0000727346
false
FY
No
2020-10-31
2024-05-31
2021-09-30
P3Y
0000727346
2021-01-01
2021-12-31
0000727346
2021-06-30
0000727346
2022-08-22
0000727346
2020-01-01
2020-12-31
0000727346
2021-12-31
0000727346
2020-12-31
0000727346
us-gaap:SeriesAPreferredStockMember
2021-12-31
0000727346
us-gaap:SeriesAPreferredStockMember
2020-12-31
0000727346
us-gaap:SeriesDPreferredStockMember
2021-12-31
0000727346
us-gaap:SeriesDPreferredStockMember
2020-12-31
0000727346
us-gaap:SeriesAPreferredStockMember
2021-01-01
2021-12-31
0000727346
us-gaap:SeriesAPreferredStockMember
2020-01-01
2020-12-31
0000727346
GBCS:RentalMember
2021-01-01
2021-12-31
0000727346
GBCS:RentalMember
2020-01-01
2020-12-31
0000727346
us-gaap:HealthCareMember
2021-01-01
2021-12-31
0000727346
us-gaap:HealthCareMember
2020-01-01
2020-12-31
0000727346
GBCS:HealthcareGrantRevenueMember
2021-01-01
2021-12-31
0000727346
GBCS:HealthcareGrantRevenueMember
2020-01-01
2020-12-31
0000727346
GBCS:ManagementRevenueMember
2021-01-01
2021-12-31
0000727346
GBCS:ManagementRevenueMember
2020-01-01
2020-12-31
0000727346
us-gaap:PreferredStockMember
GBCS:PreferredStockSeriesAMember
2019-12-31
0000727346
us-gaap:PreferredStockMember
GBCS:PreferredStockSeriesDMember
2019-12-31
0000727346
us-gaap:CommonStockMember
2019-12-31
0000727346
us-gaap:AdditionalPaidInCapitalMember
2019-12-31
0000727346
us-gaap:RetainedEarningsMember
2019-12-31
0000727346
GBCS:SelectisHealthIncStockholdersEquityMember
2019-12-31
0000727346
us-gaap:NoncontrollingInterestMember
2019-12-31
0000727346
2019-12-31
0000727346
us-gaap:PreferredStockMember
GBCS:PreferredStockSeriesAMember
2020-12-31
0000727346
us-gaap:PreferredStockMember
GBCS:PreferredStockSeriesDMember
2020-12-31
0000727346
us-gaap:CommonStockMember
2020-12-31
0000727346
us-gaap:AdditionalPaidInCapitalMember
2020-12-31
0000727346
us-gaap:RetainedEarningsMember
2020-12-31
0000727346
GBCS:SelectisHealthIncStockholdersEquityMember
2020-12-31
0000727346
us-gaap:NoncontrollingInterestMember
2020-12-31
0000727346
us-gaap:PreferredStockMember
GBCS:PreferredStockSeriesAMember
2020-01-01
2020-12-31
0000727346
us-gaap:PreferredStockMember
GBCS:PreferredStockSeriesDMember
2020-01-01
2020-12-31
0000727346
us-gaap:CommonStockMember
2020-01-01
2020-12-31
0000727346
us-gaap:AdditionalPaidInCapitalMember
2020-01-01
2020-12-31
0000727346
us-gaap:RetainedEarningsMember
2020-01-01
2020-12-31
0000727346
GBCS:SelectisHealthIncStockholdersEquityMember
2020-01-01
2020-12-31
0000727346
us-gaap:NoncontrollingInterestMember
2020-01-01
2020-12-31
0000727346
us-gaap:PreferredStockMember
GBCS:PreferredStockSeriesAMember
2021-01-01
2021-12-31
0000727346
us-gaap:PreferredStockMember
GBCS:PreferredStockSeriesDMember
2021-01-01
2021-12-31
0000727346
us-gaap:CommonStockMember
2021-01-01
2021-12-31
0000727346
us-gaap:AdditionalPaidInCapitalMember
2021-01-01
2021-12-31
0000727346
us-gaap:RetainedEarningsMember
2021-01-01
2021-12-31
0000727346
GBCS:SelectisHealthIncStockholdersEquityMember
2021-01-01
2021-12-31
0000727346
us-gaap:NoncontrollingInterestMember
2021-01-01
2021-12-31
0000727346
us-gaap:PreferredStockMember
GBCS:PreferredStockSeriesAMember
2021-12-31
0000727346
us-gaap:PreferredStockMember
GBCS:PreferredStockSeriesDMember
2021-12-31
0000727346
us-gaap:CommonStockMember
2021-12-31
0000727346
us-gaap:AdditionalPaidInCapitalMember
2021-12-31
0000727346
us-gaap:RetainedEarningsMember
2021-12-31
0000727346
GBCS:SelectisHealthIncStockholdersEquityMember
2021-12-31
0000727346
us-gaap:NoncontrollingInterestMember
2021-12-31
0000727346
srt:ManagementMember
2021-12-31
0000727346
GBCS:SouthernHillsRehabCenterLLCMember
2020-12-31
0000727346
GBCS:SouthernHillsRehabCenterLLCMember
2020-01-01
2020-12-31
0000727346
GBCS:SouthernHillsRehabCenterLLCMember
2019-12-31
0000727346
GBCS:GlobalEastmanMember
2020-12-31
0000727346
GBCS:GlobalEastmanMember
2020-01-01
2020-12-31
0000727346
us-gaap:CommonStockMember
2021-12-31
0000727346
us-gaap:CommonStockMember
2020-12-31
0000727346
us-gaap:LandImprovementsMember
2021-01-01
2021-12-31
0000727346
us-gaap:BuildingImprovementsMember
2021-01-01
2021-12-31
0000727346
us-gaap:FurnitureAndFixturesMember
2021-01-01
2021-12-31
0000727346
GBCS:StateandMunicipalMember
2021-12-31
0000727346
GBCS:StateandMunicipalMember
2020-12-31
0000727346
us-gaap:LandMember
2021-12-31
0000727346
us-gaap:LandMember
2020-12-31
0000727346
us-gaap:LandImprovementsMember
2021-12-31
0000727346
us-gaap:LandImprovementsMember
2020-12-31
0000727346
us-gaap:BuildingImprovementsMember
2021-12-31
0000727346
us-gaap:BuildingImprovementsMember
2020-12-31
0000727346
GBCS:FurnitureFixturesAndEquipmentMember
2021-12-31
0000727346
GBCS:FurnitureFixturesAndEquipmentMember
2020-12-31
0000727346
us-gaap:ConstructionInProgressMember
2021-12-31
0000727346
us-gaap:ConstructionInProgressMember
2020-12-31
0000727346
GBCS:SeniorSecuredPromissoryNotesMember
2021-12-31
0000727346
GBCS:SeniorSecuredPromissoryNotesMember
2020-12-31
0000727346
GBCS:SeniorSecuredPromissoryNotesRelatedPartiesMember
2021-12-31
0000727346
GBCS:SeniorSecuredPromissoryNotesRelatedPartiesMember
2020-12-31
0000727346
GBCS:FixedRateMortgageLoansMember
2021-12-31
0000727346
GBCS:FixedRateMortgageLoansMember
2020-12-31
0000727346
GBCS:VariableRateMortgageLoansMember
2021-12-31
0000727346
GBCS:VariableRateMortgageLoansMember
2020-12-31
0000727346
GBCS:OtherDebtSubordinatedSecuredMember
2021-12-31
0000727346
GBCS:OtherDebtSubordinatedSecuredMember
2020-12-31
0000727346
GBCS:OtherDebtSubordinatedSecuredRelatedPartiesMember
2021-12-31
0000727346
GBCS:OtherDebtSubordinatedSecuredRelatedPartiesMember
2020-12-31
0000727346
GBCS:OtherDebtSubordinatedSecuredSellerFinancingMember
2021-12-31
0000727346
GBCS:OtherDebtSubordinatedSecuredSellerFinancingMember
2020-12-31
0000727346
GBCS:FixedRateMember
2021-12-31
0000727346
GBCS:FixedRateMember
2021-01-01
2021-12-31
0000727346
GBCS:VariableRateMember
2021-12-31
0000727346
GBCS:VariableRateMember
2021-01-01
2021-12-31
0000727346
GBCS:FixedRateMember
2020-12-31
0000727346
GBCS:FixedRateMember
2020-01-01
2020-12-31
0000727346
GBCS:VariableRateMember
2020-12-31
0000727346
GBCS:VariableRateMember
2020-01-01
2020-12-31
0000727346
srt:MinimumMember
GBCS:SeniorSecuredNotesMember
2020-12-31
0000727346
srt:MaximumMember
GBCS:SeniorSecuredNotesMember
2020-12-31
0000727346
GBCS:SeniorSecuredNotesMember
2021-01-01
2021-12-31
0000727346
GBCS:SeniorSecuredPromissoryNotesOneMember
2017-12-01
2017-12-31
0000727346
GBCS:SeniorSecuredPromissoryNotesOneMember
GBCS:RelatedPartiesMember
2017-12-01
2017-12-31
0000727346
GBCS:SeniorSecuredPromissoryNotesOneMember
2017-12-31
0000727346
GBCS:SeniorSecuredPromissoryNotesOneMember
us-gaap:WarrantMember
2018-12-31
0000727346
GBCS:SeniorSecuredPromissoryNotesMember
2019-01-01
2019-12-31
0000727346
GBCS:SeniorSecuredPromissoryNotesMember
2019-12-31
0000727346
GBCS:TenPercentageSeniorSecuredPromissoryNoteMember
2020-01-28
0000727346
GBCS:TenPercentageSeniorSecuredPromissoryNoteMember
2020-01-27
2020-01-28
0000727346
GBCS:ElevenPercentageSeniorSecuredNotesMember
2020-01-28
0000727346
GBCS:TenPercentageNotesMember
2020-12-31
0000727346
GBCS:TenPercentageNotesMember
2020-01-01
2020-12-31
0000727346
GBCS:SeniorUnsecuredNotesMember
2017-10-01
2017-10-31
0000727346
GBCS:SeniorUnsecuredNotesMember
2017-10-31
0000727346
GBCS:ElevenPercentageSeniorSecuredPromissoryNoteMember
2020-09-27
2020-09-30
0000727346
GBCS:ElevenPercentageSeniorSecuredPromissoryNoteMember
2020-09-30
0000727346
GBCS:SeniorUnsecuredNotesMember
2020-10-31
0000727346
GBCS:SeniorSecuredPromissoryNotesMember
2018-10-31
0000727346
GBCS:SeniorSecuredPromissoryNotesMember
2018-10-01
2018-10-31
0000727346
GBCS:NotesAndWarrantsMember
2018-10-01
2018-10-31
0000727346
GBCS:NotesAndWarrantsMember
2018-10-31
0000727346
GBCS:NotesAndWarrantsMember
2018-12-31
0000727346
GBCS:NotesAndWarrantsMember
GBCS:RelatedPartiesMember
2018-12-31
0000727346
GBCS:ElevenPercentageSeniorSecuredNotesMember
2020-01-17
0000727346
GBCS:ElevenPercentageSeniorSecuredNotesMember
GBCS:BoardOfDirectorMember
2020-01-17
0000727346
GBCS:ElevenPercentageSeniorSecuredNotesMember
2020-02-04
2020-02-05
0000727346
GBCS:ElevenPercentageSeniorSecuredNotesMember
2020-03-01
2020-03-03
0000727346
GBCS:RelatedPartiesMember
2020-03-01
2020-03-03
0000727346
GBCS:ElevenPercentageSeniorSecuredNotesMember
2020-02-05
0000727346
GBCS:ElevenPercentageSeniorSecuredNotesMember
2020-03-03
0000727346
us-gaap:WarrantMember
2020-01-01
2020-12-31
0000727346
GBCS:GoodwillHuntingLLCMember
2020-06-30
0000727346
GBCS:GoodwillHuntingLLCMember
2020-06-28
2020-06-30
0000727346
GBCS:TwoInvestorsMember
GBCS:GoodwillHuntingLLCMember
2020-10-30
0000727346
GBCS:TwoInvestorsMember
GBCS:GoodwillHuntingLLCMember
2020-10-28
2020-10-30
0000727346
GBCS:TwoInvestorsMember
GBCS:GoodwillHuntingLLCMember
2020-11-20
0000727346
GBCS:TwoInvestorsMember
GBCS:GoodwillHuntingLLCMember
2020-11-19
2020-11-20
0000727346
GBCS:HigherCallNursingCenterIncMember
2020-12-31
0000727346
GBCS:ElevenPercentageSeniorSecuredPromissoryNoteMember
2020-10-31
0000727346
GBCS:SeniorUnsecuredNotesMember
2020-09-30
0000727346
GBCS:PaycheckProtectionProgramOneMember
2020-04-19
2020-04-20
0000727346
GBCS:PaycheckProtectionProgramMember
2020-04-19
2020-04-20
0000727346
GBCS:PaycheckProtectionProgramMember
2020-04-20
0000727346
GBCS:PaycheckProtectionProgramTwoMember
2020-05-03
2020-05-04
0000727346
GBCS:PaycheckProtectionProgramThreeMember
2020-05-03
2020-05-04
0000727346
GBCS:PaycheckProtectionProgramMember
2020-05-04
0000727346
GBCS:PaycheckProtectionProgramMember
2020-05-03
2020-05-04
0000727346
GBCS:PaycheckProtectionProgramTwoMember
2020-01-01
2020-12-31
0000727346
GBCS:PaycheckProtectionProgramOneMember
2020-01-01
2020-12-31
0000727346
GBCS:PaycheckProtectionProgramThreeMember
2020-01-01
2020-12-31
0000727346
GBCS:PaycheckProtectionProgramMember
2020-12-31
0000727346
GBCS:PaycheckProtectionProgramOneMember
2020-12-31
0000727346
GBCS:PaycheckProtectionProgramTwoMember
2020-12-31
0000727346
GBCS:PPPLoanMember
2021-06-16
2021-06-16
0000727346
GBCS:RelatedPartiesMember
2020-01-01
2020-12-31
0000727346
us-gaap:MeasurementInputOptionVolatilityMember
srt:MinimumMember
2021-12-31
0000727346
us-gaap:MeasurementInputOptionVolatilityMember
srt:MaximumMember
2021-12-31
0000727346
us-gaap:MeasurementInputRiskFreeInterestRateMember
srt:MinimumMember
2021-12-31
0000727346
us-gaap:MeasurementInputRiskFreeInterestRateMember
srt:MaximumMember
2021-12-31
0000727346
us-gaap:MeasurementInputExercisePriceMember
2021-12-31
0000727346
us-gaap:MeasurementInputSharePriceMember
srt:MinimumMember
2021-12-31
0000727346
us-gaap:MeasurementInputSharePriceMember
srt:MaximumMember
2021-12-31
0000727346
us-gaap:MeasurementInputExpectedTermMember
srt:MinimumMember
2021-01-01
2021-12-31
0000727346
us-gaap:MeasurementInputExpectedTermMember
srt:MaximumMember
2021-01-01
2021-12-31
0000727346
country:AR
GBCS:MortgageLoansMember
2021-12-31
0000727346
country:AR
GBCS:MortgageLoansMember
2020-12-31
0000727346
stpr:GA
GBCS:MortgageLoansMember
2021-12-31
0000727346
stpr:GA
GBCS:MortgageLoansMember
2020-12-31
0000727346
stpr:OH
GBCS:MortgageLoansMember
2021-12-31
0000727346
stpr:OH
GBCS:MortgageLoansMember
2020-12-31
0000727346
stpr:OK
GBCS:MortgageLoansMember
2021-12-31
0000727346
stpr:OK
GBCS:MortgageLoansMember
2020-12-31
0000727346
GBCS:MortgageLoansMember
2021-12-31
0000727346
GBCS:MortgageLoansMember
2020-12-31
0000727346
GBCS:MortgageLoansMember
2022-01-01
2022-12-31
0000727346
GBCS:MortgageLoansMember
2020-01-01
2020-12-31
0000727346
GBCS:MortgageLoansMember
2021-01-01
2021-12-31
0000727346
2021-07-31
0000727346
2021-07-01
2021-07-31
0000727346
GBCS:GoodwillNursingHomeMember
GBCS:OtherDebtMember
2021-12-31
0000727346
GBCS:GoodwillNursingHomeMember
GBCS:OtherDebtMember
2020-12-31
0000727346
GBCS:GoodwillNursingHomeMember
GBCS:OtherDebtMember
2021-01-01
2021-12-31
0000727346
GBCS:GoodwillNursingHomeOneMember
GBCS:OtherDebtMember
2021-12-31
0000727346
GBCS:GoodwillNursingHomeOneMember
GBCS:OtherDebtMember
2020-12-31
0000727346
GBCS:GoodwillNursingHomeOneMember
GBCS:OtherDebtMember
2021-01-01
2021-12-31
0000727346
GBCS:HigherCallNursingCenterMember
GBCS:OtherDebtMember
2021-12-31
0000727346
GBCS:HigherCallNursingCenterMember
GBCS:OtherDebtMember
2020-12-31
0000727346
GBCS:HigherCallNursingCenterMember
GBCS:OtherDebtMember
2021-01-01
2021-12-31
0000727346
GBCS:OtherDebtMember
2021-12-31
0000727346
GBCS:OtherDebtMember
2020-12-31
0000727346
GBCS:TenPercentageSeniorSecuredPromissoryNoteOneMember
2021-12-31
0000727346
GBCS:TenPercentageSeniorSecuredPromissoryNoteOneMember
2020-12-31
0000727346
GBCS:TenPercentageSeniorSecuredPromissoryNoteOneMember
2021-01-01
2021-12-31
0000727346
GBCS:TenPercentageSeniorSecuredPromissoryNoteTwoMember
2021-12-31
0000727346
GBCS:TenPercentageSeniorSecuredPromissoryNoteTwoMember
2020-12-31
0000727346
GBCS:TenPercentageSeniorSecuredPromissoryNoteTwoMember
2021-01-01
2021-12-31
0000727346
GBCS:TenPercentageSeniorSecuredPromissoryNotesRelatedPartyMember
2021-12-31
0000727346
GBCS:TenPercentageSeniorSecuredPromissoryNotesRelatedPartyMember
2020-12-31
0000727346
GBCS:TenPercentageSeniorSecuredPromissoryNotesRelatedPartyMember
2021-01-01
2021-12-31
0000727346
us-gaap:SubsequentEventMember
GBCS:FebruaryTwoThousandAndTwentyTwoRecoupmentsMember
2022-01-01
2022-06-30
0000727346
us-gaap:SubsequentEventMember
GBCS:MarchTwoThousandAndTwentyTwoRecoupmentsMember
2022-01-01
2022-06-30
0000727346
us-gaap:SubsequentEventMember
GBCS:AprilTwoThousandAndTwentyTwoRecoupmentsMember
2022-01-01
2022-06-30
0000727346
us-gaap:SubsequentEventMember
GBCS:MayTwoThousandAndTwentyTwoRecoupmentsMember
2022-01-01
2022-06-30
0000727346
us-gaap:SubsequentEventMember
2022-06-30
0000727346
us-gaap:SeriesAMember
2021-12-31
0000727346
us-gaap:SeriesAMember
2020-12-31
0000727346
GBCS:SeriesDConvertiblePreferredStockMember
2021-12-31
0000727346
GBCS:SeriesDConvertiblePreferredStockMember
2021-01-01
2021-12-31
0000727346
GBCS:SeriesDConvertiblePreferredStockMember
2020-12-31
0000727346
GBCS:SeriesDConvertiblePreferredStockMember
2020-01-01
2020-12-31
0000727346
GBCS:BoardOfDirectorsMember
2021-12-31
0000727346
GBCS:BoardOfDirectorsMember
2020-12-31
0000727346
us-gaap:PrivatePlacementMember
2021-12-31
0000727346
GBCS:BoardOfDirectorMember
2020-08-17
2020-08-18
0000727346
GBCS:BoardOfDirectorMember
2020-08-18
0000727346
GBCS:BoardOfDirectorMember
2021-11-12
2021-11-13
0000727346
GBCS:BoardOfDirectorMember
2021-11-13
0000727346
GBCS:BoardOfDirectorMember
2021-12-08
2021-12-09
0000727346
GBCS:BoardOfDirectorMember
2021-12-09
0000727346
GBCS:BoardOfDirectorMember
2021-01-01
2021-12-31
0000727346
GBCS:NonEmployeeDirectorsMember
2020-01-01
2020-12-31
0000727346
us-gaap:WarrantMember
2021-12-31
0000727346
us-gaap:WarrantMember
2020-12-31
0000727346
us-gaap:WarrantMember
2021-01-01
2021-12-31
0000727346
2020-01-27
2020-01-28
0000727346
us-gaap:WarrantMember
2020-02-03
2020-02-05
0000727346
us-gaap:WarrantMember
2020-03-01
2020-03-03
0000727346
us-gaap:WarrantMember
2020-10-28
2020-10-31
0000727346
us-gaap:RestrictedStockUnitsRSUMember
2020-12-31
0000727346
us-gaap:RestrictedStockUnitsRSUMember
2019-12-31
0000727346
us-gaap:RestrictedStockUnitsRSUMember
2021-01-01
2021-12-31
0000727346
us-gaap:RestrictedStockUnitsRSUMember
2020-01-01
2020-12-31
0000727346
us-gaap:RestrictedStockUnitsRSUMember
2021-12-31
0000727346
us-gaap:WarrantMember
2019-12-31
0000727346
GBCS:MrNeumanMember
2021-12-31
0000727346
GBCS:MrNeumanMember
2020-12-31
0000727346
GBCS:MrNeumanMember
2021-01-01
2021-12-31
0000727346
GBCS:MrNeumanMember
2020-01-01
2020-12-31
0000727346
GBCS:DirectorsCompensationPlanMember
GBCS:ThreeDirectorsMember
2019-03-01
2019-03-31
0000727346
GBCS:DirectorsCompensationPlanMember
GBCS:TwoDirectorsMember
2019-06-01
2019-06-30
0000727346
GBCS:DirectorsCompensationPlanMember
2019-01-01
2019-12-31
0000727346
GBCS:DirectorsCompensationPlanMember
2020-01-01
2020-12-31
0000727346
us-gaap:GoodwillMember
2021-01-01
2021-12-31
0000727346
GBCS:HealthCareServicesMember
2021-12-31
0000727346
GBCS:GlobalEastmanLLCMember
2021-01-01
2021-12-31
0000727346
GBCS:GlobalEastmanLLCMember
2021-12-31
0000727346
GBCS:GlobalEastmanLLCMember
2020-07-01
2020-12-31
0000727346
GBCS:GlobalEastmanLLCMember
GBCS:TwoThousandAndTwentySupplementalProFormaMember
2020-01-01
2020-12-31
0000727346
GBCS:GlobalQuapawLLCMember
2020-03-02
0000727346
GBCS:GlobalQuapawLLCMember
2020-02-29
2020-03-02
0000727346
GBCS:GlobalFairlandPropertyLLCMember
GBCS:AssetPurchaseAgreementMember
2020-01-01
2020-12-31
0000727346
GBCS:GlobalFairlandPropertyLLCMember
GBCS:AssetPurchaseAgreementMember
2020-12-31
0000727346
GBCS:GlobalFairlandPropertyLLCMember
GBCS:SimmonsBankMember
2020-01-01
2020-12-31
0000727346
GBCS:GlobalFairlandPropertyLLCMember
GBCS:SimmonsBankMember
2020-12-31
0000727346
GBCS:HealthCareServicesMember
2021-12-31
0000727346
GBCS:RealEstateServicesMember
2021-12-31
0000727346
GBCS:HealthCareServicesMember
2020-12-31
0000727346
GBCS:RealEstateServicesMember
2020-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:RealEstateServicesMember
GBCS:RentalRevenueMember
2021-01-01
2021-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:HealthCareServicesMember
GBCS:RentalRevenueMember
2021-01-01
2021-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:RentalRevenueMember
2021-01-01
2021-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:RealEstateServicesMember
GBCS:RentalRevenueMember
2020-01-01
2020-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:HealthCareServicesMember
GBCS:RentalRevenueMember
2020-01-01
2020-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:RentalRevenueMember
2020-01-01
2020-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:RealEstateServicesMember
GBCS:HealthCareRevenueMember
2021-01-01
2021-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:HealthCareServicesMember
GBCS:HealthCareRevenueMember
2021-01-01
2021-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:HealthCareRevenueMember
2021-01-01
2021-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:RealEstateServicesMember
GBCS:HealthCareRevenueMember
2020-01-01
2020-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:HealthCareServicesMember
GBCS:HealthCareRevenueMember
2020-01-01
2020-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:HealthCareRevenueMember
2020-01-01
2020-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:RealEstateServicesMember
GBCS:HealthcareGrantRevenueMember
2021-01-01
2021-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:HealthCareServicesMember
GBCS:HealthcareGrantRevenueMember
2021-01-01
2021-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:HealthcareGrantRevenueMember
2021-01-01
2021-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:RealEstateServicesMember
GBCS:HealthcareGrantRevenueMember
2020-01-01
2020-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:HealthCareServicesMember
GBCS:HealthcareGrantRevenueMember
2020-01-01
2020-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:HealthcareGrantRevenueMember
2020-01-01
2020-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:RealEstateServicesMember
GBCS:ManagementRevenueMember
2021-01-01
2021-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:HealthCareServicesMember
GBCS:ManagementRevenueMember
2021-01-01
2021-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:ManagementRevenueMember
2021-01-01
2021-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:RealEstateServicesMember
GBCS:ManagementRevenueMember
2020-01-01
2020-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:HealthCareServicesMember
GBCS:ManagementRevenueMember
2020-01-01
2020-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:ManagementRevenueMember
2020-01-01
2020-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:RealEstateServicesMember
2021-01-01
2021-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:HealthCareServicesMember
2021-01-01
2021-12-31
0000727346
us-gaap:OperatingSegmentsMember
2021-01-01
2021-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:RealEstateServicesMember
2020-01-01
2020-12-31
0000727346
us-gaap:OperatingSegmentsMember
GBCS:HealthCareServicesMember
2020-01-01
2020-12-31
0000727346
us-gaap:OperatingSegmentsMember
2020-01-01
2020-12-31
0000727346
us-gaap:SubsequentEventMember
2022-01-02
2022-01-31
0000727346
us-gaap:SubsequentEventMember
2022-01-31
iso4217:USD
xbrli:shares
iso4217:USD
xbrli:shares
xbrli:pure
GBCS:Integer
PART
I
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
The
COVID-19 pandemic has subjected our business, operations, and financial condition to several risks, including, but not limited to, those
discussed below:
● |
Risks
Related to Revenue: The revenues from our operations and from our tenants are dependent on occupancy. All facilities must maintain
a minimum viable resident count to ensure costs do not exceed revenues. In addition to the impact of increases in mortality rates
on occupancy of our operating facilities, the ongoing COVID-19 pandemic has prevented prospective occupants and their families from
visiting our facilities and limited the ability of new occupants to move into our facilities due to heightened move-in criteria and
screening. Although the ongoing impact of the pandemic on occupancy remain uncertain, occupancy of our operating and triple-net properties
could further decrease. Such a decrease could affect the net operating income of our operating properties and the ability of our
triple-net operators to make contractual payments to us. |
|
|
● |
Risks
Related to Operator and Tenant Financial Condition: In addition to the risk of decreased revenue from tenant and operator payments,
the impact of the COVID-19 pandemic creates a heightened risk of tenant and operator, bankruptcy, or insolvency due to factors such
as decreased occupancy, medical practice disruptions resulting from stay-at-home orders, increased health and safety and labor expenses
or litigation resulting from developments related to the COVID-19 pandemic. Although our operating lease agreements provide us with
the right to evict a tenant, demand immediate payment of rent and exercise other remedies, the bankruptcy and insolvency laws afford
certain rights to a party that has filed for bankruptcy or reorganization. A tenant, operator, in bankruptcy or subject to insolvency
proceedings may be able to limit or delay our ability to collect unpaid rent in the case of a lease. In addition, if a lease is rejected
in a tenant bankruptcy, our claim against the tenant may be limited by applicable provisions of the bankruptcy law. We may be required
to fund certain expenses (e.g., real estate taxes and maintenance) to preserve the value of an investment property, avoid the imposition
of liens on a property and/or transition a property to a new tenant. In some past instances, we have terminated our lease with a
tenant and relet the property to another tenant; however, our ability to do so may be severely limited under current conditions due
to the industry and macroeconomic effects of the COVID-19 pandemic. If we cannot transition a leased property to a new tenant because
of the COVID-19 pandemic or for other reasons, we may take possession of that property, which may expose us to certain successor
liabilities. Publicity about the operator’s financial condition and insolvency proceedings, particularly considering ongoing
publicity related to the COVID-19 pandemic, may also negatively impact their and our reputations, decreasing customer demand and
revenues. Should such events occur, our revenue and operating cash flow may be adversely affected. |
● |
Risks
Related to Operations: Across all of our properties, our operations and our tenants have incurred increased operational costs
as a result of the introduction of public health measures and other regulations affecting our properties and our operations, as well
additional health and safety measures adopted by us related to the COVID-19 pandemic, including increases in labor and property cleaning
expenses and expenditures related to our efforts to procure PPE and supplies. Such operational costs may increase in the future based
on the duration and severity of the pandemic or the introduction of additional public health regulations. Operators and tenants are
also subject to risks arising from the unique pressures on seniors housing and medical practice employees during the COVID-19 pandemic.
As a result of difficult conditions and stresses related to the COVID-19 pandemic, employee morale and productivity may suffer and
additional pay, such as hazard pay, may not be sufficient to retain key operator and tenant employees. In addition, our operations
may be adversely impacted if a significant number of our employees’ contract COVID-19. Although we continue to undertake
extensive efforts to ensure the safety of our properties, employees, and residents and to provide operator support in this regard,
the impact of the COVID-19 pandemic on our facilities could result in additional operational costs and reputational and litigation
risk to us. As a result of the COVID-19 pandemic, operator and tenant cost of insurance is expected to increase and such insurance
may not cover certain claims related to COVID-19. Our exposure to COVID-19 related litigation risk may be increased if the operators
or tenants of the relevant facilities are subject to bankruptcy or insolvency. In addition, we are facing increased operational challenges
and costs resulting from logistical challenges such as supply chain interruptions, business closures and restrictions on the movement
of people. |
|
|
● |
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.
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.
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.
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.
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 $3,818,430 million and its accumulated deficit. However, management
believes that the Company’s ability to meet its obligations for the next twelve months from the date these financial statements
were issued has been alleviated due to, but not limited to:
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 $2,241,330
and generated negative cash flows from
operations. The Company has also, through the Federal Bankruptcy Court of Middle Georgia, assumed the operations of two additional
facilities in August and October 2021. Based on management’s projections we expect to generate positive cash flows for the
next twelve months. |
2. |
Future
refinancing of existing debt. As of December 31, 2021, the Company has a working capital deficit of approximately $3,818,430
million. During the year ended December 31, 2021, management has refinanced all five of the Company’s mortgages
that mature in 2021. We are continuing to work with HUD to refinance additional properties to longer-term paper which will provide
more certainty for future loan payments. |
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 | |
$ | 853,656 | | |
$ | 410,866 | |
| |
| | | |
| | |
Restricted Cash | |
$ | 853,656 | | |
$ | 410,866 | |
Concentration
of Credit Risk
The
Company maintains deposits in financial institutions that at times exceed the insured amount of $250,000
provided by the U.S. Federal Deposit Insurance Corporation (FDIC). The excess amounts at December 31, 2021 and 2020 were $0
and $2,406,815 respectively. The Company went to
an Insured Cash Sweep service (ICS) in 2021. ICS funds are eligible for multi-million-dollar FDIC insurance that’s backed by
the full faith and credit of the United States government. Daily cash is swept and deposited to as many banks as needed that are FDIC
insured. This insures no amounts exceed a $250,000
balance which is fully insured by the FDIC. The funds can be tracked by its primary financial institution. New funds can be deposited
and withdrawn from that single relationship. The Company believes the financial institutions it uses are credit worthy and stable.
The Company does not believe that it is exposed to any significant credit risk in cash and cash equivalents or restricted
cash.
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.
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 | |
15 years |
Buildings and Improvements | |
30 years |
Furniture, Fixtures and Equipment | |
10 years |
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 $0 and $57,184, respectively. Amortization
expense for the years ended December 31, 2021 and 2020 totaled $157,291 and $121,938, respectively. Deferred loan cost amortization is included
as a component of interest expense in the consolidated statements of operations.
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.
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 $42,185 based on historical net revenues and census information provided by the seller. The asset was depreciated on a straight-line
basis over 47 days, starting from December 1, 2019. Accordingly, the Company recognized amortization expense of $15,258 and $26,927 during
the years ended December 31, 2020 and 2019, respectively, and the intangible asset was fully depreciated as of December 31, 2020.
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 $19,013 based on historical
net revenues and census information provided by the seller. The asset was depreciated on a straight-line basis over 75 days, starting
from July 1, 2020. Accordingly, the Company recognized amortization expense of $19,013 during the year ended December 31, 2020 and the
intangible asset was fully depreciated as of December 31, 2020.
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 $589,379
as of December 31, 2020.
Adjustments to reflect rental income on a straight-line basis totaled $36,107
net increase to income for the year ended
December 31, 2020. During the year ended December 31, 2021 the Company terminated leases resulting in a lease termination expense of
$258,943.
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 $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.
Stock-Based
Compensation
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.
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.
Income
(Loss) Per Common Share
Basic
earnings per share are based on the weighted-average number of shares of common stock outstanding. FASB ASC Topic 260, “Earnings
per Share”, requires the Company to include additional shares in the computation of earnings per share, assuming dilution.
Diluted
earnings per share are based on the assumption that all dilutive options and warrants were converted or exercised by applying the treasury
stock method and that all convertible preferred stock were converted into common shares by applying the if-converted method. Under the
treasury stock method, options and warrants are assumed to be exercised at the beginning of the period or at the time of issuance, if
later, and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted
method, the preferred dividends applicable to convertible preferred stock are added back to the numerator. The convertible preferred
stock is assumed to have been converted at the beginning of the period or at time of issuance, if later, and the resulting common shares
are included in the denominator.
We
calculate basic earnings per share by dividing net income attributable to common stockholders (the “numerator”) by the weighted
average number of common shares outstanding (the “denominator”) during the reporting period. Diluted earnings per share is
calculated similarly but reflects the potential impact of outstanding options, warrants and other commitments to issue common stock,
including shares issuable upon the conversion of convertible preferred stock outstanding, except where the impact would be anti-dilutive.
The
following table sets forth the computation of basic and diluted earnings per share:
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. | |
$ | (2,251,980 | ) | |
$ | 2,955,820 | |
Series
D Preferred Dividends | |
| (30,000 | ) | |
| (30,000 | ) |
Net
Income (Loss) Attributable to Common Stockholders - Basic | |
$ | (2,281,980 | ) | |
$ | 2,925,820 | |
| |
| | | |
| | |
Numerator
for diluted earnings per share: | |
| | | |
| | |
Net
Income (Loss) Attributable to Common Stockholders | |
| 2,251,980 | | |
| 2,925,820 | |
Series
D Preferred Dividends | |
| 30,000 | | |
| 30,000 | |
Net
Income (Loss) Attributable to Common Stockholders - Diluted | |
| 2,281,980 | | |
| 2,955,820 | |
| |
| | | |
| | |
Denominator
for basic earnings per share: | |
| | | |
| | |
Weighted
Average Common Shares Outstanding | |
| 2,768,285 | | |
| 2,724,753 | |
| |
| | | |
| | |
Denominator
for diluted earnings per share: | |
| | | |
| | |
Weighted
Average Common Shares Outstanding - Basic | |
| 2,768,285 | | |
| 2,724,753 | |
Effect
of dilutive securities: | |
| | | |
| | |
Exercise
of stock options | |
| - | | |
| - | |
Exercise
of warrants | |
| - | | |
| - | |
Conversion
of Series D Convertible Preferred Stock | |
| - | | |
| 382,500 | |
Weighted
Average Common Shares Outstanding - Diluted | |
| 2,768,285 | | |
| 3,107,253 | |
| |
| | | |
| | |
Net
Income (Loss) per Share Attributable to Common Stockholders: | |
| | | |
| | |
Basic | |
$ | (0.82 | ) | |
$ | 1.07 | |
Diluted | |
$ | (0.82 | ) | |
$ | 0.95 | |
Options
to purchase 60,000
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 270,813
shares of common stock were outstanding during
the year ended December 31, 2020 but were not included in the computation of diluted earnings per share because they are anti-dilutive
due to the warrants’ exercise price being greater than the average market price of the common shares.
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.
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 | |
$ | 24,387 | | |
$ | 24,387 | |
Contractual
maturity of held-to-maturity securities at December 31, 2021 and 2020 is $24,387,
all due in one year or less, and total value of securities at their respective maturity dates is $24,387.
The securities have technical defaults, but the Company still considers the investments to be recoverable. Actual maturities may differ
from contractual maturities because some borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
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 | |
$ | 1,778,250 | | |
$ | 1,778,250 | |
Land Improvements | |
| 329,055 | | |
| 242,000 | |
Buildings and Improvements | |
| 44,574,401 | | |
| 40,612,330 | |
Furniture, Fixtures and Equipment | |
| 2,322,297 | | |
| 2,123,418 | |
Construction in Progress | |
| - | | |
| 3,728,431 | |
Property and Equipment, Gross | |
| 49,004,003 | | |
| 48,484,429 | |
| |
| | | |
| | |
Less Accumulated Depreciation | |
| (10,419,411 | ) | |
| (8,686,062 | ) |
Less Impairment | |
| (1,560,000 | ) | |
| (1,560,000 | ) |
| |
| | | |
| | |
Property and Equipment, Net | |
$ | 37,024,592 | | |
$ | 38,238,367 | |
| |
2021 | | |
2020 | |
| |
For the Twelve Months Ended December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Depreciation Expense (excluding Intangible Assets) | |
$ | 1,733,349 | | |
$ | 1,546,029 | |
| |
| | | |
| | |
Cash Paid for Capital Expenditures | |
$ | 519,575 | | |
$ | 985,681 | |
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 | |
$ | 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 | |
Debt instrument, gross | |
| 39,510,595 | | |
| 39,707,193 | |
Unamortized Discount and Debt Issuance Costs | |
| (1,243,071 | ) | |
| (455,827 | ) |
| |
| | | |
| | |
Debt instrument, net of discount | |
$ | 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 5.9% and 16.11 years, respectively, as of December 31, 2021.
The weighted average interest rate and term of
our fixed rate debt are 5.49% and 6.8 years, respectively, as of December 31, 2020. 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. We capitalized $5,177 of interest and fees related
to the extension of senior notes during the year ended December 31, 2020.
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 10%
to 11%
with an original maturity date of October
31, 2021. These notes were extended to June
30, 2023 and as consideration the Company
modified the outstanding warrants to extend the life an additional 1.67
years. As a result of the warrant modification,
the Company recorded the incremental increase in fair value of $844,425
as a debt discount which will be amortized over
the new life of the loans.
In
2017, $600,000 in notes were sold and issued, of which $425,000 were to related parties. On December 31, 2017, there were outstanding
an aggregate of $1.2 million in senior secured notes. The maturity date of all the senior secured notes was extended to December 31,
2018 prior to their original maturity date. For every $10.00 in principal amount of note, investors got one warrant exercisable for one
year to purchase an additional share of common stock at an exercise price of $7.50 per share. The warrants have a cashless exercise provision
and were valued using the Black-Scholes pricing model. The maturity date of the 120,000 warrants issued along with the notes was
extended to December 31, 2018, 225,000 warrants of which occurred in 2018. As of December 31, 2019, the Company had not renewed or repaid
$125,000 in 10% notes with a maturity date of December 31, 2018, and those notes were technically in default. Effective January 28, 2020,
the Company exchanged $100,000 in outstanding senior secured 10% Notes and Warrants that had matured on December 31, 2018 for 11% Senior
Secured Promissory Notes and issued 10,000 cashless exercise warrants for purchase of company stock at $5.00, expiring October 31, 2021.
As of December 31, 2020, the Company had not renewed or repaid $25,000 in 10% notes with a maturity date of December 31, 2018. While
this is technically in default, the Company continues to make interest payments to the noteholder.
In
October 2017, the Company sold an aggregate of $300,000 in senior unsecured notes. The notes bear interest at the rate of 10% per annum
and were due in October 2020. For every $10.00 in principal amount of note, investors got one warrant exercisable for one year to purchase
an additional share of common stock at an exercise price of $7.50 per share. The warrants have a cashless exercise provision. On September
30, 2020, the Company repaid $150,000 of 10% Senior Unsecured Notes that matured October 31, 2020. Effective October 31, 2020, the Company
exchanged $150,000 in outstanding Senior Unsecured 10% Notes and Warrants that had matured on October 31, 2020 for 11% Senior Secured
Promissory Notes and issued 15,000 cashless exercise warrants for purchase of the Company’s common stock at $5.00 per share, expiring
October 31, 2021.
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 11% Senior Secured Note, due in three years, (October 31, 2021) and one Warrant for each $10.00 in
principal amount of Note exercisable for three years to purchase a share of Common Stock at an exercise price of $5.00 per share. The
Company and the Placement Agent completed the Offering in December 2018 having sold an aggregate of $1,160,000 in Notes and Warrants.
The net proceeds to the Company were $1,092,400, after deducting Placement Agent fees of $67,600, and issued 11,100 warrants to the
Placement Agent with $21,453 of the fair value of the warrants recorded as loan cost. The Offering also included the exchange of an aggregate
of $1.075 million in outstanding senior secured 10% Notes and Warrants for Units in the Offering. No proceeds were realized from the
exchange and no fees were paid to the Placement Agent for such exchanges. During 2018, among the $1.075 million senior secured notes
that were extended to October 31, 2021 by virtue of the exchange, $875,000 were to related parties.
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 has been increased to $2,500,000 and the offering period will continue until terminated
by the Board of Directors. 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. In connection with the sale of the
Units on February 5, 2020 and March 3, 2020, the Company issued 6,000 and 10,000, respectively, cashless exercise warrants for purchase
of company stock at $0.50, expiring October 31, 2021. Effective October 31, 2020 the Company completed the exchange of $150,000 of Units
in the Offering for matured Senior Unsecured notes. In connection with the exchange of the Units effective October 31, 2020, the Company
issued 15,000 cashless exercise warrants for purchase of company stock at $5.00, expiring October 31, 2021. No fees or commissions were
paid on the sale of the Units. The proceeds were used for general working capital.
The
fair value of warrants issued in connection with the sales and exchanges of Units during the year ended December 31, 2020 was $27,228
and was recorded as debt discount. Amortization expense related to the warrants was $75,025 during the year ended December 31, 2020.
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 | |
115.2% - 119.4% |
Risk-free Interest Rate | |
| 0.13%
- 1.45 | % |
Exercise Price | |
$ | 0.5 | |
Fair Value of Common Stock | |
$ | 0.20
- $0.24 | |
Expected Life | |
| 1.0
– 1.8 years | |
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) | |
| 1 | | |
$ | 5,000,000 | | |
$ | 4,058,338 | | |
$ | 4,618,006 | |
Georgia (2) | |
| 5 | | |
$ | 17,765,992 | | |
$ | 16,581,283 | | |
$ | 17,029,094 | |
Ohio | |
| 1 | | |
$ | 3,000,000 | | |
$ | 2,728,599 | | |
$ | 2,798,000 | |
Oklahoma(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 is 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 September 2021 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.
SCHEDULE OF OTHER DEBT
| |
| | |
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 | |
12/31/19 |
Goodwill Nursing Home – Related Party(1) | |
$ | 150,000 | | |
| 150,000 | | |
| 150,000 | | |
13% Fixed | |
12/31/2019 |
Higher Call Nursing Center(2) | |
| 150,000 | | |
| 93,251 | | |
| 125,394 | | |
8% Fixed | |
04/30/2024 |
| |
| | | |
| | | |
| | | |
| |
|
| |
$ | 2,330,000 | | |
$ | 984,251 | | |
$ | 1,016,394 | | |
| |
|
(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 $482,400 for $402,000 cash and recognized a gain of $80,400. On October 30, 2020, the Company purchased from
two more investors an aggregate amount of $108,000 for $90,000 of cash and recognized a gain of $18,000. On November 20, 2020, the
Company purchased from two additional investors an aggregate amount of $54,600 for $45,500 cash and recognized a gain of $9,100. |
|
|
(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 $150,000 which accrues interest at the rate of 8% per annum and is payable in equal monthly
installments, principal and interest. This note is secured by a corporate guaranty of Global. |
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 | |
| 25,000 | | |
| - | | |
| 25,000.00 | | |
10.0% Fixed | |
21-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 |
| |
| | | |
$ | 1,980,000 | | |
$ | 2,670,000 | | |
| |
|
Effective February 5, 2020 the Company completed
the sale of $60,000 of Units in the 11% Senior Secured Notes, and effective March 3, 2020 the Company completed the sale of $100,000
Units to a related party. In connection with the sale of the Units on February 5, 2020 and March 3, 2020, the Company issued 6,000
and 10,000, respectively, cashless exercise warrants for purchase of company stock at $5.00, expiring October 31, 2021.
On September 30, 2020, the Company repaid $150,000
of 10% Senior Unsecured Notes that matured October 31, 2020. Effective October 31, 2020, the Company exchanged $150,000 in outstanding
Senior Unsecured 10% Notes and Warrants that had matured on October 31, 2020 for 11% Senior Secured Promissory Notes and issued 15,000
cashless exercise warrants for purchase of the Company’s common stock at $5.00 per share, expiring October 31, 2021.
Paycheck
Protection Program Loans
On
April 20, 2020, the Company through its subsidiaries received a loan of $574,975 pursuant to the Paycheck Protection Program (the “PPP
Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 20,
2022 (the “Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest
payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable,
together with the principal, on the Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll
and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are eligible for forgiveness,
subject to the provisions of the CARES Act.
On
May 4, 2020, the Company through its subsidiaries received loans of $324,442
and $710,752
pursuant to the Paycheck Protection Program (the
“PPP Loans”) of the CARES Act. Both PPP Loans mature on May 4, 2022 (the “Maturity Date”), accrue interest at
1%
per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP
Loans. The interest accrued during the initial six-month period is due and payable, together with the principal, on the Maturity Date.
The Company used all proceeds from the PPP Loans to retain employees, maintain payroll and make lease and utility payments to support
business continuity throughout the COVID-19 pandemic, which amounts are eligible for forgiveness, subject to the provisions of the CARES
Act. On November 19, 2020, the Company received notice of forgiveness of the entire balance on two of its three loans obtained through
the Paycheck Protection Program (the “PPP Loans”) of the CARES Act. All requirements for loan forgiveness have been met prior
to December 31, 2020 for all three loans. The forgiveness for the loan balance of $574,975
was approved by the lender and the Company received
final forgiveness from the SBA.
The
forgiveness recognized during the year ended December 31, 2020 included principal of $324,442, $574,975, and $710,752, as well as interest
payable of $1,794, $4,017, and $3,869.
On
June 16, 2021, the Company through its subsidiaries received confirmation that the loan of $675,598 pursuant to the Paycheck Protection
Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was forgiven
by the SBA.
For
the years ended December 31, 2021 and 2020, the Company received proceeds from the issuance of debt of $9,134,102
and $3,365,448,
respectively. Proceeds from the issuance of debt in the year ended December 31, 2020 includes $100,000 from
related parties. Cash payments on debt totaled $8,118,772 and $1,352,300
for the years ended December 31, 2021 and 2020, respectively. Amortization expense for deferred loan costs and debt
discounts totaled $157,296 and $121,938 for the years ended December 31, 2021 and 2020, respectively.
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 | |
$ | 6,261,423 | |
January 2023 | |
| 2,728,599 | |
January 2024 | |
| - | |
January 2025 | |
| 6,248,456 | |
January 2026 | |
| 4,810,596 | |
January 2027 and after | |
| 19,461,521 | |
Long-term Debt, Fair Value | |
$ | 39,510,595 | |
5. OTHER CURRENT LIABILITY
During the year ended December 31, 2021 the
Company received an overpayment from Medicare of $931,446.
As of the date of this filing the liability has been paid in full. Beginning in February, 2022 payments were recouped to
satisfy the overpayment as follows:
SCHEDULE OF OTHER CURRENT LIABILITY
Period | |
| |
Balance at December 31, 2021 | |
$ | 931,446.00 | |
February 2022 Recoupments | |
$ | (246,425.00 | ) |
March 2022 Recoupment | |
$ | (339,474.00 | ) |
April 2022 Recoupment | |
$ | (257,525.00 | ) |
May 2022 Recoupment | |
$ | (88,022.00 | ) |
Recoupment | |
$ | (88,022.00 | ) |
Balance at June 2022 | |
$ | - | |
6.
STOCKHOLDERS’
EQUITY
Preferred
Stock
The
Company has authorized 10,000,000 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 2,000,000 shares of $2.00 stated value, Series A Preferred Stock. The preferred stock
has a senior liquidation preference value of $2.00 per share and does not bear dividends.
As
of December 31, 2021, and 2020, the Company has 200,500
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 1,000,000 non-voting shares with a stated value of $1.00 per share. Holders of the Series D preferred
stock are entitled to receive dividends at the annual rate of 8% based on the stated value per share computed on the basis of a 360-day
year and twelve 30-day months. Dividends are cumulative, shall be declared quarterly, and are calculated from the date of issue and payable
on the 15th day of April, July, October, and January. The dividends may be paid, at the option of the holder either in cash or by the
issuance of shares of the Company’s common stock valued at the market price on the dividend record date. Shares of the Series D
preferred stock are redeemable at the Company’s option. At the option of the holder, shares of the Series D preferred stock plus
any declared and unpaid dividends are convertible to shares of the Company’s common stock at a conversion rate of $1.00 per share.
As
of December 31, 2021, and 2020, the Company had 375,000
shares of Series D Preferred Stock outstanding.
For
years ended December 31, 2021, and 2020, the Company declared $30,000
in preferred dividends. During the years ended
December 31, 2021, and 2020, the Company paid $30,000
and $30,000,
respectively, for Series D preferred stock dividends. Dividends declared of $7,500
were accrued as of December 31, 2021, were
paid in 2022. Dividends declared of $7,500
were accrued as of December 31, 2020,
and were paid in 2021.
Common
Stock
The
Company’s Board of Directors has authorized 50,000,000
shares of $0.05
par value, Common Stock. As of December 31, 2021,
and 2020, the Company has 2,998,361
and 2,686,637
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 3,000
shares of common stock in exchange for services
which were valued at $18,750.
During
the year ended December 31, 2021, the Company sold 150,000 shares of Common Stock at a purchase
price of $5.00 per share for net proceeds of $713,625. The offering was conducted through a registered broker-dealer acting as a Placement
Agent. The Placement Agent was paid a cash commission of 5% of the gross proceeds of the offering proceeds, which was reduced to 2.5%
commission on the proceeds of investments by directors and officers of the Company and a three-year warrant exercisable to purchase 10%
of the number of shares of common stock sold to non-officer or director investors in the offering at an exercise price of $5.00 per share.
No warrants have yet been issued to the placement agent as of December 31, 2021.
On
August 18, 2020, the Company’s Board of Directors approved the repurchase for redemption of 44,343
shares of the Company’s $0.05
par value common stock (“Common
Stock”) for $75,385,
or $1.70
per share, in a privately negotiated transaction.
The redemption has been completed and the shares of Common Stock were cancelled.
On
November 13, 2020, the Company’s Board of Directors approved the repurchase for redemption of 10,472 shares of Common Stock for
$26,178, or $2.50 per share, in a privately negotiated transaction. The redemption has been completed and the shares of Common Stock
were cancelled.
On
December 9, 2020, the Company’s Board of Directors approved the repurchase for redemption of 6,000 shares of Common Stock for
$24,000, or $4.00 per share, in a privately negotiated transaction. The redemption and cancellation of these shares has not yet been
completed prior to December 31, 2021, nor as of date of filing.
There
were no repurchases performed in the 2021 year.
Restricted
Stock Awards
The
following table summarizes the restricted stock unit activity during the years ended December 31:
SCHEDULE OF RESTRICTED STOCK AWARDS
| |
2021 | | |
2020 | |
| |
| | |
| |
Outstanding Non-Vested Restricted Stock Units, Beginning | |
| - | | |
| 7,500 | |
Granted | |
| - | | |
| - | |
Vested | |
| - | | |
| (7,500 | ) |
| |
| | | |
| | |
Outstanding Non-Vested Restricted Stock Units, Ending | |
| - | | |
| - | |
No
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 $8,750 due to forfeitures of restricted
stock awards granted in the prior year.
Common
Stock Warrants
As
of December 31, 2021, and December 31, 2020, the Company had 206,000
and 270,813,
respectively, of outstanding warrants to purchase
common stock at a weighted average exercise price of $5.00
and $5.00,
respectively, and weighted average remaining term of 1.67
years and 0.93
years, respectively. The aggregate intrinsic
value of common stock warrants outstanding as of December 31, 2021, and December 31, 2020 was $355,877
and $82,680,
respectively. During the twelve months ended December 31, 2021, 64,813
warrants were exercised in a cashless transaction
in exchange for 19,524 shares of common stock.
SCHEDULE OF COMMON STOCK WARRANTS ACTIVITY
| |
2021 | | |
2020 | |
| |
Number of Warrants | | |
Weighted Average Exercise Price | | |
Number of Warrants | | |
Weighted Average Exercise Price | |
| |
| | |
| | |
| | |
| |
Beginning Balance | |
| 270,813 | | |
$ | 5.00 | | |
| 259,813 | | |
$ | 5.40 | |
Issued | |
| - | | |
| - | | |
| 41,000 | | |
| 5.00 | |
Exercised | |
| (64,813 | ) | |
| - | | |
| - | | |
| - | |
Expired | |
| - | | |
| - | | |
| (30,000 | ) | |
| 7.50 | |
| |
| | | |
| | | |
| | | |
| | |
Ending Balance | |
| 206,000 | | |
$ | 5.00 | | |
| 270,813 | | |
$ | 5.00 | |
Effective January 28, 2020, the Company issued
10,000 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 6,000 and 10,000 warrants, respectively, in connection with sales of its 11%
Senior Secured Notes. The 10,000 warrants issued on March 3, 2020 were to a related party. Effective October 31, 2020, the Company issued
15,000 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 60,000 of outstanding options
to purchase common stock at a weighted average exercise price of $3.60, with a weighted average remaining term of 2.00 years. During
the year ended December 31, 2020, no options expired. The aggregate intrinsic value of the common stock options outstanding at December
31, 2020 was $102,000.
As
of December 31, 2021, the Company had no 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 $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.
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 90,909 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 90,909 shares in aggregate, subject to vesting. In connection with these
director restricted stock grants, the Company recognized stock-based compensation of $120,000 for the year ended December 31, 2019. No
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 $8,750 during the year ended December 31, 2020 due to forfeitures
of restricted stock awards granted in the prior year.
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 $7,500 per quarter, payable in cash.
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) | |
$ | 54,617 | | |
February 1, 2027 | |
Term may be extended for one additional five-year term. |
(1) |
The
lease became effective on February 1, 2017, and the facility began generating rental revenue thereafter. |
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 | |
$ | 626,808 | |
2023 | |
| 635,026 | |
2024 | |
| 643,401 | |
2025 | |
| 651,954 | |
2026 | |
| 660,665 | |
2027 and Thereafter | |
| 55,116 | |
| |
| | |
Total | |
$ | 3,272,970 | |
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 | |
| 21 | % | |
| 21 | % |
Effect of Valuation Allowance
on Deferred Tax Assets | |
| (21 | ) | |
| (21 | ) |
| |
| | | |
| | |
| |
| - | % | |
| - | % |
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 | |
$ | 2,523,460 | | |
$ | 1,930,927 | |
Capital Loss Carryforward | |
| - | | |
| - | |
Impairment Loss on Long Term Assets | |
| 327,600 | | |
| 327,600 | |
Goodwill Impairment | |
| 595,154 | | |
| 595,154 | |
Stock Based Compensation | |
| 31,387 | | |
| 31,387 | |
Acquisition Costs | |
| 124,304 | | |
| 167,963 | |
Other | |
| 625,496 | | |
| 618,072 | |
| |
| | | |
| | |
Deferred tax assets | |
| 4,227,401 | | |
| 3,671,103 | |
Deferred Tax Liabilities: | |
| | | |
| | |
Bargain Purchase Gain | |
| (1,020,000 | ) | |
| (1,020,000 | ) |
Property and Equipment | |
| (380,902 | ) | |
| (364,122 | ) |
Other | |
| - | | |
| - | |
| |
| | | |
| | |
Deferred tax liabilities | |
| (1,400,902 | ) | |
| (1,384,122 | ) |
| |
| | | |
| | |
Valuation Allowance | |
| (2,826,499 | ) | |
| (2,286,981 | ) |
| |
| | | |
| | |
Net Deferred Tax Asset | |
$ | - | | |
$ | - | |
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 $13.5 million prior to the expiration
of the net operating loss carryforwards beginning in 2020. Estimated taxable loss for the year ended December 31, 2021 approximated $1.5
million. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred
tax assets are deductible, management believes it is more-likely-than-not that the Company will not realize the benefits of these deductible
differences, net of the existing valuation allowance at December 31, 2021.
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 $697,429
arising from the acquisition was assigned to
the Company’s Healthcare Services segment. None of the goodwill recognized is expected to be deductible for income tax purposes.
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 | |
$ | 532,690 | |
Accounts Receivable | |
| 544,117 | |
Property and Equipment | |
| 232,801 | |
Prepaid Expenses | |
| 16,706 | |
Intangible Assets | |
| 19,013 | |
Accounts Payable and Accrued Liabilities | |
| (2,042,756 | ) |
Total identifiable net liabilities | |
| (697,429 | ) |
| |
| | |
Goodwill | |
$ | 697,429 | |
| |
| | |
Acquisition-related costs (included in the Company’s consolidated statement of operations for the year ended December 31, 2020) | |
$ | 59,946 | |
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 | |
$ | 3,609,944 | | |
$ | 811,503 | |
2020 supplemental pro forma from January 1, 2020 to December 31, 2020 | |
| 24,689,774 | | |
| 3,441,898 | |
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 no impairment of Goodwill.
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 | |
| 379,479 | |
Goodwill acquired in 2020 | |
| 697,429 | |
Balance, December 31, 2020 | |
| 1,076,908 | |
Goodwill acquired in 2021 | |
| - | |
Balance, December 31, 2021 | |
$ | 1,076,908 | |
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 $1.3 million. Quapaw has entered into an operating lease agreement with Global Higher Call
Nursing, LLC, a wholly owned subsidiary of the Company, as lessee, to be the operator of the facility. The acquisition represents the
consummation of an Asset Purchase Agreement dated October 21, 2019 between Higher Call Nursing Center, Inc., as Seller, and Quapaw, as
Buyer. The purchase was accounted for as an asset acquisition in accordance with ASC 805. Accordingly, on the acquisition date, the Company
recorded property and equipment in the amount of $1.3 million in connection with the asset acquisition which consists of the purchase
consideration of $1.3 million and acquisition costs of $13,267. In connection with the acquisition, the Company paid net cash of $1,045,767,
relinquished a prepaid cash deposit of $117,500, and agreed to non-cash owner financing debt of $150,000.
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 $796,650. With all broker, loan origination fees, and
closing costs included, the total purchase price was $858,060. The purchase of the Fairland Facility was accounted for as an asset acquisition
in accordance with ASC 805 whereby, on the acquisition date, the Company recorded property and equipment in the amount of $858,060.
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 $784,000. The note bears interest at an annual
rate of 4.45% and matures on December 30, 2025. The note is secured by a Mortgage covering the Fairland Facility and a UCC Security Interest
covering the personal property and other non-real estate assets. The remainder of the purchase price of $74,060 was paid with cash.
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 two primary reporting segments during the years ended December 31, 2021 and 2020, which include real estate services and
healthcare services. The Company reports segment information based on the “management approach” defined in ASC 280, Segment
Reporting. The management approach designates the internal reporting used by management for making decisions and assessing performance
as the source of our reportable segments.
Total assets for the healthcare services and real
estate services segments were $15,760,764
and $32,427,627,
respectively, as of December 31, 2021, and $11,859,440 and $34,073,043, respectively, as of December 31, 2020.
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 | |
$ | 626,808 | | |
$ | - | | |
| 626,808 | | |
$ | 2,112,459 | | |
$ | - | | |
$ | 2,112,459 | |
Healthcare Revenue | |
| - | | |
| 26,921,547 | | |
| 26,921,547 | | |
| - | | |
| 17,436,047 | | |
| 17,436,047 | |
Healthcare Grant Revenue | |
| - | | |
| 1,514,728 | | |
| 1,514,728 | | |
| - | | |
| 1,380,192 | | |
| 1,380,192 | |
Management Revenue | |
| - | | |
| 224,143 | | |
| 224,143 | | |
| - | | |
| - | | |
| - | |
Total Revenue | |
| 626,808 | | |
| 28,660,418 | | |
| 29,287,226 | | |
| 2,112,459 | | |
| 18,816,239 | | |
| 20,928,698 | |
Expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Property Taxes, Insurance and Other Operating | |
| 1,268,523 | | |
| 20,204,874 | | |
| 21,473,397 | | |
| 580,265 | | |
| 12,804,057 | | |
| 13,384,322 | |
General and Administrative | |
| 2,811,409 | | |
| 3,100,525 | | |
| 5,911,934 | | |
| 866,787 | | |
| 1,221,935 | | |
| 2,088,722 | |
Provision for Bad Debts | |
| - | | |
| 897,538 | | |
| 897,538 | | |
| - | | |
| 292,529 | | |
| 292,529 | |
Acquisition Costs | |
| - | | |
| - | | |
| - | | |
| 207,899 | | |
| - | | |
| 207,899 | |
Depreciation and Amortization | |
| 1,099,385 | | |
| 633,964 | | |
| 1,733,349 | | |
| 1,343,109 | | |
| 237,191 | | |
| 1,580,300 | |
Total Expenses | |
| 5,179,317 | | |
| 24,836,901 | | |
| 30,016,218 | | |
| 2,998,060 | | |
| 14,555,712 | | |
| 17,553,772 | |
Income (Loss) from Operations | |
| (4,552,509 | ) | |
| 3,823,517 | | |
| (728,992 | ) | |
| (885,601 | ) | |
| 4,260,527 | | |
| 3,374,926 | |
Other (Income) Expense | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest Expense | |
| 1,673,796 | | |
| 824,097 | | |
| 2,497,893 | | |
| 1,905,106 | | |
| 234,795 | | |
| 2,139,901 | |
Gain on Forgiveness of PPP Loan | |
| - | | |
| (675,598 | ) | |
| (675,598 | ) | |
| - | | |
| - | | |
| - | |
Gain on Extinguishment of Debt | |
| - | | |
| 65,623 | | |
| 65,623 | | |
| (107,500 | ) | |
| (1,619,849 | ) | |
| (1,727,349 | ) |
Other (Income) Expense | |
| (98,506 | ) | |
| (536,017 | ) | |
| (634,523 | ) | |
| - | | |
| - | | |
| - | |
Lease Termination Expense | |
| 258,943 | | |
| - | | |
| 258,943 | | |
| - | | |
| - | | |
| - | |
Total Other (Income) Expense | |
| 1,834,233 | | |
| (321,895 | ) | |
| 1,512,338 | | |
| 1,797,606 | | |
| (1,385,054 | ) | |
| 412,552 | |
Net Income (Loss) | |
| (6,386,742 | ) | |
| 4,145,412 | | |
| (2,241,330 | ) | |
| (2,683,207 | ) | |
| 5,645,581 | | |
| 2,962,374 | |
Net (Income) Loss Attributable to Noncontrolling Interests | |
| (10,650 | ) | |
| - | | |
| (10,650 | ) | |
| (6,554 | ) | |
| - | | |
| (6,554 | ) |
Net Income (Loss) Attributable to Selectis Health, Inc. | |
$ | (6,397,392 | ) | |
$ | 4,145,412 | | |
$ | (2,251,980 | ) | |
$ | (2,689,761 | ) | |
$ | 5,645,581 | | |
$ | 2,955,820 | |
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
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 $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.