DEBT AND DEBT – RELATED PARTIES |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DEBT AND DEBT – RELATED PARTIES | 4. DEBT AND DEBT – RELATED PARTIES
The following is a summary of the Company’s debt and debt – related parties outstanding as of December 31, 2021 and 2020:
The weighted average interest rate and term of our fixed rate debt are 3.53% and 15.25 years, respectively, as of December 31, 2021. The weighted average interest rate and term of our variable rate debt are 5.9% and 16.11 years, respectively, as of December 31, 2021.
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
As of December 31, 2021, and December 31, 2020, the senior secured notes are subject to annual interest ranging from 10% to 11% with an original maturity date of October 31, 2021. These notes were extended to June 30, 2023 and as consideration the Company modified the outstanding warrants to extend the life an additional 1.67 years. As a result of the warrant modification, the Company recorded the incremental increase in fair value of $844,425 as a debt discount which will be amortized over the new life of the loans.
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 $10.00 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 $7.50 per share. The warrants have a cashless exercise provision and were valued using the Black-Scholes pricing model. The maturity date of the 120,000 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 10,000 cashless exercise warrants for purchase of company stock at $5.00, 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 . For every $10.00 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 $7.50 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 15,000 cashless exercise warrants for purchase of the Company’s common stock at $5.00 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 $10.00 in principal amount of Note exercisable for three years to purchase a share of Common Stock at an exercise price of $5.00 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 11,100 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 6,000 and 10,000, 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 15,000 cashless exercise warrants for purchase of company stock at $5.00, 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 during the year ended December 31, 2020.
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:
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:
Subordinated, Corporate, and Other Debt
Other debt due at December 31, 2021 and 2020 includes unsecured notes payable issued to entities controlled by the Company used to facilitate the acquisition of the nursing home properties.
Our corporate debt at December 31, 2021, and December 31, 2020 includes unsecured notes and notes secured by all assets of the Company not serving as collateral for other notes.
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 6,000 and 10,000, respectively, cashless exercise warrants for purchase of company stock at $5.00, 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 15,000 cashless exercise warrants for purchase of the Company’s common stock at $5.00 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 received 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.
On June 16, 2021, the Company through its subsidiaries received confirmation that the loan of $675,598 pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was forgiven by the SBA.
For the years ended December 31, 2021 and 2020, the Company received proceeds from the issuance of debt of $9,134,102 and $3,365,448, 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 $8,118,772 and $1,352,300 for the years ended December 31, 2021 and 2020, respectively. Amortization expense for deferred loan costs and debt discounts totaled $157,296 and $121,938 for the years ended December 31, 2021 and 2020, respectively.
Future maturities and principal payments of all notes and bonds payable listed above for the next five years and thereafter are as follows:
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