SELECTIS HEALTH, INC. - FORM 10-Q

Attached files

file	filename
EX-32.2 - SELECTIS HEALTH, INC.	ex32-2.htm
EX-32.1 - SELECTIS HEALTH, INC.	ex32-1.htm
EX-31.2 - SELECTIS HEALTH, INC.	ex31-2.htm
EX-31.1 - SELECTIS HEALTH, INC.	ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 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

GLOBAL HEALTHCARE REIT, 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 [X]

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 [X]

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 [X]

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 [X]

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 [X]

As of May 15, 2021, the Registrant had 26,951,562 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 March 31, 2021 (Unaudited) and December 31, 2020	3

	Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (Unaudited)	4

	Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2021 and March 31, 2020 (Unaudited)	5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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	32

Item 4.	Controls and Procedures	32

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	Removed and Reserved	36

Item 5.	Other Information	36

Item 6.	Exhibits	36

PART 1. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

GLOBAL HEALTHCARE REIT, INC.

CONSOLIDATED BALANCE SHEETS

	March 31, 2021			December 31, 2020
	(Unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents	$	3,378,862		$	3,567,437
Restricted Cash		410,866			410,866
Accounts Receivable, Net		2,272,978			1,931,569
Prepaid Expenses and Other		741,692			682,949
Investments in Debt Securities		24,387			24,387
Total Current Assets		6,828,785			6,617,208

Long Term Assets
Property and Equipment, Net		38,015,253			38,238,367
Goodwill		1,076,908			1,076,908
Total Assets	$	45,920,946		$	45,932,483

LIABILITIES AND EQUITY
Current Liabilities
Accounts Payable and Accrued Liabilities	$	3,282,997		$	3,196,178
Accounts Payable – Related Parties		72,800			9,900
Dividends Payable		7,500			7,500
Current Maturities of Long Term Debt, Net of Discount of $751 and $1,714, respectively		12,502,972			19,299,156
Debt – Related Parties, Net of discount of $3,234 and $3,234, respectively		1,121,766			1,121,766
Total Current Liabilities		16,988,035			23,634,500

Debt, Net of discount of $416,865 and $450,879, respectively		25,215,666			18,830,444
Lease Security Deposit		250,100			251,600
Total Liabilities		42,453,801			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
Common Stock - $0.05 Par Value; 50,000,000 Shares Authorized, 26,866,379 and 26,866,379 Shares Issued and Outstanding at March 31, 2021 and December 31, 2020, respectively		1,343,319			1,343,319
Additional Paid-In Capital		10,331,065			10,331,065
Accumulated Deficit		(8,795,844	)		(9,036,400	)
Total Global Healthcare REIT, Inc. Stockholders’ Equity		3,654,540			3,413,984
Noncontrolling Interests		(187,395	)		(198,045	)
Total Equity		3,467,145			3,215,939
Total Liabilities and Equity	$	45,920,946		$	45,932,483

See accompanying notes to unaudited consolidated financial statements.

GLOBAL HEALTHCARE REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended
	March 31,
	2021			2020

Revenue
Rental Revenue	$	390,386		$	521,012
Healthcare Revenue		5,372,457			3,330,589
Total Revenue		5,762,843			3,851,601
Expenses
Property Taxes, Insurance and Other Operating		3,544,730			2,331,744
General and Administrative		2,098,327			343,063
Provision for Bad Debts		24,134			206,608
Acquisition Costs		-			14,891
Depreciation and Amortization		401,023			387,218
Total Expenses		6,068,214			3,283,524
Income from Operations		(305,371	)		568,077
Other Income
Interest Expense		543,543			505,270
Gain on Forgiveness of PPP Loan		(675,598	)		-
Other Income		(432,022	)		-
Total Other (Income) Expense		(564,077	)		505,270
Net Income		258,706			62,807
Net (Income) Loss Attributable to Noncontrolling Interests		(10,650	)		(1,707	)
Net Income Attributable to Global Healthcare REIT, Inc.		248,056			61,100
Series D Preferred Dividends		(7,500	)		(7,500	)
Net Income Attributable to Common Stockholders	$	240,556		$	53,600
Per Share Data:
Net Income per Share Attributable to Common Stockholders:
Basic	$	0.01		$	0.00
Diluted	$	0.01		$	0.00
Weighted Average Common Shares Outstanding:
Basic		26,866,379			27,441,040
Diluted		27,605,688			27,441,040

See accompanying notes to unaudited consolidated financial statements.

GLOBAL HEALTHCARE REIT, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(UNAUDITED)

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

Balance, December 31, 2020		200,500		401,000		375,000		375,000		26,866,379		1,343,319		10,331,065		(9,036,400	)		3,413,984			(198,045	)		3,215,939
Series D Preferred Dividends		-		-		-		-		-		-		-		(7,500	)		(7,500	)		-			(7,500	)
Net Income		-		-		-		-		-		-		-		248,056			248,056			10,650			258,706
Balance, March 31, 2021		200,500		401,000		375,000		375,000		26,866,379		1,343,319		10,331,065		(8,795,844	)		3,654,540			(187,395	)		3,467,145

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

Balance, December 31, 2019		200,500		401,000		375,000		375,000		27,441,040		1,372,052		10,385,417		(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		27,441,040		1,372,052		10,405,179		(11,908,620	)		644,611			(202,892	)		441,719

See accompanying notes to unaudited consolidated financial statements.

GLOBAL HEALTHCARE REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2021			2020
Cash Flows From Operating Activities:
Net Income	$	258,706		$	62,807
Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities:
Gain on Forgiveness from PPP Loan		(675,598	)		-
Other Income from Partial Settlement of Debt		(432,022	)		-
Depreciation and Amortization		401,023			387,218
Amortization of Deferred Loan Costs and Debt Discount		34,977			44,793
Provision for Bad Debts		24,134			206,608
Changes in Operating Assets and Liabilities, Net of Assets and Liabilities Acquired:
Accounts and Rents Receivable		(365,543	)		(447,571	)
Prepaid Expenses and Other Assets		(58,743	)		126,038
Deferred Rent Receivable		-			(13,142	)
Accounts Payable and Accrued Liabilities		149,719			(115,327	)
Lease Security Deposits		(1,500	)		1,000
Cash Provided by (Used in) Operating Activities		(664,847	)		252,424

Cash Flows From Investing Activities:
Net Cash Paid in Higher Call Asset Acquisition		-			(1,045,767	)
Capital Expenditures for Property and Equipment		(177,909	)		(40,156	)
Cash Used in Investing Activities		(177,909	)		(1,085,923	)

Cash Flows From Financing Activities:
Proceeds from Issuance of Debt, Related Party		-			100,000
Proceeds from Issuance of Debt, Non-Related Party		885,164			1,111,721
Payments on Debt, Non-Related Party		(223,483	)		(124,641	)
Dividends Paid on Preferred Stock		(7,500	)		(7,500	)
Cash Provided by Financing Activities		654,181			1,079,580

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash		(188,575	)		246,081
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	$	3,789,728		$	1,238,594

Supplemental Disclosure of Cash Flow Information
Cash Paid for Interest	$	543,543		$	460,478
Cash Paid for Income Taxes		-			-

Cash and Cash Equivalents	$	3,378,862		$	854,834
Restricted Cash		410,866			383,760
Total Cash and Cash Equivalents and Restricted Cash	$	3,789,728		$	1,238,594

Supplemental Schedule of Non-Cash Investing and Financing Activities
Dividends Declared on Series D Preferred Stock	$	7,500		$	7,500
Non-cash owner financing for fixed assets purchase		-			150,000
Prepaid deposit exchanged for fixed asset acquisition		-			117,500
Relative Fair Value of Warrants Issued with Senior Secured Notes		-			19,762

See accompanying notes to unaudited consolidated financial statements.

GLOBAL HEALTHCARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Description of the Business

Global Healthcare REIT, Inc. (“Global” or “we” or the “Company”) was initially organized for the purpose of investing in real estate related to the long-term care industry. Intentionally, in 2019 the Company’s focus began to shift from leasing long-term care facilities to third-party, independent operators towards an owner operator model, where wholly-owned subsidiaries will operate these facilities. As a result, the Company no longer intends to elect to qualify as a REIT and is in the process of gaining approval for a name change and other charter provision changes to better reflect its current business model. In 2020, the Company adopted an assumed tradename “Selectis Health, Inc.” and intends to formally change its name to that moniker at the next annual meeting of shareholders scheduled for May 25th, 2021.

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

We acquire, develop, lease, manage and dispose of healthcare real estate, provide financing to healthcare providers, and provide healthcare operations through our wholly-owned subsidiaries. Our portfolio is comprised of investments in the following three healthcare segments: (i) senior housing (including independent and assisted living), (ii) post-acute/skilled nursing, and (iii) bonds securing senior housing communities. We will make investments within our healthcare segments using the following six investment products: (i) direct ownership of properties, (ii) debt investments, (iii) developments and redevelopments, (iv) investment management, (v) the Housing and Economic Recovery Act of 2008 (“RIDEA”), which represents investments in senior housing operations utilizing the structure permitted by RIDEA and (xi) owning healthcare operations.

Management’s Liquidity Plans

On August 27, 2014, FASB issued ASU 2014-05, Disclosure of Uncertainties about an Entity’s ability to Continue as a Going Concern, which requires management to assess a company’s ability to continue as a going concern within one year from financial statement issuance and to provide related footnote disclosures in certain circumstances.

For the three months ended March 31, 2021, the Company had negative operating cash flows of $664,847 and a working capital deficit of $10.2 million as of March 31, 2021. 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 three months ended March 31, 2021, the Company recorded net income of $258,706. In March of 2021, the Company opened Park Place and is planning to acquire, or open one to three additional facilities in 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 March 31, 2021, the Company has a working capital deficit of approximately $10.2 million due to approximately $13 million of debts maturing in the 2021 fiscal year. Management is in discussion with all lenders, and HUD to begin the refinancing of these notes 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 three months ended March 31, 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.

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.

The Company presents noncontrolling interests within the equity section of its consolidated balance sheets and the amount of consolidated net income that is attributable to Global Healthcare REIT, Inc. and the noncontrolling interest in its consolidated statements of operations.

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:

	Three Months Ended
	March 31,
	2021			2020
Numerator for basic and diluted earnings per share:
Net Income (Loss) Attributable to Global Healthcare REIT, Inc.	$	248,056		$	61,100
Series D Preferred Dividends		(7,500	)		(7,500	)
Net Income (Loss) Attributable to Common Stockholders	$	240,556		$	53,600

Denominator for basic earnings per share:
Weighted Average Common Shares Outstanding		26,866,379			27,441,040

Denominator for diluted earnings per share:
Weighted Average Common Shares Outstanding - Basic		26,866,379			27,441,040
Effect of dilutive securities:
Exercise of stock options		245,417			-
Exercise of warrants		493,892			-
Weighted Average Common Shares Outstanding - Diluted		27,605,688			27,441,040

Net Income (Loss) per Share Attributable to Common Stockholders:
Basic	$	0.01		$	0.00
Diluted	$	0.01		$	0.00

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, 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 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 March 31, 2021 and December 31, 2020 are as follows:

	March 31, 2021			December 31, 2020

Land	$	1,778,250		$	1,778,250
Land Improvements		242,000			242,000
Buildings and Improvements		40,790,239			40,612,330
Furniture, Fixtures and Equipment		2,123,418			2,123,418
Construction in Progress		3,728,431			3,728,431
		48,662,338			48,484,429

Less Accumulated Depreciation		(9,087,085	)		(8,686,062	)
Less Impairment		(1,560,000	)		(1,560,000	)

	$	38,015,253		$	38,238,367

	For the Three Months Ended March 31,
	2021		2020

Depreciation Expense (excluding Intangible Assets)	$	401,023	$	371,960

Cash Paid for Capital Expenditures	$	177,909	$	40,156

4. INVESTMENTS IN DEBT SECURITIES

At March 31, 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:

	March 31, 2021		December 31, 2020

States and Municipalities	$	24,387	$	24,387

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

	March 31, 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		30,396,334			30,370,220
Variable-Rate Mortgage Loans		5,212,061			5,650,579
Other Debt, Subordinated Secured		741,000			741,000
Other Debt, Subordinated Secured - Related Parties		150,000			150,000
Other Debt, Subordinated Secured - Seller Financing		116,859			125,394
		39,261,254			39,707,193
Unamortized Discount and Debt Issuance Costs		(420,850	)		(455,827	)

	$	38,840,404		$	39,251,366
As presented in the Consolidated Balance Sheets:

Current Maturities of Long Term Debt, Net	$	12,502,972		$	19,299,156
Debt, Net		25,215,666			18,830,444
Debt - Related Parties, Net		1,121,766			1,121,766

The weighted average interest rate and term of our fixed rate debt are 4.78% and 7.16 years, respectively, as of March 31, 2021. The weighted average interest rate and term of our variable rate debt are 5.90% and 16.87 years, respectively, as of March 31, 2021.

Corporate Senior and Senior Secured Promissory Notes

As of March 31, 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.

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:

					Total Principal Outstanding as of
State	Number of Properties		Total Face Amount		March 31, 2021		December 31, 2020
Arkansas⁽¹⁾		1	$	5,000,000	$	4,186,462	$	4,618,006
Georgia⁽²⁾		5	$	17,765,992	$	16,903,958	$	17,029,094
Ohio		1	$	3,000,000	$	2,779,399	$	2,798,000
Oklahoma⁽³⁾		6	$	12,378,599	$	11,738,576	$	11,575,699
		13	$	38,144,591	$	35,608,395	$	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. With our consent, 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 three months ended March 31, 2021, the Company recognized other income of $432,022 for repayments on the loan. of interest on the loan.
(2)	The Company has two mortgages maturing in May and October 2021 amounting to $2,964,152 and 3,306,011, respectively.
(3)	The Company has three mortgages maturing in June and July of 2021amounting to $2,065,969 and $750,000, $2,928, respectively.

Other mortgage loans contain non-financial covenants, including reporting obligations, with which the Company has not complied in some instances or in an untimely manner. These mortgage loans are technically in default; however, our relationship with these lenders is considered good.

Subordinated, Corporate and Other Debt

Other debt due at March 31, 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.

			Principal Outstanding at
Property	Face Amount		March 31, 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		116,859		125,394	8% Fixed	April 1, 2024

			$	1,007,859	$	1,016,394

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

	Face		Principal Outstanding at				Stated Interest
Series	Amount		March 31, 2021		December 31, 2020		Rate	Maturity Date
10% Senior Secured Promissory Note	$	25,000	$	25,000	$	25,000	10.0% Fixed	December 31, 2018
11% Senior Secured Promissory Notes		1,670,000		1,645,000		1,670,000	11.0% Fixed	October 31, 2021
11% Senior Secured Promissory Notes – Related Party		975,000		975,000		975,000	11.0% Fixed	October 31, 2021

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

On January 28, 2021, the Company through its subsidiaries received a 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”). The PPP Loan matures on January 28, 2023 (the “Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the principal, on the Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are eligible for forgiveness, subject to the provisions of the CARES Act. The Company believes it is probable that the loan will be forgiven by the SBA and has recognized the proceeds as gain on forgiveness of PPP loan in the consolidated statements of operations

Future maturities and principal reduction payments of all notes payable listed above for the next five years and thereafter are as follows:

Years
Remaining 9 months of 2021	$	12,625,060
2022		2,779,399
2023		7,110,081
2024		116,859
2025		4,920,993
2026 and after		11,708,862

	$	39,261,254

6. STOCKHOLDERS’ EQUITY

Preferred Stock

Dividends declared of $7,500 were accrued as of March 31, 2021 and will be paid on or about June 30, 2021.

Common Stock

For the three months ended March 31, 2021, the Company did not issue nor did it pay dividends on common stock.

Common Stock Warrants

As of March 31, 2021 and December 31, 2020, the Company had 2,756,000 and 2,756,000, respectively, of outstanding warrants to purchase common stock at a weighted average exercise price of $0.50 and $0.50, respectively, and weighted average remaining term of 0.75 years and 0.93 years, respectively. The aggregate intrinsic value of common stock warrants outstanding as of March 31, 2021 and December 31, 2020 was $227,370 and $82,680, respectively. Activity for the three months ended March 31, 2021 related to common stock warrants is as follows:

	March 31, 2021
	Number of Warrants		Weighted Average Exercise Price

Beginning Balance		2,756,000	$	0.50
Issued		-		-
Cancelled		-		-
Expired		-		-

Ending Balance		2,756,000	$	0.50

Common Stock Options

As of March 31, 2021, the Company had 600,000 outstanding options to purchase common stock with a weighted average exercise price of $0.36, a weighted average remaining term of 2 years and an intrinsic value of $133,500.

7. RELATED PARTIES

Clifford Neuman, a member of the Company’s Board of Directors, provided legal services to the Company. As of March 31, 2021, and December 31, 2020 the Company owed Mr. Neuman for legal services rendered $72,800 and $9,900, respectively.

8. FACILITY LEASES

The following table summarizes our leasing arrangements related to the Company’s healthcare facilities at March 31, 2021:

Facility	Monthly Lease Income ⁽¹⁾		Lease Expiration	Renewal Option if any
Warrenton⁽²⁾	$	54,101	-	None
Goodwill ⁽³⁾	$	48,125	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. As per the Order issued by the Federal Bankruptcy Court, the current operator is to continue to make rental payments. 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. As per the Order issued by the Federal Bankruptcy Court, the current operator is to continue to make rental payments. 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

Remaining 9 months of 2021	$	464,562
2022		626,808
2023		635,026
2024		643,401
2025		651,954
2026 and Thereafter		715,781

	$	3,737,532

9. SEGMENT REPORTING

The Company had two primary reporting segments during the three months ended March 31, 2021, which include real estate services and healthcare services. The Company reports segment information based on the “management approach” defined in ASC 280, Segment Reporting. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of our reportable segments.

	Statements of Operations Items for the Three Months Ended
	March 31, 2021									March 31, 2020
	Real Estate Services			Healthcare Services			Consolidated			Real Estate Services			Healthcare Services		Consolidated
Rental Revenue	$	390,386		$	-			390,386		$	521,012		$	-	$	521,012
Healthcare Revenue		-			5,372,457			5,372,457			-			3,330,589		3,330,589
Total Revenue		390,386			5,372,457			5,762,843			521,012			3,330,589		3,851,601
Expenses
Property Taxes, Insurance and Other Operating		361,606			3,183,124			3,544,730			145,840			2,185,904		2,331,744
General and Administrative		1,503,531			594,796			2,098,327			148,570			194,493		343,063
Provision for Bad Debts		24,134			-			24,134			-			206,608		206,608
Acquisition Costs		-			-			-			14,891			-		14,891
Depreciation and Amortization		47,713			353,310			401,023			335,359			51,859		387,218
Total Expenses		1,936,984			4,131,230			6,068,214			644,660			2,638,864		3,283,524
Income (Loss) from Operations		(1,546,598	)		1,241,227			(305,371	)		(123,648	)		691,725		568,077
Other (Income) Expense
Interest Expense		543,543			-			543,543			477,763			27,507		505,270
Gain on Forgiveness of PPP Loan		-			(675,598	)		(675,598	)		-			-		-
Other (Income) Expense		(432,022	)		-			(432,022	)		-			-		-
Total Other (Income) Expense		111,521			(675,598	)		(564,077	)		477,763			27,507		505,270
Net Income (Loss)		(1,658,119	)		1,916,825			258,706			(601,411	)		664,218		62,807
Net (Income) Loss Attributable to Noncontrolling Interests		(10,650	)		-			(10,650	)		(1,707	)		-		(1,707	)
Net Income (Loss) Attributable to Global Healthcare REIT, Inc.	$	(1,668,769	)	$	1,916,825		$	248,056		$	(603,118	)	$	664,218	$	61,100

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 out newly formed subsidiary will acquire the assets and operations of the facility. While awaiting Court approval of those two agreements, we have been completing extensive remodeling of the facility.

Dodge NH, LLC v. Eastman Healthcare & Rehab, LLC, Superior Court of Dodge County, State of Georgia, File No. 19V-8716.

This action was brought by us against the former lease operator for numerous violations of the operating lease, including violation of the cross-default provisions with Edwards Redeemer, which had been operated by an affiliate of the Eastman operator. We also served a Notice of Termination with respect to the operating lease. On October 18, 2019, the Court entered an Order granting to us a Temporary Restraining Order requiring the lease operator to maintain the status quo of the facility. On November 21, 2019, the prior Temporary Restraining Order was superseded by an Order Appointing Receiver requested by the Company’s subsidiary Dodge NH, LLC. Under the Order, a Receiver designated by us and approved by the Court will oversee the operations at the facility. This Order will mitigate any potential disruption to the facility’s ongoing operations in light of the various disputes between the Company and the former operator, Eastman Healthcare & Rehab LLC, an affiliate of Cadence Healthcare Solutions, LLC. On January 15, 2020, the Receiver filed a Motion for the Court to authorize the Receiver to negotiate an Operations Transfer Agreement with the Company, which Motion was granted. On July 2, 2020, the court approved the Operations Transfer Agreement (“OTA”) from the receiver to Global Eastman, LLC, newly formed subsidiary of the Company. Nearly simultaneously Global Eastman, LLC secured an operating license from the state with an effective date of July 1, 2020. Pursuant to the terms of the OTA, Global Eastman has assumed all operations associated with the prior operator, and the matter is essentially resolved in all material respects.

Village of Seville v. High Street Nursing, LLC, Wadsworth Municipal Court, State of Ohio, Case No 20-CRB-58.

This is an action filed March 2020 for sanctions against our subsidiary arising from a claimed nuisance activity (assaults on patients) at the skilled nursing facility. As we lease the facility to an operator, we have retained an attorney and entered a plea of Not Guilty. We are the landlord and do not believe we have any liability in this matter. The action was subsequently dismissed without prejudice.

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. We strongly deny any liability and intend to vigorously defend. We believe that the likelihood of a material adverse outcome is remote.

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. A status conference was held on May 17, 2021. Court date on May 25, 2021 is still scheduled.

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:

●	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.

Overview

Global Healthcare REIT, Inc. (“Global” or “we” or the “Company”) was initially organized for the purpose of investing in real estate related to the long-term care industry. Intentionally, in 2019 the Company’s focus began to shift from leasing long-term care facilities to third-party, independent operators towards an owner operator model, where wholly-owned subsidiaries will operate these facilities. As a result, the Company no longer intended to elect to qualify as a REIT and is in the process of gaining approval for a name change and other charter provision changes to better reflect its current business model. In 2020, the Company adopted an assumed tradename “Selectis Health, Inc.” and intends to formally change its name to that moniker at the next annual meeting of shareholders.

The delivery of healthcare services requires real estate and, as a result, tenants and operators depend on real estate, in part, to maintain and grow their businesses. We believe that the healthcare real estate market provides investment opportunities due to the following:

	●	Compelling demographics driving the demand for healthcare services;
	●	Specialized nature of healthcare real estate investing; and
	●	Ongoing consolidation of a fragmented healthcare real estate sector.

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, none of our third-party operators have reported any occurrences of COVID-19 in any of the buildings they are managing. Our operators have also reported to us that they currently have adequate supply levels, including appropriate quantities of Personal Protective Equipment (PPE) for staff. Additionally, as of the date of filing, the Company has received no additional information.

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.

Health Care Regulatory Climate

The Centers for Medicare & Medicaid Services (“CMS”) annually updates Medicare skilled nursing facility prospective payment system rates and other policies. On July 30, 2019, CMS issued its final fiscal year 2020 Medicare skilled nursing facility update. Under the final rule, CMS projects aggregate payments to skilled nursing facilities will increase by $851 million, or 2.4%, for fiscal year 2020 compared with fiscal year 2019. The final rule also addresses implementation of the new Patient-Driven Payment Model case mix classification system that became effective on October 1, 2019, changes to the group therapy definition in the skilled nursing facility setting, and various skilled nursing facility Value-Based Purchasing and quality reporting program policies. On April 10, 2020, CMS issued a proposed rule to update skilled nursing facility rates and policies for fiscal year 2021, which starts October 1, 2020. CMS estimates that payments to skilled nursing facilities would increase by $784 million, or 2.3%, for fiscal year 2021 compared to fiscal year 2020. CMS also proposes to revise the geographic wage index and apply a cap on wage index decreases used in setting skilled nursing facility rates. The proposal would also make changes to the patient classifications under the Patient Driven Payment Model and certain minor policy changes to the Value-Based Purchasing program. Those rules were finalized in October 2020.

On July 18, 2019, CMS published a final rule that eliminates the prohibition on pre-dispute binding arbitration agreements between long-term care facilities and their residents. The rule also strengthens the transparency of arbitration agreements and makes other changes to arbitration requirements for long-term care facilities. There can be no assurance that these rules or future regulations modifying Medicare skilled nursing facility payment rates or other requirements for Medicare and/or Medicaid participation will not have an adverse effect on the financial condition of our borrowers and lessees which could, in turn, adversely impact the timing or level of their payments to us.

Since the announcement of the COVID-19 pandemic and beginning as of March 13, 2020, CMS has issued numerous temporary regulatory waivers and new rules to assist health care providers, including skilled nursing facilities, respond to the COVID-19 pandemic. These include, waiving the skilled nursing facility’s 3-day qualifying inpatient hospital stay requirement, flexibility in calculating a new Medicare benefit period, waiving timing for completing functional assessments, waiving requirements for health care professional licensure, survey and certification, provider enrollment, and reimbursement for services performed by telehealth, among many others. CMS also announced a temporary expansion of its Accelerated and Advance Payment Program to allow skilled nursing facilities and certain other Medicare providers to request accelerated or advance payments in an amount up to 100% of the Medicare Part A payments they received from October–December 2019; this expansion was suspended April 26, 2020 in light of other CARES Act funding relief. In addition, CMS has also enhanced requirements for nursing facilities to report COVID-19 infections to local, state, and federal authorities.

On March 26, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), sweeping legislation intended to bolster the nation’s response to the COVID-19 pandemic. In addition to offering economic relief to individuals and impacted businesses, the law expands coverage of COVID-19 testing and preventative services, addresses health care workforce needs, eases restrictions on telehealth services during the crisis, and increases Medicare regulatory flexibility, among many other provisions. Notably, the CARES Act temporarily suspends the 2% across-the-board “sequestration” reduction during the period May 1, 2020 through December 31, 2020, and extends the current Medicare sequester requirement through fiscal year 2030. In addition, the law provides $100 billion in grants to eligible health care providers for health care related expenses or lost revenues that are attributable to COVID-19. On April 10, 2020, CMS announced the distribution of $30 billion in funds to Medicare providers based upon their 2019 Medicare fee for service revenues. Eligible providers must agree to certain terms and conditions in receiving these grants. In addition, the Department of Health and Human Services (“HHS”) has authorized $20 billion of additional funding for providers that have already received funds from the initial distribution of $30 billion. Unlike the first round of funds, which came automatically, providers have to apply for these additional funds and submit the required supporting documentation, using the online portal provided by HHS. Providers must attest to and agree to specific terms and conditions for the use of such funds. HHS will make the additional distributions with the goal of allocating the whole $50 billion proportionally across all providers based on those providers’ proportional share of 2018 net Medicare fee-for-service revenue. CMS is expected to distribute additional funding to Medicaid and potentially other providers, but the details are not yet known.

Congress periodically considers legislation revising Medicare and Medicaid policies, including legislation that could have the impact of reducing Medicare reimbursement for skilled nursing facilities and other Medicare providers, limiting state Medicaid funding allotments, encouraging home and community-based long-term care services as an alternative to institutional settings, or otherwise reforming payment policy for post-acute care services. Congress continues to consider further legislative action in response to the COVID-19 pandemic. There can be no assurances that enacted or future legislation will not have an adverse impact on the financial condition of our lessees and borrowers, which subsequently could materially adversely impact our company.

On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 which provides approximately $900 billion in COVID-19 relief aid. The Act includes an expansion of the PPP program, as well as many other provisions that may have a direct or indirect impact on health care providers like our company.

Additional reforms affecting the payment for and availability of health care services have been proposed at the federal and state level and adopted by certain states. Increasingly, state Medicaid programs are providing coverage through managed care programs under contracts with private health plans, which is intended to decrease state Medicaid costs. State Medicaid budgets may experience shortfalls due to increased costs in addressing the COVID-19 pandemic. Congress and state legislatures can be expected to continue to review and assess alternative health care delivery systems and payment methodologies. Changes in the law, new interpretations of existing laws, or changes in payment methodologies may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business and the amount of reimbursement by the government and other third-party payors.

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. For example, California prosecutors announced in March 2021 an investigation into a skilled nursing provider that is affiliated with one of our operators, alleging the chain manipulated the submission of staffing level data in order to improve its Five Star rating. 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.

Properties

As of March 31, 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 March 31, 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		3		31,747		92,649		211		181		80	%
Ohio		1		-		1		-		27,500		-		100		-
Oklahoma		6		5		1		131,037		31,939		417		-		52	%
Total		13		7		6		162,784		192,825		628		422		60	%

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 March 31, 2021 Compared to the Three Months Ended March 31, 2020

Rental revenues for the three months ended March 31, 2021 and 2020 totaled $390,386 and $521,012, respectively, a decrease of $130,626. The Company also had healthcare revenue of $5,372,457 for the three months ended March 31, 2021, compared to $3,330,589 for the three months ended March 31, 2020.

General and administrative expenses were $2,098,327 and $343,063 for the three months ended March 31, 2021 and 2020, respectively, an increase of $1,755,264.

Property taxes, insurance, and other operating expenses totaled $3,544,730 and $2,331,744 for the three months ended March 31, 2021 and 2020, respectively. Lessees are responsible for the payment of insurance, taxes, and other charges while under the lease. Should the lessee not pay all such charges, as required under the leases, we may be liable for such operating expenses. We are also responsible for all working capital related to our operating entities.

Expenses related to the provision for bad debt was $24,134 for the three months ended March 31, 2021 and $206,608 for the three months ended March 31, 2020, a decrease of $182,474. This decrease is related to a bad-debt policy change, specific to healthcare.

Depreciation and amortization expense increased $13,805 from $387,218 for the three months ended March 31, 2020 to $401,023 for the three months ended March 31, 2021.

The Company had $543,543 of interest expense for the three months ended March 31, 2021 and $505,270 interest expense for the three months ended March 31, 2020.

The Company had $1,107,620 of other income for the three months ended March 31, 2021 and $0 for the three months ended March 31, 2020.

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 March 31, 2021, the Company had cash and cash equivalents of $3,378,862 and restricted cash of $410,866. 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. We plan to renew secured obligations that will mature in 2021, as our projected cash flow from operations will be insufficient to retire the debt. The Company is actively working with current lenders to refinance and or extend current terms of current debts.

Cash used in operating activities was $664,847 for the three months ended March 31, 2021 compared to cash provided by operating activities of $252,424 for the three months ended March 31, 2020. Healthcare revenue was adversely affected by COVID-19 increased costs and decrease in our census.

Cash used in investing activities was $177,909 for the three months ended March 31, 2021 compared to cash used in investing activities of $1,085,923 for the three months ended March 31, 2020. The Company purchased assets in acquisition during the three months ended March 21, 2020, no such purchase was made during the three months ended March 31, 2021 resulted in a decrease of cash used in investing activities.

Cash provided by financing activities was $654,181 for the three months ended March 31, 2021 compared to cash provided by financing activities of $1,079,580 for the three months ended March 31, 2020. This resulted from proceeds from a PPP loan during the three months ended March 31, 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.

As of March 31, 2021, and December 31, 2020, our debt balances consisted of the following:

	March 31, 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		30,396,334			30,370,220
Variable-Rate Mortgage Loans		5,212,061			5,650,579
Other Debt, Subordinated Secured		741,000			741,000
Other Debt, Subordinated Secured - Related Parties		150,000			150,000
Other Debt, Subordinated Secured - Seller Financing		116,859			125,394
		39,261,254			39,707,193
Unamortized Discount and Debt Issuance Costs		(420,850	)		(455,827	)

	$	38,840,404		$	39,251,366
As presented in the Consolidated Balance Sheets:

Current Maturities of Long Term Debt, Net	$	12,502,972		$	19,299,156
Debt, Net		25,215,666			18,830,444
Debt - Related Parties, Net		1,121,766			1,121,766

The weighted average interest rate and term of our fixed rate debt are 4.78% and 7.20 years, respectively, as of March 31, 2021. The weighted average interest rate and term of our variable rate debt are 5.90% and 16.80 years, respectively, as of March 31, 2021.

Mortgage Loans and Lines of Credit Secured by Real Estate

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

					Total Principal Outstanding as of
State	Number of Properties		Total Face Amount		March 31, 2021		December 31, 2020
Arkansas⁽¹⁾		1	$	5,000,000	$	4,186,462	$	4,618,006
Georgia⁽²⁾		5	$	17,765,992	$	16,903,958	$	17,029,094
Ohio		1	$	3,000,000	$	2,779,399	$	2,798,000
Oklahoma⁽³⁾		6	$	12,378,599	$	11,738,576	$	11,575,699
		13	$	38,144,591	$	35,608,395	$	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. With our consent, Mr. Brogdon has assumed operations of the facility and is making payment of interest on the loan. The Company is not obligated to repay the interest.
(2)	In 2021, the Company has two mortgages maturing totaling $6,270,163. Management is actively working with our lenders to either, refinance for better terms or extend these notes.
(3)	In 2021, the Company has three mortgages maturing totaling $2,818,897. As with our Georgia facilities, management is actively working with our lenders to either refinance for better terms or extend the current note.

Other Debt

Our subordinated debt at March 31, 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.

			Principal Outstanding at
Property	Face Amount		March 31, 2021		December 31, 2020		Stated Interest Rate	Maturity Date
Goodwill Nursing Home ⁽¹⁾	$	2,030,000	$	741,000	$	741,000	13% ⁽¹⁾Fixed	December 31, 2019
Goodwill Nursing Home – Related Party ⁽¹⁾	$	150,000	$	150,000		150,000	13% ⁽¹⁾Fixed	December 31, 2019
Higher Call Nursing Center ⁽²⁾		150,000		116,859		125,394	8% Fixed	April 1, 2024

			$	1,007,859	$	1,016,394

	(1)	Effective May 3, 2017, we entered an Allonge and Modification Agreement with the Goodwill investors pursuant to which they agreed to (i) waive all accrued interest through December 31, 2017, (ii) reduce interest rate to 13% beginning January 1, 2018 and (iii) extend the maturity date of the notes to December 31, 2019. In exchange, the Company agreed that upon repayment of the notes, the investors would be entitled to a one-time premium payment in the amount of 15% of the principal balance of the notes. The Corporate entity, Global Healthcare REIT Inc. owns $800,000 of its own subsidiary’s notes, Goodwill Hunting, LLC, but this amount is excluded from the above table and eliminated in consolidation on the balance sheet. On June 30, 2020, the Company purchased from four former investors in GWH Investors, LLC their notes in favor of Goodwill Hunting, LLC in the aggregate amount of $482,400 for $402,000 cash and recognized a gain of $80,400. On October 30, 2020, the Company purchased from two more investors an aggregate amount of $108,000 for $90,000 cash and recognized a gain of $18,000. On November 20, 2020, the Company purchased from two additional investors an aggregate amount of $54,600 for $45,500 cash and recognized a gain of $9,100.
	(2)	In connection with the acquisition of Higher Call, the Company executed a promissory note in favor of the Seller, Higher Call Nursing Center, Inc., in the principal amount of $150,000 which accrues interest at the rate of 8% per annum and is payable in equal monthly installments, principal and interest. This note is secured by a corporate guaranty of Global.

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

			Principal Outstanding at
Series	Face Amount		March 31, 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
11% Senior Secured Promissory Notes		1,670,000		1,645,000		1,670,000	11.0% Fixed	October 31, 2021
11% Senior Secured Promissory Notes – Related Party		975,000		975,000		975,000	11.0% Fixed	October 31, 2021

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

Paycheck Protection Program Loans

On January 28, 2021, the Company through its subsidiaries received a 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”). The PPP Loan matures on January 28, 2023 (the “Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the principal, on the Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are eligible for forgiveness, subject to the provisions of the CARES Act. The Company believe it has met all requirements for forgiveness and is waiting to apply with the SBA.

Contractual Obligations

As of March 31, 2021, we had the following contractual obligations:

	Total Contractual Terms		Less Than 1 Year		2 – 3 Years		4 – 5 Years		More Than 5 Years
Notes Payable – Principal	$	39,261,254	$	12,625,060	$	9,889,480	$	5,037,852	$	11,708,862
Notes Payable – Interest		5,845,489		1,050,517		1,389,751		773,118		2,632,103

Total Contractual Obligations	$	45,106,743	$	13,675,577	$	11,279,231	$	5,810,970	$	14,340,965

Revenues from operations are sufficient to meet the working capital needs of the Company for the foreseeable future. Cash on hand and revenues generated from operations are in excess of operating expenses and debt service requirements. Debt maturities are expected to be refinanced at reasonable terms upon maturity. The Company anticipates a combination of conventional mortgage loans, at market rates, issuance of revenue bonds and possibly additional equity injections to fund the acquisition cost of any additional properties. Except for renovations at Grand Prairie and Southern Hills Retirement Center, there are no material capital improvement or recurring capital expenditure commitments at the properties.

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 $589,379 and $0 as of March 31, 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 March 31, 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 with our audit partners 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, 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.

Dodge NH, LLC v. Eastman Healthcare & Rehab, LLC, Superior Court of Dodge County, State of Georgia, File No. 19V-8716.

Village of Seville v. High Street Nursing, LLC, Wadsworth Municipal Court, State of Ohio, Case No 20-CRB-58.

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

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.

	GLOBAL HEALTHCARE REIT, INC.

Date: May 20, 2021	By:	/s/ Lance Baller
		Lance Baller, Chief Executive Officer (Principal Executive Officer)

Date: May 20, 2021	By:	/s/ Brandon Thall
		Brandon Thall, Chief Financial Officer (Principal Accounting Officer)

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