Organization and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Summary of Significant Accounting Policies

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. In 2019, the Company’s focus began to shift from leasing nursing home assets to independent operators toward owning and operating its real estate assets itself. 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 provisions to better reflect its current business model.

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.

The Company acquires, develops, leases, manages, and disposes of healthcare real estate, operates Skilled Nursing, Independent Living, and Assisted Living facilities, and provides financing to healthcare providers.

Basis of Presentation

The accompanying consolidated financial statements (the Financial Statements) have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The Company is the sole member of various consolidated limited liability companies established to operate various acquired skilled nursing operations, senior living operations and related ancillary services. All intercompany transactions and balances 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.

The consolidated financial statements include the accounts of all entities controlled by the Company through its ownership of a majority voting interest.

Reclassifications

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.

Use of Estimates and Assumptions

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates included herein relate to the recoverability of assets, the purchase price allocation for properties acquired, and the fair value of certain assets and liabilities. Actual results may differ from estimates.

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 year ended December 31, 2019, the Company disclosed that there was substantial doubt as to its ability to continue as a going concern as a result of net losses incurred of $868,031 and its accumulated deficit. 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 year ended December 31, 2020, the Company recorded net income of $2,925,820 and generated positive cash flows from operations. This resulted from the Company’s strategic decision to focus on its healthcare operations and opportunities to expand and improve those operations. In 2020, the Company opened three (3) additional facilities and in March of 2021 opened Park Place and is planning to acquire, or open one to three additional facilities in 2021.

2. Future refinancing of existing debt. As of December 31, 2020, the Company has working a working capital deficit of approximately $17 million due to approximately $20 million of mortgage loans 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.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Restricted Cash

Restricted cash consisted of the following as of December 31:

	2020		2019
Funds held in escrow under the terms of notes or bonds payable for purposes of paying future debt service costs	$	410,866	$	351,298
	$	410,866	$	351,298

Concentration of Credit Risk

The Company maintains deposits in financial institutions that at times exceed the insured amount of $250,000 provided by the U.S. Federal Deposit Insurance Corporation (FDIC). The excess amounts at December 31, 2020 and 2019 were $2,406,815   and $108,356, respectively. The Company believes the financial institutions it uses are credit worthy and stable. The Company does not believe that it is exposed to any significant credit risk in cash and cash equivalents or restricted cash.

Property and Equipment

In accordance with purchase accounting guidance established for entities under common control, the property and equipment acquired from entities under common control are stated at their carrying value on the date of acquisition. Property and equipment not acquired from entities under common control is recorded at its estimated fair value. 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.

Upon acquisition of real estate properties determined to be asset acquisitions, the Company determines the total purchase price of each property and allocates 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, and 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.

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.

Any subsequent betterments and improvements are stated at historical cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, and tenant improvements are depreciated over the remaining term of the lease. Useful lives of the assets are summarized as follows:

Land Improvements	15 years
Buildings and Improvements	30 years
Furniture, Fixtures and Equipment	10 years

Impairment of Long-Lived Assets

When circumstances indicate the carrying value of property and equipment may not be recoverable, the Company reviews the property 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 and equipment. 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 the property using standard industry valuation techniques.

Notes Receivable and Notes Receivable – Related Parties

The Company evaluates its notes receivable for impairment when it is probable the payment of interest and principal will not be made in accordance with the contractual terms of the note receivable agreements. Once a note has been determined to be impaired, it is measured to establish the amount of the impairment, if any, based on the fair value, as determined by the present value of expected future cash flows discounted at the note’s effective interest rate. If the fair value of the impaired note receivable is less than the recorded investment in the note, a valuation allowance is recognized.

Deferred Loan Costs and Debt Discounts

Deferred loan costs are amortized over the life of the related loan using the straight-line method, which approximates the effective interest method. For the years ended December 31, 2020 and 2019, deferred loan costs paid in cash totaled $57,184 and $8,885, respectively. Amortization expense for the years ended December 31, 2020 and 2019 totaled $121,938 and $136,352, respectively. Deferred loan cost amortization is included as a component of interest expense in the consolidated statements of operations.

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 it’s 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.

The Company has recorded Goodwill in connection with business acquisitions during each of the years ended December 31, 2020 and 2019 (see Note 10). During the years ended December 31, 2020 and 2019, the Company recorded no impairment of Goodwill.

Intangible Assets

As part of the acquisition of the operations at Southern Hills Rehab Center, LLC (“SHR”), the Company recognized certain intangible assets related to the potential net income from the existing patients in the facility. The Company estimated the value of these contracts to be $42,185 based on historical net revenues and census information provided by the seller. The asset was depreciated on a straight-line basis over 47 days, starting from December 1, 2019. Accordingly, the Company recognized amortization expense of $15,258 and $26,927 during the years ended December 31, 2020 and 2019, respectively, and the intangible asset was fully depreciated as of December 31, 2020.

As part of the acquisition of the operations at Global Eastman, the Company recognized certain intangible assets related to the potential net income from the existing patients in the facility. The Company estimated the value of these contracts to be $19,013 based on historical net revenues and census information provided by the seller. The asset was depreciated on a straight-line basis over 75 days, starting from July 1, 2020. Accordingly, the Company recognized amortization expense of $19,013 during the year ended December 31, 2020 and the intangible asset was fully depreciated as of December 31, 2020.

Warrant Liability

Warrants to purchase the Company’s common stock with nonstandard antidilution provisions, regardless of the probability or likelihood that may conditionally obligate the issuer to ultimately transfer assets, are classified as liabilities and are recorded at their estimated fair value at each reporting period in accordance with ASC 815 “Derivatives and Hedging.” Any change in fair value of these warrants during the reporting period is recorded as a component of Other (Income) Expense on the Company’s Consolidated Statements of Operations.

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 $553,272 as of December 31, 2020 and 2019, respectively. Adjustments to reflect rental income on a straight-line basis totaled $36,107 net increase to income and $112,035 net decrease to income for the years ended December 31, 2020 and 2019, 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 December 31, 2020, and 2019, 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.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with Accounting Standards Codification (“ASC”) ASC 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period.

Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-7”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The adoption of ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.

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 December 31, 2020, and 2019.

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

Our consolidated balance sheets include the following financial instruments: cash and cash equivalents, accounts receivable, notes 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.

Income Taxes

As previously disclosed in the “Organization and Description of the Business” section of this Note, the Company’s focus has partially shifted from leasing nursing home assets to independent operators toward owning and operating its real estate assets itself. As a result, the Company no longer intends to elect to qualify as a REIT under applicable provisions of the Internal Revenue Code.

The Company uses the asset and liability method of accounting for income taxes. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates resulting from new legislation is recognized in income in the period of enactment. A valuation allowance is established against deferred tax assets when management concludes that the “more likely than not” realization criteria has not been met. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained.

Income (Loss) Per Common 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:

	Year Ended December 31,
	2020			2019
Numerator for basic earnings per share:
Net Income (Loss) Attributable to Global Healthcare REIT, Inc.	$	2,955,820		$	(861,614	)
Series D Preferred Dividends		(30,000	)		(30,000	)
Net Income (Loss) Attributable to Common Stockholders – Basic	$	2,925,820		$	(891,614	)
Numerator for Diluted earnings per share:
Net Income(Loss) Attributable to Common Stockholders	$	2,925,820		$	(891,614	)
Series D Preferred Dividends		30,000			-
Net Income (Loss) Attributable to Common Stockholders – Diluted	$	2,955,820		$	(891,614	)
Denominator for basic earnings per share:
Weighted Average Common Shares Outstanding		27,247,531			27,282,385
Denominator for diluted earnings per share:
Weighted Average Common Shares Outstanding		27,247,531			27,282,385
Effect of dilutive securities:
Series D Convertible Preferred Stock		382,500			-
Weighted Average Common Shares Outstanding - Diluted		27,630,031			27,282,385
Net Income (Loss) per Share Attributable to Common Stockholders:
Basic	$	0.11		$	(0.03	)
Diluted	$	0.11		$	(0.03	)

Options to purchase 600,000 shares of common stock were outstanding during the year ended December 31, 2020 but were not included in the computation of diluted earnings per share because they are anti-dilutive due to the options’ exercise price being greater than the average market price of the common shares. Warrants to purchase 2,708,130 shares of common stock were outstanding during the year ended December 31, 2020 but were not included in the computation of diluted earnings per share because they are anti-dilutive due to the warrants’ exercise price being greater than the average market price of the common shares.

Comprehensive Income

For the periods presented, there were no differences between reported net income (loss) and comprehensive income (loss).

Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board and other entities issued new or modifications to, or interpretations of, existing accounting guidance during 2020. 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.