UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1999
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to _________
Commission file number 33-11863
HEALTHCARE INVESTORS OF AMERICA, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Maryland 86-0576027
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2990 N. Swan Rd., Suite 228
Tucson, AZ 85712
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(Address of principal executive offices) (Zip Code)
(520) 326-2000
------------------------------------------------
(Issuer's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 Par Value - 397,600 shares as of November 05, 1999.
<PAGE>
HEALTHCARE INVESTORS OF AMERICA, INC.
INDEX
Page
----
PART I. Financial Information
Item 1. Condensed Financial Statements (Unaudited)
Balance Sheets - December 31, 1998 and September 30, 1999 2
Statements of Earnings (3 Months) - September 30, 1998 and
September 30, 1999 3
Statement of Cash Flows (3 Months) - September 30, 1998 and
September 30, 1999 4
Statement of Earnings (9 Months) - September 30, 1998 and
September 30, 1999 5
Statement of Cash Flows (9 Months) - September 30, 1998 and
September 30, 1999 6
Notes to Financial Statements - September 30, 1999 7
Item 2. Management's Discussion and Analysis or Plan of Operation 13
PART II. Other Information 16
Signatures 17
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HEALTHCARE INVESTORS OF AMERICA, INC.
FORM 10-QSB
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BALANCE SHEETS
September 30, December 31,
1999 1998
ASSETS: (Unaudited) (Audited)
------------- ------------
Real Estate Properties:
Land $ 393,195 $ 393,195
Building and improvements, net of accumulated
depreciation of $1,352,703 and $1,264,891 at
September 30, 1999 and December 31, 1998,
respectively 3,330,613 3,418,426
Prepaid expenses 5,838
Mortgages receivable 182,500
Cash and cash equivalents 151,155 38,421
--------------------------
TOTAL ASSETS $ 3,874,963 $ 4,038,380
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Mortgage notes payable $ 4,208,620 $ 4,462,132
Accounts payable and accrued expenses 138,977 170,768
Disputed claims 92,623 92,623
Option deposit 125,000
--------------------------
TOTAL LIABILITIES $ 4,565,220 $ 4,725,523
Stockholders' Equity:
Common stock, $.01 par value; 10,000,000 shares
authorized; issued and outstanding, 397,600 shares 3,976 3,976
Paid in Capital 3,652,823 3,652,823
Distributions in excess of net earnings (4,347,057) (4,343,942)
--------------------------
TOTAL STOCKHOLDERS' EQUITY (690,258) (687,143)
--------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 3,874,963 $ 4,038,380
==========================
See Notes to Financial Statements
2
<PAGE>
HEALTHCARE INVESTORS OF AMERICA, INC.
FORM 10-QSB
PART I: FINANCIAL INFORMATION
STATEMENT OF EARNINGS AND DISTRIBUTIONS
IN EXCESS OF NET EARNINGS
For the Three Months Ended September 30, 1999 and September 30, 1998
Three Months Three Months
Ended Sept. 30, Ended Sept. 30,
1999 1998
REVENUES: (Unaudited) (Unaudited)
--------------- ---------------
Rental income $ 128,836 $ 124,479
Gain on sale of assets 14,520
Interest income 5,193 1,445
----------- -----------
Total revenues $ 134,029 $ 140,444
EXPENSES:
Depreciation and amortization $ 29,271 $ 21,800
Interest expense 67,955 168,855
Advisory and other fees 7,500 7,500
Directors fees and expenses 8,250 8,250
Other operating expenses 8,264 32,675
----------- -----------
Total expenses $ 121,240 $ 239,080
----------- -----------
NET INCOME (LOSS) $ 12,789 $ (98,636)
=========== ===========
NET INCOME (LOSS) PER SHARE $ 0.03 $ (0.25)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 397,600 397,600
=========== ===========
Distributions in excess of
earnings-beginning of period $(4,359,846) $(4,263,864)
Net income/(loss) 12,789 (98,636)
Distributions during the period
----------- -----------
Distributions in excess of
earnings-end of period $(4,347,057) $(4,362,500)
=========== ===========
See Notes to Financial Statements
3
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HEALTHCARE INVESTORS OF AMERICA, INC.
FORM 10-QSB
PART I: FINANCIAL INFORMATION
STATEMENT OF CASH FLOWS
Three Months Three Months
Ended Sept. 30, Ended Sept. 30,
1999 1998
CASH FLOWS FROM OPERATIONS: (Unaudited) (Unaudited)
--------------- ---------------
Net income/(loss) $ 12,789 $ (98,636)
Adjustments to reconcile net income to
net cash provide by (used in) operating
activities:
Depreciation and amortization 29,271 21,800
Changes in assets and liabilities:
Contract, rents and other receivables 182,500 (170,000)
Prepaid expenses 1,946 3,915
Accounts payable and accrued expenses (48,089) (32,741)
Option Deposit 100,000
--------- ---------
Net cash provided by (used in)
operating activities 278,418 (275,662)
--------- ---------
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES:
Disposition of real estate properties 485,570
Payments on long-term borrowings (190,397) (161,298)
--------- ---------
Net cash provided by (used in) investing and
financing activities (190,397) 324,272
--------- ---------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 88,021 48,610
CASH AND CASH EQUIVALENTS - Beginning of period 63,134 4,516
--------- ---------
CASH AND CASH EQUIVALENTS - End of period $ 151,155 $ 53,126
========= =========
See Notes to Financial Statements
4
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HEALTHCARE INVESTORS OF AMERICA, INC.
FORM 10-QSB
PART I: FINANCIAL INFORMATION
STATEMENT OF EARNINGS AND DISTRIBUTIONS
IN EXCESS OF NET EARNINGS
For the Nine Months Ended September 30, 1999 and September 30, 1998
Nine Months Nine Months
Ended Sept. 30, Ended Sept. 30,
1999 1998
Revenues: (Unaudited) (Unaudited)
--------------- ---------------
Rental income $ 416,318 $ 476,752
Gain on sale of assets 14,520
Interest Income 14,589 1,485
----------- -----------
Total revenues $ 430,907 $ 492,757
EXPENSES:
Depreciation and amortization $ 87,812 $ 87,812
Interest expense 266,620 401,001
Advisory and other fees 22,500 22,500
Directors fees and expenses 24,750 24,750
Other operating expenses 32,340 100,083
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Total expenses $ 434,022 $ 636,146
----------- -----------
NET INCOME (LOSS) $ (3,115) $ (143,389)
=========== ===========
NET INCOME (LOSS) PER SHARE $ (0.01) $ (0.36)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 397,600 397,600
=========== ===========
Distributions in excess of
earnings-beginning of period $(4,343,942) $(4,219,111)
Net income/(loss) (3,115) (143,389)
Distributions during the period
----------- -----------
Distributions in excess of
earnings-end of period $(4,347,057) $(4,362,500)
=========== ===========
See Notes to Financial Statements
5
<PAGE>
HEALTHCARE INVESTORS OF AMERICA, INC.
FORM 10-QSB
PART I: FINANCIAL INFORMATION
STATEMENT OF CASH FLOWS
Nine Months Nine Months
Ended Sept. 30, Ended Sept. 30,
1999 1998
CASH FLOWS FROM OPERATIONS: (Unaudited) (Unaudited)
--------------- ---------------
Net income/(loss) $ (3,115) $(143,389)
Adjustments to reconcile net income to
net cash provide by (used in) operating
activities:
Depreciation and amortization
87,812 87,812
Changes in assets and liabilities:
Contract, rents and other receivables
182,500 (153,233)
Prepaid expenses 5,838 2,695
Accounts payable and accrued expenses (31,791) (56,181)
Option deposit 125,000
--------- ---------
Net cash provided by (used in) operating
activities 366,244 (262,296)
--------- ---------
CASH FLOWS FROM INVESTING AND FINANCING
ACTIVITIES:
Dispostition of real estate properties 485,570
Payment of long-term borrowings (253,510) (260,113)
--------- ---------
Net cash provided by (used in) investing and
financing activities (253,510) 225,457
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 112,734 (36,839)
CASH AND CASH EQUIVALENTS - Beginning
of period 38,421 89,965
--------- ---------
CASH AND CASH EQUIVALENTS - End of period $ 151,155 $ 53,126
========= =========
See Notes to Financial Statements
6
<PAGE>
HEALTHCARE INVESTORS OF AMERICA, INC.
Notes to Financial Statements
For the Three Month Period Ended September 30, 1999 and 1998
NOTE 1: ORGANIZATION
The affairs of Healthcare Investors of America, Inc. (the "Trust") are managed
by its advisor, 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 September 30, 1999, 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 September 30, 1999, the remaining property owned by the Trust is Bayshore
Convalescent Center in North Miami, Florida ("Bayshore") Bayshore was leased to
BHS through August 31, 1999. BHS is an affiliate of the Trust as it is owned by
James R. Sellers, an affiliate of the Advisor. On June 3, 1999, the Trust
entered into a Purchase and Sale Agreement to sell Bayshore to Abraham Shaulson
for $5,750,000. Effective August 31, 1999, the Purchase and Sale Agreement was
amended to provide for a closing date of October 31, 2000 subject to 66.667%
shareholder approval of said sale. Additional details of said sale can be found
7
<PAGE>
in the Form 8-K filed with the U. S. Securities and Exchange Commission on
September 15, 1999. Further, effective September 1, 1999, the Trust entered into
a new lease with Watercrest Nursing and Rehabilitation, Inc., a Florida
corporation. Said new lease is for a term of one year expiring August 31, 2000,
unless sooner terminated to accommodate the closing of the sale.
Trust management worked during 1995-1998 to develop alternative uses for Country
View and New Life, two properties it owned in Colorado. 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. On July 16, 1999, the Harper Notes were paid in full
and the proceeds were used to pay down on the PNC debt.
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. 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.
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 its remaining Property.
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
8
<PAGE>
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. It has now been further extended to December
31, 1999.
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 September 30, 1999 the Trust owned one nursing home in Florida (the "Florida
Property"). As previously disclosed, the Colorado properties were sold in 1998.
At September 30, 1999, the net book value of the remaining property is as
follows:
9
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Florida
Property
--------
Cost:
Land $ 393,195
Buildings and Improvements 4,683,316
Accumulated Depreciation (1,352,703)
Net Carrying Value $3,723,808
----------
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 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 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.
Effective September 1, 1999, the BHS lease was cancelled and a new one-year
lease was entered into with Watercrest Nursing and Rehabilitation Center, Inc.
("Watercrest").
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 $41,314, resulting in a
monthly lease payment of $48,314. This lease payment continues under the new
lease to Watercrest. The unaudited financial statements of Watercrest reflect
minimal working capital and liquidity. There is no assurance that the terms of
the lease with Watercrest represent a market rate or that Watercrest has the
liquidity to pay this amount over the duration of the short term of the lease.
10
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Minimum annual lease payments, including the aforementioned extension, expected
to be received by the Trust on the newly leased Watercrest property during the
lease term is as follows:
Florida
Year Ended December 31, Property
- ----------------------- --------
1999 $ 572,568
2000 430,326
Total 1,002,894
NOTE 4: MORTGAGE NOTES PAYABLE
9/30/99 12/31/98
------- --------
Bank mortgage note-Florida Property,
payable in monthly installments of $41,314,
including interest at 9.00%, through
December 31, 1999, at which date the
unpaid balance is due in full. $4,208,620 $4,767,441
The Property is secured by first mortgages, assignments of the lease and rents
thereunder. The bank mortgage note balance on the Colorado Properties was also
added and secured, to the extent unpaid by sales of the Colorado Properties, in
accordance with the terms of the Forbearance Agreement, 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 March 1, 1998, 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
$7,500 to the Advisor during the quarterly period ended September 30,
1999.
Property management, acquisition and disposition fees to be paid based
upon contractual agreements between the parties. The Trust incurred no
such fees in the third quarter of 1999.
Leasing transactions with related parties are described in Note 3.
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
11
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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 November 5, 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.
Watercrest, formerly known as 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.
12
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HEALTHCARE INVESTORS OF AMERICA, INC.
Three Months Ended September 30, 1999
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
(a) Not applicable
(b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
September 30, 1999 compared to September 30, 1998
RENTAL INCOME. The Trust primarily derives its revenues from the leasing of
facilities to healthcare providers. For the nine months ended September 30,
1999, rental income was $416,318 as compared to $476,752 for the nine months
ended September 30, 1998. For the three months ended September 30, 1999, rental
income was $128,836 as compared to $124,479 for the three months ended September
30, 1998. The decrease in the nine month period is primarily attributable to the
loss of rents resulting from the expiration of the New Life lease in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the nine months
ended September 30, 1999 were $87,812 which compares with $87,812 for the nine
months ended September 30, 1998. These costs are primarily the result of assets
becoming fully depreciated.
INTEREST EXPENSE. For nine months ended September 30, 1999, interest expense
totaled $266,620 as compared to $401,001 for the same period in 1998. This
decrease in interest expense is the result of a decrease in the principal
balance on bank mortgage notes payable.
ADVISORY AND OTHER FEES. Advisor and other fees consist of the fees charged by
Harbor American Capital Group, the advisor to the Trust. For three and nine
month periods ended September 30, 1999, advisory and other fees totaled $7,500
and $22,500, respectively. These are the same as the charges for the three and
nine month periods ended September 30, 1998.
DIRECTORS FEES AND EXPENSES. Director's fees and expenses for the three months
ended September 30, 1999 were $8,250. There are three Directors, each of whom
receives $2,750 per quarter. These were the basis for the same charges made in
the three and nine month periods ended September 30, 1998.
OTHER OPERATING EXPENSES. Other operating expenses consists primarily of
maintenance and administrative costs. Other operating costs for the nine months
13
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ended September 30, 1999 were $32,340 which compares with $100,083 for the nine
months ended September 30, 1998. These costs are costs associated with two
vacant facilities in 1998 but not in 1999 and includes wastewater plant
maintenance costs, insurance, real estate taxes and property maintenance costs.
This accounts for the 68% decrease from 1998.
LIQUIDITY AND SOURCES OF CAPITAL
Cash increased from $38,421 at December 31, 1998 to $151,155 at September 30,
1999. This increase is primarily the result of $125,000 of cash received to be
held for improvements to Watercrest as provided under the terms of the new lease
with Watercrest. Accounts payable and accrued expenses decreased from $170,768
at December 31, 1998 to $138,977 at September 30, 1999. The increase is the
result of the timing of payments of certain operating expenses. Mortgage notes
payable decreased from $4,462.132 at December 31, 1998 to $4,208,620 at
September 30, 1999. The decrease is the result of payments of principal on
mortgaged property. Distributions in excess of net earnings increased from
($4,343,942) at December 31, 1998 to ($4,347,057) at September 30, 1999.
The Trust has relied solely on rental income to pay its expenses in 1999 and
1998. Cash flows provided by operations were ($3,115) for the nine months ended
September 30, 1999 as compared to ($143,389) for the same period in 1998. This
increase resulted from the decrease in the operating costs incurred in
connection with the vacant properties owned in 1998.
The above discussion and the Trust's financial statements have been presented on
the basis that it is a going concern, which contemplated the realization of
assets and the satisfaction of liabilities in the normal course of business. At
September 30, 1999 the Trust had one property remaining, Watercrest, a 150 bed
skilled and intermediate care nursing home facility in North Miami Beach,
Florida, thus limiting cash flows available to pay operating expenses. Effective
July 24, 1998 the Trust sold the Country View Property in Longmont, Colorado for
$262,500. On August 25, 1998 the Trust sold the New Life Property in Greeley,
Colorado for $250,000. Mortgage notes payable on the Trust's properties mature
on December 31, 1999. The current maturity of the Trust's notes payable raises a
substantial doubt about the Trust's ability to continue as a going concern for a
reasonable period of time.
Management's plans include selling Watercrest, formerly known as Bayshore, or
continuing to seek sources to refinance the mortgage notes payable secured by
Watercrest, and minimizing operating costs. In the event the Trust is
unsuccessful in refinancing the notes payable prior to the current maturity
date, management believes it will be able to obtain an extension from the bank
or that the bank will not demand payment prior to such refinancing or sale.
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 entered into a Sale and Purchase Agreement dated June 3, 1999 with
Abraham Shaulson to sell Bayshore. By Amendment dated August 31, 1999 to said
Purchase and Sale Agreement, the sale closing date was extended to October
14
<PAGE>
31,2000. The Trust has entered into the Purchase and Sale Agreement with Mr.
Shaulson subject to approval of the shareholders. Following the closing of the
Bayshore sale, the Trust intends to liquidate, pay off all debts and disburse
any remaining assets to the shareholders.
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 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 November 05, 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.
Watercrest 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.
15
<PAGE>
HEALTHCARE INVESTORS OF AMERICA, INC.
PART II - OTHER INFORMATION
Items 1. through 6. Not Applicable
16
<PAGE>
HEALTHCARE INVESTORS OF AMERICA, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHCARE INVESTORS OF AMERICA, INC.
(Registrant)
Date: November 05, 1999 /s/ F. Dale Markham
-------------------
F. Dale Markham
Director, President and Chief
Financial Officer (Principal
Executive, Financial and Accounting
Officer)
17
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 151,155
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,076,511
<DEPRECIATION> (1,352,703)
<TOTAL-ASSETS> 3,874,963
<CURRENT-LIABILITIES> 356,600
<BONDS> 4,208,620
0
0
<COMMON> (690,258)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,874,963
<SALES> 0
<TOTAL-REVENUES> 134,029
<CGS> 0
<TOTAL-COSTS> 121,240
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,955
<INCOME-PRETAX> 12,789
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,789
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,789
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
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