Debt and Debt - Related Parties

12 Months Ended

Dec. 31, 2020

Debt Disclosure [Abstract]

Debt and Debt - Related Parties

5. DEBT AND DEBT – RELATED PARTIES

The following is a summary of the Company’s debt and debt – related parties outstanding as of December 31, 2020 and 2019:

	2020			2019
Senior Secured Promissory Notes	$	1,695,000		$	1,485,000
Senior Unsecured Promissory Notes		-			300,000
Senior Secured Promissory Notes - Related Parties		975,000			875,000
Fixed-Rate Mortgage Loans		30,370,220			22,427,949
Variable-Rate Mortgage Loans		5,650,579			4,618,006
Line of Credit, Senior Secured		-			7,230,582
Other Debt, Subordinated Secured		741,000			1,386,000
Other Debt, Subordinated Secured – Related Parties		150,000			150,000
Other Debt, Subordinated Secured – Seller Financing		125,394			-
		39,707,193			38,472,537
Premium, Unamortized Discount and Debt Issuance Costs		(455,827	)		(493,353	)
	$	39,251,366		$	37,979,184
As presented in the Consolidated Balance Sheets:
Debt, Net	$	38,129,600		$	36,954,184
Debt - Related Parties, Net	$	1,121,766		$	1,025,000
	$	39,251,366		$	37,979,184

The weighted average interest rate and term of our fixed rate debt are 5.49% and 6.8 years, respectively, as of December 31, 2020. The weighted average interest rate and term of our variable rate debt are 5.89% and 17.1 years, respectively, as of December 31, 2020. We capitalized $5,177 of interest and fees related to the extension of senior notes during the year ended December 31, 2020.

Corporate Senior and Senior Secured Promissory Notes

In 2017, $600,000 in notes were sold and issued, of which $425,000 were to related parties. On December 31, 2017, there were outstanding an aggregate of $1.2 million in senior secured notes. The maturity date of all the senior secured notes was extended to December 31, 2018 prior to their original maturity date. For every $1.00 in principal amount of note, investors got one warrant exercisable for one year to purchase an additional share of common stock at an exercise price of $0.75 per share. The warrants have a cashless exercise provision and were valued using the Black-Scholes pricing model. The maturity date of the 1.2 million warrants issued along with the notes was extended to December 31, 2018, 225,000 warrants of which occurred in 2018. As of December 31, 2019, the Company had not renewed or repaid $125,000 in 10% notes with a maturity date of December 31, 2018, and those notes were technically in default. Effective January 28, 2020, the Company exchanged $100,000 in outstanding senior secured 10% Notes and Warrants that had matured on December 31, 2018 for 11% Senior Secured Promissory Notes and issued 100,000 cashless exercise warrants for purchase of company stock at $0.50, expiring October 31, 2021. As of December 31, 2020, the Company had not renewed or repaid $25,000 in 10% notes with a maturity date of December 31, 2018. While this is technically in default, the Company continues to make interest payments to the noteholder.

In October 2017, the Company sold an aggregate of $300,000 in senior unsecured notes. The notes bear interest at the rate of 10% per annum and were due in October 2020. For every $1.00 in principal amount of note, investors got one warrant exercisable for one year to purchase an additional share of common stock at an exercise price of $0.75 per share. The warrants have a cashless exercise provision. On September 30, 2020, the Company repaid $150,000 of 10% Senior Unsecured Notes that matured October 31, 2020. Effective October 31, 2020, the Company exchanged $150,000 in outstanding Senior Unsecured 10% Notes and Warrants that had matured on October 31, 2020 for 11% Senior Secured Promissory Notes and issued 150,000 cashless exercise warrants for purchase of the Company’s common stock at $0.50 per share, expiring October 31, 2021.

In October 2018, the Company, through a registered broker-dealer acting as Placement Agent, undertook a private offering to accredited investors of Units, each Unit consisting of an 11% Senior Secured Note, due in three years, (October 31, 2021) and one Warrant for each $1.00 in principal amount of Note exercisable for three years to purchase a share of Common Stock at an exercise price of $0.50 per share. The Company and the Placement Agent completed the Offering in December 2018 having sold an aggregate of $1,160,000 in Notes and Warrants. The net proceeds to the Company were $1,092,400, after deducting Placement Agent fees of $67,600, and issued 111,000 warrants to the Placement Agent with $21,453 of the fair value of the warrants recorded as loan cost. The Offering also included the exchange of an aggregate of $1.075 million in outstanding senior secured 10% Notes and Warrants for Units in the Offering. No proceeds were realized from the exchange and no fees were paid to the Placement Agent for such exchanges. During 2018, among the $1.075 million senior secured notes that were extended to October 31, 2021 by virtue of the exchange, $875,000 were to related parties.

On January 17, 2020, the Board of Directors agreed to increase the total offering amount and extend the period of its 2018 Offering of 11% Senior Secured Notes. The total amount of the Offering has been increased to $2,500,000 and the offering period will continue until terminated by the Board of Directors. Effective February 5, 2020 and March 3, 2020, the Company completed the sale of $60,000 and $100,000, respectively, of Units in the Offering. The sale of $100,000 Units on March 3, 2020 was to a related party.  In connection with the sale of the Units on February 5, 2020 and March 3, 2020, the Company issued 60,000 and 100,000, respectively, cashless exercise warrants for purchase of company stock at $0.50, expiring October 31, 2021. Effective October 31, 2020 the Company completed the exchange of $150,000 of Units in the Offering for matured Senior Unsecured notes. In connection with the exchange of the Units effective October 31, 2020, the Company issued 150,000 cashless exercise warrants for purchase of company stock at $0.50, expiring October 31, 2021. No fees or commissions were paid on the sale of the Units. The proceeds were used for general working capital.

The fair value of warrants issued in connection with the sales and exchanges of Units during the year ended December 31, 2020 was $27,228 and was recorded as debt discount. Amortization expense related to the warrants was $75,025  and $72,777 during the years ended December 31, 2020 and 2019, respectively.

The value of the warrants issued to the note holders during the year ended December 31, 2020 was calculated using the Black-Scholes pricing model using the following significant assumptions:

Volatility		115.2% - 119.4	%
Risk-free Interest Rate		0.13% - 1.45	%
Exercise Price	$	0.50
Fair Value of Common Stock	$	0.20 - $0.24
Expected Life		1.0 – 1.8 years

Mortgage Loans and Lines of Credit Secured by Real Estate 

Mortgage loans and other debts such as lines of credit are collateralized by all assets of each nursing home property and an assignment of its rents. Collateral for certain mortgage loans includes the personal guarantee of Christopher Brogdon, formerly but no longer a related party, or corporate guarantees. Mortgage loans for the periods presented consisted of the following:

					Total Principle Outstanding as of
State	Number of Properties		Total Face Amount		12/31/2020		12/31/2019
Arkansas(1)		1	$	5,000,000	$	4,618,006	$	4,618,006
Georgia(2)		5	$	17,765,992	$	17,029,094	$	17,483,791
Ohio		1	$	3,000,000	$	2,798,000	$	2,869,200
Oklahoma(3)		6	$	12,378,599	$	11,575,699	$	9,305,540
		13	$	38,144,591	$	36,020,799	$	34,276,537

(1)	The mortgage loan collateralized by this property is 80% guaranteed by the USDA and requires an annual renewal fee payable in the amount of 0.25% of the USDA guaranteed portion of the outstanding principal balance as of December 31 of each year. Guarantors under the mortgage loan include Christopher Brogdon. With our consent, Mr. Brogdon has assumed operations of the facility and is making payment of interest on the loan.
(2)	In 2021, the Company has two mortgages maturing totaling $6,326,598. Management is actively working with our lenders to either, refinance for better terms or extend these notes.
(3)	In 2021, the Company has three  mortgages maturing totaling $2,609,331. As with our Georgia facilities, management is actively working with our lenders to either refinance for better terms or extend the current note.

Subordinated, Corporate, and Other Debt

Other debt due at December 31, 2020 and 2019 includes unsecured notes payable issued to entities controlled by the Company used to facilitate the acquisition of the nursing home properties.

			Principal Outstanding at
Property	Face Amount		December 31, 2020		December 31, 2019		Stated Interest Rate	Maturity Date
Goodwill Nursing Home (1)	$	2,030,000	$	741,000	$	1,386,000	13% (1) Fixed	December 31, 2019
Goodwill Nursing Home – Related Party (1)	$	150,000	$	150,000		150,000	13% (1) Fixed	December 31, 2019
Higher Call Nursing Center (2)		150,000		125,394		-	8% Fixed	April 1, 2024
			$	1,016,394	$	1,536,000

(1)

On June 30, 2020, the Company purchased notes from four former investors in GWH Investors, LLC in favor of Goodwill Hunting, LLC in the aggregate amount of $482,400 for $402,000 cash and recognized a gain of $80,400. On October 30, 2020, the Company purchased from two more investors an aggregate amount of $108,000 for $90,000 of cash and recognized a gain of $18,000. On November 20, 2020, the Company purchased from two additional investors an aggregate amount of $54,600 for $45,500 cash and recognized a gain of $9,100.

(2)

In connection with the acquisition of Higher Call, the Company executed a promissory note in favor of the Seller, Higher Call Nursing Center, Inc., in the principal amount of $150,000 which accrues interest at the rate of 8% per annum and is payable in equal monthly installments, principal and interest. This note is secured by a corporate guaranty of Global.

Our corporate debt at December 31, 2020 and December 31, 2019 includes unsecured notes and notes secured by all assets of the Company not serving as collateral for other notes.

			Principal Outstanding at
Series	Face Amount		December 31, 2020		December 31, 2019		Stated Interest Rate	Maturity Date
10% Senior Secured Promissory Note	$	25,000	$	25,000	$	25,000	10.0% Fixed	December 31, 2018
10% Senior Unsecured Promissory Notes		300,000		-		300,000	10.0% Fixed	October 31, 2020
11% Senior Secured Promissory Notes		1,670,000		1,670,000		1,460,000	11.0% Fixed	October 31, 2021
11% Senior Secured Promissory Notes – Related Party		975,000		975,000		875,000	11.0% Fixed	October 31, 2021
			$	2,670,000	$	2,660,000

Effective February 5, 2020 the Company completed the sale of $60,000 of Units in the 11% Senior Secured Notes, and effective March 3, 2020 the Company completed the sale of $100,000 Units to a related party.  In connection with the sale of the Units on February 5, 2020 and March 3, 2020, the Company issued 60,000 and 100,000, respectively, cashless exercise warrants for purchase of company stock at $0.50, expiring October 31, 2021.

On September 30, 2020, the Company repaid $150,000 of 10% Senior Unsecured Notes that matured October 31, 2020. Effective October 31, 2020, the Company exchanged $150,000 in outstanding Senior Unsecured 10% Notes and Warrants that had matured on October 31, 2020 for 11% Senior Secured Promissory Notes and issued 150,000 cashless exercise warrants for purchase of the Company’s common stock at $0.50 per share, expiring October 31, 2021.

Paycheck Protection Program Loans

On April 20, 2020, the Company through its subsidiaries received a loan of $574,975 pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 20, 2022 (the “Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the principal, on the Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are eligible for forgiveness, subject to the provisions of the CARES Act.

On May 4, 2020, the Company through its subsidiaries received loans of $324,442 and $710,752 pursuant to the Paycheck Protection Program (the “PPP Loans”) of the CARES Act. Both PPP Loans mature on May 4, 2022 (the “Maturity Date”), accrue interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loans. The interest accrued during the initial six-month period is due and payable, together with the principal, on the Maturity Date. The Company used all proceeds from the PPP Loans to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are eligible for forgiveness, subject to the provisions of the CARES Act. On November 19, 2020, the Company received notice of forgiveness of the entire balance on two of its three loans obtained through the Paycheck Protection Program (the “PPP Loans”) of the CARES Act. All requirements for loan forgiveness have been met prior to December 31, 2020 for all three loans. The forgiveness for the loan balance of $574,975 was approved by the lender and the Company is awaiting final forgiveness from the SBA.

The forgiveness recognized during the year ended December 31, 2020 included principal of $324,442, $574,975, and $710,752, as well as interest payable of $1,794, $4,017, and $3,869.

For the years ended December 31, 2020 and 2019, the Company received proceeds from the issuance of debt of $3,365,448 and $1,801,718, respectively. Proceeds from the issuance of debt in the year ended December 31, 2020 includes $100,000 from related parties. Cash payments on debt totaled $1,352,300 and $538,534 for the years ended December 31, 2020 and 2019, respectively. Amortization expense for deferred loan costs and debt discounts totaled $121,938 and $136,352  for the years ended December 31, 2020 and 2019, respectively.

Future maturities and principal payments of all notes and bonds payable listed above for the next five years and thereafter are as follows:

Years
2021	$	20,425,870	(1)
2022		547,052
2023		7,214,322
2024		381,508
2025		4,483,421
2026 and after		6,655,020
	$	39,707,193

(1) Any note or bond that is not in compliance with all financial and non-financial covenants is considered to have an immediate maturity, including those that require compliance with covenants on any and all other notes. The notes secured by Meadowview, Abbeville, and GL Nursing have covenants which were in technical non-compliance at December 31, 2020, but the Company believes that its relationships with these lenders are good.