10-Q: Selectis Health Faces Going Concern Amid Widening Loss

Selectis Health, Inc. reported a widened net loss and significant liquidity challenges for Q2 2025, raising substantial doubt about its ability to continue as a going concern.

Summary

• Selectis Health, Inc. operates assisted living, independent living, and skilled nursing facilities across the South and Southeastern U.S.
• For the six months ended June 30, 2025, the company reported a net loss of $963,996, significantly wider than the $240,376 net loss for the same period in 2024.
• Total revenue for the six months ended June 30, 2025, increased to $20,928,183 from $19,077,208 in 2024, primarily driven by a 12% increase in healthcare revenue due to higher Medicaid rates.
• Rental revenue ceased in 2025, down from $321,352 in 2024, following the sale of the Archway Property in June 2024.
• Loss from operations improved to $(872,035) for the six months ended June 30, 2025, compared to $(1,460,175) in the prior year.
• The company generated $958,032 in cash from operating activities for the six months ended June 30, 2025, a significant improvement from cash used in operations of $(173,423) in the prior year.
• As of June 30, 2025, the company had a negative net working capital of approximately $17.2 million.
• The proposed sale of four Georgia skilled nursing facilities for an aggregate of $27.0 million was terminated by the purchaser on July 13, 2025.
• The company received $326,500 in income from employee retention credits during the six months ended June 30, 2025.
• Total debt, net of discount, stood at $31,506,067 as of June 30, 2025.
• The company was not in compliance with two loan covenants as of June 30, 2025, and December 31, 2024.

Sentiment

Score: 2

Explanation: Despite some operational improvements like increased healthcare revenue and positive cash flow from operations, the significant widening of the net loss, the termination of a major asset sale, the explicit going concern warning, and identified material weaknesses in internal controls paint a very concerning financial picture. The company's liquidity position is precarious, indicating high financial risk.

Positives

• Healthcare revenue increased by 12% to $20,928,183 for the six months ended June 30, 2025, driven by higher Medicaid rates.
• Loss from operations significantly improved to $(872,035) for the six months ended June 30, 2025, from $(1,460,175) in the prior year.
• Net cash provided by operating activities was $958,032 for the six months ended June 30, 2025, a substantial positive shift from cash used in operations in the prior year.
• Interest expense, net, decreased by 37% to $768,658 for the six months ended June 30, 2025, due to debt repayment from a prior asset sale.
• The company recognized $326,500 in income from employee retention credits.

Negatives

• Net loss widened to $963,996 for the six months ended June 30, 2025, compared to a net loss of $240,376 in the prior year, primarily due to the absence of a $2,112,143 gain on asset sale recorded in 2024.
• The company has a significant negative net working capital of approximately $17.2 million as of June 30, 2025.
• Substantial doubt exists about the company's ability to continue as a going concern.
• The proposed sale of four Georgia skilled nursing facilities for $27.0 million was terminated by the purchaser on July 13, 2025, removing a key liquidity source.
• The company was not in compliance with two loan covenants as of June 30, 2025.
• Identified material weaknesses in internal controls over financial reporting, including inadequate IT controls, lack of segregation of duties, and insufficient formal review processes.
• Accumulated deficit increased to $(21,178,132) as of June 30, 2025, from $(20,191,636) at December 31, 2024.

Risks

• Substantial doubt about the company's ability to continue as a going concern due to historical losses and projected cash needs.
• Inability to increase revenue by improving occupancy rates and increasing Medicaid reimbursement rates.
• Failure to effectively control operating expenses, which have increased due to inflation.
• Inability to secure additional capital through debt or equity issuances, or the sale of assets.
• Exposure to personal injury and wrongful death lawsuits in the senior care industry, with no assurance that insurance coverage will be adequate.
• Risk of significant regulatory action, including fines, penalties, or exclusion from Medicare/Medicaid programs, due to complex and evolving governmental regulations.
• Reliance on third-party payers (Medicare, Medicaid) and the associated complexities and interpretations of their laws and regulations.
• Material weaknesses in internal controls over financial reporting could lead to financial misstatements or operational inefficiencies.

Future Outlook

Management's ability to continue as a going concern is contingent upon successfully executing plans over the next twelve months, which include increasing revenue by boosting facility occupancy and Medicaid reimbursement rates, controlling operating expenses, and seeking additional capital through debt or equity issuances or asset sales. The company is also focused on opportunities within its current portfolio and future property acquisitions, as well as managing debt obligations. The impact of the recently enacted One Big Beautiful Bill Act (OBBBA) is currently being assessed but is expected to be immaterial.

Management Comments

• "The Company's ability to continue as a going concern is contingent upon successful execution of management's plan over the next twelve months to improve the Company's liquidity and profitability, which includes, without limitation: Increasing revenue by increasing occupancy in the facilities and increasing Medicaid reimbursement rates; Controlling operating expenses; and Seeking additional capital through the issuance of debt or equity securities, or the sale of assets."
• "Management has evaluated conditions and events that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date the financial statements are issued. Management has developed plans intended to mitigate these conditions; however, there is no assurance that such plans will be successfully implemented or that they will be sufficient to alleviate the substantial doubt."
• "Management noted the following deficiencies that we believe to be material weaknesses: Inadequate design of information technology (IT) general and application controls resulting from inappropriate access given to certain individuals within finance, including the CFO and Controller; Lack of segregation of duties in certain accounting and financial reporting processes including the initiation, processing, recording and approval of disbursements; and Lack of a formal review process that includes multiple levels of review as well as timely review of accounts and reconciliations leading to material post-closing adjustments."
• "The Company plans to implement multi-level review in 2025, and management intends to work internally and with various third-parties to ensure we have the proper controls in place going forward."

Industry Context

Operating in the U.S. senior care industry, Selectis Health faces a complex regulatory environment, particularly concerning Medicare and Medicaid reimbursement rates, which are crucial for its healthcare revenue. The industry is also experiencing rising operating costs due to inflation and an increase in personal injury/wrongful death claims. The company's reliance on Medicaid rate increases for revenue growth highlights its exposure to governmental healthcare policies. The failed asset sale suggests potential challenges in the real estate market for healthcare facilities or specific issues with the properties themselves.

Comparison to Industry Standards

• The company's significant working capital deficiency of $17.2 million and the explicit 'going concern' warning indicate a financial position well below healthy industry standards for healthcare operators.
• While healthcare revenue increased by 12%, the overall widening of the net loss, primarily due to the absence of a one-time gain, suggests that core operations are not yet sufficiently profitable to offset financial challenges, unlike more stable industry peers.
• The non-compliance with two loan covenants points to a higher level of financial distress compared to well-capitalized and compliant companies in the senior care sector.
• The identification of material weaknesses in internal controls over financial reporting suggests a governance and operational maturity gap when compared to leading public companies in the healthcare industry that typically maintain robust control environments.

Corporate Governance

Legal Proceedings

• Hines v. Global Abbeville LLC, d/b/a Glen Eagle, et al: A personal injury lawsuit filed on September 11, 2023, alleging negligence at the Glen Eagle facility. The company denies the allegations and believes its exposure is de minimus, having referred the litigation to its insurance company.
• Hunter v. Global Abbeville LLC, d/b/a Glen Eagle, et al: A wrongful death lawsuit filed on June 20, 2023, alleging negligence leading to a patient's death at the facility. The company denies the allegations and believes its exposure is de minimus, having referred the litigation to its insurance company.
• The company is subject to claims and legal actions arising in the ordinary course of business, including patient care and treatment, and maintains general and professional liability insurance, though there is no assurance of adequate coverage for all potential exposure.
• The long-term care industry is continuously subject to scrutiny by governmental regulators, which could result in litigation or claims related to regulatory compliance matters, including Medicare and Medicaid programs.

Related Party Transactions

• Senior secured promissory notes related parties totaled $775,000 as of June 30, 2025.
• Assumption of debt related party from a non-related party amounted to $25,000 during the six months ended June 30, 2025.
• Christopher Brogdon, formerly a related party, personally guarantees certain mortgage loans and is making principal and interest payments on the Arkansas facility loan on the company's behalf in lieu of rent.

Stakeholder Impact

• **Shareholders**: Face significant risk of value erosion due to widening net loss, substantial working capital deficiency, explicit going concern warning, and the termination of a major asset sale. Potential for significant dilution if future capital raises occur.
• **Employees**: May be impacted by cost control measures, though no specific layoffs were mentioned. The company's financial instability could affect job security.
• **Customers (Patients/Residents)**: The company's financial health directly impacts its ability to maintain and improve facilities and services. Continued financial distress could potentially affect the quality of care.
• **Creditors**: High risk due to non-compliance with loan covenants, substantial debt, and the going concern warning, indicating potential difficulties in debt servicing or repayment.
• **Suppliers**: May face delayed payments or renegotiated terms if the company's liquidity issues persist.

Next Steps

• Implement multi-level review for internal controls in 2025.
• Work internally and with third-parties to ensure proper internal controls are in place.
• Continue efforts to increase occupancy in facilities and increase Medicaid reimbursement rates.
• Continue efforts to control operating expenses.
• Seek additional capital through debt or equity issuance, or asset sales.
• Negotiate refinance for Georgia mortgage loans and extension for Commercial Line of Credit.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a substantial working capital deficiency of $17.2 million, a widening net loss to nearly $1 million, and an explicit going concern warning. The recent termination of a significant $27.0 million asset sale further exacerbates liquidity concerns and removes a critical path to financial stability. Identified material weaknesses in internal controls indicate fundamental operational and governance issues. While healthcare revenue increased, the overall financial position is highly precarious, suggesting a high risk of further value erosion for shareholders and making the stock an unattractive investment.

Keywords

Healthcare, Senior Housing, Skilled Nursing Facilities, Assisted Living, SEC Filing, Quarterly Report, Going Concern, Liquidity, Debt, Net Loss, Revenue, Medicaid, Employee Retention Credit, Internal Controls, Asset Sale