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SELECTIS HEALTH, INC. - Quarter Report: 2023 March (Form 10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2023

 

OR

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

 

For the transition period from _______ to ______

 

Commission file number 0-15415

 

Selectis Health, Inc.

(Exact name of Registrant as specified in its Charter)

 

Utah   87-0340206
(State or other jurisdiction of   I.R.S. Employer
incorporation or organization)   Identification number

 

8480 E Orchard Rd, Ste 4900,    
Greenwood Village, CO   80111
(Address of principal executive offices)   (Zip Code)

Issuer’s telephone number: (720) 680-0808

 

Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the last 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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer Smaller Reporting Company

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 ☐

 

As of August 7, 2023, the Registrant had 3,054,587 shares of its Common Stock outstanding.

 

 

 

   

 

 

INDEX

 

    Page
    No.
  PART I — FINANCIAL INFORMATION  
     
Item 1. Condensed Consolidated Financial Statements (Unaudited) 3
     
  Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022 3
     
  Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023, and 2022 (Unaudited) 4
     
  Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2023, and March 31, 2022 (Unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023, and 2022 (Unaudited) 6
     
  Notes to Condensed Consolidated Financial Statements (Unaudited) 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
     
Item 4. Controls and Procedures 19
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 20
     
Item 1A. Risk Factors 20
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
     
Item 3. Defaults Upon Senior Securities 21
     
Item 4. Mine Safety Disclosures 21
     
Item 5. Other Information 21
     
Item 6. Exhibits 22

 

2

 

 

PART 1. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

 

SELECTIS HEALTH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31, 2023  December 31, 2022
   Unaudited   
ASSETS          
Current Assets          
Cash  $1,157,413   $1,420,200 
Accounts Receivable, Net   2,851,538    2,904,741 
Prepaid Expenses and Other Current Assets   1,175,809    637,680 
Employee Retention Credits Receivable   6,350,533    - 
Total Current Assets   11,535,293    4,962,621 
           
Long Term Assets:          
Restricted Cash   1,042,330    996,400 
Property and Equipment, Net   35,057,898    35,454,113 
Goodwill   1,076,908    1,076,908 
Total Assets  $48,712,429   $42,490,042 
           
LIABILITIES AND EQUITY          
Liabilities:          
Accounts Payable and Accrued Liabilities  $5,228,731   $3,644,001 
Dividends Payable   8,100    7,500 
Short-Term Debt – Related Parties   900,000    900,000 
Current Maturities of Long-Term Debt, Net of Discount of $180,055 and $257,222, respectively   3,933,555    2,296,830 
Total Current Liabilities   10,070,386    6,848,331 
           
Debt, Net of Discount of $536,542 and $553,775, respectively   33,378,644    34,397,488 
Lease Security Deposit   292,888    291,388 
Total Liabilities  $43,741,918   $41,537,207 
           
Commitments and Contingencies   -    - 
Equity:          
Preferred Stock:          
Series A - No Dividends, $2.00 Stated Value, Non-Voting; 2,000,000 Shares Authorized, 200,500 Shares Issued and Outstanding   401,000    401,000 
Series D - 8% Cumulative, Convertible, $10.00 Stated Value, Non-Voting; 1,000,000 Shares Authorized, 375,000 Shares Issued and Outstanding   375,000    375,000 
Common Stock - $0.05 Par Value; 800,000,000 Shares Authorized, 3,054,587 and 3,054,587 Shares Issued and Outstanding at March 31, 2023 and December 31, 2022, respectively   152,728    152,728 
Additional Paid-In Capital   13,768,300    13,768,300 
Accumulated Deficit   (9,726,517)   (13,744,193)
Total Selectis Health, Inc. Stockholders’ Equity   4,970,511    952,835 
Total Liabilities and Equity  $48,712,429   $42,490,042 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3

 

 

SELECTIS HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   2023  2022
   Three Months Ended
   March 31,
   2023  2022
       
Revenue           
Rental Revenue   $157,789   $154,194 
Healthcare Revenue    8,627,949    9,367,854 
Healthcare Grant Revenue    819,933    568,958 
Total Revenue    9,605,671    10,091,006 
Expenses           
Property Taxes, Insurance and Other Operating    8,509,271    6,961,903 
General and Administrative    2,204,846    1,811,517 
Provision for Bad Debts    423,180    253,963 
Depreciation    438,730    447,687 
Total Expenses    11,576,027    9,475,070 
(Loss) Income from Operations    (1,970,356)   615,936 
Other Expense           
Loss on Extinguishment of Debt    -      46,466 
Interest Expense, net    518,299    382,312 
Income from Employee Retention Credits   (6,350,533)   -   
Other Income    (163,298)   (41,521)
Total Other (Income) Expense    (5,995,532)   387,257 
Net Income    4,025,176    228,679 
Series D Preferred Dividends    (7,500)   -   
Net Income Attributable to Common Stockholders   $4,017,676   $228,679 
Per Share Data:           
Net Income per Share Attributable to Common Stockholders:           
Basic   $1.32   $0.07 
Diluted   $1.32   $0.07 
Weighted Average Common Shares Outstanding:           
Basic    3,054,587    3,052,769 
Diluted    3,054,587    3,052,769 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4

 

 

SELECTIS HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

 

                                                       
    Series A Preferred Stock     Series D Preferred Stock     Common Stock     Additional           Selectis
Health, Inc.
 
    Number of
Shares
    Amount     Number of
Shares
    Amount     Number of
Shares
    Amount     Paid-In
Capital
    Accumulated
Deficit
    Stockholders’
Equity
 
                                                       
Balance, December 31, 2022     200,500     $ 401,000       375,000     $ 375,000       3,054,587     $ 152,728     $ 13,768,300     $ (13,744,193 )   $ 952,835  
Series D Preferred Dividends             -                -                -        -        (7,500 )     (7,500 )
Net Income     -       -       -                                       4,025,176       4,025,176  
Balance, March 31, 2023     200,500     $ 401,000       375,000     $ 375,000       3,054,587     $  152,728     $ 13,768,300     $ (9,726,517 )   $ 4,970,511  

 

  

Series A Preferred Stock

  Series D
Preferred Stock
  Common Stock  Additional     Selectis
Health, Inc.
  Number of
Shares
Amount  Number of
Shares
  Amount  Number of
Shares
  Amount  Paid-In
Capital
  Accumulated
Deficit
  Stockholders’
Equity
                            
Balance, December 31, 2021   200,500   $401,000    375,000   $375,000    2,998,362   $150,168   $13,494,394   $(11,318,380)  $3,102,182 
Common shares issued for debt   -      -      -      -      56,226    2,560    252,440    -      255,000 
Loss on Forgiveness of Debt   -      -      -      -      -      -      46,466    -      46,466 
Net Income   -      -      -      -      -      -      -      228,679    228,679 
Balance, March 31, 2022   200,500   $401,000    375,000   $375,000    3,054,588   $152,728   $13,793,300   $(11,089,701)  $3,632,327 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5

 

 

SELECTIS HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2023  2022
   Three Months Ended March 31,
   2023  2022
Cash Flows From Operating Activities:           
Net Income   $4,025,176   $228,679 
Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities:           
Other Income from Partial Settlement of Debt    -      (40,346)
Other Income from Adjustment of Debt   (50,000)   - 
Depreciation and Amortization    438,730    447,687 
Amortization of Deferred Loan Costs and Debt Discount    94,398    -   
Provision for Bad Debt    423,180    253,963 
Changes in Operating Assets and Liabilities, Net of Assets and Liabilities Acquired:           
Accounts and Rents Receivable    (369,977)   (915,516)
Prepaid Expenses and Other Assets    135,801    108,059 
Employee Retention Credit Receivables   (6,350,533)   -   
Accounts Payable and Accrued Liabilities    1,584,730    (1,305,551)
Lease Security Deposits    1,500    5,499 
Cash Used in Operating Activities    (66,995)   (1,217,526)
           
Cash Flows From Investing Activities:           
Capital Expenditures for Property and Equipment    (42,515)   (64,192)
Cash Used in Investing Activities    (42,515)   (64,192)
           
Cash Flows From Financing Activities:           
Proceeds from Issuance of Debt, Non-Related Party   501,006    -   
Payments on Debt, Non-Related Party   (601,453)   (353,811)
Dividends Paid on Preferred Stock    (6,900)   -   
Debt Discount – Warrants RP    -      46,466 
Cash Used in Financing Activities    (107,347)   (307,345)
           
Net Decrease in Cash, Cash Equivalents and Restricted Cash    (216,857)   (1,589,063)
Cash and Cash Equivalents and Restricted Cash at Beginning of the Period    2,416,600    4,793,101 
Cash and Cash Equivalents and Restricted Cash at End of the Period   $2,199,743   $3,204,038 
           
Supplemental Disclosure of Cash Flow Information           
Cash Paid for Interest    423,900    382,312 
Cash and Cash Equivalents    1,157,413    2,310,526 
Restricted Cash    1,042,330    893,512 
Total Cash and Cash Equivalents and Restricted Cash    2,199,743    3,204,038 
           
Supplemental Schedule of Non-Cash Investing and Financing Activities           
Dividends Declared on Series D Preferred Stock   $7,500   $7,500 
Financing of Insurance Premiums    673,930    581,393 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6

 

 

SELECTIS HEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Description of the Business

 

Selectis Health, Inc (“Selectis” or “we” or the “Company”) owns and operates, through wholly-owned subsidiaries Assisted Living Facilities, Independent Living Facilities, and Skilled Nursing Facilities across the South and Southeastern portions of the US. In 2019, the Company shifted from leasing long-term care facilities to third-party, independent operators towards an owner operator model.

 

Prior to the Company changing its name to Selectis Health, Inc., the Company was known as Global Healthcare REIT, Inc. from September 30, 2013, to May 2021. Prior to this, the Company was known as Global Casinos, Inc. Global Casinos, Inc. operated two gaming casinos which were split-off and sold on September 30, 2013. Simultaneous with the split-off and sale of the gaming operations, the Company acquired West Paces Ferry Healthcare REIT, Inc. (“WPF”). WPF was merged into the Company in 2019.

 

In September 2021, the Company rebranded to Selectis Health, Inc., from Global Healthcare REIT, Inc. to better align with the current and future business model, which is to own and operate its facilities.

 

The Company acquires, develops, leases and manages healthcare real estate, provide financing to healthcare providers, and provide healthcare operations through our wholly-owned subsidiaries. Our portfolio is comprised of investments in the following three healthcare segments: (i) senior housing (including independent and assisted living), (ii) post-acute/skilled nursing, and (iii) bonds securing senior housing communities. We will make investments within our healthcare segments using the following six investment products: (i) direct ownership of properties, (ii) debt investments, (iii) developments and redevelopments, (iv) investment management, (v) the Housing and Economic Recovery Act of 2008 (“RIDEA”), which represents investments in senior housing operations utilizing the structure permitted by RIDEA and (xi) owning healthcare operations.

 

Management’s Liquidity Plans

 

On August 27, 2014, FASB issued ASU 2014-05, Disclosure of Uncertainties about an Entity’s ability to Continue as a Going Concern, which requires management to assess a company’s ability to continue as a going concern within one year from financial statement issuance and to provide related footnote disclosures in certain circumstances.

 

For the three months ended March 31, 2023 the Company had negative operating cash flows of $66,995 and net working capital of $1.3 million. Management believes that the Company will be able to meet its obligations for the next twelve months from the date of these financial statements. This is, in part due to refinancing debt to more favorable terms, the continued optimization of the Company’s operations in its current facilities, anticipated increases in state Medicaid reimbursement rates and the receipt of employee retention credits funds from the IRS.

 

The focus on opportunities within our current portfolio and future properties to acquire and operate, the settlement, refinance, and continued service of debt obligations, the potential funds generated from stock sales and other initiatives contributing to additional working capital should alleviate any substantial doubt about the Company’s ability to continue as a going concern as defined by ASU 2014-05. However, we cannot predict, with certainty, the outcome of our actions to generate liquidity and the failure to do so could negatively impact our future operations.

 

7

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and in conjunction with the rules and regulations of the Securities Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary to make the consolidated financial statements not misleading have been included. Operating results for the three months ended March 31, 2023, are not necessarily indicative of the results that may be expected for the entire year. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Recently Issued Accounting Pronouncements

 

In September 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instrument (“ASU 2016-13”). ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 was effective for the Company beginning January 1, 2023. The adoption of ASU 2016-13 did not have a material impact on the Company’s financial position, results of operations and cash flows.

 

The FASB and other entities issued new or modifications to, or interpretations of, existing accounting guidance during 2023. Management has carefully considered the new pronouncements that altered generally accepted accounting principles and does not believe that any other new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term.

 

Earnings per Share

 

Basic earnings per share are based on the weighted-average number of shares of common stock outstanding. FASB ASC Topic 260, “Earnings per Share”, requires the Company to include additional shares in the computation of earnings per share, assuming dilution.

 

Diluted earnings per share are based on the assumption that all dilutive options and warrants were converted or exercised by applying the treasury stock method and that all convertible preferred stock were converted into common shares by applying the if-converted method. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period or at the time of issuance, if later, and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, the preferred dividends applicable to convertible preferred stock are added back to the numerator. The convertible preferred stock is assumed to have been converted at the beginning of the period or at time of issuance, if later, and the resulting common shares are included in the denominator.

 

We calculate basic earnings per share by dividing net income attributable to common stockholders (the “numerator”) by the weighted average number of common shares outstanding (the “denominator”) during the reporting period. Diluted earnings per share is calculated similarly but reflects the potential impact of outstanding options, warrants and other commitments to issue common stock, including shares issuable upon the conversion of convertible preferred stock outstanding, except where the impact would be anti-dilutive.

 

8

 

 

The following table sets forth the computation of basic and diluted earnings per share:

 

    2023     2022  
    Three Months Ended  
    March 31,  
    2023     2022  
Numerator for basic earnings per share:                
Net Income Attributable to Selectis Health, Inc.   $ 4,025,176     $ 228,679  
Series D Preferred Dividends     (7,500 )     -  
Net Income Attributable to Common Stockholders - Basic   $ 4,017,676     $ 228,679  
                 
Numerator for diluted earnings per share:                
Net Income Attributable to Common Stockholders   $ 4,025,176     $ 228,679  
Series D Preferred Dividends     (7,500 )     -  
Net Income Attributable to Common Stockholders - Diluted   $ 4,017,676     $ 228,679  
                 
Denominator for basic earnings per share:                
Weighted Average Common Shares Outstanding     3,054,587       3,052,769  
                 
Denominator for diluted earnings per share:                
Weighted Average Common Shares Outstanding - Basic     3,054,587       3,052,769  
Effect of dilutive securities:                
Conversion of preferred shares     -       -  
Exercise of warrants     -       -  
Weighted Average Common Shares Outstanding - Diluted     3,054,587       3,052,769  
                 
Net Income per Share Attributable to Common Stockholders:                
Basic   $ 1.32     $ 0.07  
Diluted   $ 1.32     $ 0.07  

 

Fair Value Measurements

 

The Company utilizes the methods of fair value measurement as described in ASC 820 to value its financial assets and liabilities. As defined in ASC 820, fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

 

Level 1 – Quoted market prices in active markets for identical assets or liabilities at the measurement date.

 

Level 2 – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.

 

Level 3 – Inputs reflecting management’s best estimates and assumptions of what market participants would use in pricing assets or liabilities at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.

 

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

The Company has no financial assets or financial liabilities that are required to be measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022.

 

9

 

 

The carrying values of cash and cash equivalents, accounts payable, accrued liabilities and other short-term debt, approximate their fair value because of the short-term nature of these financial instruments. The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates.

 

Upon acquisition of real estate properties, the Company determines the total purchase price of each property and allocates this price based on the fair value of the tangible assets and intangible assets, if any, acquired and any liabilities assumed based on Level 3 inputs. These Level 3 inputs can include comparable sales values, discount rates, and capitalization rates from a third-party appraisal or other market sources.

 

3. OTHER CURRENT ASSETS

 

The CARES Act provides an employee retention credit (“CARES Employee Retention Credit”), which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers. The tax credit is equal to 50% of qualified wages paid to employees during a quarter, capped at $10,000 of qualified wages per employee through December 31, 2020. Additional relief provisions were passed by the United States government, which extend and slightly expand the qualified wage caps on these credits through December 31, 2021. Based on these additional provisions, the tax credit is now equal to 70% of qualified wages paid to employees during a quarter, and the limit on qualified wages per employee has been increased to $10,000 of qualified wages per quarter. The Company qualified for the tax credit under the CARES Act for qualified wages for the years ended December 31, 2020 and 2021. In February 2023, the Company submitted filings for CARES Employee Retention Credits totaling $6,350,533 that are reported in the accompanying condensed consolidated balance sheet as of March 31, 2023 and in the accompanying statement of operations for the three months ended March 31, 2023.

 

4. PROPERTY AND EQUIPMENT, NET

 

The gross carrying amount and accumulated depreciation of the Company’s property and equipment as of March 31, 2023, and December 31, 2022, are as follows:

   March 31, 2023   December 31, 2022 
         
Land  $1,778,250   $1,778,250 
Land Improvements   329,055    329,055 
Buildings and Improvements   44,659,921    44,659,921 
Furniture, Fixtures and Equipment   2,501,653    2,459,138 
Property and Equipment, gross   49,268,879    49,226,364 
           
Less: Accumulated Depreciation   (12,650,981)   (12,212,251)
Less: Impairment   (1,560,000)   (1,560,000)
           
Property and Equipment, net  $35,057,898   $35,454,113 

 

10

 

 

   2023   2022 
   For the Three Months Ended March 31,   
   2023   2022 
           
Depreciation Expense (excluding Intangible Assets)  $438,730   $447,687 

 

5. DEBT AND DEBT - RELATED PARTIES

 

The following is a summary of the Company’s debt outstanding as of March 31, 2023, and December 31, 2022:

SCHEDULE OF DEBT AND DEBT - RELATED PARTIES 

  

March 31, 2023

   December 31, 2022 
Senior Secured Promissory Notes  $975,000   $1,025,000 
Senior Secured Promissory Notes - Related Parties   750,000    750,000 
Fixed-Rate Mortgage Loans   30,315,774    30,568,677 
Variable-Rate Mortgage Loans   4,828,637    4,879,462 
Other Debt, Subordinated Secured   1,242,006    741,000 
Other Debt, Subordinated Secured - Related Parties   150,000    150,000 
Other Debt, Subordinated Secured - Seller Financing   46,106    56,051 
Financed Insurance Premiums   621,274    235,125 
Debt and Debt – Related Parties, Gross   38,928,797    38,405,315 
Unamortized Discount and Debt Issuance Costs   (716,598)   (810,997)
           
Debt and Debt – Related Parties, Net of Discount  $38,212,199   $37,594,318 
           
As presented in the Consolidated Balance Sheets:          
           
Current Maturities of Long-Term Debt, Net  $3,933,555   $2,296,830 
Short term debt – Related Parties, Net   900,000    900,000 
Long-Term Debt, Net   33,378,644    34,397,488 

 

The weighted average interest rate and term of our fixed rate debt are 3.84% and 12.79 years, respectively, as of March 31, 2023. The weighted average interest rate and term of our variable rate debt are 5.90% and 14.87 years, respectively, as of March 31, 2023.

 

Corporate Senior and Senior Secured Promissory Notes

 

As of March 31, 2023, and December 31, 2022, the senior secured notes are subject to annual interest of 10% and initially matured on October 31, 2021. These notes were extended to June 30, 2023 and as consideration the Company modified the outstanding warrants to extend the life an additional 1.67 years. As a result of the warrant modification, the Company recorded the incremental increase in fair value of $844,425 as a debt discount which will be amortized over the new life of the loans. On June 28, 2023, these notes were extended to December 31, 2024 and as consideration the Company modified the outstanding warrants to extend the life an additional 1.5 years.

 

On March 29, 2023, the Company entered into a short-term secured promissory note of $501,006. This note accrues interest at 6.75% and matures on July 5, 2023.

 

11

 

 

Mortgage Loans and Lines of Credit Secured by Real Estate

 

Mortgage loans and other debts such as line of credit here are collateralized by all assets of each nursing home property and an assignment of its rents. Collateral for certain mortgage loans includes the personal guarantee of Christopher Brogdon, formerly but no longer a related party, or corporate guarantees. Mortgage loans for the periods presented consisted of the following:

SCHEDULE OF MORTGAGE LOAN DEBT

           Total Principal Outstanding as of 
State  Number of Properties   Total Face Amount   March 31,
2023
   December 31,
2022
 
Arkansas(1)   1   $5,000,000   $3,868,180   $3,910,767 
Georgia   5   $17,765,992   $13,166,889   $16,019,874 
Ohio   1   $3,000,000   $5,334,687   $2,649,400 
Oklahoma   6   $13,181,325   $12,774,655   $12,868,098 
    13   $38,947,317   $35,144,411   $35,448,139 

 

(1) The mortgage loan collateralized by this property is 80% guaranteed by the USDA and requires an annual renewal fee payable in the amount of 0.25% of the USDA guaranteed portion of the outstanding principal balance as of December 31 of each year. Guarantors under the mortgage loan include Christopher Brogdon. Mr. Brogdon has assumed operations of the facility and is making payments of principal and interest on the loan on our behalf in lieu of paying rent on the facility to us. During the three months ended March 31, 2023, the Company recognized other income of $42,587 for repayments on the loan.

 

Subordinated, Corporate and Other Debt

 

Other debt due at March 31, 2023 and December 31, 2022 includes unsecured notes payable issued to entities controlled by the Company used to facilitate the acquisition of the nursing home properties.

SCHEDULE OF OTHER DEBT

       Total Principal Outstanding as of       
Property  Face
Amount
   March 31,
2023
   December 31,2022   Stated Interest Rate  Maturity Date
Goodwill Nursing Home  $2,030,000   $741,000   $741,000   13% Fixed   1-Apr-24
Goodwill Nursing Home   501,006    501,006    -   6.75% Fixed  5-July-23
Goodwill Nursing Home – Related Party   150,000    150,000    150,000   13% Fixed   30-Nov-25
Higher Call Nursing Center (1)     150,000    46,106    56,051   8% Fixed   1-Apr-24
   $2,831,006   $1,438,112   $947,051       

 

(1) In connection with the acquisition of Higher Call, the Company executed a promissory note in favor of the Seller, Higher Call Nursing Center, Inc., in the principal amount of $150,000 which accrues interest at the rate of 8% per annum and is payable in equal monthly installments, principal and interest. This note is secured by a corporate guaranty of Global.

 

12

 

 

The Company’s corporate debt as of March 31, 2023, and December 31, 2022 includes unsecured notes and notes secured by all assets of the Company not serving as collateral for other notes.

       Total Principal Outstanding as of       
Series 

Face

Amount

   March 31,
2023
   December 31,
2022
   Stated Interest Rate 

Maturity

Date

10% Senior Secured Promissory Notes  $1,255,000   $975,000   $1,025,000   10% Fixed  30-Jun-23
10% Senior Secured Promissory Notes – Related Party  $750,000    750,000    750,000   10% Fixed  30-Jun-23
   $2,005,000   $1,725,000   $1,775,000       

 

6. STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

During the three months ended March 31, 2023 and March 31, 2022, the Company paid $6,900 and $7,500, respectively for Series D preferred stock dividends. Dividends of $7,500 were declared during the three months ended March 31, 2023 and 2022.

 

Common Stock

 

For the three months ended March 31, 2023, the Company did not issue nor did it pay dividends on common stock.

 

Common Stock Warrants

 

As of March 31, 2023, and December 31, 2022, the Company had 206,000 of outstanding warrants to purchase common stock at a weighted average exercise price of $5.00 and weighted average remaining term of 1.75 years and 0.5 years, respectively. The aggregate intrinsic value of common stock warrants outstanding as of March 31, 2023, and December 31, 2022 was $0. Activity for the three months ended March 31, 2023, related to common stock warrants is as follows:

   March 31, 2023 
   Number of   Weighted
Average
 
   Warrants   Exercise Price 
         
Beginning Balance   206,000   $5.00 
Exercised   -    - 
Expired   -    - 
           
Ending Balance   206,000   $5.00 

 

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7. FACILITY LEASES

 

The following table summarizes leasing arrangements related to the Company’s healthcare facilities at March 31, 2023:

   Monthly Lease      
Facility  Income (1)  Lease Expiration  Renewal Option if any
Goodwill Hunting LLC(1)  $48,924   February 1, 2027  Term may be extended for one additional five-year term

 

(1) The lease became effective on February 1, 2017, and the facility began generating rental revenue thereafter.

 

Cumulative adjustments associated with the straight-line rent requirement are reflected in Prepaid Expenses and Other in the consolidated balance sheets and totaled $146,740 and $177,716 as of March 31, 2023, and 2022, respectively.

 

Future cash payments for rent to be received during the initial terms of the leases for the next five years and thereafter are as follows:

As of March 31,    
2023 (remaining)  $476,784 
2024  $643,401 
2025   651,954 
2026   660,665 
2027   55,116 
Total  $2,487,920 

 

8. COMMITMENTS AND CONTINGENCIES

 

General and Professional Liability Insurance and Lawsuits

 

The senior care industry has experienced significant increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by skilled nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards. The Company purchases insurance through third party providers that provides coverage for these claims.

 

There is certain additional litigation incidental to our business, none of which, based upon information available to date, would be material to our financial position, results of operations, or cash flows. In addition, the long–term care industry is continuously subject to scrutiny by governmental regulators, which could result in litigation or claims related to regulatory compliance matters.

 

Governmental Regulations

 

Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. Management believes that it is following all applicable laws and regulations in all material respects. However, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusions from the Medicare, Medicaid and other federal healthcare programs.

 

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9. SUBSEQUENT EVENTS

 

The Company has evaluated all events or transactions that occurred after March 31, 2023 up through August 7, 2023, which is the date that the financial statements were available to be issued. There were no subsequent events which required adjustment or disclosure in the financial statements except the event described below.

 

On June 28, 2023, the senior secured notes were extended to December 31, 2024 and as consideration the Company modified the outstanding warrants to extend the life an additional 1.5 years.

 

The short-term secured promissory note for $501,006, maturing on July 5, 2023, was extended. This note matures on September 5, 2023, and accrued interest at 7.5%.

 

The Company recognized $6,350,533 in Employee Retention Credits for the three months ended March 31, 2023. In June 2023, the Company began receiving these credits and has received $3,864,744 as of August 7, 2023.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following is Management’s Discussion and Analysis of Financial Condition and Results of Operations and should be read in conjunction with the interim financial statements and notes thereto contained in this report. This section contains forward-looking statements, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based. These forward-looking statements generally are identified by the words “believes,” “projects,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise. All forward-looking statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC.

 

Actual future results and trends may differ materially from expectations depending on a variety of factors discussed in our filings with the SEC. These factors include without limitation:

 

strategic business relationships;
   
statements about future business plans and strategies;
   
anticipated operating results and sources of future revenue;
   
organization’s growth;
   
adequacy of our financial resources;
   
development of markets;
   
competitive pressures;
   
changing economic conditions;
   
expectations regarding competition from other companies;
   
the duration and scope of the COVID-19 pandemic;
   
the impact of the COVID-19 pandemic on occupancy rates and on the operations of the Company’s facilities and its operators/tenants;

 

15

 

actions governments take in response to the COVID-19 pandemic, including the introduction of public health measures and other regulations affecting our properties and our operations and the operations of our operators/tenants;
   
the effects of health and safety measures adopted by us and our operators/tenants in response to the COVID-19 pandemic;
   
increased operational costs because of health and safety measures related to COVID-19;
   
the impact of the COVID-19 pandemic on the business and financial conditions of our operators/tenants and their ability to pay rent;
   
disruptions to our property acquisition and disposition activities due to economic uncertainty caused by COVID-19; and
   
general economic uncertainty in key markets as a result of the COVID-19 pandemic and a worsening of global economic conditions or low levels of economic growth.

 

Properties

 

As of March 31, 2023, we owned thirteen (13) long-term care facilities including a campus of three buildings in Tulsa, OK. The following table provides summary information regarding these facilities at March 31, 2023:

 

               Total Square Feet   # of Beds 
               Operating   Leased         
           Leased   Square   Square   Operating   Leased 
State  Properties   Operations   Operations   Feet   Feet   Beds   Beds 
Arkansas   1    -    1    -    40,737    -    141 
Georgia   5    4    1    78,197    46,199    454    100 
Ohio   1    1    -    27,500    -    99    - 
Oklahoma   6    6    -    162,976    -    351    - 
Total   13    11    2    268,673    86,936    904    241 

 

Results of Operations

 

The following discussion of the financial condition, results of operations, cash flows, and changes in our financial position should be read in conjunction with our interim consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.

 

Three Months Ended March 31, 2023, Compared to the Three Months Ended March 31, 2022

 

Rental revenues for the three months ended March 31, 2023, and 2022 totaled $157,789 and $154,194. The Company also had healthcare revenue of $8,627,949 for the three months ended March 31, 2023, compared to $9,367,854 for the three months ended March 31, 2022. Our healthcare revenues will likely continue to decrease due to a decrease in Medicaid rates.

 

General and administrative expenses were $2,204,846 and $1,811,517 for the three months ended March 31, 2023 and 2022. To support the healthcare operations management has increased our corporate support to continue to aid the facilities in delivering world class care.

 

Property taxes, insurance, and other operating expenses totaled $8,509,271 and $6,961,903 for the three months ended March 31, 2023 and 2022, respectively. This increase is attributed to an increase in operational headcount resulting in higher operational wages. Expenses related to the provision for bad debt was $423,180 for the three months ended March 31, 2023, and $253,963 for the three months ended March 31, 2022. This increase is due to the new bad debt policy which has increased the provision for bad debt expense.

 

16

 

 

Depreciation and amortization expense totaled $438,730 and $447,687 for the three months ended March 31, 2023 and 2022, respectively. This decrease is related to an increase in fully depreciated assets as compared to the same period in the prior year.

 

The Company had $518,299 of interest expense for the three months ended March 31, 2023, and $382,312 interest expense for the three months ended March 31, 2022. This increase is related to refinancing mortgages during the year ended December 31, 2022.

 

The Company had income of $6,350,533 from employee retention credits for the three months ended March 31, 2023, and $0 for the three months ended March 31, 2022.

 

The Company had $163,298 of other income for the three months ended March 31, 2023, and $41,521 for the three months ended March 31, 2022. This is primarily related to recording the principal reduction payments made by the operator for the Arkansas facility as other income. We will continue to record this as the operator continues to satisfy the debt.

 

Liquidity and Capital Resources

 

Throughout its history, the Company has experienced shortages in working capital and has relied, from time to time, upon sales of debt and equity securities to meet cash demands generated by our acquisition activities.

 

At March 31, 2023, the Company had cash of $1,157,413 and restricted cash of $1,042,330. Our restricted cash is to be spent on insurance, taxes, repairs, and capital expenditures associated with Providence of Sparta Nursing Home or Warrenton Health and Rehab. Our liquidity is expected to increase from potential equity and debt offerings and decrease as net offering proceeds are expended in connection with our various property improvement projects. Our continuing short-term liquidity requirements consisting primarily of operating expenses and debt service requirements, excluding balloon payments at maturity, are expected to be achieved from healthcare operations, rental revenues received, and existing cash on hand.

 

Cash used in operating activities was $66,995 for the three months ended March 31, 2023, compared to cash used in operating activities of $1,217,526 for the three months ended March 31, 2022.

 

Cash used in investing activities was $42,515 for the three months ended March 31, 2023, compared to cash used in investing activities of $64,192 for the three months ended March 31, 2022.

 

Cash used in financing activities was $107,347 for the three months ended March 31, 2023 compared to cash used in financing activities of $307,345 for the three months ended March 31, 2022.

 

In accordance with ASU 2014-15 management believes the Company has sufficient liquidity and capital resources to maintain ongoing operations. This is, in part due to refinancing debt to more favorable terms, the continued optimization of our operations in our current facilities and anticipated increases in state Medicaid reimbursement rates. Based on management’s projections, the Company is expected to generate positive cash flows from its continued operations.

 

The focus on opportunities within our current portfolio and future properties to acquire and operate, the settlement, refinance, and continued service of debt obligations, the potential funds generated from stock sales and other initiatives contributing to additional working capital should alleviate any substantial doubt about the Company’s ability to continue as a going concern as defined by ASU 2014-05. However, we cannot predict, with certainty, the outcome of our actions to generate liquidity and the failure to do so could negatively impact our future operations.

 

The CARES Act provides an employee retention credit (“CARES Employee Retention Credit”), which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers. The tax credit is equal to 50% of qualified wages paid to employees during a quarter, capped at $10,000 of qualified wages per employee through December 31, 2020. Additional relief provisions were passed by the United States government, which extend and slightly expand the qualified wage caps on these credits through December 31, 2021. Based on these additional provisions, the tax credit is now equal to 70% of qualified wages paid to employees during a quarter, and the limit on qualified wages per employee has been increased to $10,000 of qualified wages per quarter. The Company qualified for the tax credit under the CARES Act for qualified wages for the years ended December 31, 2020 and 2021. In February 2023, the Company submitted filings for CARES Employee Retention Credits totaling $6,350,533 that are reported in the accompanying condensed consolidated balance sheet as of March 31, 2023 and in the accompanying statement of operations for the three months ended March 31, 2023.

17

 

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we consider material.

 

Critical Accounting Policies

 

Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements. Certain of these accounting policies are particularly important for an understanding of the financial position and results of operations presented in the consolidated financial statements set forth elsewhere in this report. These policies require the application of judgment and assumptions by management and, as a result, are subject to a degree of uncertainty. Actual results could differ as a result of such judgment and assumptions.

 

Impairment of Long-Lived Assets

 

When circumstances indicate the carrying value of property may not be recoverable, the Company reviews the asset for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. This estimate considers factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists, due to the inability to recover the carrying amount of the property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. Estimated fair value is determined with the assistance from independent valuation specialists using recent sales of similar assets, market conditions and projected cash flows of properties using standard industry valuation techniques.

 

Goodwill

 

Goodwill represents the excess of the cost of an acquired business over the amounts assigned to its net assets. Goodwill is not amortized but is tested for impairment at a reporting unit level on an annual basis or when an event occurs, or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Events or changes in circumstances that may trigger interim impairment reviews include significant changes in business climate, operating results, planned investments in the reporting unit, or an expectation that the carrying amount may not be recoverable, among other factors.

 

The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company determines it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, an impairment test is unnecessary. If an impairment test is necessary, the Company will estimate the fair value of its related reporting units. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is determined to be impaired, and the Company will proceed with recording an impairment charge equal to the excess of the carrying value over the related fair value.

 

Revenue Recognition

 

The Company’s leases may be subject to annual escalations of the minimum monthly rent required under each lease. The accompanying consolidated financial statements reflect rental income on a straight-line basis over the term of each lease.

 

Rent receivables and unbilled deferred rent receivables are carried net of an allowance for uncollectible amounts. An allowance is maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their lease agreements. The Company also maintains an allowance for deferred rent lease receivables arising from the straight-line recognition of rents. Such allowances are charged to net against rental incomes.

 

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When the lessee is the owner of any improvements, any lessee improvement allowance that is funded by the Company is treated as a lease incentive and amortized as a reduction of revenue over the lease term. As of March 31, 2023, and 2022, there were no deferred lease incentives recorded.

 

For our healthcare operations, we recognize revenue in accordance with ASC 606 whereby we apply the following steps:

 

  a. Step 1: Identify the contract(s) with a customer
  b. Step 2: Identify the performance obligations in the contract
  c. Step 3: Determine the transaction price
  d. Step 4: Allocate the transaction price to the performance obligations in the contract
  e. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

 

In accordance with ASC 606, estimated uncollectable amounts due from patients are generally considered implicit price concessions that are a direct reduction to net operating revenues.

 

Recently Adopted Accounting Pronouncements

 

In September 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instrument (“ASU 2016-13”). ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 was effective for the Company beginning January 1, 2023. The adoption of ASU 2016-13 did not have a material impact on the Company’s financial position, results of operations and cash flows.

 

Recently Issued Accounting Pronouncements

 

The FASB and other entities issued new or modifications to, or interpretations of, existing accounting guidance during 2023. Management has carefully considered the new pronouncements that altered generally accepted accounting principles and does not believe that any other new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

 

Our management, including our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based on this evaluation, our CEO and CFO concluded that the design and operation of our disclosure controls and procedures were not effective as of such date to provide assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is 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 management as appropriate, to allow timely decisions regarding disclosures.

 

Management noted the following deficiencies that we believe to be material weaknesses:

 

  Inadequate design of information technology (IT) general and application controls resulting from inappropriate access given to certain individuals within finance, including the CFO and Controller;
  Lack of segregation of duties in certain accounting and financial reporting processes including the initiation, processing, recording and approval of disbursements; and
  Lack of a formal review process that includes multiple levels of review as well as timely review of accounts and reconciliations leading to material post-closing adjustments.

 

Management also noted the following deficiencies that we believe to be significant deficiencies:

 

  Lack of documentation of processes and controls at the level appropriate for a public company;
  Inadequate design of IT controls to mitigate potential cybersecurity risks; and
  The Chief Financial Officer reviews and inquire about the related party transactions regularly, not less than quarterly, and the transactions are approved by senior management. However, there is no formalized, documented process (checklist or signoff) for identifying or approving by executive management and/or the board of directors on related party transactions prior to the transactions being executed.

 

In light of the material weaknesses described above, we performed additional analysis deemed necessary to ensure that our unaudited interim financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the periods presented. The Company plans to implement multi-level review in 2023, and management intends to work internally and with various third-parties to ensure we have the proper controls in place going forward.

 

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the quarter ended March 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

19

 

 

PART II

OTHER INFORMATION

 

Item 1. Legal Proceedings

 

For a discussion of prior, current, and pending litigation of material significance to the Company, please see Note 8, Commitments and Contingencies, of this Form 10–Q.

 

Item 1A. Risk Factors

 

The COVID-19 pandemic has subjected our business, operations, and financial condition to several risks, including, but not limited to, those discussed below:

 

Risks Related to Revenue: The revenues from our operations and from our tenants are dependent on occupancy. All facilities must maintain a minimum viable resident count to ensure costs do not exceed revenues. In addition to the impact of increases in mortality rates on occupancy of our operating facilities, the ongoing COVID-19 pandemic has prevented prospective occupants and their families from visiting our facilities and limited the ability of new occupants to move into our facilities due to heightened move-in criteria and screening. Although the ongoing impact of the pandemic on occupancy remain uncertain, occupancy of our operating and triple-net properties could further decrease. Such a decrease could affect the net operating income of our operating properties and the ability of our triple-net operators to make contractual payments to us.
   
Risks Related to Operator and Tenant Financial Condition: In addition to the risk of decreased revenue from tenant and operator payments, the impact of the COVID-19 pandemic creates a heightened risk of tenant and operator, bankruptcy, or insolvency due to factors such as decreased occupancy, medical practice disruptions resulting from stay-at-home orders, increased health and safety and labor expenses or litigation resulting from developments related to the COVID-19 pandemic. Although our operating lease agreements provide us with the right to evict a tenant, demand immediate payment of rent and exercise other remedies, the bankruptcy and insolvency laws afford certain rights to a party that has filed for bankruptcy or reorganization. A tenant, operator, in bankruptcy or subject to insolvency proceedings may be able to limit or delay our ability to collect unpaid rent in the case of a lease. In addition, if a lease is rejected in a tenant bankruptcy, our claim against the tenant may be limited by applicable provisions of the bankruptcy law. We may be required to fund certain expenses (e.g., real estate taxes and maintenance) to preserve the value of an investment property, avoid the imposition of liens on a property and/or transition a property to a new tenant. In some past instances, we have terminated our lease with a tenant and relet the property to another tenant; however, our ability to do so may be severely limited under current conditions due to the industry and macroeconomic effects of the COVID-19 pandemic. If we cannot transition a leased property to a new tenant because of the COVID-19 pandemic or for other reasons, we may take possession of that property, which may expose us to certain successor liabilities. Publicity about the operator’s financial condition and insolvency proceedings, particularly considering ongoing publicity related to the COVID-19 pandemic, may also negatively impact their and our reputations, decreasing customer demand and revenues. Should such events occur, our revenue and operating cash flow may be adversely affected.
   
Risks Related to Operations: Across all of our properties, our operations and our tenants have incurred increased operational costs as a result of the introduction of public health measures and other regulations affecting our properties and our operations, as well additional health and safety measures adopted by us related to the COVID-19 pandemic, including increases in labor and property cleaning expenses and expenditures related to our efforts to procure PPE and supplies. Such operational costs may increase in the future based on the duration and severity of the pandemic or the introduction of additional public health regulations. Operators and tenants are also subject to risks arising from the unique pressures on seniors housing and medical practice employees during the COVID-19 pandemic. As a result of difficult conditions and stresses related to the COVID-19 pandemic, employee morale and productivity may suffer and additional pay, such as hazard pay, may not be sufficient to retain key operator and tenant employees. In addition, our operations may be adversely impacted if a significant number of our employees’ contract COVID-19. Although we continue to undertake extensive efforts to ensure the safety of our properties, employees, and residents and to provide operator support in this regard, the impact of the COVID-19 pandemic on our facilities could result in additional operational costs and reputational and litigation risk to us. As a result of the COVID- 19 pandemic, operator and tenant cost of insurance is expected to increase and such insurance may not cover certain claims related to COVID-19. Our exposure to COVID-19 related litigation risk may be increased if the operators or tenants of the relevant facilities are subject to bankruptcy or insolvency. In addition, we are facing increased operational challenges and costs resulting from logistical challenges such as supply chain interruptions, business closures and restrictions on the movement of people.

 

20

 

Risks Related to Property Acquisitions and Dispositions: As a result of uncertainty regarding the length and severity of the COVID-19 pandemic and the impact of the pandemic on our business and related industries, our investments in and acquisitions of senior housing and health care properties, as well as our ability to transition or sell properties with profitable results, may be limited. We have a significant development portfolio and have not experienced significant delays or disruptions but may in the future. Such disruptions to acquisition, disposition and development activity may negatively impact our long-term competitive position.
   
Risks Related to Liquidity: The COVID-19 pandemic and related public health measures implemented by governments worldwide has had severe global macroeconomic impacts and has resulted in significant financial market volatility. An extended period of volatility or a downturn in the financial markets could result in increased cost of capital. If our access to capital is restricted or our borrowing costs increase as a result of developments in financial markets relating to the pandemic, our operations and financial condition could be adversely impacted. In addition, a prolonged period of decreased revenue and limited acquisition and disposition activity operations could adversely affect our financial condition and long-term growth prospects and there can also be no assurance that we will not face credit rating downgrades. Future downgrades could adversely affect our cost of capital, liquidity, competitive position, and access to capital markets.

 

The events and consequences discussed in these risk factors could, in circumstances we may not be able to accurately predict, recognize or control, have a material adverse effect on our business, growth, reputation, prospects, financial condition, operating results, cash flows, liquidity, ability to pay dividends and stock price. As the COVID-19 pandemic continues to adversely affect our operating and financial results, it may also have the effect of heightening many of the other risks described in this Report.

 

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

 

Not applicable.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

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Item 6. Exhibits

 

31.1   Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002*
31.2   Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002*
32.1   Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2   Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS   Inline XBRL Instance Document**
101.SCH   Inline XBRL Schema Document**
101.CAL   Inline XBRL Calculation Linkbase Document**
101.LAB   Inline XBRL Label Linkbase Document**
101.PRE   Inline XBRL Presentation Linkbase Document**
101.DEF   Inline XBRL Definition Linkbase Document**
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* filed herewith

** furnished, not filed

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  SELECTIS HEALTH, INC
     
Date: August 7, 2023 By: /s/ Lance Baller
    Lance Baller, Chief Executive Officer
    (Principal Executive Officer)
     
Date: August 7, 2023 By: /s/ Lance Baller
    Lance Baller, Chief Executive Officer
    (Principal Accounting Officer)

 

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