10-Q 1 form10-q.htm
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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 March 31, 2024

 

OR

 

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   I.R.S. Employer
incorporation or organization)   Identification number

 

8480 E Orchard Rd, Ste 4900,    
Greenwood Village, CO   80111
(Address of principal executive offices)   (Zip Code)

 

Issuer’s telephone number: (720) 680-0808

 

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 May 10, 2024, the Registrant had 3,067,059 shares of its Common Stock outstanding.

 

 

 

 

 

 

INDEX

 

    Page
    No.
  PART I — FINANCIAL INFORMATION  
     
Item 1. Condensed Consolidated Financial Statements (Unaudited) 3
     
  Condensed Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023 3
     
  Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024, and 2023 (Unaudited) 4
     
  Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2024, and March 31, 2023 (Unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024, and 2023 (Unaudited) 6
     
  Notes to Condensed Consolidated Financial Statements (Unaudited) 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
     
Item 4. Controls and Procedures 19
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 20
     
Item 1A. Risk Factors 20
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
     
Item 3. Defaults Upon Senior Securities 20
     
Item 4. Mine Safety Disclosures 20
     
Item 5. Other Information 20
     
Item 6. Exhibits 20

 

2
 

 

PART 1. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

 

SELECTIS HEALTH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31, 2024   December 31, 2023 
   Unaudited     
ASSETS          
Current Assets          
Cash  $1,265,613   $1,484,599 
Accounts Receivable, Net   1,825,507    2,091,536 
Prepaid Expenses and Other Current Assets   1,110,776    1,380,570 
Total Current Assets   4,201,896    4,956,705 
           
Long Term Assets:          
Restricted Cash   767,226    820,124 
Property and Equipment, Net   33,510,748    33,817,718 
Goodwill   1,076,908    1,076,908 
Total Assets  $39,556,778   $40,671,455 
           
LIABILITIES AND EQUITY          
Liabilities:          
Accounts Payable and Accrued Liabilities  $6,284,271   $6,045,365 
Dividends Payable   38,100    30,600 
Short-Term Debt,  Related Parties   900,000    900,000 
Current Maturities of Long-Term Debt, Net of Discount of $467,609 and $524,704, respectively   10,926,610    11,170,100 
Total Current Liabilities   18,148,981    18,146,065 
           
Debt, Net of Discount of $7,871 and $30,663, respectively   25,095,062    25,176,435 
Lease Security Deposit   318,750    312,750 
Total Liabilities  $43,562,793   $43,635,250 
           
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 
Common Stock - $0.05 Par Value; 800,000,000 Shares Authorized, 3,067,059 and 3,067,059 Shares Issued and Outstanding at March 31, 2024 and December 31, 2023, respectively   153,352    153,352 
Additional Paid-In Capital   13,852,028    13,852,028 
Accumulated Deficit   (18,787,395)   (17,745,175)
Total Selectis Health, Inc. Stockholders’ Equity   (4,006,015)   (2,963,795)
Total Liabilities and Equity  $39,556,778   $40,671,455 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3
 

 

SELECTIS HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

         
  

Three Months Ended

March 31,

 
   2024   2023 
         
Revenue          
Rental Revenue  $160,326   $157,789 
Healthcare Revenue   9,332,080    8,627,949 
Healthcare Grant Revenue   -    819,933 
Total Revenue   9,492,406    9,605,671 
Expenses          
Property Taxes, Insurance and Other Operating   7,501,209    8,509,271 
General and Administrative   2,163,348    2,204,846 
Provision for Bad Debts   100,514    423,180 
Depreciation   423,599    438,730 
Total Expenses   10,188,670    11,576,027 
(Loss) Income from Operations   (696,264)   (1,970,356)
Other Expense          
Interest Expense, net   630,330    518,299 
Income from Employee Retention Credits   -    (6,350,533)
Other Income   (291,874)   (163,298)
Total Other (Income) Expense   338,456    (5,995,532)
Net (Loss) Income   (1,034,720)   4,025,176 
Series D Preferred Dividends   (7,500)   (7,500)
Net (Loss) Income Attributable to Common Stockholders  $(1,042,220)  $4,017,676 
Per Share Data:          
Net (Loss) Income per Share Attributable to Common Stockholders:          
Basic  $(0.34)  $1.32 
Diluted  $(0.34)  $1.32 
Weighted Average Common Shares Outstanding:          
Basic   3,067,059    3,054,587 
Diluted   3,067,059    3,054,587 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4
 

 

SELECTIS HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

 

                                     
  

Series A

Preferred Stock

  

Series D

Preferred Stock

   Common Stock   Additional      

Selectis

Health, Inc.

 
  

Number of

Shares

   Amount  

Number of

Shares

   Amount  

Number of

Shares

   Amount  

Paid-In

Capital

  

Accumulated

Deficit

  

Stockholders’

Equity

 
                                     
Balance, December 31, 2023        200,500   $401,000         375,000   $375,000      3,067,059   $153,352   $13,852,028   $(17,745,175)  $    (2,963,795)
Series D Preferred Dividends   -    -    -    -    -    -    -    (7,500)   (7,500)
Net Loss   -    -    -    -    -    -    -    (1,034,720)   (1,034,720)
Balance, March 31, 2024   200,500   $401,000    375,000   $375,000    3,067,059   $153,352   $13,852,028   $(18,787,395)  $(4,006,015)

 

  

Series A

Preferred Stock

  

Series D

Preferred Stock

   Common Stock   Additional      

Selectis

Health, Inc.

 
  

Number of

Shares

   Amount  

Number of

Shares

   Amount  

Number of

Shares

   Amount  

Paid-In

Capital

  

Accumulated

Deficit

  

Stockholders’

Equity

 
                                     
Balance, December 31, 2022        200,500   $401,000         375,000   $375,000      3,054,587   $152,728   $13,768,300   $(13,744,193)  $         952,835 
                                              
Series D Preferred Dividends   -    -    -    -    -    -    -    (7,500)   (7,500)
Net Income   -    -    -    -    -    -    -    4,025,176    4,025,176 
Balance, March 31, 2023   200,500   $401,000    375,000   $375,000    3,054,587   $152,728   $13,768,300   $(9,726,517)  $4,970,511 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5
 

 

SELECTIS HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2024   2023 
  

Three Months Ended

March 31,

 
   2024   2023 
Cash Flows From Operating Activities:          
Net Income  $(1,034,720)  $4,025,176 
Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities:          
Other Income from Adjustment of Debt   -    (50,000)
Depreciation and Amortization   423,599    438,730 
Amortization of Deferred Loan Costs and Debt Discount   79,887    94,398 
Provision for Bad Debt   100,514    423,180 
Changes in Operating Assets and Liabilities, Net of Assets and Liabilities Acquired:          
Accounts and Rents Receivable   165,515    (369,977)
Prepaid Expenses and Other Assets   269,794    135,801 
Employee Retention Credit Receivables   -    (6,350,533)
Accounts Payable and Accrued Liabilities   238,906    1,584,730 
Lease Security Deposits   6,000    1,500 
Cash Provided by (Used) in Operating Activities   249,495    (66,995)
           
Cash Flows From Investing Activities:          
Capital Expenditures for Property and Equipment   (116,629)   (42,515)
Cash Used in Investing Activities   (116,629)   (42,515)
           
Cash Flows From Financing Activities:          
Proceeds from Issuance of Debt, Non-Related Party   -    501,006 
Payments on Debt, Non-Related Party   (404,750)   (601,453)
Dividends Paid on Preferred Stock   -    (6,900)
Cash Used in Financing Activities   (404,750)   (107,347)
           
Net Decrease in Cash, Cash Equivalents and Restricted Cash   (271,884)   (216,857)
Cash and Cash Equivalents and Restricted Cash at Beginning of the Period   2,304,723    2,416,600 
Cash and Cash Equivalents and Restricted Cash at End of the Period  $2,032,839   $2,199,743 
           
Supplemental Disclosure of Cash Flow Information          
Cash Paid for Interest   694,342    423,900 
Cash and Cash Equivalents   1,265,613    1,157,413 
Restricted Cash   767,226    1,042,330 
Total Cash and Cash Equivalents and Restricted Cash   2,032,839    2,199,743 
           
Supplemental Schedule of Non-Cash Investing and Financing Activities          
Dividends Declared on Series D Preferred Stock  $7,500   $7,500 
Financing of Insurance Premiums   122,888    673,930 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6
 

 

SELECTIS HEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Description of the Business

 

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

 

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

 

In September 2021, the Company 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.

 

The Company acquires, develops, leases and manages 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 and Going Concern

 

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. In accordance with ASU 2014-05, management’s analysis can only include the potential mitigating impact of management’s plans that have not been fully implemented as of the issuance date if (a) it is probable that management’s plans will be effectively implemented on a timely basis, and (b) it is probable that the plans, when implemented, will alleviate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern.

 

The accompanying unaudited Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP applicable to a going concern. This presentation contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and does not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described below.

 

For the three months ended March 31, 2024, the Company had operating cash flows of $249,495 and negative net working capital of $13.9 million. As a result of our losses and our projected cash needs, substantial doubt exists about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is contingent upon successful execution of management’s plan over the next twelve months to improve the Company’s liquidity and profitability, which includes, without limitation:

 

  Increasing revenue by increasing occupancy in the facilities and increasing Medicaid reimbursement rates;
  Controlling operating expenses; and
  Seeking additional capital through the issuance of debt or equity securities, or the sale of assets.

 

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.

 

7
 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and in conjunction with the rules and regulations of the Securities Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary to make the consolidated financial statements not misleading have been included. Operating results for the three months ended March 31, 2023, 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, 2023, filed with the Securities and Exchange Commission.

 

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 FASB and other entities issued new or modifications to, or interpretations of, existing accounting guidance during 2023. 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.

 

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.

 

8
 

 

The following table sets forth the computation of basic and diluted earnings per share:

 

   2024   2023 
   Three Months Ended 
   March 31, 
   2024   2023 
Numerator for basic earnings per share:          
Net Loss Attributable to Selectis Health, Inc.  $(1,034,720)  $4,025,176 
Series D Preferred Dividends   (7,500)   (7,500)
Net Income (Loss) Attributable to Common Stockholders – Basic  $(1,042,220)  $4,017,676 
           
Numerator for diluted earnings per share:          
Net Income (Loss) Attributable to Common Stockholders  $(1,034,720)  $4,025,176 
Series D Preferred Dividends   (7,500)   (7,500)
Net Income (Loss) Attributable to Common Stockholders – Diluted  $(1,042,220)  $4,017,676 
           
Denominator for basic earnings per share:          
Weighted Average Common Shares Outstanding   3,067,059    3,054,587 
           
Denominator for diluted earnings per share:          
Weighted Average Common Shares Outstanding - Basic   3,067,059    3,054,587 
Weighted Average Common Shares Outstanding - Diluted   3,067,059    3,054,587 
           
Net Income (Loss) per Share Attributable to Common Stockholders:          
Basic  $(0.34)  $1.32 
Diluted  $(0.34)  $1.32 

 

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 March 31, 2024 and December 31, 2023.

 

The carrying values of cash and cash equivalents, accounts payable, accrued liabilities and other short-term debt, approximate their fair value because of the short-term nature of these financial instruments. The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates.

 

Upon acquisition of real estate properties, the Company determines the total purchase price of each property and allocates this price based on the fair value of the tangible assets and intangible assets, if any, acquired and any liabilities assumed based on Level 3 inputs. These Level 3 inputs can include comparable sales values, discount rates, and capitalization rates from a third-party appraisal or other market sources.

 

9
 

 

3. PROPERTY AND EQUIPMENT, NET

 

The gross carrying amount and accumulated depreciation of the Company’s property and equipment as of March 31, 2024, and December 31, 2023, are as follows:

 

   March 31, 2024   December 31, 2023 
         
Land  $1,778,250   $1,778,250 
Land Improvements   496,597    329,055 
Buildings and Improvements   44,498,114    44,665,656 
Furniture, Fixtures and Equipment   2,599,835    2,483,207 
Property and Equipment, gross   49,372,796    49,256,168 
           
Less: Accumulated Depreciation   (14,302,048)   (13,878,450)
Less: Impairment   (1,560,000)   (1,560,000)
           
Property and Equipment, net  $33,510,748   $33,817,718 

 

         
   For the Three Months Ended March 31, 
   2024   2023 
         
Depreciation Expense (excluding Intangible Assets)  $423,599   $438,730 

 

4. DEBT AND DEBT - RELATED PARTIES

 

The following is a summary of the Company’s debt outstanding as of March 31, 2024, and December 31 2023:

  

   March 31, 2024   December 31, 2023 
Senior Secured Promissory Notes  $1,025,000   $1,025,000 
Senior Secured Promissory Notes - Related Parties   750,000    750,000 
Fixed-Rate Mortgage Loans   29,328,787    29,570,185 
Variable-Rate Mortgage Loans   4,637,955    4,675,585 
Other Debt, Subordinated Secured   741,000    741,000 
Other Debt, Subordinated Secured - Related Parties   150,000    150,000 
Other Debt, Subordinated Secured - Seller Financing   7,957    15,105 
Financed Insurance Premiums   756,453    875,027 
Debt and Debt – Related Parties, Gross   37,397,152    37,801,902 
Unamortized Discount and Debt Issuance Costs   (475,480)   (555,367)
           
Debt and Debt – Related Parties, Net of Discount  $36,921,672   $37,246,535 
           
As presented in the Consolidated Balance Sheets:          
           
Current Maturities of Long-Term Debt, Net  $10,926,610   $11,170,100 
Short term debt – Related Parties, Net   900,000    900,000 
Long-Term Debt, Net   25,095,062    25,176,435 

 

The weighted average interest rate and term of our debt are 3.84% and 12.79 years, respectively, as of March 31, 2023. The weighted average interest rate and term of our debt are 4.15% and 14.12 years, respectively, as of March 31, 2024.

 

10
 

 

Corporate Senior and Senior Secured Promissory Notes

 

As of March 31, 2024, and December 31, 2023, the senior secured notes are subject to annual interest ranging from 10% to 11% with an original maturity date of October 31, 2021. These notes were extended to December 31, 2024 and as consideration the Company modified the outstanding warrants to extend the life an additional 1.67 years. As a result of the warrant modification, the Company recorded the incremental increase in fair value of $844,425 as a debt discount which will be amortized over the new life of the notes.

 

In 2017, $600,000 in notes were sold and issued, of which $425,000 were to related parties. On December 31, 2017, there were outstanding an aggregate of $1.2 million in senior secured notes. The maturity date of all the senior secured notes was extended to December 31, 2018 prior to their original maturity date. For every $10.00 in principal amount of note, investors got one warrant exercisable for one year to purchase an additional share of common stock at an exercise price of $7.50 per share. The warrants have a cashless exercise provision and were valued using the Black-Scholes pricing model. The maturity date of the 120,000 warrants issued along with the notes was extended to December 31, 2018, 225,000 warrants of which occurred in 2018. As of December 31, 2019, the Company had not renewed or repaid $125,000 in 10% notes with a maturity date of December 31, 2018, and those notes were technically in default. Effective January 28, 2020, the Company exchanged $100,000 in outstanding senior secured 10% Notes and Warrants that had matured on December 31, 2018 for 11% Senior Secured Promissory Notes and issued 10,000 cashless exercise warrants for purchase of company stock at $5.00, expiring October 31, 2021. As of December 31, 2020, the Company had not renewed or repaid $25,000 in 10% notes with a maturity date of December 31, 2018. While this is technically in default, the Company continues to make interest payments to the noteholder.

 

In October 2017, the Company sold an aggregate of $300,000 in senior unsecured notes. The notes bear interest at the rate of 10% per annum and were due in October 2020. For every $10.00 in principal amount of note, investors got one warrant exercisable for one year to purchase an additional share of common stock at an exercise price of $7.50 per share. The warrants have a cashless exercise provision. On September 30, 2020, the Company repaid $150,000 of 10% Senior Unsecured Notes that matured October 31, 2020. Effective October 31, 2020, the Company exchanged $150,000 in outstanding Senior Unsecured 10% Notes and Warrants that had matured on October 31, 2020 for 11% Senior Secured Promissory Notes and issued 15,000 cashless exercise warrants for purchase of the Company’s common stock at $5.00 per share, expiring October 31, 2021.

 

In October 2018, the Company, through a registered broker-dealer acting as Placement Agent, undertook a private offering to accredited investors of Units, each Unit consisting of an 11% Senior Secured Note, due in three years, (October 31, 2021) and one Warrant for each $10.00 in principal amount of Note exercisable for three years to purchase a share of Common Stock at an exercise price of $5.00 per share. The Company and the Placement Agent completed the Offering in December 2018 having sold an aggregate of $1,160,000 in Notes and Warrants. The net proceeds to the Company were $1,092,400, after deducting Placement Agent fees of $67,600, and issued 11,100 warrants to the Placement Agent with $21,453 of the fair value of the warrants recorded as loan cost. The Offering also included the exchange of an aggregate of $1.075 million in outstanding senior secured 10% Notes and Warrants for Units in the Offering. No proceeds were realized from the exchange and no fees were paid to the Placement Agent for such exchanges. During 2018, among the $1.075 million senior secured notes that were extended to October 31, 2021 by virtue of the exchange, $875,000 were to related parties.

 

On January 17, 2020, the Board of Directors agreed to increase the total offering amount and extend the period of its 2018 Offering of 11% Senior Secured Notes. The total amount of the Offering has been increased to $2,500,000 and the offering period will continue until terminated by the Board of Directors. Effective February 5, 2020 and March 3, 2020, the Company completed the sale of $60,000 and $100,000, respectively, of Units in the Offering. The sale of $100,000 Units on March 3, 2020 was to a related party. In connection with the sale of the Units on February 5, 2020 and March 3, 2020, the Company issued 6,000 and 10,000, respectively, cashless exercise warrants for purchase of company stock at $0.50, expiring October 31, 2021. Effective October 31, 2020 the Company completed the exchange of $150,000 of Units in the Offering for matured Senior Unsecured notes. In connection with the exchange of the Units effective October 31, 2020, the Company issued 15,000 cashless exercise warrants for purchase of company stock at $5.00, expiring October 31, 2021. No fees or commissions were paid on the sale of the Units. The proceeds were used for general working capital.

 

Effective June 27, 2023, pursuant to an Allonge and Modification Agreement a Majority in Interest of the senior secured note holders agreed to extend the maturity date of the notes to December 31, 2024, relying upon an Agreement Among Lenders to which all noteholders are a party. As consideration effective July 1, 2023, the annual interest rate increased to 11% and the Company issued a new warrant for every $10 in principal totaling 177,500 of new warrants with an exercise price of $5 and an expiration date of December 31, 2024. As a result of the new warrants, the Company recorded the incremental increase in fair value of $84,352 as a debt discount which is being amortized over the life of the notes.

 

On March 29, 2023, the Company entered into a short-term subordinated secured promissory note of $501,006. This note accrued interest at 6.75% and originally matured on July 5, 2023. The Company extended this note to September 5, 2023, accruing interest at 7.5%. This note and all accrued interest was repaid on September 5, 2023.

 

11
 

 

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:

 

   Number of   Total Face   Total Principal Outstanding as of 
State  Properties   Amount   March 31, 2024   December 31, 2023 
Arkansas(1)   1   $5,000,000   $3,709,826   $3,739,786 
Georgia (2)   5   $17,765,992   $15,325,521   $15,457,026 
Ohio   1   $3,000,000   $2,543,200   $2,563,000 
Oklahoma(3)   6   $13,181,325   $12,388,196   $12,485,958 
    13   $38,947,317   $33,966,743   $34,245,770 

 

(1) The mortgage loan collateralized by this property is 80% guaranteed by the USDA and requires an annual renewal fee payable in the amount of 0.25% of the USDA guaranteed portion of the outstanding principal balance as of December 31 of each year. Guarantors under the mortgage loan include Christopher Brogdon. Mr. Brogdon has assumed operations of the facility and is making payments of principal and interest on the loan on our behalf in lieu of paying rent on the facility to us, until a formal lease can be put in place. During the periods ended March 31, 2024 and December 31, 2023, the Company recognized other income of $14,350 and $170,981, respectively for repayments on the loan.
   
(2) The Company 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 30, 2024 for both.
   
(3) The Company refinanced all three mortgages in July 2021, that would have matured in June and July of 2021 amounting to $2,065,969 and $750,000, $500,000, to extend their maturity dates to June 2027 for all three. Additionally, the Company has refinanced the primary mortgage at the Southern Hills Campus, for 35 years at 2.38%.

 

Subordinated, Corporate and Other Debt

 

Other debt due at March 31, 2024 and December 31, 2023 includes unsecured notes payable issued to entities controlled by the Company used to facilitate the acquisition of the nursing home properties.

 

       Total Principal
Outstanding as of
       
Property 

Face

Amount

  

March 31,

2024

   December 31, 2023  

Stated

Interest Rate

  Maturity Date
Goodwill Nursing Home  $2,030,000   $741,000   $741,000   13% Fixed  30-Nov-25
Goodwill Nursing Home – Related Party   150,000    150,000    150,000   13% Fixed  30-Nov-25
Higher Call Nursing Center (1)   150,000    7,957    15,105   8% Fixed  30-Nov-25
   $2,330,000   $898,957   $906,105       

 

(1) In connection with the acquisition of Higher Call, the Company executed a promissory note in favor of the Seller, Higher Call Nursing Center, Inc., in the principal amount of $150,000 which accrues interest at the rate of 8% per annum and is payable in equal monthly installments, principal and interest. This note is secured by a corporate guaranty of Global.

 

12
 

 

The Company’s corporate debt as of March 31, 2024, and December 31, 2023 includes unsecured notes and notes secured by all assets of the Company not serving as collateral for other notes.

 

       Total Principal
Outstanding as of
       
Series 

Face

Amount

  

March 31,

2024

  

December 31,

2023

  

Stated

Interest Rate

 

Maturity

Date

11% Senior Secured Promissory Notes  $1,255,000   $1,025,000   $       1,025,000   10% Fixed  31-Dec-24
11% Senior Secured Promissory Notes – Related Party  $750,000    750,000    750,000   10% Fixed  31-Dec-24
   $2,005,000   $1,775,000   $1,775,000       

 

5. STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

The Company has authorized 10,000,000 shares of preferred stock. These shares may be issued in series with such rights and preferences as may be determined by the board of directors.

 

Series A Convertible Redeemable Preferred Stock

 

The Company’s Board of Directors has authorized 2,000,000 shares of $2.00 stated value, Series A Preferred Stock. The preferred stock has a senior liquidation preference value of $2.00 per share and does not bear dividends.

 

As of March 31, 2024, and December 31, 2023, the Company has 200,500 shares of Series A Preferred Stock outstanding.

 

Series D Convertible Preferred Stock

 

The Company has established a class of preferred stock designated “Series D Convertible Preferred Stock” (Series D preferred stock) and authorized an aggregate of 1,000,000 non-voting shares with a stated value of $1.00 per share. Holders of the Series D preferred stock are entitled to receive dividends at the annual rate of 8% based on the stated value per share computed on the basis of a 360-day year and twelve 30-day months. Dividends are cumulative, shall be declared quarterly, and are calculated from the date of issue and payable on the 15th day of April, July, October, and January. The dividends may be paid, at the option of the holder either in cash or by the issuance of shares of the Company’s common stock valued at the market price on the dividend record date. Shares of the Series D preferred stock are redeemable at the Company’s option. At the option of the holder, shares of the Series D preferred stock plus any declared and unpaid dividends are convertible to shares of the Company’s common stock at a conversion rate of $1.00 per share.

 

As of March 31, 2024 and December 31, 2023, the Company had 375,000 shares of Series D Preferred Stock outstanding.

 

For the three months ended March 31, 2024, and 2023, the Company declared $7,500 and $7,500 in preferred dividends, respectively.

 

Common Stock

 

The Company’s Board of Directors has authorized 50,000,000 shares of $0.05 par value, Common Stock. As of March 31, 2024 and December 31, 2023, the Company has 3,067,059 shares of common stock outstanding, respectively.

 

Common Stock Warrants

 

As of March 31, 2024, and December 31, 2023, the Company had 177,500 of outstanding warrants to purchase common stock at a weighted average exercise price of $5.00 and weighted average remaining term of 0.75 years and 1.0 years, respectively. The aggregate intrinsic value of common stock warrants outstanding as of March 31, 2024, and December 31, 2023 was $0. Activity for the three months ended March 31, 2023, related to common stock warrants is as follows:

 

   March 31, 2024 
   Number of  

Weighted

Average

 
   Warrants   Exercise Price 
         
Beginning Balance   177,500   $5.00 
Exercised   -    - 
Expired   -    - 
           
Ending Balance   177,500   $5.00 

 

13
 

 

6. FACILITY LEASES

 

The following table summarizes leasing arrangements related to the Company’s healthcare facilities at March 31, 2024:

 

   Monthly Lease       
Facility  Income (1)   Lease Expiration  Renewal Option if any
Goodwill Hunting LLC(1)  $53,675   February 1, 2027  Term may be extended for one additional five-year term

 

(1) The lease became effective on February 1, 2017, and the facility began generating rental revenue thereafter.

 

Lessees are responsible for payment of insurance, taxes, and other charges while under the lease. Should the lessees not pay all such charges as required under the leases, or if there is no tenant, the Company may become liable for such operating expenses. We have been required to cover those expenses at Glen Eagle as well as the Southern Hills SNF, ALF and ILF, Meadowview, Higher Call, Edwards, Fairland, Sparta, and Warrenton properties.

 

7. COMMITMENTS AND CONTINGENCIES

 

General and Professional Liability Insurance and Lawsuits

 

The senior care industry has experienced significant increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by skilled nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards. The Company purchases insurance through third party providers that provides coverage for these claims.

 

There is certain additional litigation incidental to our business, none of which, based upon information available to date, would be material to our financial position, results of operations, or cash flows. In addition, the long–term care industry is continuously subject to scrutiny by governmental regulators, which could result in litigation or claims related to regulatory compliance matters.

 

Governmental Regulations

 

Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. Management believes that it is following all applicable laws and regulations in all material respects. However, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusions from the Medicare, Medicaid and other federal healthcare programs.

 

8. SUBSEQUENT EVENTS

 

On April 12, 2024, the Company entered into a Commercial Line of Credit Agreement and Note with Southern Bank for a line of credit in the principal amount limit of $750,000 at a fixed interest rate of 8.50% per annum with a Maturity Date of April 12, 2025.

 

On May 1, 2024, the Company caused its wholly-owned subsidiary Goodwill Hunting, LLC, a Georgia limited liability company (“Seller”) to execute and deliver a definitive Purchase and Sale Agreement (“PSA”) with Bibb County Holdings II, LLC, a Georgia limited liability company (“Purchaser”); pursuant to which the Seller agreed to sell certain real property located in Macon, Bibb County, Georgia identified as Bibb County Tax Parcels P1030040, P1030254, P1030253, P1030043, P1030052, and P1030252 including that certain skilled nursing facility known as “Archway Transitional Care Center” located at 4373 Houston Avenue, Macon, Bibb County, 31206 (the “Archway Property”).

 

The purchase price to be paid by Purchaser for the Archway Property is Six Million Seven Hundred Fifty Thousand Dollars ($6,750,000), subject to certain prorations, holdbacks and adjustments customary in transactions of this nature.

 

Consummation of the PSA is contingent upon satisfactory completion of certain conditions customary in transactions of this nature. There can be no assurance that the PSA will be consummated.

 

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

 

The following is Management’s Discussion and Analysis of Financial Condition and Results of Operations and should be read in conjunction with the interim financial statements and notes thereto contained 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,” “projects,” “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, 2023, as filed with the SEC.

 

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 future business plans and strategies;
   
anticipated operating results and sources of future revenue;
   
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;

 

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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; and
   
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.

 

Properties

 

As of March 31, 2024, 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 March 31, 2024:

 

               Total Square Feet   # of Beds 
               Operating   Leased         
           Leased   Square   Square   Operating   Leased 
State  Properties   Operations   Operations   Feet   Feet   Beds   Beds 
Arkansas   1    -    1    -    40,737    -    141 
Georgia   5    4    1    78,197    46,199    454    100 
Ohio   1    -    -    27,500    -    99    - 
Oklahoma   6    5    -    162,976    -    351    - 
Total   13    9    2    268,673    86,936    904    241 

 

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.

 

Three Months Ended March 31, 2024, Compared to the Three Months Ended March 31, 2023

 

Rental revenues for the three months ended March 31, 2024, and 2023 totaled $160,326 and $157,789. The Company also had healthcare revenue of $9,332,080 for the three months ended March 31, 2024, compared to $8,627,949 for the three months ended March 31, 2023. Healthcare revenues increased due to change in occupancy and patient mix. The Company had Healthcare Grant revenue of $0 compared to $819,933 for the three months ended March 31, 2024 and March 31, 2023, respectively. The decrease in healthcare grant revenues is primarily due to the healthcare grant revenues received from the State of Oklahoma ceased in May 2023. Our healthcare revenues will likely continue to decrease due to a decrease in Medicaid rates.

 

General and administrative expenses were $2,163,348 and $2,204,846, for the three months ended March 31, 2024 and 2023. The Company healthcare operations management has hired a contract CFO and Controller to support the corporate team and will continue to aid the facilities in delivering world class care.

 

Property taxes, insurance, and other operating expenses totaled $7,501,209 and $8,509,271 for the three months ended March 31, 2024 and 2023, respectively. This decrease is attributed to a decrease in operational headcount resulting in lower operational wages and decreased spending on COVID related expenses.

 

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Depreciation and amortization expense totaled $423,599 and $438,730 for the three months ended March 31, 2024 and 2023, respectively. This decrease is related to an increase in fully depreciated assets as compared to the same period in the prior year.

 

Provision for credit losses totaled $100,514 and $423,180 for the three months ended March 31, 2024 and 2023, respectively. This decrease is related to a decrease in accounts receivable and the related accounts receivable over 60 days past due.

 

The Company had $630,330 of interest expense for the three months ended March 31, 2024, and $518,299 interest expense for the three months ended March 31, 2023. This increase is mainly due to a correction of the note payable principal and related interest expense.

 

The Company had income of $0 from employee retention credits for the three months ended March 31, 2024, and $6,350,533 for the three months ended March 31, 2023.

 

The Company had $291,874 of other income for the three months ended March 31, 2024, and $163,298 for the three months ended March 31, 2023. This is primarily related to 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 and Going Concern

 

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 March 31, 2024, the Company had cash of $1,265,613 and restricted cash of $767,226. Our restricted cash is to be spent on insurance, taxes, repairs, and capital expenditures associated with Providence of Sparta Nursing Home or Warrenton Health and 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.

 

Cash provided by operating activities was $249,495 for the three months ended March 31, 2024, compared to cash used in operating activities of $66,995 for the three months ended March 31, 2023.

 

Cash used in investing activities was $116,629 for the three months ended March 31, 2024, compared to cash used in investing activities of $42,515 for the three months ended March 31, 2023.

 

Cash used in financing activities was $404,750 for the three months ended March 31, 2024 compared to cash used in financing activities of $107,347 for the three months ended March 31, 2023.

 

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.

 

The CARES Act provides an employee retention credit (“CARES Employee Retention Credit”), which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers. The tax credit is equal to 50% of qualified wages paid to employees during a quarter, capped at $10,000 of qualified wages per employee through December 31, 2020. Additional relief provisions were passed by the United States government, which extend and slightly expand the qualified wage caps on these credits through December 31, 2021. Based on these additional provisions, the tax credit is now equal to 70% of qualified wages paid to employees during a quarter, and the limit on qualified wages per employee has been increased to $10,000 of qualified wages per quarter. The Company qualified for the tax credit under the CARES Act for qualified wages for the years ended December 31, 2020 and 2021. In February 2023, the Company submitted filings for CARES Employee Retention Credits totaling $6,350,533. As of March 31, 2023 and 2024, the Company reported $6,350,533 and $0 as other income in the accompanying condensed consolidated statement of operations. As of December 31, 2023, the Company recorded an employee retention credits receivable of $1,257,952. Upon evaluation of the collectability of this receivable, the Company recorded a full allowance against this receivable. As of March 31, 2024, this receivable remains at $0.

 

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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 and Estimates

 

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 recognizes revenue in accordance with ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” including subsequently issued updates. Under the accounting guidance our revenues are presented net of estimated allowances, and we no longer present the contractual allowance as a separate line item on our balance sheet.

 

The Company reviews its calculations for the realizability of gross service revenues monthly to make certain that we are properly allowing for the uncollectible portion of our gross billings and that our estimates remain sensitive to variances and changes within our payer groups. The contractual allowance calculation is made based on historical allowance rates for the various specific payer groups monthly with a greater emphasis given to current trends. This calculation is routinely analyzed by the Company based on actual allowances issued by payers and the actual payments made to determine what adjustments, if any, are needed.

 

Our revenues generally relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods that average approximately five days, and revenues are recognized based on charges incurred in relation to total expected charges. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, and Medicaid) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare, and Medicaid). Medicare generally pays for inpatient and outpatient services at prospectively determined rates based on clinical, diagnostic and other factors. Services provided to patients having Medicaid coverage are generally paid at prospectively determined rates per discharge, per identified service or per covered member.

 

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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 March 31, 2024, and 2023, there were no deferred lease incentives recorded.

 

Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual allowances under managed care are based upon the payment terms specified in the related contractual agreements.

 

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Estimated reimbursement amounts are adjusted in subsequent periods as cost reports are prepared and filed and as final settlements are determined (in relation to certain government programs, primarily Medicare, this is generally referred to as the “cost report” filing and settlement process).

 

In September 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instrument (“ASU 2016-13”). ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. The Company adopted ASU 2016-13 January 1, 2023. We identified trade accounts receivable financial instruments that would be impacted by this adoption.

 

The CARES Act provides an employee retention credit (“CARES Employee Retention Credit”), which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers. The tax credit is equal to 50% of qualified wages paid to employees during a quarter, capped at $10,000 of qualified wages per employee through December 31, 2020. Additional relief provisions were passed by the United States government, which extend and slightly expand the qualified wage caps on these credits through December 31, 2021. Based on these additional provisions, the tax credit is now equal to 70% of qualified wages paid to employees during a quarter, and the limit on qualified wages per employee has been increased to $10,000 of qualified wages per quarter. The Company qualified for the tax credit under the CARES Act for qualified wages for the years ended December 31, 2020 and 2021. In February 2023, the Company submitted filings for CARES Employee Retention Credits totaling $6,350,533. As of March 31, 2023 and 2024, the Company reported $6,350,533 and $0 as other income in the accompanying condensed consolidated statement of operations. As of December 31, 2023, the Company recorded an employee retention credits receivable of $1,257,952. Upon evaluation of the collectability of this receivable, the Company recorded a full allowance against this receivable. As of March 31, 2024, this receivable remains at $0.

 

Use of Estimates

 

The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses reported for the period presented. The most significant estimates relate to the useful life and impairment of intangible assets and allowance for doubtful accounts. The Company regularly will assess these estimates and, while actual results may differ, management believes that the estimates are reasonable.

 

Recently Issued Accounting Pronouncements

 

The FASB and other entities issued new or modifications to, or interpretations of, existing accounting guidance during 2023. 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.

 

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.

 

Management noted the following deficiencies that we believe to be material weaknesses:

 

  Inadequate design of information technology (IT) general and application controls resulting from inappropriate access given to certain individuals within finance, including the CFO and Controller;
  Lack of segregation of duties in certain accounting and financial reporting processes including the initiation, processing, recording and approval of disbursements; and
  Lack of a formal review process that includes multiple levels of review as well as timely review of accounts and reconciliations leading to material post-closing adjustments.

 

In light of the material weaknesses described above, we performed additional analysis deemed necessary to ensure that our unaudited interim financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the periods presented. The Company plans to implement multi-level review in 2024, 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 March 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II

OTHER INFORMATION

 

Item 1. Legal Proceedings

 

For a discussion of prior, current, and pending litigation of material significance to the Company, please see Note 7, Commitments and Contingencies, of this Form 10–Q.

 

Item 1A. Risk Factors

 

Not required for small reporting companies

 

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

 

Not applicable.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

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   Inline XBRL Instance Document**
101.SCH   Inline XBRL Schema Document**
101.CAL   Inline XBRL Calculation Linkbase Document**
101.LAB   Inline XBRL Label Linkbase Document**
101.PRE   Inline XBRL Presentation Linkbase Document**
101.DEF   Inline XBRL Definition Linkbase Document**
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* filed herewith

** furnished, not filed

 

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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: May 15, 2024 By: /s/ Adam Desmond
    Adam Desmond, Chief Executive Officer
    (Principal Executive Officer)
     
Date: May 15, 2024 By: /s/ James W. Creamer III
    James W. Creamer III, Chief Financial Officer
    (Principal Accounting Officer)

 

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