Company Quick10K Filing
Quick10K
IMH Financial
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-09-27 Enter Agreement, Sale of Shares, Control, Amend Bylaw, Exhibits
8-K 2019-09-06 Enter Agreement, Officers, Exhibits
8-K 2019-07-30 Enter Agreement, Officers
8-K 2019-07-23 Enter Agreement, Shareholder Rights, Exhibits
8-K 2019-05-29 M&A
8-K 2019-01-17 Other Events, Exhibits
8-K 2018-12-20 Other Events, Exhibits
8-K 2018-11-29 Other Events, Exhibits
8-K 2018-06-14 Shareholder Vote
8-K 2018-05-31 Enter Agreement, Sale of Shares, Amend Bylaw, Exhibits
8-K 2018-02-09 Enter Agreement, Sale of Shares, Control, Amend Bylaw, Exhibits
ABVC American Brivision 154
PRHR Petroshare 38
OVAS Ovascience 13
RGBP Regen Biopharma 5
EGLT Egalet 4
CHP CNL Healthcare Properties 0
JGRI Joshua Gold Resources 0
NIOBF Niocorp Developments 0
JRVS Imine 0
RSRT Realsource Residential 0
IFCN 2019-06-30
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 - Variable Interest Entities
Note 7 - Derivative Instruments and Hedging Activities
Note 8 - Fair Value
Note 9 - Notes Payable and Special Assessment Obligations
Note 10 - Segment Information
Note 11 - Stockholders' Equity and Earnings per Share
Note 12 - Intangible Assets and Goodwill
Note 13 - Commitments and Contingencies
Note 14 - Leases
Note 15 - Related Party Transactions and Commitments
Note 16 - 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.
EX-31.1 a2019063010q-exx311.htm
EX-31.2 a2019063010q-exx312.htm
EX-32.2 a2019063010q-exx322.htm

IMH Financial Earnings 2019-06-30

IFCN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ifcn-2019630xform10q.htm FORM 10-Q 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 June 30, 2019
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 August 14, 2019, the registrant had outstanding the following classes and series of stock: (i) 1,909,338 shares of Common Stock, (ii) 3,376,821 shares of Class B-1 Common Stock, (iii) 3,377,953 shares of Class B-2 Common Stock, (iv) 6,912,510 shares of Class B-3 Common Stock, (v) 313,790 shares of Class B-4 Common Stock, (vi) 668,903 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, and (x) 22,000 shares of Series A Preferred Stock outstanding. There is no established market for the registrant’s shares of common stock or preferred stock.



IMH Financial Corporation
June 30, 2019 Form 10-Q Quarterly Report
Index

Item 1.
Financial Statements
 
Unaudited Condensed Consolidated Balance Sheet as of June 30, 2019 and Consolidated Balance Sheet as of December 31, 2018
 
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018
 
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018
 
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018
 
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 1A.
Risk Factors
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


F-1


ITEM 1.     FINANCIAL STATEMENTS


F-2

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

 
 
June 30,
 
December 31,
 
 
2019
 
2018
ASSETS
 
(unaudited)
 
 
Cash and cash equivalents
 
$
12,222

 
$
25,452

Funds held by lender and restricted cash
 
5,147

 
198

Mortgage loans, net
 
13,270

 
23,234

Real estate held for sale
 
7,400

 
7,418

Operating properties, net
 
63,696

 
33,866

Other real estate owned
 
33,727

 
33,727

Goodwill
 
15,357

 
15,357

Other intangibles, net
 
501

 
641

Other receivables
 
1,233

 
1,320

Other assets
 
4,125

 
2,033

Property and equipment, net
 
360

 
393

Total assets
 
$
157,038

 
$
143,639


 

 

LIABILITIES
 

 

Accounts payable and accrued expenses
 
$
12,004

 
$
8,385

Accrued property taxes
 
638

 
305

Dividends payable
 
1,267

 
857

Accrued interest
 
414

 
653

Customer deposits and funds held for others
 
2,033

 
552

Notes payable, net of deferred financing fees
 
49,258

 
36,314

Total liabilities
 
65,614

 
47,066


 

 

Series B Redeemable convertible preferred stock, $.01 par value; 100,000,000 shares authorized; 10,552,941 shares outstanding as of June 30, 2019 and December 31, 2018; liquidation preference of $51,170 as of June 30, 2019 and December 31, 2018.
 
47,624

 
45,663

Series A redeemable preferred stock, 22,000 shares outstanding; liquidation preference of $22,000 at June 30, 2019 and December 31, 2018
 
21,776

 
21,747

 
 
 
 
 
Commitments and contingencies (Note 13)
 

 

 
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 

Common stock, $.01 par value; 200,000,000 shares authorized; 18,764,758 and 18,596,774 shares issued at June 30, 2019 and December 31, 2018, respectively; 16,394,594 and 16,726,610 shares outstanding at June 30, 2019 and December 31, 2018, respectively
 
188

 
186

Less: Treasury stock, at cost, 2,370,164 and 1,870,164 shares at June 30, 2019 and December 31, 2018, respectively
 
(7,286
)
 
(6,286
)
Paid-in capital
 
704,557

 
708,523

Accumulated deficit
 
(702,400
)
 
(692,876
)
Total IMH Financial Corporation stockholders' equity (deficit)
 
(4,941
)
 
9,547

Non-controlling interests
 
26,965

 
19,616

Total stockholders' equity
 
22,024

 
29,163

Total liabilities and stockholders’ equity
 
$
157,038

 
$
143,639



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

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


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019

2018
Revenues
 
 
 
 
 
 
 
 
Operating property revenue
 
$
1,880

 
$
2,105

 
$
2,193

 
$
3,668

Mortgage loan income, net
 
447

 
641

 
1,098

 
1,266

Management fees, investment and other income
 
208

 
255

 
276

 
292

Total revenue
 
2,535

 
3,001

 
3,567

 
5,226

Operating Expenses
 
 
 
 
 
 
 
 
Operating property direct expenses (exclusive of interest and depreciation)
 
3,657

 
2,099

 
6,007

 
4,334

Expenses for non-operating real estate owned
 
83

 
171

 
174

 
367

Professional fees
 
1,680

 
754

 
2,486

 
1,629

General and administrative expenses
 
1,560

 
1,708

 
3,465

 
3,588

Interest expense
 
335

 
780

 
791

 
1,525

Depreciation and amortization expense
 
321

 
303

 
591

 
644

Total operating expenses
 
7,636

 
5,815

 
13,514

 
12,087

Recovery of Credit Losses, Impairment, Gain Disposal of Assets, and Other
 
 
 
 
 
 
 
 
Gain on disposal of assets
 
(20
)
 
(142
)
 
(20
)
 
(395
)
Recovery of credit losses
 
(1,135
)
 
(175
)
 
(1,135
)
 
(175
)
Unrealized loss on derivatives
 
124

 

 
291

 

Total Recovery, Impairment Charges, Gain on Disposal of Assets and Other
 
(1,031
)
 
(317
)
 
(864
)

(570
)
Total costs and expenses
 
6,605

 
5,498

 
12,650


11,517

Loss before provision for income tax
 
(4,070
)
 
(2,497
)
 
(9,083
)

(6,291
)
Income tax (provision) benefit
 

 

 



Net Loss
 
(4,070
)
 
(2,497
)

(9,083
)

(6,291
)
Net (income) loss attributable to non-controlling interests
 
(318
)
 
25

 
(441
)
 
115

Cash dividends on Series B redeemable convertible preferred stock
 
(648
)
 
(647
)
 
(1,288
)
 
(1,239
)
Deemed dividend on Series B redeemable convertible preferred stock
 
(954
)
 
(915
)
 
(1,889
)
 
(1,731
)
Cash dividends on Series A redeemable preferred stock
 
(417
)
 
(142
)
 
(830
)

(142
)
Net Loss attributable to common shareholders
 
$
(6,407
)
 
$
(4,176
)
 
$
(13,531
)
 
$
(9,288
)
Net Loss per common share
 
 
 
 
 
 
 
 
Basic and Diluted
 
$
(0.39
)
 
$
(0.25
)
 
$
(0.83
)
 
$
(0.56
)
Weighted average common shares outstanding - basic and diluted
 
16,375,649
 
16,696,684
 
16,383,921
 
16,680,988


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
(In thousands, except share data) 


 
 
Three and Six Months Ended June 30, 2019
 
 
Common Stock
 
Treasury Stock
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Paid-in Capital
 
Accumulated deficit
 
Total IMH Financial Corporation Stockholders' Equity (Deficit)
 
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 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

Net income (loss)
 

 

 

 

 

 
(4,388
)
 
(4,388
)
 
318

 
(4,070
)
Contributions from Hotel Fund investors
 

 

 

 

 

 

 

 
3,998

 
3,998

Distributions to Hotel Fund investors
 

 

 

 

 

 

 

 
(344
)
 
(344
)
Hotel Fund syndication costs
 

 

 

 

 
(36
)
 

 
(36
)
 

 
(36
)
Stock warrant and equity cost accretion
 

 

 

 

 
(31
)
 

 
(31
)
 

 
(31
)

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

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


 
 
Three and Six Months Ended June 30, 2019
 
 
Common Stock
 
Treasury Stock
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Paid-in Capital
 
Accumulated deficit
 
Total IMH Financial Corporation Stockholders' Equity (Deficit)
 
Non-controlling Interest
 
Total Stockholders' Equity
Cash dividends on Series B redeemable convertible preferred stock
 

 

 

 

 
(648
)
 

 
(648
)
 

 
(648
)
Deemed dividend on Series B redeemable convertible preferred stock
 

 

 

 

 
(954
)
 

 
(954
)
 

 
(954
)
Cash dividends on Series A redeemable preferred stock
 

 

 

 

 
(417
)
 

 
(417
)
 

 
(417
)
Stock-based compensation
 
55,680

 
1

 

 

 
75

 

 
76

 

 
76

Balance at June 30, 2019
 
18,764,758

 
$
188

 
2,370,164

 
$
(7,286
)
 
$
704,557

 
$
(702,400
)
 
$
(4,941
)
 
$
26,965

 
$
22,024



 
 
Three and Six Months Ended June 30, 2018
 
 
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, 2017
 
18,079,522

 
$
181

 
1,826,096

 
$
(6,286
)
 
$
714,889

 
$
(679,535
)
 
$
29,249

 
$
6,562

 
$
35,811

Net loss
 

 

 

 

 

 
(3,704
)
 
(3,704
)
 
(90
)
 
(3,794
)
Contributions from Hotel Fund investors
 

 

 

 

 

 

 

 
3,485

 
3,485

Distributions to Hotel Fund investors
 

 

 

 

 

 

 

 
(20
)
 
(20
)
Hotel Fund syndication costs
 

 

 

 

 
(51
)
 

 
(51
)
 

 
(51
)
Issuance of common stock warrants
 

 

 

 

 
688

 

 
688

 

 
688


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

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


 
 
Three and Six Months Ended June 30, 2018
 
 
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
Cash dividends on Series B redeemable convertible preferred stock
 

 

 

 

 
(592
)
 

 
(592
)
 

 
(592
)
Deemed dividend on Series B redeemable convertible preferred stock
 

 

 

 

 
(817
)
 

 
(817
)
 

 
(817
)
Stock-based compensation
 
438,161

 
4

 

 

 
96

 

 
100

 

 
100

Balance at March 31, 2018
 
18,517,683

 
185

 
1,826,096

 
(6,286
)
 
714,213

 
(683,239
)
 
24,873

 
9,937

 
34,810

Net loss
 

 

 

 

 

 
(2,472
)
 
(2,472
)
 
(25
)
 
(2,497
)
Contributions from Hotel Fund investors
 

 

 

 

 

 

 

 
1,335

 
1,335

Distributions to Hotel Fund investors
 

 

 

 

 

 

 

 
(80
)
 
(80
)
Hotel Fund syndication costs
 

 

 

 

 
(35
)
 

 
(35
)
 

 
(35
)
Cash dividends on Series B redeemable convertible preferred stock
 

 

 

 

 
(647
)
 

 
(647
)
 

 
(647
)
Deemed dividend on Series B redeemable convertible preferred stock
 

 

 

 

 
(914
)
 

 
(914
)
 

 
(914
)
Cash dividends on Series A redeemable preferred stock
 

 

 

 

 
(142
)
 

 
(142
)
 

 
(142
)
Stock-based compensation
 
79,091

 

 

 

 
77

 

 
77

 

 
77

Relinquishment of Class C common stock to treasury
 

 

 
44,068

 

 

 

 

 

 

Balance at June 30, 2018
 
18,596,774

 
$
185

 
1,870,164

 
$
(6,286
)
 
$
712,552

 
$
(685,711
)
 
$
20,740

 
$
11,167

 
$
31,907



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

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

 
 
Six Months Ended June 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(9,083
)
 
$
(6,291
)
Adjustments to reconcile net loss to net cash used in operating activities:
 

 

Stock-based compensation and option amortization
 
192

 
178

Gain on disposal of assets
 
(20
)
 
(395
)
Amortization of deferred financing costs
 
81

 
78

Depreciation and amortization expense
 
591

 
644

Accretion of mortgage income
 
(55
)
 
(258
)
Accretion of discount on note payable
 
259

 
446

Non-cash interest expense funded by loan draw
 
752

 
541

Unrealized loss on derivatives
 
291

 

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

 

Accrued interest receivable
 
315

 
(12
)
Other receivables
 
87

 
(68
)
Other assets
 
(2,383
)
 
(411
)
Accrued property taxes
 
333

 
37

Accounts payable and accrued expenses
 
1,823

 
(2,774
)
Customer deposits and funds held for others
 
1,481

 
317

Accrued interest
 
(239
)
 
230

Total adjustments, net
 
3,508

 
(1,447
)
Net cash used in operating activities
 
(5,575
)
 
(7,738
)
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Proceeds from sale of real estate owned and operating properties and other assets
 
39

 
526

Purchases of property and equipment
 
(23
)
 
(24
)
Mortgage loan payoff
 
3,000

 

Mortgage loan investment and fundings
 
(921
)
 
(2,920
)
Investment in real estate owned and other operating properties
 
(9,804
)
 
(3,157
)
Net cash used in investing activities
 
(7,709
)
 
(5,575
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Proceeds from notes payable
 
11,158

 

Debt issuance costs paid
 
(144
)
 

Repayments of notes payable
 
(10,162
)
 

Dividends paid
 
(1,709
)
 
(1,998
)
Purchase of treasury stock
 
(1,000
)
 

Proceeds from Issuance of Preferred Equity
 

 
30,000

Equity issuance costs paid
 

 
(387
)
Purchase of Interest rate cap
 

 
(548
)
Contribution of Hotel Fund capital costs
 
(48
)
 

Contributions from Hotel Fund investors
 
7,518

 
4,820

Distributions to Hotel Fund investors
 
(610
)
 
(100
)
Net cash provided by financing activities
 
5,003

 
31,787


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-8

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

 
 
Six Months Ended June 30,
 
 
2019
 
2018
 
 
 
 
 
Net increase (decrease) in cash, cash equivalents, and restricted cash
 
(8,281
)
 
18,474

Cash, cash equivalents, and restricted cash, beginning of period
 
25,650

 
11,932

Cash, cash equivalents, and restricted cash, end of period
 
$
17,369

 
$
30,406

 
 
 
 
 
Supplemental cash flow information
 

 
 
Cash paid for interest
 
$
681

 
$
204

Cash paid for taxes
 
$
45

 
$

Non-cash investing and financing transactions
 

 

Foreclosure on investment in mortgage loan
 
$
7,625

 
$

Acquisition of operating property building and operations through foreclosure
 
$
7,300

 
$

Assumption of first mortgage, accrued interest and operating liabilities through foreclosure
 
$
15,457

 
$

Loan from JPM Chase Funding, Inc., (a related party) for purchase first mortgage on operating property
 
$
11,000

 

Lease liability arising from the recognition of right-of-use asset
 
$
1,548

 
$

Noncash interest cost added to notes payable
 
$
752

 
$

Noncash interest costs capitalized to operating property
 
$
760

 
$

Capital expenditures in accounts payable and accrued expenses
 
$
3,566

 
$
287



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-9





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.

Over the past several years, we acquired certain operating properties through deed-in-lieu of foreclosure which contributed to our operating revenues and expenses prior to their disposal. In the second quarter of 2019, we conducted a UCC foreclosure on the collateral securing $7.6 million mezzanine note receivable that was in default. That collateral was 100% of the membership interests in a limited liability company that owns a commercial real estate building and operations in St. Louis, Missouri. In the fourth quarter of 2017, we purchased a 64-room operating hotel, spa and restaurant located in Sonoma, California, commonly known as MacArthur Place (“MacArthur Place”), which is presently our sole operating property and is currently undergoing a major renovation.

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”. The Company continues to explore additional alternative management structures in an effort to reduce Company overhead.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying 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.


F-11

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

Liquidity

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 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 June 30, 2019, our accumulated deficit aggregated $702.4 million primarily as a result of previous provisions for credit losses recorded relating to the decrease in the fair value of the collateral securing our legacy loan portfolio and impairment charges relating to the value of real estate owned (“REO”) assets acquired primarily through foreclosure, as well as on-going net operating losses resulting from the lack of income-producing assets.

The Company has taken a number of steps to maintain an adequate level of on-going liquidity over the years. Our liquidity plan has included obtaining outside financing, selling mortgage loans, and selling the majority of our legacy real estate assets.

In 2018, the Company entered into stock subscription agreements with its largest shareholder, JPMorgan Chase Funding Inc., a related party (“Chase Funding”), pursuant to which Chase Funding purchased shares of our Series B-3 Cumulative Convertible Preferred Stock and Series A Senior Redeemable Preferred Stock for a total purchase price of $30.0 million. The Company is using the proceeds from the sale of these shares for general corporate purposes.

In the second quarter of 2019, we conducted a UCC foreclosure on the collateral securing a $7.6 million mezzanine note receivable that was in default. That collateral was 100% of the membership interests in an LLC that owns a commercial real estate building and operations in St. Louis, Missouri. In connection with this foreclosure, a subsidiary of the Company purchased the $13.2 million first mortgage note secured by this property. The purchase of the first mortgage note was funded partially with an $11.0 million loan (under a master repurchase agreement) from Chase Funding (related party) and the balance using Company funds. The master repurchase agreement has an initial maturity date of May 22, 2020 with the potential to extend to May 2021 if, among other conditions, certain debt yield and occupancy percentages are achieved. We are working with Chase funding to restructure and extend the maturity date of this facility.

In addition, in connection with the acquisition and renovation of MacArthur Place, the Company entered into a building loan agreement and related agreements (the “MacArthur Loan”) in October 2017 with MidFirst Bank in the amount of $32.3 million. As described in Note 9, the MacArthur Loan was modified during the first quarter of 2019 to increase the loan facility to $37.0 million and to establish certain additional reserve accounts in the amount of $2.0 million. The renovation of MacArthur Place is scheduled to be completed in the third quarter of 2019.

The modified MacArthur Loan requires the Company to fund minimum equity of $27.7 million, all of which has been funded as of June 30, 2019. The Company has provided 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 June 30, 2019. The loan includes a provision requiring substantial completion of the project by June 30, 2019, which the lender agreed to waive and extend to September 1, 2019. 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.

While the Company initially utilized its own equity and proceeds from the MacArthur Loan to fund the purchase of MacArthur Place, the Company sponsored and commenced an offering in November 2017 of up to $25.0 million of preferred limited liability company interests (the “Preferred Interests”) of the L’Auberge de Sonoma Resort Fund, LLC (the “Hotel Fund”). The net proceeds of this offering are being used primarily to (i) reimburse the Company’s for its initial $17.8 million common investment in the Hotel Fund and (ii) fund certain renovations and operating losses at the hotel. As of June 30, 2019, the Hotel Fund had sold Preferred Interests in the aggregate amount of $22.5 million. Since the Company is deemed the primary beneficiary of and controls the Hotel Fund, we have consolidated this entity.

As of June 30, 2019, we had cash and cash equivalents of $12.2 million, REO assets held for sale with a carrying value of $7.4 million and other REO assets with a carrying value of $33.7 million that we seek to dispose of within the next 12 months. We

F-12

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

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. During the second quarter of 2019, a court-ordered stay was issued which prevents the sale of certain assets, pending the outcome of a related hearing in September 2019.

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. At any time after February 9, 2023, the holder of our Series B-3 Preferred Stock may require the Company to redeem, out of legally available funds, at a Redemption Price equal to the greater of (i) 145% 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. While the Preferred Shareholders have indicated their willingness to potentially extend the redemption period beyond July 24, 2020, 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”.

As described in Note 9, the Company’s unsecured exchange offering notes (“EO Notes”) with a face value of $10.2 million matured on April 29, 2019 and were repaid in full.

We expect our primary sources of liquidity over the next twelve months to consist of our proceeds from the disposition of our existing REO assets held for sale (assuming that the court-order stay is lifted within that time frame), proceeds from borrowings and equity issuances, current cash, mezzanine and mortgage loan interest income, and revenues from ownership or management of MacArthur Place. If we are able to resolve these matters favorably, we believe that our cash and cash equivalents coupled with our operating and investing revenues, as well as proceeds that we anticipate receiving from the disposition of our real estate held for sale and debt and equity financing efforts will be sufficient to allow us to fund our operations for a period of one year from the date these condensed consolidated financial statements are issued.

We have been successful thus far in securing financing through June 30, 2019 to provide adequate funding and funding commitments for working capital purposes, which has been supplemented by proceeds from the sale of certain REO assets, receipts of principal and interest on mortgage and related investments. Moreover, we are continuing to negotiate potential extensions or restructuring of our Series B Preferred Stock and/or our outstanding debt obligations. However, there is no assurance that we will be successful in such negotiations, or in selling our remaining REO assets in a timely manner or in obtaining additional or replacement financing, if needed, to sufficiently fund future operations, repay existing debt, or to implement our investment strategy. Our failure to generate sustainable earning assets and to successfully liquidate a sufficient number of our REO assets may have a material adverse effect on our business, results of operations and financial position. In the absence of favorably resolving the matters described above, the collective nature of these 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 condensed consolidated financial statements.


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, 2018.

Operating Properties Acquired Through Foreclosure

Operating properties acquired through foreclosure consist of certain operating assets acquired through foreclosure that the Company has elected to hold for on-going operations and are recorded at fair value at the time of foreclosure.

Leases

Lessee Accounting

As further discussed below, the Company adopted the provisions of Accounting Standards Update 2016-02, Leases, effective January 1, 2019. We determine if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets are recorded in other assets and operating lease liabilities are recorded in accounts payable and other accrued expenses in the accompanying

F-13

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

condensed consolidated balance sheet. Finance leases, none of which existed as of the adoption of Accounting Standards Codification (“ASC”) 842 or as of June 30, 2019, would be reflected in property and equipment and other liabilities in our condensed consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Under the available practical expedient, we account for the lease and non-lease components as a single lease component for all classes of underlying assets. Further, we elected a short-term lease exception policy on all classes of underlying assets, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less).

Lessor Accounting

On May 29, 2019, the Company acquired a commercial real estate building through a foreclosure action known as Broadway Tower located in St. Louis, Missouri which leases office space to various tenants. The assumed leases were previously accounted for according to ASC 840 and were classified as operating leases.  Upon transitioning these leases from being accounted for according to ASC 840 to being accounted for under ASC 842, the Company did not reassess the lease classification as allowed under the practical expedient package elected by the Company.

New lessor leases are subject to the following policies for lease classification. Pursuant to ASC 842 – 30, the Company will classify a lease as a sales – type lease if: (i) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term, (ii) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset, (iv) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all (90% or more) of the fair value of the underlying asset, or (v) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. As of June 30, 2019, none of our leases, as a lessor, met the above criteria to be classified as a sale – type lease.

Pursuant to ASC 842 – 30, when none of the sales-type lease classification criteria are met, a lessor would classify the lease as a direct financing lease when both of the following criteria are met: (i) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments and/or any other third party unrelated to the lessor equals or exceeds substantially all (90% or more) of the fair value of the underlying asset and (ii) it is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. As of June 30, 2019, none of our leases, as a lessor, met the above criteria to be classified as a financing lease.

Pursuant to ASC 842 – 30, a lessor would classify a lease as an operating lease when none of the sales-type or direct financing lease classification criteria are met. As of June 30, 2019, all leases of the Company’s rental properties were classified as operating leases.

The Company has lease agreements with lease and non-lease components. The Company has elected to not separate non-lease components from lease components for all classes of underlying assets (primarily real estate assets) and will account for the combined components as commercial real estate rental revenue. Non-lease components included in commercial real estate rental revenue include certain tenant reimbursements for maintenance services, (including common-area maintenance services or “CAM”). Variable consideration for costs that are not contract components (e.g., real estate taxes, utilities) are excluded from total consideration and would be recorded as incurred by the lessee and earned by the lessor. As a lessor, the Company has further determined that this policy will be effective only on a lease that has been classified as an operating lease and the revenue recognition pattern and timing is the same for both types of components. Therefore, Accounting Standards Codification Topic 842, Leases (“ASC 842”), has been applied to these lease contracts for both types of components.

The Company has elected to present sales tax and other tax collections in the condensed consolidated statements of operations on a net basis and, accordingly, such taxes are excluded from reported revenues.

F-14

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

Commercial Real Estate Rental Revenue

The Company derives revenues from our commercial real estate building in St. Louis, Missouri, known as Broadway Tower, which, as more fully described in Notes 4 and 5, was acquired in a foreclosure action by the Company in May 2019. Rental revenue, which is reflected as operating property revenue in the consolidated statements of operations and is presented in Mortgage and REO Legacy portfolio and other operations segment, represents revenue from the leasing of commercial office space 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.

The Company regularly reviews receivables related to rent and unbilled rent receivables and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. Upon adoption of ASU 2016-02, effective January 1, 2019, the Company recognizes all changes in the collectability assessment for an operating lease as an adjustment to rental income and does not record an allowance for uncollectible accounts.

The Company recognizes the rental income on a straight-line basis over the terms of the leases. The cumulative differences between rental income recognized in the Company’s condensed unaudited consolidated statements of operations and contractual payment terms have been recorded as deferred rental income and presented on the accompanying condensed consolidated balance sheets.

Funds Held by Lender and Restricted Cash

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, which includes property taxes and insurance. The following table provides a reconciliation of cash, cash equivalents, and funds held by lender and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statement of cash flows as of June 30, 2019 and December 31, 2018 (in thousands):


June 30,
 
December 31,


2019

2018
Cash and cash equivalents

$
12,222


$
25,452

Funds held by lender and restricted cash

5,147


198

Total cash, cash equivalents, and restricted cash

$
17,369


$
25,650


This balance includes property tax, insurance and construction related reserves for the MacArthur Loan totaling $2.3 million and $0.2 million at June 30, 2019 and December 31, 2018, respectively. During the six months ended June 30, 2019, we acquired restricted cash reserves totaling $2.8 million in connection with our foreclosure and acquisition of a commercial office building in St. Louis, Missouri which is included in the balance above as of June 30, 2019.

Mortgage Investment Revenue Recognition

See Note 3 for the Company’s accounting policy for Mortgage Investment Revenue Recognition.

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 February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). This new standard establishes a ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-11 which provides an alternative transition method that allows entities to apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to

F-15

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

the opening balance of retained earnings in the period of adoption. The Company has adopted the requirements of ASU 2016-02 on January 1, 2019, the first day of fiscal year 2019, and using the optional transition method. The Company elected the practical expedient package outlined in ASU No. 2016-02 under which we did not have to reassess whether an arrangement contains a lease, we carried forward our previous classification of leases as operating, and we did not have to reassess previously recorded initial direct costs. There was an increase in assets of $1.6 million and liabilities of $1.7 million due to the recognition of the required ROU asset and corresponding liability for all lease obligations that are currently classified as operating leases with the difference of $0.1 million related to existing deferred rent that reduced the ROU asset recorded. The standard did not have an impact in our condensed consolidated statements of operations.

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The Company has adopted the requirements of this accounting pronouncement in fiscal 2019.

Accounting Standards Not Yet Adopted

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. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2019. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.

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. Early adoption is permitted for the interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.



F-16

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 — REVENUE

Following is a breakdown of revenue by source (in thousands):

 
Three Months Ended June 30,
 
Six Months Ended June 30,

 
2019
 
2018
 
2019
 
2018
Operating property revenue
 
 
 
 
 

 

Commercial real estate rental revenue
 
$
398

 
$

 
$
398

 
$

Hotel revenues
 
 
 
 
 
 
 
 
Rooms
 
766

 
1,205

 
957

 
1,897

Food and beverage
 
536

 
523

 
539

 
1,008

Banquet
 
26

 
96

 
30

 
276

Spa and fitness center
 
118

 
188

 
212

 
328

Other
 
36

 
93

 
57

 
159

Total operating property revenue
 
1,880

 
2,105

 
2,193

 
3,668

Mortgage loan income, net
 
447

 
641

 
1,098

 
1,266

Management fees, investment and other income
 
208

 
255

 
276

 
292

Total revenue
 
$
2,535

 
$
3,001

 
$
3,567

 
$
5,226


Operating Property Revenue

Commercial Real Estate Rental Revenue

The Company derives revenues from our commercial real estate building in St. Louis, Missouri, known as Broadway Tower, which, as more fully described in Notes 4 and 5, was acquired in a foreclosure action by the Company in May 2019. Rental revenue, which is reflected as operating property revenue in the consolidated statements of operations and is presented in Mortgage and REO Legacy portfolio and other operations segment, which represents revenue from the leasing of commercial office space 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.

Hotel Revenues

The Company derives hotel revenues from our hotel in Sonoma, California, which is reflected as operating property revenue in the 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 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 mini-bar revenue, and banquet/catering revenue from group and social functions. Other F&B revenue may include revenue from audio-visual 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.

Mortgage Investment Revenue Recognition


F-17

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 (i) it is past its scheduled maturity by more than 90 days; (ii) it becomes delinquent as to interest due by more than 90 days; or (iii) 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.

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 in the condensed consolidated 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.


NOTE 4 — MORTGAGE LOANS, NET

Lending Activities

As of June 30, 2019, the Company held four portfolio loans with a balance of $13.3 million, net of valuation allowances, two of which were performing loans bearing a weighted-average interest rate of 9.7% as of June 30, 2019. As of December 31, 2018, the Company held six portfolio loans with a balance of $23.2 million, net of valuation allowances, three of which were performing loans bearing a weighted-average interest rate of 9.4%. As of June 30, 2019 and December 31, 2018, the Company held two and three non-performing portfolio loans, respectively, two of which have been fully reserved and have a zero carrying value as of June 30, 2019. During the three months ended June 30, 2019, one performing loan with a principal balance of $3.0 million was repaid in full. In addition, during the three months ended June 30, 2019, we foreclosed on one of the Company’s mezzanine loan investments that had a carrying value of $8.2 million as of the date of foreclosure, which had been in default since September 2018. In May 2019, we foreclosed on the loan collateral consisting of 100% of the membership interests in the limited liability company owning the underlying property. We recorded the acquired assets and assumed liabilities at fair value and consolidated the operations commencing on the foreclosure date. See additional discussion in Notes 5 and 8.

During the three months ended June 30, 2019, and 2018, we recorded mortgage interest income of $0.4 million and $0.6 million, respectively. During the six months ended June 30, 2019 and 2018, we recorded mortgage interest income of $1.1 million and $1.3 million, respectively. The valuation allowance was $12.7 million as of June 30, 2019 and $13.1 million as of December 31, 2018. The Company did not invest in any new loans during the three or six months ended June 30, 2019. During the three and six months ended June 30, 2018, the Company originated one new construction loan in the principal amount of $13.1 million, of which we funded $0.9 million of construction loan draws during the six months ended June 30, 2019.


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

As of June 30, 2019, we held total REO assets of $104.8 million, of which $7.4 million were held for sale, $63.7 million were held as operating properties, and $33.7 million were classified as other real estate owned. As of December 31, 2018, we held total REO assets of $75.0 million, of which $7.4 million were held for sale, $33.9 million were held as operating properties and $33.7 million were classified as other real estate owned.

As described in Note 4, on May 29, 2019, we foreclosed on the membership interests of a limited liability company that was pledged as collateral on a defaulted mezzanine note receivable. The entity owns and operates a commercial office building known as Broadway Tower, located in St. Louis, Missouri. Upon foreclosure, we acquired the membership interests in the limited liability company that owns the office building and related assets, and assumed related liabilities of Broadway Tower, all of which were recorded at fair value in accordance with GAAP. The acquired assets consist of a building, land, furniture and fixtures, operating

F-18

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

and reserve cash, and tenant receivables totaling approximately $26.0 million. Liabilities assumed consist of trade accounts payable and accrued liabilities, and accrued interest and principal on the first mortgage loan totaling approximately $16.0 million. In accordance with ASC 842, we recorded a right of use asset and related lease liability of $0.6 million, see Note 14. As described in Note 9, we purchased the Broadway Tower first mortgage note and accrued interest.

During the three and six months ended June 30, 2019, the Company sold one REO asset for $39.0 thousand resulting in a gain on sale of $20.0 thousand. During the three and six months ended June 30, 2018, the Company sold REO assets (or portions thereof) for $0.2 million and $0.5 million (net of transaction costs) resulting in a total net gain on sale of $0.1 million and $0.4 million, respectively.

REO Planned Development and Operations

Costs and expenses related to operating, holding and maintaining our operating properties and REO assets are expensed as incurred and included in operating property direct expenses and as expenses for non-operating real estate owned in the accompanying condensed consolidated statements of operations. For the three months ended June 30, 2019 and 2018, these costs and expenses were $3.7 million and $2.3 million, respectively. For the six months ended June 30, 2019 and 2018, these costs and expenses were $6.2 million and $4.7 million, respectively. Costs related to the development, renovation or improvements of the Company’s real estate assets are generally capitalized, and costs relating to holding the assets are generally charged to expense. Cash outlays for capitalized renovation costs totaled $9.8 million and $3.2 million during the six months ended June 30, 2019 and 2018, respectively.


NOTE 6 — VARIABLE INTEREST ENTITIES

As of June 30, 2019 and December 31, 2018, we consolidated multiple variable interest entities (“VIE’s”) relating to two projects: one is comprised of real estate holdings and the Hotel Fund that owns an operating hotel, restaurant and spa. We are deemed to be the primary beneficiaries of these consolidated VIE’s 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 our consolidated VIE’s 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 condensed consolidated balance sheets at June 30, 2019 and December 31, 2018, net of intercompany eliminations (in thousands):
 
 
June 30, 2019
 
December 31, 2018
Total assets
 
$
97,730

 
$
85,240

Total liabilities
 
57,640

 
37,770


The following table summarizes the results of operations for the three and six months ended June 30, 2019 and 2018, net of intercompany eliminations (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Net loss
 
$
(2,890
)
 
$
(833
)
 
$
(6,040
)
 
$
(2,333
)

The Company’s maximum exposure to loss consists of its combined equity in those entities which totaled $25.1 million as of June 30, 2019. The Hotel Fund made a preferred distribution, payable monthly, accruing at a rate of 7.0% per annum on invested capital, cumulative and non-compounding (the “Preferred Distribution”) of $0.3 million and $0.6 million and during the three and six months ended June 30, 2019, and $0.1 million during the three and six months ended June 30, 2018.


NOTE 7 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Interest Rate Derivative

F-19

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


We are exposed to risks arising from rising interest rates on our variable rate debt instruments. To manage these risks, we periodically use interest rate derivatives, which currently consists of an interest rate cap. To mitigate nonperformance risk, we routinely use a third party’s analysis of the creditworthiness of the counterparties, which supports our belief that the counterparties’ nonperformance risk is limited. All derivatives are recorded at fair value.

During 2018, we entered into an interest rate cap with a notional amount of $36.0 million and a rate cap of 2.2%. The interest rate cap had an effective date of March 21, 2018 and terminates on March 1, 2021. This instrument was not designated as a cash flow hedge.

NOTE 8 — FAIR VALUE

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

Our valuation analysis process and procedures are disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. We perform a valuation analysis of our loans, REO held for sale, other REO, and derivative instruments 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.

Fair Value Measurements of Operating Properties Acquired Through Foreclosure

As described in Note 4, on May 29, 2019, we foreclosed on the membership interests of a limited liability company that was pledged as collateral on a defaulted mezzanine note receivable. The limited liability company owns and operates a commercial office building known as Broadway Tower, located in St. Louis, Missouri. Upon foreclosure, we acquired the membership interests in the limited liability company that owns the office building and related assets, and assumed related liabilities of Broadway Tower, all of which were recorded at fair value in accordance with GAAP. The valuation methodology used to conclude our position on the fair value was based on the income approach using a discounted cash flow methodology.

Fair Value Measurements of Derivative Instrument

The Company acquired an interest rate cap in 2018 to mitigate its risk on certain variable debt against rising interest rates. In order to estimate the fair value of this derivative instrument, we use valuation reports from the third party broker who issued the derivative instrument. The report calculates fair value by using inputs, including market-observable data such as U.S dollar and foreign-denominated interest rate curves, foreign exchange rates, volatilities, and information derived from or corroborated by market-observable data which are classified as Level 2 inputs in the fair value hierarchy. The fair value method does not contemplate credit valuation adjustments (“CVA”) which would be a Level 3 input as the CVA uses credit spreads which are generally unobservable to the market. The fair value used in our financial statements approximate fair value without the CVA. As of June 30, 2019, the fair value of the interest rate cap approximated $39 thousand and we recorded an unrealized loss on derivative instruments of $0.1 million and $0.3 million during the three and six months ended June 30, 2019, respectively, and none during the three and six months ended June 30, 2018.

F-20

IMH FINANCIAL CORPORATION
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 — FAIR VALUE – continued



Valuation Conclusions

Based on the results of our evaluation and analysis, we did not record any non-cash provision for credit losses on our loan portfolio or impairment of REO during the six months ended June 30, 2019 and 2018, respectively. We recorded other net recoveries of investment and credit losses totaling $1.1 million during the three and six months ended June 30, 2019, and $0.2 million for the three and six months ended June 30, 2018, resulting from the collection of cash and/or other assets recovered from certain guarantors on certain legacy loans and insurance recoveries received during the period.

As of June 30, 2019, the valuation allowance on our mortgage loans totaled $12.7 million, representing 49.9% of the total outstanding loan principal and accrued interest balances. As of December 31, 2018, the valuation allowance on our mortgage loans totaled $13.1 million, representing 37.1% of total outstanding loan principal and accrued interest balances. With the existing valuation allowance recorded as of June 30, 2019, 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 June 30, 2019 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.


NOTE 9 — NOTES PAYABLE AND SPECIAL ASSESSMENT OBLIGATIONS

As of June 30, 2019 and December 31, 2018, our notes payable and special assessment obligations consisted of the following (in thousands):
 
 
June 30,
 
December 31,
 
 
2019
 
2018
$37.0 million note payable, as amended, to MidFirst Bank secured by a first lien on an operating hotel property, interest-only payments due monthly at the 30-day Libor (2.40% and 2.50% at June 30, 2019 and December 31, 2018, respectively) plus 3.54% to 3.75% depending on compensating balances and meeting certain financial thresholds and terms (5.94% and 5.84% effective rate at June 30, 2019 and December 31, 2018, respectively), matures October 1, 2020 with two one-year extension options, with construction completion and repayment guarantees provided by the Company.
 
$
32,589

 
$
20,669

$11.0 million note payable to JPMorgan Chase Funding Inc. (a related party), is secured by the $13.2 million first mortgage note on the property known as Broadway Tower, bears interest at one month LIBOR plus 3.81%, requires interest only payments and a balloon payment of unpaid principal and interest upon maturity. The initial maturity date is May 22, 2020 with the potential to extend to May 2021 if, among other conditions, certain debt yield and occupancy percentages are achieved.
 
11,000

 

$5.9 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, 2019. 8.5% and 8.25% as of June 30, 2019 and December 31, 2018, respectively.
 
5,940

 
5,940

Unsecured note payable under class action settlement, face amount of $10.2 million, net of discount of $30 thousand and $0.3 million at June 30, 2019 and December 31, 2018, respectively, 4% annual coupon interest rate (14.6% effective yield), interest payable quarterly, matured and paid in full on April 28, 2019.
 

 
9,899

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 (classified as held for sale as of March 31, 2018).
 
75

 
90

Total notes payable
 
49,604

 
36,598

Less: deferred financing costs of notes payable
 
(346
)
 
(284
)
Total notes payable
 
$
49,258

 
$
36,314


Interest expense for the three months ended June 30, 2019 and 2018 was $0.3 million and $0.8 million, respectively. Interest expense for the six months ended June 30, 2019 and 2018 was $0.8 million and $1.5 million, respectively. The Company capitalized

F-21

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 9 — NOTES PAYABLE AND SPECIAL ASSESSMENT OBLIGATIONS – continued

interest relating to the MacArthur Loan in the amount of $0.3 million and $0.8 million for the three and six months ended June 30, 2019. There was no capitalized interest during 2018.

Senior Indebtedness

MacArthur Place

In October 2017, we closed on a $32.3 million acquisition and construction loan from MidFirst Bank in connection with our purchase of MacArthur Place (the “MacArthur Loan”), of which (i) $19.4 million was utilized for the purchase of MacArthur Place, (ii) approximately $10.0 million was set aside to fund planned hotel improvements, and (iii) the balance to fund interest reserves and operating capital. During the six months ended June 30, 2019, the MacArthur Loan was modified to, among other things, increase the total loan facility to $37.0 million, thereby increase the Company’s equity commitment to $27.7 million due to projected increased renovation costs, and to establish certain additional reserve accounts in the amount of $2.0 million for the completion of certain aspects of the renovation project. The principal balance of the loan was $32.6 million and $20.7 million at June 30, 2019 and December 31, 2018, respectively. The loan bears floating interest equal to the 30-day LIBOR rate (2.40% at June 30, 2019) plus 3.54%, which may be reduced by up to 0.50% if certain conditions are met, which were met as of June 30, 2019. The loan has an initial term of three years 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 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 six months ended June 30, 2019, the Company made loan draws totaling $11.9 million, of which $11.2 million represented renovation cost and operating draws and $0.8 million represented draws against the interest reserve on the loan. The Company incurred deferred financing fees of $0.5 million which are being amortized over the term of the loan using the effective interest method.

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 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 June 30, 2019. The loan includes a provision requiring substantial completion of the project by June 30, 2019 which the lender agreed to waive and extend to September 1, 2019. In addition, 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.

Exchange Notes

In April 2014, we completed an offering of a five-year, 4%, unsecured notes to certain of our shareholders in exchange for common stock held by such shareholders at an exchange price of $8.02 per share (“Exchange Offering”). Upon completion of the Exchange Offering, we issued Exchange Offering notes (“EO Notes”) with a face value of $10.2 million. which were recorded by the Company at fair value of $6.4 million based on the fair value and the imputed effective yield of such notes of 14.6% (as compared to the note rate of 4%) resulting in an initial debt discount on the EO Notes of $3.8 million which was amortized using the effective interest method over the term of the EO Notes. The amortized discount added to the principal balance of the EO Notes during the six months ended June 30, 2019 totaled $0.3 million. The EO Notes matured and all outstanding principal and interest were paid on April 29, 2019.

JPMorgan Chase Funding Inc. Master Repurchase Agreement (related party)

In the second quarter of 2019, we conducted a UCC foreclosure on the collateral securing a defaulted mezzanine note receivable That collateral was 100% of the membership interests in a limited liability company that owns a commercial real estate building and operations in St. Louis, Missouri, known as Broadway Tower, thereby assuming its assets and liabilities, including $13.2 million mortgage note payable secured by Broadway Tower. In a related transaction, a subsidiary of the Company purchased the $13.2 million first mortgage note secured by Broadway Tower. Since we own both the entity that owns the first mortgage note, as well as the entity that owes this obligation, the first mortgage loan and related interest has been eliminated in consolidation.

F-22

IMH FINANCIAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 9 — NOTES PAYABLE AND SPECIAL ASSESSMENT OBLIGATIONS – continued

The purchase of the first mortgage note was funded partially with an $11.0 million loan (under a master repurchase agreement) from Chase Funding and the balance using Company funds. The Chase Funding master repurchase agreement is secured by the $13.2 million first mortgage note and bears interest at one month LIBOR plus 3.81%, requires interest only payments and a balloon payment of unpaid principal and interest upon maturity. The initial maturity date is May 22, 2020 with the potential to extend to May 2021 if, among other conditions, certain debt yield and occupancy percentages are achieved. The master purchase agreement is subject to a third party loan servicing agreement.

Our notes payable and special assessment obligations have the following scheduled maturities as of June 30, 2019 (in thousands):
Year
 
Amount
2019
 
$
16,954

2020
 
32,616

2021
 
26

2022
 
8

Less: deferred financing costs of notes payable
 
(346
)
Total
 
$
49,258



NOTE 10 — 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.

Our operating segments reflect the distinct business activities from which revenues are earned and expenses incurred that are evaluated regularly by our executive management team in assessing performance and in deciding how to allocate resources. As of and for the three and six months ended June 30, 2019 and 2018, the Company’s reportable segments consisted of the following:

Hospitality and Entertainment Operations — Consists of revenues less direct operating expenses, depreciation and amortization relating to our hotel, spa, and food & beverage 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 (if any), 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.

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 June 30, 2019 and December 31, 2018 and for the three and six months ended June 30, 2019 and 2018 is summarized as follows (in thousands):

F-23

IMH FINANCIAL CORPORATION 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – SEGMENT INFORMATION - continued

 
 
June 30,
 
December 31,
Balance Sheet Items
 
2019
 
2018
Total Assets
 
 
 
 
Mortgage and REO Legacy portfolio and other operations
 
$
81,744

 
$
67,658

Hospitality and entertainment operations
 
64,075

 
52,753

Corporate and other
 
11,219

 
23,228

Consolidated total
 
$
157,038

 
$
143,639

 
 
 
 
 
 
 
Six Months Ended June 30,
Cash Flow Items
 
2019
 
2018
Expenditures for additions to long-lived assets
 
 
 
 
Mortgage and REO Legacy portfolio and other operations
 
$

 
$
1,421

Hospitality and entertainment operations
 
9,804

 
1,736

Corporate and other
 
23

 
24

Consolidated total
 
$
9,827

 
$
3,181


 
 
Three Months Ended June 30, 2019
Income Statement Items
 
Mortgage and REO Legacy Portfolio and Other Operations
 
Hospitality and Entertainment Operations
 
Corporate and Other
 
Consolidated
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Operating property revenue
 
$
398

 
$
1,482

 
$

 
$
1,880

Mortgage loan income
 
447

 

 

 
447

Management fees, investment and other income
 
3

 

 
205

 
208

Total revenue
 
848

 
1,482

 
205

 
2,535

 
 
 
 
 
 
 
 
 
Total operating expenses
 
1,134

 
4,355

 
2,147

 
7,636

 
 
 
 
 
 
 
 
 
Other (income) expense
 
 
 
 
 
 
 
 
Gain on disposal of assets
 
(20
)
 

 

 
(20
)
Recovery of credit losses
 
(1,135
)
 

 

 
(1,135
)
Unrealized loss on derivatives
 

 
124

 

 
124

Total other (income) expense
 
(1,155
)
 
124

 

 
(1,031
)
 
 
 
 
 
 
 
 
 
Total costs and expense, net
 
(21
)
 
4,479

 
2,147

 
6,605

Income (loss) before income taxes
 
869

 
(2,997
)
 
(1,942
)
 
(4,070
)
(Provision for) benefit from income taxes
 

 

 

 

Net income (loss)
 
$
869

 
$
(2,997
)
 
$
(1,942
)
 
$
(4,070
)



F-24

IMH FINANCIAL CORPORATION 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – SEGMENT INFORMATION - continued

 
 
Three Months Ended June 30, 2018
Income Statement Items
 
Mortgage and REO Legacy Portfolio and Other Operations
 
Hospitality and Entertainment Operations
 
Corporate and Other
 
Consolidated
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Operating property revenue
 
$

 
$
2,105

 
$

 
$
2,105

Mortgage loan income
 
641

 

 

 
641

Management fees, investment and other income
 

 
242

 
13

 
255

Total revenue
 
641

 
2,347

 
13

 
3,001

 
 
 
 
 
 
 
 
 
Total operating expenses
 
556

 
3,019

 
2,240

 
5,815

 
 
 
 
 
 
 
 
 
Other (income) expense
 
 
 
 
 
 
 
 
Gain on disposal of assets, net
 
(142
)
 

 

 
(142
)
Recovery of credit losses
 
(175
)
 

 

 
(175
)
Total other income
 
(317
)
 

 

 
(317
)
 
 
 
 
 
 
 
 
 
Total costs and expense, net
 
239

 
3,019

 
2,240

 
5,498

Income (loss) from continuing operations, before income taxes
 
402

 
(672
)
 
(2,227
)
 
(2,497
)
(Provision for) benefit from income taxes
 

 

 

 

Net income (loss)
 
$
402

 
$
(672
)
 
$
(2,227
)
 
$
(2,497
)


F-25

IMH FINANCIAL CORPORATION 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – SEGMENT INFORMATION - continued



Six Months Ended June 30, 2019
Income Statement Items

Mortgage and REO Legacy Portfolio and Other Operations

Hospitality and Entertainment Operations

Corporate and Other

Consolidated









Revenues








Operating property revenue
 
$
398


$
1,795


$

 
$
2,193

Mortgage loan income

1,098






1,098

Management fees, investment and other income

5