NOTES
TO THE CONSOLIDATED 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 December 31, 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 CCH, which holds
the real estate on which the Company previously operated a rehabilitation clinic (“the Canadian Rehab Clinic”). The
Company entered into 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. Simultaneously with this transaction,
the Company entered into 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 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.
On
November 2, 2017, the Company entered into an Agreement of Purchase and Sale (the “Agreement”) to purchase from AREP
5400 East
Avenue
LLC, a Delaware limited liability company (“Seller”)
certain buildings in
West
Palm Beach, Florida, totaling approximately 80,000 square
feet, on which the present tenant operates a substance abuse treatment center (the “Property”). The purchase price
of the Property is $20,530,000, and the Company is obligated under the Agreement to make a series of nonrefundable down payments
totaling $2,210,000. The closing of the transaction, which is subject to standard due diligence, conditions to closing and deliverables,
is scheduled to occur on May 8, 2018 , or such earlier date as is agreed upon by the parties.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of Significant Accounting Policies
|
The
Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of
America. Revenues and expenses are reported on the accrual basis, which means that income is recognized as it is earned and expenses
are recognized as they are incurred.
Management
further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system
of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed
to assure, among other items, that i) recorded transactions are valid; ii) valid transactions are recorded; and iii) transactions
are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition,
results of operations and cash flows of the Company for the respective periods being presented.
The
preparation of 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.
|
c)
|
Principals
of consolidation and foreign currency translation
|
The
accompanying consolidated financial statements include the accounts of the Company, its subsidiary. All intercompany transactions
and balances have been eliminated on consolidation.
Certain
of the Company’s subsidiary’s functional currency is the Canadian dollar, while the Company’s reporting currency
is the U.S. 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 and cash flows 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 year ended December 31, 2017 a closing rate of CAD$1.0000 equals US$0.7971
and an average exchange rate of CAD$1.0000 equals US$0.7867.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED 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, 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.
The
Company recognizes revenue from the rendering of services when they are earned; specifically, when all of the following conditions
are met:
|
●
|
the
significant risks and rewards of ownership are transferred to customers and the Company
retains neither continuing involvement nor effective control;
|
|
●
|
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 outpatient counselling, coaching, intervention, psychological assessments and other
related services when patients receive the service; and
|
|
●
|
Fees
for inpatient addiction treatments proportionately over the term of the patient’s
treatment.
|
|
e)
|
Nonmonetary
transactions
|
The
Company’s policy is to measure an asset exchanged or transferred in a nonmonetary transaction at the more reliable measurement
of the fair value of the asset given up and the fair value of the asset received, unless:
|
●
|
The
transaction lacks commercial substance;
|
|
●
|
The
transaction is an exchange of a product or property held for sale in the ordinary course
of business for a product or property to be sold in the same line of business to facilitate
sales to customers other than the parties to the exchange;
|
|
●
|
Neither
the fair value of the asset received nor the fair value of the asset given up is reliably
measurable; or
|
|
●
|
The
transaction is a nonmonetary, nonreciprocal transfer to owners that represents a spinoff
or other form of restructuring or liquidation.
|
|
f)
|
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.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Summary
of Significant Accounting Policies (continued)
Accounts
receivable primarily consists of amounts due from third-party payors (non-governmental) and private pay patients and is recorded
net of allowances for doubtful accounts and contractual discounts. The Company’s ability to collect outstanding receivables
is critical to its results of operations and cash flows. Accordingly, accounts receivable reported in the Company’s consolidated
financial statements is recorded at the net amount expected to be received. The Company’s primary collection risks are (i) the
risk of overestimating net revenues at the time of billing that may result in the Company receiving less than the recorded receivable,
(ii) the risk of non-payment as a result of commercial insurance companies denying claims, (iii) the risk that patients
will fail to remit insurance payments to the Company when the commercial insurance company pays out-of-network claims directly
to the patient, (iv) resource and capacity constraints that may prevent the Company from handling the volume of billing and
collection issues in a timely manner, (v) the risk that patients do not pay the Company for their self-pay balances (including
co-pays, deductibles and any portion of the claim not covered by insurance) and (vi) the risk of non-payment from uninsured
patients.
|
h)
|
Allowance
for Doubtful Accounts, Contractual and Other Discounts
|
The
Company derives the majority of its revenues from commercial payors at out-of-network rates. Management estimates the allowance
for contractual and other discounts based on its historical collection experience. The services authorized and provided and related
reimbursement are often subject to interpretation and negotiation that could result in payments that differ from the Company’s
estimates. The Company’s allowance for doubtful accounts is based on historical experience, but management also takes into
consideration the age of accounts, creditworthiness and current economic trends when evaluating the adequacy of the allowance
for doubtful accounts. An account is written off only after the Company has pursued collection efforts or otherwise determines
an account to be uncollectible. Uncollectible balances are written-off against the allowance. Recoveries of previously written-off
balances are credited to income when the recoveries are made.
The
Company initially measures its financial assets and liabilities at fair value, except for certain non-arm’s length transactions.
The Company subsequently measures all its financial assets and financial liabilities at amortized cost.
Financial
assets measured at amortized cost include cash and accounts receivable.
Financial
liabilities measured at amortized cost include bank indebtedness, accounts payable and accrued liabilities, harmonized sales tax
payable, withholding taxes payable, convertible notes payable, loans payable and related party notes.
Financial
assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized
in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting
the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had
the impairment not been recognized previously. The amount of the reversal is recognized in net income. The Company recognizes
its transaction costs in net income in the period incurred. However, financial instruments that will not be subsequently measured
at fair value are adjusted by the transaction costs that are directly attributable to their origination, issuance or assumption.
FASB
ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. ASC 820 establishes a three tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value as follows:
|
●
|
Level
1. Observable inputs such as quoted prices in active markets;
|
|
●
|
Level
2. Inputs, other than the quoted prices in active markets, that are observable either
directly or indirectly; and
|
|
●
|
Level
3. Unobservable inputs in which there is little or no market data, which requires the
reporting entity to develop its own assumptions.
|
The
Company measures its convertible debt and derivative liabilities associated therewith at fair value. These liabilities are revalued
periodically and the resultant gain or loss is realized through the Statement of Operations.
Fixed
assets are recorded at cost. Depreciation is calculated on the straight line basis over the estimated life of the asset:
Leasehold
improvements are depreciated using the straight-line method over the term of the lease. Half rates are used for all fixed assets
in the year of acquisition.
Goodwill
acquired in business combinations is initially computed as the amount paid by the acquiring company in excess of the fair value
of the net assets acquired. Goodwill is not amortized. It is the Company’s policy to test for impairment no less than annually,
by considering qualitative factors to determine whether it is more likely than not that a that the Company’s goodwill carrying
value is greater than its fair value. Such factors may include the following: a significant decline in expected revenues, significant
decline in the Company’s stock price, a significant downturn in the general economic business conditions, the loss of key personnel
or when conditions occur that may indicate impairment. The Company’s intangible assets, which consist of goodwill of $1,580,000
recorded in connection with the Seastone acquisition, was tested for impairment during the fourth quarter, 2017, and we determined
that no adjustment for impairment was necessary.
Leases
are classified as either capital or operating leases. Leases that transfer substantially all of the benefits and inherent risks
of ownership of property to the Company are accounted for as capital leases. At the time a capital lease is entered into, an asset
is recorded together with its related long-term obligation to reflect the acquisition and financing. Equipment recorded under
capital leases is amortized on the same basis as described above. Payments under operating leases are expensed as incurred.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Summary
of Significant Accounting Policies (continued)
The
Company accounts for income taxes under the provisions of ASC
Topic
740,
“Income
Taxes”.
Under ASC
Topic
740,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income taxes are provided
using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences
by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities. The tax basis of an asset or liability is the amount attributed to that
asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in income in the period
of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than
not that some portion of, or all of, the deferred tax assets will not be realized.
ASC
Topic
740 contains a two-step approach to recognizing and measuring uncertain tax
positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates
that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals
or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be
realized upon ultimate settlement. The Company recognizes interest and penalties accrued on unrecognized tax benefits within general
and administrative expense.
To
the extent that accrued interest and penalties do
not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in general and administrative expenses
in the period that such determination is made. The tax returns for fiscal 2001, through 2017 are subject to audit or review by
the US tax authorities, whereas fiscal 2010 through 2017 are subject to audit or review by the Canadian tax authority.
|
n)
|
Net
income (loss) per Share
|
Basic
net income (loss) per share is computed on the basis of the weighted average number of common stock outstanding during the period.
Diluted
net income (loss) per share is computed on the basis of the weighted average number of common stock and common stock equivalents
outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.
Dilution
is computed by applying the treasury stock method for options and warrants. Under this method, “in-the money” 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. Dilution is computed by applying
the if-converted method for convertible preferred stocks. Under this method, convertible preferred stock is assumed to be converted
at the beginning of the period (or at the time of issuance, if later), and preferred dividends (if any) will be added back to
determine income applicable to common stock. The shares issuable upon conversion will be added to weighted average number of common
stock outstanding. Conversion will be assumed only if it reduces earnings per share (or increases loss per share).
|
o)
|
Stock
based compensation
|
Stock
based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense
over the employee’s requisite service period or vesting period on a straight-line basis. Share-based compensation expense
recognized in the consolidated statements of operations for the year ended December 31, 2017 and 2016 is based on awards ultimately
expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual
forfeitures differ from those estimates. We have minimal awards with performance conditions and no awards dependent on market
conditions.
The
Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to
determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative
at fair value with changes in fair value recorded in earnings. The Company uses a Black Scholes Option Pricing model to estimate
the fair value of convertible debt conversion features at the end of each applicable reporting period. Changes in the fair value
of these derivatives during each reporting period are included in the statements of operations. Inputs into the Black Scholes
Option Pricing model require estimates, including such items as estimated volatility of the Company’s stock, risk free interest
rate and the estimated life of the financial instruments being fair valued.
If
the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt
with Conversion and Other Options” for consideration of any beneficial conversion feature.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Summary
of Significant Accounting Policies (continued)
|
q)
|
Recent
accounting pronouncements
|
In
January 2017, the
FASB
issued Accounting Standards Update No. (“ASU”)
2017-02, an amendment to
Topic
805, Business Combinations. The amendments in this
Update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this Update affect all reporting
entities that must determine whether they have acquired or sold a business. The amendments in this Update provide a more robust
framework to use in determining when a set of assets and activities is a business. The amendments in this Update apply to annual
periods beginning after December 15, 2017. The amendments in this Update should be applied prospectively on or after the effective
date. No disclosures are required at transition. The Company does not expect this guidance to have a material impact on its financial
statements.
In
January 2017, the
FASB
issued ASU 2017-04, an amendment to
Topic
350, Intangibles – Goodwill and Other, an entity no longer will determine goodwill impairment by calculating the
implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that
reporting unit had been acquired in a business combination. Because these amendments eliminate Step 3 2 from the goodwill impairment
test, they should reduce the cost and complexity of evaluating goodwill for impairment. An entity should apply the amendments
in this Update on a prospective basis. The amendments in this Update are effective for Goodwill impairment tests in fiscal years
beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing
dates after January 1, 2017.
We
are currently evaluating the effect ASU 2017-04 will
have on our consolidated financial statements.
In
February 2017, the
FASB
issued ASU 2017-05, an amendment to Subtopic 610-20, Other
Income—Gains and Losses from the Derecognition of Nonfinancial Assets The amendments in this Update are required for public
business entities and other entities that have goodwill reported in their financial statements, under the amendments in this Update,
an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with
its carrying amount. The amendments in this Update modify the concept of impairment from the condition that exists when the carrying
amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds
its fair value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning
the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business
combination. An entity should apply the amendments in this Update on a prospective basis. The amendments in this Update are effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests
performed on testing dates after January 1, 2017.
We
are currently evaluating the
effect ASU 2017-05 will have on our consolidated financial statements.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of Significant Accounting Policies (continued)
|
|
o)
|
Recent
accounting pronouncements (continued)
|
In
July 2017, the
FASB
issued Accounting Standards Update No. (“ASU’’)
2017-11, Earnings Per Share
(Topic
260), Distinguishing Liabilities from Equity
(Topic
480) and Derivatives and Hedging
(Topic
815). The amendments in this Update
provide guidance about:
|
1.
|
Accounting
for certain financial instruments with down round features
|
|
2.
|
Replacement
of the indefinite deferral for mandatorily redeemable financial instruments of certain
non-public entities and certain non-controlling interests
|
The
amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded
features) with down round features. When determining whether certain financial instruments should be classified as liabilities
or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is
indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments.
As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for
as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified
financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with
Topic
260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as
a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options
that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic
470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in
Topic
260).
The
amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented
as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect.
The
amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts
the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes
that interim period. The amendments in Part 1 of this Update should be applied in either of the following ways: 1. Retrospectively
to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the statement of
financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links
to this paragraph is effective 2. Retrospectively to outstanding financial instruments with a down round feature for each prior
reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10.
The
amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting
effect.
The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.
In
August 2017, the
FASB
issued ASU 2017-12, Derivatives and Hedging,
(Topic
815),
Targeted
Improvements to accounting for Hedging Activities. The amendments
in this update provide guidance about:
The
amendments in this Update better align an entity’s risk management activities and financial reporting for hedging relationships
through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of
hedge results.
To
meet that objective, the amendments expand and refine hedge accounting
for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument
and the hedged item in the financial statements.
For
public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and
interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after
December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted in
any interim period after issuance of the Update. Transition Requirements For cash flow and net investment hedges existing at the
date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness
to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the
beginning of the fiscal year that an entity adopts the amendments in this Update. The amended presentation and disclosure guidance
is required only prospectively.
The
impact this ASU will have on the Company’s consolidated financial statements is expected to be immaterial.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
Summary
of Significant Accounting Policies (continued)
|
|
o)
|
Recent
accounting pronouncements (continued)
|
In
September 2017, the
FASB
issued ASU 2017-13, Revenue Recognition
(Topic
605), Revenue from Contracts with Customers
(Topic
606), Leases
(Topic
840 and Leases
(Topic
842). The amendments in this update provide guidance
about:
The
transition provisions in ASC
Topic
606 require that a public business entity and
certain other specified entities adopt ASC
Topic
606 for annual reporting periods
beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities are required
to adopt ASC
Topic
606 for annual reporting periods beginning after December 15,
2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.
The
transition provisions in ASC
Topic
842 require that a public business entity and
certain other specified entities adopt ASC
Topic
842 for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. FN3 All other entities are required to adopt ASC
Topic
842 for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December
15, 2020.
The
impact this ASU will have on the Company’s consolidated financial statements is expected to be immaterial.
In
November 2017, the
FASB
issued ASU 2017-14, Income Statement – Reporting Comprehensive
Income (Topic220), Revenue Recognition
(Topic
605) and Revenue from Contracts with
Customers
(Topic
606). The amendments in this update provide guidance about:
Certain
amendments made to SEC materials and staff guidance relating to Operating-Differential subsidiaries, and amendments to the wording
and disclosure requirements of Topic 605, Revenue Recognition.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
Summary
of Significant Accounting Policies (continued)
|
|
o)
|
Recent
accounting pronouncements (continued)
|
In
February 2018, the FASB issued ASU 2018-3 Technical Corrections and Improvements to Financial Instruments – Overall (Sub
topic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update provide
guidance about:
The
amendment clarifies that an entity measuring an equity security using the measurement alternative may change its measurement approach
to a fair value method in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply
to that security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should
measure all future purchases of identical or similar investments of the same issuer using a fair value method in accordance with
Topic 820.
The
amendment clarifies that the adjustments made under the measurement alternative are intended to reflect the fair value of the
security as of the date that the observable transaction for a similar security took place.
The
amendment clarifies that remeasuring the entire value of forward contracts and purchased options is required when observable transactions
occur on the underlying equity securities.
The
amendment clarifies that when the fair value option is elected for a financial liability, the guidance in paragraph 825-10- 45-5
should be applied, regardless of whether the fair value option was elected under either Subtopic 815-15, Derivatives and Hedging—
Embedded Derivatives, or 825- 10, Financial Instruments— Overall.
The
amendments clarify that for financial liabilities for which the fair value option is elected, the amount of change in fair value
that relates to the instrument specific credit risk should first be measured in the currency of denomination when presented separately
from the total change in fair value of the financial liability. Then, both components of the change in the fair value of the liability
should be remeasured into the functional currency of the reporting entity using end-of-period spot rates.
The
amendment clarifies that the prospective transition approach for equity securities without a readily determinable fair value in
the amendments in Update 2016-01 is meant only for instances in which the measurement alternative is applied. An insurance entity
subject to the guidance in
Topic
944, Financial Services— Insurance, should
apply a prospective transition method 4 Area for Correction or Improvement Summary of Amendments when applying the amendments
related to equity securities without readily determinable fair values. An insurance entity should apply the selected prospective
transition method consistently to the entity’s entire population of equity securities for which the measurement alternative
is elected.
The
amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal
years beginning after June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017, and June
15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018, and public business
entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments
before adopting the amendments in Update 2016-01. For all other entities, the effective date is the same as the effective date
in Update 2016-01. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years, as long as they have adopted Update 2016-01.
The
amendments in this update are not expected to have a material impact on the Company’s consolidated financial statements.
In
March 2018, the
FASB
issued ASU 2018-4 Investments – Debt Securities
(Topic
320) and Regulated Operations
(Topic
980), Amendments to SEC Paragraphs pursuant
to SEC Staff Accounting Bulletin no.
117
and SEC Release No. 33-9273. The amendments
in this update provide guidance about:
Certain
amendments made to SEC materials and staff guidance relating to Investments – Debt Securities (Topic 320) and Regulated
Operations (Topic 980).
The
amendments in this update are not expected to have a material impact on the Company’s consolidated financial statements.
In
March 2018, the
FASB
issued ASU 2018-5, Income
Taxes
(Topic
740) Amendments to SEC paragraphs pursuant to SEC Staff Accounting Bulletin No.
118
These
amendments affect the wording of SEC paragraphs in the accounting standard codification dealing with Income Taxes (Topic 740).
The amendments in this update are not expected to have a material impact on the Company’s 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.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of Significant Accounting Policies (continued)
|
|
p)
|
Reclassification
of Prior
Year
Presentation
|
Certain
prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect
on the reported results of operations.
|
q)
|
Financial
instruments Risks
|
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, December 31, 2017 and 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 $5,710,511 accumulated deficit $(16,967,612). 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.
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 $28,927 as of December 31, 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 it has subsidiaries that 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 December 31, 2017, a 5% depreciation or appreciation of the Canadian dollar against the
U.S. dollar would result in an approximate $29,500 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.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 9 below.
The
proceeds realized from the sale of the Canadian Rehab Clinic were used to settle outstanding tax liabilities, refer note 12 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
|
|
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.
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 $1,146,000 and a corresponding reduction in the excess purchased
consideration allocated to the shareholder.
4.
|
Acquisition
of Subsidiary (continued)
|
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
|
|
|
2,942,585
|
|
Receivable from Ethema Health Corporation
|
|
|
299,743
|
|
|
|
|
3,242,328
|
|
Liabilities assumed:
|
|
|
|
|
Accounts payable and other accruals
|
|
|
158,093
|
|
Related party payable to Leon Developments
|
|
|
2,057,392
|
|
Mortgage liability owing to Ethema Health Corporation
|
|
|
267,540
|
|
Mortgage liability
|
|
|
3,145,550
|
|
|
|
|
5,628,575
|
|
|
|
|
|
|
Net liabilities acquired
|
|
|
(2,386,247
|
)
|
|
|
|
|
|
Excess purchase consideration allocated to shareholders compensation
|
|
$
|
5,074,689
|
|
5.
|
Acquisition
of the business of Seastone 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.
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
|
|
Goodwill
|
|
|
1,580,000
|
|
|
|
|
|
|
|
|
$
|
6,070,000
|
|
6. Going Concern
The
Company’s 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 at December 31, 2017 the Company has a working capital deficiency of $(6,525,559) and accumulated deficit of $(22,350,401).
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 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 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.
These
factors create substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial
statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities
or other adjustments that may be necessary should the Company not be able to continue as a going concern.
7. Discontinued Operations
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
|
|
7. Discontinued
Operations (continued)
The Statement of operations for discontinued operations is as follows:
|
|
Year ended December
|
|
|
Year
ended December
|
|
|
|
31, 2017
|
|
|
31, 2016
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
196,866
|
|
|
$
|
3,653,399
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,196
|
|
|
|
63,391
|
|
General and administrative
|
|
|
116,671
|
|
|
|
751,553
|
|
Professional fees
|
|
|
32,818
|
|
|
|
(3,889
|
)
|
Rent
|
|
|
106,495
|
|
|
|
385,401
|
|
Salaries and wages
|
|
|
201,723
|
|
|
|
1,592,444
|
|
Total operating expenses
|
|
|
461,903
|
|
|
|
2,788,900
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(265,037
|
)
|
|
|
864,499
|
|
|
|
|
|
|
|
|
|
|
Other Income (expense)
|
|
|
|
|
|
|
|
|
Other income
|
|
|
7,494,828
|
|
|
|
720
|
|
Other expense
|
|
|
—
|
|
|
|
(617
|
)
|
Interest expense
|
|
|
(1,021
|
)
|
|
|
(154,605
|
)
|
Foreign exchange movements
|
|
|
(135,190
|
)
|
|
|
25,990
|
|
Net income (loss) before taxation
|
|
|
7,093,580
|
|
|
|
735,987
|
|
Taxation
|
|
|
(271,691
|
)
|
|
|
—
|
|
Net income (loss) from discontinued operations
|
|
$
|
6,821,889
|
|
|
$
|
735,987
|
|
|
8.
|
Deposit
on Real Estate
|
On
November 2, 2017, the Company entered into an Agreement to purchase from AREP 5400 East
Avenue
LLC certain buildings in
West
Palm Beach, Florida, totaling approximately 80,000
square feet, on which the present tenant operates a substance abuse treatment center. The purchase price of the Property is $20,530,000,
and the Company is obligated under the Agreement to make a series of nonrefundable down payments totaling $2,210,000. To date
the Company has made deposits amounting to $1,825,000, primarily through borrowed funds, refer note 13 and 16 below.
|
9.
|
Due
on 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 period.
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.
10. Property,
plant and equipment
Property, plant and equipment consists of the following:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
Cost
|
|
|
Amortization and
Impairment
|
|
|
Net book value
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
1,470,000
|
|
|
|
—
|
|
|
|
1,470,000
|
|
|
|
|
|
Property
|
|
$
|
6,228,340
|
|
|
$
|
(208,482
|
)
|
|
$
|
6,019,858
|
|
|
$
|
—
|
|
Furniture and fixtures
|
|
|
105,000
|
|
|
|
(21,000
|
)
|
|
|
84,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,803,340
|
|
|
$
|
(229,482
|
)
|
|
$
|
7,573,858
|
|
|
$
|
—
|
|
Depreciation
expense for the year ended December 31, 2017 and 2016 was $223,423 and $0, respectively.
In
terms of the acquisition of Seastone of Delray, the Company acquired the business as a going concern and certain real property.
The property was valued using an independent valuer. The excess of the purchase price paid over the fair market value of the assets
(note 1 above), has been assigned to goodwill.
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 $155,894 (CDN$195,569) 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.
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Payroll taxes
|
|
$
|
155,894
|
|
|
$
|
2,548,824
|
|
US penalties due
|
|
|
250,000
|
|
|
|
250,000
|
|
Income tax payable
|
|
|
283,346
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
689,240
|
|
|
$
|
2,798,824
|
|
|
13.
|
Short-term
Convertible Notes
|
The
short-term convertible notes consist of the following:
|
|
Interest
rate
|
|
|
Maturity date
|
|
Principal
|
|
|
Interest
|
|
|
Debt Discount
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leonite Investments LLC
|
|
|
8.5
|
%
|
|
December 1, 2018
|
|
$
|
1,650,000
|
|
|
$
|
2,885
|
|
|
$
|
(1,514,384
|
)
|
|
$
|
138,502
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power Up Lending Group Ltd
|
|
|
12.0
|
%
|
|
August 15, 2018
|
|
|
103,000
|
|
|
|
1,862
|
|
|
|
(82,911
|
)
|
|
$
|
21,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series L Convertible notes
|
|
|
0.0
|
%
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
250,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,453
|
|
|
|
250,258
|
|
Leonite
Capital, LLC
On
December 1, 2017, the Company closed on a private offering to raise US $1,500,000 in capital. The Company issued one senior secured
convertible promissory note with a principal amount of US $1,650,000 to Leonite Capital, LLC. The Note bears interest at the rate
of 6.5% per annum. The initial draw under the Note was $300,000 with a $150,000 original issue discount for a total of $450,000.
The Company issued 1,650,000 shares of the Company’s common stock as a commitment fee and paid $20,000 towards the lenders
legal fees. The Note’s initial maturity date is June 1, 2018. During the term of the Note the Company and the Subsidiaries
will be obligated to make monthly payment of accrued and unpaid interest. The Note contains Company and Subsidiary representations
and warranties, covenants, events of default, and registration rights.
The
Note provided that the parties use reasonable best efforts to close on the remaining $1,200,000 of availability under the Note
by January 1, 2018. As a condition to the closing of the Balance Tranche, the parties must finalize and enter into additional
agreements related to the Private Offering, including, but not limited to, (i) a Securities Purchase Agreement; (ii) a Warrant
Agreement under which the Investor will have the right to purchase up to 27,500,000 shares of the Company’ common stock
for $0.10 per share, subject to adjustment, for a period of five years; (iii) a Securities Pledge Agreement under which the Company
and the Subsidiaries will grant the lender a blanket lien on their assets, and the Company will pledge its equity ownership in
the Subsidiaries. Upon the closing of the Balance Tranche the maturity date of the Note will become December 1, 2018.
On
December 29, 2017, effective as of December 1, 2017, the Company and the Subsidiaries entered into an Amended and Restated Senior
Secured Convertible Promissory Note, which note amends and restates the Note to (a) extend the maturity date to December 1, 2018;
(b) remove CCH, as an obligor; (c) increase the interest rate by 2.00% per annum, to 8.5% per annum; and (d) issue an additional
250,000 shares of the Company’s common stock to the Investor. In connection with the execution of the amendment, the parties
entered into (i) a Securities Purchase Agreement; (ii) a Warrant Agreement under which the Investor will have the right to purchase
up to 27,500,000 shares of the Company’ common stock for $0.10 per share, subject to adjustment, for a period of five years;
(iii) a Security and Pledge Agreement and a General Security Agreement under which the Company and the Subsidiaries will grant
the Investor a blanket lien on their assets, and the Company will pledge its equity ownership in the Subsidiaries; and (iv) a
First Amendment to the, effective January 2, 2018.
At
the execution of the Note, the Investor funded an initial tranche of $300,000. Thereafter the Investor funded a second tranche
of $156,136. Upon the execution of the A&R Note the Investor funded a third tranche of $100,000. Upon the execution of the
First Amendment the Investor funded a final tranche of $850,000, with the remaining $93,764 of availability under the A&R
Note, as amended, serving as a holdback pursuant to the terms of the First Amendment.
Amounts
under the Note are convertible, at the Investors request, into shares of the Company’s common stock at an initial price
of $0.06 per share, subject to adjustment.
|
13.
|
Short-term
Convertible Notes (continued)
|
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 note, together with interest thereon
of $6,567 and early settlement penalty of $36,020 was repaid on December 14, 2017.
On
November 6, 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 $103,000. The Note has
a maturity date of August 15, 2018 and bears interest at the at the rate of twelve 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 price of the Company’s common stock for the ten trading days prior to conversion.
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.
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.
On
May 4, 2017, the Company repaid $20,000 of the principal outstanding to one investor. During July and August 2017, the Company
repaid a further $144,958 of the principal outstanding to five investors.
During
July 2017, five investors converted an aggregate principal amount of $375,011 of convertible notes into shares of common stock
at a conversion price of $0.03 per share.
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 17 (c) below).
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.
Loans
payable is as follows:
|
|
Interest
rate
|
|
|
Maturity date
|
|
Principal
Outstanding
|
|
|
Accrued
interest
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cranberry Cove Holdings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Mortgage
|
|
|
8.0
|
%
|
|
August 14, 2017
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Second Mortgage
|
|
|
12.0
|
%
|
|
November 4, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Pace Mortgage
|
|
|
4.2
|
%
|
|
July 19,2022
|
|
|
4,343,376
|
|
|
|
5,998
|
|
|
|
4,349,374
|
|
|
|
—
|
|
Seastone of Delray
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
5.0
|
%
|
|
February 13, 2020
|
|
|
2,974,526
|
|
|
$
|
12,394
|
|
|
|
2,986,920
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
$
|
7,317,902
|
|
|
$
|
18,392
|
|
|
$
|
7,336,294
|
|
|
$
|
—
|
|
Disclosed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
152,402
|
|
|
$
|
—
|
|
Long-term portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,183,892
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,336,294
|
|
|
$
|
—
|
|
The
aggregate amount outstanding is payable as follows:
|
|
Amount
|
|
2018
|
|
|
134,010
|
|
2019
|
|
|
3,048,904
|
|
2020
|
|
|
110,444
|
|
2021
|
|
|
115,662
|
|
2022
|
|
|
3,908,884
|
|
Total
|
|
$
|
7,317,902
|
|
Cranberry
Cove Holdings
First Mortgage
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 CCH 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.
This
mortgage was repaid in full on July 21, 2017 out of the proceeds derived from a new mortgage agreement entered into on July 19,
2017, see below.
Second
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 CCH 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.
This
mortgage was repaid in full on July 21, 2017 out of the proceeds derived from a new mortgage agreement entered into on July 19,
2017, see below.
|
14.
|
Loans
payable (continued)
|
Pace
Mortgage
On
July 19, 2017, 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. The loan
is amortized with monthly installments of CDN
$29,531.
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:
The
Company had an automobile loan payable during the prior year, bearing interest at 4.49% with blended monthly payments of $835
that matures in March 2018. This loan was settled during the current financial year. The loan was secured by the vehicle with
a net book value as at December 31, 2015 of $14,960.
The
short-term convertible notes issued to Leonite Capital LLC, Labrys Fund LP and Power Up Lending Group, LTD, disclosed in note
13 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 $1,976,500, the maximum amount permissible, using a Black-Scholes valuation model.
In
addition, warrants exercisable over 27,500,000 shares of common stock were issued to Leonite Investments, in terms of the Securities
Purchase Agreement and the Warrant Agreement entered into. Refer note 13 above.
The
following assumptions were used in the Black-Scholes valuation model:
|
|
Year ended December 31, 2017
|
|
|
|
|
|
Calculated stock price
|
|
|
$0.03 to $0.08
|
|
Risk free interest rate
|
|
|
0.64% to 2.13%
|
|
Expected life of convertible notes
|
|
|
3 to 12 months
|
|
expected volatility of underlying stock
|
|
|
134.9% to 534.8%
|
|
Expected dividend rate
|
|
|
0
|
%
|
The
movement in derivative liability is as follows:
|
|
Year
ended December 31, 2017
|
|
|
|
|
|
Opening
balance
|
|
$
|
—
|
|
Derivative
liability arising from convertible notes
|
|
$
|
1,826,500
|
|
Fair
value adjustment to derivative liability
|
|
|
1,033,332
|
|
|
|
$
|
2,859,832
|
|
|
16.
|
Related
Party Transactions
|
Greenstone
Clinic Inc.
As
of December 31, 2017 and 2016, the Company had a payable of $0 and $79,592, respectively. Greenstone Clinic Inc., is controlled
by one of the Company’s directors. The balance payable is non-interest bearing, not secured and has no specific repayment
terms.
1816191
Ontario
As
of December 31, 2017 and 2016, the Company had a payable of $15,921 and $70,763, respectively, to 1816191 Ontario, the Endoscopy
Clinic, which was sold at the end of the prior year. The payable is non-interest bearing, and has no specific repayment terms.
Shawn
E. Leon
As
of December 31, 2017 and 2016 the Company had a receivable of $16,080 and a payable of $8,492, respectively to Shawn E. Leon,
a director and CEO of the Company. The balances receivable and payable are non-interest bearing and have no fixed repayment terms.
Mr.
Leon was paid management fees of $289,125and $257,283 during the year ended December 31, 2017 and 2016. In addition to this the
Company recorded compensation expense in other expenses, relating to the excess of the fair value of the assets acquired in CCH.
Mr. Leon is the owner of Leon Developments, the counterparty in the acquisition of the CCH 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.
The amount owing to Leon Developments Ltd., as of December 31, 2017 was CDN$2,692,512 or $1,703,976.
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 $47,493 for the period ended December 31 ,2017 and $385,401
for the year ended December 31, 2016.
Eileen
Greene
Eileen
Greene is the spouse of our CEO, Shawn Leon. During October and November 2017, we borrowed CDN$1,122,000 from Eileen Greene, principally
to fund the deposit on the real estate transaction, disclosed in note 8 above. The funds advanced is non-interest bearing and
has no fixed repayment terms. As of December 31, 2017, the amount owing to Eileen Greene amounted to $877,182.
On
December 30, 2016 we entered into a Securities Purchase agreement with Ms. Greene, whereby $163,011 (CDN $220,000) was advanced
to the Company in the form of a promissory note, bearing interest at 0% per annum and convertible into shares of common stock
at a conversion price of
$0.03
per share. On January 17,2017, Ms. Greene advanced the company a further $40,000 in the form of a promissory note, bearing interest
at 0$ per annum and convertible into shares of common stock at a conversion price of $0.03 per share. In connection with the issue
pf promissory notes, Ms. Greene was also awarded warrants exercisable over 6,767,042 shares of common stock at an exercise price
of $0.03 per share.
All
related party transactions occur in the normal course of operations and in terms of agreements entered into between the parties.
|
17.
|
Stockholders’
deficit
|
Authorized,
issued and outstanding
The
Company has authorized 500,000,000 shares with a par value of $0.01 per share. The company has issued and outstanding 123,239,230
and 48,738,755 on December 31, 2017 and 2016, respectively.
On
February 14, 2017, the Company issued 60,000,000 common shares valued at $2,184,000 to Leon Development Ltd, a Company controlled
by our CEO, Shawn Leon, in connection with the purchase of the entire shareholding of CCH, the owner of the premises located in
Bala, Ontario at 3571 Highway 169.
On
May 30, 2017, the Company issued 100,000 common shares to a vendor in lieu of services rendered at a market value of $4,000 or
US$0.04 per share.
During
July 2017, five Series L Convertible note holders exercised their conversion rights and converted an aggregate principal amount
of
$375,011
into 12,500,375 shares of common stock at a conversion price or $0.03 per share.
On
December 1, 2017, the Company issued 1,650,000 shares of common stock in connection with the closing of a financing of a Senior
Secured Convertible Note. The shares were valued at $132,000, or $0.08 per share on December 1, 2017.
On
December 29, 2017, the Company issued an additional 250,000 shares of common stock upon the amendment of the Senior Secured Convertible
note, disclosed in 4 above. The shares were valued at $15,000 or $0.06 per share on December 29, 2017.
Authorized,
issued and outstanding
The
Company has authorized 13,000,000 preferred shares with a par value of $0.01 per share, designated as 3,000,000 series A convertible
preferred shares and 10,000,000 series B convertible preferred shares. The Company has no preferred shares issued and outstanding.
In
terms of the short-term Series L Convertible notes entered into with 3 parties, as disclosed in note 13 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.
In
terms of the agreements entered into with Leonite Capital, LLC, the Company agreed to issue warrants exercisable over 27,500,000
shares of common stock at an exercise price of $0.10 per share.
The
fair value of Warrants awarded and revalued during the year ended December 31, 2017 were valued at $1,826,500 using the Black
Scholes pricing model utilizing the following weighted average assumptions:
|
|
Year ended December 31, 2017
|
|
|
|
|
|
Calculated stock price
|
|
|
$0.02 to $0.08
|
|
Risk free interest rate
|
|
|
1.48% to 2.13%
|
|
Expected life of warrants (years)
|
|
|
3 to 5 years
|
|
expected volatility of underlying stock
|
|
|
398% to 535%
|
|
Expected dividend rate
|
|
|
0
|
%
|
The
volatility of the common stock is estimated using historical data of the Company’s common stock. The risk-free interest
rate used in the Black Scholes pricing model is determined by reference to historical U.S. Treasury constant maturity rates with
maturities approximate to the life of the warrants granted. An expected dividend yield of zero is used in the valuation model,
because the Company does not expect to pay any cash dividends in the foreseeable future. As of December 31, 2017, the Company
does not anticipate any awards will be forfeited in the valuation of the warrants.
17. Stockholders’
deficit (continued)
A
summary of all of the Company’s warrant activity during the period January 1, 2016 to December 31, 2017 is 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
|
|
|
$
|
0.0033
|
|
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
|
|
|
|
0.0033
|
|
Granted
|
|
|
|
29,866,666
|
|
|
|
$0.03 to $0.10
|
|
|
|
0.0945
|
|
Forfeited/cancelled
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2017
|
|
|
|
49,504,075
|
|
|
|
$0.033 to $0.10
|
|
|
$
|
0.0690
|
|
The
following table summarizes information about warrants outstanding at December 31, 2017:
|
|
|
Warrants outstanding
|
|
|
Warrants vexercisable
|
|
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
|
|
|
|
2.20
|
|
|
|
|
|
|
|
21,704,075
|
|
|
|
|
|
$0.10
|
|
|
|
27,500,000
|
|
|
|
4.90
|
|
|
|
|
|
|
|
27,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,504,075
|
|
|
|
3.71
|
|
|
$
|
0.0690
|
|
|
|
49,504,075
|
|
|
$
|
0.0690
|
|
|
*
|
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 December 31, 2017 are vested. The warrants outstanding as of December 31, 2017 have an intrinsic
value of
$668,123.
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 December 31, 2017
under the Plan.
No
options were issued, exercised or cancelled during the year ended December 31, 2017.
|
17.
|
Stockholders’
deficit (continued)
|
d) Stock
options (continued
A
summary of all the Company’s option activity during the period January 1, 2016 to December 31, 2017 is as follows:
|
|
No. of shares
|
|
|
Exercise price per
share
|
|
|
Weighted average
exercise price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2016
|
|
|
480,000
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited/cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2016
|
|
|
480,000
|
|
|
$
|
0.12
|
|
|
|
0.12
|
|
Granted - non plan options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited/cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2017
|
|
|
480,000
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
The following table summarizes information about options outstanding as of December 31, 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
|
|
|
|
1.83
|
|
|
|
|
|
|
|
480,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480,000
|
|
|
|
1.83
|
|
|
$
|
0.12
|
|
|
|
480,000
|
|
|
$
|
0.12
|
|
The
Company issued Stock options to a former officer vesting over a 24-month period commencing on November 1, 2014 expiring on October
31, 2019, a formal option agreement has not been issued as yet, as such the terms of these options are uncertain.
As
of December 31, 2017 there was no unrecognized compensation costs related to these options and the intrinsic value of the options
as of December 31, 2017 is $0.
|
18.
|
Segmental
Information
|
Due
to the recent acquisition of the CCH subsidiary on February 14, 2017, the Company has two reportable operating segments;
|
a.
|
Rental
income from the property owned by CCH 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.
|
|
b.
|
Rehabilitation
Services provided to customers, during the nine months ended September 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 years
ended December 31, 2017 and 2016 are reported under discontinued operations and have
not been reported as part of the Segment Information.
|
18.
|
Segmental
Information (continued)
|
The
segment operating results of the reportable segments are disclosed as follows:
|
|
Rental
Operations
|
|
|
Year
ended December 31, 2017
In-Patient
services
|
|
|
Total
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
291,583
|
|
|
$
|
637,833
|
|
|
$
|
929,416
|
|
Operating expenditure
|
|
|
195,529
|
|
|
|
2,187,044
|
|
|
|
2,382,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(loss) income
|
|
|
96,054
|
|
|
|
(1,549,211
|
)
|
|
|
(1,453,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
—
|
|
|
|
475,487
|
|
|
|
475,487
|
|
Other
expense
|
|
|
—
|
|
|
|
(5,093,9541
|
)
|
|
|
(5,093,954
|
)
|
Interest
income
|
|
|
—
|
|
|
|
32,074
|
|
|
|
32,074
|
|
Interest
expense
|
|
|
(179,037
|
)
|
|
|
(188,510
|
)
|
|
|
(367,547
|
)
|
Amortization
of debt discount
|
|
|
—
|
|
|
|
(668,916
|
)
|
|
|
(668,916
|
)
|
Loss
on change in fair value of derivative liability
|
|
|
—
|
|
|
|
(1,033,332
|
)
|
|
|
(1,033,332
|
)
|
Foreign
exchange movements
|
|
|
(12,003
|
)
|
|
|
(69,028
|
)
|
|
|
(81,031
|
)
|
Net
loss before taxation from continuing operations
|
|
|
(94,986
|
)
|
|
|
(8,095,390
|
)
|
|
|
(8,190,376
|
)
|
Taxation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
loss from continuing operations
|
|
$
|
(94,986
|
)
|
|
$
|
(8,095,390
|
)
|
|
$
|
(8,190,376
|
)
|
The
operating assets and liabilities of the reportable segments are as follows:
|
|
Rental
Operations
|
|
|
In-Patient
services
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets
|
|
|
219,751
|
|
|
|
21,763
|
|
|
|
241,514
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
201
|
|
|
|
334,418
|
|
|
|
334,619
|
|
Non-current assets
|
|
|
3,182,638
|
|
|
|
8,751,171
|
|
|
|
11,933,809
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(2,209,462
|
)
|
|
|
(4,650,716
|
)
|
|
|
(6,860,178
|
)
|
Non-current liabilities
|
|
|
(4,349,208
|
)
|
|
|
(2,834,684
|
)
|
|
|
(7,183,892
|
)
|
Intercompany
balances
|
|
|
(791,263
|
)
|
|
|
791,263
|
|
|
|
—
|
|
Net
(liability) asset position
|
|
|
(4,167,095
|
)
|
|
|
2,391,453
|
|
|
|
(1,775,642
|
)
|
19.
|
Net
income (loss) per common share
|
For
the year ended December 31, 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
|
|
$
|
(8,190,376
|
)
|
|
|
107,352,184
|
|
|
$
|
(0.08
|
)
|
Net income per share
from discontinued operations
|
|
|
6,821,889
|
|
|
|
107,352,184
|
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
|
(1,368,487
|
)
|
|
|
107,352,184
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
—
|
|
|
|
11,135,388
|
|
|
|
|
|
Convertible debt
|
|
|
—
|
|
|
|
30,314,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
from continuing operations
|
|
|
(8,190,376
|
)
|
|
|
148,801,780
|
|
|
|
(0.06
|
)
|
Net income per share
from discontinued operations
|
|
|
6,821,889
|
|
|
|
148,801,780
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,368,487
|
)
|
|
|
148,801,780
|
|
|
$
|
(0.01
|
)
|
For
the year ended December 31, 2016, the following options and warrants were excluded from the computation of diluted net loss per
share as the results would have been anti-dilutive.
|
|
Year
ended December 31, 2016
|
|
|
|
|
|
Stock options
|
|
$
|
480,000
|
|
Warrants
to purchase shares of common stock
|
|
|
19,637,409
|
|
|
|
$
|
20,117,409
|
|
|
20.
|
Commitments
and contingencies
|
|
a.
|
Contingency
related to outstanding penalties
|
The
Company has provided for potential US penalties of $250,000 due to non-compliance with the filing of certain required returns.
The actual liability may be higher due to interest and penalties assessed by these taxing authorities.
The
Company has assumed operating leases for certain vehicles and office equipment. The future commitment of these operating leases
are as follows:
|
|
|
Amount
|
|
|
|
|
|
|
2018
|
|
|
$
|
8,014
|
|
2019
|
|
|
|
270
|
|
Total
|
|
|
$
|
8,284
|
|
|
|
|
|
|
|
20.
|
Commitments
and contingencies (continued)
|
The
company has two mortgage loans as disclosed in note 14 above. The future commitments under these loans are as follows:
|
|
|
Amount
|
|
|
|
|
|
|
2018
|
|
|
$
|
134,010
|
|
2019
|
|
|
|
3,048,904
|
|
2020
|
|
|
|
110,444
|
|
2021
|
|
|
|
115,662
|
|
2022
|
|
|
|
3,908,884
|
|
Total
|
|
|
$
|
7,317,902
|
|
The
Company has an interest bearing convertible loan which requires monthly interest payments: the future interest payments under
this loan is as follows:
|
|
|
Amount
|
|
|
|
|
|
|
2018
|
|
|
$
|
128,723
|
|
Total
|
|
|
$
|
128,723
|
|
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 December 31, 2017 and 2016
The
Company accounts for income taxes under Accounting Standards Codification 740, Income Taxes “ASC 740”. ASC 740 requires
the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements
and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit
carry forwards. ASC 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization
of deferred tax assets. Internal Revenue Code Section 382 “IRC 382” places a limitation on the amount of taxable income
that can be offset by carry forwards after a change in control (generally greater than a 50% change in ownership).
|
|
|
|
|
|
|
|
|
|
|
Year
ended December
31,
2017
|
|
|
Year
ended December
31,
2016
|
|
|
|
|
|
|
|
|
|
|
Tax expense at the federal statutory rate
|
|
|
(1,288,471
|
)
|
|
|
(394,991
|
)
|
Foreign taxation
|
|
|
(1,325,577
|
)
|
|
|
198,560
|
|
Permanent differences
|
|
|
1,606,144
|
|
|
|
56,768
|
|
Foreign tax rate differential
|
|
|
(203,943
|
)
|
|
|
98,381
|
|
Valuation allowance
|
|
|
1,211,846
|
|
|
|
41,282
|
|
|
|
|
—
|
|
|
|
—
|
|
|
21.
|
Income
taxes (continued)
|
The
components of the Company’s deferred taxes asset as at December 31, 2017 and December 31, 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Deferred
tax assets
|
|
|
|
|
|
|
|
|
Net
operating loss carry forward
|
|
|
20,303,013
|
|
|
|
20,198,844
|
|
Net Operating Loss
utilized - Discontinued operations
|
|
|
(2,775,870
|
)
|
|
|
—
|
|
Net taxable loss
|
|
|
3,029,615
|
|
|
|
104,169
|
|
Valuation
allowance
|
|
|
(20,556,758
|
)
|
|
|
(20,303,013
|
)
|
|
|
|
—
|
|
|
|
—
|
|
As
of December 31, 2017, the Company is in arrears on filing its statutory income tax returns and the amounts presented above are
based on estimates. The actual losses available could differ from these estimates. In addition, the Company could be subject to
penalties for these unfiled tax returns.
During
the year ended December 31, 2017, the Company has accrued and expensed $250,000 (2016: $250,000) in penalties and interest attributable
to delinquent tax returns. Management believes the Company has adequately provided for any ultimate amounts that are likely to
result from audits of these returns once filed; however, final assessments, if any, could be significantly different than the
amounts recorded in the financial statements.
The
Company operates in foreign jurisdictions and is subject to audit by taxing authorities. These audits may result in the assessment
of amounts different than the amounts recorded in the consolidated financial statements. The Company liaises with the relevant
authorities in these jurisdictions in regard to its income tax and other returns. Management believes the Company has adequately
provided for any taxes, penalties and interest that may fall due.
On
March 9, 2018, 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 $153,000. The Note has a maturity
date of December 30, 2018 and bears interest at the at the rate of twelve 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 price of the Company’s common stock for the ten trading days prior to conversion.
Other
than the above, the Company has evaluated subsequent events through the date the consolidated financial statements were available
to be issued and has concluded that no such events or transactions took place that would require disclosure herein.