NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Assisted
4 Living, Inc. (“the Company,” “we”, “our” or “us”) was incorporated in the state of
Nevada on May 24, 2017, and is based in Bradenton, Florida. Our accounting and reporting policies conform to accounting principles generally
accepted in the United States of America (“GAAP”), and the fiscal year end is December 31.
As
discussed in NOTE 3, on March 23, 2021, we entered into a Plan of Merger with our wholly-owned subsidiary, BPCC Acquisition, Inc., a
Florida corporation (“Merger Sub”) and Banyan Pediatric Care Centers, Inc. (“Banyan”). Under the terms of the
Plan of Merger, Merger Sub merged with and into Banyan with Banyan surviving the merger (the “Surviving Entity”) and becoming
a wholly-owned subsidiary of the Company (the “Merger”). Pursuant to the Merger, we succeeded to the business of Banyan.
The Merger has been treated as a recapitalization and reverse acquisition of the Company for financial accounting purposes, and Banyan
is considered the acquirer for financial reporting purposes. This means that the Company’s historical financial statements before
the Merger have been replaced with the historical financial statements of Banyan before the Merger in this Quarterly Report and future
filings with the SEC.
Banyan,
operates three pediatric extended care centers (“PPECs”) in southwest Florida. A PPEC is a nurse-staffed pediatric day care
center for medically complex children age birth to 21 years. Our staff includes Registered Nurses (RNs), Licensed Practical Nurses (LPNs),
Certified Nursing Assistants (CNAs) and Caregivers, who attend to the children’s medical conditions throughout the day in classroom,
dining, play, and clinical settings. Banyan is fully licensed and accepts Florida Medicaid.
As
discussed in NOTE 5, on June 10, 2021, we entered into an Amended and Restated Membership Interest Purchase Agreement (the “Restated
Purchase Agreement”), by and among the Company, Richard T. Mason (“Mason”), G. Shayne Bench (“Bench”) and
Trillium Healthcare Group, LLC, a Florida limited liability company (“Trillium”) to acquire all of the issued and outstanding
ownership interests of Fairway Healthcare Properties, LLC (“FHP”) and Trillium Healthcare Consulting, LLC (together with
FHP, the “Trillium Subsidiaries”) from Trillium. The transaction closed and was effective June 10, 2021.
Trillium
subsidiaries lease and operate 26 facilities in four states: Florida, Georgia, Iowa, and Nebraska with 1,685 total licensed beds (1,546
skilled nursing, 139 assisted living) and 36 independent living apartments. The breakdown by state is as follows: Florida – 1 skilled
nursing facility; Georgia – 1 skilled nursing facility; Iowa – 16 skilled nursing facilities, 2 independent living centers
and 1 assisted living centers; Nebraska – 4 skilled nursing facilities and 1 assisted living center.
The
facilities provide room and board, routine daily care services, post-acute care including rehabilitation and memory care. The Trillium
Subsidiaries were organized under the laws of the State of Florida on February 9, 2012, for the purpose of acquiring and managing long
term care facilities, such as skilled nursing facilities and assisted living centers.
We
are headquartered in Bradenton, Florida.
The
corporate website is www.assisted4living.com.
COVID-19
In
March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic based on the rapid increase in global exposure.
COVID-19 continues to spread throughout the world. We are closely monitoring developments and are taking steps to mitigate the potential
risks related to the COVID-19 pandemic to the Company, its employees, as well as its residential and consulting clients.
Our
evaluations of our practices, procedures, and operations, related to COVID-19, is ongoing. Additional updates to policies, procedures
and operations will occur as best practices are adopted and as we deem necessary or advisable, or as further governmental guidance or
regulations are implemented.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements of the Company (“Financial Statements”) have been prepared
in accordance with GAAP for interim financial statements and with the instructions to Form 10-Q and Regulation S-X of the United States
Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting
principles generally accepted in the United States of America for annual financial statements.
In
the opinion of management, the accompanying condensed consolidated Financial Statements contain all the adjustments necessary (consisting
only of normal recurring accruals) to present the financial position of the Company as of September 30, 2021, and the results of operations
and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2021, are not necessarily
indicative of the operating results for the full fiscal year or any future period. These condensed consolidated Financial Statements
should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual
Report on Form 10-K filed with the SEC on March 1, 2021 and Current Report on Form 8-K on June 2, 2021. As of April 30, 2021, we had
discontinued operations reflected in the accompanying condensed consolidated Financial Statements. As a result of the Plan of Merger
completed on March 23, 2021 (see NOTE 3) we have changed our year end reporting period from November to December.
Capital
Requirements, Liquidity and Going Concern Considerations
These
condensed consolidated Financial Statements are prepared using the generally accepted accounting principles applicable to a going concern,
which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Although we had cash and
accounts receivable in the amount of approximately $11.4 million at September 30, 2021, we had accrued expenses and current notes payable
in excess of cash and accounts receivable in the amount of approximately $6.5 million, and a deficiency in working capital of approximately
$20.6 million. For the nine months ended September 30, 2021, our net loss was approximately $6.9 million.
As
a result of these factors, we determined it was necessary to review our cash flow for 2021 and an overall analysis of market trends to
determine whether or not we have sufficient liquidity to continue as a going concern for a period of at least twelve months from the
date of this Quarterly Report. We also determined it was necessary to take certain corporate actions, including reducing discretionary
expenses (and reduced reliance on agency staffing), improving revenue (including added Therapy and Rehab services), and raising additional
capital, in order to ensure we have sufficient liquidity to continue as a going concern for a period of at least twelve months from the
date of this Quarterly Report.
During
the three months ended September 30, 2021 we sold 5.0
million
shares for an aggregate total of $5.0
million. This capital raise will be used for
additional growth through acquisitions and for working capital. However, no assurances can be given that we will be successful. If management
is not able to timely and successfully raise additional capital and/or refinance indebtedness, the implementation of the Company’s
business plan, financial condition and results of operations will be materially affected.
Basis
of Consolidation
These
condensed consolidated Financial Statements include the accounts of the Company and the wholly-owned subsidiaries, Banyan Pediatric Care
Centers – OPS, LLC, Banyan Pediatric Care Centers – St. Petersburg, LLC, Banyan Pediatric Care Centers, - Pasco, LLC and
Banyan Pediatric Care Centers – Sarasota, LLC and the discontinued operations of Assisted 2 Live, Inc., the wholly owned subsidiary
that was discontinued as of April 30, 2021. All material intercompany balances and transactions have been eliminated. The condensed consolidated
Financial Statements also include the accounts of the Trillium Subsidiaries from June 10, 2021, the effective date of the transaction
with Trillium.
Use
of Estimates and Assumptions
The
preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed
consolidated financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses
during the reporting period. Actual results could differ from these good faith estimates and judgments.
Cash
and Cash Equivalents
The
Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. The Company had
no cash equivalents at September 30, 2021 and December 31, 2020.
Accounts
Receivable
Accounts
receivable primarily consists of amounts due from third-party payers (non-governmental), governmental payers and private pay patients
and is recorded net of contractual allowances and reserves for doubtful accounts. The Company’s ability to collect outstanding
receivables is critical to its results of operations and cash flows. Accordingly, accounts receivable reported in the Company’s
Financial Statements is recorded at the net amount expected to be received. The Company’s primary collection risks are (i) the
risk of overestimation of net revenues at the time of billing that may result in the Company receiving less than the recorded receivable,
(ii) the risk of non-payment as a result of commercial insurance companies’ denial of claims, (iii) the risk that patients will
fail to remit insurance payments to the Company when the commercial insurance company pays out-of-network claims directly to the patient,
(iv) resource and capacity constraints that may prevent the Company from handling the volume of billing and collection issues in a timely
manner, (v) the risk that patients do not pay the Company for their self-pay balances (including co-pays, deductibles and any portion
of the claim not covered by insurance) and (vi) the risk of non-payment from uninsured patients.
The
Company’s accounts receivable from third-party payers are recorded net of estimated contractual adjustments and allowances from
third-party payers, which are estimated based on the historical trend of the Company’s facilities’ cash collections and contractual
write-offs, accounts receivable aging, established fee schedules, relationships with payers and procedure statistics. While changes in
estimated reimbursement from third-party payers remain a possibility, the Company expects that any such changes would be minimal and,
therefore, would not have a material effect on the Company’s financial condition or results of operations. The Company’s
collection policies and procedures are based on the type of payor, size of claim and estimated collection percentage for each patient
account. The Company analyzes accounts receivable at each of the facilities to ensure the proper collection and aged category. The operating
systems generate reports that assist in the collection efforts by prioritizing patient accounts. Collection efforts include direct contact
with insurance carriers or patients and written correspondence.
Allowance
for Doubtful Accounts, Contractual and Other Discounts
Management
estimates the allowance for contractual and other discounts based on its historical collection experience and contracted relationship
with the payers. The services authorized and provided and related reimbursement are often subject to interpretation and negotiation that
could result in payments that differ from the Company’s estimates. The Company’s allowance for doubtful accounts is based
on historical experience, but management also takes into consideration the age of accounts, creditworthiness and current economic trends
when evaluating the adequacy of the allowance for doubtful accounts. An account may be written-off only after the Company has pursued
collection efforts or otherwise determines an account to be uncollectible. Uncollectible balances are written-off against the allowance.
Recoveries of previously written-off balances are credited to income when the recoveries are made.
COVID-19
Pandemic and CARES Act Funding
COVID-19
Pandemic. In January 2020, the Secretary of the U.S. Department of Health and Human Services (“HHS”) declared a national
public health emergency due to a novel strain of coronavirus. In March 2020, the World Health Organization declared the outbreak of COVID-19,
a disease caused by this coronavirus, a pandemic. The resulting measures to contain the spread and impact of COVID-19 and other developments
related to COVID-19 have materially affected the Company’s results of operations during 2020. Where applicable, the impact resulting
from the COVID-19 pandemic during the year ended December 31, 2020, has been considered, including updated assessments of the recoverability
of assets and evaluation of potential credit losses. As a result of the COVID-19 pandemic, federal and state governments have passed
legislation, promulgated regulations and taken other administrative actions intended to assist healthcare providers in providing care
to COVID-19 and other patients during the public health emergency. Sources of relief include the Coronavirus Aid, Relief and Economic
Security Act (the “CARES Act”), which was enacted on March 27, 2020, the Paycheck Protection Program and Health Care Enhancement
Act (the “PPPHCE Act”), which was enacted on April 24, 2020, and the Consolidated Appropriations Act, 2021 (the “CAA”),
which was enacted on December 27, 2020. In total, the CARES Act, PPPHCE Act and the CAA authorize $178 billion in funding to be distributed
to hospitals and other healthcare providers through the Public Health and Social Services Emergency Fund (the “PHSSEF”).
In addition, the CARES Act provide for an expansion of the Medicare Accelerated and Advance Payment Program whereby inpatient acute care
hospitals and other eligible providers were able to request accelerated payment of up to 100% of their Medicare payment amount for a
six-month period to be repaid through withholding of future Medicare fee-for-service payments. Various other state and local programs
also exist to provide relief, either independently or through distribution of monies received via the CARES Act. During the period ended
September 30, 2021, the Company was a beneficiary of these stimulus measures, including the Medicare Accelerated and Advance Payment
Program.
The
Company’s accounting policies for the recognition of these stimulus monies is as follows:
Pandemic
Relief Funds
Trillium
received an aggregate of $13,487,923
in PHSSEF payments, of which $4,242,796
was applied during 2020. Prior to the acquisition
date of June 10, 2021 Trillium had recognized $7,081,557
as other operating income.
During the three and nine-month period ended September 30, 2021 we recognized $1,385,162
as other operating income resulting
in a remaining balance of $778,408
which is classified on the balance sheet as Deferred
HHS Revenue. The recognition of amounts received is conditioned upon the provision of care for individuals with possible or actual cases
of COVID-19 after January 31, 2020, certification that payment will be used to prevent, prepare for and respond to coronavirus and shall
reimburse the recipient only for healthcare-related expenses or lost revenues, as defined by HHS, that are attributable to coronavirus,
as well as receipt of the funds. Amounts are recognized as a reduction to operating costs and expenses only to the extent the Company
is reasonably assured that underlying conditions have been met.
The
Company’s assessment of whether the terms and conditions for amounts received are reasonably assured of having been met considers,
among other things, the CARES Act, the CAA and all frequently asked questions and other interpretive guidance issued by HHS, including
the Post-Payment Notice of Reporting Requirements issued on January 15, 2021 (the “January 15, 2021 Notice”) and frequently
asked questions issued by HHS on January 28, 2021 which clarified previously issued guidance, as well as expenses incurred attributable
to the coronavirus and the Company’s results of operations during such period as compared to the Company’s budget. Such guidance,
specifically the various Post-Payment Notice of Reporting Requirements and frequently asked questions issued by HHS, set forth the allowable
methods for quantifying eligible healthcare related expenses and lost revenues. Only healthcare related expenses attributable to coronavirus
that another source has not reimbursed and is not obligated to reimburse are eligible to be claimed. On the basis of guidance available
at the time, the Company’s estimate of lost revenues was first based on the negative change in year-over-year net patient care
operating revenue, then on the negative change in year-over-year net patient care operating income and finally on the difference between
budgeted and actual revenue for calendar year. The calculation as of September 30, 2021 is in accordance with the CAA which indicates
that lost revenues may be calculated pursuant to frequently asked questions published by HHS in June 2020, including the difference between
a provider’s budgeted and actual revenue if such budget had been established prior to March 27, 2020. The use of funds calculation
as of September 30, 2021 takes into account expenses attributable to each respective entity, which primarily relate to incremental labor
and supply costs, as well as lost revenues. General fund distributions were allocated among subsidiaries according to total unreimbursed
losses. Targeted distributions were not allocated or transferred among subsidiaries. While the CAA, January 15, 2021 Notice and frequently
asked questions published by HHS on January 28, 2021 indicate that targeted distribution payments may be allocated or transferred to
subsidiaries, distinct conditions exist for such allocations or transfers including that the parent organization have a “direct
ownership relationship” with the subsidiary who received the targeted distribution payment. Additionally, the subsidiary that was
the recipient of the targeted distribution payment retains responsibility for reporting to HHS on the use of such funds even if they
are transferred or allocated to other subsidiaries. There are significant uncertainties as to the meaning and interpretation of conditions
specific to the allocation or transfer of targeted distribution payments such that as of September 30, 2021, the Company is not reasonably
assured that it can or will choose to comply with such conditions in order to allocate or transfer targeted distribution payments.
HHS’
interpretation of the underlying terms and conditions of such PHSSEF payments, including auditing and reporting requirements, continues
to evolve. Additional guidance or new and amended interpretations of existing guidance on the terms and conditions of such PHSSEF payments
may result in changes in the Company’s estimate of amounts for which the terms and conditions are reasonably assured of being met,
and any such changes may be material. Additionally, any such changes may result in the Company’s inability to recognize additional
PHSSEF payments or may result in the de recognition of amounts previously recognized, which (in any such case) may be material.
Medicare
Accelerated Payments
The
Company recorded payments under the Medicare Accelerated and Advance Payment program in accordance with FASB ASC 606 and has recorded
amounts as a contract liability under FASB ASC 606-10-45-2. The contract liability will be reduced over time as revenue is recognized
for claims submitted for services provided after the recoupment period begins. Effective October 1, 2020, the program was amended such
that providers are required to repay accelerated payments beginning one year after the payment was issued. After such one-year period,
Medicare payments owed to providers will be recouped according to the repayment terms. The repayment terms specify that for the first
11 months after repayment begins, repayment will occur through an automatic recoupment of 25% of Medicare payments otherwise owed to
the provider. At the end of the eleven-month period, recoupment will increase to 50% for six months. At the end of the six months (or
29 months from the receipt of the initial accelerated payment), Medicare will issue a letter for full repayment of any remaining balance,
as applicable. In such event, if payment is not received within 30 days, interest will accrue at the annual percentage rate of four percent
(4%) from the date the letter was issued and will be assessed for each full 30-day period that the balance remains unpaid. As of September
30, 2021, $1,671,698 of Medicare accelerated payments are reflected on the balance sheet within advance payments line.
The
company receives a substantial portion of our revenues from the Medicare and Medicaid programs. Included in Managed Care and other third-party
payors is operating revenues from insurance companies with which we have insurance provider contracts, Medicare managed care, insurance
companies for which we do not have insurance provider contracts, workers’ compensation carriers and non-patient service revenue,
such as rental income and cafeteria sales. In the future, we generally expect the portion of revenues received from the Medicare and
Medicaid programs to increase over the long-term due to the general aging of the population and the impact of the Affordable Care Act.
The Affordable Care Act has increased the number of insured patients in states that have expanded Medicaid, which in turn, has reduced
the percentage of revenues from self-pay patients. However, it is unclear whether the trend of increased coverage will continue, due
in part to the impact of the COVID-19 pandemic and the elimination of the financial penalty associated with the individual mandate, effective
January 1, 2019. Further, the Affordable Care Act imposes significant reductions in amounts the government pays Medicare managed care
plans. Moreover, the trend toward increased enrollment in Medicare and Medicaid managed care may adversely affect our operating revenue.
An executive order issued in October 2019 seeks to accelerate this shift away from traditional fee-for-service Medicare to Medicare managed
care. We may also be impacted by regulatory requirements imposed on insurers, such as minimum medical-loss ratios and specific benefit
requirements. Furthermore, in the normal course of business, managed care programs, insurance companies and employers actively negotiate
the amounts paid to hospitals. Our relationships with payors may be impacted by price transparency initiatives and out-of-network billing
restrictions. There can be no assurance that we will retain our existing reimbursement arrangements or that these third-party payors
will not attempt to further reduce the rates they pay for our services.
Net
operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems
and provisions of cost-based reimbursement and other payment methods. In addition, we are reimbursed by non-governmental payors using
a variety of payment methodologies. Amounts we receive for the treatment of patients covered by Medicare, Medicaid and non-governmental
payors are generally less than our standard billing rates. We account for the differences between the estimated program reimbursement
rates and our standard billing rates as contractual allowance adjustments, which we deduct from gross revenues to arrive at net operating
revenues. Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third
parties. We account for adjustments to previous program reimbursement estimates as contractual allowance adjustments and report them
in the periods that such adjustments become known.
Fair
Value of Financial Instruments
The
carrying amount of accounts receivable and accounts payable approximate their respective fair values due to the short- term nature. The
carrying amount of the line of credit and note payable approximates fair values due to their market interest rates. Financial instruments
that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.
Property
and Equipment
Property
and equipment are stated at cost, less accumulated depreciation. Additions and improvements to property and equipment are capitalized
at cost. Depreciation of owned assets and amortization of leasehold improvements are computed using the straight-line method over the
shorter of the estimated useful lives of the related assets or the lease term. The cost of assets sold or retired, and the related accumulated
depreciation are removed from the accounts and any resulting gains or losses are reflected in other income (expense) for the year. Expenditures
for maintenance and repairs are charged to expense as incurred.
Goodwill
Our
goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in business combinations.
The goodwill generated from the business combinations is primarily related to the value placed on the employee workforce and expected
synergies. Judgment is involved in determining if an indicator or change in circumstances relating to impairment has occurred. Such changes
may include, among others, a significant decline in expected future cash flows, a significant adverse change in the business climate,
and unforeseen competition. There was no goodwill impairment for the periods presented.
The
Company tests goodwill for impairment on an annual basis, and when events or circumstances indicate the fair value of a reporting unit
may be below its carrying value.
Long-Lived
Assets
Long-lived
assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
There were no impairments of long-lived assets for the years presented.
Advertising
and Marketing
The
Company uses advertising and marketing to promote its services. Advertising and marketing costs are expensed as incurred.
Earnings
(Loss) Per Share
Basic
Earnings (loss) per common share is computed by dividing net loss applicable to common stockholders by the weighted-average number of
common shares outstanding during the period. Diluted earnings per common share is determined using the weighted-average of common shares
outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of the conversion option embedded
in convertible debt. The weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion
would have an anti-dilutive effect.
Fixed
grantee stock options (fixed awards) and nonvested stock (including restricted stock) shall be included in the computation of diluted
earnings per common share. Even though their issuance may be contingent upon vesting, they shall be considered to be contingently
issuable shares. Because issuance of performance based stock options (and performance based nonvested stock) is contingent upon satisfying
conditions in addition to the mere passage of time, those options and non vested stock shall be considered to be contingently issuable
shares in the computation of diluted earnings per common share.
The
dilutive effect of outstanding call options and warrants (and their equivalents) are reflected in diluted earnings per common share by
application of the treasury stock method unless another method is required. Equivalents of options and warrants include nonvested stock
granted under a share based payment arrangement, stock purchase contracts, and partially paid stock subscriptions. Antidilutive contracts
such as purchased put options and purchased call options shall be excluded from diluted earnings per common share.
The
Company has included shares issuable under its 2021 Incentive Award Plan in deriving its fully diluted earnings per common share using
the Treasury Method in accordance with ASC 260-10-45.
Income
Taxes
The
Company uses the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and the tax basis of assets, liabilities, the carry forward of operating
losses and tax credits, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected
to reverse. An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized.
Any
future benefit arising from losses have been offset by a valuation allowance. Accordingly, no provision for income taxes is reflected
in the condensed consolidated financial statements. The Company records a liability for uncertain tax positions when it is probable that
a loss has been incurred and the amount can be reasonably estimated. Interest and penalties related to income tax matters, if any, would
be recognized as a component of income tax expense. At September 30, 2021 and December 31, 2020, the Company had no liabilities for uncertain
tax positions. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and
new authoritative rulings. Currently, the tax years subsequent to 2017 are open and subject to examination by the taxing authorities.
Revenue
Recognition
We
follow ASC 606, “Revenue from Contracts with Customers.” Revenues are recognized when promised services are transferred to
a customer, in an amount that reflects the consideration that we expect to receive in exchange for those services. We derive our revenues
from the rendering of services, such as skilled nursing services. The five-step armodel defined by ASC 606 requires us to: (i)
identify our contracts with customers, (ii) identify our performance obligations under those contracts, (iii) determine the transaction
prices of those contracts, (iv) allocate the transaction prices to our performance obligations in those contracts and (v) recognize revenue
when each performance obligation under those contracts is satisfied.
Reimbursement
rates to provide services in our facilities are determined by the fee schedules set by the government programs and negotiated in contracts
with non-governmental third-party payors and private pay patients. Fees are billed to the payors and private pay patients weekly and
monthly following billing guidelines and contract requirements.
Net
Patient Revenue
Net
operating revenues are recorded at the transaction price estimated by the Company to reflect the total consideration due from patients
and third-party payors in exchange for providing services in patient care. These services are considered to be a single performance obligation
and have a duration of less than one year. Revenues are recorded as these services are provided. The transaction price, which involves
significant estimates, is determined based on the Company’s standard charges for the services provided, with a reduction recorded
for price concessions related to third party contractual arrangements as well as patient discounts and other patient price concessions.
The
collection of outstanding receivables for Medicare, Medicaid, managed care payers, other third-party payers and patients is our primary
source of cash and is critical to our operating performance. The primary collection risks relate to uninsured patient accounts, including
patient accounts for which the primary insurance carrier has paid the amounts covered by the applicable agreement, but patient responsibility
amounts (deductibles and copayments) remain outstanding. Implicit price concessions relate primarily to amounts due directly from patients.
Estimated implicit price concessions are recorded for all uninsured accounts, regardless of the aging of those accounts. Accounts are
written off when all reasonable internal and external collection efforts have been performed.
The
estimates for implicit price concessions are based upon management’s assessment of historical write-offs and expected net collections,
business and economic conditions, trends in federal, state and private employer health care coverage and other collection indicators.
Management relies on the results of detailed reviews of historical write-offs and collections at facilities that represent a majority
of our revenues and accounts receivable.
Reclassification
Certain
amounts from prior periods have been reclassified to conform to the current period presentation.
NOTE
3 – BANYAN MERGER
Effective
March 23, 2021, we entered into a Plan of Merger with Merger Sub and Banyan. Under the terms of the Plan of Merger, Merger Sub merged
with and into Banyan with Banyan as the Surviving Entity and wholly owned subsidiary of the Company.
The
Merger has been treated as a recapitalization and reverse acquisition of the Company for financial accounting purposes, and Banyan is
considered the acquirer for accounting purposes. This means that the Company’s historical financial statements before the Merger
have been replaced with the historical financial statements of Banyan.
In
connection with the Merger, we issued 4,165,418 shares of our common stock in exchange for 49,984,649 outstanding shares of Banyan’s
common stock held by 64 shareholders, based on an exchange ratio of one (1) share of our common stock for every twelve (12) shares of
Banyan common stock. We also issued a warrant to purchase 75,000 shares of our common stock (the “Warrant”) in exchange for
a warrant to purchase 900,000 shares of Banyan’s common stock. The Warrant is held by one investor and is exercisable for cash
only until May 2, 2030 at an exercise price of $0.38 per share. The number of shares of common stock deliverable upon exercise of the
Warrant contains provisions for standard anti-dilution adjustments.
The
Surviving Entity assumed Banyan’s $2,300,000 of outstanding debt, and the $2,000,000 of such debt that was convertible into 20,000,000
shares of Banyan common stock was converted at $0.50 per share into 4,000,000 shares of our common stock, effective March 30, 2021. During
the three months ended June 30, 2021, shares were issued to the Noteholders of the $2,000,000 convertible note. The remaining $300,000
of outstanding debt, evidenced by a promissory note dated November 6, 2020, accrues interest at the annual rate of 12%. Interest is payable
on the sixth day of each month in the amount of $3,000 until the maturity date of this note on November 6, 2021, at which time, the remaining
principal balance, if any, is due and payable.
NOTE
4 – DISCONTINUED OPERATIONS
On
April 30, 2021, our Board of Directors (the “Board”) approved the discontinuance of our wholly owned subsidiary, Assisted
2 Live, Inc. (the “Discontinued Subsidiary”). The operations of the Discontinued Subsidiary are reflected on our condensed
consolidated statement of operations from the date of the Merger as a loss from discontinued operations in the amount of $26,500.
The
April 30, 2021, Board decision was the result of the Purchase and Sale Option Agreement (the “Option Agreement”) with Romulus
Barr (“Barr”) which we entered into on November 7, 2020. The Option Agreement provided us with the option to sell all of
our interest in Assisted 2 Live, Inc., consisting of 1,000 shares of common stock of the discontinued subsidiary, to Barr in exchange
for 200,000 shares of our common stock (the “Shares”) held by Barr. The returned Shares were cancelled and included in authorized
but unissued shares of common stock of the Company. The number of issued and outstanding shares of common stock was decreased by 200,000
as of April 30, 2021. The transfer resulted in a gain on disposal of discontinued operations in the amount of $395,500. A share price
of $1.85 was used to determine the gain on disposal of discontinued operations based on the share price value on April 30, 2021.
SUMMARY OF CARRYING AMOUNTS OF ASSETS AND LIABILITIES AND CASH FLOWS OF DISCONTINUED OPERATIONS
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
For the three months ended
September 30,
|
|
|
For the nine months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
76,847
|
|
|
$
|
-
|
|
Cost of net revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
46,813
|
|
|
|
-
|
|
General and administrative
|
|
|
-
|
|
|
|
-
|
|
|
|
52,555
|
|
|
|
-
|
|
Lease expense
|
|
|
-
|
|
|
|
-
|
|
|
|
3,979
|
|
|
|
-
|
|
Total operating expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
103,347
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(26,500
|
)
|
|
|
-
|
|
Interest and other, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income from discontinued operations before income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(26,500
|
)
|
|
|
-
|
|
Provision for income taxes
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Income from discontinued operations, net of income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(26,500
|
)
|
|
$
|
-
|
|
NOTE
5 – TRILLIUM ACQUISITION
On
June 10, 2021, we entered into the Restated Purchase Agreement, by and among the Company, Mason, Bench and Trillium to acquire all of
the issued and outstanding ownership interests of the Trillium Subsidiaries from Trillium (the “Transaction”). The Transaction
closed and was effective June 10, 2021.
Pursuant
to the terms and conditions of the Restated Purchase Agreement, the aggregate purchase price consists of: (i) a cash payment of $902,847,
minus certain transaction related costs, fees and expenses set forth in the Restated Purchase Agreement and determined post-closing;
(ii) 2,500,000 shares of the Company’s Series A Preferred Stock (the “Preferred Shares”); and (iii) shares of the Company’s
common stock (“Common Shares”) having an aggregate value of $5,000,000, based on the stock price at the time of issuance,
upon the earlier of an initial public offering by the Company or June 10, 2022. Trillium will have the right to acquire an additional
2,500,000 Common Shares during the two-year period after the Transaction closes pursuant to a Business Development Agreement, a copy
of which is attached as Exhibit 10.1 to this Quarterly Report.
As
a condition to closing, the Trillium Subsidiaries paid with cash on hand $1,200,000 to one of its landlord, CTR Partnership, L.P. (“CTR”),
as an additional security deposit under a lease between Greenside Healthcare Properties, LLC, a wholly-owned subsidiary of FHP and CTR
and $3,000,000 to Crete Plus Five Property, L.L.C. (“Omega,” and together with CTR, the “Landlords”) as a deposit
on the Company’s purchase of 16 facilities on 14 properties (the “Properties”) currently being leased by FHP’s
wholly-owned subsidiaries from Omega and its affiliates. The $3,000,000 deposit to Omega is non-refundable and is subject to forfeiture
if the purchase of the Properties is not closed by December 30, 2021. If the $3,000,000 deposit is forfeited, Trillium forfeits its right
to receive $3,000,000 of the purchase price, first, from the cash payment mentioned in subsection (i) above, and second, from the value
of common stock to be issued to Trillium mentioned in subsection (iii) above. In any event, no cash payments may be made to Trillium
until the purchase of the Properties closes.
The
Preferred Shares, with respect to rights on liquidation, winding up and dissolution, rank pari passu with the Common Shares. The holders
of Preferred Shares have the right to cast one (1) vote for each Preferred Share held of record on all matters submitted to a vote of
holders of the Common Shares, including the election of directors, and all other matters as required by law. The Preferred Shares are
not convertible into Common shares at the election of the holder. However, the Preferred Shares do automatically convert into Common
Shares at a one-to-one ratio two years from date of issuance. In lieu of converting the Preferred Shares, the holders thereof may elect
to have the Company redeem one or more Preferred Shares at the redemption price of $1.00 per share two years from the date of issuance.
The Company is required to issue the Preferred Shares to Trillium within 30 days after the purchase of the Properties closes. In connection
with the issuance of the Preferred Shares, the Company will file a Certificate of Designation with the Nevada Secretary of State prior
to such issuance.
In
connection with obtaining the Landlords’ consent to the Transaction, the Company entered into: (i) a guaranty agreement with each
Landlord under which the Company agreed to guaranty all obligations and liabilities under master leases for property and facilities owned
by the Landlords’ and their affiliates and leased by FHP’s direct and indirect wholly-owned subsidiaries; and (ii) a Consent
Agreement and Fifth Amendment to Master Lease with Omega (the “Consent”) regarding the Properties. Under the terms of the
Consent, until the earlier of the purchase of the Properties closes or the expiration of the master lease agreement for the Properties
in 2027: (a) Mason and Bench must remain responsible for, and have authority over, the day to day management and operations of the Properties
and related facilities; and (b) the Company may not make any payment, transfer or distribution of cash or any assets to one or more equity
holders or any person or entity with possession, directly or indirectly, of the power to direct or cause the direction of the management
and policies of the Company, through the ownership of voting securities (an “Affiliate”), or return any capital, redemption
of any security, or making or assumption of any loans, advances or extension of credit or capital contribution to, or any other investment
in, any Affiliate, including, but not limited to, a fee for management, a payment for services rendered, a reimbursement for expenditures
or overhead incurred on behalf of the Company or a payment on any debt of an Affiliate; provided, however, the Company may contribute
or transfer cash or other assets to its, direct or indirect, wholly-owned subsidiaries, and pay reasonable cash compensation to the members
of the Board and executive officers provided that such compensation does not in the aggregate, exceed $600,000 in any six month period.
The
initial purchase price has been allocated to the acquired assets and assumed liabilities based on estimated fair values. The purchase
price allocation is preliminary pending a final determination of the fair values of the assets and liabilities. The table below provides
a preliminary recording of assets acquired and liabilities assumed as of the acquisition date. During the three month period ended September
30, 2021 certain adjustments were made to the fair value of accounts receivable, share liability and goodwill. The amounts recorded for
property, plant and equipment, leasehold improvements and goodwill are preliminary and pending finalization of valuation efforts.
SUMMARY OF ACQUIRED ASSETS AND LIABILITIES ASSUMED
Assets acquired
|
|
|
|
|
Cash
|
|
$
|
3,432,847
|
|
Accounts receivable
|
|
|
5,521,080
|
|
Prepaid expenses and other current assets
|
|
|
2,661,683
|
|
Property and equipment
|
|
|
2,380,635
|
|
Goodwill
|
|
|
12,082,529
|
|
Leasehold improvements
|
|
|
1,213,273
|
|
Lease right of use asset
|
|
|
44,196,092
|
|
Total identifiable assets acquired
|
|
$
|
71,488,139
|
|
Liabilities assumed
|
|
|
|
|
Advance payments
|
|
$
|
2,905,234
|
|
Accounts payable and accrued expenses
|
|
|
8,783,508
|
|
Deferred revenue
|
|
|
2,162,966
|
|
Loan Payable - other
|
|
|
453,043
|
|
Lease liability - current portion
|
|
|
7,837,406
|
|
Notes payable
|
|
|
2,309,884
|
|
Lease liability - net of current portion
|
|
|
36,383,251
|
|
Cash due to seller
|
|
|
902,847
|
|
Share liability
|
|
|
9,750,000
|
|
Total identifiable liabilities acquired
|
|
$
|
71,488,139
|
|
NOTE
6– ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Our
accounts payable and accrued liabilities at September 30, 2021 and December 31, 2020 consisted of the following:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,299,400
|
|
|
$
|
16,298
|
|
Credit Card
|
|
|
37,712
|
|
|
|
1,050
|
|
Accrued Expense
|
|
|
3,513,517
|
|
|
|
130,832
|
|
Accrued Salary
|
|
|
995,265
|
|
|
|
-
|
|
Payroll Tax Payable
|
|
|
33,189
|
|
|
|
-
|
|
Accounts Payable and Accrued Liabilities
|
|
$
|
10,879,082
|
|
|
$
|
148,180
|
|
NOTE
7 – NOTES PAYABLE
Notes
payable at September 30, 2021 and December 31, 2020 consisted of the following:
SCHEDULE OF NOTES PAYABLE
|
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Excel Family Partners, LLLP / Banyan Pediatric Investment, Inc. (Sep 2020)
|
|
a
|
|
$
|
-
|
|
|
$
|
2,000,000
|
|
NuView Trust Co. (Nov 2020)
|
|
b
|
|
|
300,000
|
|
|
|
300,000
|
|
Grand Trinity Plaza, LLC (Dec 2020)
|
|
c
|
|
|
346,174
|
|
|
|
407,500
|
|
Reliant
|
|
d.i
|
|
|
808,310
|
|
|
|
-
|
|
HCSG
|
|
d.ii
|
|
|
397,191
|
|
|
|
-
|
|
Medline
|
|
d.iii
|
|
|
242,967
|
|
|
|
-
|
|
SLR - RLOC
|
|
e
|
|
|
5,212,234
|
|
|
|
-
|
|
|
|
|
|
$
|
7,306,876
|
|
|
$
|
2,707,500
|
|
a.
|
On
September 18, 2020, through Banyan, we entered into a Convertible Note and Securities Purchase Agreement with two investors for the
aggregate principal in the amount of $2,000,000. The note had a maturity date of September 18, 2022, and an interest rate of 8% to
be paid quarterly. The principal was funded by two investors (“Purchasers”), both related parties. Excel Family Partners,
LLLP invested $1,500,000 and Banyan Pediatric Investments, LLC invested $500,000. The proceeds of this note were used for operational
expenses and for the payment of the remainder of the buildout of the Pasco County and the Sarasota locations. Written consent from
shareholders holding a majority of the issued and outstanding shares of common stock of Banyan was obtained, not including such shares
currently held by the Purchasers or their affiliates, consenting to the note contemplated hereby, in a form and substance acceptable
to the Purchasers, in their respective reasonable discretion. Both Purchasers were permitted to convert their respective portions
of the note at a conversion price of $0.10 per share. Subsequent to the Merger (see NOTE 3), the Board revised the conversion price
of the note to $0.50 per share. Effective March 30, 2021, the Purchasers exercised their right to convert all outstanding principal.
As of September 30, 2021, and December 31, 2020, there was $0 and $45,589 of accrued interest, respectively and is reflected in accrued
interest balances on the condensed consolidated balance sheet at September 30, 2021 and December 31, 2020.
|
|
|
b.
|
On
November 6, 2020, through Banyan, we entered into a one-year note in the principal amount of $300,000 with NuView Trust Company.
The note has a 12% interest rate with interest only payments until date of maturity. The proceeds of this note were used for operational
expenses and for the payment of the remainder of the buildout of the Pasco County and the Sarasota locations. As of September 30,
2021, and December 31, 2020, there was no accrued interest. (see NOTE 3)
|
c.
|
On December 15, 2020, through Banyan Pediatric Care Centers – Pasco, LLC, we entered into a note payable with Grand Trinity Plaza, LLC in the principal amount of $407,500, which is guaranteed by Banyan. The term of the note is 48 months with an interest rate of 6%. The maturity date of the note is January 1, 2025. The note is in conjunction with the 84-month facility lease for the Pasco County location, pursuant to which the landlord also provided the construction of the buildout and financed $407,500 of the construction costs.
|
|
|
d.
|
In 2019, certain vendors of Trillium agreed to extend payment terms by converting then outstanding amounts of accounts payable balances to long-term debt bearing interest at rates ranging from 0% to 6%.
|
|
|
|
|
i.
|
Reliant
note payable - Past due balances with vendor Reliant were converted to a note payable in 36 equal monthly installments of principal
and interest of $69,568 from October 2019 through September 2022. The note bears interest at a rate of 6%. As discussed in NOTE 5,
through the Trillium transaction we assumed the balance of the debt at the transaction date of June 10, 2021, the condensed consolidated
balance sheet reflects the balance of the note due at September 30, 2021.
|
|
|
|
|
ii.
|
HCSG
note payable – Past due balances with vendor HCSG were converted to a non-interest-bearing note payable; payable in 36 equal
monthly principal installments of $33,099 from October 2019 through September 2022. As discussed in NOTE 5, through the Trillium
transaction we assumed the balance of the debt at the transaction date of June 10, 2021, the condensed consolidated balance sheet
reflects the balance of the note due at September 30, 2021.
|
|
|
|
|
|
|
|
iii.
|
Medline
note payable – Past due balances with vendor Medline were converted to a note payable; payable in 36 equal monthly installments
of principal and interest of $20,911 from October 2019 through September 2022; note bears interest at a rate of 6%. As discussed
in NOTE 5, through the Trillium transaction we assumed the balance of the debt at the transaction date of June 10, 2021, the condensed
consolidated balance sheet reflects the balance of the note due at September 30, 2021.
|
|
|
e.
|
SLR revolving line of credit - On May 9, 2019, Trillium entered into a financing agreement (“the GHF Line”) with Gemino Healthcare Finance, LLC (DBA SLR Healthcare ABL), the lender, which allows the Trillium Subsidiaries to borrow up to the lesser of $10 million or 85% of eligible accounts receivable. The GHF Line bears interest at the greater of one-month LIBOR or 2%, plus 4.95%, applied daily, and continues to be applied to outstanding principal until the expiration of one business day after such principal has been repaid. The Trillium Subsidiaries also incur monthly collateral management fees under the line of 1 % of the average daily balance of the preceding month and is subject to a monthly unused line fee of 0.75% of the difference between revolving loan commitment and the average daily balance outstanding during the preceding month. The GHF Line is secured by cash, accounts receivable, and substantially all intangible assets of the Trillium Subsidiaries and terminates on May 9, 2022. On July 12, 2021, the agreement was amended whereas Assisted 4 Living, Inc was named as the Guarantor of the line. At September 30, 2021, the outstanding balance on the line was $5,212,234. On September 30, 2021 we entered into a Second Amendment of the financing agreement with GHF. The Second Amendment amended the Credit Agreement by: (1) adding Assisted 4 Living, Inc as a guarantor to the credit facility and releasing Trillium and it’s four principal individuals from their obligations under the credit facility; (2) increasing the term of the credit facility so that it now expires on September 29, 2023; (3) revising the termination fee to reflect the increase in the term of the credit facility; (4) modifying the fixed percentage used to calculate the Interest Rate from 5.95% to a range of 4.50% to 3.90%, depending on the outstanding loan balance during the preceding three months, with the rate decreasing as the amount borrowed increases; (5) reducing the collateral monitoring fee from 1.50% to 1.00%; (6) reducing the unused line fee from 0.75% to 0.50%; and (7) increasing the maximum amount of the credit facility from $10 million to $25 million. The above changes are the primary changes to the credit facility.
|
The
entire balance due on each line has been classified as a current liability in accordance with FASB ASC Topic 470-10-45-5, Classification
of Revolving Credit Agreements Subject to Lock-Box Arrangements. FASB guidance stipulates that if the contractual provisions of a loan
arrangement require, in the ordinary course of business and without another event occurring, the cash receipts of a debtor to be used
to repay the existing obligation, the credit agreement should be considered a short-term obligation.
NOTE
8 – LEASEHOLD IMPROVEMENTS
The
Company had the following leasehold improvements as of September 30, 2021 and December 31, 2020:
SCHEDULE OF LEASESHOLD IMPROVEMENTS
|
|
September
30,
|
|
|
December
31,
|
|
|
Amortization
|
|
|
|
2021
|
|
|
2020
|
|
|
Period
|
|
Leasehold
improvements
|
|
|
3,984,470
|
|
|
|
2,669,047
|
|
|
|
15-17
years
|
|
Less:
amortization
|
|
|
(218,140
|
)
|
|
|
(54,656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
3,766,330
|
|
|
|
2,614,391
|
|
|
|
|
|
During
the year ended December 31, 2020, we recorded $2,669,047 of leasehold improvements. These amounts include costs related to the build
out of the Sarasota location in the amount of $1,245,950. These costs will be amortized over the expected term of the lease including
extensions that management expects to be 15 years. We also recorded costs in the amount of $1,021,793 related to the New Port Richey
location buildout. The expected amortization of the improvements for the New Port Richey location is 17 years. Also recorded were $401,303
of improvements as part of the St. Petersburg-Kidz Club Acquisition. The expected amortization of the improvements for the St. Petersburg
location is 15 years. We also recorded $1,213,273 in lease improvements as part of the Trillium acquisition, during the nine-month
period ending September 30, 202.
Amortization
expense for the three months ended September 30, 2021 and 2020 was $70,193 and $13,593, respectively.
Amortization
expense for the nine months ended September 30, 2021 and 2020 was $218,140 and $54,656, respectively.
NOTE
9 – PROPERTY AND EQUIPMENT
SCHEDULE
OF PROPERTY AND EQUIPMENT
|
|
September 30,
|
|
|
December 31,
|
|
|
Amortization Period
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
Furniture and fixtures
|
|
|
987,904
|
|
|
|
73,594
|
|
|
|
5
|
|
Computers / equipment / software
|
|
|
95,952
|
|
|
|
50,401
|
|
|
|
5
|
|
Motor vehicles
|
|
|
12,084
|
|
|
|
12,084
|
|
|
|
5
|
|
Buildings
|
|
|
1,060,000
|
|
|
|
-
|
|
|
|
39
|
|
Land
|
|
|
500,000
|
|
|
|
-
|
|
|
|
|
|
Construction in progress
|
|
|
100,699
|
|
|
|
-
|
|
|
|
|
|
Less: depreciation
|
|
|
(76,524
|
)
|
|
|
(7,604
|
)
|
|
|
|
|
Net
|
|
|
2,680,115
|
|
|
|
128,475
|
|
|
|
|
|
During
the year ended December 31, 2020 we recorded $136,079 in property plant and equipment. These expenses were related to furniture and fixtures
and for the new Banyan Sarasota and Pasco locations. We also recorded expenses related to computers and equipment for these new locations,
as well as the St Petersburg location acquired in May of 2020. We also purchased buses for the St. Petersburg location, as of the year
ended December 2020 we had one bus that was purchased for cash and is being depreciated. Other buses have been purchased with finance
leases and are reflected in Right of Use Assets and Lease Liabilities.
During
the nine month period ending September 30, 2021 we recorded additional furniture and fixtures related to the Banyan locations in the
amount of approximately $23,000 and additional computers and equipment in the amount of approximately $41,000. These purchases
were related to the completion of the Banyan Sarasota and Pasco locations that opened in May and July of 2021.
Through
the Trillium acquisition on June 10, 2021 we recorded approximately $3.6M in property, plant and equipment consisting of furniture and
fixtures, equipment, leasehold improvements in construction and a building. During the three month period ended September 30, 2021 we
recorded approximately $69,487 in additional furniture and fixtures for the Trillium locations .
NOTE
10 – OPERATING AND CAPITAL LEASES
On
August 24, 2019, through Banyan Pediatric Care Centers-Sarasota, LLC, we entered into an operating lease with Northeast Plaza Venture
I, LLC for the premises located in the Northeast Plaza Shopping Center located on the Northeast corner of 17th Street & Lockwood
Ridge Road, in the County of Sarasota, Florida. The initial term of the lease is five years with minimum annual rent of $180,000. The
landlord granted rent abatement for this lease until February 24, 2020. The lease end date, including two successive 5-year renewal options,
is January 31, 2035. A right of use asset and lease liability in the amount of $1,899,869 associated with this lease was recognized.
This lease is treated as an operating lease for accounting purposes.
On
October 15, 2019, through Banyan, we entered into an assignment and assumption of lease agreement with The Kidz Club – St. Pete,
LLC whereby we assumed approximately 12,137 square feet of space at the southeast corner of 3rd Avenue S. and 9th Street N., Webb’s
Plaza, St. Petersburg, FL 33701. The minimum annual rent for the first year of the lease was $113,681. The current lease termination
date, with extensions expected to be exercised, is October 31, 2024. Upon the exercise of each extension the base rent shall increase
by 1.5%. This assignment of lease was subject to the terms of the Asset Purchase Agreement with The Kidz Club-St. Pete, LLC. A right
of use asset and lease liability in the amount of $875,539 was recognized in association with this lease. This lease is treated as an
operating lease for accounting purposes.
Effective
April 1, 2020, through Banyan Pediatric Care Centers – Pasco, LLC, we entered into an 84-month facility lease with Grand Trinity
Plaza, LLC for the premises located in the shopping center known as the Grand Trinity Plaza located in New Port Richey, Florida. The
initial term of the lease had a minimum annual base rent of $94,500. The landlord granted rent abatement until September 2020. The lease
end date, including two successive 5-year renewals is August 31, 2037. A right of use asset and lease liability in the amount of $1,143,743
was recognized in association with this lease. This lease is treated as an operating lease for accounting purposes.
On
June 9, 2020, through Banyan, we entered into a 36-month copier lease with Dex Imaging. The lease was for one copier and a printer. The
minimum annual lease payment is $5,376 with annual increases not to exceed 12% annually. This lease will auto renew in 12-month increments.
The equipment under this lease has a fixed $1 payment buyout option. This equipment was purchased for the St. Petersburg location. A
right of use asset and lease liability in the amount of $16,066 was recognized in association with this lease. This lease is treated
as an operating lease for accounting purposes.
On
August 25, 2020, through Banyan, we entered into a 60-month financing agreement with Ascentium Capital LLC for two 2020 Turtletop Terra
Transit passenger buses for the St. Petersburg location. This lease is considered an operating lease for accounting purposes because
the lease period is less than the economic life of the asset being leased. Minimum annual rent payments under this lease are $24,859.
At our discretion, we may exercise a purchase option, by giving written notice no later than 30 days but not more than 120 days before
the expiration of the initial term. The purchase option price is $23,920 for each bus, based on reasonably predicted fair market value.
A right of use asset and lease liability in the amount of $102,393 was recognized in association with this lease. This lease is treated
as an operating lease for accounting purposes.
On
October 20, 2020, through Banyan, we entered into a 60-month financing agreement with Ascentium Capital LLC for a 2020 Eldorado National
Advance 220 p/t 14 passenger bus for the St. Petersburg location. This lease is considered an operating lease for accounting purposes
because the lease period is less than the economic life of the asset being leased. Minimum annual rent payments under this lease are
$13,381. At our discretion, we may exercise a purchase option, by giving written notice no later than 180 days but not more than 360
days before the expiration of the initial term. The purchase option price is $12,891 based on reasonably predicted fair market value.
A right of use asset and lease liability in the amount of $55,345 was recognized in association with this lease. This lease is treated
as an operating lease for accounting purposes.
In
April of 2021, through Banyan, we entered into a 36-month copier lease with Dex Imaging. The lease was for one copy machine. The minimum
annual lease payment is $4,920. The equipment under this lease has a fixed $1 payment buyout option. The equipment was purchased for
the Banyan Sarasota location. A right of use asset and lease liability in the amount of $14,693 was recognized in association with this
lease. This lease is treated as an operating lease for accounting purposes.
In
July of 2021, through Banyan, we entered into a 60-month financing agreement with Ascentium Capital LLC for a 2021 Diamond VIP 2200 passenger
bus for the Pasco location. This lease is considered an operating lease for accounting purposes. Minimum annual rent payments under this
lease are $15,654 and the purchase option price is $15,193 based on reasonably predicted fair market value. A right of use asset and
lease liability in the amount of $65,772 was recognized with this lease.
In
August of 2021, through Banyan we entered into a 36-month financing agreement with Dex Imaging. The lease was for one copy machine. The
minimum annual lease payment is $4,920. The equipment under this lease has a fixed $1 payment buyout option. The equipment was purchased
for the Banyan Pasco location. A right of use asset and lease liability in the amount of $14,040 was recognized in association with this
lease. This lease is treated as an operating lease for accounting purposes.
In
July of 2021, through Trillium we entered into a 60-month financing agreement with Dex Imaging. The lease was for one copy machine. The
minimum annual lease payment is $1,920. A right of use asset and lease liability in the amount of $8,049 was recognized in association
with this lease. This lease is treated as an operating lease for accounting purposes.
In
August of 2021, through Trillium we entered into a 60-month financing agreement with RJKool for a Unimac commercial washing machine.
The minimum annual lease payment is $4,321. A right of use asset and lease liability in the amount of $18,476 was recognized in association
with this lease. This lease is treated as an operating lease for accounting purposes.
In
July of 2021, through Trillium we entered into a 36-month financing agreement with Southeastern Laundry Equipment Sales for a Unimac
commercial washing machine. The minimum annual lease payment is $5,094. A right of use asset and lease liability in the amount of $13,054
was recognized in association with this lease. This lease is treated as an operating lease for accounting purposes.
The
leases assumed in the Trillium acquisition effective June 10, 2021 are reflected in accordance with FASB ASC Topic 842-10-65 which states;
for leases in which the acquiree is a lessee, the acquirer shall measure the lease liability at the present value of the remaining lease
payments, as if the acquired lease were a new lease of the acquirer at the acquisition date. The acquirer shall measure the right-of-use
asset at the same amount as the lease liability as adjusted to reflect favorable or unfavorable terms of the lease when compared with
market terms.
Through
the Trillium acquisition (see NOTE 5) we assumed two master lease agreements. The first master lease agreement with Omega consists of
14 properties. The master lease with Omega was entered into on May 13, 2015, with an initial lease term that expires on May 31, 2027.
The Omega master lease provides for two 10-year renewal options. At June 10, 2021 we recognized a right of use asset and lease liability
in the amount of $29,906,314 in association with this lease. This lease is treated as an operating lease for accounting purposes.
The
second master lease with CTR accounts for 10 properties. The master lease with CTR was entered into on August 16, 2019, with an initial
lease term that expires on November 30, 2030. The CTR lease provides for two 5-year renewal options. At June 10, 2021 we recognized a
right of use asset and lease liability in the amount of $14,468,509 in association with this lease. This lease is treated as an operating
lease for accounting purposes.
Through
the Trillium acquisition we also assumed 27 capital leases for the following:
|
●
|
2
phone systems for facilities
|
|
●
|
6
van leases for facilities to transport residents
|
|
●
|
15
copy machine leases for use at the facilities
|
|
●
|
3
postage machine leases for use at the facilities
|
|
●
|
1
lease for a washing machine at a facility
|
These
leases are treated as capital leases for accounting purposes.
In
accordance with ASC 842, we recorded the operating lease right of use asset and lease liability as follows:
SCHEDULE OF OPERATING LEASE RIGHT OF USE ASSET AND LEASE LIABILITY
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Right of Use (ROU) assets
|
|
$
|
46,089,030
|
|
|
$
|
3,977,988
|
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Operating lease obligations:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
8,311,905
|
|
|
$
|
189,397
|
|
Non-Current
|
|
|
38,089,042
|
|
|
|
3,864,321
|
|
Total
|
|
$
|
46,400,947
|
|
|
$
|
4,053,718
|
|
Maturity
of Operating Lease obligations for period ended September 30, 2021 ,
SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITY
|
|
|
|
|
2021 (three months)
|
|
$
|
1,990,630
|
|
2022
|
|
|
8,545,124
|
|
2023
|
|
|
9,950,470
|
|
2024
|
|
|
8,305,778
|
|
2025
|
|
|
5,840,681
|
|
After 2025
|
|
$
|
11,768,262
|
|
Total lease obligation
|
|
|
46,400,947
|
|
Information
associated with the measurement of our remaining operating lease obligations as of September 30, 2021 is as follows:
The
operating leases range from a term of 2.89 years to 15.93 years with a weighted average lease term of 5.47 years.
The
capital leases range from a term of 1 to 4.96 years with a weighted average lease term of 3.72 years.
The
weighted average discount rate for operating leases is 7.80%.
The
weighted average discount rate for capital leases is 7.81%.
The
lease expense for the three and nine month periods ended September 30, 2021 were $2,991,078 and $3,912,133, respectively, compared to
$95,319 and $193,365, during the same periods in the prior year.
NOTE
11 - EQUITY
Preferred
Stock
We
have authorized 25,000,000 preferred shares with a par value of 0.0001 per share. The Board is authorized to divide the authorized preferred
shares into one or more series, each of which shall be so designated as to distinguish the shares thereof from the shares of all other
series and classes. As of September 30, 2021 and December 31, 2020, we had no classes of preferred shares designated.
As
discussed in NOTE 5, as part of the Trillium acquisition, Trillium is entitled to 2,500,000
shares of the Company’s Series A Preferred
Stock. The Preferred Shares, with respect to rights on liquidation, winding up and dissolution, rank pari passu with the Common Shares.
The holders of Preferred Shares have the right to cast one (1) vote for each Preferred Share held of record on all matters submitted
to a vote of holders of the Common Shares, including the election of directors, and all other matters as required by law. The Preferred
Shares are not convertible into Common shares at the election of the holder. However, the Preferred Shares do automatically convert into
Common Shares at a one to one ratio two years from date of issuance. In lieu of converting the Preferred Shares, the holders thereof
may elect to have the Company redeem one or more Preferred Shares at the redemption price of $1.00
per share two years from the date of issuance.
The Company is required to issue the Preferred Shares to Trillium within 30 days after the purchase of the Properties closes. In connection
with the issuance of the Preferred Shares, the Company will file a Certificate of Designation with the Nevada Secretary of State prior
to such issuance. A liability to issue the 2,500,000
shares is reflected as a long-term liability
on the condensed consolidated balance sheet as of September 30, 2021in the amount of $4,750,000.
Common
Stock
We
have authorized 100,000,000 Common Shares with a par value of $0.0001 per share. Each Common Share entitles the holder to one vote, in
person or proxy, on any matter on which action of the stockholders of the corporation is sought. As of September 30, 2021, we had 45,345,418
Common Shares issued and outstanding.
Fiscal
Year 2021
On
March 23, 2021, we entered into a Plan of Merger with Banyan (See NOTE 3).
In
connection with the Merger, we issued 4,165,418 Common Shares in exchange for 49,984,649 outstanding shares of Banyan’s common
stock held by 64 shareholders, based on an exchange ratio of one (1) Common Share of our common stock for every twelve (12) shares of
Banyan common stock.
In
conjunction with the Merger, the previously issued 31,230,000 Common Shares prior to the Merger were deemed issued for the Merger.
During
the period from February 11, 2021 through March 31, 2021 we issued 7,080,000 Common Shares at $0.50 per share for an aggregate consideration
of $3,540,000.
During
the three months ended June 30, 2021, noteholders of the $2,000,000 convertible note exercised their right to convert the note with an
effective date of March 30, 2021 (see NOTE 3), 4,000,000 Common Shares were issued for the conversion of the note. The conversion was
previously recorded as a liability to issue shares in the amount of $2,000,000.
During
the three months ended June 30, 2021, we issued Common Shares in satisfaction of a liability to issue shares in the amount of $575,000
for stock purchases of 1,150,000 Common Shares at $0.50 per share.
As
discussed in NOTE 5, as part of the Trillium acquisition, Trillium is entitled to Common Shares having an aggregate value of $5,000,000,
based on the stock price at the time of issuance, upon the earlier of an initial public offering by the Company or June 10, 2022. A share
liability is recorded as a current liability in the amount of $5,000,000
on the condensed consolidated balance sheet as
of September 30, 2021.
During
the three month period ended September 30, 2021 we issued 5,000,000 Common Shares at $1.00 per share for an aggregate consideration of
$5,000,000.
On
August 26, 2021, a majority of the stockholders approved, by written consent without a meeting, the 2021 Incentive Award Plan (“Award
Plan”). The Award Plan was approved by the board of directors on August 19, 2021, and recommended to the stockholders for their
approval. Under the Award Plan, 4,500,000
shares of our common stock will be initially
reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights, restricted
stock awards, restricted stock unit awards, performance bonus awards, performance stock unit awards, dividend equivalents or other stock
or cash based awards. As of the nine month period ending September 30, 2021 2,750,208
of the reserved shares were provided as stock
options to 10 employees as part of the 2021 Incentive Award Plan. (See NOTE 14)
Fiscal
Year 2020
During
the year ended December 31, 2020, $140 was received against a subscription receivable balance for the 2019 authorization of the issuance
of Founders shares. On December 31, 2020, we had a subscription receivable of $30 for shares issued where payments were not received.
On
September 19, 2020, we issued 2,000,000 restricted Common Shares to a noteholder for the conversion of $500,000 of note principal.
Warrants
In
association with the September 27, 2019, Asset Purchase Agreement (The Kidz Club St Pete, LLC), we issued 75,000 common stock warrants
(post-merger exchange adjusted) having an exercise price of $0.38 per share. These warrants have an expiration of September 27, 2029.
SCHEDULE OF WARRANTS OUTSTANDING
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
75,000
|
|
|
$
|
0.38
|
|
|
|
10.0 Years
|
|
|
$
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
|
75,000
|
|
|
$
|
0.38
|
|
|
|
9.74 Years
|
|
|
$
|
1.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable September 30, 2021
|
|
|
75,000
|
|
|
$
|
0.38
|
|
|
|
8.99 Years
|
|
|
$
|
3.12
|
|
NOTE
12 – RELATED PARTY TRANSACTIONS
On
February 1, 2021 (the “Effective Date”), we signed an employment agreement with our new CEO, Louis Collier (“Collier”).
Collier will be paid a base salary of $400,000, which will be reassessed and renegotiated in good faith after we are profitable over
a fiscal year. Collier will also receive a signing bonus of $150,000, which will be payable as follows: $50,000 within five days of the
Effective Date (paid); $50,000 within 90 days of the Effective Date; and $50,000 within 180 days of the Effective Date. Collier will
also be issued 1,250,000 phantom shares within ten days after the approval and adoption a Phantom Equity Plan. The phantom shares will
be subject to a phantom unit interest award agreement, which will set forth the vesting of the phantom shares.
On
March 23, 2021, we entered into a Plan of Merger (See NOTE 3) whereas we assumed debt of $2,000,000 that was convertible into 20,000,000
shares of common stock. After the Merger the debt was converted into 4,000,000 restricted Common Shares of the Company. One of the debt
holders is majority owned by a director of the Company. During the three month period ending June 30, 2021, 4,000,000 restricted Common
Shares were issued.
During
the three months ended September 30, 2021 and 2020, we compensated members of the Board $42,000 and $0, respectively.
During
the three months ended September 30, 2021 accrued payroll of $60,000 was paid and $6,277 interest was paid. We had accrued payroll
of $60,000 and accrued interest on that payroll for the President and the Chief Financial Officer of Banyan. These unpaid amounts were
the result of 2020 furloughed salaries. Interest was accrued on these unpaid balances effective May 15, 2020 at a rate of 8% per annum.
NOTE
13 – SEGMENT INFORMATION
The
Company has adopted provisions of ASC 280-10 Segment Reporting for the three and nine months ended September 30, 2021, and 2020. This
standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making
internal operating decisions. The Company and its Chief Operating Decision Makers determined that the Company’s operations consist
of two segments: (i) Banyan’s three pediatric extended care centers (“PPECs”) in southwest Florida, and (ii) the second
segment is the Trillium Subsidiaries consisting of senior housing communities including skilled nursing facilities, assisted living facilities
and independent living facilities.
The
table below reflects the segment operations for the nine months ended September 30, 2021.
SCHEDULE OF SEGMENT REPORTING INFORMATION
|
|
PPEC
|
|
|
Trillium
|
|
|
Adjustments, eliminations and unallocated items
|
|
|
Consolidated
|
|
Total revenue, net
|
|
$
|
2,094,905
|
|
|
$
|
26,998,940
|
|
|
$
|
-
|
|
|
$
|
29,093,845
|
|
Cost of Sales
|
|
|
(810,114
|
)
|
|
|
(14,666,956
|
)
|
|
|
-
|
|
|
|
(15,477,070
|
)
|
Gross Profit
|
|
|
1,284,792
|
|
|
|
12,331,983
|
|
|
|
-
|
|
|
|
13,616,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and payroll expense
|
|
|
610,183
|
|
|
|
5,521,454
|
|
|
|
540,019
|
|
|
|
6,671,656
|
|
General and administrative
|
|
|
828,543
|
|
|
|
5,409,409
|
|
|
|
353,797
|
|
|
|
6,591,749
|
|
Lease expense
|
|
|
383,501
|
|
|
|
3,528,632
|
|
|
|
-
|
|
|
|
3,912,133
|
|
Professional fees
|
|
|
255,218
|
|
|
|
1,450,431
|
|
|
|
1,001,862
|
|
|
|
2,707,511
|
|
Marketing and advertising
|
|
|
164,800
|
|
|
|
172,184
|
|
|
|
-
|
|
|
|
336,984
|
|
Depreciation and amortization expense
|
|
|
206,777
|
|
|
|
111,336
|
|
|
|
211
|
|
|
|
318,324
|
|
Operating Loss
|
|
$
|
(1,164,231
|
)
|
|
$
|
(3,861,462
|
)
|
|
$
|
(1,895,889
|
)
|
|
$
|
(6,921,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
10,206,083
|
|
|
$
|
73,191,222
|
|
|
$
|
2,733,979
|
|
|
$
|
86,131,284
|
|
Total Liabilities
|
|
$
|
4,954,086
|
|
|
$
|
63,148,235
|
|
|
$
|
10,724,471
|
|
|
$
|
78,826,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
$
|
(917,789
|
)
|
|
$
|
(6,699,086
|
)
|
|
$
|
(2,395,144
|
)
|
|
$
|
(10,012,019
|
)
|
Cash used in investing activities
|
|
$
|
(51,972
|
)
|
|
$
|
3,620,828
|
|
|
|
|
|
|
$
|
3,568,856
|
|
Cash provided by financing activities
|
|
$
|
(211,903
|
)
|
|
$
|
4,724,102
|
|
|
$
|
5,479,518
|
|
|
$
|
9,991,717
|
|
NOTE
14 – STOCK-BASED COMPENSATION
On
August 26, 2021, a majority of the stockholders approved, by written consent without a meeting, the 2021 Incentive Award Plan (“Award
Plan”). The Award Plan was approved by the board of directors on August 19, 2021 and recommended to the stockholders for their
approval. Under the Award Plan, 4,500,000 shares of our common stock will be initially reserved for issuance pursuant to a variety of
stock-based compensation awards, including stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards,
performance bonus awards, performance stock unit awards, dividend equivalents or other stock or cash based awards. As of the nine month
period ending September 30, 2021 2,750,208 of the reserved shares were provided as stock options to 10 employees as part of the 2021
Incentive Award Plan. The shares vest over a 4 year period with a vesting commencement date of September 1, 2021, as of September 30,
2021 there were 57,296 of the shares vested with 2,692,912 options outstanding.
The
following table summarizes our Stock Options activity under the Award Plan for the nine months ended September 30, 2021:
SUMMARY
OF STOCK OPTIONS ACTIVITY
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Vesting Period (Years)
|
|
Outstanding At December 31, 2020
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,750,208
|
|
|
$
|
1.00
|
|
|
|
3.92
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding September 30, 2021
|
|
|
2,750,208
|
|
|
|
|
|
|
|
|
|
At
September 30, 2021 the weighted average period over which compensation cost on non-vested Stock Options expected to be recognized is
3.92
years and the unrecognized expense is approximately
$8.1 million.
Stock-based
compensation before income taxes included in salaries and wages in the condensed consolidated statement of operations was $171,888 for
the three months ended September 30, 2021. We did not recognize compensation cost in the three or nine month periods ended September
30, 2020 since the Stock Options were not awarded during the period.
We
did not have any cash proceeds or income tax benefits realized from the exercise of Stock Options for the three and nine months ended
September 30, 2021.
Valuation
Assumptions
Calculating
the fair value of employee stock options requires estimates and significant judgement. We use the Binomial option pricing model to estimate
the fair value of the employee stock options.
We
have included shares issuable under the Award Plan in deriving fully diluted earnings per share using the Treasury Method in accordance
with ASC 260-10-45. Under the Treasury Method, nonvested stock options granted, where the only satisfying condition is the mere passage
of time, shall be assumed exercised at the beginning of the period (or at time of issuance, if later). The proceeds from exercise of
stock options shall be assumed to be used to purchase common stock at the average market price during the period using daily closing
prices
NOTE
15 – CONCENTRATIONS AND CREDIT RISKS
Cash
The
Company places its cash with high credit quality financial institutions. The Company had balances in excess of the Federal Deposit Insurance
Corporation (“FDIC”) coverage of $250,000
at September 30, 2021, the aggregate amount in
excess of the coverage limit was approximately $2.8
million
consisting of three accounts. The Company maintains its cash in accounts at financial institutions, which may, at times, exceed
federally-insured limits. The Company has not experienced any losses on such accounts and does not feel it is exposed to any significant
risk with respect to cash.
Revenues
and Accounts Receivable
For
the three and nine months ended September 30, 2021, approximately 15% of our revenue was generated from Medicare, 67% was generated from
Medicaid and approximately 13% of our revenue was generated from private pay residents. The balance consisted of other payors including
managed care programs, VA programs and commercial insurance.
At
September 30, 2021 18% of our accounts receivable balances consisted of Medicare receivables, 54% consisted of Medicaid receivables,
13% consisted private pay and 11% consisted of commercial insurance. The balance of the accounts receivable consisted of VA and other
payors.
NOTE
16 – SUBSEQUENT EVENTS
We
have evaluated subsequent events from September 30, 2021 through the date of these financial statements were issued and determined the
following events require disclosure:
Autumn
Accolade
On
September 30, 2021,we entered into an Agreement for the Purchase and Sale of Business Assets and Real Estate (the “Purchase Agreement”),
with Autumn Accolade, Inc., (“Asset Seller”), Deborah S. Penn, as Trustee under the provisions of a Trust Agreement dated
October 8, 2012, and known as the Denton M. Penn Jr. Trust, as to an undivided one-half interest; Deborah S. Penn, as Trustee under the
provisions of a Trust Agreement dated October 8, 2012, and known as the Deborah S. Penn Trust, as to an undivided one-half interest (together,
“RE Seller,” and collectively with Asset Seller, the “Seller”).
Asset
Seller owns and operates a licensed assisted living facility located in Green Valley; Illinois known as Autumn Accolade (the “Business”).
Asset Seller also owns various assets in conjunction with the operation of the Business, including all assets that are located at, on
or within the Premises including those assets that are affixed to the Premises (collectively, “Assets”). RE Seller is the
owner in fee simple of the real estate upon which the Assets are located (the “Premises”).
Subject
to the terms of the Purchase Agreement, we are acquiring the Assets and the Premises from the Sellers in exchange for $2,300,000
and the assumption of certain liabilities. We paid a $110,000 deposit (the “Deposit”) upon execution of the Purchase Agreement,
which is being held in escrow and will be applied to the purchase price at closing or refunded if the closing doesn’t occur. We
paid an additional $15,000 deposit to the Seller upon execution of the Purchase Agreement, which is not refundable.
The
closing shall take place promptly following the satisfaction or waiver of the conditions to closing (but in no event less than 30 days
thereafter unless otherwise agreed to by the parties). In the event the closing has not taken place by March 31, 2022, then either party
may terminate the Purchase Agreement by written notice to the other party so long as such party is not then in breach of the Purchase
Agreement, and the Deposit will be immediately returned , less $35,000 to be paid to the Seller if the Seller is able to close but we
have failed to meet a financing contingency prior to the March 31, 2022 closing date. We may extend the March 31, 2022 closing date to
no later than June 30, 2022 upon written notice to the Seller prior to the March 31, 2022 and the payment to the Seller of a non-refundable
amount of $20,000, which shall not be applied to the purchase price.
Gemino
Healthcare Finance
On
September 30, 2021 we entered into a Second Amendment to our credit agreement with Gemino Healthcare Finance, LLC. The Credit Agreement
was entered into in connection with a $10 million credit facility to be used for working capital and general business purposes, and secured
by a first priority perfected security interest in the assets of Trillium and the Trillium Group. The credit facility terminates on May
9, 2022. Each revolving loan under the credit facility bears interest on the outstanding principal amount thereof from the date made
until paid in full, at a rate per annum equal to the greater of: (i) the annual rate reported as the London Interbank Offer Rate applicable
to ninety (90) day deposits of United States Dollars as reported in the Money Rates Section of The Wall Street Journal on the date of
determination; and (ii) 2.00%, plus 4.95% (together, the “Interest Rate”). The Interest Rate on all amounts outstanding under
the credit facility is adjusted daily based on any changes in the amount under subsection (i) above and subsection (ii) above, as applicable.
There are also various fees paid in connection with the credit facility, including: (1) a monthly collateral monitoring fee of 1.00%
of the average borrowing base during the prior month; (2) a monthly unused line fee equal to 0.75% per annum of the unused portion of
the maximum amount of credit facility; (3) a minimum use fee if the outstanding revolving loan balance is less than $2 million equal
to the Interest Rate times the minimum balance of $2 million; and (4) a termination fee of $100,000 if the credit facility is terminated
by A4L prior to May 9, 2022. The credit facility also contains typical affirmative and negative covenants found in credit facilities
of this type and amount.
The
First Amendment amended the Credit Agreement by: (1) releasing seven entities from the Trillium Group of their obligations under the
credit facility in connection with Trillium’s sale of those entities; (2) increasing to 5.95% the rate used to calculate the Interest
Rate; (3) increasing the monthly collateral monitoring fee to 1.50%; (4) lowering the revolving commitment amount from $10 million to
$7 million; and (5) waiving borrower’s failure to comply with the fixed charge coverage ratio for the fiscal quarters ending September
30, 2019, December 31, 2019, and March 31, 2020.
The
Second Amendment further amended the Credit Agreement by: (1) adding Assisted 4 Living, Inc as a guarantor to the credit facility and
releasing Trillium and it’s four principal individuals from their obligations under the credit facility; (2) increasing the term
of the credit facility so that it now expires on September 29, 2023; (3) revising the termination fee to reflect the increase in the
term of the credit facility; (4) modifying the fixed percentage used to calculate the Interest Rate from 5.95% to a range of 4.50% to
3.90%, depending on the outstanding loan balance during the preceding three months, with the rate decreasing as the amount borrowed increases;
(5) reducing the collateral monitoring fee from 1.50% to 1.00%; (6) reducing the unused line fee from 0.75% to 0.50%; (7) increasing
the maximum amount of the credit facility from $10 million to $25 million; and (8) revising terms regarding financial statements and
collateral reports, limitations on certain corporate guarantors and curing defaults.
Debt
On
October 8, 2021 we entered into a guaranty agreement in connection with a loan made to our wholly-owned subsidiary, Assisted 4 Living
Consulting, Inc. in the principal amount of $1,250,000 (the “Loan”). Pursuant to the terms of the guaranty agreement, the
A4L has unconditionally guaranteed the payment of all indebtedness, liabilities and obligations of every kind and nature of Assisted
4 Living Consulting, LLC to the lender whether absolute or contingent, direct or indirect, due or to become due, heretofore or hereafter
created, arising or exiting including any additional advances or future advances, renewals or extensions without limitation as to amount.
The Loan is evidenced by a promissory note. Outstanding principal accrues interest at an annual rate of ten percent (10%). Monthly payments
in the amount of $10,416.67 commence on November 8, 2021 and continue for 12 months until the maturity date of October 8, 2022, at which
time the remaining principal balance, if any, is due and payable. The Loan is secured by a first mortgage lien on property that is owned
by Borrower and serves as the A4L corporate headquarters.
If
any portion of the principal is paid prior to July 8, 2022, then Assisted 4 Living Consulting, LLC must pay a prepayment fee calculated
as the difference between nine months of interest on the amount of principal being prepaid and the amount of interest paid to date on
the amount of principal being prepaid. The lender is guaranteed nine months of interest regardless of when Loan is paid off.
After
the maturity date or due date of the promissory note, interest shall be charged on the respective principal amount remaining unpaid at
a rate equivalent to the highest lawful rate or twenty-five percent (25%) per annum, whichever is less, until paid.
If
any payment of principal or interest or both is more than five days late, Borrower agrees to pay lender a late charge equal to five percent
(5.0%) of the payment.
Crete
Plus Five Property
On
October 13, 2021 we entered into an Agreement of Purchase and Sale with Crete Plus Five Property, LLC, Iowa Lincoln County Property LLC,
Muscatine Toledo Properties, LLC and Avery Street Property, LLC (collectively, “Owners” ). The Owners owns 13 senior housing
facilities located in Iowa, Nebraska and Florida (collectively, the “Facilities”) as well the real property underlying the
Facilities (the “Properties”). The Agreement of Purchase and Sale is for the purchase of the Facilities, the Properties and
all of Owner’s right, title and interest in all of the personal property located at the Properties, other than certain personal
property described in Exhibit B attached to the Agreement of Purchase and Sale, such as cash and the tradenames and books and records
of Owner. The A4L indirect wholly-owned subsidiaries currently lease the Properties from Owner, and operate the Facilities, pursuant
to an Master Lease dated as of May 13, 2015, as amended.
The
purchase price for the Facilities and the Properties is $59,000,000.
A4L paid a $3,000,000
deposit (the “Deposit”) in June upon
execution of a letter of intent with Owner as part of the Trillium transaction, and A4L will receive a credit at closing against the
purchase price in the amount of the Deposit. If the Agreement of Purchase and Sale is Terminated prior to closing for any reason
other than breach of the agreement by Owner, the Deposit will be paid to Owner as liquidated damages. The closing is to occur on March
1, 2022; provided, however, A4L may extend the March 1, 2022 closing date to no later than March 31, 2022, upon written notice to Owner
prior to the February 15, 2022.
Grace
Care Centers
On
October 18, 2021 we completed the acquisition from Grace Care Centers and its affiliates (collectively, “Grace”) of three
skilled nursing facilities located in Texas (the “Skilled Facilities”), including the real property, buildings, structures,
improvements, fixtures and certain other assets comprising the Skilled Facilities (together with the Skilled Facilities, the “Assets”)
in exchange for an aggregate purchase price of $7,750,000 (the “Purchase Price”). The Assets were acquired pursuant to and
in accordance with three Purchase and Sale Agreements and three Management Transfer Agreements (collectively, the “Agreements”).
The
Skilled Facilities, located in Olney, Nocona and Henrietta, Texas, are all 5-star rated by CMS for quality and have a combined 258 beds.
The Skilled Facilities will continue to be leased to local hospital districts, who will continue to be the licensed operators of the
Skilled Facilities. A4L, through indirect wholly-owned subsidiaries, now owns the Assets and will manage the day-to-day activities of
the Skilled Facilities pursuant to management agreements which it assumed in connection with the transaction.
A4L,
through its indirect wholly-owned subsidiary, financed part of the Purchase Price with a loan from Arena Limited SPV, LLC (“Lender”)
in the principal amount of $6,600,000 (the “Loan”). Outstanding principal accrues interest at a rate per annum equal to the
sum of the Prime Rate plus 4.125%, with a minimum interest rate per annum of not less than 7.875%. Monthly interest only payments commence
on December 15, 2021, and continue each month until the maturity date of the Loan on April 18, 2023, at which time any outstanding principal
and accrued and unpaid interest is due and payable. If any principal, interest or any other sums due under the Loan (other than the payment
of principal due on the maturity date), is not paid on or prior to the due date, A4L is required to pay Lender upon demand an amount
equal to 5% of such unpaid sum. In connection with any repayment or prepayment of principal, a non-refundable fee equal to 0.5% of the
principal amount of such repayment or prepayment is due. A4L may prepay the outstanding amount in whole, but not part, upon prior written
notice to Lender.
A4L
has the right to extend the initial maturity date to October 15, 2023 upon prior written notice to Lender and the payment to Lender of
a non-refundable fee equal to 1% of the outstanding principal balance no later than 30 days prior to the maturity date. A4L may extend
the maturity date further, to April 15, 2024, upon prior written notice to Lender and the payment to Lender of a non-refundable fee equal
to 1% of the outstanding principal balance prior to the extended maturity date.
The
Loan is secured by a first priority lien on the Assets, including all amounts received by A4L or any subsidiaries constituting rent or
other payment under any leases or management fees under each of the management agreements, which must be deposited into a segregated
account at a bank and held in trust for Lender. The Loan is subject to customary affirmative and negative covenants, as well as customary
default provisions for late or non-payments or breach of covenants, for loans of this nature. Pursuant to the terms of a guaranty agreement,
A4L and several of its direct and indirect wholly-owned subsidiaries, have each unconditionally guaranteed to Lender the payment of all
indebtedness, liabilities and obligations of every kind and nature under the Loan.