SELECTIS HEALTH, INC. DISCUSSION AND ANALYSIS OF MANAGEMENT’S FINANCIAL CONDITION AND RESULTS (Form 10-K)

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Effects of the COVID-19 pandemic



The extent to which the COVID-19 pandemic impacts our operations will depend on
future developments, which are highly uncertain and cannot be predicted with
confidence, including the scope, severity and duration of the pandemic, the
actions taken to contain the pandemic or mitigate its impact and the direct and
indirect economic effects of the pandemic and containment measures, among
others. The COVID-19 pandemic could have material and adverse effects on our
financial condition, results of operations and cash flows in the future,
including but not limited to, the following:



? Our operating revenue and the revenue of our triple net operators depend on

occupancy. Occupancy declines are to be expected due to increased moving in

Criteria and screening and increased mortality rates in the elderly. in the

In addition, increased spending is expected until the pandemic

subsides. Such factors may affect the solvency of our triple net operator

and contractual obligations. In addition, various local and state stay-at-home orders are in place

orders and the resulting temporary closure of certain medical practices

affect the ability of tenants of our medical office building to pay rent. these factors

may cause operators or tenants to request changes to these obligations,

resulting in lost sales and an increase in bad debts.



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? Evaluating real estate for potential impairment involves subjectivity

Determining whether there are any indications of impairment and in assessing the future

undiscounted cash flows or estimated fair value of the asset. key assumptions

are made in this review and drive conclusions include the estimate of

future rental income, operating costs, capitalization interest rates and the

Ability and intention to hold the relevant asset. All of these assumptions are

significantly influenced by our expectations of the future market or the economic situation

conditions and may be severely impacted by the uncertainty of COVID-19

Pandemic.

? The determination of the allowance for credit losses is based on our valuation

the collectability of our loan receivables and includes reviewing factors such as

B. Delinquency status, historical loan write-offs, financial strength of

Borrowers and guarantors and the value of the underlying collateral. Reduced

Economic activity has a major impact on our borrowers’ businesses, financially

conditions and liquidity and may affect their ability to enter into contracts

Payments to us, resulting in an increase in credit that is considered impaired

Loan that could lead to an increase in loan loss provisions.




RESULTS OF OPERATIONS



Rental revenue for the year ended December 31, 2021, totaled $626,808, compared
to $2,112,459 for the year ended December 31, 2020, a decrease of $1,485,651.
The Company also had Healthcare revenue of $26,921,547 for the year end December
31, 2021, an increase of $9,485,500, compared to $17,436,047 for the year ended
December 31, 2020. The Company also had Healthcare Grant revenue of $1,514,728
for the year end December 31, 2021, an increase of $134,536, compared to
$1,380,192 for the year ended December 31, 2020. Due to our concerted effort to
focus on healthcare operations, our healthcare revenues are increasing. As we
assume operations and purchase more facilities, we anticipate this trend to
continue. As a result of this, our rental income will likely continue to
decrease. Management Revenue for the year ended December 31, 2021, totaled
$224,143, compared to $0 for the year ended December 31, 2020.



General and administrative expenses were $5,911,934 for the year ended December
31, 2021, compared to $2,088,722 for the year ended December 31, 2020, an
increase of $3,823,212. This increase can be attributed to the Company operating
more facilities, with the addition of the administration expenses within those
operations. The Company expects general and administrative expenses will
continue to increase as management assumes more operations.



Property taxes, insurance, and other operating expenses totaled $21,473,397 and
$13,384,322 for the years ended December 31, 2021, and 2020, respectively, an
increase of $8,089,075. Operating expenses increased primarily as a result of
operating three additional facilities, as well as increased costs due to the
COVID-19 pandemic.



Expenses related to the provision for bad debt were $897,538 for the year ended
December 31, 2021, and $292,529 for the year ended December 31, 2020, a increase
of $605,009. This increase is due to the Company's growth in healthcare revenue
which also increased the provision for bad debt expense.



Depreciation and amortization expense summed up $1,733,349 for the past year
December 31, 2021compared to $1,580,300 for the past year December 31, 2020An increase of $153,049. This increase is due to device expansions.

The Company had $2,497,893 of interest expense for the year ended December 31,
2021, and $2,139,901 interest expense for the year ended December 31, 2020. This
increase is related to an increase in notes on new properties compared to the
same period last year.



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For the year ended December 31, 2021, we recorded loss on extinguishment of debt
of $65,623 compared to a gain of $1,727,349 for the year ended December 31,
2020. During 2021, the Company recorded an aggregate gain on extinguishment of
debt of $675,598 in connection with the forgiveness of the entire balance of
principal and accrued interest on the remaining PPP loan. The Company recorded
an aggregate gain on extinguishment of debt in 2020 of $1,619,849 in connection
with the forgiveness of the entire balance of principal and accrued interest on
two of its three PPP loans and the likely forgiveness of the third.
Additionally, in 2020 the Company recorded an aggregate gain on extinguishment
of debt of $107,500 in connection with the purchase from certain former
investors in GWH Investors, LLC their notes in favor of Goodwill Hunting, LLC.



The company had $258,943 the lease termination costs for the past year
December 31, 2021, as a result of the termination of two leases. This rent was recorded on a straight-line basis.

LIQUIDITY AND CAPITAL RESOURCES



Through 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 December 31, 2021, the Company had cash and cash equivalents of $3,939,445
and restricted cash of $853,656. Our restricted cash is to be expended on
insurance, taxes, repairs, and capital expenditures associated with Providence
of Sparta Nursing Home, ATL/Warr, LLC and Southern Tulsa TLC, LLC. 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 rental
revenues received and existing cash on hand. We plan to renew secured
obligations that mature during 2022, as our projected cash flow from operations
will be insufficient to retire the debt.



Cash used in operating activities was $270,930 for the year ended December 31,
2021, compared to cash provided by operating activities of $2,734,207 for the
year ended December 31, 2020.


Cash used in investing activities was $519,575 for the year ended December 31,
2021, compared to cash used in investing activities of $1,572,818 for the year
ended December 31, 2020.



Cash provided by financing activities was $1,605,955 for the year ended December
31, 2021, compared to cash provided by financing activities of $1,824,401 for
the year ended December 31, 2020. This resulted from proceeds from a PPP loan
and private placement during the year ended December 21, 2021. During 2020, we
made payments on debt of $1,352,300 and received proceeds from issuance of debt
of $3,265,448. During 2021 we made payments on debt of $8,023,719 and received
proceeds from issuance of debt of $9,134,102.



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 positive changes to cash flows, 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.



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



                                                        December 31, 2021       December 31, 2020
Senior Secured Promissory Notes                        $         1,305,000     $         1,695,000
Senior Secured Promissory Notes - Related Parties                  750,000 
               975,000
Fixed-Rate Mortgage Loans                                       31,407,503              30,370,220
Variable-Rate Mortgage Loans                                     5,063,841               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                93,251                 125,394
                                                                39,510,595              39,707,193
Unamortized Discount and Debt Issuance Costs                    (1,243,071 )              (455,827 )

                                                       $        38,267,524     $        39,251,366
As presented in the Consolidated Balance Sheets:

Current Maturities of Long Term Debt, Net              $         6,312,562     $        19,299,156
Short term debt - Related Parties, Net                             150,000 
             1,121,766
Debt, Net                                                       31,054,962              18,830,444
Debt - Related Parties, Net                                        750,000                       -



The weighted average interest rate and maturity of our fixed rate debt are 3.53% and 15.25 years, respectively December 31, 2021. The weighted average interest rate and maturity of our floating rate debt are 5.89% and 17.1 years, respectively December 31, 2020.


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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:



                                         Number of          Total Face       December 31,      December 31,
State                                    Properties           Amount             2021              2020
Arkansas(1)                                          1     $   5,000,000     $   4,058,338     $   4,618,006
Georgia                                              5     $  17,765,992     $  16,581,283     $  17,029,094
Ohio                                                 1     $   3,000,000     $   2,728,599     $   2,798,000
Oklahoma(2)(3)                                       6     $  12,129,769   

$11,823,385 $11,575,699

                                                    13     $  37,895,761    

$35,191,605 $36,020,799

(1) The mortgage loan secured by this property is 80% guaranteed by the

USDA and requires an annual renewal fee of 0.25% of

USDA guaranteed portion of outstanding principal balance from December

31 of each year. Among the guarantors of the mortgage loan is Christopher

Brogdon. Mr Brogdon has taken over the operation of the plant and does

Payments of principal and interest on the loan on our behalf in lieu of

Paying us the rent for the facility until a formal lease can be made.

During the past year December 31, 2021the company reported other income

from $521,400 for loan repayment.

(2) The company has refinanced two of its mortgages that were due

June and October 2021 in the amount of $2,961,167 and $3,289,595extend

their due dates until May 2024 for both.

(3) The company has refinanced all three mortgages July 2021that would have

due in June and July 2021 in the amount of $2,065,969 and $750,000,

$500,000to extend their due dates July 2022 for all three.

In addition, the Company has refinanced the primary mortgage on Southern

    Hills Campus, for 35 years at 2.38%.



Subordinated, corporate and other debt securities



Other debt due at December 31, 2021 and 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
                                                                                    Stated
                                                December 31,      December 31,     Interest
          Property             Face Amount          2021              2020           Rate     Maturity Date
                                                                                     13%
Goodwill Nursing Home          $  2,030,000     $    741,000      $    741,000      Fixed       31-Dec-19
Goodwill Nursing Home -                                                              13%
Related Party                  $    150,000     $    150,000      $    

150,000 fixed 31 December 19
Higher Call Nursing Center $150,000 $93,251 $125,394 8% solid 1 Apr 24

                               $  2,330,000     $    984,251      $  1,016,394




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Our corporate debt at December 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
                                                                                   Stated
                                  Face         December 31,      December 31,     Interest
           Series                Amount            2021              2020           Rate     Maturity Date
10% Senior Secured                                                                 10.0%
Promissory Note                $    25,000     $           -     $     25,000      Fixed       31-Dec-18
10% Senior Secured                                                                 10.0%
Promissory Notes                 1,670,000         1,230,000        1,670,000      Fixed       30-Jun-23
10% Senior Secured
Promissory Notes - Related                                                 
       10.0%
Party                              975,000           750,000          975,000      Fixed       30-Jun-23

                               $ 2,670,000     $   1,980,000     $  2,670,000




Contractual Obligations



away December 31, 2021we had the following contractual debt obligations:



                                                  Less Than                                         More Than
                                   Total           1 Year        1 - 3 Years      3 - 5 Years        5 Years
Notes Payable - Principal       $ 41,200,007     $ 8,531,185     $  8,303,456     $  4,903,847     $ 19,461,519
Notes Payable - Interest           6,014,312       1,278,288        1,390,163          772,087        2,573,775

Total Contractual Obligations $47,214,319 $9,809,473 $9,693,619 $5,675,934 $22,035,294

We have $9,800,000 of debt maturing and expect principal reduction payments of
approximately $8,500,000 in the year ending December 31, 2022. While we
anticipate being able to refinance all the loans at reasonable market terms upon
maturity, inability to do so may impact our financial position and results of
operations. We expect to refinance all loans maturing in 2022 as the associated
properties meet loan to value requirements currently being employed in
commercial lending. See the consolidated financial statements included elsewhere
in this Form 10-K for additional debt details.



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 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 will have any present or future effect on our financial condition, income or expenses, results of operations, liquidity, capital expenditures or capital resources that we believe to be material.


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SUMMARY OF 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 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.



Property Acquisitions



We allocate the purchase price of acquired properties to net tangible and
identified intangible assets based on relative fair values. Fair value estimates
are based on information obtained from independent appraisals, other market
data, information obtained during due diligence period. Acquisition-related
costs such as due diligence, legal and accounting fees are included in the
purchase price. Initial valuations are subject to change during the measurement
period, but the period ends as soon as the information is available. The
measurement period shall not exceed one year from the date of acquisition.

Business Acquisitions



Upon acquisition of business entities and real estate determined to be a
business combination, the Company identifies and recognizes the net tangible and
identified intangible assets based on fair values, and net assets as goodwill or
gain on bargain purchase. Fair value estimates are based on information obtained
from independent appraisals, other market data, information obtained during due
diligence and information related to the marketing, leasing, and or operating at
the specific property. Acquisition-related costs such as due diligence, legal
and accounting fees are expensed as incurred. Initial valuations are subject to
change during the measurement period, but the period ends as soon as the
information is available. The measurement period shall not exceed one year
from
the date of acquisition.


Impairment of long-lived assets



When circumstances indicate the carrying value of a 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 or projected cash flows of properties using standard industry
valuation techniques.



Goodwill


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


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



Revenue Recognition



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



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



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



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



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



The collection of outstanding receivables for Medicare, and Medicaid, is our
primary source of cash and is critical to our operating performance. The primary
collection risks relate to Medicaid pending patient accounts. Accounts are
written off when all reasonable internal and external collection efforts have
been performed. The estimates for implicit price concessions are based upon
management's assessment of historical write offs and expected net collections,
business and economic conditions, trends in federal, state and private employer
health care coverage and other collection indicators. Management relies on the
results of detailed reviews of historical write-offs and collections at
facilities that represent a majority of our revenues and accounts receivable
(the "hindsight analysis") as a primary source of information in estimating the
collectability of our accounts receivable. We perform the hindsight analysis
quarterly, utilizing rolling twelve-months accounts receivable collection and
write off data. We believe our quarterly updates to the estimated contractual
allowance amounts at each of our facilities provide reasonable estimates of our
revenues and valuations of our accounts receivable.



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. For the year ending December 31, 2021 the
uncollectable amounts totaled $1,901,203. During the year ended December 31,
2021 the Company recognized $1,514,728, and $1,380,192 during the year ended
December 31, 2020 in healthcare grant revenue.



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Subsequent Events


In January 2022, as part of the debt conversion initiated in December 2021, the
Company converted an additional $355,000 of Senior preferred notes for 71,000
shares of common stock at $5.00 per share.



On July 1, 2022 appointed by the Board of Directors David Furstenberg to serve on the Company’s board of directors.

On July 25, 2022 The Board approved and adopted the following charters and committee policies: Charter of the Audit Committee, Nominating and Governance CommitteeCharter Compensation Committee, charter code Conduct and Ethics Policy, Document Retention Policy and Whistleblower Policy.

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