Broad Street Realty, Inc. - Annual Report: 2018 (Form 10-K)

PART I

ITEM 1. BUSINESS

As used in this report, all references to “MedAmerica,” the “Company,” “we,” “our” and “us” refer to MedAmerica Properties Inc.

Forward Looking Statements

This Annual Report on Form 10-K contains information about us, some of which includes “forward-looking statements” as defined by 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.” We have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our 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 this 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.

Item 1. Business.

Overview

MedAmerica is a real estate management company with limited operations. During 2018, up to the time we were introduced to the commercial real estate company described below, we were focused on seeking to acquire medical office buildings. None of our discussions concluded in any acquisitions.

As part of our search, we were introduced to the sponsor of multiple commercial real estate properties located in the United States in late 2018. After that introduction and continuing to date, we have been engaged in negotiations which, if consummated, would result in us executing merger agreements and consummating a strategic transaction (the “Transaction”) with MedAmerica becoming the owner of between 12 and 17 retail shopping centers, the sponsor of such properties appointing five of seven members of our board of directors, and the sponsor and its investors owning a substantial majority of our common stock and the sponsor and its investors ending up as our principal shareholders. We have not yet signed a binding agreement with respect to the Transaction and any such binding agreement will be subject to a number of closing conditions, including obtaining certain financing. There can be no assurance that the Transaction will be consummated.

Our History

The Company 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 2016, after exploring various industries and researching numerous companies, the board of directors elected to pursue investing in commercial real estate.  In 2017 the Company changed its name to MedAmerica Properties Inc.  

The Transaction

We have been negotiating with the sponsor of several limited liability companies, each of which owns a separate shopping center located in the United States. We have reached an agreement in principal with regard to the form of merger agreement and the proposed capitalization of the combined company. The real estate mortgages for the other five shopping centers are held by entities which issued commercial mortgages-backed securities for which the approval process is lengthier or otherwise need more time to close than the shopping centers we expect to acquire at the initial closing. Accordingly, at the initial closing the Company expects to acquire 12 shopping centers at which time the current investors in the assets will own approximately 89.06% of the Company and our shareholders will own the remaining 10.94%.  Assuming we sign the merger agreements and ultimately close the Transaction, the Company will initially own 12 shopping centers and will subsequently acquire an additional five shopping centers, subject to lender approval and other closing conditions. Each shopping center has its own indebtedness secured by the particular center. Assuming we close the Transaction and acquire all of the shopping centers, we will issue common stock to the sponsor and the current investors in the assets who collectively will own approximately 92.76% of our common stock on a fully diluted basis with our current shareholders owning approximately 7.24%.

Closing is subject to a number of contingencies including approval by the required percentage of partners of each property-owning entity, obtaining satisfactory resolution of the proposed accounting treatment, execution of definitive merger agreements (the terms of which have been agreed upon), our board of director’s receipt of a fairness opinion, lender approvals, obtaining $47 million of financing to refinance existing indebtedness and to provide growth capital and other customary closing conditions.

It is currently estimated that the Transaction would be expected to be consummated late in the second quarter of 2019, but there can be no assurance that there will not be delays. We cannot assure you that we will sign the merger agreements or close the Transaction. If we do not close the Transaction, our board of directors will have to reexamine its plans with regard to acquiring real estate properties. See Item 1A “Risk Factors.”

Item 1A. Risk Factors.

The following is a description of what we consider the key challenges and risks relating to our business and investing in our common stock. This discussion should be considered in conjunction with the discussion under the caption “Forward-Looking Information” in Part I, the information set forth under Item 1, “Business” 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.” These risks comprise the material risks of which we are aware. If any of the events or developments described below or elsewhere in this Annual Report on Form 10-K, or in any documents that we subsequently file publicly were to occur, it could have a material adverse effect on our business, financial condition and/or results of operations.

Risks Relating to the Transaction

Because we have no binding agreements with respect to the proposed Transaction, the parties can elect to terminate discussions.

We have entered into a non-binding letter of intent to acquire the shopping centers in the Transaction. Because we do not currently have binding merger agreements, either party could choose not to engage in the Transaction on current terms, or at all.

The Transaction is subject to a number of closing conditions, which may not be satisfied.

The form of merger agreement related to the proposed Transaction contains a number of closing conditions, including relating to investor consent by the current owners of the shopping centers, lender consents, obtaining financing and certain other customary closing conditions. There can be no assurance these conditions will be satisfied or waived, in which case the Transaction will not be consummated. In addition, while we currently expect the Transaction to be signed and announced and consummated by the end of the second quarter of 2019, there can be no assurance that such timing will be achieved.

If we fail to close the Transaction, we will have lost one year and incurred costs without receiving any benefit.

During the time we have been engaged in discussions, we have continued to incur costs including related party rent and office support, legal fees and investment banking fees for a fairness opinion to be delivered to our Board of Directors. If the Transaction is not consummated, we will not receive any benefit from these expenses.

If we fail to close the Transaction, our future will be uncertain.

We spent several years seeking to acquire medical office properties but were not successful. Following that, we have devoted substantial time focused on the Transaction. Our Board of Directors has not considered what it would do if the proposed Transaction is not consummated. Accordingly investors should consider this uncertainty in considering whether to purchase, hold or sell our common stock.

Because there is little information in this Report about the Transaction, investors should hesitate to purchase our common stock until we announce that we have closed the Transaction or that we have terminated discussions.

Because we have no definitive agreement with respect to the Transaction, we have not disclosed any public information concerning the Transaction except as it appears in this Report. We are not disclosing:

Because of the risks of not closing described above and the paucity of information in this Report, investors should be hesitant to purchase shares of common stock without being able to bear a total risk of loss. Further, if we close the Transaction, our shareholders will sustain substantial dilution. See Item 1. “Business.”

If the Transaction does not close, we will need to raise additional capital, which may not be available to us.

If the proposed Transaction does not close, we will need additional capital to fund the implementation of a new business plan. We cannot assure you that any necessary subsequent financing will be available. We cannot be certain that we will be able to obtain additional financing on favorable terms or at all. Boca Equity Partners LLC ("BEP"), an entity controlled by our chairman, has committed to funding operations through May 2020 in the event the Transaction does not close.   In addition, if we raise capital by selling additional shares of stock or convertible securities, your percentage ownership in MedAmerica will be diluted.

Risks Relating to Our Common Stock

Because the market for our common stock is limited, persons who purchase our common stock may not be able to resell their shares at or above the purchase price paid by them.

Our common stock trades on the OTC Markets, Inc. (“OTCQB”) which is not a liquid market. With some limited exceptions, there has not been an active public market for our common stock. We cannot assure you that an active public market for our common stock will develop or be sustained in the future. If an active market for our common stock does not develop or is not sustained, the price may decline.

Because we are subject to the “penny stock” rules, brokers cannot generally solicit the purchase of our common stock which adversely affects its liquidity and market price.

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock on the OTC Markets has been substantially less than $5.00 per share and therefore we are currently considered a “penny stock” according to SEC rules. This designation requires any broker-dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules limit the ability of broker-dealers to solicit purchases of our common stock and therefore reduce the liquidity of the public market for our shares.

Moreover, as a result of apparent regulatory pressure from the SEC and the Financial Industry Regulatory Authority, a growing number of broker-dealers decline to permit investors to re-sell shares of penny stocks like ours. This may have had and may continue to have a depressive effect upon the common stock price.

Due to factors beyond our control, our stock price may be volatile.

Any of the following factors could affect the market price of our common stock:

Future volatility may harm our shareholders and future shareholders.

An investment in the Company may be diluted in the future as a result of the issuance of additional securities or the exercise of options, warrants or convertible notes.

In order to raise additional capital to fund our strategic plan, we may issue additional shares of common stock or securities convertible, exchangeable or exercisable into common stock from time to time, which could result in substantial dilution to any person who purchases our common stock. Because we have a negative net tangible book value, purchasers will suffer substantial dilution. We cannot assure you that we will be successful in raising funds from the sale of common stock or other equity securities.

In the future, we may issue preferred stock without the approval of our shareholders, which could make it more difficult for a third party to acquire us and could depress our stock price.

Our Board may issue, without a vote of our shareholders, one or more series of preferred stock (in addition to the Series A preferred stock that is currently outstanding) that have more than one vote per share. This could permit our board of directors to issue preferred stock to investors who support us and our management and permit our management to retain control of our business. Additionally, issuance of preferred stock could block an acquisition resulting in both a drop in our stock price and a decline in interest of our common stock.

If our common stock becomes subject to a “chill” or a “freeze” imposed by the Depository Trust Company, or DTC, your ability to sell your shares may be limited.

The DTC acts as a depository or nominee for street name shares or stock that investors deposit with their brokers. Although through DTC our common stock is eligible for electronic settlement rather than delivery of paper certificates, DTC in the last several years has imposed a chill or freeze on the deposit, withdrawal and transfer of common stock of issuers whose common stock trades on the OTC Markets. Depending on the type of restriction, it can prevent shareholders from buying or selling our shares and prevent us from raising money. A chill or freeze may remain imposed on a security for a few days or an extended period of time (in at least one instance a number of years). While we have no reason to believe a chill or freeze will be imposed against our common stock, if it were your ability to sell your shares would be limited.

Since we intend to retain any earnings for development of our business for the foreseeable future, you will likely not receive any dividends for the foreseeable future.

We have not and do not intend to pay any dividends in the foreseeable future, as we intend to retain any earnings for development and expansion of our business operations. As a result, you will not receive any dividends on your investment for an indefinite period of time.

Item 2. Properties.

The Company has entered into an office lease and administrative support agreement with Boca Equity Partners LLC (“BEP”), an entity controlled by our Chairman of the Board. See “Item 13. Certain Relationships and Related Transactions, and Director Independence” below. The agreement has a month-to-month term commencing in February 2017, amended in June 2017 and most recently amended in September 2018 and 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 varying amounts over the term, most recently $5,000 a month. Total expense incurred under these agreements amounted to $140,000 and $138,025 for the years ended 2018 and 2017, respectively. If we were required to move, we believe that there is a large supply of commercial property available in the general area, which we could lease at comparable prices.

Item 3. Legal Proceedings.

As of the filing date of this Report, we are not aware any proceeding, threatened or pending, against the Company which, if determined adversely, would have a material effect on our business, results of operations, cash flows or financial position.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is quoted on the OTCQB under the symbol “MAMP.” Our common stock last traded at $3.10 on March 29, 2019. As of that date there were approximately 686 shareholders of record. We believe that additional beneficial owners of our common stock are held in street name.

Dividends

We intend to reinvest our earnings, if any, in the business, and have never declared or paid, and do have no present intentions to declare or pay, any cash dividends on our common stock.

Recent Sales of Unregistered Securities

On June 11, 2018, the Company granted a new director 10,000 fully-vested stock options with an exercise price of $6.00 per share. The option grant was exempt from registration under Section 4(a)(2) the Securities Act of 1933 and Rule 506 thereunder.

Item 6. Selected Financial Data.

Not required for smaller reporting companies.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes included under Item 8 of this Annual Report on Form 10-K.

Overview

As described in Item 1, for several years MedAmerica was seeking to acquire medical office buildings but was unsuccessful in closing any transactions. In late 2018 the Company was introduced to the sponsor of a number of commercial real estate properties located in the United States. While we have an agreement in principal and we have an oral agreement with regards to the form of the merger agreement as of the date of this Form 10-K, the property-owning entities do not have the required consents of the current investors in the assets, nor the consent of the various lenders, which is required under the loan agreements and must be received prior to consummating the Transaction. It is currently estimated that the Transaction would be expected to be consummated late in the second quarter of 2019, but there can be no assurance that there will not be delays.

Quasi-Reorganization

In preparing the Company's September 30, 2017 consolidated financial statements, the Company determined that events that would have allowed us to complete the previously disclosed Quasi-Reorganization pursuant to Section 210 of the Codification of Financial Reporting Policies ("Quasi-Reorg") effective June 30, 2017 did not materialize during the subsequent quarter. As such we have subsequently determined that we do not meet all the requirements necessary to complete the Quasi-Reorg during this period. The revision does not result in any change to total equity of the Company; it only affected individual equity account balances. The Company assessed the materiality of this misstatement in the June 30, 2017 interim period financial statements in accordance with the SEC's Staff Accounting Bulletin (SAB) No. 99, Materiality, codified in ASC No. 250, Presentation of Financial Statements, and concluded that the misstatement was not material to any interim period. In accordance with SAB 108, the Company has adjusted the quarter ended June 30, 2017 financial statements. There was no impact to the statement of operations or cash flows.

Critical Accounting Policies and Estimates

The following is a discussion of our significant accounting policies.

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 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 income for the period in the statement of operations.

Fair Value of Financial Instruments

Recorded financial instruments as of December 31, 2018, consist of cash and cash equivalents, accounts payable, certain 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 using FASB ASC Topic 740, " Income Taxes ", which requires the recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

The Company follows the provisions regarding Accounting for Uncertainty in Income Taxes, which require the recognition of a 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 threshold, 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. We had no material unrecognized tax benefits and no adjustments to our financial position, results of operations or cash flows were required. Generally, federal, state and local authorities may examine the Company's tax returns for three years from the date of filing and the current and prior three years remain subject to examination as of December 31, 2018. We do not expect that unrecognized tax benefits will increase within the next twelve months. We recognize accrued interest and penalties related to uncertain tax positions as income tax expense.

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% 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.

Results of Operations

The following table summarizes our results for the years ended December 31, 2018 and 2017:

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 year ended December 31, 2018, general and administrative expenses decreased $97,750 or 14% compared to the year ended December 31, 2017. The 2018 results included $125,090 of expenses reimbursed by a related party controlled by the Company’s Chairman relating to services provided by the Company’s President & CEO. The 2017 general and administrative expenses reflect a reimbursement of $117,756 of prior year expenses reimbursed by a related party arising from the sale of Banyan Medical Partners LLC (“BMP”).

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

Interest expense

Interest expense was $1,516 and $17,002 for the years ended December 31, 2018 and 2017, respectively. The decrease in interest expense was due to the repayment of a related party note during 2017.

Income tax expense 

Income tax expense was $0 for the years ended December 31, 2018 and 2017, respectively, due to a full valuation allowance being recorded by the Company for any deferred tax assets created as the result of any net operating losses generated by operations.

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’s net deferred tax assets before valuation allowance as of December 31, 2018 and 2017, were $2,231,703 and $2,125,133, respectively, most of which relates to net operating losses that expire in varying amounts through December 31, 2038. The Company recorded an operating loss for the year 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 more likely than not that the Company will not realize operating profits and taxable income so as to utilize the net operating losses in the near future.

In connection with the initial analysis of the impact of the Tax Cuts and Jobs Act (the “Tax Act”), we remeasured our deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. As a result, we recorded a decrease in our deferred tax assets of approximately $1,067,000 with a corresponding adjustment to deferred income tax expense. This adjustment was fully offset by a decrease in the valuation allowance for the years ended December 31, 2017 and 2018.

Net loss attributable to common shareholders

Net loss attributable to common shareholders was ($0.23) per share for the year ended December 31, 2018 as compared to ($0.57) per share for the year ended December 31, 2017. The difference of ($0.34) per common share is primarily the result of a reduction in net loss attributable to common shareholders of $261,361 and an increase of 1,094,403 in the weighted average number of common shares outstanding.

Cash Flow

The following is a summary of our cash flow activity for the years ended December 31, 2018 and 2017:

Net cash used in operating activities

For the year ended December 31, 2018, net cash used in operating activities was $523,425 as compared to net cash used in operating activities of $835,646 for the year ended December 31, 2017. The decrease in cash used in operating activities was primarily due to the 2017 and 2018 reimbursement of costs by a related party, 2018 reduction in accounts payable and accrued expenses and 2018 decrease in net operating activities.

Net cash used in investing activities

For the year ended December 31, 2018, net cash provided by investing activities was $0 as compared to net cash used in investing activities of $72,616 for the year ended December 31, 2017. The decrease in cash used in investing activities was primarily due to the decrease in property deposits.

Net cash provided by (used in) financing activities

For the year ended December 31, 2018, net cash used in financing activities was $45,236 as compared to net cash provided by financing activities of $1,616,194 for the year ended December 31, 2017. The decrease in net cash provided by financing activities was due primarily to the 2017 Private Placement which was launched on February 2017 and raised $1,810,264 (net of costs) through December 31, 2017. This was offset by a net decrease in the demand loan from a related party of approximately $194,070.

At December 31, 2018, the Company had net working capital of $20,394 as compared to a net working capital of $619,702 at December 31, 2017. The decrease 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 significant revenues, it will continue to rely upon the sale of stock, capital contributions from investors or loans from related parties to generate cash flow.

Liquidity

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

At December 31, 2018 and 2017 the Company had a cash balance of $139,721 and $708,382, respectively and working capital of $20,394 and $619,702, respectively.

Pending the closing of the Transaction, the Company expects to be able to borrow funds from an affiliate of its Chairman in order to meet operating expenses. If the Transaction closes, the Company anticipates that it will have adequate working capital and will not have to resort to related party loans. If the proposed Transaction does not close, the Company will be reliant upon BEP unless it can obtain equity or debt financing from third parties. BEP has committed to funding operations through May 2020 in the event the Transaction does not close.  .

New Accounting Pronouncements

Not applicable.

Off-Balance Sheet Financing Arrangements

We do not have any material off-balance sheet financing arrangements.

Inflation

We do not believe inflation had a material impact on our results of operations for the years ended December 31, 2018 and 2017.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 8. Financial Statements and Supplementary Data.

Our financial statements for the years ended December 31, 2018 and 2017 follow this annual report, beginning on page 23.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of December 31, 2018, our management, under the direction of our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2018.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles defined in the Exchange Act.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

At the end of December 31, 2018, we carried out evaluations of our effectiveness of internal control over financial reporting under the direction of our Chief Executive Officer and Chief Financial Officer. In making this evaluation, management used the criteria set forth in Internal Control Over Financial Reporting - Guidance for Smaller Public Companies (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. At December 31, 2018, based upon those evaluations, management concluded that our internal control over financial reporting was effective as of December 31, 2018.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2018 that materially effect, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Directors and Executive Officers

Our current directors and executive officers are:

Gary O. Marino, age 74, joined our board in January 2007, was appointed chairman in January 2008 and also served as our chief executive officer from November 2008 until he stepped down in October 2013. Mr. Marino is the chairman, president, and chief executive officer of BEP and Patriot Equity LLC (“Patriot”). Mr. Marino served as chairman, president and CEO of Patriot Rail Corp., an owner and operator of short line and regional railroads, from 2005 until 2012, and formerly held the same positions at RailAmerica, Inc. a company he founded in 1985, until his retirement in 2004. From 1984 until 1993, Mr. Marino served as chairman, president and CEO of Boca Raton Capital Corporation, a publicly owned venture capital investment company. Prior to that he spent more than fifteen years in commercial banking in New York as a senior loan officer and was also president and CEO of two small business investment companies (SBICs), as well as president of a Florida-based commercial bank. Mr. Marino received his B.A. degree from Colgate University and his M.B.A. from Fordham University. From 1966 to 1969, he served as an officer of the United States Army Ordnance Corps. He has also served on the board of directors of the American Association of Railroads.

Paul S. Dennis, age 80, joined the board in January 2007 and served as interim chief executive officer, president and chief financial officer from November 28, 2016 to August 2017. Previously, Mr. Dennis served as interim chief executive officer from April 2008 and chief financial officer from February 2007 to November 2008. Mr. Dennis has served as president and CEO of Associated Health Care Management Company, Inc. since 1977. Health Care Management is a Cleveland, Ohio based company that managed eight nursing care facilities and four congregate living facilities. The company has sold all but one of its facilities. Mr. Dennis has also been a director and officer with various companies and business ventures in the hardware distribution, pharmaceuticals distribution and steel fabrication industries and a real estate developer, general contractor, owner and investor.

Donald S. Denbo, age 69, joined the board in October 2013. Mr. Denbo has over 40 years of business experience, and is a founding member of Commercial Insurance Associates, LLC (CIA), an independent insurance agency specializing in risk management for a diversified client base. His knowledge and practice is varied, as it encompasses his more than 30 years of success in the insurance industry. In addition, Mr. Denbo has been an owner of Denbo Metal Recovery and a director of Tennessee Valley Recycling LLC, Bancroft Technology Group, Jet Plex Associates, Shadow Bluff Development, Reid Hill and Greymont Kennels, LLC. Mr. Denbo’s education includes a B.S. and M.S. in Psychology from the University of Tennessee, studies at the Vanderbilt School of Medicine and a PhD in Economics from the London School of Economics

Joseph C. Bencivenga, age 60, joined the board and became the Company’s president and chief executive officer in August 2017. Mr. Bencivenga also serves as EVP Finance & Strategy for Rail USA LLC and SVP, Finance for International Rail Partners LLC since December 2017. Mr. Bencivenga has more than 30 years experience in investment banking in New York, California and London with Barclays Capital, Salomon Brothers, Drexel Burnham, and Lehman Brothers. He has also served as a board member for numerous companies providing strategic financial advice in businesses in real estate, music, gaming, solid waste management and many other industries. Prior to this role, Mr. Bencivenga was a founding partner of a $5 billion hedge fund whose business included lending to and investing private equity in small to medium sized companies. During his tenure at Barclays Capital, Mr. Bencivenga served as Managing Director/Global Head of High Yield, and his team originated over 75 high yield, mezzanine and bridge loan transactions and acted as lead or joint lead on over 20 transactions.

Bennett Marks, age 70, joined the board in August 2017. Mr. Marks previously served as a member of the Company’s board from November 2008 to October 2013 and chief financial officer from November 2008 to May 2010. Mr. Marks is currently EVP & CFO of BEP since January 2013. Prior to that Mr. Marks has been executive vice president and CFO of Patriot Rail Corp., an owner and operator of short line and regional railroads, since 2005. Mr. Marks has served as EVP and CFO of six publicly-held and privately-owned companies in the transportation, healthcare, manufacturing, distribution and telecommunications industries. While CFO at RailAmerica, Inc., he developed and implemented the financial framework of the company as revenues grew from $130 million to $450 million. Mr. Marks has more than twenty years of experience in public accounting, including ten years as an audit/client services partner with KPMG where he was an Associate SEC Reviewing Partner and the Administrative Partner in Charge of the West Palm Beach office. Mr. Marks is licensed CPA in Florida and New York.

Vineet Bedi, age 36, joined the board in May 2018. Mr. Bedi served as chief executive officer of FC Global Realty, Inc. (NASDAQ: FCRE) from January 2, 2018 to June, 2018. Mr. Bedi has over 15 years of experience in real estate investing, private equity, capital markets and public securities investing. Mr. Bedi was the founder, managing partner and chief investment officer of KRV Capital, LP, an alternative asset management firm investing in real estate and hard assets across the capital structure with a focus on liquid and illiquid deep value investment opportunities, from 2016 to 2018. Prior to founding KRV Capital, LP, Mr. Bedi was the founder, managing partner and chief investment officer of Booth Park Capital Management, LLC, an alternative asset management firm investing in real estate related securities, from 2013 to 2015. Previously, Mr. Bedi served as a managing director and portfolio manager at Guggenheim Partners from 2012 to 2013, where he managed an opportunistic portfolio in the public and private real estate markets.

Robert Schellig, age 74, was appointed senior vice president and general counsel in August 2017. Mr. Schellig has over 47 years of legal experience in the areas of regulatory compliance, acquisitions and divestitures, contract administration, government relations, real estate and litigation. Following eight years of experience as a chief trial attorney at Canadian National Railroad’s U.S. subsidiaries, he moved to the executive department where he headed the Corporate Development, Real estate Development and Government Relations Department among other duties. He served in that capacity for 14 years and then entered the private sector specializing in the same general areas of law. Mr. Schellig served as vice president - law and then chief legal officer at Patriot Rail Corp. He is currently general counsel at International Rail Partners LLC as well as at MedAmerica.

Patricia K. Sheridan, age 56, was appointed chief financial officer in September 2017. Ms. Sheridan has over 33 years of accounting, tax, reorganization and real estate experience. Since 2011, Ms. Sheridan has served as the managing member of PKS Group LLC, a consulting firm providing financial oversight for small to mid-sized privately owned companies, high net worth individuals and family offices. Over the last 12 years, she has worked in various capacities for private real estate development firms. Prior to that Ms. Sheridan served as the president and managing director at a $750 million investment management company and multiple roles with NYSE traded Beneficial Corporation, most recently Director - Corporate Real Estate Properties. Ms. Sheridan began her accounting career at Arthur Anderson & Co.

Mr. Bencivenga and Ms. Sheridan are husband and wife.

The board of directors has established certain attributes that it seeks in identifying candidates for directors. In particular, they look for individuals who have very high integrity, business savvy, an owner-oriented attitude and a deep genuine interest in MedAmerica. These are the same attributes that Gary O. Marino, MedAmerica’s Chairman, believes to be essential if one is to be an effective member of the board of directors. In considering candidates for director, the board considers the entirety of each candidate’s credentials in the context of these attributes. In the judgment of the Board, as a whole, each of the directors possesses such attributes.

Committees of the Board

We currently have limited operations and are presently investigating potential acquisition candidates. As a result, our directors have not designated audit, nominating or other committees. Instead, these responsibilities are handled by the entire board. Without an audit committee, we have not designated a director as an “audit committee financial expert” as defined by SEC rules. Although we are pleased with the diverse skills and level of expertise that our directors possess, we may add additional directors as our operations grow and form appropriate committees at that time.

Code of Ethics

In March 2004, our board of directors unanimously adopted a code of conduct and ethics that applies to all of our officers, directors and employees, including our principal executive officer, principal financial and principal accounting officer. We will provide a copy of our code without charge upon written request to Joseph C. Bencivenga, Boca Center, Tower 1, 5200 Town Center Circle, Suite 550, Boca Raton, Florida 33486.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our common stock, to make filings with the SEC reporting their ownership of our common stock and to furnish us with copies of these filings. Based solely on our review of copies of reports furnished to us, we believe all Section 16(a) filing requirements were timely met in 2018. Copies of these filings are available on our website at www.MedAmericaproperties.com or the SEC’s website at www.sec.gov.

Director Nominations

Our board of directors does not have a nominating committee. Instead, the board believes it is in the best interests of the Company to rely on the insight and expertise of all directors in the nominating process. Our directors will recommend qualified candidates for director to the full board and nominees are subject to approval by a majority of our board members. Nominees are not required to possess specific skills or qualifications; however, nominees are recommended and approved based on various criteria including relevant skills and experience, personal integrity and ability and willingness to devote their time and efforts to MedAmerica. Qualified nominees are considered without regard to age, race, color, sex, religion, disability or national origin. We do not use a third party to locate or evaluate potential candidates for director. The board of directors considers nominees recommended by stockholders according to the same criteria.

Communication with our Board of Directors

Although we do not have a formal policy regarding communications with the board of directors, shareholders may communicate with the Board by writing to us at MedAmerica, Boca Center, Tower 1, 5200 Town Center Circle, Suite 550, Boca Raton, Florida 33486 Attention: Joseph C. Bencivenga. Shareholders who would like their submission directed to a member of the board may so specify, and the communication will be forwarded, as appropriate.

Item 11. Executive Compensation.

Summary Compensation Table

The following information is related to the compensation paid or accrued by us to our Chief Executive Officer (principal executive officer) and the two other most highly compensated executive officers serving as of December 31, 2018 whose compensation exceeded $100,000, which we refer to as “Named Executive Officers.”

Director Compensation

On June 11, 2018 we granted Mr. Vineet Bedi 10,000 vested five-year stock options exercisable at $6 per share for services in connection with the proposed Transaction. Mr. Bedi is charged with day-to-day supervision of the Transaction including communications with the investment bankers and the other party as well as with our counsel. None of our other directors were compensated for their service on the board of directors in 2018.

Outstanding Awards at Fiscal Year End

Listed below is information with respect to outstanding stock options held by our Named Executive Officer outstanding as of December 31, 2018.  There were no other outstanding equity awards held by our Name Executive Officer as of December 31, 2018.  

(1) This award is fully vested. 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth the number of shares of our common stock beneficially owned as of March 29, 2019 by (i) those persons known by us to be owners of more than 5% of our common stock, (ii) each director, (iii) our Named Executive Officer, and (iv) all of our executive officers and directors of as a group. Unless otherwise specified in the notes to this table, the address for each person is: c/o MedAmerica Properties Inc. 5200 Town Center Circle, Suite 550, Boca Raton, Florida 33486.

Applicable percentages are based on 2,610,568 shares outstanding as of March 29, 2019, adjusted as required by rules of the SEC. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock underlying options, warrants and convertible notes currently exercisable or convertible, or exercisable or convertible within 60 days are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Unless otherwise indicated in the footnotes to this table, the Company believes that each of the shareholders named in the table has sole voting and investment power with respect to the shares of common stock indicated as beneficially owned by them. The table includes only vested options and warrants or options and warrants that have or will vest and become exercisable within 60 days.

(1) 32,584 shares are held individually (184 shares are held in a brokerage account), 91,348 shares of common stock are held by Banyan Rail Holdings LLC.  Gary O. Marino, the Company's Chairman, is the president and a significant stockholder of Banyan Rail Holdings LLC.  351,966 shares are held by Marino Family Holdings, LLC. Mr. Marino is the manager of Marino Family Holdings, LLC. 79,703 are held by the Marino Family Dynasty Trust.

(2) 32,000 are held individually. 115,202 shares of common stock are owned by Paul S. Dennis, Trustee under the Paul S. Dennis Trust Agreement dated August 9, 1983, as modified. 1,200 shares are held in an IRA account.

(3) 20,800 shares are held individually. 15,884 shares are held by Coalbrookedale Partners of which Mr. Denbo is the president.

(4) Includes 10,000 shares owned by the Foundation's Chairman, Harvey Polly

Equity Compensation Plan Information

Set forth in the table below is the information regarding our common stock which may be issued under our equity compensation plans (including individual compensation arrangements) as of December 31, 2018.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Transactions with Related Parties

On June 1, 2015, the Company entered into a month-to-month office lease and administrative support agreement (the “Agreement”) with BEP, an entity controlled by Mr. Gary O. Marino, our Chairman of the Board. The Agreement was effective as of January 1, 2015 and terminated on February 3, 2017, the effective date of a new agreement (the “New Agreement”). The Agreement and New Agreement provide 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 $4,750 and $6,605 per month, respectively. In addition, the New Agreement required the Company to reimburse BEP a one-time charge in the amount of $37,122 related to the costs of the set-up of the new office and move.

On June 8, 2017, MedAmerica entered into an office lease and administrative support agreement (the “Lease Agreement”) with BEP. The Lease Agreement had a month-to-month term commencing on June 1, 2017. The Lease Agreement provided 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 Lease Agreement replaced 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. The Lease Agreement was replaced by a new agreement in September 2018. See below.

On September 13, 2018, the Company entered into an office lease and administrative support agreement (the “2018 Lease Agreement”) with BEP. The 2018 Lease Agreement has a month-to-month term commencing on September 1, 2018. The 2018 Lease 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 $5,000 a month. The 2018 Lease Agreement replaced the Lease Agreement between the Company and BEP described above. Total expense incurred under all related party lease and support agreements amounted to $140,000 and $138,025 for the years ended 2018 and 2017, respectively.

During 2018, Mr. Joseph Bencivenga, the Company's President and CEO performed work for International Rail Partners LLC (“IRP”), an entity controlled by Mr. Marino, the Company’s Chairman. The Company billed back IRP and received payments for compensation and expenses in the amount of $125,090.

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 replaced, cancelled and terminated on December 31, 2016 when the Company entered into a new Demand Note and Loan Agreement (“the New Note”) with BEP. The New Note balance as of December 31, 2016 was $471,826 which represents advances from BEP under the Note, advances made since the date of the Note and interest accrued thereon. The New Note bears interest at the rate of 10% per annum and is payable upon demand. BEP is committed to making advances to the Company under the New Note through May 2020 in the event the Transaction does not close.  . A portion of this note was assumed by Banyan Medical Partners LLC (“BMP”) and the balance was paid off during 2017. The New Note is available to the Company to draw upon and the balance as of the date of this report due under the New Note is $0.

Gary O. Marino, the Company’s Chairman of the board, is the Chairman, President, and Chief Executive Officer of BEP and Managing Member of Patriot. Mr. Marino, Joseph Bencivenga, Bennett Marks, Paul S. Dennis, and Donald S. Denbo, directors, and Patricia Sheridan, chief financial officer, 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 allow the Company to recoup the $110,000 in property deposits as of December 31, 2016, $50,000 property deposits made during 2017 and reimbursement of $117,756 of other 2016 and 2017 expenses incurred by the Company on behalf of BMP. This reimbursement of expenses is offset in general and administrative expenses.

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 BMP. The letter of intent was non-binding, provided for a ninety-day exclusive diligence period, and was contingent upon the Company obtaining financing to complete the acquisition. The letter was extended to December 15, 2017 at which time it expired.

Paul Dennis, a director, participated in the 2017 Private Placement investing $150,000 for 100,000 shares of common stock on identical terms of other investors in the offering.

Director Independence

Our board has determined that Donald S. Denbo, Bennett Marks and Vineet Bedi are “independent” as defined by Nasdaq Stock Market Listing Rule 5605(a)(2). Although we are not listed for trading on the Nasdaq stock market, we have selected the Nasdaq rules as an appropriate guideline for determining the independence of our board members.

Item 14. Principal Accounting Fees and Services.

On January 20, 2017, the board of directors ratified the dismissal of the Company’s independent registered accounting firm of Daszkal Bolton LLP and engagement of the new firm of Zachary Salum and Auditors PA. Zachary Salum served as our independent registered public accounting firm through November 3, 2017 when they resigned due to personal reasons. Zachary Salum was paid $9,500 for the audit of the Company’s 2016 consolidated financial statements and $10,000 for their review of the Company’s Form 10-Q’s for the quarters ended March 31, 2017, June 30, 2017 and an amendment to the March 31, 2017 Form 10-Q. Additionally, Zachary Salum was paid $1,500 for the preparation of the Company’s 2016 tax return.

On November 8, 2017, the board of directors ratified the appointment of Marcum LLP as independent registered public accounting firm. During 2018 Marcum LLP was paid $21,500 for their reviews of the Company’s Form 10-Q for the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018 and $20,000 for the audit of the Company's consolidated financial statements for the year ended December 31, 2018. During 2017 Marcum LLP was paid $6,500 for their review of the Company’s Form 10-Q for the quarter ended September 30, 2017 and $20,000 for the audit of the Company’s consolidated financial statements for the year ended December 31, 2017.

Because of the size of our board, the directors have not designated an audit committee. Instead, these responsibilities are handled by the entire board, which considers and pre-approves any audit or non-audit services to be performed by our auditors. Our board believes the services provided by Marcum LLP are compatible with maintaining our auditor’s independence.

Item 15. Exhibits, Financial Statement Schedules.

(a) Financial Statements

(b) Exhibit Index.

*Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, MedAmerica Properties Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of MedAmerica Properties Inc. and in the capacities and on the dates indicated.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

MedAmerica Properties, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of MedAmerica Properties, Inc. (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”).  In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Marcum LLP

/s/ Marcum LLP

We have served as the Company’s auditor since 2017.

West Palm Beach, Florida

April 11, 2019

MedAmerica Properties Inc.

Consolidated Balance Sheets

MedAmerica Properties Inc. and Subsidiaries

Consolidated Statements of Operations

See Notes to Consolidated Financial Statements

MedAmerica Properties Inc. and Subsidiaries

Consolidated Statements of Cash Flows

See Notes to Consolidated Financial Statements

MedAmerica Properties Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

Years Ended December 31, 2018 and 2017

See Notes to Consolidated Financial Statements

MedAmerica Properties Inc. and Subsidiaries

Notes to Consolidated Financial Statements