Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2021

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

For the transition period from _______ to ______

Commission file number 0-15415

Selectis Health, Inc.

(Exact name of Registrant as specified in its Charter)

Utah

87-0340206

(State or other jurisdiction of

incorporation or organization)

I.R.S. Employer

Identification number

8480 E Orchard Rd, Ste 4900,

Greenwood Village, CO

80111

(Address of principal executive offices)

(Zip Code)

Issuer’s telephone number: (303) 449-2100

Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the last 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☐

Smaller Reporting Company ☒

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

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

As of November 15, 2021, the Registrant had 2,900,349 shares of its Common Stock outstanding.

INDEX

		Page No.
	PART I — FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (Unaudited)	3

	Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020	3

	Consolidated Statements of Operations for the Nine and Three Months Ended September 30, 2021, and 2020 (Unaudited)	4

	Consolidated Statements of Changes in Equity for the Nine and Three Months Ended September 30, 2021, and September 30, 2020 (Unaudited)	5

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021, and 2020 (Unaudited)	6

	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	24

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 2.	COVID-19 Pandemic	26

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Removed and reserved	32

Item 5.	Other Information	32

Item 6.	Exhibits	32

PART 1. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

Selectis Health, Inc.

CONSOLIDATED BALANCE SHEETS

	September 30, 2021			December 31, 2020
	(Unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents	$	2,791,585		$	3,567,437
Restricted Cash		822,273			410,866
Accounts Receivable, Net		4,438,706			1,931,569
Prepaid Expenses and Other		336,931			682,949
Investments in Debt Securities		24,387			24,387
Total Current Assets		8,413,882			6,617,208

Long Term Assets
Property and Equipment, Net		37,445,777			38,238,367
Goodwill		1,076,908			1,076,908
Total Assets	$	46,936,567		$	45,932,483

LIABILITIES AND EQUITY
Current Liabilities
Accounts Payable and Accrued Liabilities		3,444,425			3,196,178
Accounts Payable – Related Parties		9,990			9,900
Dividends Payable		-			7,500
Current Maturities of Long Term Debt, Net of Discount of $1,184 and $1,714, respectively		5,287,453			19,299,156
Short term debt – Related Parties, Net of discount of $0 and $3,234, respectively		275,000			1,121,766
Total Current Liabilities		9,016,868			23,634,500

Debt- Related Parties, Net of discount of $363 and $0, respectively		849,637			-
Debt, Net of discount of $599,883 and $450,879, respectively		33,418,564			18,830,444
Lease Security Deposit		258,600			251,600
Total Liabilities		43,543,669			42,716,544
Commitments and Contingencies
Equity
Preferred Stock:
Series A - No Dividends, $2.00 Stated Value, Non-Voting; 2,000,000 Shares Authorized, 200,500 Shares Issued and Outstanding		401,000			401,000
Series D - 8% Cumulative, Convertible, $1.00 Stated Value, Non-Voting; 1,000,000 Shares Authorized, 375,000 Shares Issued and Outstanding		375,000			375,000
Preferred Stock Value
Common Stock - $0.05 Par Value; 50,000,000 Shares Authorized, 2,890,362 and 2,686,638 Shares Issued and Outstanding at September 30, 2021 and December 31, 2020, respectively		144,518			134,332
Additional Paid-In Capital		12,014,996			11,540,052
Accumulated Deficit		(9,542,616	)		(9,036,400	)
Total Selectis Health, Inc. Stockholders’ Equity		3,392,898			3,413,984
Noncontrolling Interests		-			(198,045	)
Total Equity		3,392,898			3,215,939
Total Liabilities and Equity	$	46,936,567		$	45,932,483

See accompanying notes to unaudited consolidated financial statements.

Selectis Health, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Nine Months Ended						Three Months Ended
	September 30,						September 30,
	2021			2020			2021			2020

Revenue
Rental Revenue	$	933,360		$	1,628,904		$	155,071		$	484,299
Healthcare Revenue		17,936,432			13,673,323			6,939,841			5,835,862
Management Fee Revenue		224,143			-			224,143			-
Total Revenue		19,093,935			15,302,227			7,319,055			6,320,161
Expenses
Property Taxes, Insurance and Other Operating		12,613,896			8,757,802			4,413,930			3,771,827
General and Administrative		4,732,115			1,723,153			1,721,292			1,007,383
Provision for (Recovery of) Bad Debts		28,275			229,799			12,142			(34,091	)
Acquisition Costs		-			209,946			-			181,292
Depreciation and Amortization		1,286,279			1,174,899			435,013			406,796
Total Expenses		18,660,565			12,095,599			6,582,377			5,333,207
Income from Operations		433,370			3,206,628			736,678			986,954
Other (Income) Expense
Gain on Extinguishment of Debt		-			(80,400	)		-			-
Interest Expense, net		1,680,540			1,632,537			486,816			515,966
Gain on Forgiveness of PPP Loan		(675,598	)		-			-			-
Other Income		(548,933	)		-			(51,856	)		-
Lease Termination Expense		450,427			-			354,710			-
Total Other (Income) Expense		906,436			1,552,137			789,670			515,966
Net Income (Loss)		(473,066	)		1,654,491			(52,992	)		470,988
Net Loss Attributable to Noncontrolling Interests		(10,650	)		(3,159	)		-			(4,311	)
Net Income (Loss) Attributable to Selectis Health, Inc.		(483,716	)		1,651,332			(52,992	)		466,677
Series D Preferred Dividends		(22,500	)		(22,500	)		(7,500	)		(7,500	)
Net Income (Loss) Attributable to Common Stockholders	$	(506,216	)	$	1,628,832		$	(60,492	)	$	459,177
Per Share Data:
Net Income (Loss) per Share Attributable to Common Stockholders:
Basic	$	(0.18	)	$	0.60		$	(0.02	)	$	0.17
Diluted	$	(0. 18	)	$	0.53		$	(0.02	)	$	0.15
Weighted Average Common Shares Outstanding:
Basic		2,741,186			2,735,222			2,824,560			2,720,245
Diluted		2,741,186			3,117,722			2,824,560			3,102,745

See accompanying notes to unaudited consolidated financial statements.

Selectis Health, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)


	Series A Preferred Stock				Series D Preferred Stock				Common Stock										Selectis Health, Inc.
	Number of Shares		Amount		Number of Shares		Amount		Number of Shares		Amount		Additional Paid-In Capital			Accumulated Deficit			Stockholders’ Equity			Non- controlling Interests			Total Equity

Balance, December 31, 2020		200,500	$	401,000		375,000	$	375,000		2,686,638	$	134,332	$	11,540,052		$	(9,036,400	)	$	3,413,984		$	(198,045	)	$	3,215,939
Series D Preferred Dividends		-		-		-		-		-		-		-			(7,500	)		(7,500	)		-			(7,500	)
Issuance of common stock for cash
Issuance of common stock for cash, shares
Cashless Exercise of Warrants
Cashless Exercise of Warrants, shares
Purchase of Non-controlling Interest
Cashless Exercise of Stock Options
Cashless Exercise of Stock Options, shares
Reverse stock split
Relative Fair Value of Warrants Issued with Senior Secured Notes
Share Based Compensation - Restricted Stock Awards and Stock Options
Share Based Compensation - Restricted Stock Awards and Stock Options, shares
Repurchase of common stock
Repurchase of common stock, shares
Net Income		-		-		-		-		-		-		-			248,056			248,056			10,650			258,706
Balance, March 31, 2021		200,500		401,000		375,000		375,000		2,686,638		134,332		11,540,052			(8,795,844	)		3,654,540			(187,395	)		3,467,145
Series D Preferred Dividends		-		-		-		-		-		-		-			(7,500	)		(7,500	)		-			(7,500	)
Share Based Compensation – Restricted Shares		-		-		-		-		3,000		150		18,750			-			18,900			-			18,900
Cashless Exercise of Warrants		-		-		-		-		2,857		143		(143	)		-			-			-			-
Purchase of Non-controlling Interest		-		-		-		-		-		-		(247,395	)		-			(247,395	)		187,395			(60,000	)
Net Loss		-		-		-		-		-		-					(678,780	)		(678,780	)		-			(678,780	)
Balance, June 30, 2021		200,500		401,000		375,000		375,000		2,692,495		134,625		11,311,264			(9,482,124	)		2,739,765			-			2,739,765
Series D Preferred Dividends		-		-		-		-		-		-		-			(7,500	)		(7,500	)		-			(7,500	)
Issuance of common stock for cash		-		-		-		-		150,000		7,500		706,125			-			713,625			-			713,625
Cashless Exercise of Warrants		-		-		-		-		16,667		833		(833	)		-			-			-			-
Cashless Exercise of Stock Options		-		-		-		-		31,200		1,560		(1,560	)		-			-			-			-
Net Loss		-		-		-		-		-		-		-			(52,992	)		(52,992	)		-			(52,992	)
Balance, September 30, 2021		200,500	$	401,000		375,000	$	375,000		2,890,362	$	144,518	$	12,014,996		$	(9,542,616	)	$	3,392,898			-		$	3,392,898

	Series A Preferred Stock				Series D Preferred Stock				Common Stock												Selectis Health, Inc.
	Number of Shares		Amount		Number of Shares		Amount		Number of Shares			Amount			Additional Paid-In Capital			Accumulated Deficit			Stockholders’ Equity			Non-controlling Interests			Total Equity

Balance, December 31, 2019		200,500	$	401,000		375,000	$	375,000		2,744,104		$	137,205		$	11,620,264		$	(11,962,220	)	$	571,249		$	(204,599	)	$	366,650
Relative Fair Value of Warrants Issued with Senior Secured Notes		-		-		-		-		-			-			19,762			-			19,762			-			19,762
Series D Preferred Dividends		-		-		-		-		-			-			-			(7,500	)		(7,500	)		-			(7,500	)
Net Income		-		-		-		-		-			-			-			61,100			61,100			1,707			62,807
Balance, March 31, 2020		200,500		401,000		375,000		375,000		2,744,104			137,205			11,640,026			(11,908,620	)		644,611			(202,892	)		441,719
Share Based Compensation - Restricted Stock Awards and Stock Options		-		-		-		-		(265	)		(1,326	)		(7,424	)		-			(8,750	)		-			(8,750	)
Series D Preferred Dividends		-		-		-		-		-			-			-			(7,500	)		(7,500	)		-			(7,500	)
Net Income		-		-		-		-		-			-			-			1,123,555			1,123,555			(2,859	)		1,120,696
Balance, June 30, 2020		200,500		401,000		375,000		375,000		2,743,839			135,879			11,632,602			(10,792,565	)		1,751,916			(205,751	)		1,546,165
Repurchase of common stock		-		-		-		-		(44,343	)		(22,172	)		(53,213	)		-			(75,385	)		-			(75,385	)
Series D Preferred Dividends		-		-		-		-		-			-			-			(7,500	)		(7,500	)		-			(7,500	)
Net Income (Loss)		-		-		-		-		-			-			-			466,677			466,677			4,311			470,988
Balance, September 30, 2020		200,500	$	401,000		375,000	$	375,000		2,699,496		$	113,707		$	11,579,389		$	(10,333,388	)	$	2,135,708		$	(201,440	)	$	1,934,268

See accompanying notes to unaudited consolidated financial statements.

Selectis Health, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	2021			2020
	Nine Months Ended September 30,
	2021			2020
Cash Flows From Operating Activities:
Net Income (Loss)	$	(473,066	)	$	1,654,491
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities:
Gain on forgiveness from PPP Loan		(675,598	)		-
Other Income from Partial Settlement of Debt		(520,221	)		-
Depreciation and Amortization		1,286,279			1,174,899
Amortization of Deferred Loan Costs and Debt Discount		157,291			137,251
Provision for Bad Debts		28,275			229,799
Stock Based Compensation (Forfeitures)		18,900			(8,750	)
Gain on Extinguishment of Debt		-			(80,400	)
Changes in Operating Assets and Liabilities, Net of Assets and Liabilities Acquired:
Accounts and Rents Receivable		(2,535,412	)		(401,161	)
Prepaid Expenses and Other Assets		853,451			129,774
Deferred Rent Receivable		-			(28,929	)
Accounts Payable and Accrued Liabilities		248,337			101,398
Lease Security Deposits		7,000			(1,100	)
Cash Provided (Used in) Operating Activities		(1,604,764	)		2,907,272

Cash Flows From Investing Activities:
Net Cash Paid in Higher Call Asset Acquisition		-			(1,045,767	)
Cash Acquired in Global Eastman Acquisition		-			532,690
Capital Expenditures for Property and Equipment		(493,689	)		(817,750	)
Cash Used in Investing Activities		(493,689	)		(1,330,827	)

Cash Flows From Financing Activities:
Proceeds from Issuance of Debt, Related Party		-			100,000
Proceeds from Issuance of Debt, Non-Related Party		9,134,102			3,265,252
Payments on Debt, Non-Related Party		(8,023,719	)		(1,023,700	)
Deferred Loan Costs Paid		-			(57,184	)
Dividends Paid on Preferred Stock		(30,000	)		(22,500	)
Proceeds from stock offering		713,625			-
Repurchase of Common Stock		-			(75,385	)
Repurchase of non-controlling interest		(60,000	)		-
Cash Provided by Financing Activities		1,734,008			2,186,483

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash		(364,445	)		3,762,928
Cash and Cash Equivalents and Restricted Cash at Beginning of the Period		3,978,303			992,513
Cash and Cash Equivalents and Restricted Cash at End of the Period	$	3,613,858		$	4,755,441

Supplemental Disclosure of Cash Flow Information
Cash Paid for Interest		1,680,540			1,495,751
Cash Paid for Income Taxes		-			-
Cash and Cash Equivalents		2,791,585			4,316,683
Restricted Cash		822,273			438,758
Total Cash and Cash Equivalents and Restricted Cash		3,613,858			4,755,441

Supplemental Schedule of Non-Cash Investing and Financing Activities
Dividends Declared on Series D Preferred Stock	$	22,500		$	22,500
Issuance of common stock for cashless exercise of warrants		976			-
Issuance of common stock for cashless exercise of options		1,560
Financing of Insurance Premiums		507,433			-
Non-cash owner financing for fixed assets purchase		-			15,000
Prepaid deposit exchanged for fixed asset acquisition		-			117,500
Relative Fair Value of Warrants Issued with Senior Secured Notes		-			19,762
Interest on debt capitalized into principal		-			4,585

See accompanying notes to unaudited consolidated financial statements.

Selectis Health, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Description of the Business

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

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

In 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 (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, 2021, the Company had negative operating cash flows of $1.6 million and a net working capital deficit of $0.6 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 nine months ended September 30, 2021, the Company reported a net loss of $506,216. 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 September 30, 2021, the Company has a net working capital deficit of approximately $0.6 million. At the time of this filing, 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.

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 nine months ended September 30, 2021, 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, 2020, 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 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.

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:


	Nine Months Ended						Three Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Numerator for basic earnings per share:
Net Income (Loss) Attributable to Selectis Health, Inc.	$	(483,716	)	$	1,651,332		$	(52,995	)	$	466,677
Series D Preferred Dividends		(22,500	)		(22,500	)		(7,500	)		(7,500	)
Net Income (Loss) Attributable to Common Stockholders - Basic	$	(506,216	)	$	1,628,832		$	(60,495	)	$	459,177

Numerator for diluted earnings per share:
Net Income (Loss) Attributable to Common Stockholders	$	(506,216	)	$	1,628,832		$	(60,495	)	$	459,177
Series D Preferred Dividends		-			22,500			-			7,500
Net Income (Loss) Attributable to Common Stockholders - Diluted	$	(506,216	)	$	1,651,332		$	(60,495	)	$	466,677

Denominator for basic earnings per share:
Weighted Average Common Shares Outstanding		2,741,186			2,735,222			2,824,560			2,720,245

Denominator for diluted earnings per share:
Weighted Average Common Shares Outstanding - Basic		2,741,186			2,735,222			2,824,560			2,720,245
Effect of dilutive securities:
Conversion of Series D Convertible Preferred Stock		-			382,500			-			382,500
Weighted Average Common Shares Outstanding - Diluted		2,741,186			3,117,722			2,824,560			3,102,745

Net Income (Loss) per Share Attributable to Common Stockholders:
Basic	$	(0.18	)	$	0.60		$	(0.02	)	$	0.17
Diluted	$	(0.18	)	$	0.53		$	(0.02	)	$	0.15

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, 2021.

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 long-term 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, 2021, and December 31, 2020, are as follows:


	September 30, 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		2,296,412			2,123,418
Construction in Progress		-			3,728,431
Property and Equipment, Gross		48,978,118			48,484,429

Less Accumulated Depreciation		(9,972,341	)		(8,686,062	)
Less Impairment		(1,560,000	)		(1,560,000	)

Property and Equipment, Net	$	37,445,777		$	38,238,367


	For the Nine Months Ended September 30,
	2021		2020

Depreciation Expense (excluding Intangible Assets)	$	1,286,279	$	1,140,628

Cash Paid for Capital Expenditures	$	493,689	$	817,750

4. INVESTMENTS IN DEBT SECURITIES

At September 30, 2021 and December 31, 2020, 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:

	September 30, 2021		December 31, 2020

States and Municipalities	$	24,387	$	24,387

Contractual maturity of held-to-maturity securities at September 30, 2021, 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, 2021, and December 31, 2020:

SCHEDULE OF DEBT INSTRUMENTS

	September 30, 2021			December 31, 2020

Senior Secured Promissory Notes	$	1,670,000		$	1,695,000
Senior Secured Promissory Notes - Related Parties		975,000			975,000
Fixed-Rate Mortgage Loans		31,577,289			30,370,220
Variable-Rate Mortgage Loans		5,109,802			5,650,579
Other Debt, Current Note Payables		109,722			-
Other Debt, Subordinated Secured		741,000			741,000
Other Debt, Subordinated Secured - Related Parties		150,000			150,000
Other Debt, Subordinated Secured - Seller Financing		99,271			125,394
		40,432,084			39,707,193
Unamortized Discount and Debt Issuance Costs		(601,430	)		(455,827	)

	$	39,830,654		$	39,251,366
As presented in the Consolidated Balance Sheets:

Current Maturities of Long Term Debt, Net	$	5,287,453		$	19,299,156
Short term debt – Related Parties, Net		275,000			-
Debt, Net		33,418,564			18,830,444
Debt - Related Parties, Net		849,637			1,121,766

The weighted average interest rate and term of our fixed rate debt are 4.06% and 15.53 years, respectively, as of September 30, 2021. The weighted average interest rate and term of our variable rate debt are 5.90% and 16.36 years, respectively, as of September 30, 2021.

During the nine months ended September 30, 2021, the Company received $9,134,102 of proceeds from the issuance of non-related party debt. The company has made payments of $8,023,719 on non-related party debt. Additionally, the Company financed $507,433 of insurance premiums.

Corporate Senior and Senior Secured Promissory Notes

As of September 30, 2021, and December 31, 2020, the senior secured notes are subject to annual interest ranging from 10% to 11% and mature on October 31, 2021. Please refer to Note 11 for disclosure of extensions.

Mortgage Loans and Lines of Credit Secured by Real Estate

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

SCHEDULE OF MORTGAGE LOAN DEBT

					Total Principal Outstanding as of
State	Number of Properties		Total Face Amount		September 30, 2021		December 31, 2020
Arkansas⁽¹⁾		1	$	5,000,000	$	4,097,785	$	4,618,006
Georgia⁽²⁾		5	$	17,765,992	$	16,709,089	$	17,029,094
Ohio		1	$	3,000,000	$	2,741,799	$	2,798,000
Oklahoma⁽³⁾		6	$	13,181,325	$	13,138,418	$	11,575,699

		13	$	38,947,317	$	36,687,091	$	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. During the nine months ended September 30, 2021, the Company recognized other income of $520,221 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 December 2021 for all three. Additionally, the Company has refinanced the primary mortgage at the Southern Hills Campus, for $8,029,800 at annual interest of 2.38% with a maturity date of October 1, 2056.

Subordinated, Corporate and Other Debt

Other debt outstanding as of September 30, 2021 and December 31, 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		September 30, 2021		December 31, 2020		Stated Interest 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		99,271		125,394	8% Fixed	April 1, 2024

			$	990,271	$	1,016,394

Our corporate debt outstanding as of September 30, 2021, and December 31, 2020 includes unsecured notes and notes secured by all assets of the Company not serving as collateral for other notes.

			Principal Outstanding at
Series	Face Amount		September 30, 2021		December 31, 2020		Stated Interest Rate	Maturity Date
10% Senior Secured Promissory Note	$	25,000	$	25,000	$	25,000	10.0% Fixed	December 31, 2018
10% Senior Secured Promissory Notes		1,670,000		1,645,000		1,670,000	10.0% Fixed	June 30, 2023
10% Senior Secured Promissory Notes – Related Party		850,000		850,000		850,000	10.0% Fixed	June 30, 2023
11% Senior Secured Promissory Notes – Related Party		125,000		125,000		125,000	11.0% Fixed	October 31, 2021

			$	2,645,000	$	2,670,000

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.

As of September 30, 2021 current maturities and principal reduction payments of all note payables listed above for the next five years and thereafter are as follows:

Twelve Months Ending September 30,
2022	$	5,563,637
2023		6,402,120
2024		6,555,061
2025		4,371,739
2026		1,486,066
2027 and after		16,053,461
Total	$	40,432,084

6. STOCKHOLDERS’ EQUITY

Preferred Stock

During the nine months ended September 30, 2021, the Company paid $30,000 for Series D preferred stock dividends. Dividends of $22,500 were declared during the nine months ended September 30, 2021. All quarterly dividends previously declared have been paid.

Common Stock

For the nine months ended September 30, 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 September 30, 2021. The Company did not pay dividends on common stock.

For the nine months ended September 30, 2021, the Company issued 30,000 shares of restricted stock award and recognized stock-based compensation of $18,900.

Non-Controlling Interest

During the nine months ended September 30, 2021, the Company purchased remaining non-controlling interest for $60,000.

Common Stock Warrants

As of September 30, 2021, and December 31, 2020, the Company had 215,600 and 275,600, 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 September 30, 2021, and December 31, 2020 was $360,052 and $82,680, respectively. During the nine months ended September 30, 2021, 60,000 warrants were exercised in a cashless transaction in exchange for 19,524 shares of common stock. Activity for the nine months ended September 30, 2021, related to common stock warrants is as follows:

	September 30, 2021
	Number of Warrants		Weighted Average Exercise Price

Beginning Balance		275,600	$	5.00
Issued		-		-
Cancelled		-		-
Exercised		60,000		5.00
Expired		-		-

Ending Balance		215,600	$	5.00

Common Stock Options

During the nine months ended September 30, 2021, 60,000 options were exercised in a cashless transaction in exchange for 31,200 shares of common stock, resulting in the Company having 0 outstanding options to purchase common stock as of September 30, 2021.

7. RELATED PARTIES

Clifford Neuman, a member of the Company’s Board of Directors, provided legal services to the Company. As of September 30, 2021, and December 31, 2020, the Company owed Mr. Neuman for legal services rendered $9,990 and $9,900, respectively.

8. FACILITY LEASES

The following table summarizes our leasing arrangements related to the Company’s healthcare facilities at September 30, 2021:

SCHEDULE OF LEASING ARRANGEMENTS

Facility	Monthly Lease Income ⁽¹⁾		Lease Expiration		Renewal Option if any
Warrenton⁽²⁾	$	54,101		-	None
Goodwill ⁽³⁾	$	54,617		February 1, 2027	Term may be extended for one additional five-year term.
Providence⁽⁴⁾	$	41,616		-	None

(1)	Monthly lease income reflects rent income on a straight-line basis over, where applicable, the term of each lease.
(2)	The Company served Notice of Termination to operator in January 2021. See footnote 10.
(3)	The lease became effective on February 1, 2017, and the facility began generating rental revenue thereafter.
(4)	The Company served Notice of Termination to operator in January 2021. See footnote 10.

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:

Years	2021

Remaining 3 months of 2021	$	154,854
2022		626,808
2023		635,026
2024		643,401
2025		651,954
2026 and Thereafter		715,781

Total	$	3,427,824

9. SEGMENT REPORTING

The Company had two primary reporting segments during the nine months ended September 30 2021, 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.

SCHEDULE OF REPORTING SEGMENTS

	Statements of Operations Items For the Three Months Ended
	September 30, 2021								September 30, 2020
	Real Estate Services			Healthcare Services		Consolidated			Real Estate Services			Healthcare Services			Consolidated
Rental Revenue	$	155,071		$	-		155,071		$	484,299		$	-		$	484,299
Healthcare Revenue					6,939,841		6,939,841						5,835,862			5,835,862
Management Fee Revenue		-			224,143		224,143			-			-			-
Total Revenue		155,071			7,163,984		7,319,055			484,299			5,835,862			6,320,161
Expenses
Property Taxes, Insurance and Other Operating		441,393			3,972,537		4,413,930			125,574			3,646,253			3,771,827
General and Administrative		851,287			870,005		1,721,292			326,933			680,450			1,007,383
Provision for Bad Debts		12,142			-		12,142			-			(34,091	)		(34,091	)
Acquisition Costs		-			-		-			181,292			-			181,292
Depreciation and Amortization		366,640			68,373		435,013			335,422			71,374			406,796
Total Expenses		1,671,462			4,910,915		6,582,377			969,221			4,363,986			5,333,207
Income (Loss) from Operations		(1,516,391	)		2,253,069		736,678			(484,922	)		1,471,876			986,954
Other (Income) Expense
Interest Expense, Net		485,924			892		486,816			453,056			62,910			515,966
Other (Income) Expense		(51,856	)		-		(51,856	)		-			-			-
Lease Termination Expense		354,710			-		354,710			-			-			-
Total Other (Income) Expense		788,778			892		798,670			453,056			62,910			515,966
Net Income (Loss)		(2,305,169	)		2,252,177		(52,992)			(937,978	)		1,408,966			470,988
Net (Income) Loss Attributable to Noncontrolling Interests		-			-		-			(4,311	)		-			(4,311	)
Net Income (Loss) Attributable to Selectis Health, Inc.	$	(2,305,169	)	$	2,252,177	$	(52,992)		$	(942,289	)	$	1,408,966		$	466,677

	Statements of Operations Items for the Nine Months Ended
	September 30, 2021									September 30, 2020
	Real Estate Services			Healthcare Services			Consolidated			Real Estate Services			Healthcare Services		Consolidated
Rental Revenue	$	933,360		$	-			933,360		$	1,628,904		$	-	$	1,628,904
Healthcare Revenue					17,936,432			17,936,432						13,673,323		13,673,323
Management Fee Revenue		-			224,143			224,143			-			-		-
Total Revenue		933,360			18,160,575			19,093,935			1,628,904			13,673,323		15,302,227
Expenses
Property Taxes, Insurance and Other Operating		1,268,523			11,345,373			12,613,896			424,953			8,332,849		8,757,802
General and Administrative		2,811,409			1,920,706			4,732,115			623,082			1,100,071		1,723,153
Provision for Bad Debts		28,275			-			28,275			-			229,799		229,799
Acquisition Costs		-			-			-			209,946			-		209,946
Depreciation and Amortization		1,099,385			186,894			1,286,279			1,006,189			168,710		1,174,899
Total Expenses		5,207,592			13,452,973			18,660,565			2,264,170			9,831,429		12,095,599
Income (Loss) from Operations		(4,274,232	)		4,707,602			433,370			(635,266	)		3,841,894		3,206,628
Other (Income) Expense
Interest Expense		1,673,796			6,744			1,680,540			1,463,416			169,121		1,632,537
Gain on Forgiveness of PPP Loan		-			(675,598	)		(675,598	)		-			-		-
Other (Income) Expense		(548,933	)		-			(548,933	)		(80,400	)		-		(80,400	)
Lease Termination Expense		450,427			-			450,427			-			-		-
Total Other (Income) Expense		1,575,290			(668,854	)		906,436			1,383,016			169,121		1,552,137
Net Income (Loss)		(5,849,523	)		5,376,456			(473,066	)		(2,018,282	)		3,672,773		1,654,491
Net (Income) Loss Attributable to Noncontrolling Interests		(10,650	)		-			(10,650	)		(3,159	)		-		(3,159	)
Net Income (Loss) Attributable to Selectis Health, Inc.	$	(5,860,172	)	$	5,376,456		$	(483,716	)	$	(2,021,441	)	$	3,672,773	$	1,651,332

10. 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.

Cadence Healthcare Solutions, LLC.

We received a demand letter in February 2020 from an attorney representing Cadence Healthcare Solutions, LLC (“Cadence”) claiming unpaid management fees incurred at our Glen Eagle Healthcare facility in Abbeville, Georgia. Cadence is the same manager that is involved in the matters related to Edwards Redeemer in Oklahoma City and Eastman in Eastman, Georgia, as Cadence was the manager in all three facilities until it was terminated in Q4 2019. We believe we have significant defenses and offsets to this claim and intend to defend vigorously. We believe the likelihood of a material adverse outcome is remote.

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 will become 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 subsidiaries of the Company: Selectis Sparta, LLC and Selectis Warrenton, LLC. Pending the granting of all Licenses, the Company is managing the operations of the facilities under the Interim Management Agreement using the licenses of CRM of Warrenton, LLC and CRM of Sparta, LLC.

High Street Nursing, LLC v. Ohio Department of Health, Court of Common Pleas, Franklin County, Ohio, Case No. 21 CV 6559.

In the second quarter of 2021 the Company brought this action through its wholly-owned subsidiary High Street Nursing, LLC (“High Street”) against the Ohio Department of Health 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.

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.

11. SUBSEQUENT EVENTS

On October 31, 2021, the Company successfully extended the $850,000 of related party and $1,645,000 of non-related party Senior debt from a maturity date of October 31, 2021, to June 30, 2023. The Company is in the process of redeeming $125,000 of related party debt once the notes are delivered or the proper documentation for a lost note is cleared. Additionally, the interest rate has been decreased from 11% to 10%.

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

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our interim financial statements and notes thereto contained elsewhere in this report. This section contains forward-looking statements, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise. All forward-looking statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC.

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

●	strategic business relationships;

●	statements about our future business plans and strategies;

●	anticipated operating results and sources of future revenue;

●	our organization’s growth;

●	adequacy of our financial resources;

●	development of markets;

●	competitive pressures;

●	changing economic conditions;

●	expectations regarding competition from other companies

●	the duration and scope of the COVID-19 pandemic

●	the impact of the COVID-19 pandemic on occupancy rates and on the operations of the Company’s facilities and its operators/tenants.

●	Actions governments take in response to the COVID-19 pandemic, including the introduction of public health measures and other regulations affecting our properties and our operations and the operations of our operators/tenants.

●	The effects of health and safety measures adopted by us and our operators/tenants in response to the COVID-19 pandemic.

●	Increased operational costs because of health and safety measures related to COVID-19.

●	The impact of the COVID-19 pandemic on the business and financial conditions of our operators/tenants and their ability to pay rent.

●	Disruptions to our property acquisition and disposition activities due to economic uncertainty caused by COVID-19.

●	General economic uncertainty in key markets as a result of the COVID-19 pandemic and a worsening of global economic conditions or low levels of economic growth.

●	macroeconomic conditions, such as a prolonged period of weak economic growth, and volatility in capital markets;

●	changes in national and local economic conditions in the real estate and healthcare markets specifically;

●	legislative and regulatory changes impacting the healthcare industry, including the implementation of the healthcare reform legislation enacted in 2010;

●	the availability of debt and equity capital;

●	changes in interest rates;

●	competition in the real estate industry; and,

●	the supply and demand for operating properties in our market areas.

Properties

As of September 30, 2021, we owned thirteen (13) long-term care facilities including a campus of three buildings in Tulsa, OK. The following table provides summary information regarding these facilities at June 30, 2021:

							Total Square Feet				# of Beds
State	Properties		Operations		Leased Operations		Operating Square Feet		Leased Square Feet		Operating Beds		Leased Beds		Average Occupancy
Arkansas		1		-		1		-		40,737		-		141		74	%
Georgia		5		2		1		31,747		92,649		211		181		80	%
Ohio		1		-		1		-		27,500		-		100		-
Oklahoma		6		6		-		162,976		-		417		-		52	%
Total		13		8		3		194,723		160,886		628		422

Results of Operations

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

Results of Operations – Three Months Ended September 30, 2021, Compared to the Three Months Ended September 30, 2020

Rental revenues for the three months ended September 30, 2021, and 2020 totaled $155,071 and $484,299, respectively. The Company also had healthcare revenue of $6,939,841 for the three months ended September 30, 2021, compared to $5,835,862 for the three months ended September 30, 2020. Due to our concerted effort to focus on healthcare operations, our healthcare revenues are increasing. As we assume operations and purchase more facilities, we anticipate this trend to continue. As a result of this, our rental income will likely continue to decrease.

In accordance with GAAP, the Company has been recognizing rental revenues on a straight-line basis. As such the Company carries a receivable on the Balance Sheet to account for the difference between cash receipts and the straight-line revenue over the life of the lease. Due to the resolution of Providence HR, LLC v. CRM of Warrenton, LLC, United States Bankruptcy Court, Middle District of Georgia, Macon Division, Case No. 21-50201 and ALT/WARR, LLC v. CRM of Sparta, LLC, by order of the United States Bankruptcy Court, Middle District of Georgia, Macon Division, Case No. 21-50200 on June 21, 2021; management has written down this asset by $354,710 for rents not received in the three months ended September 30, 2021, as well as all future rents.

General and administrative expenses were $1,721,292 and $1,007,383 for the three months ended September 30, 2021 and 2020, respectively. This is due to our efforts to transition to our care-delivery model. The G&A expenses will continue to represent the shared services and support structure for our healthcare operations. To support the healthcare operations management has increased our corporate support to continue to aid the facilities in delivering world class care.

Property taxes, insurance, and other operating expenses totaled $4,413,930 and $3,771,827 for the three months ended September 30, 2021 and 2020, respectively. Our expenses have increased as a result of owning and operating more facilities compared to the period in the prior year.

Expenses related to the provision for bad debt was $12,142 for the three months ended September 30, 2021, and $(34,091) for the three months ended September 30, 2020. This change is related to a bad-debt policy change, specific to healthcare.

Depreciation and amortization expense increased $28,217 from $406,796 for the three months ended September 30, 2020, to $435,013 for the three months ended September 30, 2021. This increase is related to an increase in our plant, property, and equipment, compared to the same period in the prior year.

The Company had $486,816 of interest expense for the three months ended September 30, 2021, and $515,966 interest expense for the three months ended September 30, 2020. This decrease is related to the timing of refinancing mortgages during the three months ended September 30, 2021.

The Company had $51,856 of other income for the three months ended September 30, 2021, and $0 for the three months ended September 30, 2020. Management is recording the principal reduction payments made by the operator for the Arkansas facility as other income. We will continue to record this as the operator continues to satisfy the debt.

Results of Operations – Nine Months Ended September 30, 2021, Compared to the Nine Months Ended September 30, 2020

Rental revenues for the nine months ended September 30, 2021, and 2020 totaled $933,360 and $1,628,904. The Company also had healthcare revenue of $17,936,432 for the nine months ended September 30, 2021, compared to $13,673,323 for the nine months ended September 30, 2020. Due to our concerted effort to focus on healthcare operations, our healthcare revenues are increasing. As we assume operations and purchase more facilities, we anticipate this trend to continue. As a result of this, our rental income will likely continue to decrease.

General and administrative expenses were $4,732,115 and $1,723,153 for the nine months ended September 30, 2021 and 2020, respectively. This is due to our efforts to transition to our care-delivery model. The G&A expenses will continue to represent the shared services and support structure for our healthcare operations. To support the healthcare operations management has increased our corporate support to continue to aid the facilities in delivering world class care.

Property taxes, insurance, and other operating expenses totaled $12,613,896 and $8,757,802 for the nine months ended September 30, 2021 and 2020, respectively. Our expenses have increased as a result of owning and operating more facilities compared to the same time in the prior year.

Expenses related to the provision for bad debt was $28,275 for the nine months ended September 30, 2021, and $229,799 for the nine months ended September 30, 2020. This decrease is related to a bad-debt policy change, specific to healthcare.

Depreciation and amortization expense increased $111,380 from $1,286,279 for the nine months ended September 30, 2020, to $1,174,899 for the nine months ended September 30, 2021. This increase is related to an increase in our plant, property, and equipment, compared to the same period last year.

The Company had $1,680,540 of interest expense for the nine months ended September 30, 2021, and $1,632,537 interest expense for the nine months ended September 30, 2020. This increase is related to an increase in notes on new properties compared to the same period last year.

The Company had $548,933 of other income for the nine months ended September 30, 2021, and $0 for the nine months ended September 30, 2020. Management is recording the principal reduction payments made by the operator for the Arkansas facility as other income. We will continue to record this as the operator continues to satisfy the debt.

Liquidity and Capital Resources

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

At September 30, 2021, the Company had cash and cash equivalents of $2,791,585 and restricted cash of $822,273. Our restricted cash is to be spent on insurance, taxes, repairs, and capital expenditures associated with Providence of Sparta Nursing Home, Warrenton Health and Rehab, and Southern Hills Rehab. Our liquidity is expected to increase from potential equity and debt offerings and decrease as net offering proceeds are expended in connection with our various property improvement projects. Our continuing short-term liquidity requirements consisting primarily of operating expenses and debt service requirements, excluding balloon payments at maturity, are expected to be achieved from healthcare operations, rental revenues received, and existing cash on hand. We have successfully refinanced all five mortgage that mature in the 2021 fiscal year, as well as the mortgage on our Tulsa campus.

Cash used in operating activities was $1,604,764 for the nine months ended September 30, 2021, compared to cash provided by operating activities of $2,907,272 for the nine months ended September 30, 2020. Healthcare revenue was adversely affected by COVID-19 which increased costs and decreased our census.

Cash used in investing activities was $493,689 for the nine months ended September 30, 2021, compared to cash used in investing activities of $1,330,827 for the nine months ended September 30, 2020.

Cash provided by financing activities was $1,734,008 for the nine months ended September 30, 2021 compared to cash provided by financing activities of $2,186,483 for the nine months ended September 30, 2020. This resulted from proceeds from a PPP loan during the nine months ended September 30, 2021.

In accordance with ASU 2014-15 management believes the Company has sufficient liquidity and capital resources to maintain ongoing operations. This is, in part due to all of these positive changes to cash flows, positive year-end earnings, refinancing debt to more favorable terms, the forgiveness of our CARES Act loans, and the optimization of our operations in many of our current facilities.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

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

Impairment of Long-Lived Assets

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

Goodwill

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

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

Revenue Recognition

The Company’s leases may be subject to annual escalations of the minimum monthly rent required under each lease. The accompanying consolidated financial statements reflect rental income on a straight-line basis over the term of each lease. Cumulative adjustments associated with the straight-line rent requirement are reflected in Prepaid Expenses and Other in the consolidated balance sheets and totaled $336,931 and $0 as of September 30, 2021, and 2020, respectively.

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.

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 September 30, 2021, and 2020, there were no deferred lease incentives recorded.

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

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

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

Recently Adopted Accounting Pronouncements

None.

Recently Issued Accounting Pronouncements

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

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

Our management, including our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based on this evaluation, our CEO and CFO concluded that the design and operation of our disclosure controls and procedures were not effective as of such date to provide assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management as appropriate, to allow timely decisions regarding disclosures. The Controller and CFO both have direct contact with all levels of review. The Company plans to implement multi-level review in 2021, and management intends to work internally and with various third-parties to ensure we have the proper controls in place going forward.

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the quarter ended September 30, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. 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.

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.

Edwards Redeemer Property Holdings LLC v. Edwards Redeemer Healthcare & Rehab, LLC, District Court of Oklahoma County, State of Oklahoma, Case No. CJ-19-5883.

Cadence Healthcare Solutions, LLC.

Oliphant v. Global Eastman, LLC, et.al., State Court of Cobb County, State of Georgia, Civil Action No. 20-A-3983

In the matter of Austin.

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

High Street Nursing, LLC v. Ohio Department of Health, Court of Common Pleas, Franklin County, Ohio, Case No. 21 CV 6559.

In the second quarter of 2021, the Company brought this action through its wholly-owned subsidiary High Street Nursing, LLC (“High Street”) against the Ohio Department of Health 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.

In the Matter of Hunter

Item 2. 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 operators took appropriate actions to protect residents and caregivers. These trends accelerated in April and May, and are expected to continue through at least June 2021, 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. Additionally, as of the date of this Report, all of our facilities have reported occurrences of COVID-19 in both staff and residents. We have implemented aggressive vaccination programs at all of our facilities but have not imposed mandates. As of the date of this Report, the vast majority of our staff and residents have been vaccinated.

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 operators, 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.

Recent Developments Related to COVID-19

In addition to experiencing outbreaks of positive cases and deaths of residents and employees during the pandemic, we and our operators have been required to, and continue to, adapt their operations rapidly throughout the pandemic to manage the spread of the COVID-19 virus as well as the implementation of new treatments and vaccines, and to implement new requirements relating to infection control, personal protective equipment (“PPE”), quality of care, visitation protocols, staffing levels, and reporting, among other regulations, throughout the pandemic. Many of our controlled and third-party operators have reported incurring significant cost increases as a result of the COVID-19 pandemic, with dramatic increases for facilities with positive cases. We believe these increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of PPE, testing equipment and processes and supplies, as well as implementation of new infection control protocols and vaccination programs. In addition, we are experiencing declines, in some cases that are material, in occupancy levels as a result of the pandemic, which declines on average appear to be stabilizing. We believe these declines may be in part due to COVID-19 related fatalities at the facilities, the delay of SNF placement and/or utilization of alternative care settings for those with lower level of care needs, the suspension and/or postponement of elective hospital procedures, fewer discharges from hospitals to SNFs and higher hospital readmittances from SNFs.

While substantial government support, primarily through the federal CARES Act in the U.S. and distribution of PPE, vaccines and testing equipment by federal and state governments, has been allocated to SNFs and to a lesser extent to ALFs, further government support will likely be needed to continue to offset these impacts. It is unclear whether and to what extent such government support will continue to be sufficient and timely to offset these impacts. In particular, it remains unclear as to whether unallocated funds under the Provider Relief Fund will be distributed to our operators in any meaningful way, whether additional funds will be added to the Provider Relief Fund or otherwise allocated to health care operators or our operators, or whether additional Medicaid funds under the recently enacted American Rescue Plan Act of 2021 (the “American Rescue Plan Act”) in the U.S. will ultimately support reimbursement to our operators. Further, to the extent the cost and occupancy impacts on our operators continue or accelerate and are not offset by continued government relief that is sufficient and timely, we anticipate that the operating results of certain of our operators would be materially and adversely affected, some may be unwilling or unable to pay their contractual obligations to us in full or on a timely basis and we may be unable to restructure such obligations on terms as favorable to us as those currently in place.

There are a number of uncertainties we face as we consider the potential impact of COVID-19 on our business, including how long census disruption and elevated COVID-19 costs will last, the impact of vaccination programs and participation levels in those programs in reducing the spread of COVID-19 in our facilities, and the extent to which funding support from the federal government and the states will continue to offset these incremental costs as well as lost revenues. Notwithstanding vaccination programs, we expect that heightened clinical protocols for infection control within facilities will continue for some period; however, we do not know if future reimbursement rates or equipment provided by governmental agencies will be sufficient to cover the increased costs of enhanced infection control and monitoring.

While we continue to believe that longer term demographics will drive increasing demand for needs-based skilled nursing care, we expect the uncertainties to our business described above to persist at least for the near term until we can gain more information as to the level of costs our operators will continue to experience and for how long, and the level of additional governmental support that will be available to them, the potential support our operators may request from us and the future demand for needs-based skilled nursing care and senior living facilities. We continue to monitor the impact of occupancy declines at many of our operators, and it remains uncertain whether and when demand and occupancy levels will return to pre-COVID-19 levels.

Government Regulation and Reimbursement

The healthcare industry is heavily regulated. Our operators, which are primarily based in the U.S., 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 operators, in addition to regulatory non-compliance by our operators, can have a significant effect on the operations and financial condition of our operators, 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 July 20, 2021, 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 could 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 the operations and financial condition of our operators. The extent of the COVID-19 pandemic’s effect on the Company’s and our operators’ 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 new vaccine distributions on our operators and their populations, 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 operators’ 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 tenants’ and operators’ liquidity, financial condition or results of operations, and there can be no assurance that payments under any of these government health care programs are currently, or will be in the future, sufficient to fully reimburse the property operators for their operating and capital expenses.

The following is a discussion of recent developments regarding certain U.S. laws and regulations generally applicable to our operators, and in certain cases, to us, and their impact.

Reimbursement Changes Related to COVID-19:

U.S. Federal Stimulus Funds, through the CARES Act and Provider Relief Fund, appropriating $178 Billion to Health Care Providers. In response to the pandemic, Congress enacted a series of economic stimulus and relief measures throughout 2020. 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 a further response to the pandemic, the CARES Act authorized approximately $178 Billion to be distributed through the Public Health and Social Services Emergency Fund (“Provider Relief Fund”) to reimburse eligible healthcare providers for health care related expenses or lost revenues that are attributable to coronavirus. 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 three general phases. In May 2020, HHS announced that approximately $9.5 Billion in targeted distributions would be made available to eligible skilled nursing facilities, 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.

As of March 15, 2021, based on data published by HHS, it appears that less than $29 billion of the Provider Relief Fund remains unallocated. HHS continues to evaluate and provide allocations of, and issue regulations and guidance regarding, grants made under the CARES Act and related legislation. There are substantial uncertainties regarding the extent to which our operators will receive funds which have not been allocated, whether additional funds will be allocated to the Provider Relief Fund, health care providers or senior care providers and whether additional payments will be distributed to providers, the financial impact of receiving any of these funds on their operations or financial condition, and whether operators will be able to meet the compliance requirements associated with the funds. HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act.

The CARES Act and related legislation also made other forms of financial assistance available to healthcare providers, which have the potential to impact our operators 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 must repay. 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, 2021, but also extended sequestration through 2030. 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 the first quarter of 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. For example, 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 and the implementation of new quality measures. Although the American Rescue Plan Act did not allocate specific funds to SNF or assisted living facility providers, approximately $200 million was allocated to quality improvement organizations to provide infection control and vaccination uptake support to SNFs.

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 the first quarter of 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. health care system, including the impact on quality of care provided within the skilled nursing industry. These hearings could result in legislation imposing additional requirements on our operators.

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. These challenges may particularly impact us in states where we have a larger presence, including Florida and Texas. In Texas in particular, several of our operators have historically experienced lower operating margins on their SNFs, as compared to other states, as a result of lower Medicaid reimbursement rates and higher labor costs. Since our operators’ profit margins on Medicaid patients are generally relatively low, more than modest reductions in Medicaid reimbursement or an increase in the percentage of Medicaid patients has in the past and may in the future adversely affect our operators’ results of operations and financial condition, which in turn could adversely impact us.

Medicare. 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. Prior to COVID-19, we believed that certain of our operators could realize efficiencies and cost savings from increased concurrent and group therapy under PDPM and some had reported early positive results. Given the ongoing impacts of COVID-19, many operators are and may continue to be restricted from pursuing concurrent and group therapy and unable to realize these benefits. Additionally, our operators 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, which became effective on October 1, 2018. These reimbursement changes have had and may, together with any further reimbursement changes to PDPM, 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.

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 operators 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.

Item 1A. Risk Factors

COVID

The COVID-19 pandemic has subjected our business, operations, and financial condition to a number of risks including the risks described in greater detail in the Management’s Discussion and Analysis section of this Report, including, but not limited to, those discussed below:

●	Risks Related to Revenue: Our revenues and our operators’ revenues are dependent, in part, on occupancy. 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, we and our operators 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 and our operators 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 on behalf of our operators. 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 or those of our operators or tenants may be adversely impacted if a significant number of our employees or those of our operators or tenants’ 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 and our operators. 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.

SEC ADMINISTRATIVE ORDER

On September 25, 2020, the SEC issued an Administrative Order against Sabra Capital Partners, LLC and Zvi Rhine requiring that those respondents cease and desist from further violations of certain federal securities laws. The full text of that Order is a matter of public record and can be found at the SEC’s website: www.sec.gov. Following the entry of that Order, on September 29, 2020, Mr. Rhine voluntarily resigned all positions with the Company, including as a Director, President and CFO of the Company. Effective October 1, 2020, the Company entered into a consulting agreement with Mr. Rhine. In mid-December 2020, the Company advised Mr. Rhine that it would not be renewing his consulting agreement beyond the termination date. The Company has discovered several matters involving a financial benefit undertaken by Mr. Rhine that had previously been unknown by the other members of the Board and were unauthorized by the Company. The Company is doing a thorough investigation into Mr. Rhine’s actions both as a former employee and subsequently as a consultant to determine the full and exact nature and extent of any unauthorized conduct.

The Company has hired a new CFO effective November 30, 2020.

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

None, except as previously disclosed.

Item 3. Defaults Upon Senior Securities

None, except as disclosed in this Report.

Item 4. Removed and Reserved

Item 5. Other Information

None.

Item 6. Exhibits

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002*

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002*

32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

101.INS		XBRL Instance Document**
101.SCH		XBRL Schema Document**
101.CAL		XBRL Calculation Linkbase Document**
101.LAB		XBRL Label Linkbase Document**
101.PRE		XBRL Presentation Linkbase Document**
101.DEF		XBRL Definition Linkbase Document**

* filed herewith

** furnished, not filed

SIGNATURES

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

	SELECTIS HEALTH, INC.

Date: November 15, 2021	By:	/s/ Lance Baller
		Lance Baller, Chief Executive Officer (Principal Executive Officer)

Date: November 15, 2021	By:	/s/ Brandon Thall
		Brandon Thall, Chief Financial Officer (Principal Accounting Officer)