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;
Addiction Recovery Institute of America (“ARIA”) (formerly 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 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 was to 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 real estate
assets of Seastone Delray pursuant to certain real estate and asset purchase agreements The purchase price for the Seastone assets
was US$6,070,000 financed with a purchase money mortgage of US$3,000,000, and US$3,070,000 in cash.
ETHEMA HEALTH
CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary of significant
accounting policies
|
Financial Reporting
The
Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of
America (“US GAAP”).
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 US GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
|
b)
|
Principals of consolidation
and foreign currency translation
|
The accompanying
consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany transactions
and balances have been eliminated on consolidation.
Certain
of the Company’s subsidiaries 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, 2018 a closing rate of CDN$1.0000 equals US$0.7330
and an average exchange rate of CDN$1.0000 equals US$0.7574. 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)
|
ASU 2014-09
requires companies to exercise more judgment and recognize revenue using a five-step process. The Company adopted ASU 2014-09 using
the modified retrospective method for all contracts effective January 1, 2018 [
and is using a portfolio approach to group
contracts with similar characteristics and analyze historical cash collections trends
]. Modified retrospective adoption requires
entities to apply the standard retrospectively to the most current period presented in the financial statements, requiring the
cumulative effect of the retrospective application as an adjustment to the opening balance of retained earnings at the date of
initial application. Prior periods have not been adjusted. No cumulative-effect adjustment in retained earnings was recorded as
the adoption of ASU 2014-09 did not significantly impact the Company’s reported historical revenue.
As
a result of certain changes required by ASU 2014-09, the majority of the Company’s provision for doubtful accounts are recorded
as a direct reduction to revenue instead of being presented as a separate line item on the consolidated statements of operations.
The adoption of ASU 2014-09 has no impact on the Company’s accounts receivable as it was historically recorded net of allowance
for doubtful accounts and contractual adjustments, and the Company has eliminated the presentation of allowance for doubtful accounts
on the consolidated balance sheets.
As
our performance obligations relate to contracts with a duration of one year or less, the Company elected the optional exemption
in ASC 606-10-50-14(a). Therefore, the Company is not required to disclose the transaction price for the remaining performance
obligations at the end of the reporting period or when the Company expects to recognize the revenue. The Company has minimal unsatisfied
performance obligations at the end of the reporting period as our patients typically are under no obligation to remain admitted
in our facilities.
The Company
receives payments from the following sources for services rendered in our U.S. Facility: (i) commercial insurers; and (ii) individual
patients and clients. As the period between the time of service and time of payment is typically one year or less, the Company
elected the practical expedient under ASC 606-10-32-18 and did not adjust for the effects of a significant financing component.
The Company
derives a significant portion of its revenue from other payors that receive discounts from established billing rates. The various
managed care contracts under which these discounts must be calculated are complex, subject to interpretation and adjustment, and
may include multiple reimbursement mechanisms for different types of services provided in the Company’s inpatient facilities
and cost settlement provisions. Management estimates the transaction price on a payor-specific basis given its interpretation of
the applicable regulations or contract terms. The services authorized and provided and related reimbursement are often subject
to interpretation that could result in payments that differ from the Company’s estimates. Additionally, updated regulations
and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management.
Settlements
under cost reimbursement agreements with third-party payors are estimated and recorded in the period in which the related services
are rendered and are adjusted in future periods as final settlements are determined. In the opinion of management, adequate provision
has been made for any adjustments and final settlements. However, there can be no assurance that any such adjustments and final
settlements will not have a material effect on the Company’s financial condition or results of operations. The Company’s
cost report receivables were $202,654 and $218,858 for the years ended December 31, 2018 and 2017, respectively, and were
included in other current assets in the consolidated balance sheets. Management believes that these receivables are properly stated
and are not likely to be settled for a significantly different amount. The net adjustments to estimated cost report settlements
resulted in a decrease in revenues of $262,353 and $388,018 for the years ended December 31, 2018 and 2017, respectively.
The
Company has analyzed its revenue transaction pursuant to ASC 606, Revenue, and it has no material impact as a result of the transition
from ASC 605 to 606. The Company’s revenues are recognized when control of the promised goods or services are transferred
to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those services.
The Company derives its revenues from the sale of its services, as defined below. The Company applies the following five steps
in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its revenue
transactions:
|
i.
|
identify the contract with
a customer;
|
|
ii.
|
identify the performance
obligations in the contract;
|
|
iii.
|
determine the transaction price;
|
|
iv.
|
allocate the transaction
price to performance obligations in the contract; and
|
|
v.
|
recognize revenue as the performance obligation
is satisfied.
|
ETHEMA HEALTH
CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary of significant
accounting policies (continued)
|
|
c)
|
Revenue Recognition (continued)
|
The Company has two operating
segments from which it derives revenues which is recognized on the basis described below.
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.
|
d)
|
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 a transfer between entities under common control;
|
|
●
|
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.
|
|
e)
|
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.
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.
|
g)
|
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.
ETHEMA HEALTH
CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary of significant
accounting policies (continued)
|
|
h)
|
Financial instruments
(continued)
|
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.
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.
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.
ETHEMA HEALTH
CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary of significant
accounting policies (continued)
|
|
l)
|
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).
|
m)
|
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, 2018 and 2017 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)
|
|
o)
|
Recent accounting pronouncements
|
In May 2014, FASB issued
Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606). In August 2015,
FASB issued ASU 2015-14 delaying the effective implementation date of ASU 2014-09 to fiscal years beginning after December 15,
2017.
This ASU supersedes
the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605 - Revenue Recognition and most
industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled
in exchange for those goods or services. This ASU is effective on January 1, 2018 and should be applied retrospectively to each
prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the
date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is not expected
to have a material impact on the Company’s consolidated financial position and results of operations.
The
Company adopted ASC 606 and analyzed its revenue transaction pursuant to ASC 606, Revenue, and it has no material impact as a result
of the transition from ASC 605 to 606. The Company’s revenues are recognized when control of the promised goods or services
are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for
those services. The Company derives its revenues from the sale of its services.
In
February 2016, FASB issued ASU, No. 2016-02, Leases (Topic 842) (ASC 842)
The
amendments in this update establishes a comprehensive new lease accounting model. The new standard: (a) clarifies the definition
of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees
to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term
of more than twelve months. The new standard is effective for fiscal years and interim periods beginning after December 15, 2018,
with early adoption permitted.
A
modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements, including a number of optional practical expedients that entities may
elect to apply. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, an update which provides
another transition method, the prospective transition method, which allows entities to initially apply the new lease standard at
the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
The Company will adopt the new standard on January 1, 2019 using the prospective transition method. In preparation for adoption
of the standard.
The
Company has identified all leases and reviewed the leases to determine the impact of ASC 842 on its consolidated financial statements.
The Company has elected to apply all of the practical expedients to its leases, which include not reassessing (1) whether any expired
or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct
costs for any existing leases, and (4) not separating the components of leases into lease and non-lease components. Based on the
Company’s assessment, the Company has concluded that the adoption of the new standard will result in the recording of a right-of-use
asset and a lease liability on the consolidated balance sheet on January 1, 2019. While substantially complete, the Company is
still in the process of finalizing its evaluation of the effect of ASC 842 on its financial statements and disclosures. The adoption
of ASU 2016-02, as amended, is expected to result in the recognition of right of use assets and associated obligations on its consolidated
balance sheets.
In February
2018, the FASB issued ASU 2018-2, Income Statement- Reporting Comprehensive Income (Topic 220), Reclassification of certain tax
effects from accumulated other comprehensive income.
The amendments
in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax
Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments
only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires
that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments
in this Update also require certain disclosures about stranded tax effects.
The
amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods
within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period.
The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods)
in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.
The
Company early adopted this ASU, which was applied retrospectively to the consolidated financial statements and resulted in a reduction
in the tax effect of net operating losses carried forward.
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
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 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. 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 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
June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based
Payment Accounting.
The
amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services
from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on
inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards
vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment
transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing
share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively
provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of
a contract accounted for under Topic 606, Revenue from Contracts with Customers.
The
amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including
interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic
606.
The
impact of this ASU on the consolidated financial statements is not expected to be material.
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) Changes to the Disclosure Requirements for Fair Value
Measurement.
The
amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement.
Removals
The
following disclosure requirements were removed from Topic 820:
|
1.
|
The amount of and reasons for transfers between Level 1 and Level 2 of the
fair value hierarchy
|
|
2.
|
The policy for timing of transfers between levels
|
|
3.
|
The valuation processes for Level 3 fair value measurements
|
|
4.
|
For nonpublic entities, the changes in unrealized gains and losses for the
period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period.
|
Modifications
The
following disclosure requirements were modified in Topic 820:
|
1.
|
In lieu of a rollforward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities.
|
|
2.
|
For investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse
only
if the investee has communicated the timing to the entity or announced the timing publicly.
|
|
3.
|
The amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.
|
Additions
The
following disclosure requirements were added to Topic 820:
|
1.
|
The changes in unrealized gains and losses for the period included in other
comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period
|
|
2.
|
The range and weighted average of significant unobservable inputs used to develop
Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as
the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information
would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair
value measurements.
|
In
addition, the amendments clarify that materiality is an appropriate consideration of entities and their auditors when evaluating
disclosure requirements.
The
amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant
unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should
be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All
other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted
upon issuance of this Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update
and delay adoption of the additional disclosures until their effective date.
The
impact of this ASU on the consolidated financial statements is not expected to be material.
|
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.
ETHEMA HEALTH
CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary of significant
accounting policies (continued)
|
|
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, 2018 and 2017.
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 ARIA 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
$13,269,867 accumulated deficit of $30,529,044. 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 as there is no overdraft indebtedness as of December
31, 2018. 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, 2018, a 5% depreciation or appreciation of the Canadian dollar against the
U.S. dollar would result in an approximate $23,700 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.
ETHEMA HEALTH
CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary of significant
accounting policies (continued)
|
|
q)
|
Financial instruments
Risks (continued)
|
|
iii.
|
Market risk (continued)
|
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.
In
the prior year, 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
was being held in escrow. There is an earnout payment of up to CDN$3,000,000 to be received in 2019, if certain clinic performance
metrics are met.
The proceeds realized from the sale of the Canadian Rehab Clinic
were used to settle outstanding tax liabilities, refer note 11 below, and to acquire the business of Addiction Recovery
Institute of America, LLC (formerly Seastone of Delray) (“ARIA”), refer note 5 below.
The
proceeds realized on disposal have been allocated as follows:
|
|
Year ended
December 31, 2017
|
|
|
|
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
|
In
the prior year, 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.
The
transaction was accounted for under ASC 805-50 Transactions between entities under common control, and the assets and liabilities
were transferred at their carrying amounts at the date of the transaction.
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
4.
|
Acquisition of subsidiary
(continued)
|
The allocation of
the purchase price is as follows:
|
|
Year ended
December 31, 2017
|
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 transferred:
|
|
|
|
|
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 assumed
|
|
|
(2,386,247
|
)
|
|
|
|
|
|
Excess purchase consideration allocated to shareholders compensation
|
|
$
|
5,074,689
|
|
5.
|
Acquisition of ARIA (formerly
known as Seastone Delray)
|
In
the prior year, on February 14, 2017, the Company, utilized a portion of the proceeds realized on the sale of the Canadian Rehab
Clinic to acquire certain assets of ARIA.
The
Company obtained its own license to run a rehabilitation Clinic in Florida in December 2016 and began operations, through its
wholly owned subsidiary, ARIA, 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
|
|
|
5,990,000
|
|
Furniture and fixtures
|
|
|
80,000
|
|
|
|
$
|
6,070,000
|
|
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
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, 2018 the Company has a working capital deficiency of $(13,269,867) and accumulated deficit of $(30,529,044). 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 Statement of operations
for discontinued operations is as follows:
|
|
Year ended December 31,
|
|
|
2017
|
|
|
|
Revenues
|
|
$
|
196,866
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
Depreciation and amortization
|
|
|
4,196
|
|
General and administrative
|
|
|
116,671
|
|
Professional fees
|
|
|
32,818
|
|
Rent
|
|
|
106,495
|
|
Salaries and wages
|
|
|
201,723
|
|
Total operating expenses
|
|
|
461,903
|
|
|
|
|
|
|
Operating loss
|
|
|
(265,037
|
)
|
|
|
|
|
|
Other Income (expense)
|
|
|
|
|
Other income
|
|
|
7,494,828
|
|
Interest expense
|
|
|
(1,021
|
)
|
Foreign exchange movements
|
|
|
(135,190
|
)
|
Net income before taxation
|
|
|
7,093,580
|
|
Taxation
|
|
|
(271,691
|
)
|
Net income from discontinued operations
|
|
$
|
6,821,889
|
|
ETHEMA HEALTH
CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
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. The Company made a series of nonrefundable down payments
totaling $2,940,546 and $1,825,000 as of December 31, 2018 and 2017.
On
May 23, 2018, the Company converted the agreement to purchase AREP 5400 East Avenue LLC. (“the landlord”) into a lease
agreement with a purchase option of $17,250,000, increasing August 31, 2018 by $750,000 per month until the purchase option is
exercised. The premises is located at 5400, 5402 and 5410 East Avenue, West Palm Beach, Florida (the “Property”). The
lease is for an initial 10 years and provides for two additional 10 year extensions.
The
Company was previously under agreement to purchase the property from the landlord. The property is presently used as a rehabilitation
treatment center. The current tenant at the property, Alternatives in Treatment, LLC, a Florida limited liability company, consented
to the Lease and concurrent with the execution of the Lease entered into a Sublease Agreement with the Company.
9.
|
Due on sale of business
|
In
the prior year, 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 had 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. As of December 31, 2018, CDN$626,751 of the
escrow had been refunded to the Company and CDN$365,268 had been used to affect building improvements to the premises owned by
CCH, for a total reduction of CDN$992,019. The remaining escrow balance was CDN$507,981 as of December 31, 2018.
10.
|
Property, plant and equipment
|
Property, plant and
equipment consists of the following:
|
|
December 31,
2018
|
|
December 31, 2017
|
|
|
Cost
|
|
Accumulated depreciation
|
|
Net book value
|
|
Net book value
|
Land
|
|
$
|
2,911,530
|
|
|
$
|
—
|
|
|
$
|
2,911,530
|
|
|
$
|
2,925,305
|
|
Property
|
|
|
6,193,681
|
|
|
|
(443,636
|
)
|
|
|
5,750,045
|
|
|
|
6,156,506
|
|
Leasehold improvements
|
|
|
251,774
|
|
|
|
—
|
|
|
|
251,744
|
|
|
|
—
|
|
Furniture and fixtures
|
|
|
80,000
|
|
|
|
(45,000
|
)
|
|
|
35,000
|
|
|
|
72,047
|
|
|
|
$
|
9,436,985
|
|
|
$
|
(488,636
|
)
|
|
$
|
8,948,349
|
|
|
$
|
9,153,858
|
|
Depreciation expense
for the year ended December 31, 2018 and 2017 was $273,646 and $223,423,respectively.
In
the prior year, 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.
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
|
11.
|
Taxes
Payable
(continued)
|
The remaining taxes
payable consist of:
|
●
|
A
payroll tax liability of $133,844 (CDN$182,589) in Greenestone Muskoka which has not been settled as yet.
|
|
●
|
A GST/HST tax payable of $33,757 (CDN$46,051).
|
|
●
|
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,
2018
|
|
December 31,
2017
|
|
|
|
|
|
Payroll taxes
|
|
$
|
133,843
|
|
|
$
|
155,894
|
|
HST/GST payable
|
|
|
33,757
|
|
|
|
—
|
|
US penalties due
|
|
|
250,000
|
|
|
|
250,000
|
|
Income tax payable
|
|
|
357,792
|
|
|
|
283,346
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
775,392
|
|
|
$
|
689,240
|
|
|
12.
|
Short-term Convertible
Notes
|
The
short-term convertible notes consist of the following:
|
|
Interest
rate
|
|
|
Maturity
date
|
|
Principal
|
|
|
Interest
|
|
|
Debt
Discount
|
|
|
December
31,
2018
|
|
|
December
31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leonite Investments LLC
|
|
|
8.5
|
%
|
|
July
25,
2019
|
|
$
|
2,420,000
|
|
|
$
|
74,180
|
|
|
$
|
-
|
|
|
$
|
2,494,180
|
|
|
$
|
138,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power Up Lending Group Ltd
|
|
|
12.0
|
%
|
|
August 15, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,951
|
|
|
|
|
12.0
|
%
|
|
December 30, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
9.0
|
%
|
|
May 15,2019
|
|
|
153,000
|
|
|
|
5,772
|
|
|
|
(64,177
|
)
|
|
|
94,595
|
|
|
|
-
|
|
|
|
|
9.0
|
%
|
|
September 10, 2019
|
|
|
133,000
|
|
|
|
3,673
|
|
|
|
(92,189
|
)
|
|
|
44,484
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series N convertible notes
|
|
|
6.0
|
%
|
|
May 17, 2019 to December 4, 2019
|
|
|
2,505,000
|
|
|
|
54,330
|
|
|
|
(789,116
|
)
|
|
|
1,770,214
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,403,473
|
|
|
|
160,453
|
|
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
|
12.
|
Short-term Convertible
Notes (continued)
|
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 $1,650,000 to Leonite Capital, LLC (“Leonite”). The note is
convertible into shares of common stock at a conversion price of $0.06 per share, subject to anti-dilution and price protection.
The Note bears interest at the rate of 8.5% per annum. The Note’s amended maturity date was December 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
Company paid a commitment fee of $132,000 settled through the issue of 1,650,000 shares of common stock and paid $20,000 towards
the lenders legal fees. In conjunction with this note, the Company issued a five year warrant to purchase 27,500,000 shares of
common stock at an exercise price or $0.10 per share, subject to anti-dilution and price protection.
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.
On March
12, 2018, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory
Note in the aggregate principal amount of $330,000, including an Original Issue Discount of $30,000, for net proceeds of $300,000.
The note had a maturity date of March 19, 2018. The outstanding principal amount of the note was convertible at any time and from
time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion
price equal to $0.06 per share subject to anti-dilution and price protection. The Company paid a commitment fee of $19,800 settled
through the issue of 330,000 shares of common stock. This note was repaid on the maturity date for gross proceeds of $330,000.
On
March 29, 2018, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory
Note in the aggregate principal amount of $165,000, including an Original Issue Discount of $15,000, for net proceeds of $150,000.
The note had a maturity date of December 1, 2018 and bears interest at a rate of 8.5% per annum. The outstanding principal amount
of the note is convertible at any time and from time to time at the election of the purchaser following the issue date into shares
of the Company’s common stock at a conversion price equal to $0.06 per share subject to anti-dilution and price protection.
The Company paid a commitment fee of $11,550 settled through the issue of 165,000 shares of common stock. In conjunction with
this note the Company issued a five year warrant to purchase 5,500,000 shares of common stock at an exercise price of $0.10 per
share, subject to anti-dilution and price protection.
On
April 17, 2018, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory
Note in the aggregate principal amount of $605,000, including an Original Issue Discount of $55,000, for net proceeds of $550,000.
The note had a maturity date of December 1, 2018 and bears interest at 8.5% per annum. The outstanding principal amount of the
note is convertible at any time and from time to time at the election of the purchaser following the issue date into shares of
the Company’s common stock at a conversion price equal to $0.06 per share subject to price protection and anti-dilution
protection. The Company paid a commitment fee of $42,350 settled through the issue of 10,083,333 shares of common stock. In conjunction
with this note the Company issued a five year warrant to purchase 10,083,333 shares of common stock at an exercise price of $0.10
per share, subject to anti-dilution and price protection.
On November 5, 2018, the Company, entered into a Securities Purchase Agreement
pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $111,111, including an
Original Issue Discount of $11,111, for net proceeds of $100,000. The note had a maturity date of November 30, 2018 and bore interest
at 1.0% per annum. The outstanding principal amount of the note was convertible at any time and from time to time at the election
of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06
per share subject to price protection and anti-dilution protection. The Company paid a commitment fee of $8,889 settled through
the issue of 111,111 shares of common stock. In conjunction with this note the Company issued a five year warrant to purchase
1,400,000 shares of common stock at an exercise price of $0.10 per share, subject to anti-dilution and price protection. This
note was repaid on the maturity date for gross proceeds of $111,184.
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
|
12.
|
Short-term Convertible
Notes (continued)
|
Leonite Capital, LLC (continued)
Effective March 19, 2019,
the Company entered into a note extension agreement with Leonite, whereby the convertible notes outstanding to Leonite, amounting
to $2,420,000, for consideration of $75,000 added to the principal outstanding on the note on January 1, 2019, a further $75,000
added to the principal outstanding on the note on February 1, 2019 and a further $100,000 added to the principal of the note on
March 15, 2019, the maturity date of the convertible notes above were extended to July 25, 2019.
Power
Up Lending Group LTD
On
June 19, 2017, the Company, entered into a Securities Purchase Agreement with Power Up Lending Group Ltd. (“Power Up”),
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, pursuant to which the Company issued
to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $103,000. The Note had a maturity date of August
15, 2018 and bore interest at the at the rate of twelve percent per annum from the date on which the Note was issued until the
same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company had the right
to prepay the Note in terms of agreement. The outstanding principal amount of the Note was convertible at any time and from time
to time at the election of the Purchaser during the period beginning on the date that was 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. On May 5, 2018, the aggregate principal outstanding of $103,000 together
with interest and penalty interest thereon, was settled for gross proceeds of $141,824.
On
March 9, 2018, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued to
the Purchaser a Convertible Promissory Note in the aggregate principal amount of $153,000. The Note had a maturity date of December
30, 2018 and bore interest at the rate of twelve percent per annum from the date on which the Note was issued until the same became
due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company had the right to prepay the
Note in terms of agreement. The outstanding principal amount of the Note was convertible at any time and from time to time at the
election of the Purchaser during the period beginning on the date that was 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. During September 2018, the Company prepaid the aggregate principal outstanding
of $153,000 together with interest thereon and penalty interest, was settled for gross proceeds of $210,800.
On
July 31, 2018, the Company, entered into a Securities Purchase Agreement with Power Up, 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 May
15, 2019 and bears interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes
due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has 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 lowest closing bid price of the Company’s common stock
for the ten trading days prior to conversion.
On September 10, 2018, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant
to which the Company issued to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $133,000. The
Note has a maturity date of September 10, 2019 and bears interest at the rate of nine percent per annum from the date on which
the Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise.
The Company has 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 lowest closing bid price
of the Company’s common stock for the ten trading days prior to conversion.
Series
N convertible notes
During
the period from May 17, 2018 to December 4, 2018, The Company closed several tranches of a private offering in which it raised
$2,505,000 in principal from 12 accredited investors through the issuance to the investors of the Company’s Series N convertible
notes, in the total original principal amount of $2,505,000, which Notes are convertible into the Company’s common stock
at a conversion price of $0.08 per share together with three year warrants to purchase up to a total of 31,312,500 shares of the
Company’s common stock at an exercise price of $0.12 per share. Both the conversion price under the Notes and the exercise
price under the warrants are subject to standard price and anti-dilution adjustment mechanisms. The notes mature between May 16,
2019 to December 3, 2019.
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
Loans payable is disclosed
as follows:
|
|
Interest
rate
|
|
|
Maturity
date
|
|
Principal
Outstanding
|
|
|
Accrued
interest
|
|
|
December
31,
2018
|
|
|
December
31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cranberry Cove Holdings,
Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pace Mortgage
|
|
|
4.2
|
%
|
|
July 19,
2022
|
|
$
|
3,905,901
|
|
|
$
|
18,935
|
|
|
$
|
3,924,836
|
|
|
|
4,349,374
|
|
Addiction Recovery Institute of America,
LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
5.0
|
%
|
|
February 13, 2020
|
|
|
2,942,526
|
|
|
|
12,260
|
|
|
|
2,954,786
|
|
|
|
2,989,920
|
|
|
|
|
|
|
|
|
|
$
|
6,848,427
|
|
|
$
|
31,195
|
|
|
$
|
6,879,622
|
|
|
$
|
7,336,294
|
|
Disclosed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
172,276
|
|
|
$
|
152,402
|
|
Long-term portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,707,346
|
|
|
|
7,183,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,879,622
|
|
|
$
|
7,336,294
|
|
The
aggregate amount outstanding is payable as follows:
|
|
Amount
|
2019
|
|
|
172,276
|
|
2020
|
|
|
3,012,454
|
|
2021
|
|
|
107,961
|
|
2022
|
|
|
3,586,931
|
|
Total
|
|
$
|
6,879,622
|
|
Cranberry
Cove Holdings, Ltd.
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.
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.
ARIA
On February 13, 2017, the Company, through its subsidiary, ARIA, entered into a Mortgage and Security
Agreement to purchase the properties located at 801 and 810 Andrews Avenue, Delray Beach, Florida, for an aggregate principal sum
of $3,000,000, bearing interest at the rate of 5% per annum, maturing on February 13, 2020, with monthly installments of $15,000.
The
short-term convertible notes, together with certain warrants issued to Leonite and the short term convertible notes issued to Power
Up disclosed in note 12 above and note 16 below, 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 $1,335,709 using a Black-Scholes valuation model.
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
|
14.
|
Derivative liability (continued)
|
The
following assumptions were used in the Black-Scholes valuation model:
|
|
Year ended
December 31,
2018
|
|
|
|
Calculated stock price
|
|
|
$0.024 to $0.10
|
|
Risk free interest rate
|
|
|
1.60% to 3.05%
|
|
Expected life of convertible notes and warrants
|
|
|
1 month to 5 years
|
|
expected volatility of underlying stock
|
|
|
105.24% to 219.40%
|
|
Expected dividend rate
|
|
|
0
|
%
|
The
movement in derivative liability is as follows:
|
|
December 31,
2018
|
|
December 31,
2017
|
|
|
|
|
|
Opening balance
|
|
$
|
2,859,832
|
|
|
$
|
—
|
|
Derivative liability on convertible notes and variable priced warrants
|
|
|
1,335,709
|
|
|
|
1,826,500
|
|
Fair value adjustments to derivative liability
|
|
|
422,539
|
|
|
|
1,033,332
|
|
|
|
|
|
|
|
|
|
|
Closing balance
|
|
$
|
4,618,080
|
|
|
$
|
2,859,832
|
|
|
15.
|
Related party transactions
|
Shawn E. Leon
As
of December 31, 2018 and 2017 the Company had a receivable of $32,650 and $16,080 from Shawn E. Leon, respectively. Mr. Leon is
a director and CEO of the Company. The balances receivable is non-interest bearing and has no fixed repayment terms.
Mr.
Leon was paid management fees of $182,430 and $289,125 for the years ended December 31, 2018 and 2017, respectively. In the prior
year, the Company recorded compensation expense in other expenses of $5,074,689 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 4 above.
Leon
Developments, Ltd.
As of
December 31, 2018 and 2017, the Company owed Leon Developments, Ltd. $1,581,499 and $1,703,796, respectively. In the prior year,
on February 14, 2017, the Company acquired CCH from Leon Developments, Ltd., refer note 4 above. CCH owns the facility utilized
by the Canadian Rehab Clinic which was sold to a third party on February 14, 2017. The balance owing to Leon Developments, Ltd.
Is non-interest bearing and has no fixed terms of repayment.
Eileen
Greene
As
of December 31, 2018 and 2017, the Company owed Eileen Greene, the spouse of our CEO, Shawn Leon, $1,034,114 and $877,182, respectively.
During the year ended December 31, 2018, Ms. Greene advanced the company a net $156,932 to fund working capital requirements.
The amount owing to Ms. Greene is non-interest bearing and has no fixed repayment terms.
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
|
15.
|
Related party transactions
(continued)
|
Eileen
Greene (continued)
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 Series L convertible 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 Series L convertible promissory note, bearing interest at 0% per annum and convertible into shares of common
stock at a conversion price of $0.03 per share. During July 2017, Ms. Greene converted the Series L convertible promissory notes
into 6,767,042 shares of common stock.
In
connection with the issue pf promissory notes, Ms. Greene was also granted three year warrants exercisable over 6,767,042 shares
of common stock at an exercise price of $0.03 per share. The warrants expire between December 30, 2019 and January 17, 2020.
1816191
Ontario
As
of December 31, 2018 and 2017, the Company owed $0 and $15,921 to 1816191 Ontario, the Endoscopy Clinic, respectively. The payable
is non-interest bearing, and has no specific repayment terms.
All
related party transactions occur in the normal course of operations and in terms of agreements entered into between the parties.
|
16.
|
Stockholder’s 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 124,300,341
and 123,239,230 as of December 31, 2018 and 2017, respectively.
On
January 1, 2018, the Company recorded the issuance of a further 80,000 shares of common stock to Leonite in connection with a senior
secured convertible promissory note issued in March 2018. The shares were valued at $4,800 on the issue date and recorded as a
debt discount.
On
March 29, 2018, the Company issued 165,000 shares of common stock to Leonite in connection with the closing of a financing of a
Senior Secured Convertible Note. The shares were valued at $11,550 on the issue date and recorded as a debt discount.
On
April 17, 2018, the Company issued 605,000 shares of common stock to Leonite in connection with the closing of a financing of a
Senior Secured Convertible Note. The shares were valued at $39,450 on the issue date and recorded as a debt discount.
On
November 6, 2018, the Company issued 111,111 shares of common stock to Leonite in connection with the closing of a financing of
a Senior Secured Convertible Note. The shares were valued at $8,889 on the issue date and recorded as a debt discount.
On
December 13, 2018, the Company entered into a Separation Agreement and Mutual General Release with a previous employee. In terms
of the agreement, the Company issued the employee 100,000 shares of common stock valued at $8,000 on the issue date.
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.
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
|
16.
|
Stockholder’s deficit
(continued)
|
In
terms of the convertible note agreements entered into with Leonite disclosed in note 12 above, the Company granted warrants exercisable
over a total of 16,983,333 shares of common stock at an exercise price of $0.10 per share, which was recorded as a debt discount.
In terms of the Series N Convertible debt issued to various accredited investors, disclosed in note 12
above, the Company granted warrants exercisable over a total of 31,312,500 shares of common stock at an exercise price of $0.12
per share, which was recorded as a debt discount.
The
warrants were valued using a Black Scholes pricing model on the date of grant at $2,974,675 using the following weighted average
assumptions:
|
|
Year ended
December 31,
2018
|
|
|
|
Calculated stock price
|
|
$0.02 to $0.08
|
|
Risk free interest rate
|
|
2.6% to 2.9%
|
|
Expected life of warrants (years)
|
|
|
3 to 5 years
|
|
expected volatility of underlying stock
|
|
|
195% to 204%
|
|
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, 2018, the Company
does not anticipate any awards will be forfeited in the valuation of the warrants.
A
summary of all of the Company’s warrant activity during the period January 1, 2017 to December 31, 2018 is as follows:
|
|
|
No.
of shares
|
|
|
Exercise
price per
share
|
|
|
Weighted
average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
January 1, 2017
|
|
|
|
19,637,409
|
|
|
|
$0.0033
to $0.03
|
|
|
$
|
0.030
|
|
Granted
|
|
|
|
29,866,666
|
|
|
|
$0.03
to $0.10
|
|
|
|
0.095
|
|
Forfeited/cancelled
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
December 31, 2017
|
|
|
|
49,504,075
|
|
|
|
$0.0033
to $0.10
|
|
|
$
|
0.069
|
|
Granted
|
|
|
|
48,295,833
|
|
|
|
$0.10
to $0.12
|
|
|
|
0.113
|
|
Forfeited/cancelled
|
|
|
|
(300,000
|
)
|
|
|
$0.0033
|
|
|
|
0.003
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
December 31, 2018
|
|
|
|
97,499,908
|
|
|
|
$0.03
to $0.12
|
|
|
$
|
0.
091
|
|
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
|
16.
|
Stockholder’s deficit
(continued)
|
The following table
summarizes information about warrants outstanding at December 31, 2018:
|
|
|
Warrants
outstanding
|
|
|
Warrants
exercisable
|
|
Exercise price
|
|
|
No. of shares
|
|
|
Weighted
average
remaining
years
|
|
|
Weighted
average
exercise
price
|
|
|
No. of shares
|
|
|
Weighted
average
exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.03
|
|
|
|
21,704,075
|
|
|
|
1.20
|
|
|
|
|
|
|
|
21,704,075
|
|
|
|
|
|
$0.10
|
|
|
|
44,483,333
|
|
|
|
4.10
|
|
|
|
|
|
|
|
44,483,333
|
|
|
|
|
|
$0.12
|
|
|
|
31,312,500
|
|
|
|
2.60
|
|
|
|
|
|
|
|
31,312,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,499,908
|
|
|
|
2.97
|
|
|
$
|
0.091
|
|
|
|
97,499,908
|
|
|
$
|
0.091
|
|
All of the warrants outstanding as of December 31, 2018 are vested.
The warrants outstanding as of December 31, 2018 have an intrinsic value of $1,085,204.
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, 2018 under the Plan.
No options were issued,
exercised or cancelled during the year ended December 31, 2018 and 2017, respectively.
The following table
summarizes information about options outstanding as of December 31, 2018:
|
|
|
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
|
|
|
|
0.83
|
|
|
|
|
|
|
|
480,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480,000
|
|
|
|
0.83
|
|
|
$
|
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, 2018 there was no unrecognized compensation costs related to these options and the intrinsic value of the options
as of December 31, 2018 is $0.
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
|
17.
|
Segmental information
|
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, these services were provided to customers at our Addiction Recovery Institute of America and
Seastone of Delray operations. The Rehabilitation services provided by our Canadian Rehab Center for the years ended December
31, 2017 are reported under discontinued operations and have not been reported as part of the Segment Information.
|
The segment operating
results of the reportable segments are disclosed as follows:
|
|
Year ended December 31, 2018
|
|
|
Rental Operations
|
|
In-Patient services
|
|
Total
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
331,001
|
|
|
$
|
101,514
|
|
|
$
|
432,515
|
|
Operating expenditure
|
|
|
157,841
|
|
|
|
3,158,991
|
|
|
|
3,316,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
173,160
|
|
|
|
(3,057,477
|
)
|
|
|
(2,884,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
—
|
|
|
|
6,009
|
|
|
|
6,009
|
|
Other expense
|
|
|
—
|
|
|
|
(8,000
|
)
|
|
|
(8,000
|
)
|
Interest income
|
|
|
—
|
|
|
|
5,334
|
|
|
|
5,334
|
|
Interest expense
|
|
|
(178,220
|
)
|
|
|
(518,724
|
)
|
|
|
(696,944
|
)
|
Amortization of debt discount
|
|
|
—
|
|
|
|
(4,504,007
|
)
|
|
|
(4,504,007
|
)
|
Loss on change in fair value of derivative liability
|
|
|
—
|
|
|
|
(422,539
|
)
|
|
|
(422,539
|
)
|
Foreign exchange movements
|
|
|
78,177
|
|
|
|
349,876
|
|
|
|
428,053
|
|
Net income (loss) before taxation from continuing operations
|
|
|
73,117
|
|
|
|
(8,149,528
|
)
|
|
|
(8,076,411
|
)
|
Taxation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss) from continuing operations
|
|
$
|
73,117
|
|
|
$
|
(8,149,528
|
)
|
|
$
|
(8,076,411
|
)
|
The
operating assets and liabilities of the reportable segments are as follows:
|
|
December 31, 2018
|
|
|
Rental Operations
|
|
In-Patient services
|
|
Total
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
46,667
|
|
|
|
273,450
|
|
|
|
320,117
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
1,460
|
|
|
|
406,388
|
|
|
|
407,848
|
|
Non-current assets
|
|
|
2,855,981
|
|
|
|
9,405,280
|
|
|
|
12,261,261
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(2,028,940
|
)
|
|
|
(11,648,776
|
)
|
|
|
(13,677,716
|
)
|
Non-current liabilities
|
|
|
(3,924,836
|
)
|
|
|
(2,782,510
|
)
|
|
|
(6,707,346
|
)
|
Intercompany balances
|
|
|
788,944
|
|
|
|
(788,944
|
)
|
|
|
—
|
|
Net liability position
|
|
|
(2,307,391
|
)
|
|
|
(5,408,562
|
)
|
|
|
(7,715,953
|
)
|
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
|
17.
|
Segmental information (continued)
|
The segment operating
results of the reportable segments are disclosed as follows:
|
|
Year ended December 31, 2017
|
|
|
Rental Operations
|
|
In-Patient services
|
|
Total
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
291,583
|
|
|
$
|
637,833
|
|
|
$
|
929,416
|
|
Operating expenditure
|
|
|
195,529
|
|
|
|
2,187,044
|
|
|
|
2,382,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
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:
|
|
December 31, 2017
|
|
|
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
|
|
|
(4,167,094
|
)
|
|
|
2,391,452
|
|
|
|
(1,775,642
|
)
|
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
|
18.
|
Net (loss) income per
common share
|
For
the year ended December 31, 2018, 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,
2018
|
|
|
|
Stock options
|
|
$
|
480,000
|
|
Warrants to purchase shares of common stock
|
|
|
97,499,908
|
|
Convertible notes
|
|
|
69.816.517
|
|
|
|
$
|
167,796,425
|
|
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 loss 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 loss per share
|
|
|
(1,368,487
|
)
|
|
|
107,352,184
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
—
|
|
|
|
11,135,388
|
|
|
|
|
|
Convertible debt
|
|
|
—
|
|
|
|
30,314,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(1,368,487
|
)
|
|
|
148,801,780
|
|
|
$
|
(0.01
|
)
|
|
19.
|
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 entered
into operating leases for certain office equipment.
On
May 23, 2018, the Company entered into a Lease Agreement pursuant to which it leased from the AREP 5400 East Avenue LLP (the “Landlord”),
the premises located at 5400, 5402, and 5410 East Avenue, West Palm Beach, Florida (the “Property”). The Lease has
an initial term of 10 years and provides for 2 additional 10 year extensions. The Company has the option to purchase the property
initially for $17,250,000, which amount has increased to $23,250,000 as of March 31, 2019, plus any landlord funded improvements.
The option to purchase increases by $750,000 per calendar month, the next increase of $750,000 will occur on April 30, 2019. The
initial base rental is $146,337 per month, plus any taxes imposed on the premises or the base rental.
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
|
19.
|
Commitments and
contingencies (continued)
|
|
b.
|
Operating leases (continued)
|
The future commitment
of these operating leases are as follows:
|
|
Amount
|
|
|
|
Within one year
|
|
$
|
1,802,872
|
|
One to two years
|
|
|
1882,422
|
|
Two to three years
|
|
|
1,962,242
|
|
Three to four years
|
|
|
2,042,062
|
|
Four to five years
|
|
|
2,121,882
|
|
Five years and thereafter
|
|
|
8,001,955
|
|
Total
|
|
$
|
17,813,435
|
|
|
|
|
|
|
The company has two
mortgage loans as disclosed in note 13 above. The future commitments under these loans are as follows:
|
|
Amount
|
Within one year
|
|
|
172,276
|
|
One to two years
|
|
|
3,012,454
|
|
Two to three years
|
|
|
107,961
|
|
Three to four years
|
|
|
3,586,931
|
|
Total
|
|
$
|
6,879,622
|
|
The
Company has principal and interest payment commitments under the Convertible notes disclosed under Note 12 above. Conversion of
these notes are at the option of the investor, if not converted these notes may need to be repaid.
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.
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
The Company is current in its US tax filings, except for its 2017 filing, as of December 31, 2018 and
is not current in its Canadian tax filings with the 2016 and 2017 returns still outstanding.
The income
tax provision/ (benefit) is different from that which would be obtained by applying the statutory Federal income tax rate of 21%
and applicable state tax rates of 5% to income before income tax expense. The items causing this difference for the years ended
December 31, 2018 and 2017 are as follows:
|
|
Year ended December 31, 2018
|
|
Year ended December 31, 2017
|
|
|
|
|
|
Tax credit at the federal and state statutory rate
|
|
|
(2,219,152
|
)
|
|
|
(1,288,471
|
)
|
Foreign taxation
|
|
|
121,579
|
|
|
|
(1,325,577
|
)
|
Permanent differences
|
|
|
1,280,902
|
|
|
|
1,606,144
|
|
Foreign net operating losses utilized
|
|
|
(19,347
|
)
|
|
|
—
|
|
Foreign tax rate differential
|
|
|
—
|
|
|
|
(203,943
|
)
|
Valuation allowance
|
|
|
938,250
|
|
|
|
1,211,846
|
|
|
|
|
102,232
|
|
|
|
—
|
|
Deferred
income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities
at December 31, 2018 and 2017 are as follows:
|
|
December 31, 2018
|
|
December 31, 2017
|
Net operating losses
|
|
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
|
20,556,758
|
|
|
|
20,303,013
|
|
Net Operating Loss utilized - Discontinued operations
|
|
|
—
|
|
|
|
(2,775,870
|
)
|
Net operating loss utilized – continuing operations
|
|
|
(73,007
|
)
|
|
|
—
|
|
Foreign exchange differential
|
|
|
(68,925
|
)
|
|
|
—
|
|
Net taxable loss
|
|
|
3,608,654
|
|
|
|
3,029,615
|
|
Valuation allowance
|
|
|
(24,023,480
|
)
|
|
|
(20,556,758
|
)
|
|
|
|
—
|
|
|
|
—
|
|
The
company has established a valuation allowance against its gross deferred tax assets sufficient to bring its net deferred tax assets
to zero due to the uncertainty surrounding the realization of such assets. Management has determined it is more likely than not
that the net deferred tax assets are not realizable due to the Company’s historical loss position. The valuation allowance
for the year ended December 31, 2018 increased by $3,466,722 due to the additional operating losses incurred for the year ended
December 31, 2018 and adjustments made to prior year opening balances.
As
of December 31, 2018, the prior three years remain open for examination by the federal or state regulatory agencies for purposes
of an audit for tax purposes.
Pursuant
to the Internal Revenue Code of 1986, as amended (“IRC”), §382, the Company’s ability to use its net operating
loss carry forwards to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more
than 50% within a three-year period.
As of December 31, 2018, the Company is in arrears on certain US and Canadian
tax filings 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.
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
|
20.
|
Income taxes (continued)
|
As
of December 31, 2018, the Company has accrued and expensed $250,000 (2017: $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.
The
Tax Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017 and significantly changes tax law
in the United States by, among other items, reducing the federal corporate income tax rate from a maximum of 35% to 21% (effective
January 1, 2018). The Act embraces a territorial system for the taxation of future foreign earnings and modifies certain
business deductions by, among other changes, repealing the domestic production activities deduction, further limiting the deductibility
of certain executive compensation and increasing the limitation on the deductibility of certain meals and entertainment expenses.
On the other hand, the Act permits 100% bonus depreciation on assets placed in service through 2022 (with a phase-out period through
2026). The full effects of these changes will be reflected for the first time in the determination of income tax expense for the
year ending December 31, 2018. The Company determined that it had no liability as of December 31, 2018 for the one-time
transition tax on deemed repatriated earnings of foreign subsidiaries imposed by the Act.
The
Company will evaluate the impact of the Global Intangible Low-Taxed Income (“GILTI”) provision of the Act, beginning
with the year ending December 31, 2018, the year for which it will first apply. The FASB has issued guidance stating that
a company may elect to treat the additional taxes due in the United States as a result of GILTI inclusions as current period expenses
when incurred or to include such amounts in the company’s determination of deferred taxes. The Company does not have any
GILTI tax liability as of December 31, 2018, therefore no election is applicable.
On
January 9, 2019, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued
a Convertible Promissory Note in the aggregate principal amount of $53,000 for net proceeds of $50,000 after expenses. The Note
has a maturity date of October 30, 2019 and bears interest at the rate of nine percent per annum from the date on which the Note
was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The
Company has 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 Power Up 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 lowest closing bid price
of the Company’s common stock for the ten trading days prior to conversion.
On
January 17, 2019, the Company, entered into a Securities Purchase Agreement with Leonite pursuant to which the Company issued a
Convertible Promissory Note in the aggregate principal amount of $71,111 for net proceeds of $64,000 after an original issue discount
(“OID”) of $7,111. The Note has a maturity date of January 31, 2019 and bears interest at the rate of one percent per
annum from the date on which the Note was issued until the same becomes due and payable, whether at maturity or upon acceleration
or by prepayment or otherwise. The outstanding principal amount of the Note is convertible at any time and from time to time at
the election of Leonite 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 the lower of $0.06 or 80% of the price per share of any subsequent financings. In conjunction
with the note the Company issued a five year warrant exercisable for 1,185,183 shares of common stock at an exercise price of $0.09
per share and paid a commitment fee of $7,111, settled by issuing 71,111 shares of common stock. This convertible note was repaid
on January 31, 2019.
On
January 28, 2019, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued
a Convertible Promissory Note in the aggregate principal amount of $138,000 for net proceeds of $135,000 after expenses. The Note
has a maturity date of November 15, 2019 and bears interest at the rate of nine percent per annum from the date on which the Note
was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The
Company has 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 Power Up 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 lowest closing bid price
of the Company’s common stock for the ten trading days prior to conversion.
ETHEMA
HEALTH CORPORATION
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
|
21.
|
Subsequent events (continued)
|
On January 28, 2019, the Company repaid the Power Up, convertible note entered into on July 31, 2018,
of $153,000 together with interest and early settlement penalty thereon for gross proceeds of $207,679.
Between
January 28, 2019 and March 13, 2019, the Company closed several tranches of Series N Convertible notes in which it raised $844,252
in principal from 3 accredited investors through the issuance to the investors of the Company’s Series N convertible notes,
in the total original principal amount of $844,252, which Notes are convertible into the Company’s common stock at a conversion
price of $0.08 per share together with three year warrants to purchase up to a total of 10,553,150 shares of the Company’s
common stock at an exercise price of $0.12 per share. Both the conversion price under the Notes and the exercise price under the
warrants are subject to standard adjustment mechanisms. The notes mature one year from the date of issuance.
On February
14, 2019, the Company entered into a Settlement Agreement and Release with Gulfstream Roofing, Inc., for improvements made to the
leasehold real property located at 5400 East Avenue, West Palm Beach, Florida. The settlement amount was $251,774 was divided into
two equal installments of $125,887, which were paid on February 21, 2019 and March 5, 2019. All claims that the parties have or
may have against each other were released in terms of the agreement.
On
February 25, 2019, the Company entered into a Letter of Intent whereby it would purchase a 33.33% interest in Local Link Wellness,
LLC (“LLW”) for gross proceeds of $400,000. LLW proposes to provide a comprehensive addiction treatment program to
large employee groups. The company has advanced LLW a total of $110,000 as of April 12, 2019. These funds were advanced as short-term
promissory notes that will be immediately due and payable if the parties fail to reach a binding agreement by April 30, 2019.
Upon the closing of a binding agreement, the short-term promissory notes will be converted to equity.
On March 5, 2019, the Company, entered into a Securities Purchase Agreement pursuant to which
the Company issued a Convertible Promissory Note in the aggregate principal amount of $200,000, for net proceeds of $192,000 after
the payment of legal fees and origination fees amounting to $8,000. The note has a maturity date of December 9, 2019. The outstanding
principal amount of the note is convertible at any time and from time to time at the election of the purchaser 180 days after
the issued date into shares of the Company’s common stock at the lower of $0.08 per share or 65% of the lowest trade price
during the ten consecutive trading days immediately prior to conversion. The note has certain buyback terms if the Company consummates
a registered or unregistered primary offering of securities for capital raising purposes, or an option to convert at a 20% discount
to the offering price to investors.
On March 6, 2019, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to
which the Company issued a Convertible Promissory Note in the aggregate principal amount of $128,000. The Note has a maturity date
of January 30, 2020 and bears interest at the rate of nine percent per annum from the date on which the Note was issued until the
same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has 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 Power Up 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 lowest closing bid price of the Company’s common
stock for the ten trading days prior to conversion.
On March 11, 2019, the Company repaid the Power Up convertible note entered into on September 10, 2018,
of $133,000 together with interest and early settlement penalty thereon for gross proceeds of $180,062.
On April 2, 2019, the
Company entered into a Commercial Contract whereby the real property at 801 Andrews Avenue, Delray Beach, Florida, consisting
of land and condominiums thereon, was sold to JAGGM, LLC for $3,500,000. This transaction is expected to close on April 26, 2019.