Broad Street Realty, Inc. - Quarter Report: 2017 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2017

OR

For the transition period from ___________ to _____________

Commission file number: 001-09043

Indicate by a check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐

As of November 20, 2017, the registrant had 2,610,568 shares of common stock, $0.01 par value per share, outstanding.

MedAmerica Properties Inc.

Form 10-Q

Table of Contents

Part I — Financial Information

Item 1. Financial Statements

See Notes to Condensed Consolidated Financial Statements

 See Notes to Condensed Consolidated Financial Statements

See Notes to Condensed Consolidated Financial Statements

See Notes to Condensed Consolidated Financial Statements

MEDAMERICA PROPERTIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Nature of Operations

MedAmerica Properties Inc. (the “Company” or “MedAmerica”) was originally organized under the laws of the Commonwealth of Massachusetts in 1985, under the name VMS Hotel Investment Trust, for the purpose of investing in mortgage loans. The Company was subsequently reorganized as a Delaware corporation in 1987 and changed its name to B.H.I.T. Inc. In 2010, the Company changed its name from B.H.I.T. Inc. to Banyan Rail Services Inc. From 2009 to 2012, the Company experienced severe losses from an operating subsidiary in the rail services sector. In early 2013, the Company became a shell company (as defined in Rule 12b-2 of the Securities and Exchange Act of 1934) with no material operations or assets. In 2016, after exploring various industries and researching numerous companies, the board of directors elected to pursue investing in commercial real estate. The Company is pursuing the acquisition and management of strategically located medical office buildings.

In April 2017, our board of directors and the holders of a majority of our outstanding shares of common stock approved by written consent amendments to the Company’s articles of incorporation to (1) change the name of the Company from “Banyan Rail Services Inc.” to “MedAmerica Properties Inc.,” and (2) effect a 1 for 10 reverse stock split of the issued and outstanding shares of common stock of the Company. On June 15, 2017, the Company filed these amendments with the Secretary of State of the State of Delaware and the name change and reverse stock split became effective with the Financial Industry Regulatory Authority, Inc. (“FINRA”) on June 20, 2017. As appropriate, all common stock share quantities have been updated to reflect the 1 for 10 reverse stock split.

Note 2. Principles of Consolidation and Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany account balances and transactions have been eliminated in consolidation. The accompanying Financial Statements give effect to all adjustments necessary to present fairly the financial position and results of operations and cash flows of the Company and its subsidiaries.

Note 3. Going Concern

Our previous independent certified public accounting firm issued its report dated March 27, 2017 in connection with the audit of our financial statements for the year ended December 31, 2016 that included an explanatory paragraph describing the existence of conditions that raise substantial doubt about the Company’s ability to continue as a going concern. The Company does not currently generate revenue and is dependent on generating funds through debt or equity capital raises to cover its general and administrative costs. From February 2017 through the date hereof, the Company raised approximately $1.9 million in a private placement (see footnote Note 6 Preferred Stock and Common Stock for further discussion).  However, for the reasons described below, Company management does not believe that cash on hand and cash flow generated internally by the Company will be adequate to fund our overhead and other cash requirements beyond a short period of time.  These reasons raise significant doubt about the Company's ability to continue as a going concern.  

The accompanying Financial Statements have been prepared and are presented assuming the Company’s ability to continue as a going concern and do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty. The Company recognized a net loss of $262,691 and $341,384 for the three months ended September 30, 2017 and 2016, respectively, and a net loss of $384,949 and $649,117 for the nine months ended September 30, 2017 and 2016, respectively. At September 30, 2017, the Company had net working capital of $943,021 as compared to a net working capital deficit of $754,634 at December 31, 2016.  

Note 4. Summary of Significant Accounting Policies

UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The unaudited interim condensed consolidated financial statements of the Company as of September 30, 2017 and for the three and nine months ended September 30, 2017 and 2016 included herein have been prepared in accordance with the instructions for Form 10-Q under the Securities Exchange Act of 1934, as amended, and Article 10 of Regulation S-X under the Securities Act of 1933, as amended. Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations relating to interim condensed consolidated financial statements.

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company at September 30, 2017 and the results of its operations and its cash flow for the three and nine months ended September 30, 2017 and 2016. The results of operations and cash flows for such periods are not necessarily indicative of results expected for the full year or for any future period.

Use of Estimates

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States ("U.S. GAAP"), requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenues and expenses and disclosures of contingent assets and liabilities at the date and period ending of the financial statements. Actual results could differ from those estimates.

Cash

The Company considers all cash, bank deposits and highly liquid investments with an original maturity of three months or less to be cash equivalents. From time to time our cash deposits may exceed federally insured limits.

Equipment and Furnishings

Equipment and furnishings are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 7 years. Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any related gain or loss is reflected in the current period statement of operations.

Fair Value of Financial Instruments

Recorded financial instruments as of September 30, 2017, consist of cash and cash equivalents, accounts payable, accrued liabilities and short-term obligations. The related fair values of these financial instruments approximated their carrying values due to either the short-term nature of these instruments or based on the interest rates currently available to the Company.

Income (Loss) Per Common Share

The Company computes net income (loss) per common share in accordance with the provisions included in Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 260, Earnings per Share. Under ASC 260, basic and diluted income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares and common share equivalents outstanding during the period. Basic income (loss) per common share excludes the effect of potentially dilutive securities, while diluted income (loss) per common share reflects the potential dilution that would occur if securities or other contracts to issue common shares were exercised for, converted into or otherwise resulted in the issuance of common shares.  The Company's potentially dilutive securities are not included in the computation of diluted loss per share because their impact is anti-dilutive due to the net loss.  

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of enacted tax laws.

Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.

ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more likely than not” criteria, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Retained Earnings Distributions

The Company’s preferred stockholders are entitled to receive payment before any of the common stockholders upon a liquidation of the Company, and we cannot pay dividends on our common stock unless we first pay dividends required by our preferred stock.

Preferred Stock Dividends

The holders of Series A Cumulative Preferred Stock (“Preferred Stock”) shall be entitled to receive cumulative, non-compounded, cash dividends on each outstanding share of Preferred Stock at the rate of 10.0% of the issuance price per annum (“Preferred Dividends”), which began accumulating on January 1, 2010. The Preferred Dividends shall be payable semiannually to the holders of Preferred Stock, when and as declared by the Board of Directors.

Recently Issued Accounting Pronouncements

Management has determined that all recently issued accounting pronouncements will not have a material impact on the Company’s financial statements or do not apply to the Company’s operations.

Note 5. Equipment and Furnishings

The amount of equipment and furnishings as of September 30, 2017, is as follows:

The above office equipment and furnishings and computer equipment were placed in service in October 2017 and therefore no depreciation expense was recorded through September 30, 2017.

Note 6. Preferred Stock and Common Stock

Stock Split

In April 2017, the board of directors and the then majority shareholder approved a 1 for 10 reverse stock split (“Stock Split”) of the issued and outstanding shares of common stock of the Company. On June 15, 2017, the Company filed an amendment to its articles of incorporation with the Delaware Secretary of State effecting the Stock Split. The Stock Split became effective with the Financial Industry Regulatory Authority, Inc. (“FINRA”) on June 20, 2017.

Pursuant to the Stock Split, each outstanding share of the Company’s common stock was automatically exchanged for one-tenth of a share. As a result, each stockholder now owns a reduced number of shares of the Company’s common stock. The Stock Split affects all stockholders uniformly and does not affect any stockholder’s percentage ownership in the company or the proportionate voting rights and other rights and preferences of the stockholders, except for adjustments that may result from the treatment of fractional shares, which have been rounded to the nearest whole share. The number of the Company’s authorized shares of common stock was not affected by the Stock Split.

Private Placement

From February 10, 2017 through September 30, 2017, the Company accepted subscriptions of $1,932,505 for unregistered shares of the Company’s common stock for $0.15 or $1.50 (post-split) a share (the “2017 Private Placement”). The issuances of common stock were made in reliance on section 4(2) of the Securities Act of 1933 for the offer and sale of securities not involving a public offering and rule 506 of Regulation D of the Securities Act. The proceeds from the 2017 Private Placement will be used for working capital and to fund operations. As of October 11, 2017, the Company received an additional $7,500 of the 2017 Private Placement.  Through September 30, 2017, the Company has issued 592,336 shares of common stock under this Private Placement.  An additional 700,820 shares have been subscribed but the shares have not yet been issued as of September 30, 2017.  

Preferred Stock Exchange

In April 2017, we offered our preferred shareholders shares of our common stock in exchange for their Series A cumulative preferred stock (“Preferred Stock”) and accumulated preferred dividends outstanding as of December 31, 2016. Pursuant to the offer, each share of Preferred Stock would be exchanged for 20 shares of (post-split) common stock. All preferred shareholders, except one, accepted the offer resulting in the conversion of 9,875 shares of Preferred Stock and $301,656 of accumulated preferred dividends into 257,831 shares of (post-split) common stock, which were issued in the third quarter of 2017. The effective date of the exchange was June 30, 2017.  This exchange resulted in deemed dividends on prferred stock conversionof $148,125.  

Subsequent to the reverse stock split, the private placement and the preferred stock exchange, there are 1,907,070 shares of common stock issued and outstanding as of September 30, 2017 consisting of 1,056,723 shares after the reverse stock split, 592,516 shares from the private placement and 257,831 shares from the preferred stock and preferred dividend exchange.

Preferred Stock Dividends

The holders of Series A Preferred Stock are entitled to receive cumulative, non-compounded cash dividends on each outstanding share of Series A Preferred Stock at the rate of 10.0% of the Issuance Price per annum (“Preferred Dividends”), which begin to accrue on January 1, 2010. Preferred Dividends, if declared, are payable semiannually to the holders of Series A Preferred Stock. Any Series A Preferred Dividends due and unpaid on any Payment Date, whether or not declared by the board of directors, accrue with any other due and unpaid Preferred Dividends, regardless of whether there are profits, surplus or other funds of the Company legally available for payment of dividends.

Certain Preferred stockholders had previously agreed to accept common stock in lieu of cash for payment of Preferred Dividends. In February 2016, the Company issued 29,856 shares of common stock in lieu of $29,249 of Preferred Dividends for those Preferred stockholders who accepted the common stock in lieu of the cash offer. The total accrued but unpaid Preferred Dividends is $27,361 and $329,017 as of September 30, 2017 and December 31, 2016, respectively.  $3,750 of these cumulative Preferred Dividends are undeclared and unaccrued as of September 30, 2017.  

Series A Cumulative Preferred Stock Dividends Scheduled and Accumulated:

Common Stock

As of September 30, 2017, the Company’s board of directors and officers beneficially own 828,060 (post-split) shares of the Company’s common stock or 43.42% of the outstanding common stock. Included in the 828,060 (post-split) shares is shares owned by Banyan Rail Holdings LLC and Marino Family Holdings LLC of 91,348 and 351,966 (post-split) shares of common stock of the Company, respectively.

On August 8, 2016, the Company issued an aggregate of 22,000 shares of common stock to Donald S. Denbo, Paul S. Dennis, Mark L. Friedman, Gary O. Marino, and Jon D. Ryan as compensation for services as directors in 2016. The Company recorded compensation expense in the amount (included in general and administrative on the Consolidated Statement of Operations) of $165,000 for the value of their services as of September 30, 2016. The compensation expense is based on the $7.50 a share market price of the Company’s stock at the time of issuance as required by applicable accounting guidance.                    

Note 7. Income Taxes 

For the nine months ended September 30, 2017 and 2016, the Company recorded a net loss resulting in an income tax provision and an effective tax rate of zero. The tax rate differs from the statutory federal rate of 34% primarily due to valuation allowances recorded on the Company’s net operating loss carry-forward generated during the period.

The Company recorded an operating loss for the quarter and nine months ended September 30, 2017, and has a history of operating losses. After assessing the realization of the net deferred tax assets, we have recorded a valuation allowance of 100% of the value of the net deferred tax assets as we currently believe it is more likely than not that the Company will not realize operating profits and taxable income so as to utilize all of the net operating losses in the near future.

Note 8. Earnings (Loss) per Share

The Company excluded from its diluted earnings per share calculation, 500 and 10,375 common shares issuable upon conversion of shares of convertible preferred stock that were outstanding at September 30, 2017 and December 2016, respectively, as their inclusion would be anti-dilutive.

Note 9. Stock-Based Compensation

On August 23, 2017, the Company issued an aggregate of 60,000 stock options to directors and officers Joseph Bencivenga, Donald S. Denbo, Paul S. Dennis, Gary O. Marino, Bennett Marks and Robert Schellig. The related stock compensation expense was not material.

The Company previously had stock option agreements with its directors and officers. Details of options activity is as follows:

The fair values of stock options are estimated using the Black-Scholes method, which takes into account variables such as estimated volatility, expected holding period, dividend yield, and the risk-free interest rate. The risk-free interest rate is the five-year treasury rate at the date of grant. The expected life is based on the contractual life of the options at the date of grant. All 60,000 options were fully vested at grant date.  The intrinsic value is not material.

Note 10. Related Party Relations and Transactions

Gary O. Marino, the Company’s chairman of the board, is the chairman, president, and chief executive officer of Boca Equity Partners LLC (“BEP”), Patriot Equity LLC (“Patriot”), Banyan Medical Partners LLC (“BMP”), and Banyan Surprise Plaza LLC (“BSP”). Mr. Marino owns 100% of Patriot, Patriot owns 100% of BMP and BSP through and along with other wholly owned subsidiaries. Mr. Marino, Mr. Paul S. Dennis, a member of the Company's board of directors, and Mr. Donald S. Denbo, a member of the Company's board of directors, also hold membership interests in BEP.

During 2016, the Company established BMP, and certain other subsidiaries wholly-owned by BMP. The Company formed these entities to acquire medical office buildings in the United States. The Company was unable to raise the capital needed to consummate the first medical building opportunity. On March 9, 2017, the Company sold BMP and BMP’s wholly-owned subsidiaries to Patriot. The selling price was $277,756 in the form of BMP assuming a portion of the Company’s note payable balance due to BEP. The consideration of $277,756 was used to recoup the $110,000 in property deposits as of December 31, 2016 and reimbursement of $117,756 of other 2016 and 2017 expenses incurred by the Company on behalf of BMP. This reimbrsement of expenses is offset in general and administrative expenses.  

On July 27, 2016, the Company entered into a Demand Note and Loan Agreement (the “Note”) with BEP providing for draws of up to $250,000. Loans under the Note bore interest at an annual rate of 10% and outstanding principal and interest were due on demand. This Note was cancelled and terminated on December 31, 2016 when the Company entered into a new Demand Note and Loan Agreement (the “New Note”) with BEP for $471,826. The New Note bore interest at the rate of 10% per annum and is payable upon demand. BEP may, but is not required to, make advances to the Company as the Company may from time to time request. The New Note including accrued interest was paid in full May 31, 2017 and the Note was cancelled.

On June 8, 2017, MedAmerica entered into an office lease and administrative support agreement (the “Agreement”) with BEP. The Agreement has a month-to-month term commencing on June 1, 2017. The Agreement provides for the Company’s use of a portion of BEP’s offices and certain overhead items at the BEP offices such as space, utilities and other administrative services for $15,000 a month. The Agreement replaces the February 3, 2017 office lease and administrative support agreement between the Company and BEP and includes additional general office and administrative staff support services.

On June 14, 2017, the Company entered into a letter of intent with Patriot to reacquire all of the capital units of BMP from Patriot, for $9,536,582 which is the purchase price of the Medical Office Building. The letter of intent is non-binding, provides for a ninety-day exclusive diligence period, and is contingent upon Banyan obtaining financing to complete the acquisition. The letter was extended to December 15, 2017.

The Company’s directors have not received cash compensation for their services in 2016 or through the nine months ended September 30, 2017 but were compensated with common stock and stock options. See footnote 6 Preferred Stock and Common Stock and footnote 9 stock based compensation for further discussion.

As of September 30, 2017, the Company’s board of directors and officers beneficially own 828,060 (post-split) shares of the Company’s common stock or 43.42% of the outstanding common stock. Also, Banyan Rail Holdings LLC and Marino Family Holdings LLC owned 91,348 and 351,966 (post-split) shares of common stock of the Company, respectively, included in the shares shown above.

In the third quarter of 2017, the Company hired a new president and chief executive officer and a new chief financial officer who are husband and wife. Also, in the third quarter of 2017, the Company issued 15,000 common stock options to the president and CEO and 45,000 shares to other board members and officers.

Paul Dennis, director and former officer participated in the 2017 Private Placement investing $150,000 for 100,000 shares of common stock.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the accompanying unaudited Financial Statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC”).

Cautionary Statement Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains information about the Company, some of which includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements other than historical information or statements about our current condition. You can identify forward-looking statements by the use of terms such as “believes,” “contemplates,” “expects,” “may,” “will,” “could,” “should,” “would,” or “anticipates,” other similar phrases, or the negatives of these terms. We have based the forward-looking statements relating to our operations on our current expectations, estimates and projections about us and the markets we serve. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties. These statements should be considered in conjunction with the discussion in Part I, the information set forth under Item 1A, “Risk Factors” and with the discussion of the business included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2016 Annual Report on Form 10-K, filed with the SEC on March 31, 2017. We have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, the actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:

You should not place undue reliance on our forward-looking statements, which reflect our analysis only as of the date of this report. The risks and uncertainties listed above and elsewhere in this report and other documents that we file with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and any current reports on Form 8-K, must be carefully considered by any investor or potential investor in the Company. We undertake no obligation to update forward-looking statements, except as required by law.

Overview

After exploring various industries, in 2016, the board of directors determined to pursue the acquisition and management of well-located medical office buildings throughout the United States with the intention of aggregating multiple properties within certain locations allowing us to gain efficiencies and diversify risk.

These investments will have strong fundamentals in the highly-desired healthcare real estate sector that continues to grow by demand that is supported by expectations of an increase in the aging baby boomer population. We are focused on opportunistic medical office real estate investments located in the sunbelt states. Management is looking in these attractive geographic locations for investments that meet its criteria. We believe that investing in medical office buildings will generate strong cash flow and produce significantly increased value for our stockholders. Although we believe the acquisition and management of medical office buildings is fundamentally sound, there is no assurance that we will be successful in this endeavor or that we can locate and finance properties meeting our criteria in locations desirable to us. For more information concerning these risks, please see Part II, Section 1A – “Risk Factors” of our 2016 Annual Report on Form 10-K, filed with the SEC on March 31, 2017.

In preparation for this new strategy, our management team is focused on repositioning the Company, both operationally and financially. As described in greater detail below, we have changed the name of the Company to identify with our new direction. In addition to seeking equity and debt financing, we have taken the actions described below under “Recent Events” to strengthen our balance sheet and pursue our new strategy.

Recent Events

Stock Split and Name Change

In April 2017, our board of directors and the then holders of a majority of our outstanding shares of common stock approved by written consent amendments to the Company’s articles of incorporation to (1) change the name of the Company from “Banyan Rail Services Inc.” to “MedAmerica Properties Inc.,” and (2) effect a 1 for 10 reverse stock split of the issued and outstanding shares of common stock of the Company. On June 15, 2017, the Company filed these amendments with the State of Delaware and the name change and stock split became effective with the Financial Industry Regulatory Authority, Inc. (“FINRA”) on June 20, 2017.

The name change reflects our new strategy of pursuing acquisitions of well-located medical office buildings. Pursuant to the reverse stock split, each outstanding share of the Company’s common stock was automatically exchanged for one-tenth of a share. As a result, each stockholder now owns a reduced number of shares of the Company’s common stock. The stock split affects all stockholders uniformly and does not affect any stockholder’s percentage ownership in the company or the proportionate voting rights and other rights and preferences of the stockholders, except for adjustments that may result from the treatment of fractional shares, which have been rounded to the nearest whole share. The number of the Company’s authorized shares of common stock was not affected by the stock split.

Private Placement

In February 2017, management began approaching certain accredited investors offering unregistered shares of the Company’s common stock for $0.15 or $1.50 (post-split) a share in order to raise working capital and fund our operations (the “2017 Private Placement”). Through September 30, 2017, the Company accepted subscriptions for $1,932,505 in the 2017 Private Placement. The issuances of common stock were made in reliance on section 4(2) of the Securities Act of 1933 for the offer and sale of securities not involving a public offering and rule 506 of Regulation D of the Securities Act. The proceeds of the 2017 Private Placement will be used for working capital and to fund operating. As of October 11, 2017, the Company has received an additional $7,500 in 2017 Private Placement funds.

Preferred Stock Exchange

In April 2017, we offered our preferred shareholders shares of our common stock in exchange for their Preferred Stock and Preferred Dividends accrued as of December 31, 2016. Pursuant to the offer, each share of Preferred Stock would be exchanged for 20 shares of common stock. All preferred shareholders, except one, accepted our offer resulting in the conversion of 9,875 shares of Preferred Stock and $301,656 of Preferred Dividends into 257,831 shares of (post-split) common stock which were issued in the third quarter of 2017. The effective date of the exchange is June 30, 2017.  This exchange resulted in deemed dividends on preferred stock conversion of $148,125.  

As a result of the reverse stock split, the private placement and the preferred stock exchange, there are 1,907,070 shares of common stock outstanding as of September 30, 2017 consisting of 1,056,723 shares after the reverse stock split, 592,516 shares from the 2017 Private Placement and 257,831 shares from the preferred stock and preferred dividend exchange.

Purchase of Banyan Medical Partners

On June 14, 2017, MedAmerica entered into a letter of intent with Patriot to reacquire all capital units of BMP for $9,536,582. In 2016, MedAmerica originally formed BMP and its subsidiary, BSP, to embark on a new strategy to pursue the acquisition of well-located medical office buildings, particularly in the sunbelt states. In August 2016, BSP entered into an agreement to purchase the Surprise Medical Plaza, located in Surprise, Arizona. Although the Company pursued various options to finance the acquisition, management was unable to complete the transaction in the time frame provided for in the purchase agreement. As a result, the board decided to transfer BMP and BSP to Patriot, an entity owned by Gary O. Marino, the Company’s chairman of the board, in March 2017. BSP subsequently completed the acquisition of the Surprise Medical Plaza property. The letter of intent entered into between MedAmerica with Patriot is non-binding, provides for a ninety-day exclusive diligence period, and is contingent upon the Company obtaining financing to complete the acquisition. The letter of intent has been extended to December15, 2017.

Quasi-Reorganization

Critical Accounting Policies and Estimates

For a discussion of our significant accounting policies, see Note 4 – "Summary of Significant Accounting Policies" in the accompanying Notes to Financial Statements.

Results from Operations

The following table summarizes our results for the three and nine months ended September 30, 2017 and 2016:

General and Administrative Expenses

General and administrative expenses include: compensation expense, professional fees, insurance, office and rent expenses and costs related to being a public company.

For the nine months ended September 30, 2017, general and administrative expenses decreased $277,183 or 42.9% compared to the nine months ended September 30, 2016.  This included $117,756 of prior year expenses reimbursed by a related party relative to the Banyan Sale.  

The overall decrease in general and administrative expenses is primarily due to:

For the three months ended September 30, 2017, general and administrative expenses decreased $76,320 or 22.6% compared to the three months ended September 30, 2016.

The overall decrease in general and administrative expenses is primarily due to:

Income Tax Expense

A valuation allowance offsets net deferred tax assets for which future realization is considered to be less likely than not. A valuation allowance is evaluated by considering all positive and negative evidence about whether the deferred tax assets will be realized. At the time of evaluation, the allowance can be either increased or reduced. A reduction could result in the complete elimination of the allowance, if positive evidence indicates that the value of the deferred tax assets is no longer impaired and the allowance is no longer required.

The Company recorded an operating loss for the quarter, and has a recent history of operating losses. After assessing the realization of the net deferred tax assets, we have recorded a valuation allowance of 100% of the value of the net deferred tax assets as we currently believe it is more likely than not that the Company will not realize operating profits and taxable income so as to utilize all of the net operating losses in the near future.

Net (Loss) Income

Net loss for the nine months ended September 30, 2017 included $117,756 of reimbursement of expensesfrom the transfer of Banyan Medical Partners to a Related Party.

Net loss attributable to common stockholders was $0.45 and $0.70 per share for the nine months ended September 30, 2017 and 2016, respectively.

Net loss attributable to commons stockholders was $0.32 and $0.35 per share for the three months ended September 30, 2017 and 2016, respectively.

Financial Condition and Liquidity

The Company does not currently generate revenue and is dependent on generating funds through debt or equity capital raises to cover its general and administrative costs. Beginning February 10, 2017 through the date of this filing, the Company has approached certain accredited investors seeking to raise up to $2.0 million in exchange for the Company’s common stock. As of October 11, 2017, the Company has raised $1,940,005 in the 2017 Private Placement.

Our independent certified public accounting firm issued its report dated March 27, 2017 in connection with the audit of our financial statements as of December 31, 2016 that included an explanatory paragraph describing the existence of conditions that raise substantial doubt about the Company’s ability to continue as a going concern. We believe this previous doubt about the Company’s ability to continue as a going concern has been alleviated for the foreseeable future due to the amount of funds raised by the Company in the first three quarters of 2017.

The following table summarizes our cash flow activity:

Net cash used in operating activities        

For the nine months ended September 30, 2017, net cash used in operating activities was $520,425 as compared to net cash used in operating activities of $442,373 for the nine months ended September 30, 2016. The increase in cash used in operating activities was primarily due to the increase in net loss offset by cash provided by the increase in accounts payable and accrued expenses.  

Net cash provided by (used in) investing activities

For the nine months ended September 30, 2017, net cash provided by investing activities was $62,284 as compared to net cash used in investing activities of $100,000 for the nine months ended September 30, 2016. The increase in cash provided by investing activities was primarily due to the decrease in property deposits.

Net cash provided by financing activities

For the nine months ended September 30, 2017, net cash provided by financing activities was $1,609,595 as compared to $275,000 for the nine months ended September 30, 2016. The increase in net cash provided by financing activities was due primarily to the 2017 Private Placement which was launched on February 2017 and raised $1,803,665 (net of costs) through the September 30, 2017. This was offset by a net decrease in the demand loan from a related party of approximately $194,070.

At September 30, 2017, the Company had net working capital of $943,021 as compared to net working capital deficit of $754,634 at December 31, 2016. The improvement in working capital is primarily due to the cash received from the 2017 Private Placement. The Company recognizes that as a result of the lack of operations, it will continue to rely upon the sale of stock or capital contributions from investors to generate cash flow and we hope to generate cash from purchasing and operating medical office buildings.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Revision of Previously Issued Financial Statements

An evaluation was performed under the supervision and with the participation of our management, including our new Chief Executive Officer and our new Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017. The evaluation of our disclosure controls and procedures by our Chief Executive Officer and Chief Financial Officer included a review of the revision described in the filing of this Form 10-Q, where we revised our additional paid-in capital and our accumulated deficit. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2017, at the reasonable assurance level, to enable us to record, process, summarize and report information required to be disclosed by us in reports that we file or submit within the time periods specified in the SEC rules or forms due to the material weakness described below.

Material Weakness in Internal Control over Financial Reporting

A material weakness is defined as a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim condensed consolidated financial statements will not be prevented or detected on a timely basis. In connection with the evaluation of our disclosure controls and procedures as of September 30, 2017, we identified a material weakness in our internal control over financial reporting associated with the recognition of a quasi-reorganization during the quarterly period ended June 30, 2017.  The Company subsequently determined that the Company did not meet the requirements to record the quasi-reorganization at that time.

The Company did not design and maintain effective control over the evaluation and adoption of accounting policies regarding the quasi-reorganization.  While this is considered a material weakness in internal control over financial reporting, the Company determined that the related error was not material to the results of operations or financial position for any prior annual or interim period as described above in Note 11.  

Changes in Internal Control over Financial Reporting

Other than the material weakness as set forth above during the quarter ended September 30, 2017, there have been no changes in our internal controls over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the quarter ended September 30, 2017, identified in connection with our evaluation that has materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Management's Remediation Initiatives

We have taken, and continue to take, the actions described below to remediate the identified material weakness. As we continue to evaluate and work to improve our internal controls over financial reporting, our senior management may determine to take additional measures to address control deficiencies or modify the remediation efforts, or in appropriate circumstances not to complete certain of the remediation measures described in this section. While our senior management are closely monitoring the implementation, until the remediation efforts discussed in this section, including any additional remediation efforts that our senior management identifies as necessary, are completed, tested, and determined effective, the material weakness described above will continue to exist.

To address this material weakness, our new management has implemented new procedures and internal controls surrounding the reporting of equity transactions, including a quasi-reorganization, to ensure that proper analysis is completed in order to determine the Company’s eligibility and proper disclosure of future equity transactions.

Part II — Other Information

Item 1. Legal Proceedings

The Company is not a party, nor is its property the subject of, any material pending legal proceedings.

Item 1A. Risk Factors

In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A of our most recent Annual Report on Form 10-K, which could materially affect our business, financial condition, or future results. The risk described below supplements the risks described in our most recent Annual Report on Form 10-K.

A growth strategy of making acquisitions subjects us to all of the risks inherent in identifying, acquiring and operating newly acquired businesses.

Our board has approved the current strategy that includes the acquisition, purchase, and management of well-located medical office buildings throughout the United States, with the intention to aggregate multiple properties with strong fundamentals in certain attractive geographic locations, particularly in the sunbelt states. In the future, we may continue to make acquisitions of, or investments in, medical office buildings. To that end, we may spend significant management time and resources in analyzing and negotiating acquisitions or investments that are not consummated and the strategy may not be implemented at all. Moreover, no assurance can be given that we will identify medical office buildings to acquire, or if we do, that we will be able to acquire such properties on terms acceptable to us, or at all. Furthermore, we may seek equity or debt financing for particular acquisitions, which may not be available on commercially reasonable terms, or at all. We will also face all the risks associated with an acquisition strategy, including, but not limited to:

If we cannot overcome these challenges, we may not realize actual benefits from past and future acquisitions, which will impair our overall business results. If we complete an investment or acquisition, we may not realize the anticipated benefits from the transaction.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Private Placement

In February 2017, management began approaching certain accredited investors offering unregistered shares of the Company’s common stock for $0.15 or $1.50 (post-split) a share in order to raise working capital and fund our operations (the “2017 Private Placement”). Through September 30, 2017, the Company accepted subscriptions for $1,932,505 in the 2017 Private Placement. The issuances of common stock were made in reliance on section 4(2) of the Securities Act of 1933 for the offer and sale of securities not involving a public offering and rule 506 of Regulation D of the Securities Act. The proceeds of the 2017 Private Placement will be used for working capital and to fund operations and repay related party note and accrued interest. As of October 11, 2017, the Company has received an additional $7,500 in 2017 Private Placement funds.

Preferred Stock Exchange

In April 2017, we offered our preferred shareholders shares of our common stock in exchange for their Preferred Stock and Preferred Dividends accrued as of December 31, 2016. Pursuant to the offer, each share of Preferred Stock would be exchanged for 20 shares of common stock. All preferred shareholders, except one, accepted our offer resulting in the conversion of 9,875 shares of Preferred Stock and $301,656 of Preferred Dividends into 257,831 shares of (post-split) common stock which were issued in the third quarter of 2017. The effective date of the exchange is June 30, 2017.  This exchange resulted in deemed dividends on preferred stock conversion of $148,125.  

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

*Filed herewith

**Furnished herewith

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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