Selectis Health, Inc 10-K for FY2021
Selectis Health, Inc. (GBCS)
About this 10-K
Selectis Health, Inc filed this 10-K on August 26, 2022, covering the fiscal year ended December 31, 2021 (FY2021).
Headline figures
Fiscal year ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $29.29M
- up 39.9% from $20.93M a year earlier
- Net loss
- $2.25M
- compared with net income of $2.96M a year earlier
- Diluted EPS
- -$0.82
- compared with $0.95 a year earlier
UNITED STATES
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Washington, D.C. 20549
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The
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The number of shares outstanding of the registrant’s common stock as of August 22, 2022 is .
DOCUMENTS INCORPORATED BY REFERENCE
SELECTIS HEALTH, INC.
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report contains statements that plan for or anticipate the future. In this Annual Report, forward-looking statements are generally identified by the words “anticipate,” “plan,” “believe,” “expect,” “estimate,” and the like. These forward-looking statements include, but are not limited to, statements regarding the following:
| * | strategic business relationships; | |
| * | statements about our future business plans and strategies; | |
| * | anticipated operating results and sources of future revenue; | |
| * | our organization’s growth; | |
| * | adequacy of our financial resources; | |
| * | development of markets; | |
| * | competitive pressures; | |
| * | changing economic conditions; and, | |
| * | 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. | |
| * | 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 operations/tenants. | |
| * | The effects of health and safety measures adopted by us and our operations/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 operations/tenants and their ability to pay rent. | |
| * | Disruptions to our property acquisition and disposition activities due to economic uncertainty caused by COVID-19. | |
| * | 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. |
Although we believe that any forward-looking statements, we make in this Annual Report are reasonable, because forward-looking statements involve future risks and uncertainties, there are factors that could cause actual results to differ materially from those expressed or implied. For example, a few of the uncertainties that could affect the accuracy of forward-looking statements, besides the specific factors identified above in the Risk Factors section of this Annual Report, include:
| * | changes in general economic and business conditions affecting the healthcare industry; | |
| * | developments that make our facilities less competitive; | |
| * | changes in our business strategies; | |
| * | the level of demand for our facilities; and | |
| * | regulatory changes affecting the healthcare industry and third-party payor practices. |
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EXPLANATORY NOTE
UNLESS OTHERWISE STATED, ALL SHARE AND PER SHARE INFORMATION CONTAINED IN THIS ANNUAL REPORT GIVES RETROACTIVE EFFECT TO A ONE-FOR-TEN REVERSE SPLIT WHICH WAS EFFECTIVE SEPTEMBER 22, 2021.
PART I
| ITEM 1. | BUSINESS |
Background
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 a model where a wholly owned subsidiary would operate but is owned by another wholly owned subsidiary.
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 May 2021, the Company successfully 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.
We acquire, develop, lease, manage, and dispose of 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 (vi) owning healthcare operations.
Healthcare Industry
Healthcare is the single largest industry in the U.S. based on Gross Domestic Product (“GDP”). According to the National Health Expenditures report by the Centers for Medicare and Medicaid Services (“CMS”): (i) national health expenditures are expected to grow 1.2 percentage points faster than GDP per year over the 2016 – 2025 period; (ii) the average compounded annual growth rate for national health expenditures, over the projection period of 2016 through 2027, is anticipated to be 5.6%; and (iii) health spending is projected to represent 19.9% of US GDP by 2025, up from 17.8% in 2015.
Senior citizens are the largest consumers of healthcare services. According to CMS, on a per capita basis, the 85-year and older segment of the population spends 92% more on healthcare than the 65 to 84-year-old segment and over 329% more than the population average.
In the future, the Company intends to continue to search for operations that will enhance our portfolio of healthcare centers.
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Real Estate Industry
The delivery of healthcare services requires real estate and, as a result, tenants and operators depend on real estate, in part, to maintain and grow their businesses.
The Company owns 13 healthcare facilities. Initially, the Company simply owned the physical property and real estate and leased or subleased the facility to third-party operators. In 2019, the Company intentionally decided to begin moving towards operations through newly created independent operating subsidiaries. In the future, the Company intends to own and operate all future facilities. As of December 2021, the Company, through wholly-owned subsidiaries, operates 11 healthcare facilities.
Business Strategy
As an organization, our primary goal is to increase shareholder value through profitable growth and professional healthcare. Our investment strategy to achieve this goal is based on four principles: (i) quality healthcare for our residents, (ii) opportunistic investing, (iii) portfolio diversification and (iv) conservative financing.
Quality Healthcare for our Residents
Our healthcare operations continue to bolster our revenue. Over the last two years, our operational footprint has grown from one facility to nine. The mix of our revenues, from leasing facilities to our owner operator model has shifted drastically from rents to healthcare as well. To ensure this continues our operational teams and staff at our facilities are dedicated to maintaining the highest of standards and quality care metrics in line with, but not limited to, the CDC, ADA, CMS, and all state and local guidelines.
Opportunistic Investing
We will make investment decisions that are expected to drive profitable growth and create shareholder value. We will perform in depth due diligence and quantitative and qualitative analyses to ensure that we position ourselves to create and take advantage of situations to meet our goals and investment criteria that will continue to add to the Company’s strategic and financial value.
Portfolio Diversification
We believe in maintaining a portfolio of healthcare investments diversified by segment, geography, operator, tenant, and investment product. Diversification reduces the likelihood that a single event would materially harm our business and allows us to take advantage of opportunities in different markets based on individual market dynamics. While pursuing this strategy of diversification, we will monitor, but will not limit, our investments based on the percentage of our total assets that may be invested in any one property type, investment product, geographic location, the number of properties which we may lease to a single operator or tenant, or mortgage loans we may make to a single borrower. With investments in multiple segments and investment products, we can focus on opportunities with the most attractive risk/reward profile for the portfolio. We may structure transactions as master leases, require operator or tenant insurance and indemnifications, obtain credit enhancements in the form of guarantees, letters of credit or security deposits, and take other measures to mitigate risk.
Financing
We will strive to manage our debt-to-equity levels and maintain multiple sources of liquidity, access to capital markets and secured debt lenders, relationships with current and prospective institutional joint venture partners, and our ability to divest of assets. Our debt obligations will be primarily fixed rate with staggered maturities, which reduces the impact of rising interest rates on our operations.
We plan to finance our investments based on our evaluation of available sources of funding. For short-term purposes, we may arrange for short-term borrowings from banks or other sources. We may also arrange for longer-term financing through offerings of equity and debt securities, placement of mortgage debt and capital from other institutional lenders and equity investors.
Competition
Investing in real estate serving the healthcare industry is highly competitive. We will face competition from REITs, investment companies, private equity and hedge fund investors, sovereign funds, healthcare operators, lenders, developers, and other institutional investors, some of whom may have greater resources and lower costs of capital than we do. Increased competition makes it more challenging for us to identify and successfully capitalize on opportunities that meet our objectives. Our ability to compete may also be impacted by national and local economic trends, availability of investment alternatives, availability and cost of capital, construction and renovation costs, existing laws and regulations, new legislation, and population trends.
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Income from our facilities is dependent on the ability of our operations and tenants to compete with other healthcare companies on a number of different levels, including: the quality of care provided, reputation, the physical appearance of a facility, price and range of services offered, alternatives for healthcare delivery, the supply of competing properties, physicians, staff, referral sources, location, the size and demographics of the population in surrounding areas, and the financial condition of our tenants and operators. Private, federal, and state payment programs as well as the effect of laws and regulations may also have a significant influence on the profitability of our tenants and operators.
Healthcare Segments
Post-acute/skilled nursing. Skilled Nursing Facilities (“SNF”) offer restorative, rehabilitative and custodial nursing care for people not requiring the more extensive and sophisticated treatment available at hospitals. Ancillary revenues and revenues from sub-acute care services are derived from providing services to residents beyond room and board and include occupational, physical, speech, respiratory and intravenous therapy, wound care, oncology treatment, brain injury care and orthopedic therapy as well as sales of pharmaceutical products and other services. Certain SNFs provide some of the foregoing services on an out-patient basis.
Post-acute/skilled nursing services provided by our operations and tenants in these facilities will be primarily paid for either by private sources or through the Medicare and Medicaid programs.
Independent Living Facilities (“ILFs”). ILFs are designed to meet the needs of seniors who choose to live in an environment surrounded by their peers with services such as housekeeping, meals and activities. These residents generally do not need assistance with activities of daily living (“ADL”), such as bathing, eating, and dressing. However, residents have the option to contract for these services.
Senior housing. Senior housing facilities include assisted living facilities (“ALFs”), independent living facilities (“ILFs”) and continuing care retirement communities (“CCRCs”), which cater to different segments of the elderly population based upon their needs. Services provided by our operations or tenants in these facilities are primarily paid for by the residents directly or through private insurance and are less reliant on government reimbursement programs such as Medicaid and Medicare. Senior housing property types are further described below.
Assisted Living Facilities. ALFs are licensed care facilities that provide personal care services, support, and housing for those who need help with activities of daily living yet require limited medical care. The programs and services may include transportation, social activities, exercise and fitness programs, beauty or barber shop access, hobby and craft activities, community excursions, meals in a dining room setting and other activities sought by residents. These facilities are often in apartment-like buildings with private residences ranging from single rooms to large apartments. Certain ALFs may offer higher levels of personal assistance for residents with Alzheimer’s disease or other forms of dementia. Levels of personal assistance are based in part on local regulations.
Continuing Care Retirement Communities (“CCRCs”). CCRCs provide housing and health-related services under long-term contracts. This alternative is appealing to residents as it eliminates the need for relocating when health and medical needs change, thus allowing residents to “age in place.” Some CCRCs require a substantial entry or buy-in fee and most also charge monthly maintenance fees in exchange for a living unit, meals, and some health services. CCRCs typically require the individual to be in relatively good health and independent upon entry.
Investments
Direct Ownership. We plan to primarily generate revenue by purchasing properties and operating the facilities internally. Most of our revenue will be received from government agencies, hospice companies, managed care contracts and private pay receipts that will provide for a substantial recovery of operating expenses including but not limited to staffing, supplies, bed taxes, real estate taxes, repairs and maintenance, utilities, and insurance. For existing properties with leases in place, our rents will be received from leases under triple net leases.
Operating properties. We may enter contracts with healthcare operators to manage communities that are placed in a structure permitted by the Housing and Economic Recovery Act of 2008 (commonly referred to as “RIDEA”). Additionally, as an owner operator, our local teams work to create alignment with our internal health care providers to scale operating efficiencies, and/or ancillary services to drive profitable growth.
Our ability to grow income from our properties depends, in part, on our ability to (i) increase revenue and other earned income by increasing occupancy levels and improving rates, (ii) manage bad debt and (iii) control operating expenses. For properties under lease, most of our leases will include contractual annual base rent escalation clauses that are either predetermined fixed increases and/or are a function of an inflation index.
Debt investments. Our mezzanine loans will generally be secured by a pledge of ownership interests of an entity or entities, which directly or indirectly own properties, and are subordinate to more senior debt, including mortgages and more senior mezzanine loans. Our interest in mortgages and construction financing will typically be issued by federal, state, and/or local banks and will generally be secured by healthcare real estate.
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Developments and redevelopments. We will generally commit to development projects that are at least 50% pre-leased or when we believe that market conditions will support speculative construction. We will work closely with our local real estate service providers, including brokerage, property management, project management and construction management companies to assist us in evaluating development proposals and completing developments. Our development and redevelopment investments will likely be in the life science and medical office segments. Redevelopments are properties that require significant capital expenditures (generally more than 25% of acquisition cost or existing basis) to achieve property stabilization or to change the primary use of the properties.
Recent Financings
2021 Senior Secured Note Extension
On January 17, 2020, the Board of Directors agreed to increase the total offering amount and extend the period of its 2018 Offering of 11% Senior Secured Notes. The total amount of the Offering was increased to $2,500,000. Effective February 5, 2020 and March 3, 2020, the Company completed the sale of $60,000 and $100,000, respectively, of Units in the Offering. The sale of $100,000 Units on March 3, 2020 was to a related party. Effective October 31, 2020 the Company completed the exchange of $150,000 of Units in the Offering for matured Senior Unsecured Notes. No fees or commissions were paid on the sale of the Units. The proceeds were used for general working capital.
In October 2021, the Company renegotiated the Senior Secured Notes, originally issued in 2018. The new terms were for 10% annual interest through June 30, 2023. The warrants issued and associated with these notes were extended through the same date. All other terms remain the same.
Exchange of Senior Notes for Common Stock
In the fourth quarter of 2021 and first quarter of 2022, the Company completed the exchange of an aggregate of $795,000 in principal amount of Senior Secured Notes for 159,000 shares of Common Stock valued at $5.00 per share.
COVID-19 Pandemic
In December 2019, a novel strain of coronavirus (“COVID-19”) emerged in China. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The outbreak has now spread to the United States and infections have been reported globally.
Starting in March 2020, the COVID-19 pandemic, and measures to prevent its spread began to affect us in a number of ways. In our operating portfolio, occupancy trended lower in the second half of the month as government policies and implementation of infection control best practices began to materially limit or close communities to new resident move-ins. In addition, starting in mid-March, operating costs began to rise materially, including for services, labor and personal protective equipment and other supplies, as our operations took appropriate actions to protect residents and caregivers. These trends accelerated in fiscal year 2021, and are expected to continue through at least December 2023, impacting revenues and net operating income.
The Centers for Disease Control & Prevention (“CDC”) will provide final confirmation of the cases. The Company is engaging in aggressive mitigation efforts in accordance with CDC and state Department of Health guidelines to protect the health and safety of residents while respecting their rights. Employees at all of our facilities are taking several precautions as they care for residents, including, among other things, monitoring themselves for symptoms upon leaving and returning home, and upon arriving at and leaving the skilled nursing facility. They are also wearing masks and other personal protective equipment while caring for residents. Our operations have also reported to us that they currently have adequate supply levels, including appropriate quantities of Personal Protective Equipment (PPE) for staff.
The federal government, as well as state and local governments, have implemented or announced programs to provide financial and other support to businesses affected by the COVID-19 pandemic, some of which benefit or could benefit our company, tenants, operators, borrowers, and managers. While these government assistance programs are not expected to fully offset the negative financial impact of the pandemic, and there can be no assurance that these programs will continue or the extent to which they will be expanded, we are monitoring them closely and have been in active dialogue with our tenants, operators, borrowers, and managers regarding ways in which these programs could benefit them or us.
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The COVID-19 pandemic is rapidly evolving. The information in this Report is based on data currently available to us and will likely change as the pandemic progresses. As COVID-19 continues to spread throughout areas in which we operate, we believe the outbreak has the potential to have a material negative impact on our operating results and financial condition. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our operations, employees and vendors, and impact on the facilities we manage, all of which are uncertain and cannot be predicted. Given these uncertainties, we cannot reasonably estimate the related impact to our business, operating results, and financial condition.
We expect the trends highlighted above with respect to the impact of the COVID-19 pandemic to continue and, in some cases, accelerate. The extent of the COVID-19 pandemic’s continued effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, the pace at which jurisdictions across the country re-open and restrictions begin to lift, the availability of government financial support to our business, tenants, and operators and whether a resurgence of the outbreak occurs. Due to these uncertainties, we are not able at this time to estimate the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition, and cash flows but it could be material.
PPP and CARES Act
On April 1, 2021, the Company received confirmation that the request for forgiveness for the second round of Paycheck Protection Program (“PPP”) finding was forgiven. In April and May of 2020, we applied for and were approved for an aggregate of $1,610,169 in Paycheck Protection Program (“PPP”) loans issued by the SBA. As a result of newly adopted amendments to the PPP program, 60% of the PPP loan amount must be expended on payroll in the 24 week-period following the loan date. On November 19, 2020, the Company received notice of forgiveness of the entire balance on two of its three loans obtained through the PPP (the “PPP Loans”) of the CARES Act. The forgiveness included principal of $324,442 and $710,752, as well as interest payable of $1,794 and $3,869. The Company applied for forgiveness on the remaining $574,975 principal and interest payable of $4,017, which was approved by the SBA on June 16, 2021.
Government Regulations, Licensing and Enforcement
Overview
Our operations, and tenants will typically be subject to extensive and complex federal, state and local healthcare laws and regulations relating to fraud and abuse practices, government reimbursement, licensure and certificate of need and similar laws governing the operation of healthcare facilities, and we expect that the healthcare industry, in general, will continue to face increased regulation and pressure in the areas of fraud, waste and abuse, cost control, healthcare management and provision of services, among others. These regulations are wide-ranging and can subject our tenants and our operations to civil, criminal, and administrative sanctions. Affected tenants and operators may find it increasingly difficult to comply with this complex and evolving regulatory environment because of a relative lack of guidance in many areas as certain of our healthcare properties will be subject to oversight from several government agencies and the laws may vary from one jurisdiction to another. Changes in laws and regulations and reimbursement enforcement activity and regulatory non-compliance by our tenants and operations can all have a significant effect on the financial condition of the property, which in turn may adversely impact us.
We will seek to mitigate the risk to us resulting from the significant healthcare regulatory risks faced by our operations and tenants by diversifying our portfolio among property types and geographical areas, diversifying our tenant and operations base to limit our exposure to any single entity, and seeking tenants and operations that are not largely dependent on Medicaid reimbursement for their revenues. In addition, we ensure in each instance that our operations have obtained all necessary licenses and permits before beginning operations and require that those operators covenant that they will comply with all applicable laws and regulations in connection with the facility operations.
The following is a discussion of certain laws and regulations generally applicable to our operations and tenants.
Fraud and Abuse Enforcement
There are various extremely complex federal and state laws and regulations governing healthcare providers’ relationships and arrangements and prohibiting fraudulent and abusive practices by such providers. These laws include (i) federal and state false claims acts, which, among other things, prohibit providers from filing false claims or making false statements to receive payment from Medicare, Medicaid or other federal or state healthcare programs, (ii) federal and state anti-kickback and fee-splitting statutes, including the Medicare and Medicaid anti-kickback statute, which prohibit the payment or receipt of remuneration to induce referrals or recommendations of healthcare items or services, (iii) federal and state physician self-referral laws (commonly referred to as the “Stark Law”), which generally prohibit referrals by physicians to entities with which the physician or an immediate family member has a financial relationship, (iv) the federal Civil Monetary Penalties Law, which prohibits, among other things, the knowing presentation of a false or fraudulent claim for certain healthcare services and (v) federal and state privacy laws, including the privacy and security rules contained in the Health Insurance Portability and Accountability Act of 1996, which provide for the privacy and security of personal health information. Violations of healthcare fraud and abuse laws carry civil, criminal, and administrative sanctions, including punitive sanctions, monetary penalties, imprisonment, denial of Medicare and Medicaid reimbursement and potential exclusion from Medicare, Medicaid or other federal or state healthcare programs. These laws are enforced by a variety of federal, state, and local agencies and can also be enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or “whistleblower” actions. Many of our operations and tenants are subject to these laws, and some of them may in the future become the subject of governmental enforcement actions if they fail to comply with applicable laws.
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Reimbursement
Sources of revenue for many of our tenants and operations will include, among other sources, governmental healthcare programs, such as the federal Medicare program and state Medicaid programs, and non-governmental payors, such as insurance carriers and HMOs. As federal and state governments focus on healthcare reform initiatives, and as many states face significant budget deficits, efforts to reduce costs by these payors will likely continue, which may result in reduced or slower growth in reimbursement for certain services provided by some of our tenants and operations.
Healthcare Licensure and Certificate of Need
Certain healthcare facilities in our portfolio will be subject to extensive federal, state, and local licensure, certification and inspection laws and regulations. In addition, various licenses and permits are required to dispense narcotics, operate pharmacies, handle radioactive materials, and operate equipment. Many states require certain healthcare providers to obtain a certificate of need, which requires prior approval for the construction, expansion, and closure of certain healthcare facilities. The approval process related to state certificate of need laws may impact some of our tenants’ and our ability to expand or operative effectively.
Americans with Disabilities Act (the “ADA”)
Our properties must comply with the ADA and any similar state or local laws to the extent that such properties are “public accommodations” as defined in those statutes. The ADA may require removal of barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. To date, we have not received any notices of noncompliance with the ADA that have caused us to incur substantial capital expenditures to address ADA concerns. Should barriers to access by persons with disabilities be discovered at any of our properties, we may be directly or indirectly responsible for additional costs that may be required to make facilities ADA-compliant. Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants. The obligation to make readily achievable accommodations pursuant to the ADA is an ongoing one, and we continue to assess our properties and make modifications as appropriate in this respect.
Environmental Matters
A wide variety of federal, state, and local environmental and occupational health and safety laws and regulations affect healthcare facility operations. These complex federal and state statutes, and their enforcement, involve a myriad of regulations, many of which involve strict liability on the part of the potential offender. Some of these federal and state statutes may directly impact us. Under various federal, state, and local environmental laws, ordinances and regulations, an owner of real property or a secured lender, such as us, may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connection with such property, as well as other potential costs relating to hazardous or toxic substances (including government fines and damages for injuries to persons and adjacent property). The cost of any required remediation, removal, fines or personal or property damages and the owner’s or secured lender’s liability therefore could exceed or impair the value of the property, and/or the assets of the owner or secured lender. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral which, in turn, could reduce our revenues.
Taxation
Federal Income Tax Considerations
The following summary of the taxation of the Company and the material federal tax consequences to the holders of our debt and equity securities is for general information only and is not tax advice. This summary does not address all aspects of taxation that may be relevant to certain types of holders of stock or securities (including, but not limited to, insurance companies, tax-exempt entities, financial institutions or broker-dealers, persons holding shares of common stock as part of a hedging, integrated conversion, or constructive sale transaction or a straddle, traders in securities that use a mark-to-market method of accounting for their securities, investors in pass-through entities and foreign corporations and persons who are not citizens or residents of the United States).
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This summary does not discuss all the aspects of U.S. federal income taxation that may be relevant to you considering your particular investment or other circumstances. In addition, this summary does not discuss any state or local income taxation or foreign income taxation or other tax consequences. This summary is based on current U.S. federal income tax law. Subsequent developments in U.S. federal income tax law, including changes in law or differing interpretations, which may be applied retroactively, could have a material effect on the U.S. federal income tax consequences of purchasing, owning, and disposing of our securities as set forth in this summary. Before you purchase our securities, you should consult your own tax advisor regarding the U.S. federal, state, local, foreign, and other tax consequences of acquiring, owning, and selling our securities.
On March 30, 2010, the President signed into law the Health Care and Education Reconciliation Act of 2010, which requires U.S. stockholders who meet certain requirements and are individuals, estates, or certain trusts to pay an additional 3.8% tax on, among other things, dividends on and capital gains from the sale or other disposition of stock for taxable years beginning after December 31, 2012. U.S. stockholders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of shares of our stock.
Health Care Regulatory Climate
Government Regulation and Reimbursement
The healthcare industry is heavily regulated. Our operations are subject to extensive and complex federal, state and local healthcare laws and regulations. These laws and regulations are subject to frequent and substantial changes resulting from the adoption of new legislation, rules and regulations, and administrative and judicial interpretations of existing law. The ultimate timing or effect of these changes, which may be applied retroactively, cannot be predicted. Changes in laws and regulations impacting our operations, in addition to regulatory non-compliance by our operations, can have a significant effect on the operations and financial condition of our operations, which in turn may adversely impact us. There is the potential that we may be subject directly to healthcare laws and regulations because of the broad nature of some of these regulations, such as the Anti-kickback Statute and False Claims Act, among others.
The U.S. Department of Health and Human Services (“HHS”) declared a public health emergency on January 31, 2020 following the World Health Organization’s decision to declare COVID-19 a public health emergency of international concern. This declaration, which has been extended through April 14, 2022, allows HHS to provide temporary regulatory waivers and new reimbursement rules designed to equip providers with flexibility to respond to the COVID-19 pandemic by suspending various Medicare patient coverage criteria and documentation and care requirements, including, for example, suspension of the three-day prior hospital stay coverage requirement and expanding the list of approved services which may be provided via telehealth. These regulatory actions have contributed, and may continue to contribute, to a change in census volumes and skilled nursing mix that may not otherwise have occurred. It remains uncertain when federal and state regulators will resume enforcement of those regulations which are waived or otherwise not being enforced during the public health emergency due to the exercise of enforcement discretion.
These temporary changes to regulations and reimbursement, as well as emergency legislation, including the CARES Act enacted on March 27, 2020 and discussed below, continue to have a significant impact on our operations and financial condition. The extent of the COVID-19 pandemic’s effect on the Company’s operational and financial performance will depend on future developments, including the sufficiency and timeliness of additional governmental relief, the duration, spread and intensity of the outbreak, the impact of genetic mutations of the virus into new variants, the impact of vaccine distributions and booster doses on our operations and their populations, the impact of vaccine mandates on staffing shortages at our operations, as well as the difference in how the pandemic may impact SNFs in contrast to ALFs, all of which developments and impacts are uncertain and difficult to predict. Due to these uncertainties, we are not able at this time to estimate the effect of these factors on our business; however, the adverse impact on our business, results of operations, financial condition and cash flows could be material.
A significant portion of our revenue is derived from government-funded reimbursement programs, consisting primarily of Medicare and Medicaid. As federal and state governments continue to focus on healthcare reform initiatives, efforts to reduce costs by government payors will likely continue. Significant limits on the scope of services reimbursed and/or reductions of reimbursement rates could therefore have a material adverse effect on our results of operations and financial condition. Additionally, new and evolving payor and provider programs that are tied to quality and efficiency could adversely impact our liquidity, financial condition or results of operations, and there can be no assurance that payments under any of these government healthcare programs are currently, or will be in the future, sufficient to fully reimburse us for our operating and capital expenses. In addition to quality and value based reimbursement reforms, the U.S. Centers for Medicare and Medicaid Services (“CMS”) has implemented a number of initiatives focused on the reporting of certain facility specific quality of care indicators that could affect our operations, including publicly released quality ratings for all of the nursing homes that participate in Medicare or Medicaid under the CMS “Five Star Quality Rating System.” Facility rankings, ranging from five stars (“much above average”) to one star (“much below average”) are updated on a monthly basis. SNFs are required to provide information for the CMS Nursing Home Compare website regarding staffing and quality measures. These rating changes have impacted referrals to SNFs, and it is possible that changes to this system or other ranking systems could lead to future reimbursement policies that reward or penalize facilities on the basis of the reported quality of care parameters.
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The following is a discussion of certain U.S. laws and regulations generally applicable to our operations.
Reimbursement Changes Related to COVID-19:
U.S. Federal Stimulus Funds and Financial Assistance for Healthcare Providers. In response to the pandemic, Congress has enacted a series of economic stimulus and relief measures. On March 18, 2020, the Families First Coronavirus Response Act was enacted in the U.S., providing a temporary 6.2% increase to each qualifying state and territory’s Medicaid Federal Medical Assistance Percentage (“FMAP”) effective January 1, 2020. The temporary FMAP increase will extend through the last day of the calendar quarter in which the public health emergency terminates. States will make individual determinations about how this additional Medicaid reimbursement will be applied to SNFs, if at all.
In further response to the pandemic, in 2020, the CARES Act authorized approximately $178 billion to be distributed through the Provider Relief Fund to reimburse eligible healthcare providers for healthcare related expenses or lost revenues that are attributable to coronavirus. In addition, in September 2021, HHS announced the release of $25.5 billion in provider funding, including $17 billion of the $178 billion previously authorized through the CARES Act and $8.5 billion for rural providers through the American Rescue Plan Act. The Provider Relief Fund is administered under the broad authority and discretion of HHS and recipients are not required to repay distributions received to the extent they are used in compliance with applicable requirements.
HHS began distributing Provider Relief Fund grants in April 2020 and has made grants available to various provider groups in four general phases. In May 2020, HHS announced that approximately $9.5 billion in targeted distributions would be made available to eligible SNFs, approximately $2.5 billion of which were composed of performance-based incentive payments tied to a facility’s infection rate. Approximately $8.5 billion in additional funds were added to the Provider Relief Fund through the American Rescue Plan Act enacted on March 11, 2021; however, these funds are limited to rural providers and suppliers. In September 2021, HHS announced the release of $25.5 billion of funding, including $17 billion in Phase 4 Provider Relief Fund payments for a broad range of healthcare providers who can document revenue loss and expenses associated with the pandemic between July 1, 2020 and March 31, 2021, as well as release of the $8.5 billion in funding for rural providers, including those with Medicaid and Medicare patients. In addition, in September 2021, the Centers for Disease Control and Prevention (“CDC”) announced it would allocate $500 million to staffing, training and deployment of state-based nursing home and long-term care “strike teams” to assist facilities with known or suspected COVID-19 outbreaks.
HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act. There are substantial uncertainties regarding the extent to which our operations will receive additional funding from HHS.
The CARES Act and related legislation also made other forms of financial assistance available to healthcare providers, which have the potential to impact our operations to varying degrees. This assistance includes Medicare and Medicaid payment adjustments and an expansion of the Medicare Accelerated and Advance Payment Program, which made available accelerated payments of Medicare funds in order to increase cash flow to providers. These payments are loans that providers are scheduled to repay beginning one year from the issuance date of each provider’s or supplier’s accelerated or advance payment, with repayment made through automatic recoupment of 25% of Medicare payments otherwise owed to the provider or supplier for eleven months, followed by an increase to 50% for another six months, after which any outstanding balance would be repaid subject to an interest rate of 4%. We believe these repayments commenced for many of our operations in April 2021 and have adversely impacted, and will continue to adversely impact, operating cash flows.
Additionally, CMS suspended Medicare sequestration payment adjustments, which would have otherwise reduced payments to Medicare providers by 2%, from May 1, 2020 through December 31, 2020, but also extended sequestration through 2030. The Bipartisan-Bicameral Omnibus COVID Relief Deal passed in December 2020 further extended the suspension of the Medicare sequestration until March 31, 2021, and it most recently has been further extended from December 31, 2021 through March 31, 2022. While not limited to healthcare providers, the CARES Act additionally provided payroll tax relief for employers, allowing them to defer payment of employer Social Security taxes that are otherwise owed for wage payments made after March 27, 2020 through December 31, 2020 to December 31, 2021 with respect to 50% of the payroll taxes owed, with the remaining 50% deferred until December 31, 2022.
Quality of Care Initiatives and Additional Requirements Related to COVID-19. In addition to COVID-19 reimbursement changes, several regulatory initiatives announced in 2020 and 2021 focused on addressing quality of care in long-term care facilities, including those related to COVID-19 testing and infection control protocols, vaccine protocols, staffing levels, reporting requirements, and visitation policies, as well as increased inspection of nursing homes. In August 2021, CMS announced it was developing an emergency regulation requiring staff vaccinations within the nation’s more than 15,000 Medicare and Medicaid-participating nursing homes, and in September 2021, CMS further announced that the scope of the regulation will be expanded to include workers in hospitals, dialysis facilities, ambulatory surgical settings, and home health agencies. In addition, recent updates to the Nursing Home Care website and the Five Star Quality Rating System include revisions to the inspection process, adjustment of staffing rating thresholds, the implementation of new quality measures and the inclusion of a staff turnover percentage (over a 12-month period). Although the American Rescue Plan Act did not allocate specific funds to SNF or ALF providers, approximately $200 million was allocated to quality improvement organizations to provide infection control and vaccination uptake support to SNFs and $500 million has been allocated by the CDC to staffing, training and deployment of state-based nursing home and long-term care “strike teams” to assist facilities with known or suspected COVID-19 outbreaks.
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On June 16, 2020, the U.S. House of Representatives Select Subcommittee on the Coronavirus Crisis announced the launch of an investigation into the COVID-19 response of nursing homes and the use of federal funds by nursing homes during the pandemic. The Select Subcommittee continued to be active throughout the remainder of 2020 and 2021. In March 2021, the Oversight Subcommittee of the House Ways and Means Committee held a hearing on examining the impact of private equity in the U.S. healthcare system, including the impact on quality of care provided within the skilled nursing industry. These hearings, as well as additional calls for government review of the role of private equity in the U.S. healthcare industry, could result in legislation imposing additional requirements on our operations.
Reimbursement Generally:
Medicaid. The American Rescue Plan Act contains several provisions designed to increase coverage, expand benefits, and adjust federal financing for state Medicaid programs. For example, the American Rescue Plan Act increases the FMAP by 10 percentage points for state home and community-based services expenditures beginning April 1, 2021 through March 30, 2022 in an effort to assist seniors and people with disabilities to receive services safely in the community rather than in nursing homes and other congregate care settings. As a condition for receiving the FMAP increase, states must enhance, expand, or strengthen their Medicaid home and community-based services program during this period. These potential enhancements to Medicaid reimbursement funding may be offset in certain states by state budgetary concerns, the ability of the state to allocate matching funds and to comply with the new requirements, the potential for increased enrollment in Medicaid due to unemployment and declines in family incomes resulting from the COVID-19 pandemic, and the potential allocation of state Medicaid funds available for reimbursement away from SNFs in favor of home and community-based programs.
Medicare. On July 29, 2021, CMS issued a final rule regarding the government fiscal year 2022 Medicare payment rates and quality payment programs for SNFs, with aggregate Medicare Part A payments projected to increase by $410 million, or 1.2%, for fiscal year 2022 compared to fiscal year 2021. This estimated reimbursement increase is attributable to a 2.7% market basket increase factor less a 0.8 percentage point forecast error adjustment and a 0.7 percentage point productivity adjustment, and a $1.2 million decrease due to the proposed reduction to the SNF prospective payment system rates to account for the recent blood-clotting factors exclusion. The annual update is reduced by two percentage points for SNFs that fail to submit required quality data to CMS under the SNF Quality Reporting Program. CMS has indicated that these impact figures did not incorporate the SNF Value-Based Program reductions that are estimated to be $184.25 million in fiscal year 2022.
Payments to providers continue to be increasingly tied to quality and efficiency. The Patient Driven Payment Model (“PDPM”), which was designed by CMS to improve the incentives to treat the needs of the whole patient, became effective October 1, 2019. Additionally, our operations continue to adapt to the reimbursement changes and other payment reforms resulting from the value-based purchasing programs applicable to SNFs under the 2014 Protecting Access to Medicare Act. These reimbursement changes have had and may, together with any further reimbursement changes to PDPM or value-based purchasing models, in the future have an adverse effect on the operations and financial condition of some operators and could adversely impact the ability of operators to meet their obligations to us.
On May 27, 2020, CMS added physical therapy, occupational therapy and speech-language pathology to the list of approved telehealth Providers for the Medicare Part B programs provided by a SNF as a part of the COVID-19 1135 waiver provisions. The COVID-19 1135 waiver provisions also allow for the facility to bill an originating site fee to CMS for telehealth services provided to Medicare Part B beneficiary residents of the facility when the services are provided by a physician from an alternate location, effective March 6, 2020 through the end of the public health emergency.
Other Regulation:
Office of the Inspector General Activities. The Office of Inspector General (“OIG”) of HHS has provided long-standing guidance for SNFs regarding compliance with federal fraud and abuse laws. More recently, the OIG has conducted increased oversight activities and issued additional guidance regarding its findings related to identified problems with the quality of care and the reporting and investigation of potential abuse or neglect at group homes, nursing homes and SNFs. The OIG has additionally reviewed the staffing levels reported by SNFs as part of its August 2018 and February 2019 Work Plan updates, and included a review of involuntary transfers and discharges from nursing homes in the June 2019 Work Plan updates. In August 2020, the OIG released its findings regarding its review of staffing levels in SNFs from 2018. The OIG recommended that CMS enhance efforts to ensure nursing homes meet daily staffing requirements and explore ways to provide consumers with additional information on nursing homes’ daily staffing levels and variability. The OIG indicated that while the review was initiated before the COVID-19 pandemic emerged, the pandemic reinforces the importance of sufficient staffing for nursing homes, as inadequate staffing can make it more difficult for nursing homes to respond to infectious disease outbreaks like COVID-19. It is unknown what impact, if any, enhanced scrutiny of staffing levels by OIG and CMS will have on our operations.
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Department of Justice and Other Enforcement Actions. SNFs are under intense scrutiny for ensuring the quality of care being rendered to residents and appropriate billing practices conducted by the facility. The Department of Justice (“DOJ”) has historically used the False Claims Act to civilly pursue nursing homes that bill the federal government for services not rendered or care that is grossly substandard. In 2020, the DOJ launched a National Nursing Home Initiative to coordinate and enhance civil and criminal enforcement actions against nursing homes with grossly substandard deficiencies. Such enforcement activities are unpredictable and may develop over lengthy periods of time. An adverse resolution of any of these enforcement activities or investigations incurred by our operations may involve injunctive relief and/or substantial monetary penalties, either or both of which could have a material adverse effect on their reputation, business, results of operations and cash flows.
Medicare and Medicaid Program Audits. Governmental agencies and their agents, such as the Medicare Administrative Contractors, fiscal intermediaries, and carriers, as well as the OIG, CMS and state Medicaid programs, conduct audits of our operations’ billing practices from time to time. CMS contracts with Recovery Audit Contractors on a contingency basis to conduct post-payment reviews to detect and correct improper payments in the fee-for-service Medicare program, to managed Medicare plans and in the Medicaid program. Regional Recovery Audit Contractor program auditors along with the OIG and DOJ are expected to continue their efforts to evaluate SNF Medicare claims for any excessive therapy charges. CMS also employs Medicaid Integrity Contractors to perform post-payment audits of Medicaid claims and identify overpayments. In addition, the state Medicaid agencies and other contractors have increased their review activities. To the extent any of our operations are found out of compliance with any of these laws, regulations or programs, their financial position and results of operations can be adversely impacted, which in turn could adversely impact us.
Fraud and Abuse. There are various federal and state civil and criminal laws and regulations governing a wide array of healthcare provider referrals, relationships, and arrangements, including laws and regulations prohibiting fraud by healthcare providers. Many of these complex laws raise issues that have not been clearly interpreted by the relevant governmental authorities and courts.
These laws include: (i) federal and state false claims acts, which, among other things, prohibit providers from filing false claims or making false statements to receive payment from Medicare, Medicaid or other federal or state healthcare programs; (ii) federal and state anti-kickback and fee-splitting statutes, including the Medicare and Medicaid Anti-kickback statute, which prohibit the payment or receipt of remuneration to induce referrals or recommendations of healthcare items or services, such as services provided in a SNF; (iii) federal and state physician self-referral laws (commonly referred to as the Stark Law), which generally prohibit referrals by physicians to entities for designated health services (some of which are provided in SNFs) with which the physician or an immediate family member has a financial relationship; (iv) the federal Civil Monetary Penalties Law, which prohibits, among other things, the knowing presentation of a false or fraudulent claim for certain healthcare services and (v) federal and state privacy laws, including the privacy and security rules contained in the Health Insurance Portability and Accountability Act of 1996, which provide for the privacy and security of personal health information.
Violations of healthcare fraud and abuse laws carry civil, criminal, and administrative sanctions, including punitive sanctions, monetary penalties, imprisonment, denial of Medicare and Medicaid reimbursement and potential exclusion from Medicare, Medicaid or other federal or state healthcare programs. Additionally, there are criminal provisions that prohibit filing false claims or making false statements to receive payment or certification under Medicare and Medicaid, as well as failing to refund overpayments or improper payments. Violation of the Anti-kickback statute or Stark Law may form the basis for a federal False Claims Act violation. These laws are enforced by a variety of federal, state, and local agencies and can also be enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or whistleblower actions, which have become more frequent in recent years.
Privacy. Our operations are subject to various federal, state and local laws and regulations designed to protect the confidentiality and security of patient health information, including the federal Health Insurance Portability and Accountability Act of 1996, as amended, the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and the corresponding regulations promulgated thereunder (collectively referred to herein as “HIPAA”). The HITECH Act expanded the scope of these provisions by mandating individual notification in instances of breaches of protected health information, providing enhanced penalties for HIPAA violations, and granting enforcement authority to states’ Attorneys General in addition to the HHS Office for Civil Rights (“OCR”). Additionally, in a final rule issued in January 2013, HHS modified the standard for determining whether a breach has occurred by creating a presumption that any non-permitted acquisition, access, use or disclosure of protected health information is a breach unless the covered entity or business associate can demonstrate through a risk assessment that there is a low probability that the information has been compromised.
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Various states have similar laws and regulations that govern the maintenance and safeguarding of patient records, charts and other information generated in connection with the provision of professional medical services. These laws and regulations require our operations to expend the requisite resources to secure protected health information, including the funding of costs associated with technology upgrades. Operators found in violation of HIPAA or any other privacy law or regulation may face significant monetary penalties. In addition, compliance with an operator’s notification requirements in the event of a breach of unsecured protected health information could cause reputational harm to an operator’s business.
Licensing and Certification. Our operations and facilities are subject to various federal, state, and local licensing and certification laws and regulations, including laws and regulations under Medicare and Medicaid requiring operators of SNFs and ALFs to comply with extensive standards governing operations. Governmental agencies administering these laws and regulations regularly inspect our operations’ facilities and investigate complaints. Our operations and their managers receive notices of observed violations and deficiencies from time to time, and sanctions have been imposed from time to time on facilities operated by them. In addition, many states require certain healthcare providers to obtain a certificate of need, which requires prior approval for the construction, expansion, or closure of certain healthcare facilities, which has the potential to impact some of our operations’ abilities to expand or change their businesses.
Other Laws and Regulations. Additional federal, state and local laws and regulations affect how our operations conduct their operations, including laws and regulations protecting consumers against deceptive practices and otherwise generally affecting our operations’ management of their property and equipment and the conduct of their operations (including laws and regulations involving fire, health and safety; the Americans with Disabilities Act (the “ADA”), which imposes certain requirements to make facilities accessible to persons with disabilities, the costs for which we may be directly or indirectly responsible; the U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively referred to as the “Healthcare Reform Law”), which amended requirements for staff training, discharge planning, infection prevention and control programs, and pharmacy services, among others; staffing; quality of services, including care and food service; residents’ rights, including abuse and neglect laws; and health standards, including those set by the federal Occupational Safety and Health Administration (in the U.S.). It is anticipated that our operations will continue to face additional federal and state regulatory requirements related to the operation of their facilities in response to the COVID-19 pandemic. These requirements may continue to evolve and develop over lengthy periods of time.
General and Professional Liability. Although arbitration agreements have been effective in limiting general and professional liabilities for SNF and long-term care providers, there have been numerous lawsuits in recent years challenging the validity of arbitration agreements in long-term care settings. On July 16, 2019, CMS issued a final rule lifting the prohibition on pre-dispute arbitration agreements offered to residents at the time of admission provided that certain requirements are met. The rule prohibits providers from requiring residents to sign binding arbitration agreements as a condition for receiving care and requires that the agreements specifically grant residents the explicit right to rescind the agreement within thirty calendar days of signing. A number of professional liability and employment related claims have been filed or are threatened to be filed against long-term care providers related to COVID-19. While such claims may be subject to liability protection provisions within various state executive orders or legislation and/or federal legislation, an adverse resolution of any of legal proceeding or investigations against our operations may involve injunctive relief and/or substantial monetary penalties, either or both of which could have a material adverse effect on our operations’ reputation, business, results of operations and cash flows.
Since the announcement of the COVID-19 pandemic and beginning as of March 13, 2020, CMS has issued numerous temporary regulatory waivers and new rules to assist health care providers, including skilled nursing facilities, respond to the COVID-19 pandemic. These include, waiving the skilled nursing facility’s 3-day qualifying inpatient hospital stay requirement, flexibility in calculating a new Medicare benefit period, waiving timing for completing functional assessments, waiving requirements for health care professional licensure, survey and certification, provider enrollment, and reimbursement for services performed by telehealth, among many others. CMS also announced a temporary expansion of its Accelerated and Advance Payment Program to allow skilled nursing facilities and certain other Medicare providers to request accelerated or advance payments in an amount up to 100% of the Medicare Part A payments they received from October–December 2019; this expansion was suspended April 26, 2020 in light of other CARES Act funding relief. In addition, CMS has also enhanced requirements for nursing facilities to report COVID-19 infections to local, state, and federal authorities.
On March 26, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), sweeping legislation intended to bolster the nation’s response to the COVID-19 pandemic. In addition to offering economic relief to individuals and impacted businesses, the law expands coverage of COVID-19 testing and preventative services, addresses health care workforce needs, eases restrictions on telehealth services during the crisis, and increases Medicare regulatory flexibility, among many other provisions. Notably, the CARES Act temporarily suspends the 2% across-the-board “sequestration” reduction during the period May 1, 2020 through December 31, 2020, and extends the current Medicare sequester requirement through fiscal year 2030. In addition, the law provides $100 billion in grants to eligible health care providers for health care related expenses or lost revenues that are attributable to COVID-19. On April 10, 2020, CMS announced the distribution of $30 billion in funds to Medicare providers based upon their 2019 Medicare fee for service revenues. Eligible providers must agree to certain terms and conditions in receiving these grants. In addition, the Department of Health and Human Services (“HHS”) has authorized $20 billion of additional funding for providers that have already received funds from the initial distribution of $30 billion. Unlike the first round of funds, which came automatically, providers have to apply for these additional funds and submit the required supporting documentation, using the online portal provided by HHS. Providers must attest to and agree to specific terms and conditions for the use of such funds. HHS will make the additional distributions with the goal of allocating the whole $50 billion proportionally across all providers based on those providers’ proportional share of 2018 net Medicare fee-for-service revenue. CMS is expected to distribute additional funding to Medicaid and potentially other providers, but the details are not yet known.
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Congress periodically considers legislation revising Medicare and Medicaid policies, including legislation that could have the impact of reducing Medicare reimbursement for skilled nursing facilities and other Medicare providers, limiting state Medicaid funding allotments, encouraging home and community-based long-term care services as an alternative to institutional settings, or otherwise reforming payment policy for post-acute care services. Congress continues to consider further legislative action in response to the COVID-19 pandemic. There can be no assurances that enacted or future legislation will not have an adverse impact on the financial condition of our lessees and borrowers, which subsequently could materially adversely impact our company.
On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 which provides approximately $900 billion in COVID-19 relief aid. The Act includes an expansion of the PPP program, as well as many other provisions that may have a direct or indirect impact on health care providers like our company.
Additional reforms affecting the payment for, and availability of health care services have been proposed at the federal and state level and adopted by certain states. Increasingly, state Medicaid programs are providing coverage through managed care programs under contracts with private health plans, which is intended to decrease state Medicaid costs. State Medicaid budgets may experience shortfalls due to increased costs in addressing the COVID-19 pandemic. Congress and state legislatures can be expected to continue to review and assess alternative health care delivery systems and payment methodologies. Changes in the law, new interpretations of existing laws, or changes in payment methodologies may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business and the amount of reimbursement by the government and other third-party payors.
EMPLOYEES
As of December 31, 2021, the Company and its subsidiaries had 503 employees. The Company also engages the services of consultants from time to time, some of which may be provided by affiliates of the Company at no cost.
| 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. |
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| ● | 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. |
| ● | 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 1B. | UNRESOLVED STAFF COMMENTS |
Not applicable.
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| ITEM 2. | PROPERTIES |
As of December 31, 2021, we owned thirteen long-term care facilities including a campus of three buildings in Tulsa, OK. The following table provides summary information regarding these facilities at December 31, 2021:
| Total Square Feet | # of Beds | |||||||||||||||||||||||||||
| State | Properties | Operations | Leased Operations | Operating Square Feet | Leased Square Feet | Operating Beds | Leased 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 | 0 | 162,976 | - | 351 | - | |||||||||||||||||||||
| Total | 13 | 11 | 2 | 268,673 | 86,936 | 904 | 241 | |||||||||||||||||||||
| ITEM 3. | LEGAL PROCEEDINGS |
The Company and/or its affiliated subsidiaries are or were involved in the following litigation:
Bailey v. GL Nursing, LLC, et. al in the Circuit Court of Lonoke County, Arkansas, 23rd Circuit, 43CV-19-151.
In April 2019, the Company’s wholly-owned subsidiary was named as a co-defendant in the action arising out of a claimed personal injury suffered by the plaintiff while a resident of the skilled nursing home owned, but not operated, by GL Nursing. As of this date, we have engaged legal counsel, but no further information is known regarding the merits of the claim. After initial inquiry, it does not appear that the lease operator of the facility had in effect general liability insurance covering the GL Nursing, as landlord, as required by the operating lease.
As we simply were the owners of the property and not the operators, we believe that primary responsibility, if any, falls with the operator at the time. Under the terms of the lease, the operator has a duty to indemnify the Company, a claim which we intend to assert.
While it is too early to assess the Company’s exposure, we believe at this time that the likelihood of an adverse outcome is remote.
Thomas v. Edwards Redeemer Property Holdings, LLC, et.al., District Court for Oklahoma County, Oklahoma, Case No. CJ 2016-2160.
This action arises from a personal injury claim brought by heirs of a former resident of our Edwards Redeemer facility, filed in April 2016. We are entitled to indemnification from the lease operator and should be covered under the lease operator’s general liability policy. As we are not the operators of the facility and believe we have indemnity coverage, we believe we have no exposure. The lease operator’s insurance carrier is providing a defense and indemnity and, as a result, we believe the likelihood of a material adverse result is remote.
Edwards Redeemer Property Holdings LLC v. Edwards Redeemer Healthcare & Rehab, LLC, District Court of Oklahoma County, State of Oklahoma, Case No. CJ-19-5883.
This action was brought by us against the former lease operator for breaching the lease agreement, removing all the patients, and closing the facility. On October 17, 2019, the Court entered an Order Appointing a Receiver. We have entered into a Settlement Agreement and Release with the Receiver and an Operations Transfer Agreement pursuant to which our newly formed subsidiary will acquire the assets and operations of the facility. In March 2021, the Court approved the Settlement Agreement and Operations Transfer Agreement, the skilled nursing license was assigned to the Company’s wholly-owned subsidiary Park Place Health, LLC and the Company reopened the facility under the name Park Place Health. This matter is considered resolved.
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Oliphant v. Global Eastman, LLC, et.al., State Court of Cobb County, State of Georgia, Civil Action No. 20-A-3983
This is a personal injury lawsuit against various defendants arising out of the death of a patient of the Eastman Healthcare & Rehab Center (the “Facility”). At all relevant times, the Facility was owned by the Company’s wholly owned subsidiary Dodge NH, LLC and leased to Eastman Health & Rehab LLC, an affiliate of Cadence Healthcare, as lease operator. Neither the Company nor any affiliate of the Company had any involvement in patient care at the time of the incident for which complaint was made. The Company relies upon well-settled Georgia law that a landlord has no liability for patient care. The landlord is Dodge NH, LLC. Global Eastman, LLC was not formed as a legal entity during the period of the incident and did not assume the past liabilities as part of the OTA with the receivership of Eastman Healthcare & Rehab LLC which was effective July 1, 2020. Global Eastman LLC was formed on November 21, 2019. Plaintiff has dismissed these claims with prejudice, and the Company has filed a Motion to be awarded attorney’s fees and costs.
In the matter of Austin.
On December 23, 2020, we received written notice from an attorney of the intent to assert an action for damages against Dodge NH, LLC, which is our subsidiary that owns the nursing facility in Eastman Georgia. The action arises from the shooting death outside of the facility of a woman that worked for our cleaning contractor that cleaned the nursing home. The woman was shot by her former boyfriend who then committed suicide. The incident occurred in December 2019 when the facility was operated by a third-party operator who was in receivership. We do not believe there is any basis in law or fact to hold the owner of the real estate liable, and as a result management has concluded that the likelihood of a material adverse result is remote.
In re: Providence HR, LLC v. CRM of Warrenton, LLC, United States Bankruptcy Court, Middle District of Georgia, Macon Division, Case No. 21-50201
In re: ALT/WARR, LLC v. CRM of Sparta, LLC, United States Bankruptcy Court, Middle District of Georgia, Macon Division, Case No. 21-50200
These are companion cases arising out of the Company’s election to terminate the operating leases on the Company’s two facilities in Warrenton and Sparta, Georgia. The Company served a Notice of Termination on each facility and in response the lease operators filed voluntary petitions under Chapter 11 of the US Bankruptcy Code. The Company filed Motions for Relief from Stay which was heard by the Court on March 22, 2021. By Order of the Court, the hearing was continued to May 25, 2021. The Court entered an interim Order requiring the lease operators to comply with their leases, including payment of rent, pending the next hearing. In June 2021, the Court entered an Order approving a Lease Termination Agreement, Operations Transfer Agreement and Interim Management Agreement which had been negotiated by the Company and the two operating tenants, CRM of Warrenton, LLC and CRM of Sparta, LLC. The Lease Termination Agreement and Operations Transfer Agreement became effective upon the granting of a new License by the State of Georgia for the Warrenton and Sparta facilities to two newly formed wholly owned operating subsidiaries of the Company: Selectis Sparta, LLC and Selectis Warrenton, LLC.
High Street Nursing, LLC v. Ohio Department of Health, Court of Common Pleas, Franklin County, Ohio, Case No. 21 CV 6559.
The Company brought this action through its wholly owned subsidiary High Street Nursing, LLC (“High Street”) against the Ohio Department of Health (ODH) to prevent the Department of Health from revoking the state issued license covering the Meadowview skilled nursing facility located in Seville, Ohio. The facility is owned by High Street and was leased to a third-party operator who abandoned the facility. The Department of Health is trying to revoke the license of the former operator and has refused our request to transfer the license to a new operator controlled by the Company. Our Motion for Temporary Injunction was denied by the Court. We have subsequently filed a Motion for Preliminary and Permanent Injunction which is pending. Our claims against the Department of Health are based upon our property interests in the facility and raise issues of unlawful condemnation and eminent domain. No prediction can be made regarding the outcome of this matter; but the Company will pursue the ODH to the fullest extent.
In the Matter of Hunter
The Company received a spoliation letter from an attorney dated October 8, 2021, advising of the intent to assert a personal injury claim against our operating subsidiary Glen Eagle Health & Rehab, LLC which operates our skilled nursing facility in Abbeville, Georgia. We have been provided no further information, but after reviewing the information we believe at this time that the likelihood of an adverse outcome is remote.
Edwards Redeemer Property Holdings, LLC, et.al. v. Buildstrong Roofing and Construction, Inc.,et.al. District Court of and for Tulsa County, Oklahoma, Case No. CJ-202
This Company brought this action against a contractor that performed work at our Park Place facility in Oklahoma City and our Southern Hills SNF in Tulsa. The claims are based upon negligence and breach of contract for subpar work due to defects in materials, workmanship and Buildstrong not providing services for which they received payment. The case is pending.
Tara Gaspar, et.al v. GL Nursing, LLC, et.al., Circuit Court of Lonoke County, Arkansas, Civil Division, Case. No. 43CV-21-864.
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This case is a personal injury action in which our subsidiary GL Nursing, LLC was joined as a defendant because it is the owner of the property leased to an operating tenant. The action is based upon quality of care over which we had no control. We believe that our risk of a material adverse outcome is remote.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Outstanding shares of the Company’s common stock are traded over the counter and quoted on the OTC.Pink under the symbol “GBCS”. The reported high and low bid and ask prices for the common stock are shown below for the period from January 1, 2020 through December 31, 2021. All prices give retroactive effect to a one-for-ten reverse split which was effective in September 2021.
| High | Low | |||||||
| Jan - Mar 2020 | $ | 2.50 | $ | 1.90 | ||||
| Apr - June 2020 | $ | 2.80 | $ | 1.60 | ||||
| July - Sept 2020 | $ | 2.10 | $ | 1.20 | ||||
| Oct - Dec 2020 | $ | 5.30 | $ | 1.30 | ||||
| Jan - Mar 2021 | $ | 6.90 | $ | 4.60 | ||||
| Apr - June 2021 | $ | 7.40 | $ | 4.10 | ||||
| July - Sept 2021 | $ | 8.70 | $ | 0.65 | ||||
| Oct - Dec 2021 | $ | 7.50 | $ | 5.61 | ||||
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Since July 20, 2022, due to the Company being delinquent in its SEC reporting, the Company’s common stock is eligible for Unsolicited Quotes Only. The stock is traded on the Expert Market only, which is not eligible for public viewing. The Company expects that its common stock will resume being quoted on the OTC once it has brought its SEC reporting current.
The OTC.Pink prices are bid and ask prices which represent prices between broker-dealers and do not include retail mark-ups and mark-downs or any commissions to the broker-dealer. The prices do not reflect prices in actual transactions. As of August, 2022, there were approximately 733 record owners of the Company’s common stock not including stock held in street name.
The OTC.Pink is a quotation service that displays real-time quotes, last sale prices and volume information in over the counter (OTC) securities. An OTC equity security generally is any equity that is not listed or traded on any national securities exchange. The OTC.Pink is not an issuer listing service, market, or exchange. Although the OTC.Pink does not have any listing requirements, per se, to be eligible for quotation on the OTC.Pink, issuers must remain current in their filings with the SEC or applicable regulatory authority.
The Company’s Board of Directors may declare and pay dividends on outstanding shares of common stock out of funds legally available therefore in its sole discretion. For the years ended December 31, 2021, and 2020, the Company paid no dividends on common stock but did pay the 8% dividends on our outstanding shares of Series D Preferred Stock. Future dividends on our common stock will be authorized at the discretion of our Board of Directors and will depend on our actual cash flow, financial condition, capital requirements, and other factors as our Board of Directors may deem relevant.
Recent Sales of Unregistered Securities
None, except as previously reported on Forms 8-K.
EQUITY COMPENSATION PLAN INFORMATION
In May 2021, the Company adopted its 2021 Equity Incentive Plan and authorized an aggregate of 300,000 shares of Common Stock to be issued pursuant to rights granted under the Plan. As of the date of this Report, no options, SAR’s or other rights to acquire shares of Common Stock under the Plan had been granted or are outstanding.
| ITEM 6. | SELECTED FINANCIAL DATA |
Not applicable.
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Impact of COVID-19 Pandemic
The extent to which the COVID-19 pandemic impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. The COVID-19 pandemic could have material and adverse effects on our financial condition, results of operations and cash flows in the future, including but not limited to, the following:
| ● | Our operating revenues and our triple-net operators’ revenues are dependent on occupancy. Declines in occupancy are expected due to heightened move-in criteria and screening, as well as increased mortality rates among seniors. In addition, increased expenses are expected to continue until the pandemic subsides. Such factors may impact our triple-net operator’s ability to pay rent and contractual obligations. Furthermore, various local and state stay at home orders and the temporary closure of certain medical practices as a result may impact our medical office building tenants’ ability to pay rent. These factors may cause operators or tenants to seek modifications of such obligations, resulting in reductions in revenue and increases in uncollectible receivables. |
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| ● | Assessing properties for potential impairment involves subjectivity in determining if impairment indicators are present and in estimating the future undiscounted cash flows or estimated fair value of the asset. Key assumptions are made in this assessment and drive conclusions include the estimation of future rental revenues, operating expenses, capitalization rates and the ability and intent to hold the respective asset. All of these assumptions are significantly affected by our expectations of future market or economic conditions and can be highly impacted by the uncertainty of the COVID-19 pandemic. |
| ● | The determination of the allowance for credit losses is based on our evaluation of collectability of our loans receivable and includes review of factors such as delinquency status, historical loan charge-offs, financial strength of the borrower and guarantors and the value of the underlying collateral. Reduced economic activity severely impacts our borrowers’ businesses, financial conditions and liquidity and may hinder their ability to make contractual payments to us, leading to an increase in loans deemed to have deteriorated credit which could result in an increase in the provision for loan losses. |
RESULTS OF OPERATIONS
Rental revenue for the year ended December 31, 2021, totaled $626,808, compared to $2,112,459 for the year ended December 31, 2020, a decrease of $1,485,651. The Company also had Healthcare revenue of $26,921,547 for the year end December 31, 2021, an increase of $9,485,500, compared to $17,436,047 for the year ended December 31, 2020. The Company also had Healthcare Grant revenue of $1,514,728 for the year end December 31, 2021, an increase of $134,536, compared to $1,380,192 for the year ended December 31, 2020. Due to our concerted effort to focus on healthcare operations, our healthcare revenues are increasing. As we assume operations and purchase more facilities, we anticipate this trend to continue. As a result of this, our rental income will likely continue to decrease. Management Revenue for the year ended December 31, 2021, totaled $224,143, compared to $0 for the year ended December 31, 2020.
General and administrative expenses were $5,911,934 for the year ended December 31, 2021, compared to $2,088,722 for the year ended December 31, 2020, an increase of $3,823,212. This increase can be attributed to the Company operating more facilities, with the addition of the administration expenses within those operations. The Company expects general and administrative expenses will continue to increase as management assumes more operations.
Property taxes, insurance, and other operating expenses totaled $21,473,397 and $13,384,322 for the years ended December 31, 2021, and 2020, respectively, an increase of $8,089,075. Operating expenses increased primarily as a result of operating three additional facilities, as well as increased costs due to the COVID-19 pandemic.
Expenses related to the provision for bad debt were $897,538 for the year ended December 31, 2021, and $292,529 for the year ended December 31, 2020, a increase of $605,009. This increase is due to the Company’s growth in healthcare revenue which also increased the provision for bad debt expense.
Depreciation and amortization expense totaled $1,733,349 for the year ended December 31, 2021, compared to $1,580,300 for the year ended December 31, 2020, an increase of $153,049. This increase is due to equipment additions.
The Company had $2,497,893 of interest expense for the year ended December 31, 2021, and $2,139,901 interest expense for the year ended December 31, 2020. This increase is related to an increase in notes on new properties compared to the same period last year.
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For the year ended December 31, 2021, we recorded loss on extinguishment of debt of $65,623 compared to a gain of $1,727,349 for the year ended December 31, 2020. During 2021, the Company recorded an aggregate gain on extinguishment of debt of $675,598 in connection with the forgiveness of the entire balance of principal and accrued interest on the remaining PPP loan. The Company recorded an aggregate gain on extinguishment of debt in 2020 of $1,619,849 in connection with the forgiveness of the entire balance of principal and accrued interest on two of its three PPP loans and the likely forgiveness of the third. Additionally, in 2020 the Company recorded an aggregate gain on extinguishment of debt of $107,500 in connection with the purchase from certain former investors in GWH Investors, LLC their notes in favor of Goodwill Hunting, LLC.
The Company had $258,943 of lease termination expense for the year ended December 31, 2021, as a result of the termination of two leases. This rent had been recognized on a straight-line basis.
LIQUIDITY AND CAPITAL RESOURCES
Through 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 December 31, 2021, the Company had cash and cash equivalents of $3,939,445 and restricted cash of $853,656. Our restricted cash is to be expended on insurance, taxes, repairs, and capital expenditures associated with Providence of Sparta Nursing Home, ATL/Warr, LLC and Southern Tulsa TLC, LLC. 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 rental revenues received and existing cash on hand. We plan to renew secured obligations that mature during 2022, as our projected cash flow from operations will be insufficient to retire the debt.
Cash used in operating activities was $270,930 for the year ended December 31, 2021, compared to cash provided by operating activities of $2,734,207 for the year ended December 31, 2020.
Cash used in investing activities was $519,575 for the year ended December 31, 2021, compared to cash used in investing activities of $1,572,818 for the year ended December 31, 2020.
Cash provided by financing activities was $1,605,955 for the year ended December 31, 2021, compared to cash provided by financing activities of $1,824,401 for the year ended December 31, 2020. This resulted from proceeds from a PPP loan and private placement during the year ended December 21, 2021. During 2020, we made payments on debt of $1,352,300 and received proceeds from issuance of debt of $3,265,448. During 2021 we made payments on debt of $8,023,719 and received proceeds from issuance of debt of $9,134,102.
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 positive changes to cash flows, refinancing debt to more favorable terms, the forgiveness of our CARES Act loans, and the optimization of our operations in many of our current facilities.
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As of December 31, 2021, and 2020, our debt balances consisted of the following:
| December 31, 2021 | December 31, 2020 | |||||||
| Senior Secured Promissory Notes | $ | 1,305,000 | $ | 1,695,000 | ||||
| Senior Secured Promissory Notes - Related Parties | 750,000 | 975,000 | ||||||
| Fixed-Rate Mortgage Loans | 31,407,503 | 30,370,220 | ||||||
| Variable-Rate Mortgage Loans | 5,063,841 | 5,650,579 | ||||||
| Other Debt, Subordinated Secured | 741,000 | 741,000 | ||||||
| Other Debt, Subordinated Secured - Related Parties | 150,000 | 150,000 | ||||||
| Other Debt, Subordinated Secured - Seller Financing | 93,251 | 125,394 | ||||||
| 39,510,595 | 39,707,193 | |||||||
| Unamortized Discount and Debt Issuance Costs | (1,243,071 | ) | (455,827 | ) | ||||
| $ | 38,267,524 | $ | 39,251,366 | |||||
| As presented in the Consolidated Balance Sheets: | ||||||||
| Current Maturities of Long Term Debt, Net | $ | 6,312,562 | $ | 19,299,156 | ||||
| Short term debt – Related Parties, Net | 150,000 | 1,121,766 | ||||||
| Debt, Net | 31,054,962 | 18,830,444 | ||||||
| Debt - Related Parties, Net | 750,000 | - | ||||||
The weighted average interest rate and term of our fixed rate debt are 3.53% and 15.25 years, respectively, as of December 31, 2021. The weighted average interest rate and term of our variable rate debt are 5.89% and 17.1 years, respectively, as of December 31, 2020.
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Mortgage Loans and Lines of Credit Secured by Real Estate
Mortgage loans and other debts such as lines of credit 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, a formerly but no longer related party, or corporate guarantees. Mortgage loans for the periods presented consisted of the following:
| State | Number of Properties | Total Face Amount | December 31, 2021 | December 31, 2020 | ||||||||||||
| Arkansas(1) | 1 | $ | 5,000,000 | $ | 4,058,338 | $ | 4,618,006 | |||||||||
| Georgia | 5 | $ | 17,765,992 | $ | 16,581,283 | $ | 17,029,094 | |||||||||
| Ohio | 1 | $ | 3,000,000 | $ | 2,728,599 | $ | 2,798,000 | |||||||||
| Oklahoma(2)(3) | 6 | $ | 12,129,769 | $ | 11,823,385 | $ | 11,575,699 | |||||||||
| 13 | $ | 37,895,761 | $ | 35,191,605 | $ | 36,020,799 | ||||||||||
| (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, until a formal lease can be put in place. During the year ended December 31, 2021, the Company recognized other income of $521,400 for repayments on the loan. |
| (2) | The Company has refinanced two of its mortgages that would have matured in June and October of 2021 amounting to $2,961,167 and $3,289,595, to extend their maturity dates to May 2024 for both. |
| (3) | The Company refinanced all three mortgages in July 2021, that would have matured in June and July of 2021 amounting to $2,065,969 and $750,000, $500,000, to extend their maturity dates to July 2022 for all three. Additionally, the Company has refinanced the primary mortgage at the Southern Hills Campus, for 35 years at 2.38%. |
Subordinated, Corporate, and Other Debt
Other debt due at December 31, 2021 and 2020 includes unsecured notes payable issued to entities controlled by the Company used to facilitate the acquisition of the nursing home properties.
| Principal Outstanding at | ||||||||||||||||
| Property | Face Amount | December 31, 2021 | December 31, 2020 | Stated Interest Rate | Maturity Date | |||||||||||
| Goodwill Nursing Home | $ | 2,030,000 | $ | 741,000 | $ | 741,000 | 13% Fixed | 31-Dec-19 | ||||||||
| Goodwill Nursing Home – Related Party | $ | 150,000 | $ | 150,000 | $ | 150,000 | 13% Fixed | 31-Dec-19 | ||||||||
| Higher Call Nursing Center | $ | 150,000 | $ | 93,251 | $ | 125,394 | 8% Fixed | 1-Apr-24 | ||||||||
| $ | 2,330,000 | $ | 984,251 | $ | 1,016,394 | |||||||||||
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Our corporate debt at December 31, 2021 and December 31, 2020 includes unsecured notes and notes secured by all assets of the Company not serving as collateral for other notes.
| Principal Outstanding at | ||||||||||||||||
| Series | Face Amount | December 31, 2021 | December 31, 2020 | Stated Interest Rate | Maturity Date | |||||||||||
| 10% Senior Secured Promissory Note | $ | 25,000 | $ | - | $ | 25,000 | 10.0% Fixed | 31-Dec-18 | ||||||||
| 10% Senior Secured Promissory Notes | 1,670,000 | 1,230,000 | 1,670,000 | 10.0% Fixed | 30-Jun-23 | |||||||||||
| 10% Senior Secured Promissory Notes – Related Party | 975,000 | 750,000 | 975,000 | 10.0% Fixed | 30-Jun-23 | |||||||||||
| $ | 2,670,000 | $ | 1,980,000 | $ | 2,670,000 | |||||||||||
Contractual Obligations
As of December 31, 2021, we had the following contractual debt obligations:
| Total | Less Than 1 Year | 1 – 3 Years | 3 – 5 Years | More Than 5 Years | ||||||||||||||||
| Notes Payable - Principal | $ | 41,200,007 | $ | 8,531,185 | $ | 8,303,456 | $ | 4,903,847 | $ | 19,461,519 | ||||||||||
| Notes Payable - Interest | 6,014,312 | 1,278,288 | 1,390,163 | 772,087 | 2,573,775 | |||||||||||||||
| Total Contractual Obligations | $ | 47,214,319 | $ | 9,809,473 | $ | 9,693,619 | $ | 5,675,934 | $ | 22,035,294 | ||||||||||
We have $9,800,000 of debt maturing and expect principal reduction payments of approximately $8,500,000 in the year ending December 31, 2022. While we anticipate being able to refinance all the loans at reasonable market terms upon maturity, inability to do so may impact our financial position and results of operations. We expect to refinance all loans maturing in 2022 as the associated properties meet loan to value requirements currently being employed in commercial lending. See the consolidated financial statements included elsewhere in this Form 10-K for additional debt details.
Revenues from operations are sufficient to meet the working capital needs of the Company for the foreseeable future. Cash on hand and revenues generated from operations are in excess of operating expenses and debt service requirements. Debt maturities are expected to be refinanced at reasonable terms upon maturity. The Company anticipates a combination of conventional mortgage loans, at market rates, issuance of revenue bonds and possibly additional equity injections to fund the acquisition cost of any additional properties. Except for renovations at Retirement Center, there are no material capital improvement or recurring capital expenditure commitments at the properties.
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, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we consider material.
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SUMMARY OF 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 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.
Property Acquisitions
We allocate the purchase price of acquired properties to net tangible and identified intangible assets based on relative fair values. Fair value estimates are based on information obtained from independent appraisals, other market data, information obtained during due diligence period. Acquisition-related costs such as due diligence, legal and accounting fees are included in the purchase price. Initial valuations are subject to change during the measurement period, but the period ends as soon as the information is available. The measurement period shall not exceed one year from the date of acquisition.
Business Acquisitions
Upon acquisition of business entities and real estate determined to be a business combination, the Company identifies and recognizes the net tangible and identified intangible assets based on fair values, and net assets as goodwill or gain on bargain purchase. Fair value estimates are based on information obtained from independent appraisals, other market data, information obtained during due diligence and information related to the marketing, leasing, and or operating at the specific property. Acquisition-related costs such as due diligence, legal and accounting fees are expensed as incurred. Initial valuations are subject to change during the measurement period, but the period ends as soon as the information is available. The measurement period shall not exceed one year from the date of acquisition.
Impairment of Long-Lived Assets
When circumstances indicate the carrying value of a 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 or 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 recognizes revenue in accordance with ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” including subsequently issued updates. Under the accounting guidance our revenues are presented net of estimated allowances, and we no longer present the provision for doubtful accounts as a separate line item on our balance sheet.
The Company reviews its calculations for the realizability of gross service revenues monthly to make certain that we are properly allowing for the uncollectible portion of our gross billings and that our estimates remain sensitive to variances and changes within our payer groups. The contractual allowance calculation is made based on historical allowance rates for the various specific payer groups monthly with a greater emphasis given to current trends. This calculation is routinely analyzed by the Company based on actual allowances issued by payers and the actual payments made to determine what adjustments, if any, are needed.
Our revenues generally relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods that average approximately five days, and revenues are recognized based on charges incurred in relation to total expected charges. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, and Medicaid) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare, and Medicaid). Medicare generally pays for inpatient and outpatient services at prospectively determined rates based on clinical, diagnostic and other factors. Services provided to patients having Medicaid coverage are generally paid at prospectively determined rates per discharge, per identified service or per covered member.
Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual allowances under managed care are based upon the payment terms specified in the related contractual agreements.
Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Estimated reimbursement amounts are adjusted in subsequent periods as cost reports are prepared and filed and as final settlements are determined (in relation to certain government programs, primarily Medicare, this is generally referred to as the “cost report” filing and settlement process).
The collection of outstanding receivables for Medicare, and Medicaid, is our primary source of cash and is critical to our operating performance. The primary collection risks relate to Medicaid pending patient accounts. Accounts are written off when all reasonable internal and external collection efforts have been performed. The estimates for implicit price concessions are based upon management’s assessment of historical write offs and expected net collections, business and economic conditions, trends in federal, state and private employer health care coverage and other collection indicators. Management relies on the results of detailed reviews of historical write-offs and collections at facilities that represent a majority of our revenues and accounts receivable (the “hindsight analysis”) as a primary source of information in estimating the collectability of our accounts receivable. We perform the hindsight analysis quarterly, utilizing rolling twelve-months accounts receivable collection and write off data. We believe our quarterly updates to the estimated contractual allowance amounts at each of our facilities provide reasonable estimates of our revenues and valuations of our accounts receivable.
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. For the year ending December 31, 2021 the uncollectable amounts totaled $1,901,203. During the year ended December 31, 2021 the Company recognized $1,514,728, and $1,380,192 during the year ended December 31, 2020 in healthcare grant revenue.
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Subsequent Events
In January 2022, as part of the debt conversion initiated in December 2021, the Company converted an additional $355,000 of Senior preferred notes for 71,000 shares of common stock at $5.00 per share.
On July 1st, 2022 the Board of Directors appointed David Furstenberg to serve on the Board of Directors for the Company.
On July 25, 2022 the Board of Directors approved and adopted the following committee charters and policies: Audit Committee Charter, Nominating and Governance Committee, Charter Compensation Committee, Charter Code of Conduct and Ethics Policy, Document Retention Policy, and Whistleblower Policy.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
See the index included at Item 15. Exhibits, Financial Statement Schedules.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
As previously reported on Form 8-k, effective January 26, 2022, the Company’s Board of Directors, acting as an Audit Committee which has not been separately appointed, approved the appointment of Haynie & Company to serve as the Company’s independent registered public accounting firm. Prior to its engagement as the Company’s independent registered public accounting firm the Company had not consulted Haynie & Company with respect to the application of accounting principles to specific transactions or the type of audit opinion that might be rendered on the Company’s financial statements.
The Company’s former independent auditor, MaloneBailey, LLP, audited the Company’s financial statements through year ended December 31, 2020.
The Company engaged Haynie & Company as its independent registered public accountant. The engagement of Haynie & Company was effective on January 26, 2022.
| ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this Report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, relating to the Company, including our consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared.
Conclusion Regarding the Effectiveness of Disclosure 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.
| 27 |
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’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with U.S. GAAP.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). Management is committed to accurate and ethical business practices. Based on our evaluation, management concluded that that our internal control over financial reporting was not effective as of December 31, 2021. Our CEO and CFO concluded we have a material weakness due to lack of segregation of duties and a limited corporate governance structure. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties within our system of internal control. Therefore, while there are some compensating controls in place, it is difficult to ensure effective segregation of accounting and financial reporting duties. Management reported material weaknesses resulting from the following significant deficiencies:
| ● | Lack of segregation of duties in certain accounting and financial reporting processes including the initiation, processing, recording and approval of disbursements; | |
| ● | Lack of a formal review process that includes multiple levels of review. |
Management’s view is that unethical, illegal, or inaccurate conduct in the operations and accounting for the Company violates the trust and integrity of the Company and is damaging to the interests of all stakeholders, and in the long-term misconduct injures the interests of even the individual whom it might initially benefit. This is reinforced periodically with informal conversations and is ingrained in the culture of the Company. When questions arise, they are escalated to the CFO, General Counsel, CEO, President, or Board for review, investigation, direction, and consensus, and external opinion is sought if consensus is not achieved. The Controller and CFO both have direct contact with all levels of review. The Company plans to implement multi-level review in 2022, and management intends to work with our audit partners to ensure we have the proper controls in place going forward.
| 28 |
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the SEC rules that permit us to provide only management’s report in this Annual Report.
Changes in Internal Control over Financial Reporting
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 fiscal quarter ended December 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| ITEM 9B. | OTHER INFORMATION |
SEC ADMINISTRATIVE ORDER
On September 25, 2020, the SEC issued an Administrative Order against Sabra Capital Partners, LLC and Zvi Rhine requiring that those respondents cease and desist from further violations of certain federal securities laws. The full text of that Order is a matter of public record and can be found at the SEC’s website: www.sec.gov. Following the entry of that Order, on September 29, 2020, Mr. Rhine voluntarily resigned all positions with the Company, including as a Director, President, and CFO of the Company. Effective October 1, 2020, the Company entered into a consulting agreement with Mr. Rhine. In mid-December 2020, the Company advised Mr. Rhine that it would not be renewing his consulting agreement beyond the termination date. The Company has discovered several matters involving a financial benefit undertaken by Mr. Rhine that had previously been unknown by the other members of the Board and were unauthorized by the Company. The Company is doing a thorough investigation into Mr. Rhine’s actions both as a former employee and subsequently as a consultant to determine the full and exact nature and extent of any unauthorized conduct.
PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
Directors and Executive Officers
The name, position with the Company, age of each Director and executive officer of the Company is as follows:
| Name | Age | Position | Director/Officer Since | |||
| Lance Baller | 48 | Chairman, CEO | 2015 | |||
| Christopher Barker | 54 | President, COO, Director | 2021 | |||
| Clifford L. Neuman | 74 | Director | 2014 | |||
| Adam Desmond | 52 | Director | 2017 | |||
| David Furstenberg | 61 | Director | 2022 | |||
Brandon Thall |
39 | Former CFO | 2021 | |||
| Mary Lucus | 33 | Interim CFO | 2022 |
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Lance Baller serves as a director and sole or principal shareholder of several privately owned businesses, including Baller Enterprises, Inc. (personal holding company), Titan Au, Inc, Empire Leasing LLC, Valdez Au, Inc, Extrac, Inc, Yukon Au, LLC (which all are in gold, sand, rock, and gravel mining), Ultimate Investment Corp. Inc (personal investment company) and Baller Family Foundation, Inc. (personal family foundation). He is also the co-founder, former CEO and President of Iofina plc, a technology leader in the production of iodine and iodine derivatives, where he continues to serve as Non-executive Chairman. He is the former managing partner of Shortline Equity Partners, Inc. (2004 to 2010), a mid-market merger and acquisitions consulting and investment company. Mr. Baller is also the former Managing Partner of Elevation Capital Management, LLC (2005 to 2010) and is the former alternative investment hedge fund manager of the Elevation Fund. He is also a former Vice-President of Corporate Development and Communications (2003 to 2004) of Integrated Biopharma, Inc. and prior to that a vice-president of the investment banking firms UBS and Morgan Stanley. Mr. Baller has been a CEO, interim CEO, Chairman, CFO and secretary of various private and public listed companies throughout his career. Mr. Baller has had extensive experience in all aspects of corporate finance. Mr. Baller currently is on the board of trustees of Index Fund and Digital Funds where he serves as the chairman of the audit committee and as the audit committee financial expert under Sarbanes-Oxley. Mr. Baller also sits on the Board of Real Colorado Soccer, Real Weld Metro District, and the Front Infrastructure Authority (FRIA).
Christopher Barker is a co-founder and part of the Management Group at Graphium Health, a mobile, cloud-based software platform for anesthesia related to compliance, billing, revenue cycle management, electronic data capture and operational excellence. Mr. Barker served as the CEO of Graphium Health from 2011 to 2016. Mr. Barker is also a co-founder of empathiHR, launched in 2020 as a video based LMS Compliance solution for businesses. He is also the co-founder of HR Vids, launched in 2019 as a software platform that leverages video to assist with hiring, engagement, and retention in high-turnover industries. From 2004 to 2015 Mr. Barker was a co-founder, Partner and COO at Miller & Associates (Business Intelligence, Big Data, SaaS Solutions) and Dedo Interactive Inc. (UX/UI, mobile, multi-touch data visualization). In 2015 the Chenega Corporation acquired both Miller & Associates and Dedo. Mr. Barker led the M&A process on behalf of Miller & Associates and Dedo. From 1995 to 2003 he was the Branch Manager at The Employment Solution (TES) for the Dallas region. TES provided information technology consulting and permanent solutions for local clients such as Microsoft, EDS, Nortel Networks, Ericsson, and Fujitsu. He is also involved with Stadia Ventures as a mentor. Stadia Ventures is the global Sports Innovation Hub for entrepreneurs, industry partners and investors. Mr. Barker is a graduate of Roberts Wesleyan College with a Bachelor of Arts degree in Communications, with a concentration in Business. He also volunteers with a number of charities including being a Board Member of an orphanage in Kenya.
Clifford L. Neuman has been engaged as a principal in his own law firms for over 47 years, emphasizing corporate and securities law in the representation of companies in matters of corporate finance, mergers, acquisitions, reorganizations, and public and private offerings. Mr. Neuman has served on the boards of directors of numerous public, private, and non-profit companies and has been actively involved in the process of capital formation on behalf of his clients for many years. He is also the President of Gemini Gaming, Inc., which owns and operates a gaming casino in Blackhawk, Colorado. He currently serves as a Director and CEO of Mindfulness Peace Project, f/k/a Ratna Foundation, a non-profit charitable foundation, and a member of the Governing Council of Drala Mountain Center, a non-profit retreat center in Red Feather Lakes, Colorado. Mr. Neuman received his Juris Doctorate degree from the University of Pennsylvania (1973) and his Bachelor of Arts degree, magna cum laude from Trinity College, Hartford, Connecticut (1970), where he was elected to Phi Beta Kappa.
Adam Desmond is the founder and CEO of Needle Rock Capital, an investment banking firm located in Carbondale, Colorado. Prior to founding Needle Rock Capital, Mr. Desmond founded ASG Securities in 1998 that focused exclusively on small/mid-cap banks and thrift markets. In 2004 ASG Securities became FIG Partners LLC which expanded the business from a sales and trading platform to a full-service investment banking firm. Mr. Desmond assembled a team of principals at Fig Partners that raised over $2.5 billion in equity since 2007 and completed more than 95 whole bank transactions throughout the United States, with offices in Chicago, Los Angeles, San Francisco, Dallas, New Jersey, and Charlotte, employing over 60 people. Mr. Desmond began his career at the Chicago Mercantile Exchange in the financial quadrant and went on to Raymond James and Associates where he helped develop a high yield fixed income department. Mr. Desmond enjoys supporting and servicing many charitable organizations, including helping fund the building of a school in the Philippines through St. Mary’s Catholic Church in Aspen, Colorado. Mr. Desmond is a graduate of the University of Wisconsin – Madison with a Bachelor of Arts in International Economics and Political Science.
David J. Furstenberg is a tax attorney and certified public accountant with expertise in tax research and planning, IRS and state audits, settlement negotiations, state and federal tax returns, accounting, software and auditor relations. Mr. Furstenberg served as the Director of Taxes at PulteGroup, Inc. (NYSE:PHM) in Bloomfield Hills, Michigan from 1997 to 2016 where he led the tax research and planning functions, including federal, state and international. From 1991 through 1996 he served in the capacities of Assistant Vice President-Taxes, Director of Taxes and Director of Federal Taxes for Handleman Company (NYSE: HDL). in Troy, Michigan. Mr. Furstenberg also served as an Associate Attorney for Levin, Levin, Garvett & Dill, PC in Southfield, Michigan and a Tax Consultant and Tax Associate at Price Waterhouse in Detroit, Michigan. In 1983 David obtained a B.A. in Accounting from Michigan State University and in 1986, a Juris Doctorate from Wayne State University Law School in Detroit, Michigan.
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Family Relationships
None.
Board Meeting and Compensation
During the fiscal year ended December 31, 2021, meetings of the Board of Directors were held telephonically, and business of the board was also conducted by written unanimous consent. There were 2 meetings of the Board during 2021. A quorum was present at all Board meetings. Directors are entitled to reimbursement of their expenses associated with attendance at such meeting or otherwise incurred in connection with the discharge of their duties as a Director.
During fiscal 2021, the entire Board of Directors assumed all responsibilities of the Audit, Compensation and Nominating Committees.
In January 2020, the Board approved an Amended Director Compensation Plan to provide that each director shall be paid a fee equal to $30,000 per year, payable quarterly in arrears.
The following table summarizes director compensation paid for the year ended December 31, 2021:
DIRECTOR COMPENSATION TABLE.
| Name | Fees Earned or Paid in Cash | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | |||||||||||||||||||||
| Lance Baller | $ | 30,000 | - | - | - | - | - | $ | 30,000 | |||||||||||||||||||
| Christopher Barker | $ | 30,000 | - | - | - | - | - | $ | 30,000 | |||||||||||||||||||
| Clifford Neuman | $ | 30,000 | - | - | - | - | - | $ | 30,000 | |||||||||||||||||||
| Adam Desmond | $ | 30,000 | - | - | - | - | $ | 30,000 | ||||||||||||||||||||
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Director Independence
Our common stock is listed on the OTC.Pink inter-dealer quotation systems, which does not have director independence requirements. Nevertheless, for purposes of determining director independence, we have applied the definition of independence under the NYSE American listing standards. The NYSE American listing standards for smaller reporting companies require that at least 50% of the members of a listed company Board qualify as “independent,” as defined under NYSE American rules and as affirmatively determined by the company’s Board. After review of all the relevant transactions and relationships between each director (and his family members) and the Company, and senior management, the Board affirmatively determined that at all times during the year ended December 31, 2021, and through the date of filing this Annual Report, the following directors (while serving as such) were independent within the meaning of applicable NYSE American rules: Messrs. Desmond and Furstenberg.
Audit Committee
The Board as a whole served as the audit committee. On July 25, 2022 the Company established a standing audit committee The audit committee was initially comprised of Messrs. Furstenberg (Chairman), Neuman and Desmond. Mr. Furstenberg qualifies as an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K. An audit committee member is deemed to be independent if he does not possess any vested interests related to those of management and does not have any financial, family, or other material personal ties to management. Effective August 18, 2022, Mr. Neuman resigned as a member of the Audit Committee.
The committee is responsible for accounting and internal control matters. The audit committee:
| - | reviews with management and the independent auditors’ policies and procedures with respect to internal controls; | |
| - | reviews significant accounting matters; | |
| - | approves any significant changes in accounting principles of financial reporting practices; | |
| - | reviews independent auditor services; and | |
| - | recommends to the board of directors the independent registered public accounting firm to audit our consolidated financial statements. |
In addition to its regular activities, the committee is available to meet with the independent registered public accounting firm or controller whenever a special situation arises.
The Audit Committee of the Board of Directors will adopt a written charter, which, when adopted, will be filed with the Commission.
Compensation Advisory Committee
The Board, as a whole, served as the compensation committee. We have established a standing compensation committee in the third quarter of 2022. The compensation committee was initially comprised of Messrs. Desmond, Neuman and Furstenberg. Effective August 18, 2022, Mr. Neuman resigned as a member of the Compensation Committee.
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The compensation advisory committee did not meet during fiscal 2021. The compensation advisory committee will:
| - | recommend to the board of directors the compensation and cash bonus opportunities based on the achievement of objectives set by the compensation advisory committee with respect to our chairman of the board and president, our chief executive officer, and the other executive officers; | |
| - | administer our compensation plans for the same executives; | |
| - | determine equity compensation for all employees; |
| - | review and approve the cash compensation and bonus objectives for the executive officers; and | |
| - | review various matters relating to employee compensation and benefits. |
Nomination Process
The Board of Directors has appointed a standing nomination committee in the third quarter of 2022, initially consisting of Messrs. Desmond, Neuman and Furstenberg. Effective August 18, 2022, Mr. Neuman resigned from the Nomination and Governance Committee.
The board of directors has not adopted a policy regarding the consideration of any director candidates recommended by security holders, since to date the board has not received from any security holder a director nominee recommendation. The board of directors will consider candidates recommended by security holders in the future. Security holders wishing to recommend a director nominee for consideration should contact Mr. Lance Baller, Chairman and CEO, at the Company’s principal executive offices located in Greenwood Village, Colorado and provide to Mr. Baller, in writing, the recommended director nominee’s professional resume covering all activities during the past five years, the information required by Item 401 of Regulation S-K, and a statement of the reasons why the security holder is making the recommendation. Such recommendation must be received by the Company before December 31, 2022.
The board of directors believes that any director nominee must possess significant experience in business and/or financial matters as well as a particular interest in the Company’s activities.
Shareholder Communications
Any shareholder of the Company wishing to communicate to the board of directors may do so by sending written communication to the board of directors to the attention of Mr. Lance Baller, Chairman and CEO, at the principal executive offices of the Company. The board of directors will consider any such written communication at its next regularly scheduled meeting.
Any transactions between the Company and its officers, directors, principal shareholders, or other affiliates have been and will be on terms no less favorable to the Company than could be obtained from unaffiliated third parties on an arms-length basis and will be approved by a majority of the Company’s independent, outside disinterested directors.
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Code of Ethics
Our Board of Directors adopted a Code of Business Conduct and Ethics for all of our directors, officers and employees during the fiscal year ended June 30, 2004. We will provide to any person without charge, upon request, a copy of our Code of Business Conduct and Ethics. Such request should be made in writing and addressed to Investor Relations, Selectis Health, Inc., at the Company’s principal executive offices located in Greenwood Village, Colorado. Further, our Code of Business Conduct and Ethics was filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal year ended June 30, 2004 and can be reviewed on the website maintained by the SEC at www.SEC.gov.
There are no material proceedings to which any director, officer or affiliate of the Company, any owner of record or beneficially of more than five percent (5%) of any class of voting securities of the Company, or any associate of any such director, officer, affiliate of the Company, or security holder is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries.
Any transactions between the Company and its officers, directors, principal shareholders, or other affiliates have been and will be on terms no less favorable to the Company than could be obtained from unaffiliated third parties on an arms-length basis and will be approved by a majority of the Company’s independent, outside disinterested directors.
Indemnification and Limitation on Liability of Directors
The Company’s Articles of Incorporation provide that the Company shall indemnify, to the fullest extent permitted by Utah law, any director, officer, employee, or agent of the corporation made or threatened to be made a party to a proceeding, by reason of the former or present official of the person, against judgments, penalties, fines, settlements, and reasonable expenses incurred by the person in connection with the proceeding if certain standards are met. At present, there is no pending litigation or proceeding involving any director, officer, employee, or agent of the Company where indemnification will be required or permitted. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
The Company’s Articles of Incorporation limit the liability of its directors to the fullest extent permitted by the Utah Business Corporation Act. Specifically, directors of the Company will not be personally liable for monetary damages for breach of fiduciary duty as directors, except for (i) any breach of the duty of loyalty to the Company or its stockholders, (ii) acts or omissions not in good faith or that involved intentional misconduct or a knowing violation of law, (iii) dividends or other distributions of corporate assets that are in contravention of certain statutory or contractual restrictions, (iv) violations of certain laws, or (v) any transaction from which the director derives an improper personal benefit. Liability under federal securities law is not limited by the Articles. The officers of the Company will dedicate sufficient time to fulfill their fiduciary obligations to the Company’s affairs. The Company has no retirement, pension, or profit-sharing plans for its officers and Directors.
Compliance with Section 16(a) of the Exchange Act
Under the securities laws of the United States, the Company’s Directors, its Executive (and certain other) Officers, and any persons holding more than ten percent (10%) of the Company’s common stock are required to report their ownership of the Company’s common stock and any changes in that ownership to the Securities and Exchange Commission. Specific due dates for these reports have been established and the Company is required to report in this Report any failure to file by these dates. All of these filing requirements were satisfied by our Officers, Directors, and ten-percent holders except for Mr. Baller failed to file three (3) reports covering four (4) transactions in a timely manner, Mr. Barker failed to file one (1) report covering one (1) transaction in a timely manner, and Mr. Neuman failed to file one (1) report covering one (1) transaction in a timely manner. In making these statements, the Company has relied on the written representation of its Directors and Officers or copies of the reports that they have filed with the Commission.
| ITEM 11. | EXECUTIVE COMPENSATION |
Components of Compensation.
None of our executive officers serve as a member of the Compensation Committee or Nominating Committee.
The following tables and discussion set forth information with respect to all plan and non-plan compensation awarded to, earned by or paid to the Company’s three (3) most highly compensated executive officers, for all services rendered in all capacities to the Company and its subsidiaries for each of the Company’s last three (3) completed fiscal years; provided, however, that no disclosure has been made for any executive officer, other than the CEO and CFO, whose total annual salary and bonus does not exceed $100,000.
| 34 |
Company Stock Incentive Plans
As of December 31, 2021, no options were outstanding under the Plan and all options to purchase shares of Common Stock have expired. The Plan has terminated in accordance with its terms, and as a result no shares are available for future option grants.
SUMMARY COMPENSATION TABLE
| Name and Principal Position | Year | Salary | Bonus | Stock Awards | Options Awards | Non equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | |||||||||||||||||||||||||||
| Lance Baller, CEO | 2021 | $ | 125,000 | $ | - | $ | - | - | - | - | - | $ | 125,000 | |||||||||||||||||||||||
| 2020 | $ | - | $ | - | $ | - | - | - | - | - | $ | - | ||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||
| Christopher Barker, President & COO | 2021 | $ | 125,000 | $ | - | $ | - | - | - | - | - | $ | 125,000 | |||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||
| Zvi Rhine, Former President & CFO | 2020 | $ | 123,750 | $ | 165,000 | $ | - | - | - | - | - | $ | 288,750 | |||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||
| Brandon Thall, Former CFO | 2021 | $ | 180,000 | $ | 11,250 | $ | $ | 191,250 | ||||||||||||||||||||||||||||
| 2020 | $ | 15,000 | $ | - | $ | - | - | - | - | - | $ | 15,000 | ||||||||||||||||||||||||
| Mary Lucus, Interim CFO | 2021 | $ | 70,580 | $ | 2,500 | - | - | - | - | - | $ | 73,080 | ||||||||||||||||||||||||
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| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
UPDATE
The following table sets forth information with respect to beneficial ownership of our common stock by:
| * | each person who beneficially owns more than 5% of the common stock; | |
| * | each of our executive officers; | |
| * | each of our directors and director nominees; and | |
| * | all executive officers and directors as a group. |
The table shows the number of shares owned as of August 22, 2022, and the percentage of outstanding common stock owned as of August 22, 2022. Beneficial ownership is based on information provided to us, and the beneficial owner has no obligation to inform us of or otherwise report any changes in beneficial ownership. Except as indicated, and subject to community property laws when applicable, the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
| Title of Class | Name & Address of Beneficial Owner | Number of Shares Beneficially Owned | Percent (1)(5) | |||||||
| Common Stock | ||||||||||
| Christopher R. Barker 8480 E. Orchard Road, Ste. 4900 Greenwood Village, CO 80111 | 80,134 | 2.61 | % | |||||||
| Clifford L. Neuman(2) 6800 N. 79th St., Ste. 200 Niwot, CO 80503 | 122,864 | (2) | 4.01 | % | ||||||
| Lance
Baller(3) 8480 E. Orchard Rd., Ste. 4900 Greenwood Village, CO 80111 | 297,682 | (3) | 9.67 | % | ||||||
| Zvi
Rhine (former President and CFO) (4) 401 E. Ontario St., #2301 Chicago, Ill. 60611 | 175,258 | (4) | 5.71 | % | ||||||
| Adam Desmond PO Box 2036 Carbondale, CO 81623 | 30,282 | 1.0 | % | |||||||
Brandon Thall 8480 E. Orchard Road, Ste. 4900 Greenwood Village, CO 80111 | 2,000 | 0.065 | % | |||||||
David Furstenberg 1226 Wind Chime Drive Waterford, MI. 48327 | 5,910 | |||||||||
| All Officers and Directors as a Group (5 persons) | 536,872 | 17.6 | % | |||||||
| (1) | Shares not outstanding but beneficially owned by virtue of the individuals right to acquire them as of the date of this annual report or within sixty days of such date, are treated as outstanding when determining the percent of the class owned by such individual. |
| 36 |
| (2) | Includes 117,864 shares owned individually; and 5,000 shares owned of record Mindfulness Peace Project (formerly Ratna Foundation), of which Mr. Neuman is a Director, as to which Mr. Neuman disclaims beneficial ownership for purposes of Section 16 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). |
| (3) | Includes 161,465 shares owned individually; 56,616 shares which includes warrants exercisable to purchase 10,000 shares of common stock owned by High Speed Aggregate, Inc. of which Mr. Baller is an owner and control person but disclaims beneficial ownership for purposes of Section 16 under the Exchange Act; 72,934 shares owned by Ultimate Investments Corp., Inc. of which Mr. Baller is an owner and control person but disclaims beneficial ownership for purposes of Section 16 under the Exchange Act and 6,667 shares owned by Baller Family Foundation Inc. of which Mr. Baller is a control person but disclaims beneficial ownership for purposes of Section 16 under the Exchange Act. |
| (4) | Zvi Rhine is a former officer of the company but is not included in the total of All Officers and Directors pursuant to his resignation. |
| (5) | Based on 3,067,059 shares issued and outstanding on August 22, 2022 |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
For the fiscal year 2021, Selectis Health, Inc. had a net loss, and was able to meet all its obligations without the assistance or needs of affiliated parties lending arrangements.
Related Party Transactions
During 2020, the Company issued $100,000 in notes and warrants to related parties out of 160,000 issued under its 2018 Senior Secured note Offering, for a total due to related parties under the offering of $975,000 as of December 31, 2020.
Clifford Neuman, a member of the Company’s Board of Directors, provided legal services to the Company. As of December 31, 2021, and 2020, the Company owed Mr. Neuman for legal services rendered $21,571 and $9,900, respectively. During the year ended December 31, 2021, and 2020, the Company paid Mr. Neuman $158,392 and 78,962 respectively.
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| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The following is an aggregate of fees billed for each of the last two fiscal years for professional services rendered by Haynie & Company our principal registered public accountants and MaloneBailey, LLP, our former principal registered public accountants:
| 2021 | 2020 | |||||||
| Audit fees - audit of annual financial statements and review of financial statements included in our quarterly reports, services normally provided by the accountant in connection with statutory and regulatory filings. | $ | 181,000 | $ | 120,082 | ||||
| Audit-related fees - related to the performance of audit or review of financial statements not reported under “audit fees” above | - | - | ||||||
| Tax fees - tax compliance, tax advice and tax planning | $ | 12,500 | $ | 12,500 | ||||
| All other fees - services provided by our principal accountants other than those identified above | - | - | ||||||
| Total fees paid or accrued to our principal accountants | $ | 193,500 | $ | 132,582 | ||||
PART IV
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
The following documents are filed as part of this Annual Report:
(a) Financial Statement Schedules
See the Index to Consolidated Financial Statements at page F-1 of this report.
| (b) | Exhibits | ||
| Exhibit No. | Title | ||
| (1) | 1.0 | Articles of Amendment to the Articles of Incorporation dated June 22, 1994 | |
| (1) | 3.1 | Amended and Restated Articles of Incorporation | |
| (35) | 3.1 | Amended and Restated Articles of Incorporation | |
| (1) | 3.2 | Bylaws | |
| (1) | 3.3 | Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock | |
| (5) | 3.4 | Certificate of Designations, Preferences, and Rights of Series B Convertible Preferred Stock | |
| (5) | 3.5 | Certificate of Designations, Preferences, and Rights of Series C Convertible Preferred Stock | |
| (5) | 3.6 | Agreement Respecting Rights of Holders of Series C Convertible Preferred Stock | |
| (17) | 3.7 | Certificate of Designations, Preferences, and Rights of Series E Convertible Preferred Stock | |
| (18) | 3.8 | Form of Registration Rights Agreement | |
| (1) | 4.1 | Specimen Certificate of Common Stock | |
| (1) | 4.2 | Specimen Class A Common Stock Purchase Warrant | |
| (1) | 4.3 | Specimen Class B Common Stock Purchase Warrant | |
| (1) | 4.4 | Specimen Class C Common Stock Purchase Warrant | |
| (1) | 4.5 | Warrant Agreement | |
| (19) | 4.6 | Form of Series 2010 5% Convertible Debenture | |
| (20) | 4.7 | Form of Common Stock and Warrant Purchase Agreement | |
| (1) | 5.0 | Opinion of Neuman & Drennen, LLC regarding the legality of the securities being registered | |
| (1) | 10.1 | Selling Agent Agreement | |
| (1) | 10.2 | The Casino-Global Venture I Joint Venture Agreement | |
| (1) | 10.3 | Assignment of Casino-Global Joint Venture Agreement dated January 31, 1994 |
| 38 |
| (1) | 10.4 | Nonresidential Lease Agreement between Russian-Turkish Joint Venture Partnership with Hotel Lazurnaya and Global Casino Group, Inc. dated September 22, 1993 | |
| (1) | 10.5 | Contract by and between Aztec-Talas-Four Star, Inc. and Global Casinos Group, Inc. dated April 12, 1993, and Addendum to Agreement by and between Aztec-Talas-Four Star, Inc., Global Casinos Group, Inc., and Restaurant “Naryn” dated June 29, 1993. | |
| (1) | 10.6 | Agreement and Plan of Reorganization among Silver State Casinos, Inc., Colorado Gaming Properties, Inc., and Morgro Chemical Company, dated September 8, 1993, incorporated by reference from the Company’s Current Report on Form 8-K, dated September 20, 1993 | |
| (1) | 10.7 | Agreement and Plan of Reorganization among Casinos USA., Lincoln Corporation, Woodbine Corporation and Morgro Chemical Company, dated October 15, 1993, incorporated by reference from the Company’s Current Report on Form 8-K, dated November 19, 1993 | |
| (1) | 10.8 | Stock Pooling and Voting Agreement, incorporated by reference from the Company’s Current Report on Form 8-K, dated November 19, 1993 | |
| (1) | 10.9 | Employment Agreement, dated September 28, 1993, between Morgro Chemical Company and Nathan Katz, incorporated by reference from the Company’s Current Report on Form 8-K, dated November 19, 1993 | |
| (1) | 10.10 | Employment Agreement, dated October 15, 1993, between Morgro Chemical Company and William P. Martindale, incorporated by reference from the Company’s Current Report on Form 8-K, dated November 19, 1993 | |
| (1) | 10.11 | Asset Acquisition Agreement by and among Global Casinos, Inc., Morgro, Inc. and MDO, L.L.C., dated as of February 18, 1994, incorporated by reference from the Company’s Current Report on Form 8-K, dated February 18, 1994 | |
| (1) | 10.12 | Stock Purchase Agreement, dated March 25, 1994, incorporated by reference from the Company’s Current Report on Form 8-K, dated April 29, 1994 | |
| (1) | 10.13 | Articles of Incorporation of BPJ Holding N.V., incorporated by reference from the Company’s Current Report on Form 8-K, dated April 29, 1994 | |
| (1) | 10.14 | Aruba Caribbean Resort and Casino Lease Agreement, dated January 18, 1993, incorporated by reference from the Company’s Current Report on Form 8-K, dated April 29, 1994 | |
| (1) | 10.15 | Aruba Gaming Permit issued to Dutch Hotel and Casino Development Corporation, incorporated by reference from the Company’s Current Report on Form 8-K, dated April 29, 1994 | |
| (1) | 10.16 | Letter Agreement between Astraea Investment Management, L.P. and Global Casinos, Inc. dated May 11, 1994 | |
| (1) | 10.17 | Guaranty from Global Casinos, Inc. to Astraea Investment Management, L.P. dated May 19, 1994 | |
| (1) | 10.18 | Secured Convertible Promissory Note in favor of Global Casinos, Inc. from Astraea Investment Management, L.P. dated May 19, 1994 | |
| (1) | 10.19 | Registration Rights Agreement between Global Casinos, Inc. and Astraea Investment Management, L.P. dated May 11, 1994 | |
| (1) | 10.20 | Employment Agreement, dated July 1, 1994, between Global Casinos, Inc., and Peter Bloomquist | |
| (2) | 10.21 | Letter of Agreement, dated September 16, 1994 between Astraea Management Services, L.P., Casinos USA., Inc. and Global Casinos, Inc. | |
| (3) | 10.23 | Letter of Agreement dated June 27, 1995, between Global Casinos, Inc., Global Casinos International, Inc., Global Casinos Group, Inc., Broho Holding, N.V., and Kenneth D. Brown individually. | |
| (1) | 10.24 | Second Amended Plan of Reorganization of Casinos USA, Inc., and Order Confirming Plan | |
| (1) | 10.25 | Warrant Agreement | |
| (4) | 10.26 | Stock Purchase and Sale Agreement between Alaska Bingo Supply, Inc., Global Alaska Industries, Inc., and Mark Griffin |
| 39 |
| 40 |
| 41 |
| 42 |
| 43 |
| 44 |
| (84) | 10.156 | Rescission Agreement | |
| (85) | 10.157 | Pursuant to Item 304(a)(1) of Regulation S-K, the Registrant herewith files the letter of MaloneBailey, LLP, former accountants to the Company | |
| * | 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| * | 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the 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 | XBRL Instance | |
| ** | 101.SCH | XBRL Taxonomy Extension Schema | |
| ** | 101.CAL | XBRL Taxonomy Extension Calculation | |
| ** | 101.DEF | XBRL Taxonomy Extension Definition | |
| ** | 101.LAB | XBRL Taxonomy Extension Labels | |
| ** | 101.PRE | XBRL Taxonomy Extension Presentation |
| (1) | Incorporated by reference to the Registrant’s Registration Statement on Form SB-2, Registration No. 33-76204, on file with the Commission on August 11, 1994. |
| (2) | Incorporated by reference to the Registrant’s Annual Report on Form 10-KSB for year ended June 30, 1994. |
| (3) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 15, 1995. |
| (4) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 1, 1997, as filed with the Commission on August 14, 1997. |
| (5) | Incorporated by reference to the Registrant’s Annual Report on Form 10KSB for the year ended June 30, 1999. |
| (6) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 30, 1999, as filed with the Commission on January 14, 2000. |
| (7) | Incorporated by reference to the Registrant’s Annual Report on Form 10KSB for the year ended June 30, 2002. |
| (8) | Incorporated by reference to the Registrant’s Annual Report on Form 10KSB for the year ended June 30, 2004. |
| (9) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated June 14, 2007 as filed with the Commission on June 19, 2007 |
| 45 |
| (10) | Incorporated by reference to the Registrant’s Current Report on Form 8-K/A dated September 28, 2007 as filed with the Commission on October 2, 2007. |
| (11) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 30, 2007 as filed with the Commission on December 3, 2007. |
| (12) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 5, 2007 as filed with the Commission on December 6, 2007. |
| (13) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated January 30, 2008 as filed with the Commission on February 4, 2008. |
| (14) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 6, 2008 as filed with the Commission on March 6, 2008. |
| (15) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 18, 2008 as filed with the Commission on March 24, 2008. |
| (16) | Incorporated by reference to the Registrant’s Current Report on Form 8-K/A dated March 18, 2008 as filed with the Commission on May 29, 2008. |
| (17) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 12, 2010 as filed with the Commission on July 14, 2010. |
| (18) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 19, 2010 as filed with the Commission on July 20, 2010. |
| (19) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 16, 2010 as filed with the Commission on July 20, 2010. |
| (20) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 16, 2010 as filed with the Commission on July 20, 2010. |
| (21) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 30, 2009 as filed with the Commission on December 3, 2009. |
| (22) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 30, 2009 as filed with the Commission on December 3, 2009. |
| (23) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 30, 2009 as filed with the Commission on December 31, 2009. |
| (24) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 30, 2009 as filed with the Commission on January 5, 2010. |
| (25) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 25, 2010 as filed with the Commission on March 25, 2010. |
| (26) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 28, 2010 as filed with the Commission on December 29, 2010 as amended by Form 8-K/A filed with the Commission on February 10, 2011. |
| (27) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 20, 2011 as filed with the Commission on December 20, 2011 |
| (28) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated June 1, 2012 as filed with the Commission on June 6, 2012. |
| (29) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated June 25, 2012 as filed with the Commission on June 28, 2012. |
| (30) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated October 11, 2012 as filed with the Commission on October 16, 2012. |
| 46 |
| (31) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 9, 2012 as filed with the Commission on November 13, 2012. |
| (32) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 20, 2012 as filed with the Commission on December 20, 2012. |
| (33) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated April 8, 2013 as filed with the Commission on April 12, 2013. |
| (34) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated May 4, 2013 as filed with the Commission on May 6, 2013. |
| (35) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated September 30, 2013 as filed with the Commission on October 4, 2013. |
| (36) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated January 27, 2014 as05 filed with the Commission on January 30, 2014. |
| (37) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 10, 2014 as filed with the Commission on March 14, 2014. |
| (38) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated May 23, 2014 as filed with the Commission on May 19, 2014. |
| (38) | Incorporated by reference to the Registrant’s Current Report on Form 8-K/A dated May 23, 2014 as filed with the Commission on May 19, 2014. |
| (39) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated September 26, 2014 as filed with the Commission on October 2, 2014. |
| (40) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 16, 2014 as filed with the Commission on December 17, 2014. |
| (41) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated January 22, 2015 as filed with the Commission on January 27, 2015 |
| (42) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated January 28, 2015 as filed with the Commission on February 4, 2015. |
| (43) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 14, 2015 as filed with the Commission on August 20, 2015. |
| (44) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 9, 2015 as filed with the Commission on November 12, 2015. |
| (45) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated June 30, 2016 as filed with the Commission on July 5, 2016. |
| (46) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 29, 2016 as filed with the Commission on August 30, 2016. |
| 47 |
| (47) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 25, 2016 as filed with the Commission on November 29, 2016. |
| (48) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated January 25, 2017 as filed with the Commission on January 26, 2017. |
| (49) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated May 3, 2017 as filed with the Commission on May 8, 2017. |
| (50) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated May 16, 2017 as filed with the Commission on May 16, 2017. |
| (51) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated October 27, 2017 as filed with the Commission on November 6, 2017. |
| (52) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated October 27, 2017 as filed with the Commission on November 6, 2017. |
| (53) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated October 27, 2017 as filed with the Commission on November 6, 2017. |
| (54) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 8, 2017 as filed with the Commission on November 17, 2017. |
| (55) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 8, 2017 as filed with the Commission on November 17, 2017. |
| (56) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated April 5, 2018 as filed with the Commission on April 17, 2018. |
| (57) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated April 24, 2018 as filed with the Commission on April 24, 2018. |
| (58) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated May 4, 2018 as filed with the Commission on May 10, 2018. |
| (59) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated May 4, 2018 as filed with the Commission on May 10, 2018. |
| (60) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated May 4, 2018 as filed with the Commission on May 10, 2018. |
| (61) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated May 4, 2018 as filed with the Commission on May 10, 2018. |
| (62) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 27, 2018 as filed with the Commission on August 27, 2018. |
| (63) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated October 15, 2018 as filed with the Commission on October 22, 2018. |
| (64) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated April 12, 2019 as filed with the Commission on April 16, 2019. |
| 48 |
| (65) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated April 15, 2019 as filed with the Commission on April 17, 2019. |
| (66) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated June 13, 2019 as filed with the Commission on July 11, 2019. |
| (67) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 6, 2019 as filed with the Commission on August 14, 2019. |
| (68) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 19, 2019 as filed with the Commission on November 19, 2019. |
| (69) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 2, 2020 as filed with the Commission on March 5, 2020. |
| (70) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 2, 2020 as filed with the Commission on March 5, 2020. |
| (71) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 2, 2020 as filed with the Commission on March 5, 2020. |
| (72) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 2, 2020 as filed with the Commission on March 5, 2020. |
| (73) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 2, 2020 as filed with the Commission on March 5, 2020. |
| (74) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 2, 2020 as filed with the Commission on March 5, 2020. |
| (75) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 23, 2020 as filed with the Commission on July 27, 2020. |
| (76) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 31, 2020 as filed with the Commission on January 6, 2021. |
| (77) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 31, 2020 as filed with the Commission on January 6, 2021. |
| (78) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated September 21, 2021 as filed with the Commission on September 22, 2021. |
| (79) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated September 27, 2021 as filed with the Commission on October 4, 2021. |
| (80) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated September 27, 2021 as filed with the Commission on October 4, 2021. |
| (81) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 29, 2021 as filed with the Commission on December 30, 2021. |
| (82) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 29, 2021 as filed with the Commission on December 30, 2021. |
| (83) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 29, 2021 as filed with the Commission on December 30, 2021. |
| (84) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 29, 2021 as filed with the Commission on January 3, 2022. |
| (85) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated January 26, 2022 as filed with the Commission on January 28, 2022. |
| * | Filed herewith |
| ** | furnished, not filed. |
| 49 |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
of Selectis Health, Inc. and Subsidiaries
| 50 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Selectis Health, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Selectis Health, Inc. (the Company) as of December 31, 2021, and the related consolidated statements of operations, changes in equity, and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, 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 the 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/ Haynie & Company
August 25, 2022
Firm ID: 457
We have served as the Company’s auditor since 2022.
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Global Healthcare REIT, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Global Healthcare REIT, Inc., and its subsidiaries (collectively, the “Company”) as of December 31, 2020, and the related consolidated statements of operations, changes in equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of their operations and their 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 the 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/
www.malonebailey.com
We have served as the Company’s auditor since 2016.
March 31, 2021
| F-2 |
SELECTIS HEALTH, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
| December 31, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Accounts Receivable, Net | ||||||||
| Prepaid Expenses and Other | ||||||||
| Investments in Debt Securities | ||||||||
| Total Current Assets | ||||||||
| Long Term Assets | ||||||||
| Restricted Cash | ||||||||
| Property and Equipment, Net | ||||||||
| Goodwill | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Liabilities | ||||||||
| Accounts Payable and Accrued Liabilities | ||||||||
| Accounts Payable – Related Parties | ||||||||
| Dividends Payable | ||||||||
| Short term debt – Related Parties, Net of discount of $ | ||||||||
| Current Maturities of Long Term Debt, Net of Discount of $ | ||||||||
| Other Current Liability | ||||||||
| Total Current Liabilities | ||||||||
| Debt- Related Parties, Net of discount of $ | ||||||||
| Debt, Net of discount of $ | ||||||||
| Lease Security Deposit | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Equity | ||||||||
| Preferred Stock: | ||||||||
| Series A - | ||||||||
| Series D - 8% Cumulative, Convertible, $Stated Value, Non-Voting; Shares Authorized, Shares Issued and Outstanding | ||||||||
| Preferred Stock Value | ||||||||
| Common Stock - $Par Value; Shares Authorized, and Shares Issued and Outstanding at December 31, 2021 and December 31, 2020, respectively | ||||||||
| Additional Paid-In Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Selectis Health, Inc. Stockholders’ Equity | ||||||||
| Noncontrolling Interests | ( | ) | ||||||
| Total Equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
See accompanying notes to these consolidated financial statements.
| F-3 |
SELECTIS HEALTH, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenue | ||||||||
| Rental Revenue | $ | $ | ||||||
| Healthcare Revenue | ||||||||
| Healthcare Grant Revenue | ||||||||
| Management Revenue | ||||||||
| Total Revenue | ||||||||
| Expenses | ||||||||
| Property Taxes, Insurance and Other Operating | ||||||||
| General and Administrative | ||||||||
| Provision for Bad Debts | ||||||||
| Acquisition Costs | ||||||||
| Depreciation and Amortization | ||||||||
| Total Expenses | ||||||||
| Income from Operations | ( | ) | ||||||
| Other (Income) Expense | ||||||||
| Loss (Gain) on Extinguishment of Debt | ( | ) | ||||||
| Interest Expense, net | ||||||||
| Gain on Forgiveness of PPP Loan | ( | ) | ||||||
| Other Income | ( | ) | ||||||
| Lease Termination Expense | ||||||||
| Total Other (Income) Expense | ||||||||
| Net Income (Loss) | ( | ) | ||||||
| Net Loss Attributable to Noncontrolling Interests | ( | ) | ( | ) | ||||
| Net Income (Loss) Attributable to Selectis Health, Inc. | ( | ) | ||||||
| Series D Preferred Dividends | ( | ) | ( | ) | ||||
| Net Income (Loss) Attributable to Common Stockholders | $ | ( | ) | $ | ||||
| Per Share Data: | ||||||||
| Net Income (Loss) per Share Attributable to Common Stockholders: | ||||||||
| Basic | $ | ( | ) | $ | ||||
| Diluted | $ | ( | ) | $ | ||||
| Weighted Average Common Shares Outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
See accompanying notes to these consolidated financial statements.
| F-4 |
SELECTIS HEALTH, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| Series A Preferred Stock | Series D Preferred Stock | Common Stock | Selectis Health, Inc. | |||||||||||||||||||||||||||||||||||||||||
| Number of Shares | Amount | Number of Shares | Amount | Number of Shares | Amount | Additional
Paid-In Capital | Accumulated
Deficit | Stockholders’
Equity | Non-
controlling Interests | Total
Equity | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
| Share Based Compensation – Restricted Stock Awards (Forfeitures) | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Series D Preferred Dividends | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Repurchase of Common Stock | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Relative Fair Value of Warrants Issued with Senior Secured Notes | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net Income | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of Common Shares - cash proceeds | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Common Shares - stock compensation | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Series D Preferred Dividends | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Common shares issued for debt | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Cashless Exercise of Warrants | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Cashless Exercise of Options | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Purchase of Non-controlling Interest | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Loss on Forgiveness of Debt, net | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Modification of warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||
See accompanying notes to these consolidated financial statements.
| F-5 |
SELECTIS HEALTH, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
| 2021 | 2020 | |||||||
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net Income (Loss) | $ | ( | ) | $ | ||||
| Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities: | ||||||||
| Gain on forgiveness from PPP Loan | ( | ) | ||||||
| Other Income from Partial Settlement of Debt | ( | ) | ||||||
| Depreciation and Amortization | ||||||||
| Amortization of Deferred Loan Costs and Debt Discount | ||||||||
| Provision for Bad Debt | ||||||||
| Stock Based Compensation (Forfeitures) | ( | ) | ||||||
| Gain on Extinguishment of Debt | ( | ) | ||||||
| Changes in Operating Assets and Liabilities, Net of Assets and Liabilities Acquired: | ||||||||
| Accounts and Rents Receivable | ( | ) | ( | ) | ||||
| Prepaid Expenses and Other Assets | ||||||||
| Deferred Rent Receivable | ( | ) | ||||||
| Accounts Payable, Other Current Liabilities, and Accrued Liabilities | ( | ) | ||||||
| Lease Security Deposits | ( | ) | ||||||
| Cash Provided (Used in) Operating Activities | ( | ) | ||||||
| Cash Flows From Investing Activities: | ||||||||
| Net Cash Paid in Fairland Asset Acquisition | ( | ) | ||||||
| Net Cash Paid in Higher Call Asset Acquisition | ( | ) | ||||||
| Cash Acquired in Global Eastman Acquisition | ||||||||
| Capital Expenditures for Property and Equipment | ( | ) | ( | ) | ||||
| Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from Issuance of Debt, Related Party | ||||||||
| Proceeds from Issuance of Debt, Non-Related Party | ||||||||
| Payments on Debt, Non-Related Party | ( | ) | ( | ) | ||||
| Deferred Loan Costs Paid | ( | ) | ||||||
| Dividends Paid on Preferred Stock | ( | ) | ( | ) | ||||
| Proceeds from stock offering | ||||||||
| Repurchase of Common Stock | ( | ) | ||||||
| Repurchase of non-controlling interest | ( | ) | ||||||
| Debt Discount - Warrants | ||||||||
| Debt Discount - Warrants RP | ( | ) | ||||||
| Cash Provided by Financing Activities | ||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | ||||||||
| Cash and Cash Equivalents and Restricted Cash at Beginning of the Period | ||||||||
| Cash and Cash Equivalents and Restricted Cash at End of the Period | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash Paid for Interest | ||||||||
| Cash Paid for Income Taxes | ||||||||
| Cash and Cash Equivalents | ||||||||
| Restricted Cash | ||||||||
| Total Cash and Cash Equivalents and Restricted Cash | ||||||||
| Supplemental Schedule of Non-Cash Investing and Financing Activities | ||||||||
| Dividends Declared on Series D Preferred Stock | $ | $ | ||||||
| Issuance of common stock for cashless exercise of warrants | ||||||||
| Issuance of common stock for cashless exercise of options | ||||||||
| Financing of Insurance Premiums | ||||||||
| Non-cash owner financing for fixed assets purchase | ||||||||
| Non-cash Debt financing for fixed assets purchase | ||||||||
| Prepaid deposit exchanged for fixed asset acquisition | ||||||||
| Relative Fair Value of Warrants Issued with Senior Secured Notes | ||||||||
| Interest on debt capitalized into principal | ||||||||
See accompanying notes to these consolidated financial statements.
| F-6 |
SELECTIS HEALTH, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 successfully 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 it’s facilities.
We acquire, develop, lease, manage, and dispose of 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 (vi) owning healthcare operations.
Basis of Presentation
The accompanying consolidated financial statements (the Financial Statements) have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The Company is the sole member of various consolidated limited liability companies established to operate various acquired skilled nursing operations, senior living operations and related ancillary services. All intercompany transactions and balances have been eliminated in consolidation. The Company presents noncontrolling interests within the equity section of its consolidated balance sheets and the amount of consolidated net income that is attributable to Selectis Health, Inc. and the noncontrolling interest in its consolidated statements of operations.
The consolidated financial statements include the accounts of all entities controlled by the Company through its ownership of a majority voting interest.
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no effect on the previously reported net loss.
Use of Estimates and Assumptions
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates included herein relate to the recoverability of assets, the purchase price allocation for properties acquired, and the fair value of certain assets and liabilities. Actual results may differ from estimates.
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 year ended December 31, 2021 the Company disclosed that there was no substantial doubt as to its ability to continue
as a going concern as a result of net working capital deficit of $
| 1. | Projected
cash flows from operations resulting from continued improvement of the Company’s operating performance. During the year ended
December 31, 2021, the Company recorded a net loss of $ |
| F-7 |
| 2. | Future
refinancing of existing debt. As of December 31, 2021, the Company has a working capital deficit of approximately $ |
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.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Restricted Cash
Restricted cash consisted of the following as of December 31:
SCHEDULE OF RESTRICTED CASH AND CASH EQUIVALENTS
| 2021 | 2020 | |||||||
| Funds held in escrow under the terms of notes for future capital expenditures, repairs and maintenance | $ | $ | ||||||
| Restricted Cash | $ | $ | ||||||
Concentration of Credit Risk
The
Company maintains deposits in financial institutions that at times exceed the insured amount of $
Property and Equipment
In accordance with purchase accounting guidance established for entities under common control, the property and equipment acquired from entities under common control are stated at their carrying value on the date of acquisition. Property and equipment not acquired from entities under common control is recorded at its estimated fair value. Estimated fair value is determined with the assistance from independent valuation specialists using recent sales of similar assets, market conditions or projected cash flows of properties using standard industry valuation techniques.
Upon acquisition of real estate properties determined to be asset acquisitions, the Company determines the total purchase price of each property and allocates the purchase price of acquired properties to net tangible and identified intangible assets based on relative fair values. Fair value estimates are based on information obtained from independent appraisals, other market data, and information obtained during due diligence period. Acquisition-related costs such as due diligence, legal and accounting fees are included in the purchase price. Initial valuations are subject to change during the measurement period, but the period ends as soon as the information is available. The measurement period shall not exceed one year from the date of acquisition.
| F-8 |
Upon acquisition of business entities and real estate determined to be a business combination, the Company identifies and recognizes the net tangible and identified intangible assets based on fair values, and net assets as goodwill or gain on bargain purchase. Fair value estimates are based on information obtained from independent appraisals, other market data, information obtained during due diligence and information related to the marketing, leasing, and or operating at the specific property. Acquisition-related costs such as due diligence, legal and accounting fees are expensed as incurred. Initial valuations are subject to change during the measurement period, but the period ends as soon as the information is available. The measurement period shall not exceed one year from the date of acquisition.
Any subsequent betterments and improvements are stated at historical cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, and tenant improvements are depreciated over the remaining term of the lease. Useful lives of the assets are summarized as follows:
SCHEDULE OF PROPERTY PLANT AND EQUIPMENT, ESTIMATED USEFUL LIVES
| Land Improvements | ||
| Buildings and Improvements | ||
| Furniture, Fixtures and Equipment |
Impairment of Long-Lived Assets
When circumstances indicate the carrying value of property and equipment may not be recoverable, the Company reviews the property 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 and equipment. Estimated fair value is determined with the assistance from independent valuation specialists using recent sales of similar assets, market conditions or projected cash flows of the property using standard industry valuation techniques.
Deferred Loan Costs and Debt Discounts
Deferred
loan costs are amortized over the life of the related loan using the straight-line method, which approximates the effective interest
method. For the years ended December 31, 2021 and 2020, deferred loan costs paid in cash totaled $ and $
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 it’s 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.
| F-9 |
The Company has recorded Goodwill in connection with business acquisitions during the year ended December 31, 2020 (see Note 9). During the years ended December 31, 2021 and 2020, the Company recorded no impairment of Goodwill.
Intangible Assets
As
part of the acquisition of the operations at Southern Hills Rehab Center, LLC (“SHR”), the Company recognized certain intangible
assets related to the potential net income from the existing patients in the facility. The Company estimated the value of these contracts
to be $
As
part of the acquisition of the operations at Global Eastman, the Company recognized certain intangible assets related to the potential
net income from the existing patients in the facility. The Company estimated the value of these contracts to be $
Revenue Recognition
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.
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. Cumulative adjustments associated with
the straight-line rent requirement are reflected in Prepaid Expenses and Other in the consolidated balance sheets and totaled $
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 December 31, 2021, and 2020, there were no deferred lease incentives recorded.
The Company recognizes revenue in accordance with ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” including subsequently issued updates. Under the accounting guidance our revenues are presented net of estimated allowances, and we no longer present the provision for doubtful accounts as a separate line item on our balance sheet.
The Company reviews its calculations for the realizability of gross service revenues monthly to make certain that we are properly allowing for the uncollectible portion of our gross billings and that our estimates remain sensitive to variances and changes within our payer groups. The contractual allowance calculation is made based on historical allowance rates for the various specific payer groups monthly with a greater emphasis given to current trends. This calculation is routinely analyzed by the Company based on actual allowances issued by payers and the actual payments made to determine what adjustments, if any, are needed.
Our revenues generally relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods that average approximately five days, and revenues are recognized based on charges incurred in relation to total expected charges. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, and Medicaid) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare, and Medicaid). Medicare generally pays for inpatient and outpatient services at prospectively determined rates based on clinical, diagnostic and other factors. Services provided to patients having Medicaid coverage are generally paid at prospectively determined rates per discharge, per identified service or per covered member.
Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual allowances under managed care are based upon the payment terms specified in the related contractual agreements.
Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Estimated reimbursement amounts are adjusted in subsequent periods as cost reports are prepared and filed and as final settlements are determined (in relation to certain government programs, primarily Medicare, this is generally referred to as the “cost report” filing and settlement process).
The collection of outstanding receivables for Medicare, and Medicaid, is our primary source of cash and is critical to our operating performance. The primary collection risks relate to Medicaid pending patient accounts. Accounts are written off when all reasonable internal and external collection efforts have been performed. The estimates for implicit price concessions are based upon management’s assessment of historical write offs and expected net collections, business and economic conditions, trends in federal, state and private employer health care coverage and other collection indicators. Management relies on the results of detailed reviews of historical write-offs and collections at facilities that represent a majority of our revenues and accounts receivable (the “hindsight analysis”) as a primary source of information in estimating the collectability of our accounts receivable. We perform the hindsight analysis quarterly, utilizing rolling twelve-months accounts receivable collection and write off data. We believe our quarterly updates to the estimated contractual allowance amounts at each of our facilities provide reasonable estimates of our revenues and valuations of our accounts receivable.
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. For the year ending December 31, 2021 the uncollectable amounts totaled $
The Company accounts for stock-based compensation in accordance with Accounting Standards Codification (“ASC”) ASC 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period.
Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-7”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The adoption of ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.
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.
| F-10 |
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 December 31, 2021, and 2020.
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.
Income Taxes
As previously disclosed in the “Organization and Description of the Business” section of this Note, the Company’s focus has partially shifted from leasing nursing home assets to independent operators toward owning and operating its real estate assets itself.
The Company uses the asset and liability method of accounting for income taxes. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates resulting from new legislation is recognized in income in the period of enactment. A valuation allowance is established against deferred tax assets when management concludes that the “more likely than not” realization criteria has not been met. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained.
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.
| F-11 |
SCHEDULE OF BASIC AND DILUTED EARNINGS PER SHARE
| 2021 | 2020 | |||||||
| Year Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Numerator for basic earnings per share: | ||||||||
| Net Income (Loss) Attributable to Selectis Health, Inc. | $ | ( | ) | $ | ||||
| Series D Preferred Dividends | ( | ) | ( | ) | ||||
| Net Income (Loss) Attributable to Common Stockholders - Basic | $ | ( | ) | $ | ||||
| Numerator for diluted earnings per share: | ||||||||
| Net Income (Loss) Attributable to Common Stockholders | ||||||||
| Series D Preferred Dividends | ||||||||
| Net Income (Loss) Attributable to Common Stockholders - Diluted | ||||||||
| Denominator for basic earnings per share: | ||||||||
| Weighted Average Common Shares Outstanding | ||||||||
| Denominator for diluted earnings per share: | ||||||||
| Weighted Average Common Shares Outstanding - Basic | ||||||||
| Effect of dilutive securities: | ||||||||
| Exercise of stock options | ||||||||
| Exercise of warrants | ||||||||
| Conversion of Series D Convertible Preferred Stock | ||||||||
| Weighted Average Common Shares Outstanding - Diluted | ||||||||
| Net Income (Loss) per Share Attributable to Common Stockholders: | ||||||||
| Basic | $ | ( | ) | $ | ||||
| Diluted | $ | ( | ) | $ | ||||
Options
to purchase shares of common stock were outstanding during
the years ended December 31, 2021 and 2020 but were not included in the computation of diluted earnings per share because
they are anti-dilutive due to the options’ exercise price being greater than the average market price of the common shares. Warrants
to purchase
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board and other entities issued new or modifications to, or interpretations of, existing accounting guidance during 2021. 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.
| F-12 |
2. INVESTMENTS IN DEBT SECURITIES
At December 31, 2021 and 2020, the Company held investments in marketable securities that were classified as held-to-maturity and carried at amortized costs. Held-to-maturity securities consisted of the following:
SCHEDULE OF INVESTMENTS IN MARKETABLE SECURITIES
| December 31, 2021 | December 31, 2020 | |||||||
| States and Municipalities | $ | $ | ||||||
Contractual
maturity of held-to-maturity securities at December 31, 2021 and 2020 is $
3. PROPERTY AND EQUIPMENT, NET
The gross carrying amount and accumulated depreciation of the Company’s property and equipment as of December 31, 2021 and 2020 are as follows:
SCHEDULE OF PROPERTY PLANT AND EQUIPMENT
| December 31, 2021 | December 31, 2020 | |||||||
| Land | $ | $ | ||||||
| Land Improvements | ||||||||
| Buildings and Improvements | ||||||||
| Furniture, Fixtures and Equipment | ||||||||
| Construction in Progress | ||||||||
| Property and Equipment, Gross | ||||||||
| Less Accumulated Depreciation | ( | ) | ( | ) | ||||
| Less Impairment | ( | ) | ( | ) | ||||
| Property and Equipment, Net | $ | $ | ||||||
| 2021 | 2020 | |||||||
| For the Twelve Months Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Depreciation Expense (excluding Intangible Assets) | $ | $ | ||||||
| Cash Paid for Capital Expenditures | $ | $ | ||||||
| F-13 |
4. DEBT AND DEBT – RELATED PARTIES
The following is a summary of the Company’s debt and debt – related parties outstanding as of December 31, 2021 and 2020:
SCHEDULE OF DEBT INSTRUMENTS
| December 31, 2021 | December 31, 2020 | |||||||
| Senior Secured Promissory Notes | $ | $ | ||||||
| Senior Secured Promissory Notes - Related Parties | ||||||||
| Fixed-Rate Mortgage Loans | ||||||||
| Variable-Rate Mortgage Loans | ||||||||
| Other Debt, Subordinated Secured | ||||||||
| Other Debt, Subordinated Secured - Related Parties | ||||||||
| Other Debt, Subordinated Secured - Seller Financing | ||||||||
| Debt instrument, gross | ||||||||
| Unamortized Discount and Debt Issuance Costs | ( | ) | ( | ) | ||||
| Debt instrument, net of discount | $ | $ | ||||||
| As presented in the Consolidated Balance Sheets: | ||||||||
| Current Maturities of Long Term Debt, Net | $ | $ | ||||||
| Short term debt – Related Parties, Net | ||||||||
| Debt, Net | ||||||||
| Debt - Related Parties, Net | ||||||||
The
weighted average interest rate and term of our fixed rate debt are
The weighted average interest rate and term of
our fixed rate debt are
Corporate Senior and Senior Secured Promissory Notes
As
of December 31, 2021, and December 31, 2020, the senior secured notes are subject to annual interest ranging from
In
2017, $
In
October 2017, the Company sold an aggregate of $
In
October 2018, the Company, through a registered broker-dealer acting as Placement Agent, undertook a private offering to accredited investors
of Units, each Unit consisting of an
On
January 17, 2020, the Board of Directors agreed to increase the total offering amount and extend the period of its 2018 Offering of
The
fair value of warrants issued in connection with the sales and exchanges of Units during the year ended December 31, 2020 was $
The value of the warrants issued to the note holders during the year ended December 31, 2020 was calculated using the Black-Scholes pricing model using the following significant assumptions:
SCHEDULE OF FAIR VALUE ASSUMPTIONS
| Volatility | ||||
| Risk-free Interest Rate | % | |||
| Exercise Price | $ | |||
| Fair Value of Common Stock | $ | - $ | ||
| Expected Life | ||||
| F-14 |
Mortgage Loans and Lines of Credit Secured by Real Estate
Mortgage loans and other debts such as lines of credit 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 | December 31, 2021 | December 31, 2020 | ||||||||||||
| Arkansas(1) | $ | $ | $ | |||||||||||||
| Georgia (2) | $ | $ | $ | |||||||||||||
| Ohio | $ | $ | $ | |||||||||||||
| Oklahoma(3) | $ | $ | $ | |||||||||||||
| $ | $ | $ | ||||||||||||||
| (1) | |
| (2) | |
| (3) |
Subordinated, Corporate, and Other Debt
Other debt due at December 31, 2021 and 2020 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
| Principal Outstanding at | ||||||||||||||||
| Property | Face Amount | December 31, 2021 | December 31, 2020 | Stated Interest Rate | Maturity Date | |||||||||||
| Goodwill Nursing Home | $ | $ | $ | |||||||||||||
| Goodwill Nursing Home – Related Party(1) | $ | |||||||||||||||
| Higher Call Nursing Center(2) | ||||||||||||||||
| $ | $ | $ | ||||||||||||||
| (1) | On
June 30, 2020, the Company purchased notes from four former investors in GWH Investors, LLC in favor of Goodwill Hunting, LLC in
the aggregate amount of $ |
| (2) | 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 $ |
| F-15 |
Our corporate debt at December 31, 2021, and December 31, 2020 includes unsecured notes and notes secured by all assets of the Company not serving as collateral for other notes.
SCHEDULE OF UNSECURED NOTES AND NOTES SECURED BY ALL ASSETS
| Principal Outstanding at | ||||||||||||||||
| Series | Face Amount | December 31, 2021 | December 31, 2020 | Stated Interest Rate | Maturity Date | |||||||||||
| 10% Senior Secured Promissory Note | ||||||||||||||||
| 10% Senior Secured Promissory Notes | ||||||||||||||||
| 10% Senior Secured Promissory Notes – Related Party | ||||||||||||||||
| $ | $ | |||||||||||||||
Effective February 5, 2020 the Company completed
the sale of $
On September 30, 2020, the Company repaid $
Paycheck Protection Program Loans
On
April 20, 2020, the Company through its subsidiaries received a loan of $
On
May 4, 2020, the Company through its subsidiaries received loans of $
The
forgiveness recognized during the year ended December 31, 2020 included principal of $
On
June 16, 2021, the Company through its subsidiaries received confirmation that the loan of $
For
the years ended December 31, 2021 and 2020, the Company received proceeds from the issuance of debt of $
| F-16 |
Future maturities and principal payments of all notes and bonds payable listed above for the next five years and thereafter are as follows:
SCHEDULE OF FUTURE MATURITIES OF NOTES PAYABLE
| Rolling Periods | ||||
| January 2022 | $ | |||
| January 2023 | ||||
| January 2024 | ||||
| January 2025 | ||||
| January 2026 | ||||
| January 2027 and after | ||||
| Long-term Debt, Fair Value | $ | |||
5. OTHER CURRENT LIABILITY
During the year ended December 31, 2021 the
Company received an overpayment from Medicare of $
SCHEDULE OF OTHER CURRENT LIABILITY
| Period | ||||
| Balance at December 31, 2021 | $ | |||
| February 2022 Recoupments | $ | ( | ) | |
| March 2022 Recoupment | $ | ( | ) | |
| April 2022 Recoupment | $ | ( | ) | |
| May 2022 Recoupment | $ | ( | ) | |
| Recoupment | $ | ( | ) | |
| Balance at June 2022 | $ | |||
6. STOCKHOLDERS’ EQUITY
Preferred Stock
The Company has authorized shares of preferred stock. These shares may be issued in series with such rights and preferences as may be determined by the board of directors.
Series A Convertible Redeemable Preferred Stock
The
Company’s Board of Directors has authorized shares of $ stated value, Series A Preferred Stock. The preferred stock
has a senior liquidation preference value of $
As of December 31, 2021, and 2020, the Company has shares of Series A Preferred Stock outstanding.
Series D Convertible Preferred Stock
The
Company has established a class of preferred stock designated “Series D Convertible Preferred Stock” (Series D preferred
stock) and authorized an aggregate of non-voting shares with a stated value of $ per share. Holders of the Series D preferred
stock are entitled to receive dividends at the annual rate of
As of December 31, 2021, and 2020, the Company had shares of Series D Preferred Stock outstanding.
For
years ended December 31, 2021, and 2020, the Company declared $
Common Stock
The Company’s Board of Directors has authorized shares of $par value, Common Stock. As of December 31, 2021, and 2020, the Company has and shares of common stock outstanding, respectively.
Additionally, on September 22, 2021, the Company received approval from FINRA and other regulators to execute a ten-for-one reverse stock split. Accordingly, all share and per-share amounts relating to the common stock, stock options and warrants for all periods presented in the accompanying consolidated financial statements have been retroactively adjusted, where applicable, to reflect the reverse stock split.
During
the year ended December 31, 2021, the Company issued shares of common stock in exchange for services
which were valued at $
During
the year ended December 31, 2021, the Company sold shares of Common Stock at a purchase
price of $ per share for net proceeds of $
| F-17 |
On
August 18, 2020, the Company’s Board of Directors approved the repurchase for redemption of shares of the Company’s $par value common stock (“Common
Stock”) for $
On
November 13, 2020, the Company’s Board of Directors approved the repurchase for redemption of shares of Common Stock for
$
On
December 9, 2020, the Company’s Board of Directors approved the repurchase for redemption of shares of Common Stock for
$
There were repurchases performed in the 2021 year.
Restricted Stock Awards
SCHEDULE OF RESTRICTED STOCK AWARDS
| 2021 | 2020 | |||||||
| Outstanding Non-Vested Restricted Stock Units, Beginning | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Outstanding Non-Vested Restricted Stock Units, Ending | ||||||||
stock-based compensation expense was recognized for restricted stock grants for the year ended December 31, 2020. However, during the
year ended December 31, 2020, the Company recognized a reversal of stock-based compensation of $
Common Stock Warrants
As
of December 31, 2021, and December 31, 2020, the Company had
SCHEDULE OF COMMON STOCK WARRANTS ACTIVITY
| 2021 | 2020 | |||||||||||||||
| Number of Warrants | Weighted Average Exercise Price | Number of Warrants | Weighted Average Exercise Price | |||||||||||||
| Beginning Balance | $ | $ | ||||||||||||||
| Issued | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Expired | ( | ) | ||||||||||||||
| Ending Balance | $ | $ | ||||||||||||||
Effective January 28, 2020, the Company issued warrants in connection with the exchange of outstanding Senior Secured 10% Notes for 11% Senior Secured Promissory Notes. Effective February 5, 2020 and March 3, 2020, the Company issued and warrants, respectively, in connection with sales of its 11% Senior Secured Notes. The warrants issued on March 3, 2020 were to a related party. Effective October 31, 2020, the Company issued warrants in connection with the exchange of outstanding Senior Unsecured 10% Notes for 11% Senior Secured Promissory Notes. See Note 4 for full disclosure of these transactions.
Common Stock Options
As of December 31, 2020, the Company had of outstanding options to purchase common stock at a weighted average exercise price of $, with a weighted average remaining term of years. During the year ended December 31, 2020, options expired. The aggregate intrinsic value of the common stock options outstanding at December 31, 2020 was $.
As of December 31, 2021, the Company had outstanding options to purchase common stock.
7. RELATED PARTIES
Clifford
Neuman, a member of the Company’s Board of Directors, provided legal services to the Company. As of December 31, 2021, and 2020,
the Company owed Mr. Neuman for legal services rendered $
On September 29, 2020, Zvi Rhine, the Company’s President and Chief Financial Officer and a member of the Board of Directors, resigned from all positions with the Company. The resignations were prompted by regulatory issues not involving the Company or its subsidiaries. Effective October 1, 2020, the Company entered into a consulting agreement with Mr. Rhine with a termination date of December 31, 2020. In mid-December 2020, the Company advised Mr. Rhine that it would not be renewing his consulting agreement beyond the termination date. The Company has discovered several matters involving a financial benefit undertaken by Mr. Rhine that had previously been unknown by the other members of the Board and were unauthorized by the Company. The Company is doing a thorough investigation into Mr. Rhine’s actions both as a former employee and subsequently as a consultant to determine the full and exact nature and extent of any unauthorized conduct.
Creative Cyberweb developed and maintained the Company’s website and is affiliated with Mr. Rhine’s family. The ongoing upkeep paid by the Company was $450 per month. Effective December 17, 2020, the Company terminated its relationship with Creative Cyberweb and Rhine and Associates. The Company’s website is being newly developed with an outside hosting and maintenance company at a nominal cost.
In
January 2018, the Directors modified the Directors’ Compensation Plan to provide the annual grants be subject to ratable vesting
over 12 months. In March 2019, the Board approved an annual grant to three of its Directors without other compensation plans, restricted
stock awards of shares each, subject to vesting. In July 2019, the Board approved a pro-rated annual grant to two of its Directors
without other compensation plans restricted stock awards of shares in aggregate, subject to vesting. In connection with these
director restricted stock grants, the Company recognized stock-based compensation of $ for the year ended December 31, 2019.
stock-based compensation expense was recognized in connection with director restricted stock grants for the year ended December 31, 2020.
However, the Company recognized a reversal of stock-based compensation of $
In
the first quarter of 2020, the Board revised the Director Compensation Plan to provide that non-employee directors are entitled to a
directors’ fee equal to $
8. FACILITY LEASES
The following table summarizes our leasing arrangements related to the Company’s healthcare facilities at December 31, 2021:
SCHEDULE OF LEASING ARRANGEMENTS
| Facility | Monthly Lease Income (1) | Lease Expiration | Renewal Option if any | |||||
| Goodwill (1) | $ | |||||||
| (1) |
| F-18 |
Lessees are responsible for payment of insurance, taxes, and other charges while under the lease. Should the lessees not pay all such charges as required under the leases, or if there is no tenant, the Company may become liable for such operating expenses. We have been required to cover those expenses at Glen Eagle as well as the Southern Hills SNF, ALF and ILF, Meadowview, Higher Call, Edwards, Fairland, Sparta, and Warrenton properties.
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:
SCHEDULE OF FUTURE CASH PAYMENTS FOR RENT RECEIVED DURING INITIAL TERM OF LEASE
| Years Ending December 31, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 and Thereafter | ||||
| Total | $ | |||
9. INCOME TAXES
The Company and its subsidiaries are subject to income taxes on income arising in, or derived from, the tax jurisdictions in which they operate. The Company is current with all its federal and state tax filings. The Company is open to examination for tax years 2001 through 2021 due to the carry back of net operating losses.
The following is a reconciliation of the federal statutory tax rate and the effective tax rate as a percentage for the years ended December 31, 2021 and 2020:
SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION
| 2021 | 2020 | |||||||
| Statutory Federal Income Tax Rate | % | % | ||||||
| Effect of Valuation Allowance on Deferred Tax Assets | ( | ) | ( | ) | ||||
| % | % | |||||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The components of deferred tax assets as of December 31, 2021 and 2020 are as follows:
SCHEDULE OF DEFERRED TAX ASSETS
| 2021 | 2020 | |||||||
| Deferred Tax Assets: | ||||||||
| Net Operating Loss Carryforwards | $ | $ | ||||||
| Capital Loss Carryforward | ||||||||
| Impairment Loss on Long Term Assets | ||||||||
| Goodwill Impairment | ||||||||
| Stock Based Compensation | ||||||||
| Acquisition Costs | ||||||||
| Other | ||||||||
| Deferred tax assets | ||||||||
| Deferred Tax Liabilities: | ||||||||
| Bargain Purchase Gain | ( | ) | ( | ) | ||||
| Property and Equipment | ( | ) | ( | ) | ||||
| Other | ||||||||
| Deferred tax liabilities | ( | ) | ( | ) | ||||
| Valuation Allowance | ( | ) | ( | ) | ||||
| Net Deferred Tax Asset | $ | $ | ||||||
| F-19 |
The
valuation allowance at December 31, 2021 and 2020 was primarily related to federal net operating loss carryforwards that, in the judgment
of management, are not more-likely-than-not to be realized. In assessing the realizability of deferred tax assets, management considers
whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback
and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. In order to fully
realize the deferred tax asset, the Company will need to generate future taxable income of approximately $
When more than a 50% change in ownership occurs, over a three-year period, as defined, the Tax Reform Act of 1986 limits the utilization of net operating loss carry forwards in the years following the change in ownership. No determination has been made as of December 31, 2021, as to what implications, if any, there will be in the net operating loss carry forwards of the Company.
10. GOODWILL
On
February 27, 2020, Global Eastman, LLC (“Global Eastman”), a newly-formed, wholly-owned subsidiary of the Company, entered
into an Operations Transfer Agreement (the “OTA”) with the court-appointed receiver of Eastman Healthcare & Rehab,
LLC. On July 2, 2020, the Superior Court of Dodge County, Georgia approved the OTA from the receiver to Global Eastman. The OTA
was made effective July 1, 2020, as that was the effective date of the nearly simultaneous issuance of operating license from the State
of Georgia. Pursuant to the terms of the OTA, Global Eastman assumed all cash accounts, building improvements and equipment, and receivables
and only selected critical ongoing liabilities associated with the prior operator. All other liabilities remain with the prior operator
in the former entity. The acquisition of the assets and assumption of liabilities was accounted for as a business combination in accordance
with ASC 805, “Business Combinations”. The goodwill of $
The following table summarizes the amounts of the assets acquired and liabilities assumed recognized by the Company at the acquisition date.
SCHEDULE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
| Recognized amounts of identifiable assets acquired, and liabilities assumed | ||||
| Cash and Cash Equivalents | $ | |||
| Accounts Receivable | ||||
| Property and Equipment | ||||
| Prepaid Expenses | ||||
| Intangible Assets | ||||
| Accounts Payable and Accrued Liabilities | ( | ) | ||
| Total identifiable net liabilities | ( | ) | ||
| Goodwill | $ | |||
| Acquisition-related costs (included in the Company’s consolidated statement of operations for the year ended December 31, 2020) | $ |
| F-20 |
The unaudited pro forma amounts of Global Eastman’s revenue and earnings had the acquisition date been January 1, 2020 are as follows:
SCHEDULE OF PRO FORMA REVENUE
| Revenue | Net Income (Loss) | |||||||
| Actual from July 1, 2020 to December 31, 2020 | $ | $ | ||||||
| 2020 supplemental pro forma from January 1, 2020 to December 31, 2020 | ||||||||
All
goodwill included in the consolidated balance sheets as of December 31, 2021 and 2020 has been assigned to the Healthcare Services segment.
Goodwill 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. During the years ended December 31, 2021
and 2020, the Company recorded
Following is a summary of Activities in goodwill for the years ended December 31, 2021 and 2020:
SCHEDULE OF ACTIVITIES IN GOODWILL
| Balance, December 31, 2019 | ||||
| Goodwill acquired in 2020 | ||||
| Balance, December 31, 2020 | ||||
| Goodwill acquired in 2021 | ||||
| Balance, December 31, 2021 | $ |
11. ASSET ACQUISITIONS
Effective
March 2, 2020, the Company, through its newly formed wholly-owned subsidiary, Global Quapaw, LLC (“Quapaw”), completed the
acquisition of an 86-licensed bed, long-term care facility known as Higher Call Nursing Center (“Higher Call”) located in
Quapaw, Oklahoma for the purchase price of $
| F-21 |
On
December 31, 2020, Global Fairland Property, LLC (“Global Fairland”), a newly-formed wholly-owned subsidiary of the Company,
completed the purchase of a skilled nursing facility, including the real estate and all furniture, fixtures, machinery, and equipment,
located in Fairland, Oklahoma consisting of 29 licensed beds and commonly known as “Family Care Center of Fairland” (the
“Fairland Facility”). The purchase price of the Fairland Facility was $
In
connection with the acquisition of the Fairland Facility, the Company partially financed the acquisition with a conventional mortgage
loan and executed a promissory note in favor of Simmons Bank in the principal amount of $
As of December 31, 2020, the Fairland Facility is operated by another wholly-owned subsidiary under an operating lease because of the concurrent completion of an Operations Transfer Agreement with the former operator.
12. SEGMENT REPORTING
The
Company had
Total assets for the healthcare services and real
estate services segments were $
SCHEDULE OF REPORTING SEGMENTS
| Statements of Operations Items for the Year Ended | ||||||||||||||||||||||||
| December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||
| Real Estate Services | Healthcare Services | Consolidated | Real Estate Services | Healthcare Services | Consolidated | |||||||||||||||||||
| Rental Revenue | $ | $ | $ | $ | $ | |||||||||||||||||||
| Healthcare Revenue | ||||||||||||||||||||||||
| Healthcare Grant Revenue | ||||||||||||||||||||||||
| Management Revenue | ||||||||||||||||||||||||
| Total Revenue | ||||||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||
| Property Taxes, Insurance and Other Operating | ||||||||||||||||||||||||
| General and Administrative | ||||||||||||||||||||||||
| Provision for Bad Debts | ||||||||||||||||||||||||
| Acquisition Costs | ||||||||||||||||||||||||
| Depreciation and Amortization | ||||||||||||||||||||||||
| Total Expenses | ||||||||||||||||||||||||
| Income (Loss) from Operations | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Other (Income) Expense | ||||||||||||||||||||||||
| Interest Expense | ||||||||||||||||||||||||
| Gain on Forgiveness of PPP Loan | ( | ) | ( | ) | ||||||||||||||||||||
| Gain on Extinguishment of Debt | - | 65,623 | 65,623 | ( | ) | ( | ) | ( | ) | |||||||||||||||
| Other (Income) Expense | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Lease Termination Expense | ||||||||||||||||||||||||
| Total Other (Income) Expense | ( | ) | | ( | ) | |||||||||||||||||||
| Net Income (Loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net (Income) Loss Attributable to Noncontrolling Interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Net Income (Loss) Attributable to Selectis Health, Inc. | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||
| F-22 |
13. LEGAL PROCEEDINGS
The Company and/or its affiliated subsidiaries are or were involved in the following litigation:
Bailey v. GL Nursing, LLC, et. al in the Circuit Court of Lonoke County, Arkansas, 23rd Circuit, 43CV-19-151.
In April 2019, the Company’s wholly-owned subsidiary was named as a co-defendant in the action arising out of a claimed personal injury suffered by the plaintiff while a resident of the skilled nursing home owned, but not operated, by GL Nursing. As of this date, we have engaged legal counsel, but no further information is known regarding the merits of the claim.
As we simply were the owners of the property and not the operators, we believe that primary responsibility, if any, falls with the operator at the time.
While it is too early to assess the Company’s exposure, we believe at this time that the likelihood of an adverse outcome is remote.
Thomas v. Edwards Redeemer Property Holdings, LLC, et.al., District Court for Oklahoma County, Oklahoma, Case No. CJ 2016-2160.
This action arises from a personal injury claim brought by heirs of a former resident of our Edwards Redeemer facility, filed in April 2016. We are entitled to indemnification from the lease operator and should be covered under the lease operator’s general liability policy. As we are not the operators of the facility and believe we have indemnity coverage, we believe we have no exposure. The lease operator’s insurance carrier is providing a defense and indemnity and, as a result, we believe the likelihood of a material adverse result is remote.
Edwards Redeemer Property Holdings LLC v. Edwards Redeemer Healthcare & Rehab, LLC, District Court of Oklahoma County, State of Oklahoma, Case No. CJ-19-5883.
This action was brought by us against the former lease operator for breaching the lease agreement, removing all the patients, and closing the facility. On October 17, 2019, the Court entered an Order Appointing a Receiver. We have entered into a Settlement Agreement and Release with the Receiver and an Operations Transfer Agreement pursuant to which our newly formed subsidiary will acquire the assets and operations of the facility. In March 2021, the Court approved the Settlement Agreement and Operations Transfer Agreement, the skilled nursing license was assigned to the Company’s wholly-owned subsidiary Park Place Health, LLC and the Company reopened the facility under the name Park Place Health. This matter is considered resolved.
Oliphant v. Global Eastman, LLC, et.al., State Court of Cobb County, State of Georgia, Civil Action No. 20-A-3983
This is a personal injury lawsuit against various defendants arising out of the death of a patient of the Eastman Healthcare & Rehab Center (the “Facility”). At all relevant times, the Facility was owned by the Company’s wholly owned subsidiary Dodge NH, LLC and leased to Eastman Health & Rehab LLC, an affiliate of Cadence Healthcare, as lease operator. Neither the Company nor any affiliate of the Company had any involvement in patient care at the time of the incident for which complaint was made. The Company relies upon well-settled Georgia law that a landlord has no liability for patient care. The landlord is Dodge NH, LLC. Global Eastman, LLC was not formed as a legal entity during the period of the incident and did not assume the past liabilities as part of the OTA with the receivership of Eastman Healthcare & Rehab LLC which was effective July 1, 2020. Global Eastman LLC was formed on November 21, 2019. Plaintiff has dismissed these claims with prejudice, and the Company has filed a Motion to be awarded attorneys fees and costs.
In the matter of Austin.
On December 23, 2020, we received written notice from an attorney of the intent to assert an action for damages against Dodge NH, LLC, which is our subsidiary that owns the nursing facility in Eastman Georgia. The action arises from the shooting death outside of the facility of a woman that worked for our cleaning contractor that cleaned the nursing home. The woman was shot by her former boyfriend who then committed suicide. The incident occurred in December 2019 when the facility was operated by a third-party operator who was in receivership. We do not believe there is any basis in law or fact to hold the owner of the real estate liable, and as a result management has concluded that the likelihood of a material adverse result is remote.
In re: Providence HR, LLC v. CRM of Warrenton, LLC, United States Bankruptcy Court, Middle District of Georgia, Macon Division, Case No. 21-50201
In re: ALT/WARR, LLC v. CRM of Sparta, LLC, United States Bankruptcy Court, Middle District of Georgia, Macon Division, Case No. 21-50200
| F-23 |
These are companion cases arising out of the Company’s election to terminate the operating leases on the Company’s two facilities in Warrenton and Sparta, Georgia. The Company served a Notice of Termination on each facility and in response the lease operators filed voluntary petitions under Chapter 11 of the US Bankruptcy Code. The Company filed Motions for Relief from Stay which was heard by the Court on March 22, 2021. By Order of the Court, the hearing was continued to May 25, 2021. The Court entered an interim Order requiring the lease operators to comply with their leases, including payment of rent, pending the next hearing. In June 2021, the Court entered an Order approving a Lease Termination Agreement, Operations Transfer Agreement and Interim Management Agreement which had been negotiated by the Company and the two operating tenants, CRM of Warrenton, LLC and CRM of Sparta, LLC. The Lease Termination Agreement and Operations Transfer Agreement became effective upon the granting of a new License by the State of Georgia for the Warrenton and Sparta facilities to two newly formed wholly-owned operating subsidiaries of the Company: Selectis Sparta, LLC and Selectis Warrenton, LLC.
High Street Nursing, LLC v. Ohio Department of Health, Court of Common Pleas, Franklin County, Ohio, Case No. 21 CV 6559.
The Company brought this action through its wholly-owned subsidiary High Street Nursing, LLC (“High Street”) against the Ohio Department of Health (ODH) to prevent the Department of Health from revoking the state issued license covering the Meadowview skilled nursing facility located in Seville, Ohio. The facility is owned by High Street and was leased to a third party operator who abandoned the facility. The Department of Health is trying to revoke the license of the former operator and has refused our request to transfer the license to a new operator controlled by the Company. Our Motion for Temporary Injunction was denied by the Court. We have subsequently filed a Motion for Preliminary and Permanent Injunction which is pending. Our claims against the Department of Health are based upon our property interests in the facility and raise issues of unlawful condemnation and eminent domain. No prediction can be made regarding the outcome of this matter, but the Company will pursue the ODH to the fullest extent.
In the Matter of Hunter
The Company received a spoliation letter from an attorney dated October 8, 2021 advising of the intent to assert a personal injury claim against our operating subsidiary Glen Eagle Health & Rehab, LLC which operates our skilled nursing facility in Abbeville, Georgia. The matter has been referred to our insurance carrier. We have been provided no further information, but after reviewing the information we believe at this time that the likelihood of an adverse outcome is remote.
Edwards Redeemer Property Holdings, LLC, et.al. v. Buildstrong Roofing and Construction, Inc.,et.al. District Court of and for Tulsa County, Oklahoma, Case No. CJ-202
This Company brought this action against a contractor that performed work at our Park Place facility in Oklahoma City and our Southern Hills SNF in Tulsa. The claims are based upon negligence and breach of contract for subpar work due to defects in materials, workmanship and Buildstrong not providing services for which they received payment. The case is pending.
Tara Gaspar, et.al v. GL Nursing, LLC, et.al., Circuit Court of Lonoke County, Arkansas, Civil Division, Case. No. 43CV-21-864.
This case is a personal injury action in which our subsidiary GL Nursing, LLC was joined as a defendant because it is the owner of the property leased to an operating tenant. The action is based upon quality of care over which we had no control. We believe that our risk of a material adverse outcome is remote.
14. SUBSEQUENT EVENTS
In January 2022, as part of the debt conversion
initiated in December 2021, the Company converted an additional $
On July 1st, 2022 the Board of Directors appointed David Furstenberg to serve on the Board of Directors for the Company.
On July 25, 2022 the Board of Directors approved and adopted the following committee charters and policies: Audit Committee Charter, Nominating and Governance Committee, Charter Compensation Committee, Charter Code of Conduct and Ethics Policy, Document Retention Policy, and Whistleblower Policy.
| F-24 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SELECTIS HEALTH, INC. | ||
| Date: August 25, 2022 | By: | /s/ Lance Baller |
| Lance Baller | ||
| Chief Executive Officer | ||
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.
| SIGNATURE | TITLE | DATE | ||
| /s/ Lance Baller | ||||
| Lance Baller | Chairman and Chief Executive Officer (Principal Executive Officer) |
August 25, 2022 | ||
| /s/ Christopher R. Barker | ||||
| Christopher R. Barker | President, Chief Operating Officer and Director | August 25, 2022 | ||
| /s/ Adam Desmond | ||||
| Adam Desmond | Director | August 25, 2022 | ||
| /s/ Clifford L. Neuman | ||||
| Clifford L. Neuman | Director | August 25, 2022 | ||
| /s/ David J Furstenberg | ||||
| David J Furstenberg | Director | August 25, 2022 |
| 51 |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lance Baller, Chief Executive Officer, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of Selectis Health, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| 6. | (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
| Date: | August 25, 2022 | /s/ Lance Baller |
Lance Baller, Chairman and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mary Lucus, Interim Chief Financial Officer, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of Selectis Health, Inc.; | ||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | ||
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | ||
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | ||
| Date: | August 25, 2022 | /s/ Mary Lucus |
| Mary Lucus | ||
Interim Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Annual Report of Selectis Health, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lance Baller, Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| /s/ Lance Baller | |
| Lance Baller | |
| Chairman and Chief Executive Officer | |
| (Principal Executive Officer) |
August 25, 2022
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Annual Report of Selectis Health, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mary Christine Lucus, Interim Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
August 25, 2022
| /s/ Mary Lucus | |
| Mary Lucus | |
| Interim Chief Financial Officer |