Company Quick10K Filing
IMH Financial
Price-0.00 EPS-1
Shares17 P/E0
MCap-0 P/FCF0
Net Debt41 EBIT-15
TEV41 TEV/EBIT-3
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-15
10-K 2019-12-31 Filed 2020-03-30
10-Q 2019-09-30 Filed 2019-11-14
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-12-31 Filed 2019-04-12
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-15
10-K 2017-12-31 Filed 2018-03-29
10-Q 2017-09-30 Filed 2017-11-20
10-Q 2017-06-30 Filed 2017-08-14
10-Q 2017-03-31 Filed 2017-05-12
10-K 2016-12-31 Filed 2017-04-14
10-Q 2016-09-30 Filed 2016-11-10
10-Q 2016-06-30 Filed 2016-08-11
10-Q 2016-03-31 Filed 2016-05-12
10-K 2015-12-31 Filed 2016-03-31
10-Q 2015-09-30 Filed 2015-11-12
10-Q 2015-06-30 Filed 2015-08-14
10-Q 2015-03-31 Filed 2015-05-13
10-K 2014-12-31 Filed 2015-03-31
10-Q 2014-09-30 Filed 2014-11-14
10-Q 2014-06-30 Filed 2014-08-14
10-Q 2014-03-31 Filed 2014-05-15
10-K 2013-12-31 Filed 2014-03-28
10-Q 2013-09-30 Filed 2013-11-13
10-Q 2013-06-30 Filed 2013-08-19
10-Q 2013-03-31 Filed 2013-05-20
10-K 2012-12-31 Filed 2013-03-29
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-15
10-K 2011-12-31 Filed 2012-03-30
10-Q 2011-09-30 Filed 2011-11-21
10-Q 2011-06-30 Filed 2011-08-15
10-Q 2011-03-31 Filed 2011-05-16
10-K 2010-12-31 Filed 2011-04-15
10-Q 2010-09-30 Filed 2010-11-22
10-Q 2010-06-30 Filed 2010-08-23
10-Q 2010-03-31 Filed 2010-05-17
10-K 2009-12-31 Filed 2010-04-15
8-K 2020-08-19 Other Events, Exhibits
8-K 2020-08-13 Other Events
8-K 2020-08-07 Other Events, Exhibits
8-K 2020-07-23 Enter Agreement, Bankruptcy, Off-BS Arrangement, Off-BS Arrangement, Exhibits
8-K 2020-07-22 Accountant, Exhibits
8-K 2020-06-22
8-K 2020-01-24
8-K 2020-01-23
8-K 2019-12-03
8-K 2019-11-19
8-K 2019-11-01
8-K 2019-09-27
8-K 2019-09-06
8-K 2019-07-30
8-K 2019-07-23
8-K 2019-05-29
8-K 2019-01-17
8-K 2018-12-20
8-K 2018-11-29
8-K 2018-06-14
8-K 2018-05-31
8-K 2018-02-09

IFCN 10Q Quarterly Report

Part I
Item 1. Financial Statements
Note 1 - Business, Basis of Presentation and Liquidity
Note 2 - Significant Accounting Policies
Note 3 - Revenue
Note 4 - Mortgage Loans, Net
Note 5 - Operating Properties, Real Estate Held for Sale and Other Real Estate Owned
Note 6 - Investment in Joint Ventures and Partnerships
Note 7 - Fair Value
Note 8 - Notes Payable and Special Assessment Obligations
Note 9 - Segment Information
Note 10 - Stockholders' Equity and Earnings per Share
Note 11 - Intangible Assets and Goodwill
Note 12 - Commitments and Contingencies
Note 13 - Leases
Note 14 - Related - Party Transactions and Commitments
Note 15 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II
Item 1. Legal Proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits
EX-31.1 a20200331-form10qexx311.htm
EX-31.2 a20200331-form10qexx312.htm
EX-32.2 a20200331-form10qexx322.htm

IMH Financial Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2602051509540-152012201420172020
Assets, Equity
10.03.0-4.0-11.0-18.0-25.02012201420172020
Rev, G Profit, Net Income
9565355-25-552012201420172020
Ops, Inv, Fin

10-Q 1 ifcn-20200331xform10q.htm FORM 10-Q IMH Q1 2020 Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
FORM 10-Q
 
(Mark one)
 
x
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2020
OR
 
¨
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from: __________to __________

Commission File Number 000-52611

IMH FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
27-1537126
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
7001 N. Scottsdale Rd #2050
Scottsdale, Arizona 85253
(Address of principal executive offices and zip code)

(480) 840-8400
 (Registrant’s telephone number, including area code)

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

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

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Class B-1 Common Stock
Class B-2 Common Stock
Class B-3 Common Stock
Class B-4 Common Stock
Class C Common Stock

As of May 15, 2020, the registrant had outstanding the following classes and series of stock: (i) 2,003,028 shares of Common Stock, (ii) 3,375,528 shares of Class B-1 Common Stock, (iii) 3,376,660 shares of Class B-2 Common Stock, (iv) 6,909,922 shares of Class B-3 Common Stock, (v) 313,790 shares of Class B-4 Common Stock, (vi) 666,700 shares of Class C Common Stock, (vii) 2,604,852 shares of Series B-1 Cumulative Convertible Preferred Stock, (viii) 5,595,148 shares Series B-2 Cumulative Convertible Preferred Stock, (ix) 2,352,941 shares of Series B-3 Cumulative Convertible Preferred Stock, (x) 1,875,000 shares of Series B-4 Cumulative Convertible Preferred Stock and (xi) 22,000 shares of Series A Preferred Stock. There is no established market for the registrant’s shares of common stock or preferred stock.



IMH Financial Corporation
March 31, 2020 Form 10-Q Quarterly Report
Index

Item 1.
Financial Statements
 
Condensed Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019
 
Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019
 
Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2020 and 2019
 
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019
 
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Item 4.
Controls and Procedures
Item 1.
Legal Proceedings
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
Signatures
 


2



 
PART I

ITEM 1.     FINANCIAL STATEMENTS


F-1

IMH FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

 
 
March 31,
 
December 31,
 
 
2020
 
2019
Assets
 
(unaudited)
 
 
Cash and cash equivalents
 
$
9,897

 
$
7,925

Funds held by lender and restricted cash
 
2,424

 
2,564

Real estate held for sale
 
7,400

 
25,505

Operating properties, net
 
45,452

 
45,199

Other real estate owned
 
33,341

 
33,341

Goodwill
 
15,357

 
15,357

Other intangibles, net
 
291

 
361

Other receivables
 
1,223

 
1,630

Investment in unconsolidated entities
 
3,900

 
3,753

Other assets
 
2,419

 
3,668

Property and equipment, net
 
279

 
305

Total assets
 
$
121,983

 
$
139,608


 

 

Liabilities
 

 

Accounts payable and accrued expenses
 
$
6,256

 
$
8,383

Accrued property taxes
 
439

 
305

Dividends payable
 
2,324

 
2,406

Accrued interest
 
257

 
162

Customer deposits and funds held for others
 
1,204

 
1,281

Notes payable, net of deferred financing fees
 
41,739

 
51,277

Total liabilities
 
52,219

 
63,814


 

 

Series B redeemable convertible preferred stock, $.01 par value; 100,000,000 total preferred shares authorized; 12,427,941 shares issued and outstanding as of March 31, 2020 and December 31, 2019; liquidation preference of $59,870 as of March 31, 2020 and December 31, 2019
 
54,683

 
54,356

Series A redeemable preferred stock, 22,000 issued and outstanding; liquidation preference of $22,000 as of March 31, 2020 and December 31, 2019
 
21,819

 
21,805

 
 
 
 
 
Commitments and contingencies (Note 13)
 

 

 
 
 
 
 
Stockholders' Deficit
 
 
 

Common stock, $.01 par value; 200,000,000 shares authorized; 18,989,582 and 18,929,496 shares issued as of March 31, 2020 and December 31, 2019, respectively; 16,612,294 and 16,558,759 shares outstanding as of March 31, 2020 and December 31, 2019, respectively
 
190

 
189

Less: Treasury stock, at cost, 2,377,558 and 2,370,737 shares at March 31, 2020 and December 31, 2019, respectively
 
(7,286
)
 
(7,286
)
Paid-in capital
 
699,365

 
701,379

Accumulated deficit
 
(723,014
)
 
(718,790
)
Total IMH Financial Corporation stockholders' deficit
 
(30,745
)
 
(24,508
)
Non-controlling interests
 
24,007

 
24,141

Total stockholders' deficit
 
(6,738
)
 
(367
)
Total liabilities and stockholders’ deficit
 
$
121,983

 
$
139,608



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2

IMH FINANCIAL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)


    
 
 
Three months ended March 31,
 
 
2020
 
2019
Revenues
 
 
 
 
Operating property revenue
 
$
2,048

 
$
314

Mortgage loan income, net
 

 
650

Management fees, investment and other income
 
92

 
68

Total revenues
 
2,140

 
1,032

Operating Expenses
 
 
 
 
Operating property direct expenses (exclusive of interest and depreciation)
 
3,473

 
2,349

Expenses for non-operating real estate owned
 
75

 
91

Professional fees
 
1,356

 
806

General and administrative expenses
 
1,519

 
1,905

Interest expense
 
760

 
456

Depreciation and amortization expense
 
793

 
271

Total operating expenses
 
7,976

 
5,878

Other (Income) Expense
 
 
 
 
Provision for (recovery of) credit losses, net
 
(1,750
)
 

Unrealized loss on derivatives
 

 
167

Equity earnings from unconsolidated entities
 
(122
)
 

Other (income) expense, net
 
(1,872
)
 
167

Total costs and expenses, net
 
6,104

 
6,045

Loss before provision for income tax
 
(3,964
)
 
(5,013
)
Income tax provision
 

 

Net Loss
 
(3,964
)
 
(5,013
)
Net loss attributable to non-controlling interests
 
(260
)
 
(123
)
Cash dividends on Series B redeemable convertible preferred stock
 
(1,394
)
 
(641
)
Deemed dividend on Series B redeemable convertible preferred stock
 
(287
)
 
(936
)
Cash dividends on Series A redeemable preferred stock
 
(417
)
 
(412
)
Net Loss Attributable to Common Shareholders
 
$
(6,322
)
 
$
(7,125
)
Net Loss per Common Share
 
 
 
 
Basic and Diluted
 
$
(0.38
)
 
$
(0.43
)
Weighted average common shares outstanding - basic and diluted
 
16,616,355
 
16,392,286
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-3

IMH FINANCIAL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data) 


 
 
Three months ended March 31, 2020
 
 
Common Stock
 
Treasury Stock
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Paid-in Capital
 
Accumulated deficit
 
Total IMH Financial Corporation Stockholders' Deficit
 
Non-controlling Interest
 
Total Stockholders' Deficit
Balance at December 31, 2019
 
18,929,496

 
$
189

 
2,370,737

 
$
(7,286
)
 
$
701,379

 
$
(718,790
)
 
$
(24,508
)
 
$
24,141

 
$
(367
)
Net income (loss)
 

 

 

 

 

 
(4,224
)
 
(4,224
)
 
260

 
(3,964
)
Distributions to Hotel Fund investors
 

 

 

 

 

 

 

 
(394
)
 
(394
)
Stock warrant and preferred equity cost accretion
 

 

 

 

 
(53
)
 

 
(53
)
 

 
(53
)
Cash dividends on Series B redeemable convertible preferred stock
 

 

 

 

 
(1,394
)
 

 
(1,394
)
 

 
(1,394
)
Deemed dividend on Series B redeemable convertible preferred stock
 

 

 

 

 
(287
)
 

 
(287
)
 

 
(287
)
Cash dividends on Series A redeemable preferred stock
 

 

 

 

 
(417
)
 

 
(417
)
 

 
(417
)
Stock-based compensation
 
60,356

 
1

 

 

 
137

 

 
138

 

 
138

Relinquishment of Class B and Class C treasury stock
 

 

 
6,821

 

 

 

 

 

 

Balance at March 31, 2020
 
18,989,852

 
$
190

 
2,377,558

 
$
(7,286
)
 
$
699,365

 
$
(723,014
)
 
$
(30,745
)
 
$
24,007

 
$
(6,738
)



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4

IMH FINANCIAL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data) 


 
 
Three months ended March 31, 2019
 
 
Common Stock
 
Treasury Stock
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Paid-in Capital
 
Accumulated deficit
 
Total IMH Financial Corporation Stockholders' Equity
 
Non-controlling Interest
 
Total Stockholders' Equity
Balance at December 31, 2018
 
18,596,774

 
$
186

 
1,870,164

 
$
(6,286
)
 
$
708,523

 
$
(692,876
)
 
$
9,547

 
$
19,616

 
$
29,163

Net income (loss)
 

 

 

 

 

 
(5,136
)
 
(5,136
)
 
123

 
(5,013
)
Contributions from Hotel Fund investors
 

 

 

 

 

 

 

 
3,520

 
3,520

Distributions to Hotel Fund investors
 

 

 

 

 

 

 

 
(266
)
 
(266
)
Hotel Fund syndication costs
 

 

 

 

 
(12
)
 

 
(12
)
 

 
(12
)
Stock warrant and preferred equity cost accretion
 

 

 

 

 
(70
)
 

 
(70
)
 

 
(70
)
Cash dividends on Series B redeemable convertible preferred stock
 

 

 

 

 
(641
)
 

 
(641
)
 

 
(641
)
Deemed dividend on Series B redeemable convertible preferred stock
 

 

 

 

 
(936
)
 

 
(936
)
 

 
(936
)
Cash dividends on Series A redeemable preferred stock
 

 

 

 

 
(412
)
 

 
(412
)
 

 
(412
)
Stock-based compensation
 
112,304

 
1

 

 

 
116

 

 
117

 

 
117

Treasury stock repurchase
 

 

 
500,000

 
(1,000
)
 

 

 
(1,000
)
 

 
(1,000
)
Balance at March 31, 2019
 
18,709,078

 
$
187

 
$
2,370,164

 
$
(7,286
)
 
$
706,568

 
$
(698,012
)
 
$
1,457

 
$
22,993

 
$
24,450


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-5

IMH FINANCIAL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

 
 
Three months ended March 31,
 
 
2020
 
2019
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(3,964
)
 
$
(5,013
)
Adjustments to reconcile net loss to net cash used in operating activities:
 

 

Stock-based compensation and option amortization
 
137

 
117

Amortization of deferred financing costs
 
97

 
40

Depreciation and amortization expense
 
793

 
271

Accretion of mortgage income
 

 
(55
)
Accretion of discount on note payable
 

 
259

Non-cash interest expense funded by loan draw
 

 
325

Unrealized loss on derivatives
 

 
167

Changes in operating assets and liabilities, net of business combination:
 

 

Accrued interest receivable
 

 
(233
)
Other receivables
 
409

 
(51
)
Other assets
 
1,013

 
(1,332
)
Accrued property taxes
 
134

 
(32
)
Accounts payable and accrued expenses
 
(2,360
)
 
(289
)
Customer deposits and funds held for others
 
(77
)
 
1,239

Accrued interest
 
95

 
(294
)
Total adjustments, net
 
241

 
132

Net cash used in operating activities
 
(3,723
)
 
(4,881
)
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Proceeds from sale of real estate owned and operating properties
 
18,339

 

Investment in unconsolidated entities
 
(147
)
 

Investment in real estate owned and other operating properties
 
(715
)
 
(4,667
)
Net cash provided by (used in) investing activities
 
17,477

 
(4,667
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Proceeds from notes payable
 
1,365

 
7,459

Repayments of notes payable
 
(11,000
)
 

Dividends paid
 
(1,893
)
 
(655
)
Purchase of treasury stock
 

 
(1,000
)
Contribution of Hotel Fund capital costs
 

 
(12
)
Contributions from Hotel Fund investors
 

 
3,520

Distributions to Hotel Fund investors
 
(394
)
 
(266
)
Net cash provided by (used in) financing activities
 
(11,922
)
 
9,046

 
 
 
 
 
Net increase (decrease) in cash, cash equivalents, and restricted cash
 
1,832

 
(502
)
Cash, cash equivalents, and restricted cash, beginning of period
 
10,489

 
25,650

Cash, cash equivalents, and restricted cash, end of period
 
$
12,321

 
$
25,148

 
 
 
 
 
Supplemental cash flow information:
 

 
 
Cash paid for interest
 
$
568

 
$
551


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-6

IMH FINANCIAL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

 
 
Three months ended March 31,
 
 
2020
 
2019
Cash paid for taxes
 
$

 
$

Non-cash investing and financing transactions:
 

 

Capital expenditures in accounts payable and accrued expenses
 
$
569

 
$
2,109

Dividends payable
 
$
2,324

 
$
2,406



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-7

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 — BUSINESS, BASIS OF PRESENTATION AND LIQUIDITY

Our Company

IMH Financial Corporation (together with its subsidiaries, the “Company”) is a real estate investment and finance company based in the southwestern United States engaged in various and diverse facets of the real estate lending and investment process, including origination, acquisition, underwriting, servicing, enforcement, development, marketing, and disposition. The Company’s focus is to invest in, manage and dispose of commercial real estate mortgage investments, hospitality assets, and other real estate assets, and to perform all functions reasonably related thereto, including developing, managing and either holding for investment or disposing of real property acquired through acquisition, foreclosure or other means.

Our History and Structure

We were formed from the conversion of our predecessor entity, IMH Secured Loan Fund, LLC (the “Fund”), into a Delaware corporation. The Fund, which was organized in May 2003, commenced operations in August 2003, focusing on investments in senior short-term whole commercial real estate mortgage loans collateralized by first mortgages on real property. The Fund was externally managed by Investors Mortgage Holdings, Inc. (the “Manager”), which was incorporated in Arizona in June 1997 and is licensed as a mortgage banker by the State of Arizona. Through a series of private placements to accredited investors, the Fund raised $875 million of equity capital from May 2003 through December 2008. Due to the cumulative number of investors in the Fund, the Fund registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on April 30, 2007 and began filing periodic reports with the Securities and Exchange Commission (“SEC”). On June 18, 2010, the Fund became internally-managed through the acquisition of the Manager, and converted into a Delaware corporation in a series of transactions that we refer to as the “Conversion Transactions”. Effective August 1, 2019, the Company entered into a Non-Discretionary Investment Advisory Agreement (“Advisory Agreement”) with Juniper Investment Advisors, LLC (“JIA”) pursuant to which JIA agreed to manage certain assets of the Company, including the Company’s loan portfolio and certain of its legacy real estate owned properties.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited condensed consolidated financial statements include the accounts of IMH Financial Corporation and the following wholly-owned operating subsidiaries: 11333, Inc. (formerly known as Investors Mortgage Holdings, Inc.), an Arizona corporation; Investors Mortgage Holdings California, Inc., a California corporation; IMH Holdings, LLC, a Delaware limited liability company (“Holdings”); and various other wholly owned subsidiaries established in connection with the acquisition of real estate either through foreclosure or purchase and/or for borrowing purposes and majority owned or controlled real estate entities and interests in variable interest entities (“VIEs”) in which the Company is considered the primary beneficiary. IMH Management Services, LLC, an Arizona limited liability company, provides us and our affiliates with human resources and administrative services, including the supply of employees. Other entities in which we have invested and have the ability to exercise significant influence over operating and financial policies of the investee, but upon over which we do not possess control, are accounted for by the equity method of accounting within the financial statements and they are therefore not consolidated.

All significant intercompany accounts and transactions have been eliminated in consolidation.

Liquidity and Going Concern

We require liquidity and capital resources for our general working capital needs, including maintenance, development costs and capital expenditures for our operating properties and non-operating real estate owned (“REO”) assets, professional fees, general and administrative operating costs, loan enforcement costs, financing costs, debt service payments, and dividends to our preferred shareholders, as well as to acquire our target assets.

As of March 31, 2020, our accumulated deficit aggregated $723.0 million primarily as a result of previous provisions for credit losses recorded between 2008 and 2010 (due primarily to the erosion of the U.S. and global real estate and credit markets during those periods) relating to the decrease in the fair value of the collateral securing our legacy loan portfolio, impairment charges


IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 – BUSINESS, BASIS OF PRESENTATION AND LIQUIDITY - continued

relating to the value of REO assets acquired primarily through foreclosure, as well as on-going net operating losses resulting primarily from the lack of income-producing assets.

The Company has met its near-term liquidity requirements by, among other things, obtaining outside debt and equity financing, selling mortgage loans, and selling the majority of our legacy real estate assets. During the three months ended March 31, 2020, we sold a commercial office building (the “Broadway Tower”) in a cash sale for $19.5 million which, after selling expenses and payoff of underlying secured indebtedness of $11.0 million, netted $8.0 million in cash to the Company.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of Coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

On March 17, 2020, in response to the COVID-19 pandemic, the Company temporarily closed its MacArthur Place hotel (“MacArthur Place”) located in Sonoma, California. While we expect restaurants, hotels and other hospitality assets to gradually reopen in the near future, we cannot state with any degree of reasonable certainty when MacArthur Place, our only operating asset, will re-open and when it does open, what occupancy or other operational restrictions will be put in place. If closure of or demand for the Company’s hotel rooms and other services is negatively impacted for an extended period as a result of cancellations, travel restrictions, governmental travel advisories and/or state of emergency declarations, or a prevailing reluctance with respect to traveling and patronizing hotels and restaurants the Company’s hospitality business and financial results could be materially and adversely impacted. As a result of the uncertainty with respect to when the MacArthur Place hotel may reopen, we furloughed certain hotel employees. Further employee furloughs or layoffs may be necessary in the future. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. The extent to which the Company’s business will be affected by the current outbreak of the Coronavirus will largely depend on both current and future developments, including its duration, spread and treatment, and related travel advisories and restrictions, which could impact overall demand in the hospitality industry, all of which are highly uncertain and cannot be reasonably predicted. Accordingly, we cannot be certain as to the full magnitude the pandemic will have on the Company’s consolidated financial condition, liquidity, and future results of operations. Subsequent to March 31, 2020, the Company applied and received funding totaling $1.8 million under the CARES Act in the form of Payroll Protection Program loan (“PPP Loans”). The PPP Loans may be forgivable if the Company’s use of funds meets the criteria for such forgiveness.

In connection with the Company’s acquisition and renovation of the MacArthur Place hotel, in October 2017, the Company entered into a building loan agreement and related agreements with MidFirst Bank in the amount of $37.0 million (the “MacArthur Loan”).

In connection with the MacArthur Loan, the Company was required to provide a loan repayment guaranty equal to 50% of the original principal amount of the MacArthur Loan along with a guaranty of interest and operating deficits, as well as other customary non-recourse carve-out matters such as bankruptcy and environmental matters. Under the guarantees, the Company is required to maintain a minimum Tangible Net Worth, as defined, of $50.0 million and minimum liquidity of $5.0 million throughout the term of the MacArthur Loan. The Company was in compliance with such financial covenants as of March 31, 2020. In addition, the MacArthur Loan requires MacArthur Place to establish various operating and reserve accounts at MidFirst Bank which are subject to a cash management agreement. In the event of default, MidFirst Bank has the ability to take control of such accounts for the allocation and distribution of proceeds in accordance with the cash management agreement. The MacArthur Loan has an initial maturity of October 1, 2020 with two one-year extension options available if certain criteria is met, including minimum debt service coverage ratios. Given the impact of the COVID-19 outbreak and resulting temporary closure of MacArthur Place, the Company does not expect it will meet the current criteria to exercise its extension options. The Company has commenced negotiations with the lender for potential forbearance of debt service payments and extension of the maturity date.

As of March 31, 2020, we had cash and cash equivalents of $9.9 million, REO assets held for sale with a carrying value of $7.4 million and other REO assets with a carrying value of $33.3 million that we seek to dispose of within the next 12 months. We continue to evaluate potential disposition strategies for our remaining REO assets and to seek additional sources of debt and equity for investment and working capital purposes.

At any time after July 24, 2020, each holder of our Series B-1 and B-2 Preferred Stock may require the Company to redeem, out of legally available funds, the shares held by such holder at a price (the “Redemption Price”) equal to the greater of (i) 150% of the sum of the original price per share plus all accrued and unpaid dividends or (ii) the sum of the tangible book value of the Company per share of voting Common Stock and all accrued and unpaid dividends as of the date of redemption. As of March 31,

F-9

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 – BUSINESS, BASIS OF PRESENTATION AND LIQUIDITY - continued

2020, the aggregate Redemption Price for the Series B-1 and Series B-2 Preferred Stock would be approximately $39.6 million. In addition, pursuant to an agreement to extend the Redemption Date, a cash payment in the aggregate amount of $2.6 million is due and payable to the holders of the Series B-1 and B-2 Preferred Stock on July 24, 2020 whether or not a redemption is requested. The current holders of our Series B Preferred Stock are collectively referred to herein as the “Series B Investors”. We are presently in discussions with the Series B Investors regarding a restructuring of the of terms of these securities. There is no assurance, however, that all or any of the Series B Investors will agree to restructure these securities, or if so, whether the terms will be beneficial to the Company. See Note 10.

We expect our primary sources of liquidity over the next twelve months to consist of proceeds from the disposition of our existing REO assets, proceeds from borrowings and equity issuances, current cash, revenues from the ownership and management of hotels, and investment income.

Historically, we have used proceeds from the issuance of preferred equity and/or debt, proceeds from the sale of our REO assets, and the liquidation of mortgages and related investments to satisfy our working capital requirements. As described above, we sold our Broadway Tower commercial office building in January 2020, netting $8.0 million in cash to the Company after payment of related debt. We also are in discussions with the holders of our Series B Preferred Stock regarding a restructuring or modification of those securities and our obligations. There can be no assurance that these efforts will be successful or that we will sell our remaining REO assets in a timely manner or that will be successful in obtaining additional or replacement financing, if needed, to sufficiently fund our future operations, redeem our Series B-1 and B-2 Preferred Stock if so required, repay existing debt, or to implement our investment strategy. In the event we are unsuccessful in negotiating a deferral or restructuring of the terms of our Series B-1 and B-2 Preferred Stock, we will be required to fund the redemption of $39.6 million, in an addition to the cash payment in the aggregate amount of $2.6 million, in July 2020. In the absence of proceeds from asset sales, equity issuances or borrowings to fund payment of the Redemption Price, the required redemption would likely render the Company insolvent. Moreover, our failure to generate sustainable earning assets and to successfully liquidate a significant portion of our REO assets will have a material adverse effect on our business, results of operations and financial position. In addition, the Company may continue to be materially adversely impacted by the COVID-19 outbreak. These accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

The collective nature of the above uncertainties create substantial doubt about our ability to continue as a going concern for a period beyond one year from the date of issuance of these accompanying unaudited condensed consolidated financial statements. The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business. They do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.


NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are detailed in “Note 2 - Summary of Significant Accounting Policies" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Funds Held by Lender and Restricted Cash

The balance sheet item, “Funds held by lender and restricted cash”, includes amounts maintained in escrow or other restricted accounts deposited into reserve accounts held by lenders for contractually specified purposes. The following table provides a reconciliation of cash, cash equivalents, and funds held by lender and restricted cash reported within the accompanying condensed consolidated balance sheets that sum to the total of the amounts shown in the accompanying unaudited condensed consolidated statement of cash flows as of March 31, 2020 and December 31, 2019 (in thousands):

 
March 31,
 
December 31,

 
2020

2019
Cash and cash equivalents
 
$
9,897


$
7,925

Funds held by lender and restricted cash
 
2,424


2,564

Total cash, cash equivalents, and restricted cash
 
$
12,321


$
10,489



F-10

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES – continued

The balance of “Funds held by lender and restricted cash” includes property tax, insurance and construction related reserves for the MacArthur Loan totaling $2.4 million and $2.6 million at March 31, 2020 and December 31, 2019, respectively.

Revenue Recognition

Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. ASC Topic 606 defines a five-step process to achieve this core principle. The significant accounting policies under ASC Topic 606 are set forth below.

Operating Property Revenues - Hotel Revenues

The Company derives hotel revenues from our hotel in Sonoma, California, which is reflected as operating property revenue in the accompanying unaudited consolidated statements of operations. Rooms revenue represents revenue from the occupancy of our hotel rooms and is driven by the occupancy and daily rate charged. Rooms revenue also includes revenue for guest no-shows, day use, and early late departure fees. The contracts for room stays with customers are generally short in duration and revenues are recognized as services are provided over the course of the hotel stay. Food & Beverage (“F&B”) revenue consists of revenue from the restaurants and lounges at our hotel, in-room dining and minibar revenue, and banquet/catering revenue from group and social functions. Other F&B revenue may include revenue from audiovisual equipment/services, rental of function rooms, and other F&B related revenue. Revenue is recognized as the services or products are provided. Our hotel property may employ third parties to provide certain services at the property, for example, audio visual services. We evaluate each of these contracts to determine if the hotel is the principal or the agent in the transaction, and record the revenue as appropriate (i.e., gross vs. net).

Other revenue consists of ancillary revenue at the property, including attrition and cancellation fees, resort fees, spa and other guest services. Attrition and cancellation fees are recognized for non-cancellable deposits when the customer provides notification of cancellation within established management policy time frames. Taxes collected from customers and submitted to taxing authorities are not recorded in revenue.

We identified the following performance obligations in connection with our hotel revenues, for which revenue is recognized as the respective performance obligations are satisfied, which results in recognizing the amount we expect to be entitled to for providing the goods or services:

Cancellable room reservations or ancillary services are satisfied as the good or service is transferred to the hotel guest, which is generally when the room stay occurs.
Noncancellable room reservations and banquet or conference reservations represent a series of distinct goods or
services provided over time and are satisfied as each distinct good or service is provided, which is reflected by the duration of the room reservation.
Material rights for free or discounted goods or services are satisfied at the earlier point in time when the material right expires or the underlying free or discounted good or service is provided to the hotel guest.
Other ancillary goods and services purchased independently of the room reservation at standalone selling prices are considered separate performance obligations, which are satisfied when the related good or service is provided to the hotel guest.
Components of package reservations for which each component could be sold separately to other hotel guests are considered separate performance obligations and are satisfied as set forth above.

Hotel revenues primarily consist of hotel room rentals, F&B sales, and other ancillary goods and services. Revenue is recognized when rooms are occupied or goods and services have been delivered or rendered, respectively. Payment terms typically align with when the goods and services are provided.

Although the transaction prices of room rentals, goods and other services are generally fixed and based on the respective room reservation or other agreement, an estimate to reduce the transaction price is required if a discount is expected to be provided to the customer. For corporate customers, the hotel offers discounts on goods and services sold in package reservations, and the corresponding transaction price is allocated to the performance obligations within the package based on the estimated standalone selling prices of each component. On occasion, the hotel may also provide the customer with a material right to a free or discounted good or service in conjunction with a room reservation or banquet contract. These material rights are considered separate performance obligations to which a portion of the transaction price is allocated based on the estimated standalone selling prices of the good or service, adjusted for the likelihood the hotel guest will exercise the right.

F-11

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES – continued


Operating Property Revenue - Commercial Real Estate Rental Revenue

The Company derives revenues from Broadway Tower, which, was acquired in May 2019 (Note 5) and subsequently sold in January 2020 (Note 1). Rental revenue, which is reflected as operating property revenue in the accompanying condensed consolidated statements of operations and is presented in the Mortgage and REO Legacy portfolio and other operations segment, represents revenue from the leasing of commercial office space at Broadway Tower to tenants, common area maintenance charges and parking space rental. Leases with tenants are classified as operating leases and revenue is recognized on a straight-line basis over the term of the respective leases.

Management Fee Revenue Recognition

Management fees are typically composed of a base fee, which typically is a percentage of the hotel revenues, plus an incentive fee, which is generally based on hotel profitability. We recognize base management fees as revenue when we earn them under the contracts. In interim periods and at year-end, we recognize incentive management fees that would be due as if the contracts were to terminate at that date, exclusive of any termination fees payable or receivable by us.

Mortgage Loan Income

Interest on mortgage loans is recognized as revenue when earned using the interest method based on a 360- or 365-day year, in accordance with the related mortgage loan terms. We do not recognize interest income on loans once they are deemed to be impaired and placed in non-accrual status. Generally, a loan is placed in non-accrual status when it is past its scheduled maturity by more than 90 days, when it becomes delinquent as to interest due by more than 90 days or when the related fair value of the collateral is less than the total principal, accrued interest and related costs. We may determine that a loan, while delinquent in payment status, should not be placed in non-accrual status in instances where the fair value of the loan collateral significantly exceeds the principal and the accrued interest, as we expect that income recognized in such cases is probable of collection. Unless and until we have determined that the value of underlying collateral is insufficient to recover the total contractual amounts due under the loan term, generally our policy is to continue to accrue interest until the loan is more than 90 days delinquent with respect to accrued, uncollected interest or more than 90 days past scheduled maturity, whichever comes first. Mortgage loans classified as held for sale are recorded on the lower of carrying value or fair value less cost to sell.

We do not typically remove a loan from non-accrual status until (a) the borrower has brought the respective loan current as to the payment of past due interest, and (b) we are reasonably assured as to the collection of all contractual amounts due under the loan based on the value of the underlying collateral of the loan, the receipt of additional collateral required and the financial ability of the borrower to service our loan.

We do not generally reverse accrued interest on loans once they are deemed to be impaired and placed in non-accrual status. In conducting our periodic valuation analysis, we consider the total recorded investment for a particular loan, including outstanding principal, accrued interest, anticipated protective advances for estimated outstanding property taxes for the related property and estimated foreclosure costs, when computing the amount of valuation allowance required. As a result, our valuation allowance may increase based on interest income recognized in prior periods, but subsequently deemed to be uncollectible as a result of our valuation analysis.

We generally allocate cash receipts first to interest, except when such payments are specifically designated by the terms of the loan as a principal reduction. Loans with a principal or interest payment one or more days delinquent are in technical default and are subject to various fees and charges including default interest rates, penalty fees and reinstatement fees. Often these fees are negotiated in the normal course of business and, therefore, not subject to estimation. Accordingly, revenue for such fees is recognized over the remaining life of the loan as an adjustment to the interest income yield.

We defer fees for loan originations, processing and modifications, net of direct origination costs, at origination and amortize such fees as an adjustment to interest income using the effective interest method. Revenue for non-refundable commitment fees is recognized over the remaining life of the loan as an adjustment to the interest income yield.

We defer premiums or discounts arising from acquired loans at acquisition and amortize such premiums or discounts as an adjustment to interest income over the contractual term of the related loan using the effective interest method. We include the unamortized portion of the premium or discount as a part of the net carrying value of the loan on the accompanying condensed consolidated

F-12

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES – continued

balance sheets. Costs not directly paid to the seller of the loan are expensed as incurred and not amortized, except for any fees paid directly to the seller.

Recent Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s ASC. The Company considers the applicability and impact of all ASUs.

Adopted Accounting Standards

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the current two-step goodwill impairment test by eliminating Step 2 of the test. The guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis. The Company adopted ASU 2017-04 for the period ended March 31, 2020. There was no material impact from the adoption of this standard on these condensed consolidated financial statements.

Accounting Standards Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. We are currently evaluating the impact of the guidance and our options related to the practical expedients.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASU 2016-13”). The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. Recently, the FASB voted to delay the effective date of ASU 2016-13 to January 1, 2023, for smaller reporting companies with a revised ASU expected in the fourth quarter of 2019. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.



F-13



NOTE 3 — REVENUE

The following is a breakdown of revenue by source for the three months ended March 31, 2020 and 2019 (in thousands):

 
Three months ended March 31,

 
2020
 
2019
Operating property revenue
 

 

Commercial real estate rental revenue
 
$
239

 
$

Hotel revenues
 
 
 
 
Rooms
 
841

 
192

Food and beverage
 
672

 
3

Banquet
 
105

 
4

Spa and fitness center
 
126

 
94

Other
 
65

 
21

Total operating property revenue
 
2,048

 
314

Mortgage loan income, net
 

 
650

Management fees, investment and other income
 
92

 
68

Total revenue
 
$
2,140

 
$
1,032



NOTE 4 — MORTGAGE LOANS, NET

Lending Activities

As of March 31, 2020 and December 31, 2019, the Company had two loans outstanding with an aggregate average principal and interest balance of $6.3 million, both of which were non-performing and have been fully reserved with a zero carrying value. The Company did not originate any new loans on its own behalf during the three months ended March 31, 2020 or 2019.

During the three months ended March 31, 2020, and 2019, we recorded mortgage interest income of $0.0 and $0.7 million, respectively.


NOTE 5 — OPERATING PROPERTIES, REAL ESTATE HELD FOR SALE AND OTHER REAL ESTATE OWNED

As of March 31, 2020, we held total REO assets of $86.2 million, of which $7.4 million were held for sale, $45.5 million were held as operating properties, and $33.3 million were classified as other real estate owned. As of December 31, 2019, we held total REO assets of $104.0 million, of which $25.5 million were held for sale, $45.2 million were held as operating properties and $33.3 million were classified as other real estate owned.

REO Asset Sales

On May 29, 2019, the Company foreclosed on the membership interests of a commercial office building in St Louis, Missouri, known as Broadway Tower, which were pledged as collateral on a mezzanine note held by the Company. On January 22, 2020, the Company completed the sale of Broadway Tower for a selling price of $19.5 million, net of purchase price adjustments, and paid off at closing the $11.0 million note held by Chase Funding securing the property. Subsequent to payment of closing costs and the Chase Funding indebtedness, the Company’s net proceeds were $8.0 million. While the Company did not record a loss on sale during the three months ended March 31, 2020, the disposal of Broadway Tower resulted in a loss on sale of $1.5 million, which was recorded as an impairment charge during the year ended December 31, 2019 when the impairment was determinable. The Company had no other asset sales during the three months ended March 31, 2020 or 2019.


F-14

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 — OPERATING PROPERTIES, REAL ESTATE HELD FOR SALE AND OTHER REAL ESTATE OWNED – continued

REO Planned Development and Operations

Costs related to the development, renovation or improvements of the Company’s real estate assets are generally capitalized, while costs and expenses related to operating, holding and maintaining our operating properties and REO assets are expensed as incurred. Costs that are expensed as incurred are included in operating property direct expenses and as expenses for non-operating real estate owned in the accompanying unaudited condensed consolidated statements of operations. For the three months ended March 31, 2020 and 2019, these costs and expenses were $3.5 million and $2.4 million, respectively. Cash outlays for capitalized costs totaled $0.7 million and $4.7 million during the three months ended March 31, 2020 and 2019, respectively, and consisted primarily of renovation costs for MacArthur Place.


NOTE 6 — INVESTMENT IN JOINT VENTURES AND PARTNERSHIPS

Consolidated Variable Interest Entities

As of March 31, 2020 and December 31, 2019, we consolidated multiple variable interest entities (“VIEs”) relating to two primary projects: 1) various partnerships which own land and water rights located in New Mexico for which the Company retains both general partner and limited partner interests, and 2) the L’Auberge de Sonoma Resort Fund (the “Hotel Fund”) for which the Company is the sponsor and its subsidiary is the common member that owns MacArthur Place. We are deemed to be the primary beneficiaries of these consolidated VIEs as we have the power to direct the activities that most significantly affect their economic performance and we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. The assets of these consolidated VIEs are only available to settle the obligations of the respective entities.

The following table summarizes the carrying amounts of the above-referenced entities’ assets and liabilities included in the Company’s accompanying condensed consolidated balance sheets at March 31, 2020 and December 31, 2019 (in thousands):
 
 
March 31, 2020
 
December 31, 2019
Total assets
 
$
100,490

 
$
99,990

Total liabilities
 
61,930

 
59,920


The following table summarizes the consolidated VIEs results of operations for the three months ended March 31, 2020 and 2019, net of intercompany eliminations (in thousands):
 
 
Three months ended March 31,
 
 
2020
 
2019
Net loss
 
$
(3,077
)
 
$
(3,150
)

The Company’s maximum exposure to loss of its combined equity in those entities totaled $28.1 million as of March 31, 2020.

Investment in Unconsolidated Entities

In the second quarter of 2019, the Company entered into a joint venture agreement with Juniper New Mexico, LLC and Juniper Bishops Manager, LLC (both related parties of Jay Wolf, a director of the Company) to participate in a $10.0 million mezzanine loan to be used to finance the renovation of a luxury resort located in Santa Fe, New Mexico. The mezzanine loan is secondary to a senior mortgage loan funded by an unrelated party. The joint venture is named Juniper Bishops, LLC (“Juniper Bishops” or the “JV”), and is sponsored and managed by Juniper Bishops Manager, LLC, which manages and controls the joint venture. IMH’s subsidiary, IMH Bishops Lodge Mezz Lender, LLC (“IMH BL Mezz Lender”), is a limited member in the joint venture and does not manage, control or have any decision-making powers nor is it the primary beneficiary, and therefore, it is not consolidated. As such, we have accounted for this investment using the equity method of accounting. IMH BL Mezz Lender’s maximum commitment under this investment is $3.9 million, (or 39% of the $10.0 million loan), all of which was funded as of March 31, 2020. Under the terms of the mezzanine loan agreement, the interest rate of the loan is based on the one-month LIBOR plus 15% with a LIBOR floor of 2.4%, and of which 6.0% is accrued and deferred, and the balance is paid on a current basis. While the Company is entitled to a 7% return under the terms of the JV agreement, the Company expects to receive a total preferred annualized return of 11.4%, less a management fee of 1.5%, of which 5.4% is payable quarterly in arrears, with the remaining 6.0% accrued

F-15

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 — VARIABLE INTEREST ENTITIES AND INVESTMENTS IN UNCONSOLIDATED ENTITIES – continued

and to be paid upon maturity in June 2021. During the three months ended March 31, 2020, the Company recorded $0.1 million in earnings on the investment and received distributions totaling $0.1 million. As of March 31, 2020, we recorded uncollected accrued revenue of $0.1 million.


NOTE 7— FAIR VALUE

Valuation Allowance and Fair Value Measurement of Loans, Real Estate Held for Sale, Other REO

Our valuation analysis process and procedures are disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. We perform a valuation analysis of our loans, REO held for sale, and other REO on a quarterly basis. We consider all relevant, material circumstances to determine if, and the extent to which, a valuation allowance is required.

Impairment for collateral dependent loans is measured at the balance sheet date based on the then fair value of the collateral in relation to contractual amounts due under the terms of the applicable loan if foreclosure is probable. Substantially all of our loans in default are deemed to be collateral dependent.

REO assets that are classified as held for sale and other REO are measured at the lower of carrying amount or fair value, less estimated cost to sell. If an asset is considered impaired, an impairment loss is recognized for the difference between the asset’s carrying amount and its fair value, less estimated cost to sell. If we elect to change the disposition strategy for our other REO, and such assets were deemed to be held for sale, we may record additional impairment charges, and the amounts could be significant.

Selection of Single Best Estimate of Value

The results of our valuation efforts generally provide a range of values for the collateral valued or REO assets rather than a single value. The selection of a value from within a range of values depends upon general overall market conditions as well as specific market conditions for each property valued and its stage of entitlement or development. In selecting the single best estimate of value, we consider the information in any relevant valuation reports, credible purchase offers received and agreements executed, as well as multiple observable and unobservable inputs.

Valuation Conclusions

Based on the results of our evaluation and analysis, we recorded no non-cash provision for credit losses or impairment losses during the three months ended March 31, 2020 or 2019. However, we recorded recoveries of investment and credit losses totaling $1.8 million during the three months ended March 31, 2020, resulting from the collection of cash and other assets recovered from certain guarantors on certain mezzanine loans. No recoveries were recorded during the three months ended March 31, 2019.

As of March 31, 2020 and December 31, 2019, the valuation allowance on our mortgage loans totaled $12.7 million, representing 100.0% of the total outstanding loan principal and accrued interest balances. With the existing valuation allowance recorded as of March 31, 2020, we believe that, as of that date, the fair value of our loans, REO assets held for sale, and other REO is adequate in relation to the net carrying value of the related assets and that no additional valuation allowance or impairment is considered necessary. While the above results reflect management’s assessment of fair value as of March 31, 2020, based on currently available data, we will continue to evaluate our loans and REO assets to determine the appropriateness of the carrying value of such assets. Depending on market conditions, such updates may yield materially different values and potentially increase or decrease the valuation allowance for loans or impairment charges for REO assets.



F-16

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8     — NOTES PAYABLE AND SPECIAL ASSESSMENT OBLIGATIONS

As of March 31, 2020 and December 31, 2019, our notes payable and special assessment obligations consisted of the following (in thousands):
 
 
March 31,
 
December 31,
 
 
2020
 
2019
$37.0 million note payable to MidFirst Bank secured by a first lien on MacArthur Place, interest-only payments due monthly at the 30-day LIBOR (0.99% and 1.76% at March 31, 2020 and December 31, 2019, respectively) plus 3.25% to 3.75% depending on compensating balances and meeting certain financial thresholds and terms (total effective interest rate of 5.10% and 5.26% at March 31, 2020 and December 31, 2019, respectively), matures October 1, 2020, with construction completion and repayment guarantees provided by the Company.
 
$
36,819

 
$
35,454

$11.0 million note payable to JPMorgan Chase Funding Inc. secured by the $13.2 million first mortgage note on Broadway Tower, bearing interest at one month LIBOR plus 3.45%. The Company paid off the note in full during the three months ended March 31, 2020 in connection with the sale of the property.
 

 
11,000

$4.9 million note payable secured by real estate in New Mexico, annual interest only payments based on annual interest rates of prime plus 3.0% through maturity date of December 31, 2022 (total effective rate of 7.75% and 8.50% as of March 31, 2020 and December 31, 2019, respectively).
 
4,940

 
4,940

Special assessment bonds dated between 2002 and 2007, secured by the residential land located in Dakota County, Minnesota, annual interest rate ranging from 6%-7.5%, maturing various dates through 2022.
 
61

 
61

Total notes payable
 
41,820

 
51,455

Less: deferred financing fees
 
(81
)
 
(178
)
Notes payable, net of deferred financing fees
 
$
41,739

 
$
51,277

Interest expense for the three months ended March 31, 2020 and 2019, was $0.8 million and $0.5 million, respectively, exclusive of capitalized interest related to the MacArthur Loan of $0.0 and $0.5 million for the three months ended March 31, 2020 and 2019, respectively.

Senior Indebtedness

MacArthur Place

In connection with our purchase and renovation of MacArthur Place, we secured a $32.3 million acquisition and construction loan, which was subsequently increased to $37.0 million, from MidFirst Bank (the “MacArthur Loan”), of which (i) $19.4 million was utilized for the purchase of MacArthur Place, (ii) $13.5 million was used to fund planned hotel improvements, and (iii) the balance was used to fund interest reserves and operating capital. The MidFirst Loan also required the establishment of certain additional reserve accounts in the amount of $2.0 million for anticipated future spa renovations.

The principal balance of the MacArthur Loan was $36.8 million and $35.5 million at March 31, 2020 and December 31, 2019, respectively. The loan bears floating interest equal to the 30-day LIBOR rate (0.99% at March 31, 2020) plus 3.50%, which may be reduced by up to 0.50% if certain conditions are met, which were met as of March 31, 2020. The loan has an initial term of three years which matures on October 1, 2020, subject to the right of the Company to extend the maturity date for two one-year periods, provided that the loan is in good standing and upon satisfaction of certain other conditions, including meeting a specified minimum debt service ratio and payment of an extension fee equal to 0.35% of outstanding principal per extension. The Company is required to make interest-only payments during the initial three-year term. During the three months ended March 31, 2020, the Company made loan draws totaling $1.4 million, all of which were used to fund MacArthur Place renovation costs.

The MacArthur Loan is secured by a deed of trust on all MacArthur Place real property and improvements, and a security interest in all furniture, fixtures and equipment, licenses and permits, and MacArthur Place related revenues. The Company agreed to provide a construction completion guaranty which shall be released upon payment of all project costs and receipt of a certificate of occupancy. In addition, the Company provided a loan repayment guaranty equal to 50% of the loan principal along with a guaranty of interest and operating deficits, as well as other customary carve-out matters such as bankruptcy and environmental

F-17

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

matters. Under the guarantees, the Company is required to maintain a minimum tangible net worth of $50.0 million and minimum liquidity of $5.0 million throughout the term of the loan. The Company was in compliance with these covenants and guarantees at March 31, 2020. The Company is required to establish various operating and reserve accounts at MidFirst Bank which are subject to a cash management agreement. In the event of default, MidFirst Bank has the ability to take control of such accounts for the allocation and distribution of proceeds in accordance with the cash management agreement.

New Mexico Land Purchase Financing

As of March 31, 2020, the Company had an outstanding note payable in the amount of $4.9 million, secured by certain real estate located in New Mexico with a carrying value of $6.8 million. The note bears interest at the Prime Rate as reported by The Wall Street Journal plus 3% and requires interest only payments payable on December 31 of each year with the principal balance and any accrued unpaid interest due upon the earlier of 1) December 31, 2022, or 2) sale of the underlying collateral property. The note may be prepaid in whole or in part without penalty, and includes certain maturity extension provisions which the Company may choose to exercise.

JPMorgan Chase Funding Inc. Master Repurchase Agreement

In connection with the purchase of the $13.2 million first mortgage note secured by Broadway Tower in May 2019, we obtained an $11.0 million loan (under a master repurchase agreement) from Chase Funding. In January 2020, the Company sold Broadway Tower and paid off the related Chase Funding indebtedness.

Our notes payable and special assessment obligations have the following scheduled maturities as of March 31, 2020 (in thousands):
Year
 
Amount
2020
 
$
36,846

2021
 
26

2022
 
4,948

Less: deferred financing costs of notes payable
 
(81
)
Total
 
$
41,739



NOTE 9 — SEGMENT INFORMATION

Operating segments are defined as components of an enterprise that engage in business activity from which revenues are earned and expenses incurred for which discrete financial information is available that is evaluated regularly by our chief operating decision makers in deciding how to allocate resources and in assessing performance.

The information presented in our reportable segments tables that follow are based in part on internal allocations which involve management judgment. Substantially all revenues recorded are from external customers. There is no material intersegment activity.

As of and for the three months ended March 31, 2020 and 2019, the Company’s reportable segments consisted of the following:

Hospitality and Entertainment Operations — Consists of revenues and direct operating expenses, depreciation and amortization relating to our hotel, spa, and F&B operations. This segment also reflects the carrying value of such assets and the related financing and operating obligations.

Mortgage and REO - Legacy Portfolio and Other Operations — Consists of the collection, workout and sale of new and legacy loans and REO assets, including financing of such asset sales, as well as the operating expenses, carrying costs and other related expenses of such assets. This segment also includes operating properties that do not represent a strategic operating objective of the Company, such as Broadway Tower, and their rental revenue and tenant recoveries less direct property operating expenses (maintenance and repairs, real estate taxes, management fees, and other operating expenses), depreciation and amortization from commercial real estate leasing operations, and the carrying value of such assets and the related financing and operating obligations.


F-18

IMH FINANCIAL CORPORATION 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – SEGMENT INFORMATION - continued

Corporate and Other — Consists of our centralized general and administrative and corporate treasury activities. This segment also includes reclassifications and eliminations between the reportable operating segments and reflects the carrying value of corporate fixed assets and the related financing and operating obligations.

Condensed consolidated financial information for our reportable operating segments as of March 31, 2020 and December 31, 2019, and for the three months ended March 31, 2020 and 2019, is summarized as follows (in thousands):
 
 
March 31,
 
December 31,
Balance Sheet Items
 
2020
 
2019
Total Assets
 
 
 
 
Mortgage and REO Legacy portfolio and other operations
 
$
46,658

 
$
66,266

Hospitality and entertainment operations
 
67,384

 
67,510

Corporate and other
 
7,941

 
5,832

Consolidated total
 
$
121,983

 
$
139,608

 
 
 
 
 
 
 
Three months ended March 31,
Cash Flow Items
 
2020
 
2019
Expenditures for additions to long-lived assets
 
 
 
 
Mortgage and REO Legacy portfolio and other operations
 
$

 
$

Hospitality and entertainment operations
 
715

 
4,667

Corporate and other
 

 

Consolidated total
 
$
715

 
$
4,667


 
 
Three months ended March 31, 2020
Income Statement Items
 
Mortgage and REO Legacy Portfolio and Other Operations
 
Hospitality and Entertainment Operations
 
Corporate and Other
 
Consolidated
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Operating property revenue
 
$
239

 
$
1,809

 
$

 
$
2,048

Mortgage loan income
 

 

 

 

Management fees, investment and other income
 
14

 
23

 
55

 
92

Total revenue
 
253

 
1,832

 
55

 
2,140

 
 
 
 
 
 
 
 
 
Total operating expenses
 
909

 
5,055

 
2,012

 
7,976

 
 
 
 
 
 
 
 
 
Other (income) expense
 
 
 
 
 
 
 
 
Recovery of credit losses, net
 
(1,750
)
 

 

 
(1,750
)
Equity earnings from unconsolidated entities
 
(122
)
 

 

 
(122
)
Total other income, net
 
(1,872
)
 

 

 
(1,872
)
 
 
 
 
 
 
 
 
 
Total costs and expense, net
 
(963
)
 
5,055

 
2,012

 
6,104

Income (loss) before income taxes
 
1,216

 
(3,223
)
 
(1,957
)
 
(3,964
)
Provision for income taxes
 

 

 

 

Net income (loss)
 
$
1,216

 
$
(3,223
)
 
$
(1,957
)
 
$
(3,964
)



F-19

IMH FINANCIAL CORPORATION 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – SEGMENT INFORMATION - continued

 
 
Three months ended March 31, 2019
Income Statement Items
 
Mortgage and REO Legacy Portfolio and Other Operations
 
Hospitality and Entertainment Operations
 
Corporate and Other
 
Consolidated
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Operating property revenue
 
$

 
$
314

 
$

 
$
314

Mortgage loan income
 
650

 

 

 
650

Management fees, investment and other income
 
2

 

 
66

 
68

Total revenue
 
652

 
314

 
66

 
1,032

 
 
 
 
 
 
 
 
 
Total operating expenses
 
490

 
3,049

 
2,339

 
5,878

 
 
 
 
 
 
 
 
 
Other (income) expense
 
 
 
 
 
 
 
 
Unrealized loss on derivatives
 

 
167

 

 
167

Total other (income) expense, net
 

 
167

 

 
167

 
 
 
 
 
 
 
 
 
Total costs and expense, net
 
490

 
3,216

 
2,339

 
6,045

Income (loss) before income taxes
 
162

 
(2,902
)
 
(2,273
)
 
(5,013
)
Provision for income taxes
 

 

 

 

Net income (loss)
 
$
162

 
$
(2,902
)
 
$
(2,273
)
 
$
(5,013
)



NOTE 10 — STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE

Common Stock

Shares of Common Stock, Class B Common Stock, Class C Common Stock, and Class D Common Stock share proportionately in our earnings and losses attributable to common shareholders. There are no shares of Class D Common Stock outstanding as of March 31, 2020 or December 31, 2019.

Preferred Stock

In July 2014, the Company issued a total of 8,200,000 shares of the Company’s Series B-1 and B-2 Cumulative Convertible Preferred Stock (“Series B-1 Preferred Stock” and “Series B-2 Preferred Stock,” respectively) to certain investor groups in exchange for $26.4 million. Except for certain voting and transfer rights, the rights and obligations of the Series B-1 Preferred Stock and Series B-2 Preferred Stock are substantially the same.

On February 9, 2018, Chase Funding purchased 2,352,941 shares of the Company’s Series B-3 Cumulative Convertible Preferred Stock (“Series B-3 Preferred Stock”) for a total purchase price of $8.0 million. The Series B-3 Preferred Stock contains redemption features similar in all material respects to those of all Series B-1 Preferred Stock and Series B-2 Preferred Stock.

On September 25, 2019, Chase Funding purchased 1,875,000 shares of our Series B-4 Cumulative Convertible Preferred Stock (“Series B-4 Preferred Stock” and collectively with the Series B-1 Preferred Stock, Series B-2 Preferred Stock, and Series B-3 Preferred Stock, the “Series B Preferred Stock”), at a purchase price of $3.20 per share, for a total purchase price of $6.0 million. The Series B-4 Preferred Stock contains redemption features similar in all material respects to the other Series B Preferred Stock.

On July 23, 2019, with an effective date of April 1, 2019, we entered into a Deferral and Consent Agreement with the holders of our Series B Preferred Stock pursuant to which they agreed to a one-year extension of the redemption date for shares of our Series

F-20

IMH FINANCIAL CORPORATION 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 10 — STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE – continued

B-1 Preferred Stock and Series B-2 Preferred Stock they respectively hold. A cash payment in the aggregate amount of $2.6 million is due and payable to the holders of these shares on July 24, 2020, whether or not a redemption is requested.

In addition to various other rights and preferences belonging to the holders of the Series B Preferred Stock, the following provides a summary of certain financial obligations relating to the Series B Preferred Stock:

Dividends. Dividends on the Series B Preferred Stock are cumulative and accrue from the issue date and compound quarterly at the rate of 8% for Series B-1 and B-2 Preferred Stock and 5.65% for the Series B-3 and B-4 Preferred Stock, payable quarterly in arrears. Subject to certain dividend rights and restrictions, no dividend may be paid on any capital stock of the Company during any fiscal year unless all accrued dividends on the Series B Preferred Stock have been paid in full, except for dividends on shares of voting Common Stock. In the event that any dividends are declared with respect to the voting Common Stock or any junior ranking securities, the holders of the Series B Preferred Stock are entitled to receive as additional dividends the additional dividend amount. During the three months ended March 31, 2020 and 2019, we paid dividends on the Series B Preferred Stock totaling $1.9 million and $0.7 million, respectively.

Redemption upon Demand. Effective April 1, 2019, we entered into a Deferral and Consent agreement with the holders of our Series B Preferred Stock pursuant to which they agreed to a one-year extension on the redemption date from July 24, 2019 to July 24, 2020, for shares of Series B-1 and B-2 Preferred Stock. In exchange for this extension, we agreed to a cash consent payment in the aggregate amount of $2.6 million to the holders of the Series B-1 and B-2 Preferred Stock on July 24, 2020, whether or not a redemption is requested.

At any time after (i) July 24, 2020 for the Series B-1 and B-2 Preferred Stock, (ii) February 9, 2023 for the Series B-3 Preferred Stock, and (iii) September 25, 2024 for the Series B-4 Preferred Stock, each holder of Series B Preferred Stock may require the Company to redeem, out of legally available funds, the shares of Series B Preferred Stock held by such holder at the a price (the “Redemption Price”) equal to the greater of (i) 150% of the sum of the original price per share of the Series B-1 and B-2 Preferred Stock, and 145% of the sum of the original price per share of the Series B-3 and B-4 Preferred Stock, plus all accrued and unpaid dividends or (ii) the sum of the tangible book value of the Company per share of voting Common Stock plus all accrued and unpaid dividends, as of the date of redemption. Based on the initial investment of $26.4 million, the Redemption Price for the Series B-1 and B-2 Stock would presently be $39.6 million, resulting in a redemption premium of $13.2 million, in addition to a cash payment in the aggregate amount of $2.6 million. The Redemption Price for the Series B-3 Preferred Stock would be $11.6 million, resulting in a redemption premium of $3.6 million, and the Redemption Price for the Series B-4 Preferred Stock would be $8.7 million, resulting in a redemption premium of $2.7 million. In accordance with applicable accounting standards, we have elected to amortize the redemption premiums using the effective interest method as an imputed dividend over the holding term of the preferred stock. During the three months ended March 31, 2020 and 2019, we recorded amortization of the redemption premium of $0.3 million and $0.9 million, respectively, as a deemed dividend.

Required Liquidation. Under the Preferred Stock Certificates of Designation, if at any time we are not in compliance with certain of our obligations to the holders of the Series B Preferred Stock and we fail to pay (i) full dividends on the Series B Preferred Stock for two consecutive fiscal quarters or (ii) the Redemption Price within 180 days following the later of (x) demand therefore resulting from such non-compliance and (y) July 24, 2020, for the Series B-1 and B-2 Preferred Stock, February 9, 2023 for the Series B-3 Preferred Stock, and September 25, 2024 for the Series B-4 Preferred Stock, unless a certain percentage of the holders of the Series B Preferred Stock elect otherwise, we will be required to use our best efforts to commence a liquidation of the Company. In addition, the default by the Company or any of its subsidiaries under one or more debt agreements that remains uncured for a period of thirty (30) days entitles the Series B Investors to accelerate repayment of the Redemption Price.

Concurrent with Chase Funding’s purchase of our Series B-3 Cumulative Convertible Preferred Stock, the Company issued to Chase Funding a warrant to acquire up to 600,000 shares of the Company’s common stock (the “JPM Warrant”). The JPM Warrant is exercisable at any time on or after February 9, 2021, for a two (2) year period, and has an exercise price of $2.25 per share. The JPM Warrant provides for certain adjustments that may be made to the exercise price and the number of shares issuable upon exercise due to customary anti-dilution provisions based on future corporate events. The JPM Warrant is exercisable in cash, and subject to certain conditions, may also be exercised on a cashless basis. The JPM Warrant is classified in stockholders’ equity on the accompanying condensed consolidated balance sheets under the applicable guidance and was recorded at relative fair value at issuance.


F-21

IMH FINANCIAL CORPORATION 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 10 — STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE – continued

Series A Redeemable Preferred Stock Issuance

On May 31, 2018, Chase Funding purchased 22,000 shares of the Company’s Series A Senior Redeemable Preferred Stock (the “Series A Preferred Stock”) at a purchase price of $1,000 per share, for a total purchase price of $22.0 million.

The Series A Preferred Stock ranks senior with respect to dividend and redemption rights and rights upon liquidation, dissolution or winding up of the Company to all other classes or series of shares of the Company’s preferred and common stock and to all other equity securities issued by the Company from time to time. The Series A Preferred Stock is non-voting stock. Holders of the Series A Preferred Stock are entitled to receive a liquidation preference equal to the sum of the initial purchase price of the Series A Preferred Stock plus all accrued and unpaid dividends. Dividends on the Series A Preferred Stock are cumulative and accrue from the issue date at the rate of 7.5% of the issue price per year, payable quarterly in arrears on or before the last day of each calendar quarter. The Company has certain call rights with respect to the Series A Preferred Stock and the holders of Series A Preferred Stock have certain put rights which includes an acceleration of the put right if the Company is required to redeem any shares of junior securities in the event of certain non-compliance events as described in the Company’s Second Amended and Restated Certificate of Designation of Series B-1 Cumulative Convertible Preferred Stock, Series B-2 Cumulative Convertible Preferred Stock and Series B-3 Cumulative Convertible Preferred Stock.

Our Series B Preferred Stock and Series A Preferred Stock are classified as mezzanine equity in the accompanying condensed consolidated balance sheets.

Treasury Stock

On January 11, 2019, the Company concluded a tender offer to purchase up to 477,170 shares of Class B Common Stock and 22,830 shares of Class C common stock for $2.00 per share. The repurchase of these shares was treated as a treasury stock repurchase as reflected in the accompanying condensed consolidated balance sheet. During the three months ended March 31, 2020, an aggregate of 4,618 shares of Class B common stock and 2,203 shares of Class C common stock were relinquished to the Company for no consideration to the shareholders.

Share-Based Compensation

During the three months ended March 31, 2020, the Company issued 60,356 shares of common stock pursuant to previous restricted stock awards. The Company did not grant any shares of restricted stock or stock options during the three months ended March 31, 2020, nor were any stock options or warrants exercised or forfeited during that period.

As of March 31, 2020, there were (i) 1,093,562 outstanding stock options that were fully vested, (ii) 2,600,000 unvested stock warrants outstanding; and (iii) 554,452 shares of unvested restricted stock grants outstanding, net of tax elections taken.

Net stock-based compensation expense was $0.1 million for each of the three months ended March 31, 2020 and 2019. We did not receive any cash from option or warrant exercises during the three months ended March 31, 2020 or 2019. As of March 31, 2020, there was $0.8 million of unrecognized compensation expense related to all unvested equity-based awards that are expected to be recognized as a charge to earnings over a weighted-average vesting period of 1.25 years.

Net Income (Loss) Per Share

The Company has adopted the two-class computation method, and thus includes all participating securities in the computation of basic shares for the periods in which the Company has net income available to common shareholders. A participating security is defined as an unvested share-based payment award containing non-forfeitable rights to dividends regardless of whether or not the awards ultimately vest or expire. Net losses are not allocated to participating securities unless the holder has a contractual obligation to share in the losses.

The following table presents a reconciliation of net loss to net loss attributable to common shareholders used in the basic and diluted earnings per share calculations for the three months ended March 31, 2020 and 2019 (amounts in thousands, except for per share data):

F-22

IMH FINANCIAL CORPORATION 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 10 — STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE – continued

 
 
Three months ended March 31,
 
 
2020
 
2019
Earnings allocable to common shares:
 
 
 
 
Numerator - Loss Attributable to Common Shareholders:
 
 
 
 
Net loss
 
$
(3,964
)
 
$
(5,013
)
Net (income) loss attributable to non-controlling interest
 
(260
)
 
(123
)
Preferred dividends
 
(2,098
)
 
(1,989
)
Net loss attributable to common shareholders
 
$
(6,322
)
 
$
(7,125
)

 
 
 
 
Denominator - Weighted average shares:
 
 
 
 
Weighted average common shares outstanding for basic and diluted earnings per common share
 
16,616,355
 
16,392,286

 
 
 
 
Basic and diluted earnings per common share:
 
 
 
 
Net loss per common share
 
$
(0.25
)
 
$
(0.31
)
Preferred dividends per share
 
(0.13
)
 
(0.12
)
Net loss attributable to common shareholder per share
 
$
(0.38
)
 
$
(0.43
)

The following securities were not included in the computation of diluted net loss per share as their effect would have been anti-dilutive (presented on a weighted average balance):
 
 
Three months ended March 31,
 
 
2020
 
2019
Options to purchase common stock
 
1,152,361

 
1,085,497

Restricted stock
 
494,034

 
209,419

Warrants to purchase common stock
 
2,600,000

 
2,600,000

Convertible preferred stock
 
12,427,941

 
10,552,941

Total
 
16,674,336

 
14,447,857



NOTE 11 — INTANGIBLE ASSETS AND GOODWILL

Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination and is not amortized. We review goodwill for impairment on an annual basis during the fourth quarter of each fiscal year, or whenever a triggering event occurs or circumstances change that could reduce the fair value of a reporting unit below its carrying amount. In making such assessment, qualitative factors are used to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the estimated fair value of the reporting unit is less than its carrying value, then an impairment charge is recorded.

In connection with the purchase of MacArthur Place, we allocated a portion of the total purchase price to certain intangible assets and goodwill. Of the total $16.3 million allocated to purchased intangibles, $15.4 million, $0.8 million, and $0.1 million, were allocated to goodwill, customer relationships, and trade name and other, respectively.

The changes in the carrying amount of intangibles and goodwill allocated to our Hospitality and Entertainment Operations segment for the three months ended March 31, 2020 is as follows (in thousands):

F-23

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 — INTANGIBLE ASSETS AND GOODWILL - continued


Goodwill
 
Other intangibles, net
Balance at December 31, 2019
$
15,357

 
$
361

Reductions:

 

Amortization expense

 
(70
)
Balance at March 31, 2020
$
15,357

 
$
291


A summary of our intangible assets and goodwill as of March 31, 2020 and December 31, 2019 is as follows (in thousands):
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
March 31,
December 31,

March 31,
December 31,

March 31,
December 31,
 
2020
2019
 
2020
2019
 
2020
2019
Non-amortizing intangible assets:
 
 
 
 
 
 
 
 
Goodwill
$
15,357

$
15,357

 
$

$

 
$
15,357

$
15,357

Liquor license
100

100

 


 
100

100

Amortizing intangible assets:
 
 
 
 
 
 
 
 
Customer relationships
800

800

 
(667
)
(600
)
 
133

200

Trade name and other
90

90

 
(32
)
(29
)
 
58

61

 
$
16,347

$
16,347

 
$
(699
)
$
(629
)
 
$
15,648

$
15,718


Trade name and other, and customer relationships have weighted-average useful lives from the date of purchase of 7.0 years and 3.0 years, respectively. Goodwill and our liquor license are not subject to amortization due to the indeterminable life of such assets. Amortization expense relating to our purchased intangible assets was $0.1 million for each of the three months ended March 31, 2020 and 2019, respectively.

Impairment Considerations

Management considers the impact of COVID-19 coupled with the hotel’s inception-to-date losses incurred to be a triggering event under current accounting guidance, thereby causing us to perform a goodwill impairment analysis for the quarter ended March 31, 2020. The Company has decided to bypass the qualitative assessment and proceed directly to the simplified one step goodwill impairment test allowed by the implementation of ASU 2017-04.

To estimate the fair value of the reporting units, we use a discounted cash flow model and data regarding market comparables. The valuation process requires significant judgment and involves the use of significant estimates and assumptions. These assumptions include cash flow projections, and estimated capitalization and discount rates. Because assumptions and estimates are used in projecting future cash flows and selecting appropriate capitalization and discount rates, actual results may materially differ from our estimates under different assumptions or conditions. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is deemed not to be impaired.

In performing its assessment, the Company reviewed macro- and microeconomic and market factors, industry-specific forecasts, and other applicable market data to influence our selection of appropriate assumptions for the discounted cash flows analysis, as well as a performing a sensitivity analysis on those assumptions and results. The results of our discounted cash flow analysis indicate that the fair value of the hospitality and entertainment reporting unit exceeds its carrying value as of March 31, 2020. In addition, despite the adverse economic and highly uncertain environment caused by the pandemic, the Company believes that, as of March 31, 2020, the longer-term outlook of the hospitality market, and specifically, the local submarket in which MacArthur Place operates, remains positive. Accordingly, the Company believes that the fair value of its goodwill reporting unit remains greater than its carrying value and has not recorded impairment to goodwill for the three months ended March 31, 2020.


F-24

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 — INTANGIBLE ASSETS AND GOODWILL - continued

The full impact of the COVID-19 outbreak continues to evolve as of the date of our quarterly reporting. The extent to which the Company’s business may be affected by the current outbreak of the COVID-19 outbreak will largely depend on both current and future developments, including its duration, spread and treatment, and related travel advisories and restrictions, which could impact overall demand in the hospitality industry, all of which are highly uncertain and cannot be reasonably predicted at this time. Management will continue to monitor the situation as events unfold and assess any potential further impairment triggers.


NOTE 12 — COMMITMENTS AND CONTINGENCIES

Construction and Related Guarantees

As described in Note 8, the Company agreed to provide MidFirst Bank with a loan repayment guaranty equal to 50% of the sum of the outstanding principal and accrued and unpaid interest on the MacArthur Loan, plus a guaranty of 50% of hotel operating costs, enforcement costs under the loan (if any), and recourse amounts that may come due (if any). The Company has also provided a construction completion guaranty with respect to the planned renovations of MacArthur Place. The construction completion guaranty will be released upon payment of all project costs and receipt of a certificate of occupancy, which occurred subsequent to March 31, 2020. The MidFirst Bank loan documents also require that the loan remain “in balance” throughout its term, such that the sum of all remaining undisbursed loan funds exceed the aggregate of (i) future expenditures necessary to complete the renovations in accordance with the approved construction budget and (ii) loan interest. If the loan becomes “out of balance,” the Company must fund the difference. Excess costs incurred to date have been funded by the Hotel Fund or the Company, and management expects that the Hotel Fund or the Company will continue to fund any further excess costs.

Guarantor Recovery

We have pursued and periodically receive favorable judgments against guarantors in connection with their personal guarantees of certain legacy loans on which we previously foreclosed. Similarly, we have filed claims against certain insurance providers and other parties for reimbursement of amounts we believe are due to the Company under such policies. Due to the uncertainty of the nature and extent of the available assets of these guarantors to pay the judgment amounts or amounts collectible under insurance claims, we do not record recoveries for any amounts due under such judgments or claims, except to the extent we have received assets without contingencies.

We continue to pursue, investigate and evaluate the assets available of guarantors to collect all amounts due under judgments received in our favor. However, to the extent that such amounts are not determinable, they have not been recognized as recovery income in the accompanying condensed consolidated statements of operations. Further recoveries under this and other judgments received in our favor will be recognized when realization of the recovery is deemed probable and when all contingencies relating to recovery have been resolved. We recorded recoveries during the three months ended March 31, 2020, of $1.8 million relating to cash collected on a guarantor claim, and none during the three months ended March 31, 2019.

Employee Benefit Plans

401(k) Retirement Savings Plan

The Company, through its human resource provider, participates in a 401(k) retirement savings plan that allows for eligible participants to defer compensation, subject to certain limitations imposed by the Internal Revenue Code of 1986, as amended. The Company may provide a discretionary matching contribution of up to 4% of each participant’s eligible compensation. During each of the three months ended March 31, 2020 and 2019, the Company’s matching contribution was $0.1 million, which is included in general and administrative expenses in the accompanying condensed consolidated statements of operations.


F-25

IMH FINANCIAL CORPORATION
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 12 — COMMITMENTS AND CONTINGENCIES - continued

    
Deferred Compensation Plan

The Company maintains a non-qualified deferred compensation plan (the “Plan”), which allows a select group of executive employees to defer a portion of their compensation. Such deferred compensation is distributable in cash in accordance with the rules of the Plan. Deferred compensation amounts under such plan as of March 31, 2020, totaled approximately $0.1 million and are included in other accrued expenses in the accompanying condensed consolidated balance sheets. Distributions to participants can be either in one lump sum payment or annual installments as elected by the participants. During the three months ended March 31, 2020, we distributed $0.2 million to the former CEO in accordance with his termination agreement.

Legal Matters

We may be a party to litigation as the plaintiff or defendant in the ordinary course of business. While various asserted and unasserted claims may exist, resolution of these matters cannot be predicted with certainty. We establish reserves for legal claims when payments associated with the claims become probable and the payments can be reasonably estimated. Given the uncertainty of predicting the outcome of litigation and regulatory matters, it is generally difficult to predict what the eventual outcome will be, and when the matter will be resolved. The actual costs of resolving legal claims may be materially higher or lower than any amounts reserved for the claims.

Partnership Claims

RNMA Related Partnership Litigation

In the first fiscal quarter of 2017, Recorp-New Mexico Associates Limited Partnership (“RNMA I”) conducted a capital call pursuant to its organizational documents.  As a result of the capital call, certain limited partnership interests in RNMA I were transferred to various subsidiaries of the Company.  One of the limited partners in RNMA I whose limited partnership interests were transferred instigated the State Partnership Litigation challenging the effectiveness of the transfer and forfeiture of his limited partnership interests. In a November 2019 ruling in the State Partnership Litigation, the court held that (i) the limited partners of RNMA I properly noticed the removal of Recorp Partners, Inc. (“RPI”) as the general partner effective as of December 2017 which rendered all actions taken by RPI from and after that date “ultra vires” or ineffective - including the purported capital call in the first quarter of 2017 and the resulting transfer and forfeiture of the limited partnership interest of all limited partners, and (ii) Stockholder, LLC, a wholly owned subsidiary of the Company, is the sole owner of all of the stock of RPI as the corporate general partner of RNMA I. The Company has appealed these rulings to the state appellate court, and RPI has made demand on the RNMA I limited partners pursuant to the governing partnership documents for a separate arbitration to challenge the merits of the notice of RPI’s removal as the general partner.

During the three months ended March 31, 2020, the Company commenced negotiations to settle the State Partnership Litigation pursuant to which, the Company offered to buy the interests of the limited partners for a cash payment of $1.3 million. The limited partners did not respond to the settlement offer and as of the date of this report there are no ongoing settlement discussions.

Maniatis-Related Litigation

In September 2017, the court hearing the State Partnership Litigation (the “State Court”) terminated the receivership over Stockholder, LLC, a wholly-owned subsidiary of the Company (“Stockholder”) and owner of all of the shares of stock in certain corporations that act as the general partner or the limited liability company manager of several entities that own land and/or certain water interests in New Mexico. David Maniatis (“Maniatis”) timely filed a notice of appeal of this order to the State Court of Appeals. That appeal is currently pending.

In December 2017, the State Court entered an interim “stay” order in the Company’s collection case against Maniatis and his affiliates enjoining the Company from taking any further collection action against Maniatis and his associates pending an accounting of all previous debt collection activities and a trial on certain limited issues involving the calculation of interest and penalties on the original defaulted debt guaranteed by Maniatis. The stay order also temporarily inhibited the Company from effecting the sale or transfer of all or any part of the property previously acquired by the Company through prior litigation involving Maniatis, including approximately 7,000 acres of land and related water interests in New Mexico, and 111 acres of land in Texas. Subsequent to March 31, 2019, the State Court lifted the stay on all property previously acquired by the Company through litigation involving Maniatis except for the ownership interests in, and property held by, RNMA I which remain subject to the stay until the date that

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 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 12 — COMMITMENTS AND CONTINGENCIES - continued

is 30 days after the resolution of the State Partnership Litigation. Management does not believe that loss is probable and, accordingly, no amounts have been accrued for this matter in the accompanying unaudited condensed consolidated financial statements.

Hotel Fund Obligations

If the Hotel Fund has insufficient operating cash flow to pay the Preferred Distribution in a given month, the Company is obligated under the Hotel Fund’s operating agreement to provide the funds necessary to pay the Preferred Distribution for such month, such payments to be treated as an additional capital contribution to the Hotel Fund by the Company. During the three months ended March 31, 2020, the Company funded $0.4 million of Preferred Distributions, and from inception through March 31, 2020, the Company has funded $2.4 million. The Company also agreed to fund, in the form of common capital contributions, up to 6.0% of the Hotel Fund offering’s gross proceeds as selling commissions and up to 1.0% of the gross proceeds raised in the offering as nonaccountable expense reimbursements to broker-dealers based on the capital raised by them for the Hotel Fund. During the three months ended March 31, 2020, and from inception through March 31, 2020, the Company paid $0.1 million to the Hotel Fund pursuant to these obligations. In addition to these payments, the Company has funded cash deficits for various operating and related costs which are treated as non-interest bearing advances (which are eliminated in consolidation). Through March 31, 2020, the Company had funded such operating shortfalls in the amount of $12.9 million.

Other

We are subject to oversight by various state and federal regulatory authorities, including, but not limited to, the Arizona Corporation Commission, the Arizona Department of Financial Institutions (Banking), and the SEC. Our income tax returns have not been examined by taxing authorities and all statutorily open years remain subject to examination.


NOTE 13 — LEASES

Lessor

On May 29, 2019, we foreclosed on all of the membership interests of Hertz Broadway Tower, LLC, (“Hertz Broadway”), the owner of Broadway Tower. As a result, we acquired Broadway Tower, its related assets and business operations and assumed related liabilities, including 51 commercial office leases. The Company sold Broadway Tower inclusive of these commercial office leases in January 2020, which is more fully described in Note 5.

The following table presents minimum lease revenues and variable lease revenue for the three months ended March 31, 2020 and 2019 (in thousands).
 
 
Three months ended March 31,
 
 
2020
 
2019
Lease revenue
 
 
 
 
Fixed rent - Minimum lease revenue
 
$
203

 
$

Variable lease revenue
 
36

 

Total lease revenue
 
$
239

 
$

Variable rent includes costs reimbursed related to property operating expenses, common area maintenance, insurance and property taxes.

Lessee

We have operating leases for our corporate headquarters office space and certain office equipment. Our leases have remaining lease terms of between one to four years. The lease for our corporate office includes an option to extend the lease term for up to five years. This option is not included in the calculation of the right-of-use (“ROU”) assets and lease liabilities because the Company is not reasonably certain that it will exercise the option. Lease expense was $0.1 million for the three months ended March 31, 2020 and 2019, respectively, which is included in general and administrative expenses in the accompanying condensed consolidated statements of operations. As disclosed in Note 14, JIA has sublet a portion of the Company’s office space. During the three months ended March 31, 2020, we recorded expense reimbursements from JIA for the sublease of office space and certain overhead charges of $33,000.

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NOTE 13 — LEASES - continued


Variable lease payments are not included in the calculation of the ROU asset and lease liability due to uncertainty of the payment amount and were $0.1 million and $0.1 million for the three months ended March 31, 2020 and 2019, respectively.

Supplemental cash flow information related to leases for the three months ended March 31, 2020 (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from operating lease
 
$
80


Supplemental balance sheet information related to leases as of March 31, 2020, was as follows (thousands, except lease term and discount rate):
Operating leases
 
 
Operating lease ROU assets in other assets
 
$
637

 
 
 
Operating lease liabilities in accounts payable and other accrued expenses
 
$
724

 
 
 
Weighted average remaining lease term
 
3.0 years

Operating leases - Weighted average discount rate
 
7.1%

The following represents future payments on operating leases as of March 31, 2020 (in thousands):
Years ending
 
Amount
Remainder of 2020
 
$
237

2021
 
318

2022
 
239

Total lease payments
 
794

Less imputed interest
 
(70
)
Total
 
$
724




NOTE 14 — RELATED-PARTY TRANSACTIONS AND COMMITMENTS
    
Contractual Agreements

Interim CEO Arrangement

During the third quarter of 2019, the Company entered into a Termination of Employment Agreement, Release and Additional Compensation Agreement with Mr. Bain, the Company’s former Chairman of the Board and Chief Executive Officer (the “Bain Termination Agreement”) as well as certain other agreements. The material terms of these agreements are summarized below.

1)
On July 30, 2019, the Company entered into a Consulting Services Agreement (the “ITH Consulting Services Agreement”) with ITH Partners, LLC, a Nevada limited liability company (“ITH”), pursuant to which ITH agreed to provide certain consulting services to the Company for a ninety (90) day period commencing effective as of July 25, 2019, subject to automatic thirty (30) day renewals unless earlier terminated by the parties as provided therein. Mr. Bain is the Managing Director of ITH. Pursuant to the ITH Consulting Services Agreement, Mr. Bain was appointed to fill a vacancy on the Board of Directors of the Company (created when Mr. Bain’s employment terminated and he stepped down from the Board of Directors) and served as interim Co-Chairman and Chief Executive Officer of the Company until November 1, 2019. The ITH Consulting Services Agreement imposes certain limitations on the authority of Mr. Bain to act on behalf of the Company. In exchange for ITH’s services under this agreement, the Company agreed to pay ITH a monthly consulting fee of $30,000 commencing August 1, 2019. The Company elected to terminate this agreement effective December 15, 2019;

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NOTE 14 — RELATED PARTY TRANSACTIONS AND COMMITMENTS - continued



2)
Mr. Bain received a cash bonus of $0.6 million for his 2018 services (which was paid on April 15, 2019) and $0.35 million for his 2019 services, which was paid during the three months ended March 31, 2020. Such amounts were accrued in the fiscal 2019 consolidated financial statements as a component of general and administrative expenses;

3)
Mr. Bain is entitled to receive two payments of $0.25 million each by no later than January 31, 2020 and January 31, 2021, respectively, all of which were accrued in the 2019 consolidated financial statements as a component of general and administrative expenses. During the three months ended March 31, 2020, we made the first installment payment of $0.25 million;

4)
Mr. Bain is entitled to receive a Legacy Asset Performance Fee (“LAPF”), as calculated in accordance with his prior employment agreement, in connection with the disposition of the Company’s interests in the assets of the New Mexico Partnerships (the “New Mexico Assets”) provided that such disposition occurs prior to December 31, 2022;

5)
On July 30, 2019, the Company and ITH also entered into a Consulting Services Agreement (the “New Mexico Asset Consulting Agreement”) pursuant to which ITH agreed to provide certain consulting services to the Company with respect to the “New Mexico Assets for a period expiring on the earlier to occur of (a) consummation of the sale of all or substantially all of the New Mexico Assets and (b) December 31, 2022, unless such agreement is earlier terminated by the parties as provided therein. In exchange for ITH’s services under this agreement, the Company agreed to pay ITH a base monthly consulting fee of $5,000 commencing August 1, 2019, and an incentive bonus in the event that the cash proceeds received from the sale of the New Mexico Asset exceeds certain minimum thresholds, after the payment of various reimbursements and expenses; and

6)
All unvested equity awards and deferred compensation benefits granted to Mr. Bain were vested.

During the three months ended March 31, 2020, the Company paid Mr. Bain $15,000 under the New Mexico Asset Consulting Agreement.

Juniper Capital Partners, LLC and Related Entities

In July 2014, the Company and JCP Realty Partners, LLC, a Delaware limited liability company (“JCP”) entered into a consulting services agreement (the “JCP Consulting Agreement”) pursuant to which JCP agreed to perform various services for the Company. Our director, Jay Wolf, is the Managing Member of Juniper Capital Partners, LLC, the parent company of JCP. The Company and JCP entered into an amendment of the JCP Consulting Agreement dated October 17, 2017 pursuant to which: (i) the term was extended for two years; (ii) the annual base consulting fee was reduced from $0.6 million to $0.5 million (subject to possible upward adjustment based on an annual review by our board of directors); and (iii) JCP is entitled to receive an origination fee of up to 1.25% on any loans or investments in real estate, preferred equity or mezzanine securities that are originated or identified by JCP (subject to a reduced fee based on the increasing size of the loan or investment). JCP is also entitled to legacy fee payments derived from the disposition of certain assets held by the Company as of December 31, 2010, to persons or opportunities arising through the efforts of JCP equal to 5.5% of the positive difference derived by subtracting (i) 110% of our December 31, 2010, valuation mark of that asset from (ii) the gross sales proceeds (on a legacy asset by asset basis without any offset for losses realized on any individual asset sales). The JCP Consulting Agreement terminated on July 24, 2019 and no amounts were incurred under this agreement during the three months ended March 31, 2020. During the three months ended March 31, 2019, we incurred base consulting fees to JCP of $0.1 million.

JIA Advisory Agreement

On August 14, 2019, the Company and JIA entered into the Advisory Agreement pursuant to which JIA agreed to manage, on a non-discretionary basis, certain assets of the Company, including the Company’s loan portfolio and certain of its legacy real-estate owned properties. Under the terms of the Advisory Agreement, the Company will pay JIA a management fee between 1.0% to 1.5% of the net asset value of certain assets under management, as well as a performance fee equal to 20% of the net profits from those assets upon disposition after the Company has received an annualized 7% return on its investment from those assets and recovery of the Company’s basis in such assets. In connection with the Advisory Agreement, certain employees of the Company have transitioned to become employees of JIA, and JIA has also sublet a portion of the Company’s office space. During the three months ended March 31, 2020, we incurred base consulting fees to JIA of $67,000 and recorded expense reimbursements from JIA for the sublease of office space and certain overhead charges of $33,000. In addition, we paid $0.2 million in performance

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NOTE 14 — RELATED PARTY TRANSACTIONS AND COMMITMENTS - continued


fees to JIA in connection with the disposal of Broadway Tower and collection of recoveries from the former borrower under the related mezzanine loan. Jay Wolf, a director of the Company, and Lawrence D. Bain, the former CEO of the Company, are managing partners of JIA.

Nyack Asset Management Agreement

On February 14, 2019, the Company entered into an asset management agreement with Juniper Time Investor, LLC (“JTI”), an affiliate of JCP and Jay Wolf to provide certain asset management and related services in connection with JTI’s ownership and operation of The Time Hotel Nyack in Nyack, New York, which agreement was amended on April 1, 2019 (the “Nyack Asset Management Agreement”). Under the terms of the Nyack Asset Management Agreement, the Company is entitled to a m