UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
December 31, 1999
or
[ ] Transition Report pursuant to 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
HEALTHCARE INVESTORS OF AMERICA, INC.
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(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.)
2940 N. Swan Rd., Suite 212
Tucson, AZ 85712
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(Address of principal (Zip Code)
executive offices)
(520) 326-2000
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(Issuer's telephone number, including area code)
2990 N. Swan Rd., Suite 212
Tucson, Arizona 85712
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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
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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 March 27,
2000.
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
1. Overview
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 2940 North Swan Road, Suite 212, Tucson, Arizona
85712. The Trust's present advisor is Harbor American Capital
Group, a California limited partnership ("HACG" or the
"Advisor").
During 1999, the Trust owned the real property, fixtures and
improvements used in connection with the operation of a long term
care facility located in Florida known as Bayshore Convalescent
Center ("Bayshore" or the "Florida Property"), a 150-bed skilled
and intermediate care nursing home facility located at 16650 West
Dixie Highway in North Miami Beach, Florida, which was acquired
in March 1988.
2. Intended Sale of Bayshore and Related Lease
At January 1, 1999, Bayshore was leased under an operating
agreement to Bayshore Healthcare Services, Inc., an Arizona
corporation ("BHS"). See Item 2. DESCRIPTION OF PROPERTY - The
Bayshore Lease. BHS is an affiliate of the Trust as it is owned
by James R. Sellers, an affiliate of the Advisor. Effective
August 30, 1999, the lease with BHS was cancelled and the Trust
and BHS, collectively hereinafter referred to as the "Sellers",
and Abraham Shaulson, hereinafter referenced as the "Buyer",
entered into a Purchase and Sale Agreement (the "Original
Agreement"), dated as June 3, 1999, as amended by Amendment to
Purchase and Sale Agreement (the "Amendment," which together with
the Original Agreement is hereinafter collectively referred to as
the "Agreement"), dated as of August 31, 1999. Under the
Agreement, Sellers have agreed to sell all of the real estate,
personal property, inventory, trademarks and other intangibles,
and patient contracts (collectively, the "Assets") to Buyer with
respect to the Bayshore Convalescent Center ("Bayshore") located
at 16650 West Dixie Highway, Miami, Florida. Excepted from the
Asset sale is all cash, accounts receivables, prepaid expenses,
notes receivable and personal property of the residents at
Bayshore.
Buyer agreed to pay Sellers $5,750,000 (the "Purchase
Price") for Sellers' Assets as follows:
(i) $350,000 (the "Deposit") from Buyer to Sellers as a
nonrefundable deposit except in the event of a default
by Sellers under the Agreement; and
(ii) The balance of the purchase price due on the closing
date scheduled on or before October 31, 2000 (the
"Closing Date").
The Agreement provides for the allocation of the Purchase
Price between the Sellers in accordance with a schedule that will
be attached to the Agreement. To date, the Sellers have not made
an allocation to disclose on the schedule that the Sellers will
attach to the Agreement.
With the execution of the Amendment, the Buyer deposited
$150,000 into a separate interest bearing account of Sellers.
The proceeds in this account are for capital improvements to
Bayshore, as described in the Agreement. Buyer is responsible
for the completion of the improvements. Buyer submits evidence
of the completion of the improvements and costs to Sellers for
reimbursement by Sellers. Upon the closing of the sale under the
Agreement, any amount not used for the completion of improvements
shall be applied to the Purchase Price. If the Asset sale fails
to close by the Closing Date for any reason other than a default
by the Sellers, any amount not used for capital improvements
shall become the property of the Sellers.
Pending the closing of the sale under the Agreement, Sellers
have agreed to have the Registrant lease Bayshore to a Buyer
affiliate. The terms of the Lease (the "Watercrest Lease"),
dated as of July 30, 1999, from the Registrant to Watercrest
Nursing and Rehabilitation Center, Inc. (the "Lessee"), are as
follows:
The initial term of the Watercrest Lease commenced September
1, 1999 and ends October 31, 2000. The base rent for Bayshore is
$47,814 per month payable on the 20th day of each calendar month
plus such additional amounts that may be necessary to cover the
debt service under the loan agreement between the Registrant and
any mortgagee of Bayshore. Lessee assumes the obligation to pay
all taxes and other charges which arise out of Bayshore. Lessee
is responsible for all utilities, insurance premiums related to
the premises including a $2,500 monthly insurance administration
fee due the Registrant for monitoring the insurance coverage of
Bayshore.
In the event of a partial condemnation or damage to or
destruction of Bayshore, which does not render Bayshore
unsuitable for its primary intended use, the rent shall be abated
to the extent that it is fair, just and equitable to both the
Registrant and Lessee. The primary intended use of the property
is as a health care facility licensed for skilled and
intermediate long-term nursing services. Lessee covenants in the
Lease to operate Bayshore in accordance with the primary intended
use and to maintain its qualifications for licensure and
accreditation. Under the Watercrest Lease, Lessee may enter into
a management agreement with the prior written consent of the
Registrant and any mortgagee of Bayshore, subject to the payment
of the management fees being subordinate to all sums due under
the Lease.
The Watercrest Lease requires the Lessee to maintain
Bayshore in good order and repair. Lessee is responsible for the
cost of any capital additions to Bayshore which shall be deemed a
leasehold improvement. The Watercrest Lease further requires the
Lessee to spend the $150,000 referred to above on improvements to
Bayshore. As of March 24, 2000, Lessee has spent $65,000
primarily on computer equipment, floor coverings, window frame
and glass replacements and exterior painting. Lessee may not
create or allow to remain on the premises of Bayshore any lien or
encumbrance on Bayshore. Lessee may, however, contest any taxes,
insurance requirements, liens or encumbrances so long as Lessee
shall provide reasonable security in the event any such lien,
taxes, insurance requirements or encumbrance exceeds $50,000.
Lessee must maintain all-risk insurance in an amount equal
to the replacement costs of Bayshore, boiler insurance, business
interruption insurance covering the Registrant's risk of loss,
comprehensive public liability insurance in an amount not less
than $4 million per occurrence for injuries and $2 million for
property damage, malpractice insurance in an amount of not less
than $5 million for each person and $10 million for each
occurrence, and flood insurance if Bayshore lies in a flood plain
area.
Insurance proceeds as a result of loss or damage to Bayshore
are payable to the Registrant for reconstruction or repair of
Bayshore. If Bayshore is totally or substantially destroyed
from a risk covered by insurance, Lessee, subject to the rights
of any mortgagee, shall have the option to restore Bayshore or
acquire Bayshore at fair market value or terminate the Watercrest
Lease. If Bayshore is destroyed from a risk not covered by
insurance, the Registrant may elect to restore Bayshore or absent
such an election Lessee may terminate the Lease.
A partial condemnation of Bayshore so long as Bayshore is
not rendered unsuitable for its primary intended use, shall not
cause a termination of the Watercrest Lease. If the condemnation
causes Bayshore to be rendered unsuitable for its primary
intended use, then Lessee has the right to restore Bayshore at
its own expense, to acquire Bayshore for fair market value or
terminate the Watercrest Lease. In the event Lessee or its
affiliate purchases Bayshore, any condemnation award belongs to
Lessee, otherwise the award belongs to the Registrant.
An event of default occurs upon:
(i) the existence of an event of default under any other
lease between the Registrant and Lessee;
(ii) failure of Lessee to make a rental payment under the
Watercrest Lease and such failure continues for a
period of 10 days after receipt of written notice;
(iii)Lessee's failure to observe or perform any other term,
covenant or condition of the Watercrest Lease and such
failure is not cured within 30 days after receipt of
notice;
(iv) bankruptcy of Lessee;
(v) voluntary cessation of operations by Lessee at Bayshore
for a period of longer than 30 days; or
(vi) failure of Lessee to provide financial statements or
copies of required licensing information, to maintain
quarterly cash flow of not less than 125% of minimum
rent or to operate Bayshore for its primary intended
use.
If an event a default shall have occurred and be continuing,
the Registrant may terminate the Watercrest Lease. The Registrant
may not remove Lessee from Bayshore until the Registrant provides
for a substitute operator acceptable to any Bayshore mortgagee.
Notwithstanding termination of the Watercrest Lease, Lessee is
responsible for all rent due and payable with respect to
Bayshore. In addition, if an event of default shall have
occurred and be continuing the Registrant may require Lessee to
purchase Bayshore for the Purchase Price plus all rent then due
and payable. If Lessee fails to perform under the Watercrest
Lease and is removed from Bayshore, such action by the Registrant
shall not be deemed an eviction of Lessee.
Lessee agrees to indemnify the Registrant against all
liabilities arising from the operation of Bayshore. Lessee may
not, without the prior written consent of the Registrant and any
mortgagee, assign the Lease or sublet any part of Bayshore.
BHS owns all personal property used at Bayshore. The Lessee
is not paying any consideration for the personal property and
upon termination of the Watercrest Lease, all the personal
property shall be deemed owned by BHS.
The Registrant agrees to indemnify the Lessee from:
(i) any liability arising from any breach of
representations, warranties, covenants or agreements
made in the Lease;
(ii) any overpayment or assessment relating to Bayshore from
the Medicare or Medicaid programs;
(iii) any claims by any creditor incurred by Bayshore prior
to the effective date of the Watercrest Lease; and
(iv) any claim arising out of operation of Bayshore prior to
the effective date of the Watercrest Lease.
In the event either Medicaid or Medicare withholds, recoups or
offsets any payment due the Lessee for claims arising prior to
the effective date of the Watercrest Lease, the Registrant agrees
to immediately reimburse Lessee for such withholding, recoupment
or offset. Notwithstanding other terms of the Watercrest Lease,
the Lessee may offset any payments that the Registrant fails to
make in this situation from the monthly rent and insurance
administration fee. Any amounts due to the Lessee from the
Registrant as a result of the unreimbursed Medicaid or Medicare
payments shall bear interest at 10% per annum until paid by the
Registrant to the Lessee.
One of the principal conditions to the closing of the sale
of Bayshore is the shareholder approval of the sale by the
Registrant's shareholders. If Sellers had not obtained
shareholder approval at least six (6) months prior to the end of
the Watercrest Lease, Buyer had the option to extend the
Watercrest Lease for three one-year renewal terms with a rent
increase equal to the consumer price index increase for the
preceding twelve (12) months. Such shareholder approval was
received and on February 10, 2000, the Trust Board of Directors
accepted the Inspector of Elections count of 271,162.4806 as an
appropriate number of votes in excess of the required two-thirds
super majority.
Under the terms of the Agreement, Buyer was required to file
applications for the appropriate licenses to operate Bayshore
with the applicable licensing agencies by September 30, 1999,
with all licenses to be issued on or before December 31, 1999.
This was accomplished effective September 1, 1999. The failure
to file by the specified date or to have issued the licenses by
the later date results in the default by Buyer under the
Agreement and the Watercrest Lease. Sellers may exercise their
rights to terminate the Watercrest Lease in such a circumstance,
and retain the Deposit as liquidated damages. Buyer further
agrees to indemnify and hold Sellers harmless from all
liabilities arising in connection with the operation of Bayshore
from and after the date of the Watercrest Lease until the Closing
Date.
The Agreement contains Sellers' representations and
warranties related to, among others:
(i) due organization and existence;
(ii) authorization of the Agreement;
(iii) good title to the real and personal property of
Bayshore;
(iv) the operating condition of the buildings and
appurtenances on the real estate;
(v) proper licensing for operation of Bayshore as a 150 bed
nursing home;
(vi) payment of real estate taxes;
(vii) fair presentation of the financial condition and
results of operations of Bayshore as contained in the
financial statements Sellers have delivered to Buyer;
(viii) no pending labor problems with the existing union at
Bayshore;
(ix) no material and adverse litigation with respect to
Bayshore;
(x) proper filing of all taxes, tax returns and cost
reports;
(xi) sufficient insurance coverage with respect to Bayshore;
and
(xii) no environmental claims.
The Agreement contains Buyer's warranties and representations
related to due organization and existence, and proper
authorization of the Agreement, among others.
Conditions to the Buyer's obligation to consummate the
Agreement include:
(i) no adverse change in Bayshore and the Sellers' Assets;
(ii) Sellers' compliance with the terms of the Agreement;
(iii) Buyer's receipt of a commitment to finance the Assets
on terms reasonably acceptable to Buyer;
(iv) no material and adverse litigation affecting Bayshore
or the Sellers' Assets;
(v) the patient census shall not be less than 113 with
Medicaid certified beds to be 115 and Medicare
certified beds to be 16; and
(vi) Buyer's receipt of evidence that all cost reports of
Sellers required to be filed prior to the Closing Date
have been timely filed.
Conditions to the Sellers' obligation to close the sale of
Bayshore include Buyer's continuing compliance with the
Agreement, no litigation pending against Buyer questioning the
legality of the transactions under the Agreement, and Sellers'
receipt of shareholder approval of the sale of Sellers' Assets.
Closing adjustments to the Purchase Price shall include
proration of:
(i) real estate taxes;
(ii) water, sewage and electricity charges;
(iii) fees for customer annual or periodic licenses and
permits;
(iv) employee wages and related payroll taxes and expenses;
and
(v) charges on service and maintenance agreements.
Sellers shall also be responsible for the payment of real estate
brokerage commissions. Buyer and Sellers shall pay equally all
closing costs including documentary stamp taxes, county surtax,
recording fees and title insurance premiums.
Sellers jointly and severally indemnify Buyer for, among
others items:
(i) liabilities and obligations of Sellers arising prior to
the Closing Date unless otherwise expressly assumed by
Buyer;
(ii) damages or deficiencies resulting from any
misrepresentation, breach of warranty or nonfulfillment
of any obligation on the part of Sellers;
(iii) any retroactive payments due to the State of Florida
or the United States for periods prior to the closing
unless specifically assumed by Buyer; and
(iv) liabilities arising out of the transfer of funds or
property by any patient to the Sellers prior to the
Closing Date.
Buyer indemnifies Sellers for, among other items:
(i) liabilities of Sellers arising after the Closing Date
and expressly assumed by Buyer or relating to the
operation of Bayshore by Buyer; or
(ii) any damage or deficiency resulting from any
misrepresentation, breach of warranty or nonfulfillment
of any obligation on the part of Buyer under the
Agreement.
3. Prior Sales of Country View and New Life
Trust management worked during 1995-1998 to develop
alternative uses for two of its then owproperties, Country View
Care Center ("Country View") and New Life Care Center ("New
Life", collectively the "Colorado Properties"). Country View was
an 87-bed nursing home located in Longmont, Colorado, and New
Life was a 56-bed nursing home located in Greeley, 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
was 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 were
paid in full on July 16, 1999. The Harper Notes were 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. Upon receipt of the $182,500 payoff,
the Trust used the full amount of this payoff to reduce the
principal balance due 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.
The Trust received the sum of $250,000 in cash at closing on
August 24, 1998. Neither the proceeds from the sales of Country
View and New Life nor the Note payments on the Harper Notes
satisfied the outstanding debt related to these facilities.
4. Advisory Agreement
The Trust currently has a 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.
5. Trust Debt and Forbearance
The Trust's continuing plan of operation for the 2000 fiscal
year (ending December 31, 2000) is as follows: The Trust intends
to own, lease, sell or auction Bayshore. If and when the sale
of Bayshore is closed, the Trust intends to distribute any
remaining sales proceeds to shareholders after payment of Trust
expenses including the Bank loan described below, and liquidate.
If it is determined to be in the best interest of shareholders,
and if an opportunity to re-capitalize presents itself, 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
and subsequently to December 31, 1999. The Trust has requested
an extension of the Forbearance Agreement to December 31, 2000 in
order to pay off this debt from proceeds of the Bayshore sale.
As of March 24, 2000, this request has not been approved.
Although the Trust believes the extension will be approved, the
Bank is under no obligation to do so.
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.
If the Trust does not re-capitalize, and if the Bayshore sale
closes, the Trust will proceed with liquidation and disbursement
of sales proceeds to shareholders.
Through March 24, 2000, the only remaining property,
Bayshore, is leased to Watercrest, the Lessee. Further, the
Trust has entered into the Agreement with Mr. Shaulson to sell
Bayshore. SEE 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. If the sale of
Bayshore closes, and if no determination is made to re-capitalize
the Trust, it will liquidate and disburse any remaining sales
proceeds, after payment of Trust expenses, including the Bank
indebtedness, to shareholders.
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 which is unlikely, 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, 1999, 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.
THE BAYSHORE LEASE. The Trust is a party to the Watercrest
Lease under net lease terms on the Bayshore property. The Lease
Watercrest 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. See Description of Business -- General
Development of Business -- Intended Sale of Bayshore and Related
Lease.
The Bayshore Lease, prior to the Watercrest 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
Bayshore Lease had an original term of five (5) years and
provided for five (5) five year options to extend, thus ending on
March 31, 2023, if all options were exercised. BHS exercised its
option to extend for an additional five year period effective May
1, 1998 and agreed to a cancellation of the Bayshore Lease
effective August 30, 1999 so the Trust could enter into a one-
year lease with Watercrest beginning September 1, 1999, pending
completion of the sale to Mr. Shaulson. The Watercrest Lease is a
net lease requiring Watercrest to pay all operating expenses of
the property. Minimum rent is $48,314.00 per month plus $2,000
to Heritage as an insurance monitoring fee.
Watercrest is required to furnish regular monthly and annual
financial reports to the Trust.
As of December 31, 1999, real estate taxes through 1999 of
$118,545 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 will 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. The debt formerly
held on the Colorado Properties has been combined with the debt
held on Bayshore.
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.
THE BAYSHORE LOAN. The first mortgage loan to the Bank
totals $2,915,632 as of December 31, 1999. All interest payments
have been kept current during 1999 and through March 24, 2000.
The loan, as extended, became due on December 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
$1,409,773 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
December 31, 1999. This date is pursuant to the Forbearance
Agreement dated as of April 30, 1998, as extended. Management is
currently seeking to sell Bayshore 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 Watercrest (formerly Bayshore) is
adequately insured. As of March 24, 2000, occupancy is 93%.
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. During 1999, Lenox filed
for protection under bankruptcy laws. 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 1999 requiring a
vote of its shareholders. The annual meeting was scheduled for
January 21, 2000 and one of the agenda items was the approval or
denial of approval of the sale of Bayshore. Since a quorum was
not present either in person or by proxy, the meeting was
adjourned. Upon securing a quorum, it was reconvened on February
10, 2000 at which time 271,162.4806 shares were cast approving
the sale of Bayshore.
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
maker for its shares.
Based on representations made to the Advisor by the transfer
agent of the shares of the Trust, no sales occurred during 1999,
1998 and 1997. The transfer agent for the Common Stock of the
Trust is Gemisys, Inc., Evergreen, Colorado.
HOLDERS
As of March 24, 2000, 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 2000 which result in receipt by the Trust of
sale or lease proceeds in excess of the Trust expenses, including
the Bank indebtedness, there will not be cash available for
distributions for purposes of declaring and paying any dividends
in 2000. 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, 1999 COMPARED TO YEAR ENDED
DECEMBER 31, 1998.
For the year ended December 31, 1999, the Trust had a net
loss of $33,610, or $0.08 per share, as compared to a net loss of
$124,831, or $0.31 per share for 1998.
REVENUES. The Company primarily derives its revenues from
the leasing of facilities to healthcare providers. Revenues for
the year ended December 31, 1999 were $581,606, a decrease of
$58,622 or 9.2% from revenues of $640,228 for the year ended
December 31, 1998. The decrease in revenues was primarily the
result of the loss of lease revenues associated with sales of two
properties, both of which the Trust sold during 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and
amortization expense for the year ended December 31, 1999 was
$117,083, a decrease of $4,000 or 3.3% from $121,083 for the year
ended December 31, 19998 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.
INTEREST EXPENSE. For the year ended December 31, 1999,
interest expense totaled $395,780, a decrease of $63,988 or 13.9%
from $459,768 for the year ended December 31, 19987. This
decrease is the result of a lower principal balance on the Bank
loans, after applying regular amortization and the pay down
provided by application of the $182,500 payoff of the Harper
Notes.
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, 1999 were $63,000, the same as the $63,000 paid for the year
ended December 31, 1998.
OTHER EXPENSES. Other expenses for the year ended December
31, 1999 were $39,353, a decrease of $81,945 or 67% from $121,298
for the year ended December 31, 1998. 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 increased from $38,421 at December 31, 1998 to $76,285
at December 31, 1999. Rent and other receivables increased from
zero at December 31, 1998 to $90,000 at December 31, 1999. This
increase was primarily the result of borrowing in order to lend
to Bayshore sufficient funds to secure a Patient Trust bond. As
of March 2, 2000, the State of Florida released the bond and
Bayshore is in the process of securing the Certificate of Deposit
securing said bond in order to repay the Trust. Building and
improvements net, decreased from $3,418,426 at December 31, 1998
to $3,301,343 at December 31, 1999. This decrease was the result
of depreciation. Mortgage Notes payable decreased from $4,462,132
at December 31, 1998 to $4,325,404 at December 31, 1999. This
decrease was primarily 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 ($4,377,552)
at December 31, 1999. This increase is the result of the net loss
in 1999.
The Trust has relied solely on rental income to pay its
expenses in 1999 and 1998. Cash flows provided by operations
were ($64,044) in 1999 and $29,542 in 1998. This was primarily
the result of the Other Receivables increase caused by the
borrowing and lending to Bayshore for the Patient Trust bond.
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
only one remaining property under lease in 1999, thus limiting
cash flows available to pay operating expenses. Mortgage notes
payable on the Trust's property matured on December 31, 1999 as
the Bank had extended the Forbearance Agreement dated April 30,
1998 to January 31, 1999 and extended again to December 31,1999.
See Item 1. DESCRIPTION OF BUSINESS - General Development of
Business. The current maturity of the Trust's notes payable and
accumulated recurring operating losses 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. 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 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 experienced no financial or operational impact
related to Year 2000 issues. Insofar as could be determined, the
Trust's relationship with suppliers, vendors and other third
parties were not adversely affected by the Year 2000 concerns.
Bayshore is substantially dependent on Medicaid
reimbursements from the State of Florida. There were no
identifiable computer problems resulting in the failure of the
State of Florida to 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
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
DIRECTORS
Information with respect to the Company's directors is set
forth below.
Director
Name Age Position Presently Held From
- ---- --- ----------------------- --------
F. Dale Markham 70 Director, Chairman of 1987 to
the Board. President, Present
Chief Financial Officer
from March 3, 1999 to
present
Grady P. Hunter 66 Director 1987 to
Present
Charles E. Trefzger, Jr. 41 Director 1996 to
Present
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:
Grady P. Hunter, has served as a Director of the Trust since
its formation in 1987. Mr. Hunter was the Executive Vice
President and Chief Operating Officer of RSI, Inc. and similarly
of RSI Properties, Inc. both headquartered in Cranberry Township,
PA, from October, 1995 through June, 1999. He is now retired.
RSI, Inc. and RSI Properties, Inc. were 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.
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.
At the Board of Directors meeting held January 21, 2000, 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.
OFFICERS AND DIRECTORS OF THE ADVISOR
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 66, 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 until September 1, 1999. Mr. Sellers has been Senior
Vice President of Keystone Mortgage Partners LLC, 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, 1999. F. Dale Markham,
President and Treasurer of the Trust, was compensated by the
Trust for services rendered to the Trust during the fiscal years
ended December 31, 1999, 1998 and 1997 respectively.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal Position Year Total Compensation
- --------------------------- ---- ------------------
F. Dale Markham, Chairman 1999 $11,000 paid
of the Board, President and 1998 $2,750 accrued, $8,250 paid
Chief Financial Officer (2) 1997 $3,550 accrued, $37,650 paid
The Trust paid or accrued annual directors' fees of $11,000
each to the unaffiliated Directors in 1999 and 1998, plus a fee
of $800 for each Directors' meeting attended in person. In 1999,
$11,000 of Director's fees was paid to Mr. Markham.
The Trust may pay officers whose only affiliation is a
result of being an officer of the Trust. The Trust is not
required to pay any compensation to officers and directors of the
Trust who are also affiliated with the Advisor or its affiliates.
No other direct compensation was paid or payable by the
Trust during the fiscal year ended December 31, 1999.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth as of March 24, 2000 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.
Percentage of
Amount & Nature of Outstanding
Name of Beneficial Owner Beneficial Ownership Shares Owned
- ------------------------ -------------------- ------------
Harbor American Capital 20,000 Shares (1) 5.03%
Group, a California Limited
Partnership
Herbert W. Owens 40,000 Shares 10.06%
Grady P. Hunter 2,500 Shares 0.63%
(2) XXX
F. Dale Markham (1) XXX
James R. Sellers (1) XXX
All Directors and Officers (1) XXX
(1) The current Advisor as of March 24, 2000, 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 1999. 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 1999 and
therefore no acquisition fees were paid.
ADVISORY FEE
During the fiscal year ended December 31, 1999, the Trust
paid Advisory Fees to Harbor American Capital Group, the current
advisor, in the amount of $30,000.00. James R. Sellers is the
owner of Heritage which is the managing general partner of Harbor
American Capital Group. He is the owner of BHS, which served as
lessee of the Florida Property through August 31, 1999. During
1999, BHS paid lease rentals of $402,613 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.
Independent Auditor's Report - Years ended
December 31, 1999 and 1998. F-1
Balance sheets - December 31, 1999 and 1998. F-2
Statements of operations - Years ended December
31, 1999 and 1998. F-3
Statements of cash flows - Years ended December
31, 1999 and 1998. F-4
Notes to financial statements - December 31, 1999. F-5
REPORTS ON FORM 8-K
None
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, 2000 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, 2000 BY: /s/ F. Dale Markham
----------------------------------
F. Dale Markham
Director, President and Chief
Financial Officer (Principal
Executive, Financial and
Accounting Officer)
Dated: March 24, 2000 BY: /s/ Grady P. Hunter
----------------------------------
Grady P. Hunter, Director
Dated: March 24, 2000 BY: /s/ Charles E. Trefzger
----------------------------------
Charles E. Trefzger, Jr.,
Director
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, 1999
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 filed as Exhibit 10.92 to
Form 10-KSB filed
10.93* Third Extension of Leases and Rents (re: Bayshore First
Mortgage), dated as of October 31, 1994 between the
Trust and PNC filed as Exhibit 10.93 to Form 10-KSB
filed
10.94* Advisor Agreement, dated as of March 1, 1998, between
the Trust and Harbor American Capital Group filed as
Exhibit 10.95 to Form 10-KSB filed April 1, 1999.
10.95* Forbearance Agreement, effective as of April 30, 1998,
between the Trust and PNC Bank, National Association
filed as Exhibit 10.96 to Form 10-KSB filed April 1,
1999.
10.96* 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 filed as Exhibit 10.97 to
Form 10-KSB filed April 1, 1999.
10.97* 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 filed as Exhibit 10.98 to Form 10-KSB filed April
1, 1999.
10.98* Promissory Note, dated July 24, 1998, from Harper to
and in favor of the Trust, in the original principal
amount of $100,000 filed as Exhibit 10.99 to Form 10-KSB
filed April 1, 1999.
10.99* Promissory Note, dated July 24, 1998, from Harper to and
in favor of the Trust, in the original principal amount
of $82,500 filed as Exhibit 10.100 to Form 10-KSB filed
April 1, 1999.
10.100* Deed of Trust, dated July 24, 1998, from Harper for the
benefit of the Trust filed as Exhibit 10.101 to Form 10-
KSB filed April 1, 1999.
10.101* Collateral Assignment of Promissory Notes and Deeds of
Trust, dated as of July 24, 1998, from the Trust to PNC
filed as Exhibit 10.102 to Form 10-KSB filed April 1,
1999.
10.102* 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. filed
as Exhibit 10.103 to Form 10-KSB filed April 1, 1999.
10.103* Purchase and Sale Agreement, dated as of June 3, 1999,
as amended, by and between the Trust, Bayshore
Healthcare Services, Inc. and Abraham Shaulson, filed as
Exhibit 10.1 to Form 8-K filed September 15, 1999.
10.104* Master Facility Lease, dated as of July 30, 1999, by and
between the Trust and Waterfield Nursing and
Rehabilitation Center, Inc., filed as Exhibit 10.2 to
Form 8-K filed September 15, 1999.
27 Financial Data Schedule
*Incorporated by reference
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,
1999 and 1998 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, 1999
and 1998, 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 and include the pending sale of the sole
remaining property, discontinuing operations and distribution of
the residual proceeds. The financial statements do not include
adjustments that may result from the subsequent resolution of
these matters.
S.E. CLARK & COMPANY, P.C.
Tucson, Arizona
March 16, 2000
HEALTHCARE INVESTORS OF AMERICA, INC.
BALANCE SHEETS
<TABLE>
AS OF DECEMBER 31,
------------------
1999 1998
---- ----
ASSETS:
- ------
<S> <C> <C>
Real Estate Properties:
Land $ 393,195 $ 393,195
Building and improvements, net of
accumulated depreciation of $1,381,974
and $1,264,891 at December 31, 1999
and December 31, 1998, respectively 3,301,343 3,418,426
Prepaid expenses 50,000 5,838
Mortgage receivable -- 182,500
Rent and other receivables 90,000 --
Cash and cash equivalents 76,285 38,421
Restricted cash 328,864 --
---------- ----------
TOTAL ASSETS $4,239,687 $4,038,379
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY):
- -------------------------------------------------
Liabilities:
Mortgage notes payable $4,325,404 $4,462,132
Accounts payable and accrued expenses 107,413 170,767
Disputed claims 92,623 92,623
Purchase deposits 435,000 --
---------- ----------
TOTAL LIABILITIES 4,960,440 4,725,522
---------- ----------
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 (4,377,552) (4,343,942)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (Deficiency) (720,753) (687,143)
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY) $4,239,687 $4,038,379
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
HEALTHCARE INVESTORS OF AMERICA, INC.
STATEMENTS OF OPERATIONS (DISCONTINUED) AND
DISTRIBUTIONS IN EXCESS OF NET EARNINGS
<TABLE>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
REVENUES:
- --------
Rental income $ 561,260 $ 653,439
Interest and other income 20,346 5,819
Loss on sale of assets -- (19,030)
----------- -----------
581,606 640,228
----------- -----------
EXPENSES:
- --------
Depreciation and amortization 117,083 121,083
Interest expense 395,780 459,768
Advisor, directors fees and expenses 63,000 63,000
Other operating expenses 39,353 121,298
----------- -----------
615,216 765,059
----------- -----------
NET LOSS (FROM DISCONTINUED OPERATIONS) $ (33,610) $ (124,831)
=========== ===========
NET LOSS PER SHARE (FROM DISCONTINUED
OPERATIONS) $(0.08) $(0.31)
====== ======
Weighted average shares outstanding 397,600 397,600
=========== ===========
DISTRIBUTIONS IN EXCESS OF NET EARNINGS:
Beginning of Year $(4,343,942) $(4,219,111)
Net loss (33,610) (124,831)
----------- -----------
End of year $(4,377,552) $(4,343,942)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
HEALTHCARE INVESTORS OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
- --------------------------
Net loss (from discontinued operations) $ (33,610) $ (124,831)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 117,083 121,083
Loss on sale of assets -- 19,030
Changes in assets and liabilities:
Rent and other receivables (90,000) 29,267
Prepaid expenses 5,838 (1,923)
Accounts payable and accrued expenses (63,355) (13,084)
----------- -----------
Net cash provided by (used for)
operating activities (64,044) 29,542
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
(Increase) decrease in mortgage receivable 182,500 (182,500)
Property sale related items:
Nonrefundable purchase deposit received 375,000 --
Cash used for prepaid sales commissions (50,000) --
Capital improvements deposit received 125,000 --
Cash paid for capital improvements (65,000) --
Net proceeds on disposition of Colorado
properties -- 462,540
----------- -----------
Net cash provided by investing activities 567,500 280,040
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Payments on long-term borrowings (267,974) (361,126)
Additions to long-term borrowings 131,246 --
----------- -----------
Net cash used for financing activities (136,728) (361,126)
----------- -----------
CASH AND CASH EQUIVALENTS:
- -------------------------
Increase (decrease) during year 366,728 (51,544)
Beginning of year 38,421 89,965
----------- -----------
End of year $ 405,149 $ 38,421
=========== ===========
</TABLE>
Cash paid for interest approximates interest expense for the periods. No
cash was paid for income taxes in either of the periods presented.
The accompanying notes are an integral part of these financial statements.
F-4
HEALTHCARE INVESTORS OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 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 December 31, 1999, the Trust has only one
property leased. Therefore, the cash flow available to pay
operating expenses is limited.
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, 1999, the remaining property owned by the Trust
is Bayshore Convalescent Center in North Miami, Florida
("Bayshore"). Bayshore was leased to Bayshore Healthcare
Services, Inc. ("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 the
sale. This approval was obtained in February 2000. Additional
details of the sale can be found 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. The new lease is for a term of one year and
one month expiring October 31, 2000, unless sooner terminated to
accommodate the closing of the sale.
In 1998, the Trust sold 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, dated June 17, 1998, as amended. At closing on July
24, 1998, the Trust received $80,000 in cash and was 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 $82,000. On July 16, 1999, the Harper Notes were
paid in full and the proceeds were used to pay down on the
Florida property mortgage. 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 $15,000 on August 6, 1998 and the remaining balance of
$235,000 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, 2000 is to sell its remaining property, distribute
the proceeds and liquidate the corporation.
The Company's mortgage notes payable matured on December 31,
1999. Approval for an extension will be partly based on approval
of the new tenant in the facility. Technically, failure to
obtain approval for the new tenant is a default under the
documents. Once proper financial and industry references are
obtained from the tenant, this default may be cured and the
requested extension approved.
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, 1999, the Company had net
------------
operating loss carryforwards for income tax purposes of
approximately $1,500,000 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, 1999 the Trust owned one nursing home in Florida
(the "Florida Property"). As previously disclosed the Colorado
properties were sold in 1998.
Trust management has evaluated the carrying value of the Florida
Property and believes that the remaining net carrying value is
realizable
At December 31, 1999, the net book value of the Florida Property
is as follows:
Cost:
Land $ 393,195
Buildings and Improvements 4,683,317
Accumulated Depreciation (1,381,974)
-----------
Net Carrying Value $ 3,694,538
===========
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 had the option to
renew for an additional five, five-year terms. The first lease
renewal option was exercised on May 1, 1998. BHS paid rents
totaling $384,112 and $587,623 during 1999 and 1998 respectively.
Effective September 1, 1999, the BHS lease was canceled and a new
fourteen month lease was entered into with Watercrest Nursing and
Rehabilitation Center, Inc.
The new 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. Monthly mortgage
payments are $41,314, resulting in a monthly lease payment of
$48,314.
Future minimum annual lease payments, expected to be received by
the Trust on the leased property during the lease term are as
follows:
Year ended December 31, 2000 $ 483,140
NOTE 4: MORTGAGE NOTE PAYABLE
- -----------------------------
12/31/99 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. $4,325,404 $4,462,132
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.
Extension of this note is pending as 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 $30,000 to the Advisor during 1999
and 1998.
- -- Property management, acquisition and disposition fees to be
paid based upon contractual agreements between the parties.
The Trust incurred no such fees in 1999 or 1998.
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 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
- ---------------------
Bayshore is substantially dependent on Medicaid reimbursements
from the State of Florida. To the extent that the State of
Florida has encountered problems resulting from the Year 2000
Problem, and is unable to make timely payments, the Trust may be
adversely impacted. As of the date of this report, no problems
related to the Year 2000 problem have been noted and are not
further anticipated.
The Company's mortgage notes payable matured on December 31,
1999. Approval for an extension will be partly based on approval
of the new tenant in the facility. Technically, failure to
obtain approval for the new tenant is a default under the
documents. Once proper financial and industry references are
obtained from the tenant, this default may be cured and the
extension requested.
Due to receipt of the deposit on sale, the Company is maintaining
a balance in its account which exceeds the $100,000
institutional limit of the FDIC. In the event the financial
institution should fail, amounts in excess of the limit, totaling
$229,000 as of December 31, 1999, represent an uninsured risk to
the Company.
NOTE 8: SUBSEQUENT EVENTS
- -------------------------
Approval of the sale of the Florida property to Abraham Shaulson
for $5,750,000 was obtained from the shareholders in February
2000. Upon approval of the sale, the purchase deposit was
released to the Trust and is no longer restricted for use.
In accordance with EITF 95-18 the date of shareholder
ratification is considered the measurement date for the decision
to discontinue operations and the operating results of the
presented periods prior to the measurement date are considered
losses from discontinued operations. Since this represents the
disposition of the sole remaining property, there are no losses
from continuing operations.
Management estimates that additional operating losses totaling
$10,000 will be incurred through the closing date of October 31,
2000. Management also estimates that the Company will realize a
gain on sale of $1,363,000, representing the $5,750,000 sales
price net of selling expenses of $790,000 and undepreciated costs
of $3,597,000. Management additionally estimates that the net
cash residual available for distribution to the shareholders will
approximate $660,000, representing the $5,750,000 sales price net
of closing costs of $790,000, mortgage debt service of $4,255,000
and retirement of general corporate obligations totaling $45,000.
In that the sale has not yet closed, the Company is utilizing the
deposit method to recognize income from the sale transaction,
whereby cash received is recorded as a deposit on the contract
pending closing. In the event the contract is canceled, deposit
forfeitures are recognized as income. When the closing has
occurred, an appropriate method of revenue recognition will be
adopted taking the following factors (and others) into
consideration: (a) the degree to which ownership risks are
transferred to the buyer, (b) the degree of seller financing or
financing recourse and (c) the adequacy of the buyer's initial
investment.
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<CIK> 0000810836
<NAME> HEALTHCARE INVESTORS OF AMERICA, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 76,285
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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<CURRENT-ASSETS> 76,285
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<DEPRECIATION> 1,381,974
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<CURRENT-LIABILITIES> 635,036
<BONDS> 4,325,404
0
0
<COMMON> (720,753)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,239,687
<SALES> 0
<TOTAL-REVENUES> 561,606
<CGS> 0
<TOTAL-COSTS> 219,436
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 395,780
<INCOME-PRETAX> (33,610)
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<INCOME-CONTINUING> (33,610)
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<EXTRAORDINARY> 0
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<NET-INCOME> (33,610)
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