FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended 12/31/96 OR-
[ ] TRANSITION REPORT UNDER SECTION 13
OF 15(d) of THE SECURITIES EXCHANGE ACT OF
1934
For the Transition Period from ____________ to
____________
Commission file number: 33-11863
HEALTHCARE INVESTORS of AMERICA, INC.
(Exact name of small business issuer as specified in i
ts charter)
Maryland 86-0576027
(State of other jurisdiction of
(IRS Employer incorporation or organization)
Identification
No.)
75 South Church Street, Suite 650, Pittsfield, MA 0120
1
(Address of principal executive offices)
Issuer's telephone number: (413) 448-2111
Securities registered under Section 12(b) of
the Exchange Act:
Name of each exchange on which registered:
None
Securities registered under Section 12(g) of
the Exchange Act:
Title of each class: None
Check whether the issuer (1) has 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
issuer was required to file such reports), and
(2) has been subject to such filing
requirements for the past 90 days. Yes X No.
Check if there is no disclosure of delinquent
filers in response to Item 405 of Regulation S-
B contained in this form, and no disclosure
will be contained, to the best of issuer's
knowledge, in definitive proxy or information
statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to
this Form 10-KSB [X]
The issuer's revenues for the fiscal year
ended December 31, 1996 were $759,220.
The aggregate market value of the voting
common stock, $.01 par value ("Common Stock"),
held by non-affiliates of the issuer as of
April 29, 1997 was $375,100. 397,600 shares
of Common Stock of the registrant were
outstanding as of April 29, 1997.
Transitional Small Business Disclosure Format
(check one): Yes ___ No X
Total of sequentially numbered pages:
Exhibit Index on sequential page number:
ITEM 1. BUSINESS
General Development of Business
Healthcare Investors of America, Inc.
(the "Trust") is a Maryland corporation formed
on February 6, 1987. The Trust changed its
name from Harbor American Health Care Trust,
Inc. effective December 18, 1996. The
principal office of the Trust is located at 75
South Church Street, Suite 650, Pittsfield, MA
01201. The Trust's advisor is Lenox
Healthcare Capital Services, LLC ("Lenox")
(the "Advisor").
During 1996, the Trust continued to own
the real property, fixtures and improvements
used in connection with the operation of three
long term care facilities located in Florida
and Colorado. These are Bayshore Convalescent
Center ("Bayshore"), a 150 bed skilled and
intermediate care nursing home facility
located in North Miami Beach, Florida acquired
as of March, 1988; Country View Care Center
("Country View"), an 87 bed intermediate care
nursing facility located in Lodgment, Colorado
acquired as of December, 1989; and New Life
Care Center, ("New Life"), a 56 bed
intermediate care nursing home facility
located in Greeley, Colorado acquired as of
December, 1989. Country View and New Life are
collectively referred to herein as the
"Colorado Properties".
At December 31, 1996, two of the
three properties were leased under operating
leases. Bayshore was leased to Bayshore
Healthcare Services, Inc. ("BHS") See Item
2, Description of Property, The Florida
Lease. BHS is an affiliate of the Trust as
it is owned by James R. Sellers, an affiliate
of the Advisor. New Life was leased to Res-
Care, Inc., a Kentucky corporation ("Res-
Care"), an unaffiliated entity, pursuant to a
lease which expires in March 1998. On
September 30, 1995, Country View was vacated
by the lessee and remains unoccupied.
The State of Colorado is interpreting
certain Federal Healthcare Finance Agency
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 and out of
institutional housing such as that offered at
the Colorado Properties.
The terms of the lease with Res-Care
provide for lease payments based on the number
of patients residing at the Colorado
Properties as well as those placed outside of
the facilities under the "Community Advantage"
program.
It is therefore management's belief that
the Colorado Properties may ultimately have to
be used for purposes other than the present
MRDD use. By cooperating with the State of
Colorado in the implementation of this
program, the Trust believes it will have until
March, 1998 to develop an alternative use for
New Life in Greeley, Colorado. Trust
management worked during 1996 to develop an
alternative use for Country View in Lodgment,
Colorado. During 1995, plans were nearing
completion to lease or sell the property to a
juvenile corrections operator when the voters
of the county in which the property is located
voted to disallow future juvenile corrections
facilities in the county. Other alternative
uses for Country View are being considered.
No assurance can be given that such
alternative uses will not significantly reduce
the long term value of the Colorado
Properties.
The Trust has entered into a one year
contract for advisory services with the
Advisor. Thomas M. and Linda M. Clarke own
50% of Lenox. The other 50% of Lenox is owned
by entities affiliated with James R. Sellers,
formerly affiliated with the previous advisor.
The goal of the Advisor is to assist the Trust
in its intended growth.
The Trust's continuing plan of operation
for the 1997 fiscal year (ending December 31,
1997) is as follows: The Trust intends to
own, lease or sell its properties. To the
extent it has funds available for investment
(it currently has no such funds available and
no plans for raising such funds), it will
invest primarily in Healthcare related
properties, including long term care
facilities, medical office buildings,
retirement housing facilities, psychiatric
hospitals and substance abuse recovery centers
through acquisitions, joint ventures and
mortgage loans. The Trust may also invest in
commercial, industrial and residential income
producing real properties through similar
means. Since the Trust has no available funds
for such investments, its ability to undertake
such investments will be dependent upon the
availability of capital to the Trust. See Item
6: Management's Discussion and Analysis or
Plan of Operation. As noted above, the
Company's mortgage notes payable mature on
June 20, 1997. The lender has not demanded
payment on these notes and has not notified
the Trust of an event of default or of
foreclosure proceedings. Management is
currently seeking sources to refinance the
mortgage notes payable. Management is
currently negotiating with a third party for a
new debt agreement to refinance the mortgage
notes payable. In connection with the
proposed refinancing, it is likely that a new
entity controlled by two of the Trust's
directors would assume the lease for the
Florida Property. In the event this
negotiation is unsuccessful, Trust management
believes that the Trust will be successful in
obtaining other sources of financing. In
addition, Trust management believes that the
mortgage note lender will not demand payment
prior to the successful completion of the
refinancing transaction. There can be no
assurance that the Trust will be successful in
refinancing efforts or that the Bank will not
demand payment of the mortgage notes.
The Advisor, together with the Trust's
independent accountants is currently
evaluating the Trust's compliance with the
provisions of the Internal Revenue Code (the
"Code"), Treasury Regulations and other
relevant laws pertaining to the qualification
of the Trust as a real estate investment trust
("REIT"). In the event it is determined that
the Trust did not qualify as a REIT, it would
be taxable as a C corporation under the Code.
However, as a taxable corporation, the Trust
would not owe any current tax or tax for prior
years due to its net operating loss
carryovers. Therefore, no adjustment would be
required to the historical financial
statements related to any tax provision.
The Advisor and its independent
accountants intend to assist the Trust in
determining the best method to clarify its tax
status. The Advisor and the Trust's
independent accountants are reviewing various
alternatives, including having the Trust
obtain a tax opinion as to its status,
requesting a determination letter from the
Internal Revenue Service and evaluating the
applicability of reelecting status as a REIT.
If a determination is made that the Trust does
not qualify as a REIT for the purposes of the
Code, the Advisor intends to assist the Trust
in implementing procedures to requalify the
Trust.
The Trust also anticipates reviewing and
evaluating other properties for possible
investment opportunities. However, the
Trust's efforts are limited by the resources
available and the Trust's ability to raise
additional resources.
Financial Information About Industry Segments
When financial resources are available,
the Trust's primary business and industry
segment is to invest in Healthcare related
real properties, including long-term care
facilities, medical office buildings,
retirement housing facilities, psychiatric
hospitals, and substance abuse recovery
centers through acquisitions, joint ventures
and mortgage loans. The Trust also may invest
in commercial, industrial, and residential
income-producing properties through similar
means.
One of the Colorado Properties is leased
to a lessee unaffiliated with the Trust. The
remaining property, Bayshore, is leased to a
lessee affiliated with the Trust. See Item l:
Description of Business, General Development
of Business.
Narrative Description of Business
The Directors of the Trust manage and
control the affairs of the Trust and have
general responsibility and ultimate authority
affecting the investments of the Trust. The
Directors have engaged the Advisor as an
investment advisor to select investments and
supervise the day-to-day operations of the
Trust. Lenox, as the Advisor, is engaged
primarily in real estate consulting.
The Advisor is currently evaluating the
Trust's compliance with the provisions of the
Code, Treasury Regulations and other relevant
laws pertaining to the qualification of the
Trust as a REIT. See Item 1: Description of
Business, General Development of Business.
The investment objectives of the Trust
are (1) to provide quarterly or more frequent
cash distributions to stockholders from
operations, (2) to provide long-term capital
appreciation to stockholders, and (3) to
preserve and protect the stockholders'
original invested capital. When and if
financial resources are available, the Trust
intends to invest primarily in Healthcare
related property, including long-term care
facilities, medical office buildings,
retirement housing facilities, psychiatric
hospitals and substance abuse recovery centers
through acquisitions, joint ventures, and
mortgage loans. The Trust also may invest in
commercial, industrial and residential income
producing real properties through similar
means. To the extent funds are not fully
invested in real properties or mortgage loans,
the Trust may invest temporarily in
investments such as: (i) short-term
government securities, (ii) securities of
government agencies, (iii) bankers'
acceptances and repurchase agreements, (iv)
certificates of deposit, (v) deposits in
commercial banks, (vi) participation in pools
of mortgages or bonds and notes, and/or (vii)
obligations of municipal, state, and federal
governments and government agencies.
The current and anticipated business of
the Trust is not seasonal. The results of
operations of the Trust will depend upon the
availability of (i) capital to the Trust,
which is currently limited, (ii) suitable
opportunities for investment and reinvestment
of its funds, and (iii) the yields available
from time to time on real estate and other
investments. If capital were to become
available to the Trust, the Trust will be
competing for acceptable investments with
other financial institutions, syndicators,
other REITs, investment bankers, including
banks, insurance companies, savings and loan
associations, mortgage bankers, pension funds
and other real estate investment programs
(including other real estate investment
programs which may be sponsored by the sponsor
or the Advisor of the Trust in the future)
that may have similar objectives to those of
the Trust. Substantially all competitors have
greater resources than the Trust. Further,
certain of the directors of the Trust and
member-managers of the Advisor and its
Affiliates are engaged for their own account,
or on behalf of other entities, in the type of
activities in which the Trust intends to be
engaged. Thus, the Trust could be in
competition for investments with one or more
corporations, partnerships or trusts with
which such directors or officers may be
affiliated.
The Trust, as of December 31, 1996, did
not directly employ any persons. The business
of the Trust is managed by the Advisor, with
which the Trust has entered into an Advisory
Agreement. See Item 9: Directors, Executive
Officers, Promoters and Control Persons;
Compliance With Section 16 (a) of the Exchange
Act and Item 12: Certain Relationships and
Related Transactions.
ITEM 2. DESCRIPTION OF PROPERTY
Bayshore. Bayshore consists of a one
story structure built in 1963 and a two story
addition built in 1968. The structure totals
35,294 square feet and contains 150 beds. The
Property is located on an approximately 49,704
square foot parcel of real estate at 16650
West Dixie Highway in North Miami Beach,
Florida.
Country View. Country View is a one
story structure containing approximately
21,688 square feet, constructed during the
early 1970's. The building is situated on two
parcels of land containing approximately 9.8
acres near Longmont, Colorado. This property
was operated as an intermediate care facility
to serve the mentally challenged and contains
87 beds. It is currently unoccupied.
New Life. New Life is a one story
structure containing approximately 18,000
square feet, built in 1957. The building is
located on a parcel of land containing
approximately 1.09 acres, approximately 3
miles from Greeley, Colorado. This property
is operated as an intermediate care nursing
home facility to serve the mentally challenged
and contains 56 beds.
The Leases. The Trust has entered into
operating Leases under net lease terms on two
of the three properties which it has acquired.
The Leases permit the lessee thereunder to
operate the properties as Healthcare
facilities licensed for skilled and
intermediate long term nursing services and
for such additional uses as may be approved by
the Trust and consented to by the appropriate
mortgage lender.
The Colorado Leases. Effective October
1, 1992, upon rejection of the original
leases, the Trust entered into the current
Colorado Lease (the "Current Colorado Lease")
of New Life with Res-Care.
The Current Colorado Lease had an
original term of three (3) years and
originally provided for three (3) one year
options to extend, thus ending on September
30, 1998 if all options were exercised. The
initial term of this lease expired September
30, 1995. The Lessee negotiated a new option
to extend the New Life lease for thirty (30)
months expiring March 31, 1998. The lease of
Country View expired on September 30, 1995 and
Country View is currently unoccupied. The
Trust has been seeking alternate uses for
Country View but has not yet finalized any
arrangement.
The Current Colorado Lease is a net lease
requiring Res-Care to pay all operating
expenses of the properties except for "major"
repairs which are the obligation of the Trust.
"Major" repairs include, but are not limited
to, structural repairs, repairs to the roof,
walls and foundations of the buildings on the
leased premises, maintenance of the electrical
wiring and fixtures, plumbing, heating and air-
conditioning equipment, sewage treatment
plant, and repair of driveways and parking
areas.
The Current Colorado Lease provides for a
basic annual rent payable monthly (the "Annual
Base Rent") equal to 115% of the "Annual Fair
Rental Allowance" as determined by the State
of Colorado, Health Facilities Division, or
any other agency having jurisdiction over such
rates ("HFD"). The Annual Base Rent is
$150,000 for New Life. Upon issuance from
HFD, and receipt by Res-Care of notice
("Notice") of a new annual Fair Rental
Allowance, such Annual Fair Rental Allowance
shall be substituted in the calculation of
Annual Base Rent effective as of the date
specified in the Notice. The monthly rent is
adjusted by the percentage decrease or
increase in the "Client Base" (as defined and
adjusted in this paragraph) to arrive at an
adjusted monthly rent. The initial "Client
Base" is deemed to be 52 at New Life which was
the client population resident census of the
facilities as of August 24, 1992. Any
adjustments in the monthly rent as a result of
an increase or decrease in the client
population of either facility commence the
month following such increase or decrease and
are based on the average daily population for
such month. Furthermore, any decrease in the
client population of either facility which is
the result of the transfer of a client to the
supported living program in the counties of
Weld and Boulder, Colorado, known as Community
Advantage, is not considered a population
decrease for purposes of arriving at the
adjusted monthly rent.
The Current Colorado Lease provides for
fixtures and equipment to secure the
landlord's interest in said lease. At
termination of the lease, title to said
fixtures and equipment reverts to the Trust.
Res-Care is required to furnish regular
monthly and annual financial reports to the
Trust.
The Florida Lease. The Florida Lease was
entered into effective May 1, 1993 by the
Trust with Bayshore Healthcare Services, Inc.,
an Arizona corporation ("BHS"). BHS is owned
by James R. Sellers, an affiliate of the
Advisor. The Florida Lease has an original
term of five (5) years and provides for five
(5) five year options to extend, thus ending
on March 31, 2023, if all options are
exercised. The Florida Lease, as it may be
extended, is a net lease requiring BHS to pay
all operating expenses of the properties.
Minimum rents are composed of two parts, an
equity component and a debt component. The
beginning equity component is $84,000
annually, payable $7,000 monthly. A provision
has been made to increase the equity component
amount after reviewing operations for the
period from May 1, 1993, through December 31,
1993. To date, no change has been made. The
monthly debt component is an amount not less
than the principal and interest payment
charged by the facility first mortgage lender,
presently PNC Bank, Kentucky, Inc. ("PNC
Bank") of Louisville, Kentucky.
A provision is also made for additional
rents. Commencing on January 1, 1995, and
continuing so long as the Florida Lease
remains in force, additional rent shall be due
in amounts equal to five (5%) percent of the
difference in Net Patient Revenues, compared
with Net Patient Revenues for the year ended
December 31, 1994, as reported in the
financial statements of the facility prepared
in accordance with generally accepted
accounting principles ("GAAP"). Net Patient
Revenues are defined as total revenues of the
facility, including, without limitation, all
ancillary fees, room and board charges,
rentals and other revenue derived in any way
from the operation of the facility, on an
accrual basis, after deduction of allowances
for contractual adjustments as they relate to
third party payors and before deduction of any
and all expenses. The lessee is required to
present the amount defined as Net Patient
Revenues in its regular financial reporting.
The Florida Lease provides for fixtures
and equipment to secure the landlord's
interest in the Florida Lease. At termination
of such lease, title to said fixtures and
equipment reverts to the Trust. BHS is
required to furnish regular monthly and annual
financial reports to the Trust.
As of December 31, 1996, real estate
taxes through 1996 were due and owing on the
Bayshore Convalescent Center. These are the
responsibility of the lessee. If the lessee
does not make the required tax payments,
responsibility would shift to the Trust.
Trust management is reasonably confident the
lessee will make the tax payments.
The Loans. Each of the three (3)
properties owned by the Trust was funded by a
combination of cash and mortgage loans. PNC
Bank, formerly Citizens Fidelity Bank & Trust
Company, holds the loans on Bayshore and on
the Colorado Properties.
The Colorado Properties Loan. The first
mortgage loan to PNC Bank totals $1,682,278 as
of December 31, 1996. All interest payments
have been kept current during 1996 and through
April 20, 1997. The loan, as extended,
matures June 20, 1997. The loan is secured by
first mortgages, assignments of leases and
rents thereunder.
The Bayshore Loan. The first mortgage
loan to PNC Bank totals $3,289,632 as of
December 31, 1996. All interest payments have
been kept current during 1996 and through
April 20, 1997. The loan, as extended,
matures June 20, 1997. The loan is secured by
first mortgages, assignments of leases and
rents thereunder. In addition, The Bayshore
Loan is secured by a $1,000,000 second
mortgage on The Colorado Properties.
As noted above, the Company's mortgage
notes payable mature on June 20, 1997. The
lender has not demanded payment on these notes
and has not notified the Trust of an event of
default or of foreclosure proceedings.
Management is currently seeking sources to
refinance the mortgage notes payable.
Management is currently negotiating with a
third party for a new debt agreement to
refinance the mortgage notes payable. In
connection with the proposed refinancing, it
is likely that a new entity controlled by two
of the Trust's directors would assume the
lease for the Florida Property. In the event
this negotiation is unsuccessful, Trust
management believes that the Trust will be
successful in obtaining other sources of
financing. In addition, Trust management
believes that the mortgage note lender will
not demand payment prior to the successful
completion of the refinancing transaction.
There can be no assurance that the Trust will
be successful in its refinancing efforts or
that the Bank will not demand payment of the
mortgage notes payable.
Management believes Bayshore and the
Colorado Properties are adequately insured.
As of April 29, 1997 occupancy at Bayshore is
89% and 98% at New Life.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings
pending in which the Trust is a party or to
which any of the property is the subject that
are not adequately covered by insurance
maintained by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
An annual meeting of the stockholders of
the Trust was held on December 18, 1996
wherein stockholders elected three new
Directors to fill three existing vacancies.
The By-Laws of the Trust provide for the
election of five (5) members of the Board.
Grady P. Hunter and F. Dale Markham were re-
elected to the Board. The three new Directors
are: Thomas M. Clarke, Charles E. Trefzger
and Thomas A. White. Further, the
stockholders voted to approve the name change
to Healthcare Investors of America, Inc. and
ratified the Board's selection of Arthur
Andersen LLP as independent auditors for the
Trust for the fiscal year ending December 31,
1996.
The total votes for, against and abstaining
for each director are as follows:
DIRECTOR NAME FOR AGAINST ABSTAIN
Thomas M. Clarke 256,560.7324 3,939.0933
13,563.8056
Thomas A. White 256,560.7324 3,939.0933
13,563.8056
Grady P. Hunter 252,139,5817 3,939.0933
17,984.8056
F. Dale Markham 252,733.9666 7,799.0933
13,738.8056
Charles E. Trefzger 256,860.7324
3,939.0933 13,263.8056
The total votes cast for, against
and abstaining from the name change are
262,654.3007, 1,500.00 and 9,909.3306,
respectively. The total votes cast for,
against and abstaining from the selection of
accountants are 262,982.0556, 3,439.0933, and
7,642.4824, respectively.
PART II
ITEM 5. MARKET FOR TRUST'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Market Information; Disclosure Relating to Low
Price Stock
Healthcare Investors of America, Inc.
Common Stock is traded in the over-the-counter
market on an electronic bulletin board
established for securities that do not meet
the Nasdaq SmallCap Market listing
requirements or in what is commonly referred
to as the "pink sheets" under the symbol
"HCIV". As a result, holders of Common Stock
should expect to find it more difficult to
dispose of, or to obtain accurate quotations
on the price of the Common Stock..
Additionally, sales practice requirements are
imposed on broker-dealers who trade in the
Common Stock other than established customers
and accredited investors. For transactions
covered by this rule, the broker-dealer must
make a special suitability determination for
the purchaser and must receive the purchaser's
written consent to the transaction prior to
sale. Such burdens on trading in the Common
Stock should be expected to discourage active
trading which would reduce the liquidity of
the Common Stock and increase the spread
between the bid and ask prices quoted by these
broker-dealers, if any, which quote the Common
Stock. The Trust has selected S. W. Ryan &
Company as market makers for its shares.
Based on representations made to the
Advisor by the transfer agent of the shares of
the Trust, no sales occurred during 1996, 1995
and 1994.
Holders
As of March 15, 1997, there were 397,600
shares of Common Stock outstanding, which were
owned by approximately 400 holders of record.
Dividends
The Trust last declared dividends on the
Common Stock in the amount of $0.06 per share
in May, 1992. Unless property sales or leases
are made in 1997 which result in receipt by
the Trust of sale or lease proceeds, there
will not likely be cash available for
distributions for purposes of declaring and
paying any dividends in 1997. Under the Code
a REIT must meet certain qualifications,
including a requirement that it distribute
annually to its stockholders at least 95% of
its taxable income as that term is defined in
Part II, Subchapter M, of Chapter 1 of the
Code and regulations and rulings promulgated
thereunder. The Trust intends to distribute
quarterly or more frequently to its
stockholders on a pro-rata basis substantially
all cash available for distribution. The
Trust anticipates that such cash distributions
will aggregate annually at least 95% of its
REIT taxable income.
Currently, the Advisor together with its
independent accountants are evaluating the
Trust's compliance with the provisions of the
Code, Treasury Regulations and other relevant
laws pertaining to requalification of the
Trust as a REIT. See Item 1: Business,
General Development of Business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
General
The following discussion and analysis
should be read in conjunction with the
Financial Statements and Notes thereto
appearing elsewhere herein.
Results of Operations
Fiscal Year Ended December 31, 1996 Compared
to Year Ended December 31, 1995
For the year ended December 31, 1996, the
Trust had a net loss of $104,790, or $0.26 per
share, as compared to net income of $183,026,
or $0.46 per share for 1995.
Revenues. The Company primarily derives
its revenues from the leasing of facilities to
Healthcare providers. Revenues for the year
ended December 31, 1996 were $759,220, a
decrease of $174,419 or 18.7% from revenues of
$933,639 for the year ended December 31, 1995.
The decrease in revenues was primarily the
result of the loss of lease revenues
associated with an unoccupied property.
Depreciation and Amortization.
Depreciation and amortization expense for the
year ended December 31, 1996 was $155,554 a
decrease of $18,071 or 10.4% from $173,625 for
the year ended December 31, 1995. This
decrease in depreciation and amortization
expense is primarily the result of certain
assets becoming fully depreciated.
Interest Expense. For the year ended
December 31, 1996, interest expense totaled
$508,740 an increase of $39,329 or 8.4% from
$469,411 for the year ended December 31, 1995.
This increase is the result of an increase in
the mortgage rate on certain loans effective
in the 1st quarter of 1996.
Advisor and Directors Fees. Advisor and
directors fees consist of costs associated
with the advisor and directors of the Company.
Advisor and directors fees for the year ended
December 31, 1996 were $63,872, an increase of
$40,345 or 171.5% from $23,527 for the year
ended December 31, 1995. The increase was
primarily attributed to the reversal in 1995
of previously accrued directors fees.
Other Expenses. Other expenses for the
year ended December 31, 1996 were $135,844 an
increase of $51,788 or 61.6% from $84,056 for
the year ended December 31, 1995. This
increase is primarily the result of costs
associated with utilities and contract
services related to an unoccupied facility
totaling $46,650 for the year ended December
31, 1996 as compared to $0 for the same period
in 1995.
Other Matters. The Trust adopted the
provisions of Statement on Financial
Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed
of". The adoption of SFAS 121 did not have a
material effect on the Trust's financial
statements because the Trust had previously
recorded writedowns of property carrying
amounts to net realizable value.
Liquidity
At December 31, 1996 the Trust had
negative working capital of $4,917,000. Cash
decreased from $198,061 at December 31, 1995
to $166,959 at December 31, 1996. Rent and
other receivables decreased from $77,796 at
December 31, 1995 to $60,309 at December 31,
1996. This decrease was primarily the result
of collections of long-term notes receivable.
Building and improvements net, decreased from
$4,509,692 at December 31, 1995 to $4,359,998
at December 31, 1996. This decrease was
primarily the result of the depreciation of
the Company's Healthcare properties. Mortgage
notes payable decreased from $5,068,685 at
December 31, 1995 to $4,971,910 at December
31, 1996. This decrease was primarily the
result of payments of principal on mortgaged
property. Distributions in excess of net
earnings increased by $104,790 from
$(3,642,580) at December 31, 1995 to
$(3,747,370) at December 31, 1996. This
increase is the result of the net loss in
1996.
The Trust has relied solely on rental
income to pay its expenses in 1996 and 1995.
Cash flows provided by operations were $2,787
in 1996 and $337,660 in 1995.
The above discussion and 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. The Trust has three
properties remaining, two of which are under
lease, thus limiting cash flows available to
pay operating expenses. Mortgage notes
payable on the Trust's properties mature on
June 20, 1997. The lender has not demanded
payment on these notes and has not notified
the Trust of an event of default or of
foreclosure proceedings. The Current maturity
of all of the Trust's notes payable,
accumulated recurring operating losses and the
carrying costs of unleased assets raise a
substantial doubt about the Trust's ability to
continue as a going concern for a reasonable
period of time.
Management's plans include continuing to
seek sources to refinance the mortgage notes
payable, developing alternative uses to retain
the economic viability of the Colorado
Properties, and minimizing operating costs.
Management is currently negotiating with a
third party for a new debt agreement to
refinance the mortgage notes payable. In
connection with the proposed refinancing, it
is likely that a new entity controlled by two
of the Trust's directors would assume the
lease for the Florida Property. In the event
this negotiation is unsuccessful, Trust
management believes that the Trust will be
successful in obtaining other sources of
financing. In addition, Trust management
believes that the mortgage note lender will
not demand payment prior to the successful
completion of the refinancing transaction.
Trust management is currently evaluating
possible alternative uses for the Colorado
Properties. The Trust has evaluated the
realization of the Colorado Properties using
appraisals as vacant facilities and the
exploration of alternative uses.
The Advisor is currently evaluating the
Trust's compliance with the provisions of the
Internal Revenue Code (the "Code"), Treasury
Regulations and other relevant laws pertaining
to the qualification of the Trust as a real
estate investment trust ("REIT"). In the
event it is determined that the Trust did not
qualify as a REIT, it would be taxable as a C
corporation under the Code. However, as a
taxable corporation, the Trust would not owe
any current tax or tax for prior years due to
its net operating loss carryovers. Therefore,
no adjustment would be required to the
historical financial statements related to any
tax provision.
The Advisor and its independent
accountants intend to assist the Trust in
determining the best method to clarify its tax
status. The Advisor and the Trust's
independent accountants are reviewing various
alternatives, including having the Trust
obtain a tax opinion as to its status,
requesting a determination letter from the
Internal revenue service and evaluating the
applicability of reelecting status as a REIT.
If a determination is made that the Trust does
not qualify as a REIT for the purposes of the
Code, the Advisor intends to assist the Trust
in implementing procedures to requalify the
Trust.
There can be no assurance that the
Trust's refinancing efforts will be successful
or that the bank will not demand payment of
the mortgage notes payable.
The Trust also anticipates reviewing and
evaluating other properties for possible
investment opportunities. However, the
Trust's efforts are limited by the resources
available and the Trust's ability to raise
additional resources.
Much national attention is currently
focused on Healthcare reform. Although there
is concern as to the status of reimbursement
programs on which the Trust indirectly relies
for its rental income, management believes the
long term care industry will benefit from any
significant Healthcare reform.
ITEM 7. FINANCIAL STATEMENTS
The financial statements are listed under
Item 13: Exhibits and Reports on Form 8-K.
Such financial statements are included herein
beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 18, 1996, the Trust dismissed
its principal accountant, La Voie, Clark,
Charvoz & May, PC. La Voie, Clark, Charvoz &
May, PC. reports on the Trust financial
statements for the past two years did not
contain an adverse opinion or disclaimer of
opinion, nor were they qualified as to audit
scope or accounting principles, but contained
an explanatory paragraph related to the
Trust's ability to continue as an ongoing
concern. The dismissal was recommended and
approved by the Board of Directors of the
Trust. There were no disagreements (as
defined by Item 304 of Regulation S-K) between
the Trust and La Voie, Clark, Charvoz & May,
P.C. in the two most recent fiscal years and
in the subsequent interim period regarding
accounting principles or practices, financial
statement disclosures or auditing scope or
procedures.
On December 18, 1996, the Trust engaged
the auditing firm of Arthur Andersen LLP to
serve as the Company's independent auditors
and to audit the Company's financial
statements for the fiscal year ended December
31, 1996.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16 (a) OF THE EXCHANGE
ACT
Directors
Information with respect to the Company's
directors is set forth below.
Director
Name Age Position Presently Held
Since
Thomas M Clarke 41 Director, President &
CFO 1996
F. Dale Markham 67 Director, Chairman of
the Board
1987
Grady P. Hunter (1) 63 Director
1987
Charles Trefzger, Jr. 38 Director
1996
(1)
(1) Non-officer
General
The Directors of the Trust are
responsible for the management and control of
the affairs of the Trust but have retained the
Advisor to, among other things, locate,
investigate, evaluate, and recommend real
property and mortgage loan investment
opportunities for the Trust. The Advisor also
serves as a consultant in connection with the
investment policy decisions made by the
Directors and supervises, subject to direction
of the Directors, the day-to-day operations of
the Trust. The By-laws of the Trust provide
that a majority of the Trust's Directors must
be unaffiliated with the Advisor and its
affiliates ("Unaffiliated Directors"). The
remaining Directors may be affiliates of the
Trust ("Affiliated Directors"). Further, the
By-laws provide that the Trust should have
five directors; however, at this time, no
qualified or willing persons to become
directors have been located. Thomas M.,
Clarke, as President of the Trust, is an
Affiliated Director. Presently, the Trust has
four directors, three of whom may be
considered Unaffiliated Directors.
Officers and Directors of the Trust
The Directors and principal officers of
the Trust and their principal occupations and
other affiliations during the past five years
or more, unless otherwise stated, are as
follows:
Thomas M. Clarke has been the President
and Chief Financial Officer of Stockbridge
Investment Partners, Inc. since 1991. Mr.
Clarke has over 16 years of experience in the
Healthcare industry and has held positions
with public and private Healthcare
organizations. From May 1987 until founding
Stockbridge in 1991, Mr. Clarke was Treasurer
and Chief Financial Officer of Berkshire
Health Systems, Inc., a Pittsfield
Massachusetts based diversified Healthcare
company. Mr. Clarke is a Fellow in the
Healthcare Financial Management Association.
Mr. Clarke is a graduate of the University of
Maine and completed his Masters in Science in
Business at Hudson College.
Grady P. Hunter has served as a Director
of the Trust since its formation in 1987. Mr.
Hunter has been Executive Vice President and
Chief Operating Officer of RSI, Inc. and
similarly of RSI Properties, Inc. both
headquartered at 5700 Corporate Drive,
Pittsburgh, PA, since October, 1995. These
companies are engaged in a national effort to
develop and operate programs and facilities
serving frail, chronically impaired elderly in
an assisted living setting. Mr. Hunter was
Senior Vice President and Chief Operating
Officer of Lutheran Affiliated Services, Inc.
in Mars, Pennsylvania ("LAS") from April 1991
to 1995. LAS is one of the oldest and largest
owners and operators of skilled nursing
facilities, specialized care programs and
residential care communities for the elderly
in Western Pennsylvania. From January, 1988
until April, 1991, Mr. Hunter served as
Executive Vice President and Chief Operating
Officer of Retirement Systems, Inc., a firm
engaged in developing facilities and programs
and consulting with developers and operators
of long term care and assisted living
facilities for the frail elderly. Mr. Hunter
served as Executive Vice President and
division Chief Executive Officer for Stanley
Smith Security, Inc. ("Smith") from 1973 to
1987. "Smith" is one of the top ten
international contract and consulting services
companies providing electronic,
transportation, security, manpower and
facility operations support services.
F. Dale Markham has served as Chairman of
the Board of the Trust since May 16, 1991. He
formerly served as Vice President and
Secretary, and has been a Director of the
Trust since its inception in 1987. From 1991
until his retirement effective December 31,
1994, he was a Mortgage Banking Consultant and
Founder of the Real Estate Financing Division
of Wardon Financial Corporation, a mortgage
banking firm located in Phoenix, Arizona.
From 1982 through 1990, he was President, a
Director, and a Principal Stockholder of
Markham, Sellers & Mony, Inc., a mortgage
banking firm which was the original managing
general partner of the previous Advisor and a
Sponsor of the Trust. Mr. Markham served as
President of Western American Financial
Corporation, a mortgage banking firm, from
1974 to 1982. He has been involved in
mortgage banking and real estate activities
since 1957.
Mr. Markham was discharged from a Chapter
7 bankruptcy in July of 1991. His bankruptcy
had no material impact on his ability to
properly discharge his duties as an officer
and director.
Linda M. Clarke has been Treasurer of
Stockbridge since 1991. Mrs. Clarke has over
seven years experience in the Healthcare
industry. In addition to her position with
Stockbridge, Mrs. Clarke was previously
employed by the Houlton Regional Hospital
Development Office and participated in various
fundraising activities. Mrs. Clarke attended
the University of Maine and was previously
employed by the Maine School Administrative
District #29 for 5 years. She continues to be
Treasurer of Stockbridge Investment Partners,
Inc. as well as Treasurer of several other
privately held Healthcare companies.
Charles Trefzger is the President of
Chancellor Health Services, a Healthcare
management company specializing in the long
term care industry. Through affiliated
entities, he owns fourteen nursing homes and
six assisted living facilities. Mr. Trefzger
was Corporate Counsel for Smith/Packett Med-
Com from 1989 to 1986. From 1986 to 1988, Mr.
Trefzger was Corporate Counsel to Brian Center
Management Corporation. Mr. Trefzger is a
graduate of Virginia Commonwealth University
and holds a Juris Doctor from Wake Forest
University.
Officers and Directors of the Advisor
On November 1, 1996, the Trust entered
into a contract with Lenox Healthcare Capital
Services, LLC. Mr. and Mrs. Thomas M. Clarke
own 50% of Lenox The other 50% of Lenox is
owned by entities affiliated with James R.
Sellers, formerly affiliated with the previous
advisor. The goal of the advisory company is
to assist the Trust in its intended growth.
In addition to Thomas M. Clarke and Linda M.
Clarke who are President and Secretary
respectively of Lenox, the following persons
either serve with Lenox or the previous
advisor.
James R. Sellers, age 63, is the
President and sole stockholder of Heritage
Advisory Corporation ("Heritage"), an
affiliate of the Advisor.
Heritage had been the Managing General
Partner of the Advisor since July, 1990, when
it succeeded Markham, Sellers & Mony, Inc.
("MSM"). Effective November 1, 1996, the
Trust entered into an agreement with Lenox
(the Advisor). Mr. Sellers has been Senior
Vice President of Keystone Capital Group,
Inc., an Arizona based mortgage banking firm
since May, 1993. Mr. Sellers was Senior Vice
President of Catalina Mortgage Company, also
an Arizona based mortgage banking firm, from
July, 1990 until May, 1993. From 1982 to
1990, he served as Executive Vice President, a
director, and a principal stockholder of MSM,
the original Managing General Partner of the
previous Advisor. From 1974 until 1978, he
served as a Vice President and thereafter
until 1982 as Senior Vice President of Western
American Financial Corporation, a mortgage
banking firm, where he supervised income
property lending staffs throughout the western
United States.
Mr. Sellers filed a voluntary petition
for protection against creditors under Chapter
7 of the Bankruptcy Code in the United States
Bankruptcy Court, District of Arizona, on
March 26, 1991. He was discharged from this
bankruptcy in July of 1991. His bankruptcy
had no material impact on his ability to
properly discharge his duties as an officer
and director of the Advisor nor to manage the
day-to-day affairs of the Trust.
Edward L. Turney, age 59, is the
Secretary/Treasurer and a director of Health
Concepts Advisory Company ("HCAC"), the other
general partner with Heritage of the former
advisor to the Trust. He served as President,
Treasurer and a Director of the Trust from its
inception until his resignation on May 16,
1991. Mr. Turney has been the President, a
director, and a principal stockholder of HCC,
a sponsor of the Trust, since it was founded
by him in 1983. Effective December 30, 1996,
HCAC withdrew as a general partner of the
previous advisor.
ITEM 10. EXECUTIVE COMPENSATION
Set forth below is information concerning
the annual compensation for services in all
capacities to the Registrant of the President
and Treasurer of the Trust for the last three
fiscal years ending December 31, 1996. F.
Dale Markham, former President and Treasurer
of the Trust, was the only executive officer
of the Trust compensated by the Trust for
services rendered to the Trust during the
fiscal years ended December 31, 1996, 1995 and
1994, respectively.
SUMMARY COMPENSATION TABLE
Annual Compensation
Total
Name and Principal Position Year
Compensation
Thomas M. Clarke, President, Chief Financial
1996 0
Officer and Director
F. Dale Markham, Chairman of the Board
and Director 1996 $16,000 accrued,
$21,500 paid
1995 $17,800
accrued,
$10,000 paid
1994
$19,300 accrued,
$4,000 paid
___________________________
(1) Includes director's fees payable annually
in the amount of $11,000 per year and
additional compensation for additional time
contributed ("Special Fees").
The Trust paid or accrued annual
directors fees of $11,000 each to the
Directors in 1996, plus a fee of $800 for each
Directors' meeting attended in person. In
1996, $11,000 in accrued Director's fees and
$10,500 in accrued Special Fees have been paid
to Mr. Markham.
The Trust may pay officers whose only
affiliation is a result of being an officer of
the Trust. The Trust is not required to pay
any compensation to officers and directors of
the Trust who are also affiliated with the
Advisor or its affiliates. Although directors
and officers affiliated with the Advisor are
compensated indirectly by their relationship
to the Advisor and its affiliated companies,
the Trust agreed to pay Mr. Sellers' company,
Heritage Advisory Corporation, the former
advisor, the sum of $3,000 per month beginning
May 1, 1992, for an indefinite period. Mr.
Sellers voluntarily reduced the monthly
payment to $2,000 per month beginning August
1, 1993; to $1,600 per month beginning
November, 1993; and to $1,000 per month
beginning April 1, 1994 which continued to
October 31, 1996 after which it ceased. See
Item 12: Certain Relationships and Related
Transactions.
No other direct compensation was paid or
payable by the Trust during the fiscal year
ended December 31, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of
April 29, 1997, the number and percentage of
outstanding shares of Common Stock
beneficially owned by each person known by the
Trust to own beneficially more than five
percent (5%) of the Trust's outstanding shares
of Common Stock, by each director of the
Trust, and by all directors and officers of
the Trust as a group.
Amount and Nature of
Name of Beneficial Owner Beneficial
Ownership
Lenox Healthcare, Inc. 2,500
Shares (1) *%
Harbor American Capital Group, 20,000
Shares (2) 5.03%
A California Limited Partnership
Herbert W. Owens 40,000 Shares
10.06%
Grady P. Hunter (3)
XXX
F. Dale Markham (2)
XXX
James R. Sellers (2)
XXX
Edward L. Turney (2)
XXX
All Directors and Officers (1) and (2)
XXX
* Less than 1%
(1) The address of the individual is Lenox
Healthcare Capital Services, LLC, 75 South
Church Street, Suite 650, Pittsfield, MA
01201.
(2) The previous Advisor owns of record
and beneficially 20,000 shares of Common
Stock. The former managing general partner of
the Advisor, MSM, and HCAC, one of the current
general partners, Health Concepts Corporation
("HCC") (the sole shareholder of HCAC) and
each of the former officers, directors and
principal shareholders of MSM (F. Dale
Markham, Marvin Mony and James R. Sellers) and
HCC (Edward L. Turney) may also be deemed to
be beneficial owners of the shares of Common
Stock owned of record by the previous Advisor.
(3) The previous Advisor agreed to distribute
to an Unaffiliated Director, as additional
compensation, 1,000 shares of Trust Common
Stock for each of the first three fiscal years
of the Trust. As of the date hereof, the
previous Advisor has neither purchased any
such shares from the Public Offering nor has
it purchased such shares from broker dealers
since the termination of the Public Offering.
Discussions between the previous Advisor and
the Unaffiliated Director have been held as to
the elimination of this distribution to the
Unaffiliated Director; however, no final
agreement has been reached with respect to
this form of compensation.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The information set forth below
summarizes certain transactions between the
Trust and its directors and/or five percent
(5%) shareholders during fiscal year 1996.
The former managing general partner of the
previous Advisor (MSM), former general partner
of the Advisor HCC (the sole shareholder of
HCAC); and each of the principal shareholders
of MSM (F. Dale Markham, Marvin Mony and James
R. Sellers); and present officer, director and
shareholder of HCC (Edward L. Turney); and of
Heritage (James R. Sellers); may be deemed to
be the beneficial owners of more than 5% of
the shares of Common Stock of the Trust.
Acquisition Fees
The Advisor receives acquisition fees
with respect to each real property purchased
by or on behalf of the Trust, equal to up to
5% of the contract price for the property. No
such properties were purchased during 1996 and
therefore no acquisition fees were paid.
Advisory Fee
During the fiscal year ended December 31,
1996, the Trust paid Advisory Fees to the
previous Advisor in the amount of $23,000 and
$5,000 to Lenox, the current advisor. James
R. Sellers is the owner of Heritage which is
the managing general partner of the previous
advisor and a 35% owner of Lenox. Further, he
is the owner of BHS, which serves as lessee of
the Florida Property. During 1996, BHS paid
lease rentals of $463,915 to the Trust.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
Index of Financial Statements
The following financial statements of
Healthcare Investors of America, Inc. are
included.
Report of Independent Public Accountants -
Year Ended December 31, 1996. F-1
Independent Auditor's Report - year ended
December 31, 1995. F-2
Balance sheets - December 31, 1996 and 1995.
F-3
Statements of operations - years ended
December 31, 1996 and 1995. F-4
Statements of cash flows - years ended
December 31, 1996 and 1995. F-5
Notes to financial statements - December 31,
1996. F-6
Reports on Form 8-K
On December 18, 1996, the Trust filed
Form 8-K regarding a change in the Company's
name and principal accountant and the election
of new officers and directors to the Trust.
Exhibits
See attached list of Exhibits.
SIGNATURES
In accordance with Section 13 or 15(d) of
the Exchange Act the Registrant has duly
caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: May 2, 1997 HEALTHCARE INVESTORS
OF AMERICA, INC.
BY:___________________________________________
__
Thomas M. Clarke,
Director,
President and Chief Financial
Officer
(Principal Executive,
Financial and
Accounting Officer)
In accordance with the Exchange Act, this
report has been signed below by the following
persons on behalf of the Registrant in the
capacities and on the dates indicated.
Dated: May 2, 1997
BY:___________________________________________
__
Thomas M. Clarke,
Director,
President and Chief
Financial
Officer
(Principal Executive,
Financial and
Accounting Officer)
Dated: May 2, 1997
BY:___________________________________________
__
F. Dale Markham,
Chairman of the Board
(Principal
Executive, Financial
and Accounting Officer)
Dated: May 2, 1997
BY:___________________________________________
__
Grady P. Hunter,
Director
Supplemental Information to be Furnished With
Reports Filed Pursuant to Section 15(d) of the
Exchange Act by non-reporting issuers.
No annual report or proxy material has
been sent to the Trust's stockholders. An
annual report and proxy material will be sent
to the Trust's stockholders subsequent to the
filing of this Form 10-KSB. The Trust shall
furnish to the Securities and Exchange
Commission four copies of any annual report or
proxy material that is sent to the Trust's
stockholders.
SIGNATURES
In accordance with Section 13 or 15(d) of
the Exchange Act the Registrant has duly
caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: May 2, 1997 HEALTHCARE INVESTORS
OF AMERICA, INC.
BY: /s/ Thomas M. Clarke
Thomas M. Clarke,
Director,
President and Chief Financial
Officer
(Principal Executive,
Financial and
Accounting Officer)
In accordance with the Exchange Act, this
report has been signed below by the following
persons on behalf of the Registrant in the
capacities and on the dates indicated.
Dated: May 02, 1997 BY: /s/ Thomas M.
Clarke Thomas
M. Clarke,
Director, President and Chief
Financial Officer
(Principal Executive,
Financial and
Accounting Officer)
Dated: May 02, 1997 BY: /s/ F. Dale Markham
F. Dale Markham,
Chairman of the Board
(Principal Executive, Financial
and Accounting Officer)
Dated: May 02, 1997 BY: /s/ Grady P. Hunter
Grady P. Hunter,
Director
Supplemental Information to be Furnished With
Reports Filed Pursuant to Section 15(d) of the
Exchange Act by non-reporting issuers.
No annual report or proxy material has
been sent to the Trust's stockholders. An
annual report and proxy material will be sent
to the Trust's stockholders subsequent to the
filing of this Form 10-KSB. The Trust shall
furnish to the Securities and Exchange
Commission four copies of any annual report or
proxy material that is sent to the Trust's
stockholders.
3.2* Articles of Amendment and Restatement
of Trust filed as Exhibit 3.1 to Pre-Effective
Amendment No. 1 to the Trust's
Registration Statement on Form S-11
(Registration No. 33-11863) filed June 2,
1987
3.3* Third Amended and Restated Bylaws of
Trust filed as Exhibit 3.2 to Form 10K
filed March 30, 1988
10.1*Advisory Service Agreement dated as of May 1
8, 1988 between the Trust and Harbor
American Capital Group, a California
Limited Partnership ("HACG") filed as exhibit
10.1 to Pre- Effective
Amendment No. 1 to the Trust's Registration
Statement on Form S-11 (Registration No. 33-
11863) filed June 2, 1987
10.2*Advisory Service Agreement dated as of June
25, 1987 between HACG and Health
Concepts Advisory Company filed as Exhibit
10.2 to Form 10-K filed March 30, 1988
10.3*Advisory Service Agreement dated as of June
25, 1987 between HACG and Markham,
Sellers & Mony, Inc. filed as Exhibit 10.3
to Form 10-K filed March 30, 1988
10.9(a)*Dividend Reinvestment Agreement and Pl
an dated as of June 24, 1987 between the
Trust, Federated Transfer Agents, and LCS,
Inc. Company ("Federated") and HACG filed as
Appendix A to Pre-Effective Amendment No. 2 to
the Trust's Registration statement on Form S-
11 (Registration No. 33-11863) filed July
2, 1987
10.9(b)*Amendment to Dividend Reinvestment
Agreement and Plan dated as of December 11,
1987 between the Trust, Federated and HACG
filed as Exhibit 10.9(b) to Form 10-K filed
on March 30, 1988
10.9(c)*Second Amendment 1, 1987 between the
Trust, Federated and HACG (filed as Amendment
to Appendix "A" to the Prospectus and
incorporated by reference)
10.10*Warrant Agreement dated as of July 8, 1987
between the Trust and Federated filed as
Exhibit 10.10 to Form 10-K filed on March
30, 1988
10.11* Agreement between HACG and the Trust
filed as Exhibit 10.12 to Pre-Effective
Amendment No. 2 to the Trust's Registration
Statement on Form S-11 (Registration No. 33-
11863) filed July 2, 1987
10.12*Master Facility Lease Agreement dated as o
f March 1, 1988 between the Trust and HCC-
Bayshore Convalescent Center, Inc. ("HCC-
Bayshore") filed as Exhibit 10.12 to Form 10-K
filed on March 30, 1988
10.13*Security Agreement dated as of March 1, 19
88 between the Trust and HCC-
Bayshore filed as Exhibit 10.13 to Form 10-K
filed March 30, 1988
10.14*Loan Agreement dated as of March 1, 1988 b
etween the Trust and Citizens Fidelity Bank &
Trust Company ("Citizens") filed as
Exhibit 10.14 to Form 10K filed on March 30,
1988
10.15*Addendum to Loan Agreement dated as of Mar
ch 1, 1988 between the Trust and
Citizens filed as Exhibit 10.15 to Form 10- K
filed on March 30, 1988
10.16*Promissory Note dated as of March 1, 1988
between the Trust and Citizens filed as
Exhibit 10.16 to Form 10-K filed on March
30, 1988
10.17*Assignment of HCC-Bayshore Security Agreem
ent dated as of March 1, 1988 between the
Trust and Citizens filed as Exhibit 10.17
to Form 10-K filed on March 30, 1988
10.18* Mortgage dated as of March 1, 1988
between the Trust and Citizens filed as
Exhibit 10.18 to Form 10-K filed on March 30,
1988
10.19* Assignment of Leases and Rents dated
as of March 1, 1988 between the Trust and
Citizens filed as Exhibit 10.19 to Form 10- K
filed on March 30, 1988
10.20* Supplement to Assignment of Leases
and Rents dated as of March 1, 1988 between
the Trust and Citizens filed as Exhibit
10.20 to Form 10-K filed on March 30, 1988
10.21* Real Property Purchase Agreement
dated as of March 1, 1988 between the
Trust and Medical Resources Development
Corporation, a Florida corporation, filed as
Exhibit 10.24 to Post Effective Amendment
No. 1 to the Trusts Registration Statement
on Form S-11 (Registration No. 33-11863)
filed April 13, 1988
10.22* Indemnification Agreement dated
March 9, 1988 between the Trust and HCC-
Bayshore, filed as Exhibit 10.25 to Post
Effective Amendment No. 1 to the Trusts
Registration Statement on Form S-11
(Registration No. 33-11863) filed April 13,
1988
10.23* Real Property Purchase Agreement
dated as December 27, 1989 by and among (I)
HCC-Country View Care Center, Inc. ("HCC-
Country View"). a Kentucky corporation; (ii)
HCC-New Life Care Center, Inc. ("HCC-New
Life") a Kentucky corporation
(collectively HCC-Country View and HCC New
Life are referred to as the Sellers");
(iii) the Trust; and (iv) HACG, and exhibits
thereto
10.24* Master Facility lease dated as of
December 27, 1989 between the Trust and
HCC- Country View
10.25* Master Facility lease dated as of
December 27, 1989 between the Trust and
HCC-New Life
10.26* Master Facility lease dated as of
December 27, 1989 between the Trust and
Citizens
10.27* Amended and Restated Promissory Note
dated as of December 27, 1989 from the
Trust to Citizens
10.28* Assumption Agreement and Amendment
of Deeds of Trust and Security Agreement
dated as December 27, 1989 by and among
(i) The Trust (ii) Citizens; (iii) HCC-
Country View and(iv) HCC- New Life
10.29* Supplement to Assignment of Leases
and Rents (Country View) dated as of
December 27, 1989 from the Trust to Citizens
10.30* Supplement to Assignment of Leases
and Rents (New Life) dated as of December
27, 1989 from the Trust to Citizens
10.31* Second CV Note dated as of December
27, 1989 from the Trust to HCC-Country View
10.32* Second NL Note dated as of December
27, 1989 from the Trust to HCC-Country View
10.33* Second deed of Trust dated as of
December 27, 1989 from the Trust for the
benefit of Sellers
10.34* Third CV Note dated as of December
27, 1989 from the Trust to HCC-Country View
10.35* Third NL Note dated as of December
27, 1989 from the Trust to HCC-New Life
10.36* Third Deed of Trust dated as of
December 27, 1989 from the Trust for the
benefit of HCC-Country View
10.37* Third Deed of Trust dated as of
December 27, 1989 from the Trust for the
benefit of HCC-New Life
10.38* Country View Security Agreement
dated as of December 27, 1989 from HCC
Country View to the Trust
10.39* New Life Security Agreement dated as
of December 27, 1989 from HCC New Life to
the Trust
10.40* Collateral Assignment of Notes and
Loan Documents dated as of December 27,
1989 from the Sellers to Citizens
10.41* Collateral Assignment of Second Deed
of Trust dated as of December 27, 1989
from the Sellers to Citizens
10.42* Assignment of Country View Security
Agreement dated as of December 27, 1989
from the Trust to Citizens
10.43* Assignment of New Life Security
Agreement dated as of December 27, 1989
from the Trust to Citizens
10.44* Personal Property Purchase Agreement
dated as of April 17, 1989 between EMNH,
Inc., HCC-Marshall Manor Nursing Home, Inc.
and HCC, filed as Exhibit 10.45 to Form 10-K
filed April 1, 1991
10.45* Personal Property Purchase Agreement
dated as of April 17, 1989 between EMNH,
Inc., HCC-Eaton Manor Nursing Home, Inc.
and HCC, filed as Exhibit 10.45 to Form 10-K
filed April 1, 1991
10.46* Amendment to HCC-Eaton Purchase
dated as of October 6, 1989 between EMNH,
Inc., HCC-Eaton Manor Nursing Home, Inc.
and HCC, filed as Exhibit 10.46 to Form 10-K
filed April 1, 1991
10.47* Amendment to HCC-Marshall Purchase
dated as of October 6, 1989 between EMNH,
Inc., HCC-Eaton Manor Nursing Home, Inc.
and HCC, filed as Exhibit 10.47 to Form 10-K
filed April 1, 1991
10.48* Second Amendment to HCC-Eaton
Purchase dated as of December 28, 1989
between EMNH, Inc., HCC-Eaton Manor
Nursing Home, Inc. and HCC, filed as Exhibit
10.48 to Form 10- K filed April 1, 1991
10.49* Amendment to HCC-Marchall Purchase
Agreement dated as of December 28, 1989
between EMNH, Inc., HCC-Marshall Manor
Nursing Home, Inc. and HCC, filed as
Exhibit 10.49 to Form 10-K filed April 1,
1991
10.50* Master Facility lease dated as of
April 1, 1990 between the Trust and HCC-
Marshall Manor Nursing Home, Inc., filed as
Exhibit 10.50 to Form 10-K filed April 1, 1991
10.51* Master Facility Lease Agreement
dated as of April 1, 1990 between the
Trust and HCC-Eaton Manor Nursing Home, Inc.,
filed as Exhibit 10.51 to Form 10-K filed
April 1, 1991
10.52* Real Property Purchase Agreement
dated as of April 17, 1989 between Eaton
Investment Company and the Trust, filed as
Exhibit 10.52 to Form 10-K filed April 1,
1991
10.53* Real Property Purchase Agreement
dated as of April 17, 1989 between Calhoun
Investment Company and the Trust, filed as
10.54* Amendment to Real Property Purchase
Agreement dated as of April 17, 1989
between Eaton Investment Company and the
Trust, filed as Exhibit 10.54 to Form 10-K
filed April 1, 1991
10.55* Amendment to Real Property Purchase
Agreement dated as of April 17, 1989
between Calhoun Investment Company and
the Trust, filed as Exhibit 10.55 to Form 10-
K filed April 1, 1991
10.56* Second Amendment to Real Property
Purchase Agreement dated as of April 17,
1989 between Eaton Investments Company and
the Trust, filed as Exhibit 10.56 to Form 10-K
filed April 1, 1991
10.57* Second Amendment to Real Property
Purchase Agreement dated as of April 17,
1989 between Calhoun Investment Company
and the Trust, filed as Exhibit 10.57 to Form
10-K filed April 1, 1991
10.58* Promissory Note dated as of April 1,
1990 between the Trust and D & N for Eaton
Manor, filed as Exhibit 10.58 to Form 10-K
filed April 1, 1991
10.59* Promissory Note dated as of April 1,
1990 between the Trust and D & N for
Marshall Manor, filed as Exhibit 10.59 to Form
10-K filed April 1, 1991
10.60* Mortgage, Security Agreement,
Assignment of Rents, Leases, Guaranty and
Security Agreement and Financing Statement
dated as of April 1, 1990 between the Trust
and D & N for Eaton Manor, filed as
Exhibit 10.60 to Form 10-K filed April 1,
1991
10.61* Mortgage, Security Agreement,
Assignment of Rents, Leases, Guaranty and
Security Agreement and Financing Statement
dated as of April 1, 1990 between the Trust
and D & N for Marshall Manor, filed as
Exhibit 10.61 to Form 10-K filed April 1,
1991
10.62* Lease Guaranty and Subordination
dated as of April 1, 1990 from HCC and
Guarantors in favor of the Trust for Eaton
Manor, filed as Exhibit 10.62 to Form 10-K
filed April 1, 1991
10.63* Lease Guaranty and Subordination
dated as of April 1, 1990 from HCC and
Guarantors in favor of the Trust for Marshall
Manor, filed as Exhibit 10.63 to Form 10-K
filed April 1, 1991
10.64* Security Agreement dated as of April
1, 1990 between HCC- Eaton Manor and the
Trust, filed as Exhibit 10.64 to Form 10- K
filed April 1, 1991
10.65* Security Agreement dated as of April
1, 1990 between HCC- Marshall Manor and
the Trust, filed as Exhibit 10.65 to Form
10-K filed April 1, 1991
10.66* First Omnibus Amendment Agreement
dated as of September 1, 1991
between the Trust and Citizens filed as
Exhibit 10.66 to Form 10-K filed May 29,
1992
10.67* Promissory Note (Renewal) dated as
of September 1, 1991 from the Trust and
Citizens filed as Exhibit 10.67 to Form 10-K
filed May 29, 1992
10.68* Mortgage dated as of September 1,
1991 from the Trust and Citizens filed as
Exhibit 10.68 to Form 10-K filed May 29,
1992
10.69* Assignment of Leases and Rents dated
as of September 1, 1991 from the Trust and
Citizens filed as Exhibit 10.69 to Form
10-K filed May 29, 1992
10.70* Extension Agreement dated as of
September 1, 1991 between the Trust and
Citizens filed as Exhibit 10.70 to Form 10-K
filed May 29, 1992
10.71* Lease Effective as of September 1,
1992 between the Trust and Eaton Manor
Healthcare Services, Inc., filed as Exhibit
10.71 to Form 10-KSB filed on April 15,
1992
10.72* Lease Effective as of September 1,
1992 between the Trust and Marshall Manor
Healthcare Services, Inc., filed as Exhibit
10.72 to Form 10-KSB filed on April 15, 1993
10.73* Lease dated as of September 25, 1992
between the Trust and Res-Care, Inc. ("Res-
Care")(Country View), filed as Exhibit
10.73 to Form 10-KSB filed on April 15, 1993
10.74* Lease dated as of September 25, 1992
between the Trust and Res-Care, Inc. Res-
Care (New Life), filed as Exhibit 10.74
to Form 10-KSB filed on April 15, 1993
10.75* Second Omnibus Amendment Agreement
(Bayshore) effective as of December 4, 1992
between the Trust and Citizens filed as
Exhibit 10.75 to Form 10-K filed on April
15, 1993
10.76* Second Amendment to Mortgage and
Assignment of Leases and Rents (re:
Bayshore First Mortgage) effective as of
December 4, 1992 from the Trust to Citizens
filed as Exhibit 10.76 to Form 10-K filed
on April 15, 1993
10.77* Second Amendment to Loan Agreement
(Colorado Nursing Homes) dated as of
December 4, 1992 between the Trust and
Citizens filed as Exhibit 10.77 to Form 10-K
filed on April 15, 1993
10.78* Second Amendment to Loan Agreement
(Renewal and Increase) dated as of
September 20, 1992 from the Trust to Citizens
filed as Exhibit 10.78 to Form 10-K filed
on April 15, 1993
10.79* Second Extension Agreement (Weld
County Colorado) effective as of
December 4, 1992 between the Trust and
Citizens filed as Exhibit 10.79 to Form
10-K filed on April 15, 1993
10.80* First Amendment to Mortgage and
Assignment of Leases and Rents (re:
Bayshore Second Mortgage) effective as of
December 4, 1992 from the Trust to Citizens
filed as Exhibit 10.76 to Form 10-K filed
on April 15, 1993
10.81* Bill of Sale effective as of
December 4, 1992 from HCC-Country View
to the Trust filed as Exhibit 10.81 to Form 10-
K filed on April 15, 1993
10.82* Bill of Sale effective as of
December 4, 1992 from HCC-New Life to the
Trust filed as Exhibit 10.82 to Form 10-K
filed on April 15, 1993
10.83* Bill of Sale effective as of
December 4, 1992 from the Trust to Res-
Care, filed as Exhibit 10.83 to Form 10-K
filed on April 15, 1993
10.84* Promissory Note dated as of December
4, 1992 from Res-Care to the Trust, filed
as Exhibit 10.84 to Form 10-K filed on April
15, 1993
10.85* Security Agreement dated as of
December 4, 1992 from Res- Care to the
Trust filed as Exhibit 10.85 to Form 10-K
filed on April 15, 1993
10.86* Promissory Note dated as of December
4, 1992 from the Trust to Citizens filed as
Exhibit 10.86 to Form 10-K filed on April
15, 1993
10.87* Leases, as amended, dated as of
April 1, 1993 between the Trust and
Bayshore Healthcare Services, Inc., filed as
Exhibit 10.87 to Form 10-K filed on April
18, 1994
10.88* Second Supplement to Assignment of
Leases and Rents dated as of May 18, 1993
from the Trust to PNC Bank, Kentucky,
Inc. (f/k/a Citizens) ("PNC"), filed as
Exhibit 10.88 to Form 10-K filed April 18,
1994
10.89* Subordination of Security Interest
dated as of May 18, 1993 from the Trust
to PNC, filed as Exhibit 10.89 to Form 10-K
filed April 18, 1994
10.90* Agreement Concerning Interest
Arrearage dated as of May 20, 1993
between the Trust and PNC, filed as Exhibit
10.90 to Form 10-K filed April, 18, 1994
10.91* Purchase and Sale Agreement dated as
of March 4, 1994 between the Trust and
Marshall Healthcare Investors, L.P., a
Georgia Limited partnership, filed as Exhibit
10.91 to Form 10- K filed April, 18, 1994
10.92* Amendment to Promissory Note dated
as of October 31, 1994 between the Trust and
PNC
10.93* Third Extension of Leases and Rents
(re: Bayshore First Mortgage), dated as
of October 31, 1994 between the Trust and
PNC
10.94* Advisor Agreement dated November 1,
1996, between the Trust and Lenox Capital
Services, LLC ("Lenox") (the "Advisor")
27 Financial Data Schedule
*Incorporated by reference
EXHIBITS
TO
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR
HEALTHCARE INVESTORS OF AMERICA, INC..
FOR FISCAL YEAR ENDED
DECEMBER 31, 1996
HEALTHCARE INVESTORS OF AMERICA, INC.
Financial Statements
As OF December 31, 1996 And 1995
Together with Report of
Independent Public Accountants
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Healthcare Investors of America, Inc.:
We have audited the accompanying balance sheet
of HEALTHCARE INVESTORS OF AMERICA, INC., (a
Maryland Corporation) as of December 31, 1996,
and the related statements of income (loss)
(with reconciliation of distributions in excess
of net earnings), and cash flows for the year
then ended. These financial statements are the
responsibility of the Trust's management. Our
responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the
audit to obtain reasonable assurance about
whether the financial statements are free of
material misstatement. An audit includes
examining, on a test basis, evidence supporting
the amounts and disclosures in the financial
statements. An audit also includes assessing
the accounting principles used and significant
estimates made by management, as well as
evaluating the overall financial statement
presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all
material respects, the financial position of
Healthcare Investors of America, Inc. as of
December 31, 1996, and the results of its
operations and its cash flows for the year then
ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been
prepared assuming that the Trust will continue
as a going concern. As discussed in Note 1 to
the financial statements, the accumulated
recurring operating losses, the carrying costs
of unleased assets and the current maturity of
all of the Trust's notes payable raise a
substantial doubt about its ability to continue
as a going concern. Management's plans
concerning these matters are also described in
Note 1. The financial statements do not include
any adjustments that might result from the
outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
APRIL 28, 1997
F-1
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Harbor American Health Care Trust, Inc.
Tucson, Arizona:
We have audited the accompanying balance sheet
of HARBOR AMERICAN HEALTH CARE TRUST, INC. as of
December 31, 1995, and the related statements of
income (with reconciliation of distributions in
excess of net earnings), and cash flows for the
year then ended. These financial statements are
the responsibility of the Trust's management.
Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the
audit to obtain reasonable assurance about
whether the financial statements are free of
material misstatement. An audit includes
examining, on a test basis, evidence supporting
the amounts and disclosures in the financial
statements. An audit also includes assessing
the accounting principles used and significant
estimates made by management, as well as
evaluating the overall financial statement
presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all
material respects, the financial position of
Harbor American Health Care Trust, Inc. as of
December 31, 1995 and the results of its
operations and its cash flows for the year then
ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been
prepared assuming that the Trust will continue
as a going concern. As discussed in Note 1 to
the financial statements, the accumulation of
losses and carrying costs of an unleased
facility raise a substantial doubt about its
ability to continue as a going concern.
Management's plans concerning these matters are
also described in Note 1. The financial
statements do not include any adjustments that
might result from the outcome of this
uncertainty.
LAVOIE,
CLARK, CHARVOZ & MAY, P.C.
Tucson, Arizona
March 15, 1996
F -2
HEALTHCARE INVESTORS OF AMERICA, INC.
BALANCE SHEETS
As of December 31,
ASSETS 1996 1995
Real Estate Properties:
Land $466,301 $466,301
Buildings and improvements, net of
accumulated depreciation of 4,359,998 4,509,692
respectively
Loan costs, net - 5,860
Prepaid expenses 9,169 16,432
Rent and other receivables 60,309 77,796
Cash and cash equivalents 166,959 198,061
Total assets $5,062,736 $5,274,142
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Liabilities:
Mortgage notes payable $4,971,910 $5,068,685
Accounts payable and accrued 168,624 168,882
expenses
Deferred income 12,773 22,356
Total liabilities 5,153,307 5,259,923
Stockholders' Equity (Deficit):
Common stock, $.01 par value,
10,000,000 shares authorized,
397,600 shares issued and 3,976 3,976
outstanding
Paid-in capital 3,652,823 3,652,823
Distributions in excess of net
earnings (3,747,370) (3,642,580)
Total liabilities and stockholders'
equity (deficit) $5,062,736 5,274,142
The accompanying notes to financial statements are an
integral part
of these financial statements.
F-3
HEALTHCARE INVESTORS OF AMERICA, INC.
STATEMENTS OF INCOME (LOSS)
Years Ended December 31,
1996 1995
Revenues:
Rental $709,086 $ 911,512
Interest and other income 50,134 22,127
759,220 933,639
Expenses:
Depreciation and amortization 155,554 173,625
Interest expense 508,740 469,411
Advisor and directors fees 63,872 23,527
Other expenses 135,844 84,056
864,010 750,619
Net Income (Loss): $(104,790) $183,020
Net income (loss) per share $ (0.26) $ 0.46
Weighted average shares 397,600 397,600
outstanding
Reconciliation of
distributions in excess of
net earnings:
Beginning of year $(3,642,580) $ (3,825,600)
Net income (loss) (104,790) 183,020
End of year $(3,747,370) $ (3,642,580)
The accompanying notes to financial statements are an
integral part
of these financial statements.
F - 4
HEALTHCARE INVESTORS OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1996 1995
Cash Flows From Operations:
Net income (loss) $(104,790) $183,020
Adjustments to reconcile net loss to
net cash provided by (used for)
operating activities:
Depreciation and amortization 155,554 173,625
(Increase)/decrease in rent and
other receivables (45,399) 124,669
(Increase)/decrease in prepaid 7,263 (16,432)
expenses
(Decrease) in accounts payable
and accrued expenses (9,841) (127,222)
Net cash provided by 2,787 337,660
operating activities
Cash Flows From Investing Activities:
Proceeds from note receivable 62,887 -
Net cash provided by 62,887 -
investing activities
Cash Flows From Financing Activities:
Payments on mortgage notes payable (96,776) (228,412)
Increase in loan costs - (18,166)
Net cash used in financing
activities (96,776) (246,578
Increase (Decrease) in Cash And Cash (31,102) 91,082
Equivalents (31,102) 91,082
Cash And Cash Equivalents, Beginning 198,061 106,979
Of Year
Cash And Cash Equivalents, End Of Year $166,959 $198,061
Cash paid during the year for interest $507,295 $485,712
The accompanying notes to financial statements are an
integral part
of these financial statements.
F - 5
HEALTHCARE INVESTORS OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND BUSINESS
Healthcare Investors of America, Inc. (the
"Trust") changed its name from Harbor American
Health Care Trust, Inc. effective December 18,
1996. Effective November 1, 1996, the affairs of
the Trust are managed by Lenox Healthcare Capital
Services, L.L.C. (the "Advisor"). A director and
officer of the Trust own 50% of the advisor.
Prior to November 1, 1996, the affairs of the
Trust were managed by Harbor American Capital
Group, a California limited partnership (the
"Former Advisor"). The Trust engages in leasing
health care facilities (nursing homes and
intermediate care nursing facilities for the
mentally retarded, developmentally disabled) under
long-term leases. At December 31, 1996, the Trust
owns three nursing homes ("the Properties"), two
of which are located in Colorado ("the Colorado
Properties") and one in Florida ("the Florida
Property").
The Advisor is currently evaluating the
Trust's compliance with the provisions of
the Internal Revenue Code (the "Code"),
Treasury Regulations and other relevant
laws pertaining to the qualification of the
Trust as a real estate investment trust
("REIT"). In the event it is determined
that the Trust did not qualify as a REIT,
it would be taxable as a C corporation
under the Code. However, as a taxable
corporation, the Trust would not owe any
current tax or tax for prior years due to
its net operating loss carryovers.
Therefore, no adjustment would be required
to the historical financial statements
related to any tax provision.
The Advisor and its independent accountants
intend to assist the Trust in determining
the best method to clarify its tax status.
The advisor and the Trust's independent
accountants are reviewing various
alternatives, including having the Trust
obtain a tax opinion as to its status,
requesting a determination letter from the
Internal Revenue Service and evaluating the
applicability of reelecting status as a
REIT. If a determination is made that the
Trust does not qualify as a REIT for the
purposes of the Code, the Advisor intends
to assist the Trust in implementing
procedures to requalify the Trust.
F - 6
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. The Trust
has three properties remaining, two of which
are under lease, thus limiting cash flows
available to pay operating expenses. As
discussed in Note 4 of the financial
statements, mortgage notes payable on the
Trust's properties mature on June 20, 1997.
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 mortgage
notes payable, developing alternative uses
to retain the economic viability of the
Colorado Properties, and minimizing
operating costs. Management is currently
negotiating with a third party for a new
debt agreement to refinance the mortgage
notes payable. In connection with the
proposed refinancing, it is likely that a
new entity held by two of the Trust's
directors would assume the lease for the
Florida Property. In the event this
negotiation is unsuccessful, Trust
management believes that the Trust will be
successful in obtaining other sources of
financing. In addition, Trust management
believes that the mortgage note lender will
not demand payment prior to the successful
completion of the refinancing transaction.
Trust management is currently evaluating
possible alternative uses for the Colorado
Properties. The Trust has evaluated the
realization of the Colorado Properties,
including appraisals as vacant facilities
and exploring alternative uses.
The financial statements do not include any
adjustments relating to the recoverability
of the recorded asset amounts or the amount
of the liabilities that might be necessary
should the Trust be unable to continue as a
going concern.
F - 7
2.SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Cash and Cash Equivalents
For purposes of the statements of cash
flows, the Trust considers all short-term
debt securities purchased with a maturity
of three months or less to be cash
equivalents. Cash at December 31, 1996
includes $40,000 invested in 90 day U.S.
Treasury bills.
Buildings and Improvements
Depreciation of these assets is computed on the
straight-line method over the useful lives of
the assets, estimated to be 20 to 40 years.
The Trust has adopted Statement of Financial
Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed
of." In accordance with SFAS No. 121, the
Trust evaluates the carrying value of its
properties in light of each property's
operational profitability or disposal value if
appropriate.
Loan Costs
Deferred costs are being amortized on the
straight-line method over a 60 month period.
These costs were fully amortized at December
31, 1996.
Revenue Recognition
Rental income from operating leases is
recognized as earned over the life of the
lease agreements.
Income Taxes
As of December 31, 1996, the Company had net
operating loss carryforwards for income tax
purposes of approximately $394,000 which will
expire beginning in 2006. The Trust did not
file its applicable Federal and State income
tax return for the periods 1992 through 1996
on a timely basis. The Trust had cumulative
net operating losses during the periods from
1991 through 1996.
F - 8
The Advisor is currently evaluating the
Trust's compliance with the provisions of the
Code, Treasury Regulations and other relevant
laws pertaining to the qualification of the
Trust as a REIT. In the event it is
determined that the Trust did not qualify as a
REIT, it would be taxable as a C corporation
under the Code. However, as a taxable
corporation, the Trust would not owe any
current tax or tax for prior years due to its
net operating loss carryovers. Therefore, no
adjustment would be required to the historical
financial statements related to any tax
provision.
The Advisor and its independent accountants
intend to assist the Trust in determining the
best method to clarify its tax status. The
advisor is considering various alternatives,
including having the Trust obtain a tax
opinion as to its status, requesting a
determination letter from the Internal Revenue
Service and evaluating the applicability of
reelecting status as a REIT. If a
determination is made that the Trust does not
qualify as a REIT for the purposes of the
Code, the Advisor intends to assist the Trust
in implementing procedures to requalify the
Trust.
Fair Value of Financial Instruments
The carrying values of the financial
instruments disclosed elsewhere in these
notes, are deemed to be representative of
their fair values, as the interest rates
approximate market rates giving consideration
to their respective risks.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
recorded amounts of assets and liabilities and
disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of revenue
and expenses during the reported period.
Actual results could differ from those
estimates.
F -9
3. REAL ESTATE PROPERTIES AND LEASES
At December 31, 1996, the net book values of the
Properties are as follows:
Colorado Florida
Property Property Total
Land $73,106 $393,195 $466,301
Building and
improvements 3,673,784 4,683,317 8,357,101
Accumulated
depreciation (483,613) 1,022,490)(1,506,103)
Writedown to net
realizable value (2,491,000) - (2,491,000)
net carrying value $772,277 $4,054,022 $4,826,299
The carrying values of the Colorado Properties
were reduced in 1992 and 1993 to the amounts
expected to be realized upon disposition of the
properties. The Trust has evaluated the carrying
values of the Colorado Properties using
appraisals based on vacant facilities and the
realizable value upon the sale of the
properties. Management believes that the
remaining net carrying value of each of the
properties is realizable.
The Colorado Properties
One Colorado facility (Country View) is
currently vacant. The Trust is exploring
alternative uses for this property. The other
Colorado facility (New Life) is leased to Res-
Care, Inc. ("Res-Care"). The lease provides 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 the
facility. The annual base rent is currently
$150,000. This lease expires on March 31, 1998.
F - 10
New Life currently houses mentally retarded,
developmentally disabled ("MRDD") patients for
the State of Colorado. The State of Colorado
has interpreted certain federal guidelines
pertaining to the active treatment of MRDD
patients and has determined that the patients in
the New Life facility must be moved into private
housing. As a result, the Company expects the
MRDD patients to be removed from the New Life
facility prior to the end of the lease term.
The Trust is evaluating alternative uses for the
property, including assisted living or Alzheimer
facilities. Trust management believes that the
Trust will be able to convert the New Life
facility to other uses and realize the value of
the property.
The Florida Property
Effective May 1, 1993, management entered
into a five year operating lease with Bayshore
Healthcare Services, Inc. ("Lessee") for its
Florida Property. The Lessee has the option to
renew for an additional 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. Commencing January 1, 1995,
additional rents can be earned, equal to 5% of the
incremental net patient revenue increase over the
1994 base year. No additional rent has been
earned or paid to date.
Minimum Annual Lease Payments
Minimum annual lease payments expected to be
received by the Trust during the lease terms,
without considering lessee renewal options, are as
follows:
Florida Colorado
Property Properties Total
1997 $547,915 $ 149,275 $ 697,190
1998 182,600 37,319 219,919
$730,515 $ 186,594 $ 917,109
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.
F - 11
Sale of Michigan Properties
The Trust sold the Marshall Manor facility on
March 9, 1994. Included in the caption "Rent and
other receivables" is the discounted contract
balance of $18,404 at December 31, 1996 resulting
from the sale of the Marshall Manor facility. The
contract, requiring quarterly the caption "Rent
and other receivables" is the discounted contract
balance of $18,404 at December 31, 1996 resulting
from the sale of the Marshall Manor facility.
The contract requiring quarterly payments of
$18,750, matures in 1997. The note is
subordinated to other debt secured by the Marshall
Manor property.
4. MORTGAGE NOTES PAYABLE
Mortgage notes payable consists of:
December 31,
1996 1995
Bank mortgage note - Colorado
Properties, payable in
monthly installments,
including principal and
interest at 9.5% matures on -
June 20, 1997. $1,682,278 $1,673,977
Bank mortgage note - Florida
Property, payable in monthly
installments, including
principal and interest at
9.5% matures on June 20, 1997 3,289,632 3,394,708
Total, current debt $4,971,910 $5,068,685
Properties are secured by first mortgages,
assignments of the leases and rents thereunder.
The bank mortgage note on the Colorado Properties
is also secured, to the extent of $1,000,000, by a
second mortgage on the Florida Property
F - 12
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
As of December 31, 1996 and 1995, accounts
payable and accrued expenses consisted of the
following:
December 31,
1996 1995
Accounts payable $29,556 $
Accrued directors fees 55,134 58,800
Accrued property taxes 76,943 72,603
Total $168,624 $168,882
6. RELATED PARTY TRANSACTIONS
Effective November 1, 1996, the Trust entered
into an agreement with the Advisor to provide
various services to the Trust in exchange for
fees, as follows:
Advisory fees at an annual rate of
the greater of $30,000 or 5% of net income of the
Trust, as defined. The Trust incurred advisory
fees of $5,000 during 1996.
Fees related to specific
transactions including property acquisition,
property disposition, mortgage placement, mortgage
pool brokerage and mortgage servicing
are to be paid based upon contractual agreements
between the parties. The Trust has incurred no
such fees during 1996.
Prior to November 1, 1996, the Trust was a
party to an agreement with the Former Advisor to
provide various services to the Trust in exchange
for fees, as follows:
Advisory fees at an annual rate of
5% of average invested assets, as defined;
additional fees may be paid based on earnings.
The Trust incurred advisory fees of $23,000
and $27,000 during 1996 and 1995,
respectively.
Property management, acquisition
and disposition fees to be paid based upon
contractual agreements between the parties. The
Trust has incurred no such fees
during 1996 and 1995.
F - 13
Incentive advisory service fees,
payable annually in an amount equal to 5% of any
cash available for distribution to stockholders
for the fiscal year. The Trust did not make any
distributions to stockholders during 1995 and
1996. As a result, the Trust incurred no
incentive advisory fees for 1995 and 1996.
Mortgage servicing fees, at varying
rates dependent upon the types of loans serviced.
The Trust has incurred no mortgage servicing
fees to date.
During 1996 and 1995, the Trust paid $12,000
and $14,000, respectively, as compensation for
managing the affairs of the Trust to the President
and sole stockholder of Heritage Advisory
Corporation, the managing general partner of the
former Advisor who is also the sole stockholder of
the Lessee.
Leasing transactions with related parties are
described in Note 3.
In 1993, the 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 and
has been classified in the balance sheet as
deferred income.
On January 24, 1996, two members of the Board
of Directors waived previously accrued directors'
and special fees totaling approximately $77,000.
These amounts increased 1995 income by $77,000 or
$.19 per share.
F - 14
ARTICLES OF AMENDMENT
OF
HARBOR AMERICAN HEALTH CARE TRUST, INC.
Harbor American Health Care Trust,
Inc., a Maryland corporation (the
"Corporation") having its principal
office in Baltimore City, Baltimore,
Maryland, hereby certifies to the State
Department of Assessments and Taxation of
Maryland, that:
FIRST: The charter of the
Corporation is hereby amended by striking
out Article II of the Articles of
Incorporation, as heretofore amended and
restated, and inserting in lieu thereof
the following:
ARTICLE II
The name of the Corporation is HEALTHCARE
INVESTORS OF AMERICA, INC.
SECOND: The board of directors of
the Corporation on October 25, 1996, duly
adopted a resolution in which was set
forth the foregoing amendment to the
charter, declaring that said amendment of
the charter as proposed was advisable and
directing that it be submitted for action
thereon by the stockholders of the
Corporation at an annual meeting to be
held on December 18, 1996.
THIRD: Notice setting forth a
summary of the changes to be effected by
said amendment of the charter and stating
a purpose of the meeting of the
stockholders would be to take action
thereon, was given, as required by law,
to all stockholders entitled to vote
thereon. The amendment of the charter of
the Corporation has herinabove set forth
was approved by the stockholders of the
Corporation at said meeting by the
affirmative vote of two-thirds of all the
votes entitled to be cast thereon.
FOURTH: The amendment of the
charter of the Corporation hereinabove
set forth has been duly advised by the
board of directors and approved by the
stockholders of the Corporation.
FIFTH: The articles of amendment
shall become effective upon the filing of
these articles of amendment.
IN WITNESS WHEREOF, Harbor American
Health Care Trust, Inc. has caused these
presents to be signed in its name and on
its behalf by its President and witnessed
by its Secretary on the 18 day of
December, 1996.
HARBOR AMERICAN
HEALTH CARE TRUST,
INC.
By: /s/ Thomas
M. Clarke
President
Witness:
/s/ Linda M. Clarke
Secretary
THE UNDERSIGNED, President of Harbor
American Health Care Trust, Inc., who
executed on behalf of said Corporation
the foregoing Articles of Amendment, of
which this certificate is made a part,
hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing
Articles of Amendment to be the corporate
act of said Corporation and further
certifies that, to the best of his
knowledge, information and belief, the
matters and facts set forth therein with
respect to the approval thereof are true
in all material respects, under the
penalties of perjury.
/s/ Thomas M.
Clarke
President
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<PP&E> 8,823,402
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0
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<TOTAL-LIABILITY-AND-EQUITY> 5,062,736
<SALES> 709,086
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<CGS> 0
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<INCOME-PRETAX> (104,790)
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