NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
and Description of the Business
Selectis
Health, Inc (“Selectis” or “we” or the “Company”) owns and operates,
through wholly-owned subsidiaries Assisted Living Facilities, Independent Living Facilities, and Skilled Nursing Facilities across the
South and Southeastern portions of the US. In 2019 the Company shifted from leasing long-term care facilities to third-party, independent
operators towards an owner operator model.
Prior
to the Company changing its name to Selectis Health, Inc., the Company was known as Global Healthcare REIT, Inc. from September 30, 2013,
to May 2021. Prior to this, the Company was known as Global Casinos, Inc. Global Casinos, Inc. operated two gaming casinos which were
split-off and sold on September 30, 2013. Simultaneous with the split-off and sale of the gaming operations, the Company acquired West
Paces Ferry Healthcare REIT, Inc. (“WPF”). WPF was merged into the Company in 2019.
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 nine months ended September 30, 2022, the Company had negative operating cash flows of $0.7
million and a net working capital of $0.8
million. Management believes that the Company
has the ability to meet its obligations for the next twelve months from the date of these financial statements. This is, in part due to refinancing debt to more favorable terms, and the optimization of our operations in our current
facilities. Based on management’s projections we expect to generate positive cash flows positive cash flows from its continued operations.
The
focus on opportunities within our current portfolio and future properties to acquire and operate, the settlement, refinance, and continued
service of debt obligations, the potential funds generated from stock sales and other initiatives contributing to additional working
capital should alleviate any substantial doubt about the Company’s ability to continue as a going concern as defined by ASU 2014-05.
However, we cannot predict, with certainty, the outcome of our actions to generate liquidity and the failure to do so could negatively
impact our future operations.
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting
principles (U.S. GAAP) for interim financial information and in conjunction with the rules and regulations of the Securities Exchange
Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
In the opinion of management, all adjustments considered necessary to make the consolidated financial statements not misleading have
been included. Operating results for the nine months ended September 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-ten 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 to give effect to 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. Certain intercompany revenues and expenses were included in revenue and general and administration expenses. These reclassifications had
no effect on the previously reported net income.
Revisions
to Previously Issued Financial Statements
For the six months ending June 30, 2022, the
Company identified an error related to the accounting guidance for intercompany revenues and expenses. For the six months
ending June 30, 2022 the Company recorded $869,249 of intercompany revenues to healthcare revenue and $869,249 of intercompany
expenses in general and administrative expenses.
The
Company assessed the materiality of this error on prior period financial statements in accordance with the SEC Staff Accounting
Bulletin Number 99, Materiality, and ASC 250-10, Accounting Changes and Error Corrections. The error did not have any effect on the
Company’s previously reported Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of
Shareholder’s Deficit. The Company determined that this error was not material to the financial statements for the six months
ended June 30, 2022. The Company decided to correct this immaterial error as revision to previously issued financial statement and
has revised the June 30, 2022 financial statements presented herein.
The
below tables summarize the effect of the revisions on the affected line items within the Condensed Consolidated Statement of Operations
for the six months ended June 30, 2022:
SCHEDULE
OF RESTATEMENT
During
the preparation of the nine months ending September 30, 2022, financial statements management became aware of misstatements in the financial statements of $191,589 and $469,302 of healthcare revenue and
accounts receivable reported during the three and six month periods ended March 31, 2022 and June 30, 2022, respectively.
The
Company determined that cash payments received from a Medicare B bad debt reimbursement program were recorded directly to revenue rather
than a reduction to the account receivable account to which the receivables were recorded, causing both revenue and receivables to be
overstated at each reporting periods.
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
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Nine Months Ended | | |
Three Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Numerator for basic earnings per share: | |
| | | |
| | | |
| | | |
| | |
Net Income (Loss) Attributable to Selectis Health, Inc. | |
| (203,623 | ) | |
| (483,716 | ) | |
| (990,925 | ) | |
| (52,992 | ) |
Series D Preferred Dividends | |
| (22,500 | ) | |
| (22,500 | ) | |
| (7,500 | ) | |
| (7,500 | ) |
Net Income (Loss) Attributable to Common Stockholders - Basic | |
| (226,123 | ) | |
| (506,216 | ) | |
| (998,425 | ) | |
| (60,492 | ) |
| |
| | | |
| | | |
| | | |
| | |
Numerator for diluted earnings per share: | |
| | | |
| | | |
| | | |
| | |
Net Income (Loss) Attributable to Common Stockholders | |
| (226,123 | ) | |
| (506,216 | ) | |
| (998,425 | ) | |
| (60,492 | ) |
Series D Preferred Dividends | |
| 22,500 | | |
| 22,500 | | |
| 7,500 | | |
| 7,500 | |
Net Income (Loss) Attributable to Common Stockholders - Diluted | |
| (203,623 | ) | |
| (483,716 | ) | |
| (990,925 | ) | |
| (52,992 | ) |
| |
| | | |
| | | |
| | | |
| | |
Denominator for basic earnings per share: | |
| | | |
| | | |
| | | |
| | |
Weighted Average Common Shares Outstanding | |
| 3,053,970 | | |
| 2,741,186 | | |
| 3,054,588 | | |
| 2,824,560 | |
| |
| | | |
| | | |
| | | |
| | |
Denominator for diluted earnings per share: | |
| | | |
| | | |
| | | |
| | |
Weighted Average Common Shares Outstanding - Basic | |
| 3,053,970 | | |
| 2,741,186 | | |
| 3,054,588 | | |
| 2,824,560 | |
Effect of dilutive securities: | |
| | | |
| | | |
| | | |
| | |
Conversion of preferred shares | |
| - | | |
| - | | |
| - | | |
| - | |
Exercise of warrants | |
| - | | |
| - | | |
| - | | |
| - | |
Weighted Average Common Shares Outstanding - Diluted | |
| 3,053,970 | | |
| 2,741,186 | | |
| 3,054,588 | | |
| 2,824,560 | |
| |
| | | |
| | | |
| | | |
| | |
Net Income (Loss) per Share Attributable to Common Stockholders: | |
| | | |
| | | |
| | | |
| | |
Basic | |
| (0.07 | ) | |
| (0.18 | ) | |
| (0.33 | ) | |
| (0.02 | ) |
Diluted | |
| (0.07 | ) | |
| (0.18 | ) | |
| (0.33 | ) | |
| (0.02 | ) |
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 September
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 September 30, 2022, and December
31, 2021, are as follows:
SCHEDULE OF PROPERTY PLANT AND EQUIPMENT
| |
September 30, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Land | |
$ | 1,778,250 | | |
$ | 1,778,250 | |
Land Improvements | |
| 329,055 | | |
| 329,055 | |
Buildings and Improvements | |
| 43,230,535 | | |
| 44,574,401 | |
Furniture, Fixtures and Equipment | |
| 2,436,932 | | |
| 2,322,297 | |
Property and Equipment, gross | |
| 47,774,772 | | |
| 49,004,003 | |
| |
| | | |
| | |
Less Accumulated Depreciation | |
| (11,768,056 | ) | |
| (10,419,411 | ) |
| |
| | | |
| | |
Property and Equipment, net | |
$ | 36,006,716 | | |
$ | 37,024,592 | |
| |
2022 | | |
2021 | |
| |
For the Nine Months Ended September 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Depreciation Expense (excluding Intangible Assets) | |
$ | 1,348,645 | | |
$ | 1,286,279 | |
4.
INVESTMENTS IN DEBT SECURITIES
At
September 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
| |
September 30, 2022 | | |
December 31, 2021 | |
| |
| | | |
| | |
States and Municipalities | |
$ | 24,387 | | |
$ | 24,387 | |
Contractual
maturity of held-to-maturity securities at September 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 September 30, 2022, and December 31, 2021:
SCHEDULE OF DEBT INSTRUMENTS
| |
September 30, 2022 | | |
December 31, 2021 | |
Senior Secured Promissory Notes | |
$ | 1,025,000 | | |
$ | 1,305,000 | |
Senior Secured Promissory Notes - Related Parties | |
| 750,000 | | |
| 750,000 | |
Fixed-Rate Mortgage Loans | |
| 30,695,361 | | |
| 31,407,503 | |
Variable-Rate Mortgage Loans | |
| 4,919,504 | | |
| 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 | |
| 65,361 | | |
| 93,251 | |
Debt Instrument, Gross | |
| 38,346,641 | | |
| 39,510,595 | |
Unamortized Discount and Debt Issuance Costs | |
| (868,561 | ) | |
| (1,243,071 | ) |
| |
| | | |
| | |
Debt Instrument, Net
of Discount | |
$ | 37,478,080 | | |
$ | 38,267,524 | |
As presented in the Consolidated Balance Sheets: | |
| | | |
| | |
| |
| | | |
| | |
Current Maturities of Long Term Debt, Net | |
$ | 2,049,750 | | |
$ | 6,312,562 | |
Short term debt – Related Parties, Net | |
| 150,000 | | |
| 150,000 | |
Debt, Net | |
| 34,528,330 | | |
| 31,054,962 | |
Debt – Related Parties, Net | |
| 750,000 | | |
| 750,000 | |
The
weighted average interest rate and term of our fixed rate debt are 4.03% and 16.33 years, respectively, as of September 30, 2022. The
weighted average interest rate and term of our variable rate debt are 5.90% and 16.11 years, respectively, as of September 30, 2022.
Corporate
Senior and Senior Secured Promissory Notes
As
of September 30, 2022, and December 31, 2021, the senior secured notes are subject to annual interest ranging from 10% to 11% and initially
matured on October 31, 2021. These notes were extended to June 30, 2023 and as consideration the Company modified the outstanding warrants
to extend the life 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 | | |
September 30, 2022 | | |
December 31, 2021 | |
Arkansas(1) | |
| 1 | | |
$ | 5,000,000 | | |
$ | 3,937,978 | | |
$ | 4,058,338 | |
Georgia(2) | |
| 5 | | |
$ | 17,765,992 | | |
$ | 16,156,093 | | |
$ | 16,581,232 | |
Ohio | |
| 1 | | |
$ | 3,000,000 | | |
$ | 2,728,599 | | |
$ | 2,728,599 | |
Oklahoma(3) | |
| 6 | | |
$ | 13,331,325 | | |
$ | 12,792,194 | | |
$ | 12,895,890 | |
| |
| 13 | | |
$ | 39,097,317 | | |
$ | 35,614,825 | | |
$ | 36,264,059 | |
(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 nine months ended September 30,
2022, the Company recognized other income of $118,716 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, $750,000, and $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 September 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 | | |
September 30, 2022 | | |
December 31, 2021 | | |
Rate | |
Maturity Date |
Goodwill
Nursing Home (1) | |
$ | 2,030,000 | | |
$ | 741,000 | | |
$ | 741,000 | | |
13% Fixed | |
December 31, 2019 |
Goodwill Nursing Home - Related Party (1) | |
$ | 150,000 | | |
$ | 150,000 | | |
$ | 150,000 | | |
13% Fixed | |
December 31, 2019 |
Higher Call Nursing Center (2) | |
$ | 150,000 | | |
$ | 65,361 | | |
$ | 93,251 | | |
8% Fixed | |
April 1, 2024 |
| |
| | | |
| | | |
| | | |
| |
|
| |
| | | |
$ | 956,361 | | |
$ | 984,251 | | |
| |
|
Our corporate debt at September 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 | | |
September 30, 2022 | | |
December 31,2021 | | |
Rate | |
Maturity Date |
| |
| | |
| | |
| | |
| |
|
10% Senior Secured Promissory Notes | |
| 1,670,000 | | |
| 1,025,000 | | |
| 1,305,000 | | |
10.0% Fixed | |
June 30, 2024 |
11% Senior Secured Promissory Notes – Related Party | |
| 975,000 | | |
| 750,000 | | |
| 750,000 | | |
10.0% Fixed | |
June 30, 2024 |
| |
| | | |
| | | |
| | | |
| |
|
| |
| | | |
$ | 1,025,000 | | |
$ | 2,055,000 | | |
| |
|
6. STOCKHOLDERS’ EQUITY
Preferred Stock
During the nine months ended September 30, 2022
and 2021, the Company paid $15,000
and $30,000 respectively for Series D preferred stock dividends. Dividends of $22,500
were declared during the nine months ended September 30, 2022 and September 30, 2021. All quarterly dividends previously declared have been paid.
Common Stock
For the nine months ended September 30, 2022, the Company did not issue
nor did it pay dividends on common stock.
Common Stock Warrants
As of September 30, 2022, and December 31, 2021, the
Company had 206,000, of outstanding warrants to purchase common stock at a weighted average exercise price of $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 September 30, 2022, and December 31, 2021 was $360,052 and $355,877, respectively. Activity for the nine months ended September 30, 2022, related
to common stock warrants is as follows:
SCHEDULE OF COMMON STOCK WARRANTS ACTIVITY
| |
September 30, 2022 | |
| |
Number of | | |
Weighted Average | |
| |
Warrants | | |
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 of September 30, 2022, this
liability has been satisfied.
8. RELATED PARTIES
Clifford Neuman, a former member of the Company’s
Board of Directors, provided legal services to the Company. As of September 30, 2022, and December 31, 2021, the Company owed Mr. Neuman
for legal services rendered $5,640 and $21,571, respectively. During the nine months ended September 30, 2022 the Company has paid Mr.
Neuman $64,433 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 September 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 September 30, | |
| |
2022 | |
$ | 156,870 | |
2023 | |
| 635,026 | |
2024 | |
| 643,401 | |
2025 | |
| 651,954 | |
2026 | |
| 660,665 | |
2027 and Thereafter | |
| 55,116 | |
| |
| | |
Total | |
$ | 2,803,032 | |
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
Effective October 4, 2022, the Company changed its
independent registered public accountants by engaging Marcum LLP as the company’s independent registered public accounting firm for the
year ended December 31, 2022. Marcum LLP will also review the Company’s interim report as of and for the period ended September
30, 2022. Haynie & Company had previously served as the Company’s independent registered public accountants for the year ended
December 31, 2021.
Effective October 17, 2022, Clifford Neuman resigned as a director and
Andy Sink was appointed to fill the vacancy created by Mr. Neuman’s resignation. It was determined that Mr. Neuman did not qualify
as an “independent” director within the meaning of Nasdaq regulations; and Mr. Neuman agreed to resign from the Board to facilitate
the Company’s efforts to up list to the Nasdaq Stock Market.