NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of the Business
Selectis
Health, Inc. f/k/a, Global Healthcare REIT, 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.
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 (xi) owning healthcare operations.
Management’s
Liquidity Plans
On
August 27, 2014, FASB issued ASU 2014-05, Disclosure of Uncertainties about an Entity’s ability to Continue as a Going Concern,
which requires management to assess a company’s ability to continue as a going concern within one year from financial statement
issuance and to provide related footnote disclosures in certain circumstances.
For
the six months ended June 30, 2022, the Company had positive operating cash flows of $101,420 and a net working capital deficit of $5.7
million. 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 six months
ended June 30, 2022, the Company reported a net income of $1,256,604. The Company has, 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 June 30, 2022, the Company has a net working capital deficit of approximately $5.7 million. During
the year ended December 31, 2021, management 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.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles (U.S. GAAP) for interim financial information and in conjunction with the rules and regulations of the Securities Exchange
Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
In the opinion of management, all adjustments considered necessary to make the consolidated financial statements not misleading have
been included. Operating results for the six months ended June 30, 2022, are not necessarily indicative of the results that may be expected
for the entire year. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with
the Securities and Exchange Commission.
In
May 2021, the board of directors of the Company approved a one-for-10 reverse stock split of the Company’s issued and outstanding
shares of common stock. On September 21, 2021, the Company filed Amendment No. 1 to its Second Amended and Restated Articles of Incorporation
reflecting the reverse split and name change. This took effect on September 22, 2021 upon approval from FINRA. Unless otherwise noted,
impacted amounts and share information included in the financial statements and notes thereto, and elsewhere in this Form 10-Q, have
been retroactively adjusted for the reverse stock split as if such reverse stock split occurred on the first day of the first period
presented.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Recently
Issued Accounting Pronouncements
The
Financial Accounting Standards Board and other entities issued new or modifications to, or interpretations of, existing accounting guidance
during 2022. 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.
Reclassification
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.
Earnings
per Share
Basic
earnings per share are based on the weighted-average number of shares of common stock outstanding. FASB ASC Topic 260, “Earnings
per Share”, requires the Company to include additional shares in the computation of earnings per share, assuming dilution.
Diluted
earnings per share are based on the assumption that all dilutive options and warrants were converted or exercised by applying the treasury
stock method and that all convertible preferred stock were converted into common shares by applying the if-converted method. Under the
treasury stock method, options and warrants are assumed to be exercised at the beginning of the period or at the time of issuance, if
later, and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted
method, the preferred dividends applicable to convertible preferred stock are added back to the numerator. The convertible preferred
stock is assumed to have been converted at the beginning of the period or at time of issuance, if later, and the resulting common shares
are included in the denominator.
We
calculate basic earnings per share by dividing net income attributable to common stockholders (the “numerator”) by the weighted
average number of common shares outstanding (the “denominator”) during the reporting period. Diluted earnings per share is
calculated similarly but reflects the potential impact of outstanding options, warrants and other commitments to issue common stock,
including shares issuable upon the conversion of convertible preferred stock outstanding, except where the impact would be anti-dilutive.
The
following table sets forth the computation of basic and diluted earnings per share:
SCHEDULE OF BASIC AND DILUTED EARNING PER SHARE
| |
| | | |
| | | |
| | | |
| | |
| |
Six Months Ended | | |
Three Months Ended | |
| |
June 30, | | |
June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Numerator for basic earnings per share: | |
| | | |
| | | |
| | | |
| | |
Net Income (Loss) Attributable to Selectis Health, Inc. | |
$ | 1,256,604 | | |
$ | (430,724 | ) | |
$ | 1,027,925 | | |
$ | (678,780 | ) |
Series D Preferred Dividends | |
| - | | |
| (15,000 | ) | |
| - | | |
| (7,500 | ) |
Net Income (Loss) Attributable to Common Stockholders - Basic | |
$ | 1,256,604 | | |
$ | (445,724 | ) | |
$ | 1,027,925 | | |
$ | (686,280 | ) |
| |
| | | |
| | | |
| | | |
| | |
Numerator for diluted earnings per share: | |
| | | |
| | | |
| | | |
| | |
Net Income (Loss) Attributable to Common Stockholders | |
$ | 1,256,604 | | |
$ | (445,724 | ) | |
$ | 1,027,925 | | |
$ | (686,280 | ) |
Series D Preferred Dividends | |
| - | | |
| 15,000 | | |
| - | | |
| 7,500 | |
Net Income (Loss) Attributable to Common Stockholders - Diluted | |
| 1,256,604 | | |
| (430,724 | ) | |
| 1,027,925 | | |
| (678,780 | ) |
| |
| | | |
| | | |
| | | |
| | |
Denominator for basic earnings per share: | |
| | | |
| | | |
| | | |
| | |
Weighted Average Common Shares Outstanding | |
$ | 2,998,361 | | |
$ | 2,687,918 | | |
$ | 3,054,627 | | |
$ | 2,689,184 | |
| |
| | | |
| | | |
| | | |
| | |
Denominator for diluted earnings per share: | |
| | | |
| | | |
| | | |
| | |
Weighted Average Common Shares Outstanding - Basic | |
| 2,998,361 | | |
| 2,687,918 | | |
| 3,054,627 | | |
| 2,689,184 | |
Effect of dilutive securities: | |
| | | |
| | | |
| | | |
| | |
Issuance of stock options | |
| 56,266 | | |
| - | | |
| - | | |
| - | |
Exercise of warrants | |
| - | | |
| - | | |
| - | | |
| - | |
Weighted Average Common Shares Outstanding - Diluted | |
$ | 3,054,627 | | |
$ | 2,687,918 | | |
$ | 3,054,627 | | |
$ | 2,689,184 | |
| |
| | | |
| | | |
| | | |
| | |
Net Income (Loss) per Share Attributable to Common Stockholders: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 0.41 | | |
$ | (0.17 | ) | |
$ | 0.34 | | |
$ | (0.26 | ) |
Diluted | |
$ | 0.41 | | |
$ | (0.17 | ) | |
$ | 0.34 | | |
$ | (0.26 | ) |
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 June
30, 2022.
Our
consolidated balance sheets include the following financial instruments: cash and cash equivalents, accounts receivable, restricted cash,
accounts payable, debt and lease security deposit. We consider the carrying values of our short-term financial instruments to approximate
fair value because they generally expose the Company to limited credit risk, because of the short period of time between origination
of the financial assets and liabilities and their expected settlement, or because of their proximity to acquisition date fair values.
The carrying value of debt approximates fair value based on borrowing rates currently available for debt of similar terms and maturities.
Upon
acquisition of real estate properties, the Company determines the total purchase price of each property and allocates this price based
on the fair value of the tangible assets and intangible assets, if any, acquired and any liabilities assumed based on Level 3 inputs.
These Level 3 inputs can include comparable sales values, discount rates, and capitalization rates from a third-party appraisal or other
market sources.
3.
PROPERTY AND EQUIPMENT, NET
The
gross carrying amount and accumulated depreciation of the Company’s property and equipment as of June 30, 2022, and December 31,
2021, are as follows:
SCHEDULE OF PROPERTY PLANT AND EQUIPMENT
| |
June 30, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Land | |
$ | 1,778,250 | | |
$ | 1,778,250 | |
Land Improvements | |
| 329,055 | | |
| 329,055 | |
Buildings and Improvements | |
| 44,647,344 | | |
| 44,574,401 | |
Furniture, Fixtures and Equipment | |
| 2,340,444 | | |
| 2,322,297 | |
Property and Equipment, Gross | |
| 49,095,093 | | |
| 49,004,003 | |
| |
| | | |
| | |
Less Accumulated Depreciation | |
| (11,314,448 | ) | |
| (10,419,411 | ) |
Less Impairment | |
| (1,560,000 | ) | |
| (1,560,000 | ) |
| |
| | | |
| | |
Property and Equipment,
Net | |
$ | 36,220,645 | | |
$ | 37,024,592 | |
| |
| | | |
| | |
| |
For the Six Months Ended June 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Depreciation Expense (excluding Intangible Assets) | |
$ | 895,037 | | |
$ | 1,733,349 | |
| |
| | | |
| | |
Cash Paid for Capital Expenditures | |
$ | 91,090 | | |
$ | 519,575 | |
4.
INVESTMENTS IN DEBT SECURITIES
At
June 30, 2022 and December 31, 2021, the Company held investments in debt 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
| |
June 30, 2022 | | |
December 31, 2021 | |
| |
| | | |
| | |
States and Municipalities | |
$ | 24,387 | | |
$ | 24,387 | |
Contractual
maturity of held-to-maturity securities at June 30, 2022, is $24,387, all due in one year or less, and total value of securities at their
respective maturity dates is $24,387. 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.
5.
DEBT AND DEBT - RELATED PARTIES
The
following is a summary of the Company’s debt outstanding as of June 30, 2022, and December 31, 2021:
SCHEDULE OF DEBT INSTRUMENTS
| |
June 30, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Senior Secured Promissory Notes | |
$ | 1,305,000 | | |
$ | 1,305,000 | |
Senior Secured Promissory Notes - Related Parties | |
| 750,000 | | |
| 750,000 | |
Fixed-Rate Mortgage Loans | |
| 30,849,123 | | |
| 31,407,503 | |
Variable-Rate Mortgage Loans | |
| 4,967,589 | | |
| 5,063,841 | |
Other Debt, Subordinated Secured | |
| 741,000 | | |
| 741,000 | |
Other Debt, Subordinated Secured - Related Parties | |
| 150,000 | | |
| 150,000 | |
Other Debt, Subordinated Secured - Seller Financing | |
| 76,494 | | |
| 93,251 | |
Debt Instrument, Gross | |
| 38,839,206 | | |
| 39,510,595 | |
Unamortized Discount and Debt Issuance Costs | |
| (1,243,071 | ) | |
| (1,243,071 | ) |
| |
| | | |
| | |
Debt Instrument, Net
of Discount | |
$ | 37,596,135 | | |
$ | 38,267,524 | |
As presented in the Consolidated Balance Sheets: | |
| | | |
| | |
| |
| | | |
| | |
Current Maturities of Long Term Debt, Net | |
$ | 9,807,899 | | |
$ | 6,312,562 | |
Short term debt – Related Parties, Net | |
| 150,000 | | |
| 150,000 | |
Debt, Net | |
| 26,882,772 | | |
| 31,054,962 | |
Debt - Related Parties, Net | |
| 750,000 | | |
| 750,000 | |
The
weighted average interest rate and term of our fixed rate debt are 3.55% and 15.27 years, respectively, as of June 30, 2022. The weighted
average interest rate and term of our variable rate debt are 5.90% and 16.11 years, respectively, as of June 30, 2022.
During
the six months ended June 30, 2022, the Company did not issue any non-related party debt. The company has made payments of $962,900 on
non-related party debt. Additionally, the Company financed $581,393 of insurance premiums.
Corporate
Senior and Senior Secured Promissory Notes
As
of June 30, 2022, and December 31, 2021, the senior secured notes are subject to annual interest ranging from 10% to 11% and mature on
October 31, 2021. These notes were extended to June 30, 2023 and as consideration the Company modified the outstanding warrants to extend
the life and 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.
Mortgage
Loans and Lines of Credit Secured by Real Estate
Mortgage
loans and other debts such as line of credit here are collateralized by all assets of each nursing home property and an assignment of
its rents. Collateral for certain mortgage loans includes the personal guarantee of Christopher Brogdon, formerly but no longer a related
party, or corporate guarantees. Mortgage loans for the periods presented consisted of the following:
SCHEDULE OF MORTGAGE LOAN DEBT
| |
Number of | | |
Total Face | | |
Total Principal Outstanding as of | |
State | |
Properties | | |
Amount | | |
June 30, 2022 | | |
December 31, 2021 | |
Arkansas(1) | |
| 1 | | |
$ | 5,000,000 | | |
$ | 3,978,324 | | |
$ | 4,058,338 | |
Georgia(2) | |
| 5 | | |
$ | 17,765,992 | | |
$ | 16,198,449 | | |
$ | 16,581,232 | |
Ohio | |
| 1 | | |
$ | 3,000,000 | | |
$ | 2,728,599 | | |
$ | 2,728,599 | |
Oklahoma(3) | |
| 6 | | |
$ | 12,129,769 | | |
$ | 11,669,805 | | |
$ | 11,823,385 | |
| |
| 13 | | |
$ | 37,895,761 | | |
$ | 34,575,177 | | |
$ | 35,191,554 | |
(1) |
The
mortgage loan collateralized by this property is 80% guaranteed by the USDA and requires an annual renewal fee payable in the amount
of 0.25% of the USDA guaranteed portion of the outstanding principal balance as of December 31 of each year. Guarantors under the
mortgage loan include Christopher Brogdon. Mr. Brogdon has assumed operations of the facility and is making payments of principal
and interest on the loan on our behalf in lieu of paying rent on the facility to us. During the six months ended June 30, 2022, the
Company recognized other income of $81,886 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 June, 2027 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 June 30, 2022 and December 31, 2021 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 | | |
Stated Interest | |
| |
Property | |
Face Amount | | |
June 30, 2022 | | |
December 31, 2021 | | |
Rate | |
Maturity Date | |
Goodwill Nursing Home | |
$ | 2,030,000 | | |
$ | 741,000 | | |
$ | 741,000 | | |
13% Fixed | |
| December 31, 2019 | |
Goodwill Nursing Home – Related Party | |
$ | 150,000 | | |
$ | 150,000 | | |
$ | 150,000 | | |
13% Fixed | |
| December 31, 2019 | |
Higher Call Nursing Center | |
$ | 150,000 | | |
$ | 76,494 | | |
$ | 93,251 | | |
8% Fixed | |
| April 1, 2024 | |
| |
| | | |
| | | |
| | | |
| |
| | |
| |
| | | |
$ | 967,494 | | |
$ | 984,251 | | |
| |
| | |
Our
corporate debt at June 30, 2022, and December 31, 2021 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 | | |
Stated Interest | |
|
Series | |
Face Amount | | |
June 30, 2022 | | |
December 31,2021 | | |
Rate | |
Maturity Date |
| |
| | | |
| | | |
| | | |
| |
|
10% Senior Secured Promissory Notes | |
| 1,670,000 | | |
| 1,305,000 | | |
| 1,670,000 | | |
10.0% Fixed | |
June 30, 2024 |
11% Senior Secured Promissory Notes – Related Party | |
| 975,000 | | |
| 975,000 | | |
| 975,000 | | |
10.0% Fixed | |
June 30, 2024 |
| |
| | | |
| | | |
| | | |
| |
|
| |
| | | |
$ | 2,280,000 | | |
$ | 2,645,000 | | |
| |
|
6.
STOCKHOLDERS’ EQUITY Preferred Stock
During
the six months ended June 30, 2022, the Company paid $15,000 for Series D preferred stock dividends. Dividends of $15,000 were declared
during the six months ended June 30, 2022. All quarterly dividends previously declared have been paid.
Common
Stock
For
the six months ended June 30, 2022, the Company did not issue nor did it pay dividends on common stock.
Common
Stock Warrants
As
of June 30, 2022, and December 31, 2021, the Company had 206,000 and 206,000, 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 0.19 years and 0.93
years, respectively. The aggregate intrinsic value of common stock warrants outstanding as of June 30, 2022, and December 31, 2021 was
$360,052 and $355,877, respectively. Activity for the six months ended June 30, 2022, related to common stock warrants is as follows:
SCHEDULE OF COMMON STOCK WARRANTS ACTIVITY
| |
June 30, 2022 | |
| |
Number of
Warrants | | |
Weighted Average Exercise Price | |
| |
| | |
| |
Beginning Balance | |
| 206,000 | | |
$ | 5 | |
Exercised | |
| | | |
| - | |
Expired | |
| - | | |
| - | |
| |
| | | |
| | |
Ending Balance | |
| 206,000 | | |
$ | 5 | |
7.
OTHER CURRENT LIABILITY
During
the year ended December 31, 2021 the Company received an overpayment from Medicare of $931,446. 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 | |
February 2022 Recoupments | |
| (246,425 | ) |
March 2022 Recoupment | |
| (339,474 | ) |
April 2022 Recoupment | |
| (257,525 | ) |
May 2022 Recoupment | |
| (88,022 | ) |
Recoupment | |
| (88,022 | ) |
Balance
at June 30, 2022 | |
$ | - | |
As
of June 30, 2022, this liability has been satisfied.
8.
RELATED PARTIES
Clifford
Neuman, a member of the Company’s Board of Directors, provided legal services to the Company. As of June 30, 2022, and December
31, 2021, the Company owed Mr. Neuman for legal services rendered $0 and $21,571, respectively. During the six months ended June 30,
2022 the Company has paid Mr. Neuman $47,043 for legal services. During the year ended December 31, 2021 the Company paid Mr. Neuman
$158,392 for legal services.
8.
FACILITY LEASES
The
following table summarizes our leasing arrangements related to the Company’s healthcare facilities at June 30, 2022:
SCHEDULE OF LEASING ARRANGEMENTS
| |
Monthly Lease | | |
| |
|
Facility | |
Income (1) | | |
Lease Expiration | |
Renewal Option if any |
Goodwill (1) | |
$ | 48,125 | | |
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. |
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 June 30, | |
| |
2022 | |
$ | 313,740 | |
2023 | |
| 635,026 | |
2024 | |
| 643,401 | |
2025 | |
| 651,954 | |
2026 | |
| 660,665 | |
2027 and Thereafter | |
| 55,116 | |
| |
| | |
Total | |
$ | 2,959,902 | |
9.
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.
10.
SUBSEQUENT EVENTS
On
July 1, 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.
On
August 19th, 2022 the Board of Directors approved the recension agreement, dated March 30, 2022, whereby Lance Baller,
CEO, and Christopher Barker, President and COO, each agreed to rescind their, immediately vested, non-statutory stock option
agreements dated March 30, 2022. No expense was recorded related to the options due to the fact the options were rescinded ab
initio.