FORM 10-KSB
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 12/31/98 OR
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 33-11863
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HEALTHCARE INVESTORS OF AMERICA, INC.
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(Name of small business issuer in its charter)
Maryland 86-0576027
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2990 N. Swan Road, Suite 228, Tucson, Arizona 85712
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(Address or principal executive offices)
Issuer's telephone number: (520) 326-2000
Securities registered under Section 12(b) of the Exchange Act:
Title of each class: None
Name of each exchange on which registered: None
Securities registered under Section 12(g) of the Exchange Act:
None (Title of Class)
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
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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, 1998
were $640,228.
The aggregate market value of the voting common stock, $.01 par
value ("Common Stock"), held by non-affiliates of the issuer as
of December 31, 1998 was $0. 397,600 shares of Common Stock
of the registrant were outstanding as of March 26, 1999.
Transitional Small Business Disclosure Format (check one):
Yes No X
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Total of sequentially numbered pages:
Exhibit Index on sequential page number:
<PAGE>
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 Healthcare Trust, Inc.
effective December 18, 1996. The principal office of the Trust
is located at 2990 North Swan Road, Suite 228, Tucson, Arizona
85712. The Trust's present advisor is Harbor American Capital
Group, a California limited partnership ("HACG" or the
"Advisor").
During a portion of 1998, the Trust owned the real property,
fixtures and improvements used in connection with the operation
of three long term care facilities located in Florida and
Colorado. These facilities include: Bayshore Convalescent
Center ("Bayshore" or the "Florida Property"), a 150-bed skilled
and intermediate care nursing home facility located in North
Miami Beach, Florida, which was acquired in March 1988; Country
View Care Center ("Country View"), an 87-bed intermediate care
nursing facility located in Longmont, Colorado, which was
acquired in December 1989; and New Life Care Center ("New Life"),
a 56-bed intermediate care nursing home facility located in
Greeley, Colorado, which was acquired in December 1989. Country
View and New Life are collectively referred to herein as the
"Colorado Properties."
At December 31, 1998, the Bayshore facility was leased to
Bayshore Healthcare Services, Inc., an Arizona corporation
("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. The terms of the lease with Res-Care provided 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. In April 1998, the
lease with Res-Care expired and shortly thereafter New Life
became an unoccupied facility. Country View was vacated by its
lessee on September 30, 1995, and remained unoccupied as of its
sale on July 24, 1998.
Trust management worked during 1998 to develop alternative
uses for Country View and New Life. Effective July 24, 1998, the
Trust sold Country View to William E. Harper ("Harper"), an
individual not affiliated with the Trust or its Advisor, for
$262,500 in accordance with the terms of Commercial Contracts to
Buy and Sell Real Estate (the "Country View Sales Contract"),
dated June 17, 1998, as amended. At closing on July 24, 1998,
the Trust received $80,000 in cash and is the payee of two
promissory notes (the "Harper Notes"), each dated July 24, 1998,
from Harper in the respective original principal amounts of
$100,000 and $82,500. The Harper Notes pay interest only at 9.5%
per annum until maturity on July 24, 2000. The Harper Notes are
secured by a Deed of Trust (the "Harper Mortgage"), dated July
24, 1998, from Harper for the benefit of the Trust, on the
Country View property. Pursuant to the Collateral Assignment of
Promissory Notes and Deeds of Trust (the "1998 Collateral
Assignment"), dated as of July 24, 1998, the Trust assigned the
Harper Notes and the Harper Mortgage to PNC Bank, National
Association, Louisville, Kentucky (the "Bank") as security for
the debt of the Trust owing to the Bank. At March 24, 1999, all
payments due under the Harper Notes are current.
After a number of attempts to privately negotiate a sale of
New Life, the Trust determined that a sale by advertised auction
was the best available method to relieve the Trust of the
financial burden of this property. Effective August 6, 1998, the
Trust sold New Life at auction to Continuum Health Partnership,
Inc. ("Continuum"), a Colorado corporation not affiliated with
the Trust or its Advisor, for $250,000 in accordance with the
terms of that certain Commercial Contract to Buy and Sell Real
Estate (the "New Life Sales Contract"), dated August 6, 1998. An
additional valuation reserve of $80,000 was accordingly
recognized as of December 31, 1997 to give effect to the further
impaired value of this property. The Trust received the sum of
$250,000 in cash at closing on August 24, 1998. The proceeds
from the sales of Country View and New Life did not satisfy the
outstanding debt related to these facilities.
Pursuant to separate letters of resignation, each dated
March 2, 1998, Thomas M. Clarke resigned as President, Chief
Executive Officer and Director of the Trust; Linda M. Clarke
resigned as Secretary of the Trust; John F. Lunt resigned as
Director of the Trust; and David Fancher resigned as Chief
Financial Officer of the Trust. The remaining members of the
Board of Directors, Messrs. Grady P. Hunter, F. Dale Markham and
Charles E. Trefzger voted to accept the resignations on March 19,
1998 at a meeting of the Board of Directors. As a result, two
vacancies in the Board of Directors exist.
At the same meeting of the Board of Directors, Mr. Markham
was elected to serve as Chairman, President and Chief Financial
Officer of the Trust and Joan M. Zeller was elected to serve as
Secretary of the Trust.
In connection with the accepted resignations, effective
March 1, 1998, the remaining members of the Board of Directors of
the Trust voted to terminate the Trust advisory contract with
Lenox Healthcare Capital Services, LLC ("Lenox"). The Trust then
entered into a two year contract for advisory services with HACG.
The general partner of HACG is Heritage Advisory Corporation
("Heritage"). The stock of Heritage is owned by James R.
Sellers, an affiliate of BHS, the successor lessee of Bayshore.
The Trust's continuing plan of operation for the 1999 fiscal
year (ending December 31, 1999) is as follows: The Trust intends
to own, lease, sell or auction Bayshore. 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, assisted living 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. Additionally, the Company's
mortgage notes payable matured on June 20, 1997 and the Bank
demanded payment in full by letter dated August 15, 1997. In
that connection, the Trust and the Bank entered into a
Forbearance Agreement (the "Forbearance Agreement") dated as of
April 30, 1998.
Under the Forbearance Agreement, the Bank originally agreed
to forbear from exercising its remedies until July 31, 1998. In
consideration therefor, the Trust agreed to increase the
outstanding principal amount of a Promissory Note (Renewal and
Increase), dated as of September 20, 1992, in favor of the Bank
from $1,000,000 to $1,681,170.45, a portion of the security of
which is a second mortgage on Bayshore. The Trust agreed to
waive any defenses, offsets or claims it may have as of the date
of the Forbearance Agreement against the Bank related to the
outstanding debt of the Trust to the Bank. The Forbearance
Agreement further required the Trust to market the Colorado
Properties and auction them by June 30, 1998, if by May 31, 1998,
the Trust had not sold or had a binding contract on the Colorado
Properties on terms reasonably acceptable to the Trust and the
Bank. As indicated above, the Trust completed the sale of the
last of the Colorado Properties on August 24, 1998. The
Forbearance Agreement also contained representations of the Trust
that, among other items, it is solvent and has no present
intention of filing or acquiescing in any bankruptcy or
insolvency proceeding. To the extent that the Trust would so
file or acquiesce, the Trust agreed not to contest any motion of
the Bank seeking relief from an automatic stay. Upon (i) a
breach or violation of any term, covenant or condition of the
Forbearance Agreement or related documents, (ii) a material
breach or default under any of the other loan documents in
connection with the Trust indebtedness to the Bank, or (iii) any
representation or warranty or other statement contained in the
Forbearance Agreement or related documents, or any loan documents
in connection with Trust indebtedness to the Bank being false or
misleading in any material respect or omitting a material fact
necessary to make such representation, warranty or statement not
misleading, then the Bank could terminate its forbearance. The
Bank extended the Forbearance Agreement until January 31, 1999.
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, assisted
living 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.
Through March 24, 1999, the only remaining property,
Bayshore, is leased to a lessee affiliated with the Trust.
Further, the Trust has entered into a Letter of Intent to sell
Bayshore. As of March 24, 1999, this Letter of Intent has not
resulted in an excuted Contract to Sell. See Item 1.
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.
HACG, as the Advisor, is engaged primarily in real estate
consulting.
The Advisor is currently evaluating the Trust's compliance
with the provisions of the Internal Revenue Code of 1986 (the
"Code"), the Treasury Regulations and other relevant laws
pertaining to qualification of the Trust as a real estate
investment trust ("REIT"). In the event the Trust qualifies as a
REIT, the Trust would not be subject to federal income taxes on
amounts distributed to stockholders, provided that distributions
to stockholders are at least 95% of the Trust's real estate
investment trust taxable income and the Trust meets certain other
conditions. In the event the Trust does not qualify as a REIT,
the Trust 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.
There can be no assurance that the Trust will qualify as a REIT
for any specific year.
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, assisted
living 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, its directors, Advisor and
its affiliates. Further, certain of the directors of the Trust
and officers and directors of the general partner 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, 1998, 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. It is located in
Longmont, Colorado. This property was operated as an
intermediate care facility to serve the mentally challenged and
contains 87 beds. It was sold on July 24, 1998.
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,
in east Greeley, Colorado. Until April 30, 1998, this property
was operated as an intermediate care nursing home facility to
serve the mentally challenged and contains 56 beds. It was sold
on August 24, 1998.
THE LEASES. The Trust is a party to an operating Lease
under net lease terms on the Bayshore property. The Lease
permits the lessee thereunder to operate the property as a
healthcare facility 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
Colorado Lease (the "Colorado Lease") of New Life with Res-Care.
The 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. Res-
Care, as lessee of New Life, negotiated a new option to extend
the New Life lease for thirty (30) months expiring March 31,
1998. It was subsequently extended for an additional month to
April 30, 1998. Upon the New Life lease expiration, New Life
became unoccupied. On August 24, 1998, the Trust closed the sale
of the New Life property for $250,000. The lease of Country View
expired on September 30, 1995 and Country View remained
unoccupied during 1998. On July 24, 1998, the Trust closed on
the sale of the Country View property for $262,500. See Item 1.
BUSINESS - General Development of Business.
The Colorado Lease was 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
included, but were 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 Colorado Lease provided 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 was
$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 was to be
substituted in the calculation of Annual Base Rent effective as
of the date specified in the Notice. The monthly rent was
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" was 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 commenced the month following such
increase or decrease and were based on the average daily
population for such month. Furthermore, any decrease in the
client population of either facility which was 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, was not considered a population decrease for purposes
of arriving at the adjusted monthly rent.
The Colorado Lease provided for fixtures and equipment to
secure the landlord's interest in said lease. At termination of
the lease, title to said fixtures and equipment reverted to the
Trust. Res-Care was 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 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. BHS exercised its option to extend
for an additional five year period effective May 1, 1998. 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 the Bank.
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, 1998, real estate taxes through 1998 of
$80,984.were due and owing on the Bayshore Convalescent Center.
These are the responsibility of the lessee. If the lessee does
not pay these taxes, 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 at January 1, 1998, was funded by a combination of cash and
mortgage loans. The Bank, formerly Citizens Fidelity Bank &
Trust Company, holds the loans on Bayshore and on the Colorado
Properties.
THE COLORADO PROPERTIES LOAN. Although the Colorado
Properties were sold during 1998, there were insufficient
proceeds from such sales to pay off the first mortgage loan to
the Bank. At December 31, 1998, the balance still due was
$1,494,033. All interest payments were brought current in
January 1999 and remain current through March 24, 1999. The
loan, as extended under the terms of the Forbearance Agreement,
became due on January 31, 1999. The loan is secured by a second
mortgage on the Bayshore property, with assignments of leases and
rents thereunder.
THE BAYSHORE LOAN. The first mortgage loan to the Bank
totals $2,968,099 as of December 31, 1998. All interest payments
were brought current in Jnuary 1999 and remain current through
March 24, 1999. The loan, as extended, became due on January 31,
1999. The loan is secured by a first mortgage and assignment of
leases and rents thereunder. In addition, the Bayshore Loan is
secured by a $1,494,033 second mortgage, which resulted from the
sales proceeds of the Colorado Properties being insufficient to
pay off the loan on the Colorado Properties.
As noted above, the Company's mortgage notes matured on
January 31, 1999. This date is pursuant to the Forbearance
Agreement dated as of April 30, 1998, as extended. Management is
currently seeking to sell or to refinance the mortgage notes
payable. Trust management believes that the mortgage note lender
will not demand payment prior to the successful completion of any
such sale or refinancing efforts. There can be no assurance that
the Trust will be successful in its sale or refinancing efforts
or that the Bank will not demand payment of the mortgage notes
payable.
Management believes Bayshore is adequately insured. As of
March 24, 1999, occupancy at Bayshore is 86%.
ITEM 3. LEGAL PROCEEDINGS
On March 11, 1998, John W. Madagan, Sr., d/b/a Sundance
Realty Advisors filed an action in the Commonwealth of
Massachusetts District Court Department, Pittsfield Division
entitled John W. Madagan, Sr., d/b/a Sundance Realty Advisors, v.
Lenox Healthcare, Inc. and Healthcare Investors of America, Inc.
in Civil Action No. 9827-CV-0199. This suit alleges that Lenox
Healthcare, Inc.. ("Lenox Healthcare") and the Trust owe
compensation in the amount of $50,000 to Sundance Realty Advisors
("Sundance") as a result of John W. Madagan, Sr. ("Madagan")
having introduced Lenox Healthcare and the Trust to one another.
This allegation is pursuant to a letter attached to the Complaint
dated November 8, 1996. Additional correspondence in 1997 is
alleged to have been sent by Lenox Healthcare indicating the
Trust's commitment to the compensation to Madagan for services
performed, at which time an alleged good faith partial payment to
Sundance in the amount of $4,970 was paid. The Complaint alleges
joint and several liability for both the Defendants for the
unpaid amounts, interest thereon plus attorneys fees,
disbursements, expenses and litigation and collection costs. The
Trust has responded to this Complaint. Although the Trust
intends to vigorously defend the allegations, at this time the
Trust is not in a position to comment upon the possible outcome
of this litigation or as to the loss or range of loss, if any, in
connection therewith.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Trust did not submit any matter during 1998 requiring a
vote of its shareholders.
PART II
ITEM 5. MARKET FOR TRUST'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION; DISCLOSURE RELATING TO LOW PRICE STOCK
The Trust 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 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 1998,
1997 and 1996. The transfer agent for the Common Stock of the
Trust is Gemisys, Inc., Evergreen, Colorado.
HOLDERS
As of March 24, 1999, 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 1999 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 1999. 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 I 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.
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, 1998 COMPARED TO YEAR ENDED
DECEMBER 31, 1997.
For the year ended December 31, 1998, the Trust had a net
loss of $124,831, or $0.31 per share, as compared to a net loss
of $471,741, or $1.19 per share for 1997.
REVENUES. The Company primarily derives its revenues from
the leasing of facilities to healthcare providers. Revenues for
the year ended December 31, 1998 were $640,228 a decrease of
$87,013 or 12% from revenues of $727,241 for the year ended
December 31, 1997. The decrease in revenues was primarily the
result of the loss of lease revenues associated with two
unoccupied properties, both of which the Trust sold during 1998,
and a $19,030 loss on sale of the Colorado Poperties.
DEPRECIATION AND AMORTIZATION. Depreciation and
amortization expense for the year ended December 31, 1998 was
$121,083 a decrease of $10,943 or 8.3% from $132,026 for the year
ended December 31, 1997. This decrease is the result of the
suspension of depreciation on the Country View facility when it
became vacant in September 1995 and on the New Life facility when
it became vacant in May 1998.
REDUCTION IN NET CARRYING VALUE OF PROPERTY. The Company
recognized an additional devaluation of $280,000 for the year
ended December 31, 1997 to give effect to the further impaired
value of the Country View and New Life properties, which were
subsequently sold on July 24, 1998 for $262,500, and August 6,
1998 for $250,000, respectively.
INTEREST EXPENSE. For the year ended December 31, 1998,
interest expense totaled $459,678, a decrease of $13,820 or 2.9%
from $473,498 for the year ended December 31, 1997. This
decrease results from payments of principal on mortgage
property.
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, 1998 were $63,000, the same as the $63,000 paid for the year
ended December 31, 1997.
OTHER EXPENSES. Other expenses for the year ended December
31, 1998 were $121,298 a decrease of $129,160 or 52% from
$250,458 for the year ended December 31, 1997. This decrease is
primarily the result of selling the Colorado Properties and
eliminating the cost of utilities, insurance, contract services
and administrative costs related to the two Colorado unoccupied
facilities.
OTHER MATTERS. The Trust adopted the provisions of
Statement on Financial Accounting Standards Number 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
Cash decreased from $89,965 at December 31, 1997 to $38,421
at December 31, 1998. Rent and other receivables decreased from
$29,267 at December 31, 1997 to zero at December 31, 1998. This
decrease was primarily the result of the sale of the two Colorado
facilities. Building and improvements net, decreased from
$3,947,972 at December 31, 1997 to $3,418,426 at December 31,
1998. This decrease was also primarily the result of the sale of
the two Colorado facilities and the recognition of a $280,000
valuation reserve on the Country View and New Life properties,
which were sold for $262,500 on July 24, 1998, and $250,000 on
August 6, 1998, respectively. Mortgage notes payable decreased
from $4,823,258 at December 31, 1997 to $4,462,132 at December
31, 1998. This decrease was primarily the result of payments of
principal on mortgaged property. Distributions in excess of net
earnings increased from ($4,219,111) at December 31, 1997 to
($4,343,942) at December 31, 1998. This increase is the result
of the net loss in 1998.
The Trust has relied solely on rental income to pay its
expenses in 1998 and 1997. Cash flows provided by operations
were $29,542 in 1998 and $71,659 in 1997.
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 had
three remaining properties for a portion of 1998, but only one
property since August 1998, the remaining one of which is under
lease, thus limiting cash flows available to pay operating
expenses. Mortgage notes payable on the Trust's properties
matured on January 31, 1999 as the Bank had extended the
Forbearance Agreement dated April 30, 1998 to January 31, 1999.
See Item 1. DESCRIPTION OF BUSINESS - General Development of
Business. 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 sell the remaining
property and/or seek sources to refinance the mortgage notes
payable on Bayshore and minimizing operating costs. Effective
July 24, 1998, the Trust sold the Country View property for
$262,500. Effective August 6, 1998, the Trust sold the New Life
property for $250,000. See Item 1. DESCRIPTION OF BUSINESS -
General Development of Business.
There can be no assurance that the Trust's sale or
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 capital.
The Advisor is currently evaluating the Trust's compliance
with the provisions of the Code, the Treasury Regulations and
other relevant laws pertaining to qualification of the Trust as a
REIT. In the event the Trust qualifies as a REIT, the Trust
would not be subject to federal income taxes on amounts
distributed to stockholders, provided that distributions to
stockholders are at least 95% of the Trust's real estate
investment trust taxable income and the Trust meets certain other
conditions. In the event the Trust does not qualify as a REIT,
the Trust 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.
There can be no assurance that the Trust will qualify as a REIT
for any specific year.
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.
IMPACT OF YEAR 2000
The Trust is in the process of assessing the financial,
operational or other impact of any Year 2000 issues which may
arise, including, but not limited to, software processing errors
arising from calculations using the Year 2000 and beyond
(collectively, the "Year 2000 Problem"). Many existing computer
programs and databases use only two digits to identify a year in
the date field (e.g., "98" would represent "1998"). If not
corrected, many computer systems could fail or create erroneous
results in the Year 2000 (e.g., "01" would represent "1901"
rather than "2001"). It is possible that the Trust's operations
and its relationship with suppliers, vendors and other third
parties could be materially adversely affected by the Year 2000
Problems. The Trust has been unable to assess this likelihood as
of March 24, 1999. The Trust has also been unable to assess the
extent to which its critical business applications, non-
information technology systems (e.g., building and utility
systems, etc.) and the systems of its suppliers, vendors and
other third parties are Year 2000 compliant, and if not, the
amount of work required to achieve Year 2000 readiness with
respect to such systems. Additionally, the Trust has not been
able to determine the total cost associated with the
identification, remediation and testing relating to the Year 2000
Problem.
Bayshore is substantially dependent on Medicaid
reimbursements from the State of Florida. To the extent that the
State of Florida encounters problems resulting from the Year 2000
Problem, and is unable to make timely payments, the Trust may be
adversely impacted. The Trust has not currently established
contingency plans to handle the most reasonably likely worst case
scenario which the Trust believes to be the failure of the State
of Florida to timely make Medicaid payments.
ITEM 7. FINANCIAL STATEMENTS
The financial statements are listed under Item 13: Exhibits
and Reports on Form 8-K. The financial statements are listed
herein beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
As reported in the Form 8-K for the event reported on March
19, 1998:
(i) On March 19, 1998, the Trust dismissed Arthur
Andersen LLP ("Arthur Andersen") as its independent
accountants.
(ii) The 1996 Independent Auditor's Report issued
by Arthur Andersen was modified as follows: "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, 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."
The 1995 Independent Auditor's Report issued by
LaVoie, Clark, Charvoz & May ("LCC&M), the
independent accountants for the Trust in 1995 and
previous years, was modified as follows: "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."
(iii) The decision to change accountants was
approved by the Board of Directors.
(iv) (A)With respect to Arthur Andersen, during
the fiscal year of the Trust ended December 31,
1996, and for the interim period from December 31,
1996 through March 19, 1998, there were no
disagreements between Arthur Andersen and the
Trust for the respective applicable periods,
whether or not resolved, on any matter of
accounting principles or practices, financial
statement disclosure, or auditing scope or
procedure, which, if not resolved to the
accountant's satisfaction, would have caused the
accountant to make reference to the subject matter
of the disagreement in connection with the report
of such accountant.
With respect to LCC&M, during the fiscal
year ended December 31, 1995, there were no
disagreements between LCC&M and the Trust, for the
applicable period, whether or not resolved, on any
matter of accounting principles or practices,
financial statement disclosure, or auditing scope
or procedure, which, if not resolved to the
accountant's satisfaction, would have caused such
accountant to make reference to the subject matter
of the disagreement in connection with the report
of such accountant.
(iv) (B) Not applicable.
(iv) (C) Not applicable.
(iv) (D) Not applicable.
(iv) (E) Not applicable.
(a) (2)The Trust has engaged LCC&M as the auditor for the year
ended December 31, 1997. The auditor responsible for that
and previous LCC&M engagements, Steven E. Clark, CPA,
subsequently left that firm to establish the firm of S. E.
Clark & Company, P.C. (also registered with the S.E.C.
Practice Section of the AICPA), and who are continuing to
serve as our auditors. This was not viewed by management
as a change in firm due to continuity of the responsible
auditor and his assumption of responsibility for the
opinion on the December 31, 1997 financial statements.
(i) and (ii) Not applicable.
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.
<TABLE>
Position
Presently Director
Name Age Held From
- - ---- --- ---- ----
<S> <C> <S> <C>
Thomas M. Clarke 43 Director, President 1996 -
and Chief Financial March 2, 1998
Officer
F. Dale Markham 69 Director, Chairman 1987 to Present
of the Board
Grady P. Hunter 65 Director 1987 to Present
Charles E. Trefzger, Jr. 40 Director 1996 to Present
</TABLE>
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. Presently, the Trust has
three directors, all 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 was President and Chief Financial Officer
of the Trust from December, 1996 through March 2, 1998. He has
been 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 in Cranberry Township,
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 an owner
and operator 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 President, Vice
President and Secretary through December 1996, and has been a
Director of the Trust since its inception in 1987. Effective
March 3, 1998, he was elected President and Chief Financial
Officer. 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
current 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.
Linda M. Clarke was the Trust Secretary from December 1996
through March 2, 1998. She 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.
Upon her resignation on March 2, 1998, she was replaced by Joan
M. Zeller.
Charles E. 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
1986 to 1989. 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 degree from Wake Forest University.
Pursuant to separate letters of resignation, each dated
March 2, 1998, Thomas M. Clarke resigned as President, Chief
Executive Officer and Director of the Trust; Linda M. Clarke
resigned as Secretary of the Trust; John F. Lunt resigned as
Director of the Trust; and David Fancher resigned as Chief
Financial Officer of the Trust. The remaining members of the
Board of Directors, Messrs. Grady P. Hunter, F. Dale Markham and
Charles E. Trefzger voted to accept the resignations on March 19,
1998 at a meeting of the Board of Directors. As a result, two
vacancies in the Board of Directors exist.
At the same meeting of the Board of Directors, Mr. Markham
was elected to serve as Chairman, President and Chief Financial
Officer of the Trust and Joan M. Zeller was elected to serve as
Secretary of the Trust.
In connection with the resignations, Mr. Clarke submitted a
letter (the "Clarke Letter") dated March 4, 1998 to Mr. Markham
stating that Mr. Sellers had engaged in discussions with respect
to the receipt of a formal proposal for the sale of Bayshore to
the facility manager of the facility. Mr. Clarke stated that
these actions are inconsistent with discussions held during the
February 10, 1998 Board of Directors meeting of the Trust with
respect to terminating the facility manager for blatant
violations of a certain Management Agreement dated May 1, 1993.
Mr. Clarke stated that such actions indicated, among other
things, a lack of confidence in Lenox's ability to consummate
acquisitions and provide financing to the Trust. Mr. Clarke did
not specifically request that the explanation for his resignation
be included in the Form 8-K, filed March 26, 1998.
Mr. Markham, in a letter dated March 26, 1998 to Mr. Clarke,
stated, among other things, that the reasons set forth in the
Clarke Letter seemed without merit and did not reflect the facts.
Other principals of the Trust agreed that the contents of the
Clarke Letter were not reflective of the facts. Mr. Markham also
noted that discussions involving Mr. Clarke had occurred in
connection with the unsuccessful attempts of the facility manager
to reach Mr. Clarke regarding the person to whom the facility
manager should submit his unsolicited offer to purchase Bayshore.
Mr. Markham advised that as a result of this inability to contact
Mr. Clarke, the facility manager talked with Mr. Sellers as a
member of the then Trust advisor regarding the offer to purchase.
OFFICERS AND DIRECTORS OF THE ADVISOR
During 1998, the Trust was under contract with Lenox. Mr.
and Mrs. Thomas M. Clarke own 50% of Lenox. The other 50% of
Lenox is owned by entities affiliated with James R. Sellers. In
connection with the resignations of Mr. and Mrs. Clarke and Mr.
Lunt as directors and executive officers of the Trust and Mr.
Fancher as an executive officer of the Trust, the remaining Board
members of the Trust voted to terminate the Trust advisory
contract with Lenox. As a result and effective March 1, 1998 the
Trust entered into a contract for advisory services with HACG.
The general partner of HACG is Heritage. All of the stock of
Heritage is held by James R. Sellers, an affiliate of BHS, the
lessee of Bayshore.
James R. Sellers, age 65, is the President and sole
stockholder of 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").
Mr. Sellers is also the sole stockholder of BHS, the lessee of
Bayshore. Mr. Sellers has been Senior Vice President of Keystone
Mortgage Partners LLC, formerly known as 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 original 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.
ITEM 10. EXECUTIVE COMPENSATION
Set forth below is information concerning the annual
compensation for services in all capacities to the Registrant by
the President and Treasurer of the Trust for the last three
fiscal years ending December 31, 1998. Thomas M. Clarke,
President during 1997 and until March 2, 1998, was compensated by
the Trust for services rendered during the fiscal year ended
December 31, 1997. F. Dale Markham, former President and
Treasurer of the Trust, was compensated by the Trust for
services rendered to the Trust during the fiscal years ended
December 31, 1998, 1997 and 1996, respectively.
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal Position Year Total Compensation
- - --------------------------- ---- ------------------
<S> <C> <C>
Thomas M. Clarke, President,
Chief Financial Officer and 1998 -0-
Director (2) 1997 -0-
F. Dale Markham, Chairman of 1998 $ 2,750 accrued, $8,250 paid
the Board, President and 1997 $ 3,550 accrued, $37,650 paid
Chief Financial Officer (2) 1996(1) $16,000 accrued, $21,500 paid
</TABLE>
(1) Includes directors fees payable annually in the amount of
$11,000 per year and additional compensation for additional
time contributed ("Special Fees")
(2) Mr. Clarke served as President, Chief Financial Officer and
Director through March 19, 1998 and thereafter Mr. Markham
served in such capacities in addition to serving as Chairman
of the Board.
The Trust paid or accrued annual directors fees of $11,000
each to the unaffiliated Directors in 1997 and 1998, plus a fee
of $800 for each Directors' meeting attended in person. In 1998,
$8,250 of Director's fees was paid to Mr. Markham and $2,750 was
accrued.
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.
No other direct compensation was paid or payable by the
Trust during the fiscal year ended December 31, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth as of March 24, 1999 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.
<TABLE>
Percentage of
Amount & Nature of Outstanding
Name of Beneficial Owner Beneficial Ownership Shares Owned
<S> <C> <C>
Harbor American Capital
Group, a California
Limited Partnership 20,000 Shares (1) 5.03%
Herbert W. Owens 40,000 Shares 10.06%
Grady P. Hunter (2) XXX
F. Dale Markham (1) XXX
James R. Sellers (1) XXX
All Directors and Officers (1) XXX
</TABLE>
(1) The current Advisor as of March 24, 1999, Harbor American
Capital Group, owns of record and beneficially 20,000 shares of
Common stock. The former managing general partner of the
Advisor, MSM and each of the former officers, directors and
principal shareholders of MSM (F. Dale Markham, the Estate of
Marvin Mony, and James R. Sellers) may be deemed to be beneficial
owners of the shares of Common Stock owned of record by Harbor
American Capital Group.
(2) Harbor American Capital Group agreed to distribute to each
Unaffiliated Director, prior to 1989, 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, Harbor
American Capital Group 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 Harbor American Capital Group and Mr. Hunter,
the only Unaffiliated Director involved, 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 1998. The former
managing general partner of the Advisor (MSM), and each of the
principal shareholders of MSM (F. Dale Markham, the Estate of
Marvin Mony and James R. Sellers) and present officer, director
and shareholder 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 AND DISPOSITION FEES
The Advisor receives acquisition and disposition fees with
respect to each real property purchased and sold 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 1998 and
therefore no acquisition fees were paid. Disposition fees in the
amount of $5,000.00 for the sale of Country View on July 24, 1998
and $5,000.00 for the sale of New Life on August 24, 1998 were
paid to the Advisor.
ADVISORY FEE
During the fiscal year ended December 31, 1998, the Trust
paid Advisory Fees to Harbor American Capital Group, the current
advisor, in the amount of $25,000 and $0 to Lenox, the advisor
until March 1, 1998. James R. Sellers is the owner of Heritage
which is the managing general partner of Harbor American Capital
Group and was a 35% owner of Lenox during 1997 and until March 1,
1998; he is the owner of BHS, which serves as lessee of the
Florida Property. During 1998, BHS paid lease rentals of
$587,622.60 to the Trust.
ITEM 13. EXHIBITS 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, 1998. F-1
Independent Auditor's Report -
Year ended December 31, 1998. F-2
Balance sheets - December 31, 1998 and 1997. F-3
Statements of operations -
Years ended December 31, 1998 and 1997. F-4
Statements of cash flows -
Years ended December 31, 1998 and 1997. F-5
Notes to financial statements - December 31, 1998. F-6
REPORTS ON FORM 8-K
On March 26, 1998 the Trust filed Form 8-K regarding a
change in the Company's principal executive offices, resignation
of certain directors and executive officers, change in the
principal accountant and the election of certain new executive
officers and directors of the Trust.
EXHIBITS
See attached list of Exhibits.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: March 24, 1999 HEALTHCARE INVESTORS OF AMERICA, INC.
BY: /s/ F. Dale Markham
----------------------------------
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 persons on behalf of the Registrant in the
capacities and on the dates indicated.
Dated: March 24, 1999 BY: /s/ F. Dale Markham
---------------------------------
F. Dale Markham, Director,
President and Chief Financial
Officer (Principal Executive,
Financial and Accounting Officer)
Dated: March 24, 1999 BY: /s/ Grady P. Hunter
---------------------------------
Grady P. Hunter, Director
Dated: March 24, 1999 BY: /s/ Charles E. Trefzger
---------------------------------
Charles E. Trefzger, Jr., 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.
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, 1998
3.2* Articles of Amendment and Restatement of Trust filed as
Exhibit I 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 10-K filed March 30, 1988.
10.1* Advisory Service Agreement dated as of May 18, 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 Plan 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 dated April 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 of 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, 1988 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 between the
Trust and Citizens Fidelity Bank & Trust Company
("Citizens") filed as Exhibit 10.14 to Form 10-K filed
on March 30, 1988.
10.15* Addendum to Loan Agreement dated as of March 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 Agreement 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 Trust's 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 Trust's
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-Marshall Purchase Agreement dated as
of December 28, 1989 between EMNH, Inc., HCC-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 Exhibit 10.53 to Form 10-K filed April 1,
1991.
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 Investment
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 to 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
to 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 to 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 (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 Country 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* Lease, 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").
10.95* Advisor Agreement, dated as of March 1, 1998, between
the Trust and Harbor American Capital Group.
10.96* Forbearance Agreement, effective as of April 30, 1998,
between the Trust and PNC Bank, National Association.
10.97* Commercial Contract to Buy and Sell Real Estate [Seller
or Private Third-Party], dated June 17, 1998, between
the Trust and William E. Harper ("Harper") - $162,500;
as amended on July 11, 1998.
10.98* Commercial Contract to Buy and Sell Real Estate
[Seller or Private Third-Party], dated June 17, 1998,
between the Trust and Harper - $100,000; as amended on
July 11, 1998.
10.99* Promissory Note, dated July 24, 1998, from Harper to
and in favor of the Trust, in the original principal
amount of $100,000.
10.100* Promissory Note, dated July 24, 1998, from Harper to
and in favor of the Trust, in the original principal
amount of $82,500.
10.101* Deed of Trust, dated July 24, 1998, from Harper for the
benefit of the Trust.
10.102* Collateral Assignment of Promissory Notes and Deeds of
Trust, dated as of July 24, 1998, from the Trust to
PNC.
10.103* Commercial Contract to Buy and Sell Real Estate [Seller
or Private Third Party] dated August 6, 1998, between
the Trust and Continuum Health Partnership, Inc.
23.1 Consent of S.E. Clark & Company, P.C.
27 Financial Data Schedule
*Incorporated by reference
<PAGE>
INDEPENDENT AUDITORS REPORT
Board of Directors and Stockholders
Healthcare Investors of America, Inc.
Tucson, Arizona
We have audited the accompanying balance sheets of Healthcare
Investors of America, Inc., (the "Trust"), as of December 31, 1998
and 1997 and the related statements of operations and distributions
in excess of net earnings, and cash flows for the years 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 audits.
We conducted our audits 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 audits provide 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, 1998
and 1997, and the results of its operations and its cash flows
for the years 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 raises 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.
S.E. CLARK & COMPANY, P.C.
Tucson, Arizona
March 26, 1999
<PAGE>
HEALTHCARE INVESTORS OF AMERICA, INC.
BALANCE SHEETS
<TABLE>
As of December 31,
------------------
ASSETS: 1998 1997
- - ------ ---- ----
<S> <C> <C>
Real Estate Properties:
Land $ 393,195 $ 466,301
Building and improvements,
net of accumulated depreciation
and valuation reserves of
$1,264,891 and $4,409,128
at December 31, 1998 and
December 31, 1997, respectively 3,418,426 3,947,972
Prepaid expenses 5,838 3,915
Mortgage receivable 182,500
Rent and other receivables 29,267
Cash and cash equivalents 38,421 89,965
---------- ----------
TOTAL ASSETS $4,038,379 $4,537,420
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Mortgage notes payable $4,462,132 $4,823,258
Accounts payable and accrued
expenses 170,767 180,662
Disputed claims 92,623 92,623
Deferred income 3,189
---------- ----------
TOTAL LIABILITIES 4,725,522 5,099,732
---------- ----------
Stockholders' Equity (Deficiency):
Common stock, $.01 par value;
10,000,000 shares authorized,
397,600 shares issued and
outstanding 3,976 3,976
Paid in capital 3,652,823 3,652,823
Distributions in excess of
net earnings (4,343,942) (4,219,111)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (687,143) (562,312)
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $4,038,379 $4,537,420
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
HEALTHCARE INVESTORS OF AMERICA, INC.
STATEMENTS OF OPERATIONS AND DISTRIBUTIONS
IN EXCESS OF NET EARNINGS
<TABLE>
YEARS ENDED DECEMBER 31,
------------------------
REVENUES: 1998 1997
- - -------- ---- ----
<S> <C> <C>
Rental income $653,439 $716,744
Interest and other income 5,819 10,497
Loss on sale of assets (19,030)
---------- ----------
640,228 727,241
---------- ----------
EXPENSES:
Depreciation and amortization 121,083 132,026
Reduction in net carrying
value of properties 280,000
Interest expense 459,678 473,498
Advisor, directors fees
and expenses 63,000 63,000
Other operating expenses 121,298 250,458
---------- ----------
765,059 1,198,982
---------- ----------
NET LOSS $(124,831) $(471,741)
========== ==========
NET LOSS PER SHARE $(0.31) $(1.19)
======= =======
Weighted average shares outstanding 397,600 397,600
---------- ---------
DISTRIBUTIONS IN EXCESS OF
NET EARNINGS:
Beginning of Year $(4,219,111) $(3,747,370)
Net loss (124,831) (471,741)
---------- ----------
End of year $(4,343,942) $(4,219,111)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
HEALTHCARE INVESTORS OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATIONS:
- - --------------------------
<S> <C> <C>
Net loss $(124,831) $(471,741)
Adjustments to reconcile net
loss to net cash provided by
(used for) operating activities:
Depreciation and amortization 121,083 132,026
Loss on sale of assets 19,030
Reduction in net carrying
value of properties 280,000
Changes in assets and liabilities:
Rent and other receivables 29,267 31,043
Prepaid expenses (1,923) 5,255
Accounts payable and accrued
expenses (13,084) 95,077
---------- ----------
Net cash provided by operating
activities 29,542 71,659
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
- - ------------------------------------
Increase in mortgage receivable (182,500)
Net proceeds on disposition of
Colorado properties 462,540
---------- ----------
Net cash provided by investing
activities 280,040 0
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- - ------------------------------------
Payments on long-term borrowings (361,126) (148,652)
---------- ----------
Net cash used for financing
activities (361,126) (148,652)
---------- ----------
CASH AND CASH EQUIVALENTS:
- - -------------------------
Decrease during year (51,544) (76,993)
Beginning of year 89,965 166,958
---------- ----------
End of year $ 38,421 $ 89,965
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
HEALTHCARE INVESTORS OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1: ORGANIZATION
- - ---------------------
The affairs of Healthcare Investors of America, Inc. (the
"Trust") are managed by its advisor, Lenox Healthcare Capital
Services, LLC (the "Predecessor Advisor"), as succeeded by Harbor
American Capital Group (the "Advisor") effective March 1, 1998.
The Trust engages in acquiring and leasing health care facilities
(nursing homes and intermediate care mental retardation
developmentally disabled nursing facilities) under long-term
leases.
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"). The historical financial statements presented are
prepared under the assumption that the Trust qualified as a REIT.
If the Trust qualified as a REIT, then it is not subject to
federal income taxes on amounts distributed to stockholders
provided distributions to stockholders are at least 95% of the
Trust's real estate investment trust taxable income and the Trust
meets certain other conditions. In the event it is determined
that the Trust did not qualify as a REIT, the Trust 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 presented related to any tax provision.
The Advisor and the Trust's 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 purposes of
the Code, the Advisor intends to assist the Trust in implementing
procedures to requalify the Trust as a REIT.
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. As of December 31, 1998, the Trust has only one
property leased. Therefore, the cash flow available to pay
operating expenses is limited.
Management's plans include continuing to seek sources to
refinance or sell the Florida Property.
The financial statements do not include any adjustments relating
to the recoverability of recorded asset amounts or the amount of
liabilities that might be necessary should the Trust be unable to
continue as a going concern.
At December 31, 1997, two of the three Properties were leased
under operating agreements. Bayshore was leased to BHS. 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, an
unaffiliated entity, pursuant to a lease which expired in April,
1998. Effective April 30, 1998, New Life became an unoccupied
facility upon expiration of the Res-Care lease. On September 30,
1995, Country View was vacated by the lessee and remains
unoccupied.
The State of Colorado interpreted certain Federal Healthcare
Finance Agency guidelines pertaining to "active treatment" of
MRDD patients, such as those receiving care at the Colorado
Properties. The State's interpretation required 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 provided 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.
Therefore management believed that the Colorado Properties might
ultimately have to be used for purposes other than the present
MRDD use. Trust management worked during 1997 to develop
alternative uses for Country View and New Life. Effective July
24, 1998, the Trust sold Country View to William E. Harper
("Harper"), an individual not affiliated with the Trust or its
Advisor, for $262,500 in accordance with the terms of Commercial
Contracts to Buy and Sell Real Estate (the "Country View Sales
Contract"), dated June 17, 1998, as amended. An additional
valuation reserve of $200,000 has accordingly been recognized as
of December 31, 1997 to give effect to the further impaired value
of this property. At closing on July 24, 1998, the Trust
received $80,000 in cash and is the payee of two promissory notes
(the "Harper Notes"), each dated July 24, 1998, from Harper in
the respective original principal amounts of $100,000 and
$82,500. The Harper Notes pay interest only at 9.5% per annum
until maturity on July 24, 2000. The Harper Notes are secured by
a Deed of Trust (the "Harper Mortgage"), dated July 24, 1998,
from Harper for the benefit of the Trust, on the Country View
property. Pursuant to the Collateral Assignment of Promissory
Notes and Deeds of Trust (the "1998 Collateral Assignment"),
dated as of July 24, 1998, the Trust assigned the Harper Notes
and the Harper Mortgage to PNC Bank, National Association,
Louisville, Kentucky (the "Bank") as security for the debt of the
Trust owing to the Bank.
After a number of attempts to privately negotiate a sale of New
Life, the Trust determined that a sale by advertised auction was
the best available method to relieve the Trust of the financial
burden of this property. Effective August 6, 1998, the Trust
sold New Life at auction to Continuum Health Partnership, Inc.
("Continuum"), a Colorado corporation not affiliated with the
Trust or its Advisor, for $250,000 in accordance with the terms
of that certain Commercial Contract to Buy and Sell Real Estate
(the "New Life Sales Contract"), dated August 6, 1998. An
additional valuation reserve of $80,000 has accordingly been
recognized as of December 31, 1997 to give effect to the further
impaired value of this property. The Trust received $250,000 in
cash at closing on August 24, 1998. The proceeds from the sales
of Country View and New Life did not satisfy the outstanding debt
related to these facilities.
Effective March 1, 1998, the members of the Board of Directors of
the Trust voted to terminate the Trust advisory contract with
Lenox Healthcare Capital Services, LLC ("Lenox"). The Trust has
entered into a two year contract for advisory services with HACG.
The general partner of HACG is Heritage Advisory Corporation
("Heritage"). The stock of Heritage is owned by James R.
Sellers, an affiliate of BHS, the successor lessee of Bayshore.
The Trust's continuing plan of operation for the year ending
December 31, 1999 is as follows: The Trust intends to own, lease
or sell (including by auction) 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, assisted living 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.
The Company's mortgage notes payable matured on June 20, 1997 and
the Bank demanded payment in full by letter dated August 15,
1997. In that connection, the Trust and the Bank entered into
Forbearance Agreement (the "Forbearance Agreement") dated as of
April 30, 1998.
Under the Forbearance Agreement, the Bank agreed to forbear from
exercising its remedies until July 31, 1998. In consideration
therefor, the Trust agreed to increase the outstanding principal
amount of a Promissory Note (Renewal and Increase), dated as of
September 20, 1992, in favor of the Bank from $1,000,000 to
$1,681,170, a portion of the security for which is a second
mortgage on Bayshore. The Trust agreed to waive any defenses,
offset or claims it may have as of the date of the Forbearance
Agreement against the Bank related to the outstanding debt of the
Trust to the Bank. The Forbearance Agreement further required
the Trust to market the Colorado Properties and auction them by
June 30, 1998, if by May 31, 1998, the Trust had not sold or had
had a binding contract on the Colorado Properties on terms
reasonably acceptable to the Trust and Bank. The Forbearance
Agreement also contained representations of the Trust that, among
other items, it is solvent and has no present intention of filing
or acquiescing in any bankruptcy or insolvency proceeding. To
the extent that the Trust would so file or acquiesce, the Trust
agreed not to contest any motion of the Bank seeking relief from
an automatic stay. Upon (i) a breach or violation of any term
covenant or condition of the Forbearance Agreement or related
documents, (ii) a material breach or default under any of the
other loan documents in connection with the Trust indebtedness to
the Bank, or (iii) any representation or warranty or other
statement contained in the Forbearance Agreement or related
documents, or any loan documents in connection with Trust
indebtedness to the Bank being false or misleading in any
material respect or omitting a material fact necessary to make
such representation, warranty or statement not misleading, then
the Bank could terminate its forbearance. Effective July 31,
1998, the Forbearance Agreement was extended to January 31, 1999.
The Trust is now negotiating another extension. Although no
assurance can be given that these negotiations will be
successfully concluded, the Trust and the Bank have previously
come to such an agreement and the Trust expects to secure the
Bank's approval of this extension request.
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.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ---------------------------------------------------
(1) CASH AND CASH EQUIVALENTS - For purposes of the statements
-------------------------
of cash flows, the Trust considers all short-term debt
securities purchased with an original maturity of three
months or less to be cash equivalents.
(2) BUILDINGS AND IMPROVEMENTS - Depreciation of these assets
--------------------------
is computed by the straight-line method over the useful
lives of the assets which have been estimated to be 20 to
40 years. The Trust periodically evaluates the net
realizable value of its properties and provides a
valuation allowance when it becomes probable there has
been a permanent impairment of value. Depreciation is
suspended while a facility is vacant.
(3) LOAN COSTS - Loan costs have been deferred and are being
----------
amortized using the straight-line method over the term of
the related borrowing.
(4) REVENUE RECOGNITION - Rental income from operating leases
-------------------
is recognized as earned over the life of the lease
agreements.
(5) INCOME TAXES - As of December 31, 1998, the Company had
------------
net operating loss carryforwards for income tax purposes
of approximately $1,466,000 which will expire beginning in
2006. The Trust did not file its applicable Federal and
State income tax return for the periods 1992 through 1997
on a timely basis. The Trust had cumulative net operating
losses during the periods from 1991 through 1997.
(6) 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.
(7) USE OF ESTIMATES - Management has made certain estimates
----------------
and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ
from those estimates.
NOTE 3: REAL ESTATE PROPERTIES AND LEASES
- - ------------------------------------------
At December 31, 1997 the Trust owned three nursing homes (the
"Properties"), two of which were located in Colorado (the
"Colorado Properties"), and one in Florida (the "Florida
Property"). As previously disclosed, the Colorado properties
were sold in 1998.
At December 31, 1998, the net book value of the remaining
property is as follows:
FLORIDA PROPERTY
----------------
Cost:
Land $ 393,195
Buildings and Improvements 4,683,317
Accumulated Depreciation (1,264,891)
Writedown to Net Realizable Value
----------
Net Carrying Value $ 3,811,621
----------
The carrying values of the Colorado Properties were reduced in
1992 and 1993 by $2,491,000 to the amounts expected to be
realized upon disposition of such properties. The carrying value
of the Colorado Properties was reduced an additional $280,000 in
1997 based on the subsequent sale of both of the Colorado
Properties. Trust management has evaluated the carrying value of
the Property and believes that the remaining net carrying value
of the Property is realizable.
THE COLORADO PROPERTIES
Country View ("Country View"), one of the Colorado Properties,
was vacant as of December 31, 1997. As further disclosed in Note
7, this property was subsequently sold on July 24, 1998. An
additional $200,000 impairment of value was accordingly
recognized as of December 31, 1997.
The other Colorado facility ("New Life") was leased to Res-Care,
Inc. ("Res-Care") at December 31, 1997. The lease provided 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 was $150,000 at December 31,
1997. This lease expired on April 30, 1998. As further
disclosed in Note 7, New Life was subsequently sold on August 6,
1998. An additional $80,000 impairment of value was accordingly
recognized as of December 31, 1997.
New Life housed 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 must be moved into private housing. As a result, the
MRDD patients were removed prior to the end of the lease term.
THE FLORIDA PROPERTY
Effective May 1, 1993, the Trust entered into a five year lease
with a successor lessee, Bayshore Healthcare Services, Inc.
("BHS"), an affiliate of the Advisor. BHS has the option to
renew for an additional five, five year terms. The first lease
renewal option was exercised on May 1, 1998.
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 may 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.
In accordance with the original provisions of the Forbearance
Agreement (defined herein), the original monthly payment on the
mortgage was subsequently increased to $51,958, resulting in a
monthly payment of $58,958 on the subsequently extended lease by
BHS. The current extension of the forbearance agreement reduced
the monthly payment, commencing in 1999, to $40,714, resulting in
a monthly lease payment of $47,714. The unaudited financial
statements of BHS reflect substantial working capital and
liquidity deficiencies. There is no assurance that the extended
terms of the lease represent a market rate or that BHS has the
liquidity to pay this amount over the duration of the extended
term of the lease.
Minimum annual lease payments, including the aforementioned
extension, expected to be received by the Trust on all leased
properties during the lease terms are as follows:
Year Ended December 31, Florida Property
----------------------- ----------------
1999 $ 572,568
2000 572,568
2001 572,568
2002 572,568
2003 190,852
----------
$2,481,124
----------
NOTE 4: MORTGAGE NOTES PAYABLE
- - -------------------------------
12/31/98 12/31/97
-------- --------
Bank mortgage note-Florida Property,
payable in monthly installments of
$40,714, including interest at 9.50%,
through January 31, 1999, at which
date the unpaid balance was due in
full. Extension negotiations are
underway. $2,968,099 $3,142,088
Bank mortgage note-Colorado Properties,
interest at 9.50%, payable in monthly
installments of principal and interest,
through January 31, 1999, at which
date the unpaid balance was due in
full. Extension negotiations are
underway. 1,494,033 1,681,170
---------- ----------
Total mortgage notes payable $4,462,132 $4,823,258
---------- ----------
The Property is secured by first mortgages, assignments of the
lease and rents thereunder. The bank mortgage note on the
Colorado Properties is also secured, to the extent of $1,494,033,
by a second mortgage on the Florida Property.
The Trust entered into a Forbearance Agreement which is further
discussed in Note 1.
NOTE 5: RELATED PARTY TRANSACTIONS
- - -----------------------------------
Effective November 1, 1996, the Trust entered into an agreement
with the Predecessor Advisor, and affiliates of the Predecessor
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 $30,000 to the Advisor during 1998
and the Predecessor Adviser in 1997.
Property management, acquisition and disposition fees to be
paid based upon contractual agreements between the parties.
The Trust incurred no such fees in 1997.
Prior to November 1, 1996, the Trust was a party to an agreement
with the Advisor (who currently serves in an advisory capacity)
to provide various services to the Trust in exchange for fees, as
follows:
Advisory fees at an annual rate of the greater of .3% of
average invested assets of the Trust, as defined with
additional fees based on earnings.
Property management, acquisition and disposition fees to be
paid based upon contractual agreements between the parties.
The Trust has incurred $10,000 of such fees in 1998.
Incentive advisory service fees, payable annually in an
amount equal to 5% of the cash available for distribution to
stockholders for the fiscal year. The Trust did not make
any distributions to stockholders during 1998 and 1997. As
a result, the Trust incurred no incentive advisory fees for
those periods.
Mortgage servicing fees, at varying rates dependent upon the
types of loan services. The Trust has paid no mortgage
servicing fees to date.
Leasing transactions with related parties are described in Note
3.
In 1993, BHS, as successor lessee of the Florida Property, made a
$47,921 payment of interest which had been accrued on the related
mortgage loan. This amount is being amortized over the term of
the lease.
NOTE 6: DISPUTED CLAIMS
- - ------------------------
Management of the Predecessor Advisor entered into certain
transactions related to the potential debt refinancing and/or
sale of the Properties. The Trust has recorded certain
professional fees related to those transactions as disputed
claims, believing that they are obligations, not of the Trust,
but of former management or other third parties. In connection
with one of these disputes, the Trust has been named a
codefendant with the Predecessor Advisor for payment of fees
totaling approximately $50,000 which relate to establishing the
advisory relationship with the Predecessor Advisor. The advisory
relationship was terminated by the Trust for nonperformance of
management of the Predecessor Advisor. It is the opinion of
current management that these claims are the obligation of former
management due to its nonperformance.
NOTE 7: CONTINGENCIES
- - ----------------------
IMPACT OF YEAR 2000
The Trust is in the process of assessing the financial,
operational or other impact of any Year 2000 issues which may
arise, including, but not limited to, software processing errors
arising from calculations using the Year 2000 and beyond
(collectively, the "Year 2000 Problem"). Many existing computer
programs and databases use only two digits to identify a year in
the date field (e.g., "98" would represent "1998"). If not
corrected, many computer systems could fail or create erroneous
results in the Year 2000 (e.g., "01" would represent "1901"
rather than "2001"). It is possible that the Trust's operations
and its relationship with suppliers, vendors and other third
parties could be materially adversely affected by the Year 2000
Problems. The Trust has been unable to assess this likelihood as
of March 24, 1999. The Trust has also been unable to assess the
extent to which its critical business applications, non-
information technology systems (e.g., building and utility
systems, etc.) and the systems of its suppliers, vendors and
other third parties are Year 2000 compliant, and if not, the
amount of work required to achieve Year 2000 readiness with
respect to such systems. Additionally, the Trust has not been
able to determine the total cost associated with the
identification, remediation and testing relating to the Year 2000
Problem.
Bayshore is substantially dependent on Medicaid
reimbursements from the State of Florida. To the extent that the
State of Florida encounters problems resulting from the Year 2000
Problem, and is unable to make timely payments, the Trust may be
adversely impacted. The Trust has not currently established
contingency plans to handle the most reasonably likely worst case
scenario which the Trust believes to be the failure of the State
of Florida to timely make Medicaid payments.
NOTE 8: SUBSEQUENT EVENTS
- - --------------------------
In accordance with an agreement in December, 1998 the Bank
subsequently on January 8, 1999 increased the second mortgage
principal by approximately $51,000 to bring the accrued interest
current. The forebearance agreement has not been extended past
January 31, 1999.
The advisor is currently reviewing an offer to sell the Bayshore
facility at an amount in excess of the carrying value of the
property and related debt.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
inclusion of our report dated March 26, 1999, in the Form 10-KSB
for Healthcare Investors of America, Inc., for the years ended
December 31, 1998 and 1997.
S.E. CLARK & COMPANY, P.C.
Tucson, Arizona
March 30, 199
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<ARTICLE> 5
<CIK> 0000810836
<NAME> HEALTHCARE INVESTORS OF AMERICA, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 38,421
<SECURITIES> 0
<RECEIVABLES> 182,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 226,759
<PP&E> 0
<DEPRECIATION> (5,674,019)
<TOTAL-ASSETS> (4,038,379)
<CURRENT-LIABILITIES> 263,390
<BONDS> 4,462,132
0
0
<COMMON> (687,143)
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<TOTAL-LIABILITY-AND-EQUITY> 4,038,379
<SALES> 0
<TOTAL-REVENUES> 640,228
<CGS> 0
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<INTEREST-EXPENSE> 459,678
<INCOME-PRETAX> (124,831)
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<INCOME-CONTINUING> (124,831)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (124,831)
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