30, 1995. The
notices for the one year option to extend must be given not later
than ninety (90) days prior to September 30, 1995, 1996, and 1997,
respectively. The lessees have given informal notice that they
will not exercise the option to extend the Country View lease and
that they will exercise the option to extend the New Life lease
for the initial option period of one year expiring September 30,
1996.
The Trust has been seeking alternate uses for the Country
View Property but has not yet finalized any arrangement. If it
is unable to do so, the value of the property will be impaired.
The Florida Property is leased to BHS and all lease payments
are current. The Trust is obligated to PNC Bank under a first
mortgage loan on the Florida Property which is current in its
mortgage payments through April 20, 1995. Effective March 24,
1995 the Trust entered into a modification of the Bayshore loan
with PNC Bank that provided for extension of said loan to October
31, 1996. By said date the Trust intends to either secure other
financing or sell the property.
For the three months ending March 31, 1995, rental income in
the amount of $221,207 was received as compared with the period
ending March 31, 1994, for which $275,176 was received, a
decrease of 20%. This decrease was due to the sale of a property
which resulted in less rental income. Interest income results
from the Trust's funds being temporarily invested in such short
term investments as savings accounts and certificates of deposits
issued by the Trust's banks, PNC
9
<PAGE>
and BankOne Arizona of Tucson, Arizona and in investments in
Treasury bills purchased directly from the Federal Reserve. Such
income was negligible in the comparable quarter in 1994 but
increased to $3,691 in the current quarter due to increased cash
availability.
Gross revenues of $224,898 for the quarter ended March 31,
1995 in comparison with $275,347 for the quarter ended March 31,
1994 were primarily derived from the net lease rentals received
from the Properties. A net loss of $7,449 for the quarter ended
March 31, 1995 compares with net income of $4,607 for the quarter
ended March 31, 1994. This decrease from first quarter 1994 to
first quarter 1995 was due to the aforementioned sale of one
property.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash flows from operations were $27,232 in the first quarter
of 1995 compared with $(136,752) in the first quarter of 1994.
The quarterly increase is attributed to two factors. First, as a
condition of the sale of the Michigan property, accrued expenses
associated with the property were paid in full and the Trust
accepted a Contract Receivable in the amount of $175,000 which
has been discounted on the Trust books due to the three year time
period over which payments will be made.
Secondly, for the three month period ending March 31, 1995,
there was an increase in rent receivable in the Colorado
properties due to an upward adjustment in the fair rental value
component of the rate paid by the State of Colorado.
PART II. OTHER INFORMATION
None.
10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Date: May 5, 1995
HARBOR AMERICAN HEALTH CARE TRUST, INC.
BY: /s/ F. Dale Markham
--------------------------------
F. Dale Markham
President and Treasurer
(Principal Financial Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 77,849
<SECURITIES> 0
<RECEIVABLES> 170,608
<ALLOWANCES> 0
<INVENTORY> 8,891
<CURRENT-ASSETS> 0
<PP&E> 5,085,318
<DEPRECIATION> 3,738,083
<TOTAL-ASSETS> 5,342,666
<CURRENT-LIABILITIES> 272,681
<BONDS> 0
<COMMON> 3,976
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,342,666
<SALES> 0
<TOTAL-REVENUES> 224,898
<CGS> 0
<TOTAL-COSTS> 232,347
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127,269
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,449)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,449)
<EPS-PRIMARY> (.019)
<EPS-DILUTED> (.019)
</TABLE>
