UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

Amendment No. 1

 

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 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: 001-12681

 

GLOBAL SELF STORAGE, INC.

(Exact name of registrant as specified in its charter)

 

 

Maryland

 

13-3926714

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

Global Self Storage, Inc.

11 Hanover Square, 12th Floor

New York, NY 10005

(212) 785-0900

(Address, including zip code, and telephone number, including area code, of Company’s principal executive offices)

Donald Klimoski II, Esq.

Global Self Storage, Inc.

11 Hanover Square, 12th Floor

New York, NY 10005

(212) 785-0900

(Address of principal executive officers, including zip code, and telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

 

Name of exchange on which registered or to be registered

Common Stock, $0.01 par value

 

SELF

 

 

The Nasdaq Stock Market LLC

 

 

 

 

 

 

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

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES NO   

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES NO

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 every Interactive Data File required to be submitted 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 such files). YES NO

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

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

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

1


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

The aggregate market value of the common stock held by non-affiliates of the registrant was $26,953,819 based upon the closing price of the shares on the Nasdaq Capital Market on June 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter. This calculation does not reflect a determination that persons whose shares are excluded from the computation are affiliates for any other purpose.

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of March 16, 2020, was 9,330,297.

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be issued in connection with the registrant’s annual stockholders’ meeting to be held in 2020 are incorporated by reference into Part III of this Annual Report on Form 10-K.

 

 

 

 

 

Explanatory Note

 

On March 30, 2020, Global Self Storage, Inc. (“we”, “us”, “our”, or the “Company”) filed an Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “Original Form 10-K”). This Amendment No. 1 on Form 10-K/A (this “Amendment”) is being filed to update the certifications filed as Exhibits 31.1 and 31.2, respectively, to the Original Form 10-K, to include certain required language with respect to internal control over financial reporting which was permitted to be omitted during the Company’s transition period, but was inadvertently omitted subsequent to the Company’s transition period from the Original Form 10-K. There has been no change to (i) the financial statements included in Part II, Item 8 hereof from those included in Part II, Item 8 of the Original Form 10-K, nor (ii) Part II, Item 9A hereof from Part II, Item 9A of the Original Form 10-K.

 

Except as described above, this Amendment does not modify or update the disclosures presented in the Original Form 10-K or in the previously filed exhibits to the Original Form 10-K in any way. This Amendment speaks as of the date of the Original Form 10-K and does not reflect events occurring after the filing of the Original Form 10-K. As such, this Amendment should be read in conjunction with the Original Form 10-K, as well as any other filings made by the Company with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(a) or 15(d) of the Exchange Act subsequent to the filing of the Original Form 10-K.

2


Table of Contents

 

 

 

 

PART II

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 8.

Financial Statements and Supplementary Data

 

4

 

 

 

 

 

 

Item 9A.

Controls and Procedures

 

4

 

 

 

 

 

 

PART IV

 

 

 

 

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedules

 

6

 

 

 

 

 

 

 

 

SIGNATURES

 

9

 

3


PART II

Item 8.

Financial Statements and Supplementary Data.

The financial statements are included in this annual report beginning on page F-3.

Item 9A.

Controls and Procedures.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures to ensure that information required to be disclosed in the reports we file pursuant to the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in Rule 13a-15(e) of the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide a reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We have a disclosure controls and procedures committee, comprised of the Chief Executive Officer and Chief Financial Officer, which meets as necessary and is responsible for considering the materiality of information and determining our disclosure obligations on a timely basis.

The disclosure controls and procedures committee carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, audit committee, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that:

 

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and board of directors; and

 

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, our management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework).

4


Based on this assessment, our management believes that, as of December 31, 2019, our internal control over financial reporting was effective based on those criteria.

Changes in Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) that occurred during our fiscal fourth quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

5


PART IV

Item 15.

Exhibits, Financial Statement Schedules.

(a) Documents filed as part of this report:

1. Financial Statements.

(1) and (2). All Financial Statements and Financial Statement Schedules filed as part of this annual report are included in Part II, Item 8—”Financial Statements and Supplementary Data” of this annual report and reference is made thereto.

(3) The list of exhibits filed with this annual report is set forth in response to Item 15(b).

(b) Exhibits. The following documents are filed or incorporated by references as exhibits to this report:

 

Exhibit Item

 

Number and Description

 

Incorporated by Reference

 

Filed Herewith

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.1.1.

 

Articles Supplementary of Global Self Storage, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 20, 2017 and incorporated herein by reference)

 

X

 

 

 

 

 

 

 

 

 

3.1.2.

 

Articles of Amendment and Restatement of Global Self Storage, Inc. (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 20, 2017 and incorporated herein by reference)

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.2.

 

Third Amended and Restated Bylaws of Global Self Storage, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 16, 2020 and incorporated herein by reference)

 

X

 

 

 

 

 

 

 

 

 

4.1

 

Rights Agreement (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on February 2, 2016 and incorporated herein by reference)

 

X

 

 

 

 

 

 

 

 

 

4.2

 

First Amendment, dated October 20, 2017, to Rights Agreement, dated as of January 29, 2016, between Global Self Storage, Inc. and American Stock Transfer & Trust Company, LLC (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 20, 2017 and incorporated herein by reference)

 

X

 

 

 

 

 

 

 

 

 

4.3

 

Form of Registration Rights Agreement by and between the Company and Tuxis (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on November 30, 2016 and incorporated herein by reference)

 

 

X

 

 

4.4

 

Description of Securities of Global Self Storage, Inc.(filed as Exhibit 4.4 to the Company’s Annual Report on Form 10-K filed on March 30, 2020 and incorporated herein by reference)

 

X

 

 

 

 

 

 

 

 

 

10.1

 

Guaranty dated June 24, 2016 by Global Self Storage, Inc. in favor of Insurance Strategy Funding IV, LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 30, 2016 and incorporated herein by reference)

 

X

 

 

 

 

 

 

 

 

 

10.2

 

Loan Agreement dated June 24, 2016 between certain subsidiaries of Global Self Storage, Inc. and Insurance Strategy Funding IV, LLC (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 30, 2016 and incorporated herein by reference)

 

X

 

 

6


Exhibit Item

 

Number and Description

 

Incorporated by Reference

 

Filed Herewith

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.3

 

Promissory Note dated June 24, 2016 between certain subsidiaries of Global Self Storage, Inc. and Insurance Strategy Funding IV, LLC (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 30, 2016 and incorporated herein by reference)

 

X

 

 

 

 

 

 

 

 

 

10.4

 

Form of Mortgage, Assignment of Leases and Rents and Security Agreement (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 30, 2016 and incorporated herein by reference)

 

X

 

 

 

 

 

 

 

 

 

10.5

 

Employment Agreement between Mark C. Winmill and the Company dated March 29, 2018 (filed as Exhibit 10.5 to the Company’s Annual Report on Form 10-K filed on April 2, 2018 and incorporated herein by reference)

 

X

 

 

 

 

 

 

 

 

 

10.6

 

Global Self Storage, Inc. 2017 Equity Incentive Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 20, 2017 and incorporated herein by reference)

 

 

X

 

 

10.7

 

Form of Restricted Share Award Agreement (filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-8 filed on March 28, 2018 and incorporated herein by reference)

 

 

X

 

 

10.8

 

Form of Performance Share Award Agreement (filed as Exhibit 4.3 to the Company’s Registration Statement on Form S-8 filed on March 28, 2018 and incorporated herein by reference)

 

 

X

 

 

10.9

 

Loan Agreement dated December 20, 2018 between certain subsidiaries of Global Self Storage, Inc. and TCF National Bank (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 21, 2018 and incorporated herein by reference)

 

 

X

 

 

10.10

 

Guaranty dated December 20, 2018 by Global Self Storage, Inc. in favor of TCF National Bank (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 21, 2018 and incorporated herein by reference)

 

X

 

 

 

 

 

 

 

 

 

21.1

 

Subsidiaries of the Company (filed as Exhibit 21.1 to the Company’s Annual Report on Form 10-K filed on March 30, 2020 and incorporated herein by reference)

 

X

 

 

 

 

 

 

 

 

 

23.1

 

Consent of Tait, Weller & Baker LLP for Global Self Storage, Inc.

 

 

 

X

 

 

 

 

 

 

 

23.2

 

Consent of RSM US LLP for Global Self Storage, Inc.

 

 

 

X

 

 

 

 

 

 

 

24.1

 

Powers of Attorney (included as part of the signature pages hereto)

 

 

 

 

 

 

 

 

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

X

 

 

 

 

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

X

 

 

 

 

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

X

7


Exhibit Item

 

Number and Description

 

Incorporated by Reference

 

Filed Herewith

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

X

 

 

 

 

 

 

 

101.

 

The following materials from Global Self Storage, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019, are formatted in Inline XBRL (eXtensible Business Reporting Language): (1) consolidated balance sheets; (2) consolidated statements of operations; (3) consolidated statements of comprehensive income (loss); (4) consolidated statement of changes in equity; (5) consolidated statements of cash flows; (6) notes to consolidated financial statements; and (7) financial statement schedule III.

 

 

 

X

 

 

 

 

 

 

 

104

 

The cover page from this annual report for the year ended December 31, 2019, formatted in Inline XBRL (and contained in Exhibit 101)

 

 

 

          X

 

8


SIGNATURES

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

 

 

 

GLOBAL SELF STORAGE, INC.

 

 

 

Date: November 27, 2020

 

/s/ Mark C. Winmill

 

 

By: Mark C. Winmill

Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer)

 

 

 

 POWER OF ATTORNEY

 KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Mark C. Winmill, Donald Klimoski II, and Russell Kamerman, and each of them, with full power to act without the other, such person’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Form 10-K and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

 

Date: November 27, 2020

 

/s/ Mark C. Winmill

 

 

By: Mark C. Winmill

 

 

Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer)

 

 

 

Date: November 27, 2020

 

/s/ Thomas O’Malley

 

 

By: Thomas O’Malley

 

 

Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

 

 

 

Date: November 27, 2020

 

/s/ Thomas B. Winmill

 

 

By: Thomas B. Winmill

 

 

Director

 

 

 

Date: November 27, 2020

 

/s/ Russell E. Burke III

 

 

By: Russell E. Burke III

 

 

Director

 

 

 

Date: November 27, 2020

 

/s/ George B. Langa

 

 

By: George B. Langa

 

 

Director

 

 

 

Date: November 27, 2020

 

/s/ William C. Zachary

 

 

By: William C. Zachary

 

 

Director

 

 

 

9


Global Self Storage, Inc.

Financial Statements`

Table of Contents

 

Reports of Independent Registered Public Accounting Firm

 

F-2

Consolidated Balance Sheets as of December 31, 2019 and 2018

 

F-4

Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2019 and 2018

 

F-5

 

 

 

Consolidated Statement of Stockholders’ Equity

 

F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018

 

F-7

Notes to consolidated financial statements

 

F-8

 

F-1

 


Report of Independent Registered Public Accounting Firm

 

 

To the Stockholders and the Board of Directors of Global Self Storage, Inc.

 

 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Global Self Storage, Inc. and subsidiaries (the Company) as of December 31, 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for the year then ended, and the related notes and schedule (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

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

 

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

 

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

 

/s/ RSM US LLP

 

We have served as the Company's auditor since 2019.

 

Stamford, Connecticut

March 30, 2020

 


F-2

 


Report of Independent Registered Public Accounting Firm

 

 

To the Stockholders and Board of Directors

Global Self Storage, Inc.

New York, New York

 

Opinion on the Financial Statements

We have audited the consolidated balance sheet of Global Self Storage, Inc. (the “Company”) as of December 31, 2018, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the year then ended, and the related notes and financial statement Schedule III (collectively referred to as the “consolidated financial statements”).  In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.  We served as the Company’s auditor from 1974 through 2018.

 

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

 

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

 

 

 

 

 

TAIT, WELLER & BAKER LLP

Philadelphia, Pennsylvania

April 1, 2019

 

F-3

 


GLOBAL SELF STORAGE, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

December 31, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Real estate assets, net

 

$

59,752,153

 

 

$

53,811,737

 

Cash and cash equivalents

 

 

3,990,160

 

 

 

1,526,203

 

Restricted cash

 

 

263,405

 

 

 

186,063

 

Investments in securities

 

 

1,761,312

 

 

 

1,567,607

 

Accounts receivable

 

 

164,078

 

 

 

67,604

 

Prepaid expenses and other assets

 

 

325,450

 

 

 

263,767

 

Line of credit issuance costs, net

 

 

311,869

 

 

 

471,196

 

Intangible assets, net

 

 

398,795

 

 

 

 

Goodwill

 

 

694,121

 

 

 

694,121

 

Total assets

 

$

67,661,343

 

 

$

58,588,298

 

Liabilities and equity

 

 

 

 

 

 

 

 

Note payable, net

 

$

18,839,787

 

 

$

19,269,250

 

Line of credit borrowing

 

 

4,914,000

 

 

 

 

Accounts payable and accrued expenses

 

 

1,841,640

 

 

 

2,113,172

 

Total liabilities

 

 

25,595,427

 

 

 

21,382,422

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value: 50,000,000 shares authorized, no shares outstanding

 

 

 

 

 

 

Common stock, $0.01 par value: 450,000,000 shares authorized, 9,330,297 and 7,692,624 issued and outstanding at December 31, 2019 and 2018, respectively

 

 

93,303

 

 

 

76,926

 

Additional paid in capital

 

 

40,329,502

 

 

 

33,961,903

 

Accumulated comprehensive income

 

 

 

 

 

 

Retained earnings

 

 

1,643,111

 

 

 

3,167,047

 

Total equity

 

 

42,065,916

 

 

 

37,205,876

 

Total liabilities and equity

 

$

67,661,343

 

 

$

58,588,298

 

 

See notes to consolidated financial statements.

 

 

 

 

F-4

 


GLOBAL SELF STORAGE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME     

 

 

 

Year Ended

 

 

Year Ended

 

 

 

December 31,

2019

 

 

December 31,

2018

 

Revenues

 

 

 

 

 

 

 

 

Rental income

 

$

8,371,292

 

 

$

7,850,870

 

Other property related income

 

 

283,570

 

 

 

260,109

 

Management fees and other income

 

 

13,460

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

8,668,322

 

 

 

8,110,979

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Property operations

 

 

3,577,358

 

 

 

3,262,603

 

General and administrative

 

 

2,126,804

 

 

 

1,826,446

 

Depreciation and amortization

 

 

1,438,908

 

 

 

1,398,358

 

Business development

 

 

124,428

 

 

 

198,000

 

 

 

 

 

 

 

 

 

 

Total expenses

 

 

7,267,498

 

 

 

6,685,407

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

1,400,824

 

 

 

1,425,572

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Dividend and interest income

 

 

71,666

 

 

 

76,296

 

Unrealized gain on marketable equity securities

 

 

193,705

 

 

 

15,517

 

Interest expense

 

 

(1,075,576

)

 

 

(897,937

)

 

 

 

 

 

 

 

 

 

Total other income (expense), net

 

 

(810,205

)

 

 

(806,124

)

 

 

 

 

 

 

 

 

 

Net income and comprehensive income

 

$

590,619

 

 

$

619,448

 

Earnings per share

 

 

 

 

 

 

 

 

Basic

 

$

0.08

 

 

$

0.08

 

Diluted

 

$

0.08

 

 

$

0.08

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

7,699,966

 

 

 

7,622,287

 

Diluted

 

 

7,702,117

 

 

 

7,624,122

 

 

See notes to consolidated financial statements.

 

   

 

 

 

 

 

F-5

 


GLOBAL SELF STORAGE, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid in

 

 

Comprehensive

 

 

Retained

 

 

Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Income

 

 

Earnings

 

 

Equity

 

Balance at December 31, 2017

 

 

7,619,469

 

 

$

76,195

 

 

$

33,881,863

 

 

$

796,603

 

 

$

3,746,323

 

 

$

38,500,984

 

Adjustment from financial instruments update ASU 2016-01

 

 

 

 

 

 

 

 

(796,603

)

 

 

796,603

 

 

 

Restricted stock grants issued

 

 

73,155

 

 

 

731

 

 

 

(731

)

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

80,771

 

 

 

 

 

 

 

80,771

 

Net income

 

 

 

 

 

 

 

 

 

 

619,448

 

 

 

619,448

 

Dividends

 

 

 

 

 

 

 

 

 

 

(1,995,327

)

 

 

(1,995,327

)

Balance at December 31, 2018

 

 

7,692,624

 

 

 

76,926

 

 

 

33,961,903

 

 

 

-

 

 

 

3,167,047

 

 

 

37,205,876

 

Restricted stock grants issued

 

 

41,343

 

 

 

414

 

 

 

(414

)

 

 

 

 

 

 

Restricted stock grant forfeitures

 

 

(4,961

)

 

 

(50

)

 

 

50

 

 

 

 

 

 

 

Issuance of common stock under rights offering, net of expenses

 

 

1,601,291

 

 

 

16,013

 

 

 

6,264,974

 

 

 

 

 

 

 

6,280,987

 

Stock-based compensation

 

 

 

 

 

 

102,989

 

 

 

 

 

 

 

102,989

 

Net income

 

 

 

 

 

 

 

 

 

 

590,619

 

 

 

590,619

 

Dividends

 

 

 

 

 

 

 

 

 

 

(2,114,555

)

 

 

(2,114,555

)

Balance at December 31, 2019

 

 

9,330,297

 

 

$

93,303

 

 

$

40,329,502

 

 

$

 

 

$

1,643,111

 

 

$

42,065,916

 

 

See notes to consolidated financial statements.

 

 

 

F-6

 


GLOBAL SELF STORAGE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

  

 

 

 

Year Ended

 

 

Year Ended

 

 

 

December 31,

2019

 

 

December 31,

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

590,619

 

 

$

619,448

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,438,908

 

 

 

1,398,358

 

Unrealized gain on marketable equity securities

 

 

(193,705

)

 

 

(15,517

)

Amortization of loan procurement costs

 

 

200,819

 

 

 

49,118

 

Stock-based compensation

 

 

102,989

 

 

 

80,771

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(96,474

)

 

 

35,685

 

Prepaid expenses and other assets

 

 

(37,436

)

 

 

(41,937

)

Accounts payable and accrued expenses

 

 

(298,390

)

 

 

155,323

 

Net cash provided by operating activities

 

 

1,707,330

 

 

 

2,281,249

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Acquisition of self storage properties

 

 

(6,287,082

)

 

 

 

Construction

 

 

(1,437,419

)

 

 

(70,703

)

Improvements and equipment additions

 

 

(58,186

)

 

 

(93,829

)

Net cash used in investing activities

 

 

(7,782,687

)

 

 

(164,532

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Issuance of common stock under rights offering, net of expenses

 

 

6,280,987

 

 

 

 

Line of credit borrowing

 

 

4,914,000

 

 

 

 

Principal payments on note payable

 

 

(470,955

)

 

 

(190,488

)

Line of credit issuance costs

 

 

 

 

 

(477,981

)

Dividends paid

 

 

(2,107,376

)

 

 

(1,992,397

)

Net cash provided by (used in) financing activities

 

 

8,616,656

 

 

 

(2,660,866

)

Net increase (decrease) in cash and cash equivalents

 

 

2,541,299

 

 

 

(544,149

)

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

 

 

1,712,266

 

 

 

2,256,415

 

Cash, cash equivalents, and restricted cash, end of period

 

$

4,253,565

 

 

$

1,712,266

 

Supplemental cash flow and noncash information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

821,434

 

 

$

837,074

 

Supplemental disclosure of noncash activities:

 

 

 

 

 

 

 

 

Dividends accrued on restricted stock awards

 

$

7,179

 

 

$

2,930

 

 

See notes to consolidated financial statements.

 

 

 

 

 

F-7

 


GLOBAL SELF STORAGE, INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

Global Self Storage, Inc. (the “Company,” “we,” “our,” “us”) is a self-administered and self-managed Maryland real estate investment trust (“REIT”) that owns, operates, manages, acquires, develops and redevelops self storage properties (“stores” or “properties”) in the United States. Through its wholly owned subsidiaries, the Company owns and/or manages 13 self-storage properties in Connecticut, Illinois, Indiana, New York, Ohio, Pennsylvania, South Carolina, and Oklahoma. The Company operates primarily in one segment: rental operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Upon deregistration as an investment company, effective January 19, 2016, the Company’s status changed to an operating company from an investment company since it no longer met the assessment of an investment company under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 (“ASC 946”). The Company discontinued applying the guidance in ASC 946 and began to account for the change in status prospectively by accounting for its investments in accordance with other U.S. generally accepted accounting principles (“GAAP”) topics as of the date of the change in status.

The consolidated financial statements of the Company are presented on the accrual basis of accounting in accordance with GAAP and include the accounts of the Company and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

 

Reclassifications

Certain amounts from the prior year have been reclassified to conform to current year presentation as described below.

Accounting Standards Adopted

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02 - Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either financing or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less are accounted for similar to previous guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to previous guidance for sales-type leases, direct financing leases and operating leases. The Company adopted the standard on January 1, 2019, the date it became effective for public companies, using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net cumulative effect adjustment to retained earnings as of January 1, 2019 as a result of this adoption. Upon adoption, the Company elected the package of practical expedients permitted within the standard, which among other things, allows for the carryforward of historical lease classification. The Company also elected the practical expedient provided to lessors in a subsequent amendment to the standard that removed the requirement to separate lease and nonlease components, provided certain conditions were met. Refer to note 9 for the impact of the adoption of ASU No. 2016-02 – Leases (Topic 842) on the Company’s consolidated financial statements.

Cash, Cash Equivalents, and Restricted Cash

The Company’s cash is deposited with financial institutions located throughout the United States and at times may exceed federally insured limits. The Company considers all highly liquid investments, which may include

F-8

 


money market fund shares, with a maturity of three months or less to be cash equivalents. Restricted cash is comprised of escrowed funds deposited with a bank relating to capital expenditures.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash in our consolidated balance sheets to the total amount shown in our consolidated statements of cash flows:

 

 

 

December 31, 2019

 

 

December 31, 2018

 

Cash and cash equivalents

 

$

3,990,160

 

 

$

1,526,203

 

Restricted cash

 

 

263,405

 

 

 

186,063

 

Total cash, cash equivalents, and restricted cash as shown in our consolidated statements of cash flows

 

$

4,253,565

 

 

$

1,712,266

 

 

Income Taxes

The Company has elected to be treated as a REIT under the IRC. In order to maintain its qualification as a REIT, among other things, the Company is required to distribute at least 90% of its REIT taxable income to its stockholders and meet certain tests regarding the nature of its income and assets. As a REIT, the Company is not subject to federal income tax with respect to that portion of its income which meets certain criteria and is distributed annually to stockholders. The Company plans to continue to operate so that it meets the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and complex. If the Company were to fail to meet these requirements, it would be subject to federal income tax. In managements opinion, the requirements to maintain these elections are being met. The Company is subject to certain state and local taxes.

The Company has elected to treat its corporate subsidiary, SSG TRS LLC, as a taxable REIT subsidiary (“TRS”). In general, the Company’s TRS may perform additional services for tenants and may engage in any real estate or non-real estate related business. A TRS is subject to federal corporate income tax.

The Company recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. The Company has reviewed its tax positions and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on federal, state, and local income tax returns for open tax years (2016 – 2018), or is expected to be taken in the Company’s 2019 tax returns.

Marketable Equity Securities

Investments in equity securities that have readily determinable fair values are accounted for equity securities measured at fair value. Gains or losses from changes in the fair value of equity securities are recorded in net income, until the investment is sold or otherwise disposed. The specific identification method is used to determine the realized gain or loss on investments sold or otherwise disposed.

Fair value is determined using a valuation hierarchy generally by reference to an active trading market, using quoted closing or bid prices. Judgment is used to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive.

Real Estate Assets

Real estate assets are carried at the appreciated value as of January 19, 2016, the effective date of the change in status to an operating company, less accumulated depreciation from that date. Purchases subsequent to the effective date of the change in status are carried at cost, less accumulated depreciation and impairment losses. Direct and allowable internal costs associated with the development, construction, renovation, and improvement of real estate assets are capitalized. Property taxes and other costs associated with development incurred during the construction period are capitalized. The construction period begins when expenditures for the real estate assets have been made and activities that are necessary to prepare the asset for its intended use are in progress. The construction period ends when the asset is substantially complete and ready for its intended use.

 

Acquisition costs are accounted for in accordance with Accounting Standard Update (“ASU”) No. 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business, which was adopted on January 1, 2018

F-9

 


and are generally capitalized. When stores are acquired, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values. Allocations to land, building and improvements, and equipment are recorded based upon their respective fair values as estimated by management.

In allocating the purchase price for an acquisition, the Company determines whether the acquisition includes intangible assets or liabilities. The Company allocates a portion of the purchase price to an intangible asset attributed to the value of in-place leases. This intangible is generally amortized to expense over the expected remaining term of the respective leases. Substantially all of the leases in place at acquired stores are at market rates, as the majority of the leases are month-to-month contracts. 

Internal transaction costs associated with acquisitions or dispositions of real estate, as well as repairs and maintenance costs, are charged to expense as incurred. Major replacements and betterments that improve or extend the life of the asset are capitalized and depreciated over their estimated useful lives. Depreciation is computed using the straight-line method over the estimated useful lives of the buildings and improvements, which are generally between 5 and 39 years.

 

Derivative Financial Instruments

The Company carries all derivative financial instruments on the balance sheet at fair value. Fair value of derivatives is determined by reference to observable prices that are based on inputs not quoted on active markets, but corroborated by market data. The accounting for changes in the fair value of a derivative instrument depends on whether the derivative has been designated and qualifies as part of a hedging relationship. The Company’s use of derivative instruments has been limited to an interest rate cap agreement. The fair values of derivative instruments are included in prepaid expenses and other assets in the accompanying balance sheets. For derivative instruments not designated as cash flow hedges, the unrealized gains and losses are included in interest expense in the accompanying statements of operations. For derivatives designated as cash flow hedges, the effective portion of the changes in the fair value of the derivatives is initially reported in accumulated other comprehensive income (loss) in the Company’s balance sheets and subsequently reclassified into earnings when the hedged transaction affects earnings. The valuation analysis of the interest rate cap reflects the contractual terms of derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses primarily consist of property tax accruals, unearned rental income, and trade payables.

Revenue and Expense Recognition

Revenues from stores, which are primarily composed of rental income earned pursuant to month-to-month leases for storage space, as well as associated late charges and administrative fees, are recognized as earned in accordance with ASU Leases-Topic 842. Promotional discounts reduce rental income over the promotional period. Ancillary revenues from sales of merchandise and tenant insurance and other income are recognized when earned.

The Company's management fees are earned subject to the terms of the related property management services agreements (“PSAs”). These PSAs provide that the Company will perform management services, which include leasing and operating the property and providing accounting, marketing, banking, maintenance and other services. These services are provided in exchange for monthly management fees, which are based on a percentage of revenues collected from stores owned by third parties. PSAs generally have original terms of three years, after which management services are provided on a month-to-month basis unless terminated. Management fees are due on the last day of each calendar month that management services are provided.

The Company accounts for the management services provided to a customer as a single performance obligation which are rendered over time each month in accordance with ASU Contracts with Customers-Topic 606. The total amount of consideration from the contract is variable as it is based on monthly revenues, which are influenced by multiple factors, some of which are outside the Company's control. Therefore, the Company recognizes the revenue at the end of each month once the uncertainty is resolved. No disaggregated information relating to PSAs is presented as there is only one contract for the year ended December 31, 2019.

F-10

 


The Company accrues for property tax expense based upon actual amounts billed and, in some circumstances, estimates and historical trends when bills or assessments have not been received from the taxing authorities or such bills and assessments are in dispute. Cost of operations and general and administrative expense are expensed as incurred.

Credit Risk

Financial assets that are exposed to credit risk consist primarily of cash and cash equivalents and certain portions of accounts receivable including rents receivable from our tenants. Cash and cash equivalents are on deposit with highly rated commercial banks.

Evaluation of Asset Impairment

The Company evaluates its real estate assets, intangible assets consisting of in-place lease, and goodwill for impairment annually. If there are indicators of impairment and we determine that the asset is not recoverable from future undiscounted cash flows to be received through the asset’s remaining life (or, if earlier, the expected disposal date), we record an impairment charge to the extent the carrying amount exceeds the asset’s estimated fair value or net proceeds from expected disposal.

The Company evaluates goodwill for impairment annually and whenever relevant events, circumstances, and other related factors indicate that fair value may be less that carrying amounts. If it is determined that the carrying amount of goodwill exceeds the amount that would be allocated to goodwill if the reporting unit were acquired for estimated fair value, an impairment charge is recorded. There were no indicators of impairment and no impairment charges were recorded during 2019 or 2018.

Stock-based Compensation

The measurement and recognition of compensation expense for all stock-based payment awards to employees are based on estimated fair values. Awards granted are valued at fair value and any compensation expense is recognized over the service periods of each award. For awards granted which contain a graded vesting schedule and the only condition for vesting is a service condition, compensation cost is recognized as an expense on a straight-line basis over the requisite service period as if the award was, in substance, a single award. For awards granted for which vesting is subject to a performance condition, compensation cost is recognized over the requisite service period if and when the Company concludes it is probable that the performance condition will be achieved.

 

Loan Procurement Costs

 

Loan procurement costs, net are presented as a direct deduction from the carrying amount of the related debt liability. If there is not an associated debt liability recorded on the consolidated balance sheets, the costs are recorded as an asset net of accumulated amortization. Loan procurement costs associated with the Company's revolving credit facility remain in Line of credit issuance costs, net of amortization on the Company's consolidated balance sheets. The costs are amortized over the estimated life of the related debt.

 

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from management’s estimates.

F-11

 


Recently Issued Accounting Standards

In August 2017, the FASB issued ASU No. 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The standard became effective on January 1, 2020 and is not expected to have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13 – Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new guidance changes how entities measure credit losses for most financial assets. This standard requires an entity to estimate its lifetime expected credit loss and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. In November 2018, the FASB issued ASU No. 2018-19 – Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which clarifies that receivables arising from operating leases are within the scope of the leasing standard (ASU No. 2016-02), and not within the scope of ASU No. 2016-13. The standard became effective on January 1, 2020 and is not expected to have a material impact on the Company’s consolidated financial statements.

3. REAL ESTATE ASSETS

The carry value of the Company’s real estate assets is summarized as follows:

 

 

 

December 31,

2019

 

 

December 31,

2018

 

Land

 

$

6,122,065

 

 

$

5,493,814

 

Buildings, improvements, and equipment

 

 

57,178,338

 

 

 

51,879,327

 

Construction in progress

 

 

1,532,235

 

 

 

94,816

 

Self storage properties

 

 

64,832,638

 

 

 

57,467,957

 

Less: Accumulated depreciation

 

 

(5,080,485

)

 

 

(3,656,220

)

Real estate assets, net

 

$

59,752,153

 

 

$

53,811,737

 

 

In 2019, the Company broke ground on the Millbrook, NY expansion, which, upon completion in February 2020, added approximately 16,500 of gross square feet of all-climate-controlled units. There is no guarantee that we will experience demand for the newly added expansion or that we will be able to successfully lease-up the expansion to the occupancy level of our other properties. As of December 31, 2019, development costs for this project have been capitalized and are reflected in real estate assets, net on the Company’s consolidated balance sheets.  Construction of the expansion was completed in the first quarter of 2020.

 

4. ACQUISITIONS

 

In November 2019 the Company acquired a self storage property. The acquisition of the property was accounted for as an asset acquisition. The cost of the property, including closing costs, was assigned to land, buildings, equipment, and in-place customer leases based on their relative fair values.

 

The purchase price of the property acquired in 2019 has been assigned as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Consideration Paid

 

 

Acquisition Date Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assumed

 

 

 

 

 

 

 

 

 

 

In-Place

 

 

Closing

 

 

 

Number of

 

Date of

 

Purchase

 

 

 

 

 

 

(Assets

 

 

 

 

 

 

Building and

 

 

Customer

 

 

Costs

 

State

 

Properties

 

Acquisition

 

Price

 

 

Cash Paid

 

 

Acquired)

 

 

Land

 

 

Equipment

 

 

Leases

 

 

Expensed

 

NY

 

1

 

11/19/2019

 

$

6,282,514

 

 

$

6,287,082

 

 

$

(4,568

)

 

$

628,251

 

 

$

5,240,825

 

 

$

413,438

 

 

$

 

Total

 

 

 

 

 

$

6,282,514

 

 

$

6,287,082

 

 

$

(4,568

)

 

$

628,251

 

 

$

5,240,825

 

 

$

413,438

 

 

$

 

 

F-12

 


The Company measures the fair value of in-place customer lease intangible assets based on the Company’s experience with customer turnover and the estimated cost to replace the in-place leases. The Company amortizes in-place customer leases on a straight-line basis over 12 months (the estimated future benefit period). Amortization expense related to in-place customer leases was $14,643 and $0 for the years ended December 31, 2019 and 2018, respectively.

 

The following table summarizes the Company’s revenue and earnings associated with the 2019 acquisition from the acquisition date, that are included in the consolidated statements of operations for the year ended December 31, 2019:

 

 

 

Year Ended

 

 

 

December 31, 2019

 

Total revenue

 

$

60,244

 

Net loss

 

 

(7,484

)

 

5. MARKETABLE EQUITY SECURITIES

Investments in marketable equity securities consisted of the following:

 

 

 

 

 

 

 

Gross Unrealized

 

 

 

 

 

December 31, 2019

 

Cost Basis

 

 

Gains

 

 

Losses

 

 

Value

 

Investment in marketable equity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stocks

 

$

755,487

 

 

$

1,005,825

 

 

$

 

 

$

1,761,312

 

Total investment in marketable equity securities

 

$

755,487

 

 

$

1,005,825

 

 

$

 

 

$

1,761,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Unrealized

 

 

 

 

 

December 31, 2018

 

Cost Basis

 

 

Gains

 

 

Losses

 

 

Value

 

Investment in marketable equity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stocks

 

$

755,487

 

 

$

812,120

 

 

$

 

 

$

1,567,607

 

Total investment in marketable equity securities

 

$

755,487

 

 

$

812,120

 

 

$

 

 

$

1,567,607

 

 

 

6. FAIR VALUE MEASUREMENTS

The use of fair value to measure the financial instruments held by the Company and its subsidiaries is fundamental to its consolidated financial statements and is a critical accounting estimate because a substantial portion of its assets and liabilities are recorded at estimated fair value. The application of fair value measurements may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability or whether management has elected to carry the item at its estimated fair value.

The hierarchy of valuation techniques is based on whether the inputs to those techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 — Quoted prices in active markets for identical instruments or liabilities.

Level 2 — Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Company. These may include quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk, and market-corroborated inputs.

Level 3 — Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Company’s own assumptions about the factors that market participants use in pricing an asset or liability and are based on the best information available in the circumstances.

F-13

 


This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when estimating fair value. The valuation method used to estimate fair value may produce a fair value measurement that may not be indicative of ultimate realizable value. Furthermore, while management believes its valuation methods are appropriate and consistent with those used by other market participants, the use of different methods or assumptions to estimate the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Those estimated values may differ significantly from the values that would have been used had a readily available market for such loans or investments existed, or had such loans or investments been liquidated, and those differences could be material to the financial statements.

 

Fair valued assets consist of shares of equity securities and an interest rate cap. The value of the equity securities is based on a traded market price and is considered to be a level 1 measurement, and the value of the interest rate cap is based on its maturity, observable market-based inputs including interest rate curves and is considered to be a level 2 measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2019 and December 31, 2018:

 

December 31, 2019

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable equity securities

 

$

1,761,312

 

 

$

 

 

$

 

 

$

1,761,312

 

Interest rate cap

 

 

 

 

51

 

 

 

 

 

51

 

Total assets at fair value

 

$

1,761,312

 

 

$

51

 

 

$

 

 

$

1,761,363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable equity securities

 

$

1,567,607

 

 

$

 

 

$

 

 

$

1,567,607

 

Interest rate cap

 

 

 

 

4,889

 

 

 

 

 

4,889

 

Total assets at fair value

 

$

1,567,607

 

 

$

4,889

 

 

$

 

 

$

1,572,496

 

 

 

There were no assets transferred from level 1 to level 2 as of December 31, 2019 or December 31, 2018. The Company did not have any assets or liabilities that are re-measured on a recurring basis using significant unobservable inputs as of December 31, 2019 or December 31, 2018.

The fair values of financial instruments including cash and cash equivalents, restricted cash, accounts receivable, and accounts payable approximated their respective carrying values as of December 31, 2019 and 2018. The aggregate estimated fair value of the Company’s debt was $24,474,174 and $18,877,333 as of December 31, 2019 and 2018, respectively.  These estimates were based on market interest rates for comparable obligations, general market conditions and maturity. The Company’s debt is classified as level 2 in the fair value hierarchy.

7. DERIVATIVES

The Company’s objective in using an interest rate derivative is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company uses an interest rate cap to manage interest rate risk. The Company carries the premium paid for the interest rate cap as an asset on the balance sheet at fair value. The change in the unrealized gain or loss of the premium is recorded as an increase or decrease to interest expense.

The following table summarizes the terms of the Company’s derivative financial instrument as of December 31, 2019:

 

 

 

Notional Amount

 

 

 

 

Effective

 

Maturity

Product

 

December 31, 2019

 

 

December 31, 2018

 

 

Strike

 

Date

 

Date

Cap Agreement

 

$

7,500,000

 

 

$

7,500,000

 

 

3.50 % - 4.00%

 

12/24/2018

 

12/20/2021

F-14

 


 

8. NOTE PAYABLE AND REVOLVING LINE OF CREDIT

 

Note Payable

 

On June 24, 2016, certain wholly owned subsidiaries (the “Secured Subsidiaries”) of the Company entered into a loan agreement (the “Loan Agreement”) borrowing the principal amount of $20 million pursuant to a promissory note (the “Promissory Note”). The Promissory Note bears an interest rate equal to 4.192% per annum and is due to mature on July 1, 2036. Pursuant to a security agreement (the “Security Agreement”), the obligations under the Loan Agreement are secured by certain real estate assets owned by the Secured Subsidiaries.

The Company entered into a non-recourse guaranty on June 24, 2016 (the “Guaranty,” and together with the Loan Agreement, the Promissory Note and the Security Agreement, the “Loan Documents”) to guarantee the payment to Lender of certain obligations of the Secured Subsidiaries under the Loan Agreement.

The Loan Documents require the Secured Subsidiaries and the Company to comply with certain covenants, including, among others, a minimum net worth test and other customary covenants. The Lender may accelerate amounts outstanding under the Loan Documents upon the occurrence of an Event of Default (as defined in the Loan Agreement) including, but not limited to, the failure to pay amounts due or commencement of bankruptcy proceedings. As of December 31, 2019 and 2018, the Company was in compliance with these covenants.

The Company incurred loan procurement costs of $646,246 and such costs have been recorded net of the note payable on the consolidated balance sheets. The costs are amortized over the term of the loan using the effective interest method and are recorded as an adjustment to interest expense. The Company recorded amortization expense of $41,492 and $42,333 for the years ended December 31, 2019 and 2018, respectively.

As of December 31, 2019 and 2018 the carrying value of the Company’s note payable is summarized as follows:

 

Note Payable

 

December 31,

2019

 

 

December 31, 2018

 

Principal balance outstanding

 

$

19,338,556

 

 

$

19,809,511

 

Less: Loan procurement costs, net

 

 

(498,769

)

 

 

(540,261

)

Total note payable, net

 

$

18,839,787

 

 

$