NOTES
TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
Ethema
Health Corporation (the “Company”) was incorporated under the laws of the state of Colorado, USA, on April 1, 1993.
Effective April 4, 2017, the Company changed its name to Ethema Health Corporation and prior to that, on May 2012, the Company
had changed its name to GreeneStone Healthcare Corporation from Nova Natural Resources Corporation. As of June 30, 2017, the
Company owned 100% of the outstanding shares of GreeneStone Clinic Muskoka Inc., incorporated in 2010 under the laws of the Province
of Ontario, Canada; Cranberry Cove Holdings Ltd., incorporated on January 9, 2004 under the laws of the Province of Ontario,
Canada. and Seastone Delray Healthcare, LLC, incorporated on May 17, 2016 under the laws of Florida, USA; and Delray Andrews
RE, LLC, incorporated on May 17, 2016 under the laws of Florida, USA.
During
December 2016, the Company obtained a license to operate and provide addiction treatment healthcare services in Florida, USA.
The company commenced operations under this license with effect from January 2017.
On
February 14, 2017, the Company completed a series of transactions (referred to collectively as the “Restructuring Transactions”),
including a Share Purchase Agreement (the “SPA”) whereby the Company acquired 100% of the stock of Cranberry Cove
Holdings Ltd., which holds the real estate on which the Company’s Rehabilitation Clinic (“the Canadian Rehab Clinic”)
operates, an asset purchase agreement (the “APA”) and lease (the “Lease”) whereby the Company sold all
of the Canadian Rehab Clinic business assets and leased the real estate to the buyer, and a real estate purchase agreement and
asset purchase agreement whereby the Company purchased the real estate and business assets of Seastone Delray (the “Florida
Purchase”).
The
Share Purchase Agreement
Under
the SPA, the Company acquired 100% of the stock of Cranberry Cove Holdings Ltd. (“CCH”) from Leon Developments Ltd.
(“Leon Developments”), a company wholly owned by Shawn E. Leon, who is the President, CEO, and CFO of the Company
(“Mr. Leon”). CCH owns the real estate on which the Canadian Rehab Clinic is located. The total consideration paid
by the Company was CDN$3,517,062, including the assumption of certain liabilities of CCH, which was funded by the assignment to
Leon Developments of certain indebtedness owing to the Company in the amount of CDN$659,918, and the issuance of 60,000,000 shares
of the Company’s common stock to Leon Developments, valued at US$0.0364 per share.
The
Asset Purchase Agreement and Lease
Under
the APA, the assets of the Canadian Rehab Clinic were sold by the Company, through its subsidiary, GreeneStone Clinic Muskoka
Inc. (“Muskoka”), to Canadian Addiction Residential Treatment LP (the “Purchaser”), for a total consideration
of CDN$10,000,000, plus an additional performance payment of up to CDN$3,000,000 as a performance payment to be received in 2019
if certain clinic performance metrics are met. The Purchaser completed the sale with cash proceeds to the Company of CDN$10,000,000,
of which CDN$1,500,000 will remain in escrow for up to two years to cover indemnities given by the Company. The proceeds of the
Muskoka clinic asset sale were used to pay down certain tax debts and operational costs of the Company and to fund the Florida
Purchase, mentioned below.
Through
the APA, substantially all of the assets of the Canadian Rehab Clinic were sold, leaving Ethema with only the underlying clinic
real estate, which the Company, through its newly acquired subsidiary, CCH concurrently leased to the Purchaser. The Lease is
a triple net lease and provides for a five (5) year primary term with three (3) five year renewal options, annual base rent for
the first year at CDN$420,000 with annual increases, an option to tenant to purchase the leased premises and certain first refusal
rights.
The
Florida Purchase
Immediately
after closing on the sale of the assets of the Canadian Rehab Clinic, the Company closed on the acquisition of the business
and real estate assets of Seastone Delray pursuant to certain real estate and asset purchase agreements This business is
operated through its wholly owned subsidiary Seastone. The purchase price for the Seastone assets was US$6,070,000 financed
with a purchase money mortgage of US$3,000,000, and US$3,070,000 in cash.
ETHEMA
HEALTH CORPORATION
(formerly
Greenstone Healthcare Corporation)
NOTES
TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
1.
|
Nature of Business (continued)
|
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim consolidated financial information and Rule 8-03 of Regulation
SX. Accordingly, these unaudited condensed consolidated financial statements do not include all the information and disclosures
required by accounting principles generally accepted in the United States of America for complete financial statements.
All
adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included in these
unaudited condensed consolidated financial statements. Operating results for the three and six month period presented are not
necessarily indicative of the results that may be expected for any other interim period or for the full year. The balance sheet
at December 31, 2016 has been derived from audited consolidated financial statements. The unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial statements and footnotes thereto for the year ended December
31, 2016.
|
2.
|
Summary of Significant Accounting
Policies
|
The
preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
|
b)
|
Principals of consolidation
and foreign currency translation
|
The
accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its subsidiary. All intercompany
transactions and balances have been eliminated on consolidation.
The
Company previously owned an operational subsidiary whose functional currency was the Canadian dollar, while the Company’s
reporting currency is the U.S. dollar. The Company recently acquired a property-owning subsidiary, CCH, whose functional currency
is the Canadian dollar. All transactions initiated in Canadian dollars are translated into US dollars in accordance with ASC 830,
“Foreign Currency Translation” as follows:
|
●
|
Monetary assets and liabilities
at the rate of exchange in effect at the balance sheet date.
|
|
●
|
Equity at historical rates.
|
|
●
|
Revenue and expense items
at the average rate of exchange prevailing during the period.
|
Adjustments
arising from such translations are deferred until realization and are included as a separate component of stockholders’
deficit as a component of accumulated other comprehensive income or loss. Therefore, translation adjustments are not included
in determining net income (loss) but reported as other comprehensive income (loss).
For
foreign currency transactions, the Company translates these amounts to the Company’s functional currency at the exchange
rate effective on the invoice date. If the exchange rate changes between the time of purchase and the time actual payment is made,
a foreign exchange transaction gain or loss results which is included in determining net income for the period.
The
relevant translation rates are as follows: For the six months ended June 30, 2017; a closing rate of CAD$1.0000 equals US$0.7706
and an average exchange rate of CAD$1.0000 equals US$0.7437.
|
c)
|
Cash and cash equivalents
|
The
Company's policy is to disclose bank balances under cash, including bank overdrafts with balances that fluctuate frequently from
being positive to overdrawn and term deposits with a maturity period of three months or less from the date of acquisition.
The
Company has $23,118 (CAD$30,000) in restricted cash held by their bank to cover against the possibility of credit card charge
backs, for services not performed. The Company is working on releasing these funds as it no longer operates the Canadian Rehab
Clinic, which was sold on February 14, 2017.
ETHEMA
HEALTH CORPORATION
(formerly
Greenstone Healthcare Corporation)
NOTES
TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
2.
|
Summary of Significant Accounting
Policies (continued)
|
The
Company has two operating segments from which it derives revenues, i) rental income from leasing of a rehabilitation facility
to third parties and ii) in-patient revenues for rehabilitation services provided to customers. Revenue is recognized as follows:
In
terms of the lease agreement entered into, on a monthly basis as long as the facility is utilized by the tenant
The
customers have been treated and provided with services by the Company; there is clear evidence that an arrangement exists;
the amount of revenue and related costs can be measured reliably; and it is probable that the economic benefits associated
with the transaction will flow to the Company.
In
particular, the Company recognizes fees for inpatient addiction treatments proportionately over the term of the patient’s
treatment.
Deferred
revenue represents monies deposited by the patients for future services to be provided by the Company. Such monies will be recognized
into revenue as the patient progresses through their treatment term.
|
e)
|
Recent accounting
pronouncements
|
In May 2017, the
FASB issued Accounting Standards Update No. ("ASU'') 2017-09, Compensation – Stock Compensation, an amendment to Topic
718. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award
require an entity to apply modification accounting in Topic 718.2. An entity should account for the effects of a modification
unless all the following are met:
|
1.
|
The
fair value (or calculated value or intrinsic value, if such an alternative measurement
method is used) of the modified award is the same as the fair value (or calculated value
or intrinsic value, if such an alternative measurement method is used) of the original
award immediately before the original award is modified. If the modification does not
affect any of the inputs to the valuation technique that the entity uses to value the
award, the entity is not required to estimate the value immediately before and after
the modification.
|
|
2.
|
The
vesting conditions of the modified award are the same as the vesting conditions of the
original award immediately before the original award is modified.
|
|
3.
|
The
classification of the modified award as an equity instrument or a liability instrument
is the same as the classification of the original award immediately before the original
award is modified.
|
The current disclosure
requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments
in this Update. The amendments in this Update are effective for all entities for annual periods beginning after December 15,2017.
Early adoption is permitted and should be applied prospectively to an award modified on or after the adoption date. The amendments
proposed in this ASU are not expected to have a material impact on our consolidated financial statements.
ETHEMA
HEALTH CORPORATION
(formerly
Greenstone Healthcare Corporation)
NOTES
TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
2.
|
Summary of Significant Accounting
Policies (continued)
|
|
e)
|
Recent accounting
pronouncements (continued)
|
In May 2017, the
FASB issued ASU 2017-10, service concession Arrangements, an amendment to Topic 853. Topic 853 provides guidance for operating
entities when they enter into a service concession arrangement with a public-sector grantor who both:
|
a)
|
Controls
or has the ability to modify or approve the services that the operating entity must provide
with the infrastructure, to whom it must provide them, and at what price
|
|
b)
|
Controls,
through ownership, beneficial entitlement, or otherwise, any residual interest in the
infrastructure at the end of the term of the arrangement.
|
In a service concession
arrangement within the scope of Topic 853, the operating entity should not account for the infrastructure as a lease or as property,
plant, and equipment. An operating entity should refer to other Topics to account for various aspects of a service concession
arrangement. For example, an operating entity should account for revenue relating to construction, upgrade, or operation services
in accordance with Topic 605, Revenue Recognition, or Topic 606, Revenue from Contracts with Customers.
The amendments in
this Update apply to the accounting by operating entities for service concession arrangements within the scope of Topic 853. These
updates are effective when the Company adopts the updates to Topic 606. The amendments proposed in this ASU are not expected to
have an impact on our consolidated financial statements.
Any new accounting
standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are
not expected to have a material impact on the financial statements upon adoption.
The
Company is exposed to various risks through its financial instruments. The following analysis provides a measure of the Company’s
risk exposure and concentrations at the balance sheet date, June 30, 2017 and December 31, 2016.
Credit
risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge
an obligation. Financial instruments that subject the Company to credit risk consist primarily of accounts receivable.
Credit
risk associated with accounts receivable of Seastone of Delray is mitigated as only a percentage of the revenue billed to health
insurance companies is recognized as income until such time as the actual funds are collected. The revenue is concentrated amongst
several health insurance companies located in the US.
In
the opinion of management, credit risk with respect to accounts receivable is assessed as low.
Liquidity
risk is the risk the Company will not be able to meet its financial obligations as they fall due. The Company is exposed to liquidity
risk through its working capital deficiency of $6,348,925 and accumulated deficit of $14,665,204. As disclosed in note 6, the
Company will be dependent upon the raising of additional capital in order to implement its business plan. There is no assurance
that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material
adverse effect on the Company’s financial condition. In the opinion of management, liquidity risk is assessed as high, material
and remains unchanged from the prior year.
ETHEMA
HEALTH CORPORATION
(formerly
Greenstone Healthcare Corporation)
NOTES
TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
2.
|
Summary of Significant Accounting Policies (continued)
|
|
f)
|
Financial instruments (continued)
|
Market risk is the risk
that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk
comprises of three types of risk: interest rate risk, currency risk, and other price risk. The Company is exposed to interest rate
risk and currency risk.
Interest rate risk is
the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest
rates. The Company is exposed to minimal interest rate risk on its bank indebtedness as there is a balance owing of $19,511 as
of June 30, 2017. This liability is based on floating rates of interest that have been stable during the current reporting period.
In the opinion of management, interest rate risk is assessed as low, not material and remains unchanged from the prior year.
Currency risk is the risk that
the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The
Company is subject to currency risk as its subsidiaries operate in Canada and are subject to fluctuations in the Canadian dollar.
A substantial portion of the Company’s financial assets and liabilities are denominated in Canadian dollars. Based on the
net exposures at June 30, 2017, a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in
an approximate $5,900 increase or decrease in the Company’s after tax net income from operations. The Company has not entered
into any hedging agreements to mediate this risk. In the opinion of management, currency risk is assessed as low, material and
remains unchanged from the prior year.
Other price risk is the
risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other
than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual
financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. In the opinion
of management, the Company is not exposed to this risk and remains unchanged from the prior year.
|
g)
|
Derivative instrument liability
|
The Company accounts for
derivative instruments in accordance with ASC815, which establishes accounting and reporting standards for derivative instruments
and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires
recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for
changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedging relationships and the
types of relationships designated are based on the exposures hedged. At June 30, 2017, the Company had a derivative liability amounting
to $128,968.
ETHEMA
HEALTH CORPORATION
(formerly
Greenstone Healthcare Corporation)
NOTES
TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
2.
|
Summary of Significant Accounting
Policies (continued)
|
|
h)
|
Convertible Instruments
|
The Company evaluates and
accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting
for Derivative Instruments and Hedging Activities.” Professional standards generally provides three criteria that, if met,
require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded
derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the
hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value
under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur
and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined
under professional standards as “The Meaning of Conventional Convertible Debt Instrument.” The Company accounts for
convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments)
in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,”
as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when
necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon
the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective
conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt
to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion
options embedded in preferred shares based upon the differences between the fair value of the underlying Common Stock at the commitment
date of the note transaction and the effective conversion price embedded in the note.
On February 14, 2017, in
terms of the details outlined in note 1 above, the Company disposed of the business and certain assets of its Canadian Rehab Clinic
for gross proceeds of CDN$10,000,000, a total of CDN$1,500,000 of the gross proceeds is being held in escrow for up to two years,
in addition there is an earnout payment of up to CDN$3,000,000 to be received in 2019, if certain clinic performance metrics are
met, see note 8 below.
The proceeds realized from
the sale of the Canadian Rehab Clinic were used to settle outstanding tax liabilities, refer note 11 below, and to acquire the
business of Seastone of Delray, refer note 5 below.
The proceeds realized on disposal
have been allocated as follows:
|
|
Amount
|
|
|
|
|
|
Proceeds on disposal
|
|
$
|
7,644,000
|
|
|
|
|
|
|
Assets sold:
|
|
|
|
|
Accounts receivable
|
|
|
113,896
|
|
Plant and equipment
|
|
|
109,075
|
|
|
|
|
222,971
|
|
Liabilities assumed by purchaser
|
|
|
|
|
Deferred revenue
|
|
|
(73,799
|
)
|
|
|
|
|
|
Net assets and liabilities sold
|
|
|
149,172
|
|
|
|
|
|
|
Net profit realized on disposal
|
|
$
|
7,494,828
|
|
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED
FINANCIAL STATEMENTS
|
4.
|
Acquisition of subsidiary
|
On February 14, 2017, the
Company acquired 100% of the equity of CCH, from Leon Developments, a company wholly owned by our CEO. The total consideration
paid by the Company was CDN$3,517,062, including the assumption of certain liabilities of CCH, which was funded by the assignment
to Leon Developments of certain indebtedness owing to the Company in the amount of CDN$659,918 (US$504,442) on the disposal of
a subsidiary, 1816191 Ontario, which principal amount had previously been fully provided for during 2015; and the issuance
of 60,000,000 shares of the Company’s common stock at US$0.0364 per share for proceeds of $2,184,000.
During the current quarter,
on June 1, 2017, the Company had the property owned by CCH appraised by an independent valuer, the appraisal obtained was for
CDN$10,000,000, which resulted an increase in the value of the assets acquired by $930,600 and a corresponding reduction in the
excess purchased consideration allocated to the shareholder.
The allocation of the purchase
price is as follows:
|
|
Amount
|
|
|
|
|
|
Purchase price paid:
|
|
|
|
|
Common shares issued to Seller
|
|
$
|
2,184,000
|
|
Receivable assumed by the Seller
|
|
|
504,442
|
|
|
|
|
2,688,442
|
|
Allocated as follows:
|
|
|
|
|
|
|
|
|
|
Assets acquired:
|
|
|
|
|
Property
|
|
|
7,644,000
|
|
Receivable from Ethema Health Corporation
|
|
|
299,743
|
|
|
|
|
7,943,743
|
|
Liabilities assumed:
|
|
|
|
|
Accounts payable and other accruals
|
|
|
158,094
|
|
Related party payable to Leon Developments
|
|
|
2,057,392
|
|
Mortgage liability owing to Ethema Health Corporation
|
|
|
267,540
|
|
Mortgage liability
|
|
|
3,145,549
|
|
|
|
|
5,628,575
|
|
|
|
|
|
|
Net assets acquired
|
|
|
2,315,168
|
|
|
|
|
|
|
Excess purchase consideration allocated to shareholders compensation
|
|
$
|
373,274
|
|
|
5.
|
Acquisition of the business of Seastone of Delray
|
The Company, utilized a
portion of the proceeds realized on the sale of the Canadian Rehab Clinic to acquire certain assets of Seastone of Delray.
The Company obtained its
own license to run a rehabilitation Clinic in Florida in December 2016 and began operations, through its wholly owned subsidiary,
Seastone of Delray, LLC, effective January 2017.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED
FINANCIAL STATEMENTS
|
5.
|
Acquisition of the business of Seastone of Delray (continued)
|
The assets acquired were as follows:
|
|
Amount
|
|
|
|
|
|
Purchase price paid:
|
|
|
|
|
Cash paid to seller
|
|
$
|
2,960,000
|
|
Deposits previously paid to seller
|
|
|
110,000
|
|
Mortgage liability funds
|
|
|
3,000,000
|
|
|
|
|
6,070,000
|
|
Assets acquired:
|
|
|
|
|
Property
|
|
|
4,410,000
|
|
Furniture and fixtures
|
|
|
80,000
|
|
Intangibles - to be classified
|
|
|
1,438,525
|
|
Receivables
|
|
|
141,475
|
|
|
|
$
|
6,070,000
|
|
The Company’s unaudited
condensed consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which
assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business. As
of June 30, 2017, the Company has a working capital deficiency of $6,348,925 and accumulated deficit of $14,665,204. Management
believes that current available resources will not be sufficient to fund the Company’s planned expenditures over the next
12 months. Accordingly, the Company will be dependent upon the raising of additional capital through placement of common shares,
and/or debt financing in order to implement its business plan, and, or generating sufficient revenue in excess of costs. If the
Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders
will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common
stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations
on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements
with collaborators or strategic partners, the Company may be required to relinquish its rights to certain geographical areas,
or techniques that it might otherwise seek to retain. There is no assurance that the Company will be successful with future financing
ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition.
These unaudited condensed consolidated financial statements do not include any adjustments to the amounts and classifications
of assets and liabilities that might be necessary should the Company be unable to continue operations.
The ability of the Company
to continue as a going concern is dependent on the Company generating cash from the sale of its common stock or obtaining debt
financing and attaining future profitable operations. Management's plans include selling its equity securities and obtaining debt
financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful
in these efforts.
|
7.
|
Discontinued Operations
|
On February 14, 2017, the
Company completed a series of transactions, including an APA whereby the Company sold certain of the Canadian Rehab Clinic assets.
The assets disposed of business represented substantially all of the operating assets of the Canadian Rehab Clinic and has been
disclosed as a discontinued operation for comparative purposes as of December 31, 2016 and for the three and six month period ended
June 30, 2017 and 2016. Refer note 3 above.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED
FINANCIAL STATEMENTS
|
7.
|
Discontinued Operations (continued)
|
The assets and liabilities
of discontinued operations as of December 31, 2016 is as follows:
|
|
December 31,
|
|
|
|
2016
|
|
Current assets
|
|
|
|
|
Accounts receivable, net
|
|
$
|
123,358
|
|
Prepaid expenses and other current assets
|
|
|
11,253
|
|
Total current assets
|
|
|
134,611
|
|
Non-current assets
|
|
|
|
|
Plant and equipment, net
|
|
|
129,127
|
|
Deposits
|
|
|
—
|
|
Total assets
|
|
|
263,738
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
Deferred revenues
|
|
|
80,519
|
|
|
|
|
|
|
Discontinued operation
|
|
|
183,219
|
|
The statement of operations for discontinued
operations is as follows:
|
|
Three months
|
|
|
Three months
|
|
|
Six months
|
|
|
Six months
|
|
|
|
ended June 30,
|
|
|
ended June 30,
|
|
|
ended June 30,
|
|
|
ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
(112
|
)
|
|
$
|
1,024,384
|
|
|
$
|
232,040
|
|
|
$
|
1,847,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
15,412
|
|
|
|
4,196
|
|
|
|
30,746
|
|
General and administrative
|
|
|
31,330
|
|
|
|
187,589
|
|
|
|
118,706
|
|
|
|
343,480
|
|
Professional fees
|
|
|
33,466
|
|
|
|
—
|
|
|
|
32,818
|
|
|
|
6,144
|
|
Rent
|
|
|
2,975
|
|
|
|
105,721
|
|
|
|
47,493
|
|
|
|
180,112
|
|
Salaries and wages
|
|
|
(31,913
|
)
|
|
|
423,464
|
|
|
|
201,723
|
|
|
|
811,981
|
|
Total operating expenses
|
|
|
35,858
|
|
|
|
732,186
|
|
|
|
404,936
|
|
|
|
1,372,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(35,970
|
)
|
|
|
292,198
|
|
|
|
(172,896
|
)
|
|
|
474,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit on sale of business
|
|
|
—
|
|
|
|
—
|
|
|
|
7,494,828
|
|
|
|
—
|
|
Other income
|
|
|
—
|
|
|
|
21,042
|
|
|
|
—
|
|
|
|
21,042
|
|
Interest expense
|
|
|
(204
|
)
|
|
|
(38,547
|
)
|
|
|
(993
|
)
|
|
|
(76,743
|
)
|
Foreign exchange movements
|
|
|
(105,003
|
)
|
|
|
(8,433
|
)
|
|
|
91,704
|
|
|
|
24,721
|
|
Net income before taxation
|
|
|
(141,177
|
)
|
|
|
266,260
|
|
|
|
7,412,643
|
|
|
|
443,779
|
|
Taxation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income from discontinued operations
|
|
$
|
141,177
|
|
|
$
|
266,260
|
|
|
$
|
7,412,643
|
|
|
$
|
443,779
|
|
|
8.
|
Due from sale of subsidiary
|
A net amount of CDN$617,960
was due to the Company on the sale of the Endoscopy Clinic as of December 31, 2016. This amount was past due and had fully provided
for as of December 31, 2016.
On February 14, 2017, the
Company acquired CCH from Leon Developments and settled a portion of the purchase consideration by assigning the proceeds due
to the Company on the sale of the Endoscopy Clinic to Leon Developments. The note together with accrued interest thereon of CDN$41,959
amounted to CDN$659,919 (US$504,442). The provision raised against the note was reversed and the unrecorded interest thereon was
recognized during the current quarter.
ETHEMA
HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
8.
|
Due
from sale of subsidiary (continued)
|
On
February 14, 2017, the Company sold its Canadian Rehab Clinic for gross proceeds of CDN$10,000,000, of which CDN$1,500,000 (US$1,155,900)
has been retained in an escrow account for a period of up to two years in order to guarantee the warranties provided by the Company
in terms of the APA. In addition, the Company may earn up to an additional CDN$3,000,000 as a performance payment based on the
attainment of certain clinic performance metrics. The Company estimates that the earnout will approximate $663,000 and is accruing
this additional amount over a period of twenty three and a half months. The accrual is recorded as other income, as of June 30,
2017, the company had accrued $97,847 (at closing exchange rates) as additional income.
9.
|
Property,
plant and equipment
|
Property,
plant and equipment consists of the following:
|
|
June
30,
2017
|
|
|
December
31,
2016
|
|
|
|
Cost
|
|
|
Amortization
and Impairment
|
|
|
Net
book value
|
|
|
Net
book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
$
|
12,124,997
|
|
|
$
|
(176,770
|
)
|
|
$
|
11,948,227
|
|
|
$
|
—
|
|
Furniture and fixtures
|
|
|
80,000
|
|
|
|
(9,000
|
)
|
|
|
71,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,204,997
|
|
|
|
(185,770
|
)
|
|
$
|
12,019,227
|
|
|
$
|
—
|
|
Depreciation
expense for the three months ended June 30, 2017 and 2016 was $125,340 and $0, respectively, and for the six months ended June
30, 2017 and 2016 was $182,406 and $0, respectively.
In
terms of the acquisition of Seastone of Delray, the Company paid an amount of $1,438,525 (Note 1 above) in excess of the fair
market value of the assets acquired. This amount will be allocated to different classes of intangible assets when an independent
valuation of the intangibles is performed.
The
Company settled the tax liabilities owing to the Canadian Revenue Authorities out of the proceeds of the disposal of the Canadian
Rehab Clinic on February 14, 2017. The Company paid CDN$2,929,886 to settle outstanding payroll liabilities, CDN$441,598 to settle
outstanding GST/HST liabilities and a further CDN$ 57,621 to settle other Canadian tax liabilities.
The
remaining taxes payable consist of:
|
●
|
A
payroll tax liability of $147,027 (CDN$190,800) in Greenestone Muskoka which has not
been settled as yet.
|
|
●
|
The
Company has assets and operates businesses in Canada and is required to disclose these
operations to the US taxation authorities, the requisite disclosure has not been made.
Management has reserved the maximum penalty due to the IRS in terms of non-disclosure.
This noncompliance with US disclosure requirements is currently being addressed. An amount
of $250,000 has been accrued for any potential exposure the Company may have.
|
ETHEMA
HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL
STATEMENTS
12.
|
Short-term
Convertible Notes
|
The
short-term convertible notes consist of the following:
|
|
Interest
rate
|
|
|
Maturity date
|
|
Principal
Outstanding
|
|
|
Accrued
interest
|
|
|
Unamortized Discount
|
|
|
June 30,
2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labrys Fund, LP
|
|
8.0
|
%
|
|
August 2, 2017
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power Up Lending Group LTD.
|
|
12.0
|
%
|
|
March 20, 2018
|
|
$
|
113,500
|
|
|
$
|
410
|
|
|
$
|
(108,943
|
)
|
|
$
|
4,967
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series L Convertible notes
|
|
0.0
|
%
|
|
June 30, 2017
to July 17, 2017
|
|
|
519,969
|
|
|
|
—
|
|
|
|
(8,735
|
)
|
|
|
511,234
|
|
|
|
250,258
|
|
|
|
|
|
|
|
|
$
|
633,469
|
|
|
$
|
410
|
|
|
$
|
(117,678
|
)
|
|
$
|
516,201
|
|
|
$
|
250,258
|
|
Disclosed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
516,201
|
|
|
$
|
250,258
|
|
Long-term portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
516,201
|
|
|
$
|
250,258
|
|
Labrys
Fund, LP
On
February 2, 2017, the Company entered into a Securities Purchase Agreement with LABRYS FUND LP, in terms of the agreement the
Company borrowed $110,000 in terms of an unsecured convertible promissory note with a maturity date of August 2, 2017. The note
bears interest at a rate of 8% per annum. The note is only convertible upon a repayment default, at the lower of 60% of the lowest
traded price over the preceding 30 day trading period prior to the issuance of this note or 60% of the lowest traded price 30
days prior to the conversion date. The Company issued 1,200,000 common shares to the note holder as a commitment fee which returnable
shares will be returned to the company if fully repaid prior to August 2, 2017.
On
May 26, 2017, the Company repaid the note for gross proceeds of $112,744, including interest thereon of $2,744. The
1,200,000 commitment fee shares were returned to the Company.
Power
Up Lending Group LTD
On
June 19, 2017, the Company, entered into a Securities Purchase Agreement with Power Up Lending Group Ltd., pursuant to which the
Company issued to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $113,500. The Note has a maturity
date of March 20, 2018 and bears interest at the at the rate of eight percent per annum from the date on which the Note is issued
until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall
have the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at
any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following
the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the average lowest
closing bid prices of the Company’s common stock for the ten trading days prior to conversion. The balance of the Note plus
accrued interest at June 30, 2017 was $4,967, net of unamortized discount of $108,943.
Series
L convertible notes
The
Company entered into Series L Convertible Securities Purchase Agreements with 8 individuals on December 30, 2016. In terms of
these agreements, the Company borrowed an aggregate principal amount of $468,969 in terms of a senior ranking convertible promissory
note with a maturity date six months from the issue date and bearing interest at 0% per annum. The notes are convertible at the
option of the holder into shares of common stock of the Company at a conversion price of $0.03 per share, subject to certain recapitalization
adjustments. On December 30, 2016, it was determined that the beneficial conversion feature related to the discounted note and
warrant issuances amounting to $218,711 would be amortized over the life of the loans.
During
January 2017, the Company borrowed a further aggregate principal amount of $71,000 in terms of three senior ranking convertible
promissory notes with a maturity date six months from the issue date and bearing interest at 0% per annum. The notes are convertible
at the option of the holder into shares of common stock of the Company at a conversion price of $0.03 per share, subject to certain
recapitalization adjustments. In January 2017, it was determined that the beneficial conversion feature related to the discounted
note and warrant issuances amounting to $104,793 would be amortized over the life of the loans.
ETHEMA
HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL
STATEMENTS
12.
|
Short-term
Convertible Notes (continued)
|
On
May 4, 2017, the Company repaid $20,000 of the principal outstanding to one investor.
The
amortization charge of the debt discount for the three months and six months ended June 30, 2017 was $161,750 and $314,769, respectively.
In
terms of the Series L Convertible notes issued above, during January 2017, the Company granted three year warrants to the Series
L Convertible noteholders, exercisable for 2,366,667 shares of common stock at an exercise price of $0.03, subject to certain
recapitalization adjustments, per share, expiring between January 16 and January 17, 2020. (Refer note 16 (b) below).
The
short-term convertible notes issued to Labrys Fund LP and Power Up Lending Group, LTD, disclosed in note 12 above, have variable
priced conversion rights with no fixed floor price and will reprice dependent on the share price performance over varying periods
of time. This gives rise to a derivative financial liability, which was initially valued at inception of the convertible notes
at $223,500, the maximum amount permissible, using a Black-Scholes valuation model.
The
Labrys Fund note was repaid in May 2017; therefore, the derivative liability was no longer required, the total derivative liability
relating to this note of $183,048 was released to the statement of operations. The value of the Power Up convertible note was
re-assessed as of June 30, 2017 and a further charge of $15,468 was made to the statement of operations. The value of the derivative
liability will be re assessed at each financial reporting period, with any movement thereon recorded in the statement of operations
in the period in which it is incurred.
The
following assumptions were used in the Black-Scholes valuation model:
|
|
Six months
ended
June 30, 2017
|
|
|
|
|
|
Calculated stock price
|
|
$0.03 to $0.06
|
|
Risk free interest rate
|
|
0.64% to 1.24%
|
|
Expected life of convertible notes
|
|
3 to 9 months
|
|
expected volatility of underlying stock
|
|
134.9% to 180.5%
|
|
|
|
|
|
|
The movement in derivative liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Six months
ended
June 30, 2017
|
|
|
|
|
|
|
Opening balance
|
|
$
|
—
|
|
Derivative liability arising from convertible notes
|
|
$
|
223,500
|
|
Fair value adjustment to derivative liability
|
|
|
(94,532
|
)
|
|
|
$
|
128,968
|
|
14.
|
Related
Party Transactions
|
Greenstone
Clinic Inc.
As
of June 30, 2017, the Company had a receivable of $63,471 and as of December 31, 2016, the Company had a payable of $79,592, respectively.
Greenstone Clinic Inc., is controlled by one of the Company’s directors. The balance payable is noninterest bearing, not
secured and has no specific repayment terms.
ETHEMA
HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL
STATEMENTS
14.
|
Related
Party Transactions (continued)
|
1816191
Ontario
As
of June 30, 2017, and December 31, 2016, the Company had a payable of $16,055 and $70,763, respectively, to 1816191 Ontario, the
Endoscopy Clinic, which was sold at the end of the prior year. The payable is noninterest bearing, and has no specific repayment
terms.
Shawn
E. Leon
As
of June 30, 2017, and December 31, 2016 the Company had a receivable of $25,531 and a payable of $8,492, respectively to Shawn
E. Leon, a director and CEO of the Company. The balances receivable and payable are noninterest bearing and have no fixed repayment
terms.
Mr.
Leon was paid management fees of $100,000 during the six months ended June 30, 2017. In addition to this the Company recorded
a once off compensation expense in other expenses, relating to the excess of the fair value of the assets acquired in Cranberry
Cove Holdings, Ltd. Mr. Leon is the owner of Leon Developments, the counterparty in the acquisition of the Cranberry Cove subsidiary
referred to in note 1 and 4 above.
Leon
Developments, Ltd.
The
Company acquired CCH from Leon Developments, Ltd., on February 14, 2017, refer note 1 and 4 above. CCH owns the facility utilized
by the Canadian Rehab Clinic which was sold to a third party on February 14, 2017. CCH owed CDN$2,692,512 to Leon Developments,
this amount has remained unchanged since acquisition. The amount owing is valued at $2,213,731 as of June 30, 2017.
Cranberry
Cove Holdings Ltd.
The
Company acquired CCH on February 14, 2017. CCH owns the real estate previously utilized by the Canadian Rehab Clinic and now utilized
by the purchaser of the business. As of December 31, 2016, the Company had a receivable of $84,867 from CCH.
Prior
to the acquisition of CCH, the Company paid rental expense to CCH of CDN$58,925 and CDN$226,250 for the six months ended June
30, 2017 and 2016, respectively.
On
February 14, 2017, the Company acquired 100% of the equity of CCH, from Leon Developments. The subsidiary has certain mortgage
indebtedness amounting to CDN$4,115,057 (US$3,145,549) at the date of acquisition, which was assumed by the Company.
On
February 14, 2017, the Company acquired certain assets of Seastone of Delray, including fixed property. A portion of the purchase
consideration was funded by a purchase money mortgage secured over the properties acquired, amounting to $3,000,000.
The
loans payable is as follows:
|
|
Interest
rate
|
|
|
Maturity date
|
|
Principal
Outstanding
|
|
|
Accrued
interest
|
|
|
June 30,
2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cranberry Cove Holdings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Mortgage
|
|
8.0
|
%
|
|
August 14, 2017
|
|
$
|
2,822,979
|
|
|
$
|
—
|
|
|
$
|
2,822,979
|
|
|
$
|
—
|
|
Second Mortgage
|
|
12.0
|
%
|
|
November 4, 2018
|
|
|
404,562
|
|
|
|
1,663
|
|
|
|
406,225
|
|
|
|
—
|
|
Seastone of Delray
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
5.0
|
%
|
|
February 13, 2020
|
|
|
2,989,937
|
|
|
|
5,480
|
|
|
|
2,995,417
|
|
|
|
—
|
|
|
|
|
|
|
|
|
$
|
6,217,478
|
|
|
$
|
7,143
|
|
|
$
|
6,224,621
|
|
|
$
|
—
|
|
Disclosed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,234,684
|
|
|
$
|
—
|
|
Long-term portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,989,937
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,224,621
|
|
|
$
|
—
|
|
ETHEMA
HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL
STATEMENTS
15.
|
Loans
payable (continued)
|
The
aggregate amount outstanding is payable as follows:
|
|
|
Amount
|
|
|
|
|
|
|
2017
|
|
|
$
|
3,234,684
|
|
2018
|
|
|
|
—
|
|
2019
|
|
|
|
—
|
|
2020
|
|
|
|
2,989,937
|
|
Total
|
|
|
$
|
6,224,621
|
|
Cranberry
Cove Holdings
The
first mortgage with an aggregate principal amount outstanding of CDN$3,500,000, including late charges, interest and penalties
of CDN$165,057 for a gross aggregate amount outstanding of CDN$3,663,380, over the Cranberry Cove Holdings properties is secured
by the property located at 3571 Muskoka Road, #169, Bala, described as PT LT 15 CON F Medora PT1 35R5958, PT 2 &3 35R11290,
Muskoka Lakes. The mortgage bears interest at the rate of 8% per annum on the aggregate principal outstanding of $3,500,000 and
matures on August 14, 2017, with monthly interest payments of $23,118 (CDN 30,000).
During
March 2017, the Company made a principal payment of CDN$100,000 on the first mortgage.
The
second mortgage had an initial principal amount outstanding of CDN$350,000, on May 23, 2017, the Company sold CDN$175,000 of the
mortgage it owned to the second mortgage holder for gross proceeds of CDN$150,000, the balance outstanding on the second mortgage
is now CDN$525,000, the mortgage is secured by the Cranberry Cove Holdings properties located at 3571 Muskoka Road, #169, Bala, described
as PT LT 15 CON F Medora PT1 35R5958, PT 2 &3 35R11290, Muskoka Lakes. The mortgage bears interest at the rate of 12% per
annum on the aggregate principal outstanding of CDN$525,000, and matures on November 4, 2018, with monthly interest payments of CDN$3,500.
Seastone
of Delray
The
Company entered into a Mortgage and Security Agreement with Seastone Delray Healthcare, LLC on February 13, 2017 for the
aggregate principal sum of $3,000,000, bearing interest at the rate of 5% per annum, maturing on February 13, 2020, with
monthly repayments of interest and principal of $15,000. The proceeds of the mortgage of $3,000,000 was used to fund the
acquisition of the Seastone Delray properties, described as follows:
Parcel
1, Moore’s Landing according to the Plat thereof, as recorded in Plat Book 42, page 72, Public Records of Palm Beach County,
Florida
Unit
numbers 1 to 10, inclusive of Seastone Condominium Apartments, a Condominium, according to The Declaration of Condominium recorded
on O.RT. Book 3313, Page 122 and all exhibits thereof, Public Records of Palm Beach County, Florida.
16.
|
Stockholders’
equity (deficit)
|
On February 2, 2017, the Company issued 1,200,000 common shares to a convertible note holder in terms
of a returnable commitment fee. The shares are returnable to the Company if the convertible note is repaid prior to maturity, failing
which the commitment fee will be earned. These shares were not accounted for as issued as the probability of the commitment fee
being assessed was not probable or certain. The convertible loan was repaid and the 1,200,000 common shares were returned to the
Company, refer note 12 above.
On
February 14, 2017, in terms of the acquisition of 100% of the capital stock of Cranberry Cove Holdings Ltd. (“CCH”)
from Leon Developments, the Company funded a portion of the acquisition by the issuance of 60,000,000 shares of the Company’s
common stock at a market value of US$0.0364 per share, totaling $2,184,000, refer note 1 and 4 above.
On
May 30, 2017, the Company issued 100,000 common shares to a vendor in lieu of services rendered at a market value of US$0.04 per
share.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED
FINANCIAL STATEMENTS
|
16.
|
Stockholders’ equity (deficit) (continued)
|
In
terms of the short-term Series L Convertible notes entered into with 3 parties, as disclosed in note 12 above, the Company awarded
three year warrants exercisable over 2,366,666 shares of common stock, at an exercise price of $0.03 per share.
The
fair value of Warrants awarded during the six months ended June 30, 2017 were valued at $94,620 using the Black Scholes pricing
model utilizing the following weighted average assumptions:
|
|
Six months ended June 30, 2017
|
|
Calculated stock price
|
|
$
|
0.04
|
|
Risk free interest rate
|
|
|
1.48
|
%
|
Expected life of warrants (years)
|
|
|
3 years
|
|
expected volatility of underlying stock
|
|
|
398
|
%
|
Expected dividend rate
|
|
|
0
|
%
|
The
movements in warrants is summarized as follows:
|
|
|
No. of shares
|
|
|
Exercise price
per share
|
|
|
Weighted
average
exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2016
|
|
|
|
6,300,000
|
|
|
|
$0.0033 to $0.03
|
|
|
$
|
0.14
|
|
Granted
|
|
|
|
19,337,409
|
|
|
|
0.03
|
|
|
|
0.0300
|
|
Forfeited/cancelled
|
|
|
|
(6,000,000
|
)
|
|
|
0.15
|
|
|
|
0.1500
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2016
|
|
|
|
19,637,409
|
|
|
|
$0.0033 to
$0.03
|
|
|
|
0.0300
|
|
Granted
|
|
|
|
2,366,666
|
|
|
|
0.03
|
|
|
|
0.0300
|
|
Forfeited/cancelled
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding June 30, 2017
|
|
|
|
22,004,075
|
|
|
|
$0.033 to $0.03
|
|
|
$
|
0.0300
|
|
The
following table summarizes information about warrants outstanding at June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding
|
|
|
Warrants exercisable
|
|
Exercise price
|
|
|
No. of shares
|
|
|
Weighted
average
remaining
years
|
|
|
Weighted
average
exercise price
|
|
|
No. of shares
|
|
|
Weighted
average
exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.0033
|
|
|
|
300,000
|
|
|
|
*
|
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
$0.03
|
|
|
|
21,704,075
|
|
|
|
2.69
|
|
|
|
|
|
|
|
21,704,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,004,075
|
|
|
|
2.69
|
|
|
$
|
0.03
|
|
|
|
22,004,075
|
|
|
$
|
0.03
|
|
|
*
|
In terms of an agreement
entered into with an investor relations company, 300,000 warrants were to be issued as part of the Investor Relations Agreement.
These warrants have not been issued as yet, therefore the warrant terms are uncertain.
|
All
of the warrants outstanding as of June 30, 2017 are vested. The warrants outstanding as of June 30, 2017 have an intrinsic value
of $668,123.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES
TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
16.
|
Stockholders’ equity (deficit) (continued)
|
Our
board of directors adopted the GreeneStone Healthcare Corporation 2013 Stock Option Plan (the “Plan”) to promote our
long- term growth and profitability by (i) providing our key directors, officers and employees with incentives to improve stockholder
value and contribute to our growth and financial success and (ii) enable us to attract, retain and reward the best available persons
for positions of substantial responsibility. A total of 10,000,000 shares of our common stock have been reserved for issuance
upon exercise of options granted pursuant to the Plan. The Plan allows us to grant options to our employees, officers and directors
and those of our subsidiaries; provided that only our employees and those of our subsidiaries may receive incentive stock
options under the Plan. We have granted a total of 480,000 options as of June 30, 2017 under the Plan.
No
options were issued, exercised or cancelled for the period under review.
The
following table summarizes information about options outstanding as of June 30, 2017.
|
|
|
Options outstanding
|
|
|
Options exercisable
|
|
Exercise price
|
|
|
|
No. of shares
|
|
|
Weighted
average
remaining
years
|
|
|
Weighted
average
exercise price
|
|
|
No. of shares
|
|
|
Weighted
average
exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.12
|
|
|
|
480,000
|
|
|
|
2.34
|
|
|
|
|
|
|
|
480,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480,000
|
|
|
|
2.34
|
|
|
$
|
0.12
|
|
|
|
480,000
|
|
|
$
|
0.12
|
|
As
of June 30, 2017, there was no unrecognized compensation costs related to these options and the intrinsic value of the options
is $0.
Due to the recent acquisition
of the Cranberry Cove subsidiary on February 14, 2017, the Company has two reportable operating segments;
|
i.
|
Rental income from the
property owned by Cranberry Cove subsidiary located at 3571 Muskoka Road, #169, Bala, on which the operations
of the Canadian Rehab Clinic were located prior to disposal on February 14, 2017 and subsequently leased to the purchasers of
the business of the Canadian Rehab Clinic, for a period of 5 years renewable for a further three five-year periods and with an
option to acquire the property at a fixed price.
|
|
ii.
|
Rehabilitation Services provided to customers, during the six months ended June 30, 2017, these services were provided to customers at our Seastone of Delray business acquired on February 14, 2017. The Rehabilitation services provided by our Canadian Rehab Center for the six months ended June 30, 2017 and 2016 are reported under discontinued operations and have not been reported as part of the Segment Information.
|
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
17.
|
Segment information (continued)
|
The segment operating results
of the reportable segments are disclosed as follows:
|
|
Three months ended June 30, 2017
|
|
|
|
Rental
Operations
|
|
|
In-Patient
services
|
|
|
Total
|
|
|
|
|
|
|
Revenue
|
|
$
|
78,088
|
|
|
$
|
324,132
|
|
|
$
|
402,220
|
|
Operating expenditure
|
|
|
106,317
|
|
|
|
316,782
|
|
|
|
423,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(28,229
|
)
|
|
|
7,350
|
|
|
|
(20,879
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
—
|
|
|
|
63,960
|
|
|
|
63,960
|
|
Other expense
|
|
|
1,146,600
|
|
|
|
(19,265
|
)
|
|
|
1,127,335
|
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest expense
|
|
|
(61,535
|
)
|
|
|
(32,068
|
)
|
|
|
(93,603
|
)
|
Amortization of debt discount
|
|
|
—
|
|
|
|
(241,666
|
)
|
|
|
(241,666
|
)
|
Derivative liability movement
|
|
|
—
|
|
|
|
167,580
|
|
|
|
167,580
|
|
Foreign exchange movements
|
|
|
—
|
|
|
|
(6,438
|
)
|
|
|
(6,438
|
)
|
Net income (loss) before taxation
|
|
|
1,056,836
|
|
|
|
(60,547
|
)
|
|
|
996,289
|
|
Taxation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss)
|
|
$
|
1,056,036
|
|
|
$
|
(60,547
|
)
|
|
$
|
996,289
|
|
|
|
Six months ended June 30, 2017
|
|
|
|
Rental
|
|
|
In-Patient
|
|
|
|
|
|
|
|
Operations
|
|
|
services
|
|
|
Total
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
120,125
|
|
|
$
|
604,605
|
|
|
$
|
724,730
|
|
Operating expenditure
|
|
|
135,865
|
|
|
|
1,236,882
|
|
|
|
1,372,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(15,740
|
)
|
|
|
(632,277
|
)
|
|
|
(648,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
—
|
|
|
|
568,309
|
|
|
|
568,309
|
|
Other expense
|
|
|
(373,274
|
)
|
|
|
(19,265
|
)
|
|
|
(392,539
|
)
|
Interest income
|
|
|
—
|
|
|
|
32,074
|
|
|
|
32,074
|
|
Interest expense
|
|
|
(98,188
|
)
|
|
|
(58,432
|
)
|
|
|
(156,620
|
)
|
Amortization of debt discount
|
|
|
—
|
|
|
|
(429,325
|
)
|
|
|
(429,325
|
)
|
Derivative liability movement
|
|
|
—
|
|
|
|
94,532
|
|
|
|
94,532
|
|
Foreign exchange movements
|
|
|
—
|
|
|
|
(164,347
|
)
|
|
|
(164,347
|
)
|
Net loss before taxation
|
|
|
(487,202
|
)
|
|
|
(608,731
|
)
|
|
|
(1,095,933
|
)
|
Taxation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(487,202
|
)
|
|
$
|
(608,731
|
)
|
|
$
|
(1,095,933
|
)
|
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
17.
|
Segment information (continued)
|
The operating assets and liabilities
of the reportable segments are as follows:
|
|
Rental
Operations
|
|
|
In-Patient
services
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
$
|
|
—
|
|
|
$
|
8,878
|
|
|
$
|
8,878
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
4,795
|
|
|
|
593,202
|
|
|
|
597,997
|
|
Non-current assets
|
|
|
7,604,277
|
|
|
|
7,130,340
|
|
|
|
14,734,617
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(5,389,542
|
)
|
|
|
(1,557,380
|
)
|
|
|
(6,946,922
|
)
|
Non-current liabilities
|
|
|
—
|
|
|
|
(2,989,937
|
)
|
|
|
(2,989,937
|
)
|
Intercompany balances
|
|
|
150,644
|
|
|
|
(150,644
|
)
|
|
|
—
|
|
Net asset position
|
|
$
|
2,370,174
|
|
|
$
|
3,025,581
|
|
|
$
|
5,395,755
|
|
|
18.
|
Net income (loss) per common share
|
For the three months ended June 30, 2017 the computation
of basic and diluted earnings per share is as follows:
|
|
|
|
|
Number of
|
|
|
Per share
|
|
|
|
Amount
|
|
|
shares
|
|
|
amount
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share from continuing operations
|
|
$
|
996,289
|
|
|
|
108,772,921
|
|
|
$
|
0.01
|
|
Net loss per share from discontinued operations
|
|
|
(141,177
|
)
|
|
|
108,772,921
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
|
855,112
|
|
|
|
108,772,921
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
11,135,387
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share from continuing operations
|
|
|
996,289
|
|
|
|
119,908,308
|
|
|
|
0.01
|
|
Net income per share from discontinued operations
|
|
|
(141,177
|
)
|
|
|
119,908,308
|
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share
|
|
$
|
855,112
|
|
|
|
119,908,308
|
|
|
$
|
0.01
|
|
For the three months ended
June 30, 2016 the computation of basic and diluted earnings per share is as follows:
|
|
Amount
|
|
|
Number of
shares
|
|
|
Per share
amount
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share from continuing operations
|
|
$
|
(197,340
|
)
|
|
|
47,991,602
|
|
|
$
|
—
|
|
Net income per share from discontinued operations
|
|
|
266,260
|
|
|
|
47,991,602
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
|
68,920
|
|
|
|
47,991,602
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
—
|
|
|
|
1,200,950
|
|
|
|
|
|
Options
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share from continuing operations
|
|
|
(197,340
|
)
|
|
|
49,192,552
|
|
|
|
—
|
|
Net income per share from discontinued operations
|
|
|
266,260
|
|
|
|
49,192,552
|
|
|
|
—
|
|
Diluted income per share
|
|
$
|
68,920
|
|
|
|
49,192,552
|
|
|
$
|
—
|
|
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
18.
|
Net income (loss) per common share (continued)
|
For the six months ended
June 30, 2017 the computation of basic and diluted earnings per share is as follows:
|
|
Amount
|
|
|
Number of
shares
|
|
|
Per
share
amount
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share from continuing operations
|
|
$
|
(1,095,933
|
)
|
|
|
93,821,728
|
|
|
$
|
(0.01
|
)
|
Net income per share from discontinued operations
|
|
|
7,412,643
|
|
|
|
93,821,728
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
|
6,316,710
|
|
|
|
93,821,728
|
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
—
|
|
|
|
11,135,387
|
|
|
|
|
|
Options
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share from continuing operations
|
|
|
(1,095,933
|
)
|
|
|
104,957,115
|
|
|
|
(0.01
|
)
|
Net income per share from discontinued operations
|
|
|
7,412,643
|
|
|
|
104,957,115
|
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share
|
|
$
|
6,316,710
|
|
|
|
104,957,115
|
|
|
$
|
0.06
|
|
For
the six months ended June 30, 2016 the computation of basic and diluted earnings per share is as follows:
|
|
Amount
|
|
|
Number of
shares
|
|
|
Per share
amount
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share from continuing operations
|
|
$
|
(231,365
|
)
|
|
|
47,865,229
|
|
|
$
|
—
|
|
Net income per share from discontinued operations
|
|
|
443,779
|
|
|
|
47,865,229
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
|
212,414
|
|
|
|
47,865,229
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
—
|
|
|
|
1,200,950
|
|
|
|
|
|
Options
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share from continuing operations
|
|
|
(231,365
|
)
|
|
|
49,066,179
|
|
|
|
—
|
|
Net income per share from discontinued operations
|
|
|
443,779
|
|
|
|
49,066,179
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share
|
|
$
|
212,414
|
|
|
|
49,066,179
|
|
|
$
|
—
|
|
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
19.
|
Commitments and contingencies
|
|
a.
|
Contingency related to outstanding penalties
|
The
Company has provided for potential US penalties of $250,000 due to noncompliance with the filing of certain required returns.
The actual liability may be higher due to interest and penalties assessed by these taxing authorities.
From
time to time, the Company and its subsidiaries enter into legal disputes in the ordinary course of business. The Company believes
there are no material legal or administrative matters pending that are likely to have, individually or in the aggregate, a material
adverse effect on its business or results of operations.
The Company is not current
in its tax filings as of June 30, 2017.
On July 19, 2017, Cranberry
Cove Holdings, LTD. (“CCH”), a wholly owned subsidiary closed on a loan agreement in the principal amount of CDN$5,500,000.
The loan is secured by a first mortgage on the premises owned by CCH located at
3571 Muskoka
Road 169, Bala, Ontario (the “Property”). The Loan bears interest at the fixed rate of 4.2% with a 5 year primary term
and a 25 year amortization. The Company has guaranteed the Loan and the Company’s chief executive officer and controlling
shareholder also has personally guaranteed the Loan. CCH and the Company have granted the Lender a general security interest in
its assets to secure repayment of the Loan.
On August 3, 2017, the
Company entered into an agreement to acquire a property at 45 West 17
th
Street, Riviera Beach, Florida, including the
completion of the construction of a 20 bed in-patient detoxification facility and the licensing approvals to operate a detoxification
facility for a total purchase consideration of $3,000,000, of which $1,000,000 of the financing is to be provided by the seller,
bearing interest at 7% per annum for a 22 month period. This agreement is subject to a successful closing on or before November
17, 2017, after which date it may be cancelled by either party.
During August 2017, we
repaid a total of $145,192 of the Series L convertible notes outstanding, the remaining note holders have an outstanding principal
of $374,777 and has sent the Company notices of conversion at $0.03 per share.
Other than disclosed above,
the Company has evaluated subsequent events through the date of the unaudited condensed consolidated financial statements were
available to be issued and has concluded that no such events or transactions took place that would require disclosure herein.