UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 FORM 10-K

 

[X]ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended:December 31, 20152016

 

or

 

[ ] ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________to ___________

 

Commission file number:000-15078

GreeneStone Healthcare

Ethema Health Corporation

(Exact name of registrant as specified in its charter)

Colorado 84-1227328

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

5734 Yonge Street, Suite 300810 Andrews Avenue

North York, Ontario, Canada M2M 4E7Delray Beach, Florida 33483

(Address of principal executive offices)

 

(416) 222-5501(561) 450-7679

(Registrant’s telephone number, including area code)

  

Securities registered under Section 12(b) of the Exchange Act:

Securities registered under Section 12(b) of the Exchange Act: 

Title of each class registered

Name of each exchange on which registered
None 
NoneN/A

 

Securities registered under Section 12(g) of the Act:

 

Common Stock, $0.01 par value per share

(Title of class)

 

Indicate by check mark if the registrant is a well knownwell-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  [ ]  No [X]   ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  [ ]  No  [X]☒ 

 

Indicate by check mark whether the registrant:issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the lastpast 90 days. Yes[X]☒  Yes  No  [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,website, if any, every Interactive Data Fileinteractive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]  No  [ ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’sissuer’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,file, a non-accelerated filer, orfile, a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer, “accelerated filer” andfiler,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer[ ]Accelerated filer[ ]
Non-accelerated filer[ ]☐  (Do not check if a smaller reporting company)Smaller reporting company[X]
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  [ ]  No  [X]

 

The aggregate market value of the voting and nonvotingregistrant’s common equitystock held by non-affiliates of the registrant onas of June 30, 2015,2017, based on a closing share price of $0.03$0.06 was approximately $1,226,511.$2,962,022. As of April 10, 2015,2018, the registrant had 47,738,855122,989,230 shares of its common stock, par value $0.01 per share, outstanding.

 

GREENESTONE HEALTHCARE CORPORATION

 

ETHEMA HEALTH CORPORATION

YEAR ENDED DECEMBER 31, 20152017

TABLE OF CONTENTS

 

  PagePAGE
PART I.
Item 1.Business1
Item 1A.Risk Factors3
Item 1B.Unresolved Staff Comments4
Item 2.Properties4
Item 3.Legal Proceedings4

Item 4. 

Mine Safety Disclosures4
   
PART II.Item 1.Business1 
Item 5.1A.Risk Factors3
Item 1B.Unresolved  Staff Comments3
Item 2.Properties3
Item 3.Legal Proceedings4
Item 4.Mine Safety Disclosures4

PART II. 
Item 5.Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities54
Item 6.Selected  Financial Data76
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of  Operations76
Item 8.Financial Statements and  Supplementary Data10
Item 9.Changes in and DiscussionsDisagreements with Accountants on Accounting and Financial Disclosure3711
Item 9A.Controls and Procedures3711

Item 9B.

Other Information11 Other Information38
    
PART III   
Item 10.Directors, Executive Officers and Corporate Governance3812
Item 11.Executive  Compensation13 Executive Compensation40
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters4115
Item 13.Certain Relationships and Related Transactions, and Director Independence4216
Item 14.Principal Accountant Fees and Services4317
Part IV.   
Item 15.Exhibits and Financial Statements SchedulesPART IV.19 
Item 15.SIGNATURES22 Exhibits and Financial Statement Schedules45
SIGNATURES47

 

PART I

Item 1. Business.

 

Company History

GreeneStone HealthcareEthema Health Corporation (the “Company” or “Ethema”), a Colorado corporation was incorporated under the laws of the State of Colorado on April 1, 1993, (“Greenestone” or the “Company”), and is the surviving company of a merger, effective February 1, 1995, between the Company and Nova Natural Resources Corporation, a Delaware corporation (“Nova Delaware”). The merger was effectuated solely for the purpose of changing the Company’s domicile from Delaware to Colorado. At all times prior to 2001, the Company was engaged in the oil and gas exploration business. Nova Delaware was the successor entity to Nova Petroleum Corporation, a Delaware corporation, and Power Resources Corporation, a Delaware corporation, which merged in 1986 (“the 1986 Merger”). Prior to the 1986 Merger, Nova Petroleum Corporation and Power Resources Corporation had operated since 1979 and 1972, respectively. In 2001, the Company entered into the electronics business and this business was active in 2001 and 2002, as part of the Torita Group. After 2002, the Company continued with various stages of development in this business until 2010.

 

Recent Developments

On December 29, 2015 the Company entered into a nonbinding Letter of Intent (the “LOI”) with Aurora Recovery Centre LP (“ALP” for the purchase of certain assets of ALP. This LOI has expired and the proposed transaction will not proceed.

In February 2015, the Company finalized the terms for the acquisition of the property currently leased by the Company. The property, which is the location of GreeneStone's Muskoka addiction treatment center, encompasses approximately 48,000 square feet of buildings on 43 acres and is adjacent to Lake Muskoka in Ontario. The property has11separate buildings, including five detox suites, 29 residential suites, staff cottages with 13 individual bedrooms, a self-contained fitness center, kitchen and dining facilities, and several meeting and therapy rooms. Additional facilities include an indoor and outdoor pool, a tennis court, a volleyball court, a running track and nature trails. As of the date of this annual report, the Company is addressing certain due diligence items which are being resolved and once the requisite funds have been raised the transaction will be consummated.

The purchase price for the property consists of the following; i) CAD$5,500,000 which will be funded by a mortgage bond over the property; and ii) the issue of 50,000,000 common shares in the Company, at the market price of the shares on the date of closing.

Change in Operations

On April 1, 2010, the Company pursuant to Board of Directors resolution, changed its principal operations from development stage electronics to healthcare services. On March 29, 2010, the Company entered into a one year consulting agreement with Greenestone Clinic Inc., a Canadian corporation (“Greenestone Clinic”), whereby Greenestone Clinic provided consulting services for the Company’s development and operation of medical clinics in the province of Ontario, Canada. Specifically, Greenestone Clinic provided medical and business expertise in the initial startup of private clinics and technical assistance to ensure that the clinics were in compliance with governmental policy and procedure requirements as well as any operational requirements. At the time of entering into this consulting agreement, Greenestone Clinic operated a clinic at the Muskoka property now housing its addiction treatment clinic and provided endoscopy services that the Company had planned to offer in its first Ontario medical clinic.

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OnMay15,2010,theCompany secured a subleaseofspace (whichwaspreviouslytheRothbart PainClinic) ofapproximately 8,000 sq. ft. tobeused astheCompany’sexecutiveoffices and to run anendoscopy clinic,whichwas subsequently sold.services. The Company started offering medical services in June2010,offering various medical services,includingendoscopy,cardiologyandexecutivemedicals, which services were subsequently sold as part of the sale of our subsidiary, 1816191 Ontario (“1816191”) duringDecember2014.

InMarch2011,GreenestoneClinic,aformerCompanyconsultant, gave upthepremises in Bala,Ontario,previously leasedbyGreenestoneClinicand operated as a private medicalresortand alsoallowed theCompany todobusinessusingthe“GreeneStone” name. The Company,through itswholly ownedsubsidiary GreeneStoneClinicMuskokaInc. (“GreeneStoneMuskoka”)enteredintoa leasewith the owneroftheMuskokapremisesonApril1, 2011.The Companyoffersonlymentalhealthandaddictiontreatment services atthis location whichoperates as an in-patientaddictiontreatmentcenter.sold.

 

On May 15, 2010, the Company secured a sublease of space (which was previously the Rothbart Pain Clinic) of approximately 8,000 sq. ft. to be used as the Company’s executive offices and to run an endoscopy clinic. The Endoscopy clinic was subsequently sold. The Company, through its wholly owned subsidiary GreeneStone Clinic Muskoka Inc. (“GreeneStone Muskoka”), also entered into a lease with the owner of the Muskoka premises on April 1, 2011 and provided mental health and addiction treatment services and operated an in patient addiction treatment center at this location.

During December 17, 2014,2016, 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 sale of all of the outstanding shares of its subsidiary, 1816191, for the sum of CAD$1,282,002, comprised of the agreed purchase price of CAD$1,250,000 and the acquisition of net assets at closing of CAD$32,002. The sale was made pursuant to“Restructuring Transactions”), including a Share Purchase Agreement dated October 6, 2014,(the“SPA”)whereby the Company acquired 100% of the stock of Cranberry Cove Holdings Ltd. (“CCH”), which held the real estate on which the Company’s GreeneStone Muskoka operated, an asset purchase agreement (the“APA”)and lease (the “Lease”) whereby the Company sold certain of the GreeneStone Muskoka business assets and leased the real estate to the buyer, and a real estate purchase agreement and asset purchase agreement whereby the Company purchased the real estate and business assets of Seastone Delray (the “Florida Purchase”).

The Share Purchase Agreement

Under theSPA,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 betweenCFO of the Company (“Mr. Leon”). CCH owns the real estate on which GreeneStone Muskoka 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 theAPA,the assets of the GreeneStone Muskoka were sold by the Company, through its subsidiary, GreeneStone Muskoka, to Canadian Addiction Residential Treatment LP (the “Purchaser”), for a total consideration of CDN$10,000,000, plus an additional performance payment of up to CDN$3,000,000 as a performance payment to be received in 2019 if certain clinic performance metrics are met. The Purchaser completed the sale with cash proceeds to the Company of CDN$10,000,000, of which CDN$1,500,000 will remain in escrow for up to two years to cover indemnities given by the Company. The proceeds of the GreeneStone Muskoka asset sale were used to pay down certain tax debts and operational costs of the Company and Jaintheelal Parekh Medicine Professionalto fund the Florida Purchase, mentioned below.

Through the APA, substantially all of the assets of GreeneStone Muskoka were sold, leaving Ethema with only the underlying clinic real estate, which the Company, through its newly acquired subsidiary, CCH concurrently leased to the Purchaser. The Lease is a triple net lease and provides for a five (5) year primary term with three (3) five-year renewal options, annual base rent for the first year at CDN$420,000 with annual increases, an option to tenant to purchase the leased premises and certain first refusal rights.


The Florida Purchase

Immediately after closing on the sale of the assets of the Canadian Rehab Clinic, the Company closed on the acquisition of the business and real estate assets of Seastone Delray pursuant to certain real estate and asset purchase agreements This business is operated through its wholly owned subsidiary Seastone. The purchase price for the Seastone assets was US$6,070,000 financed with a purchase money mortgage of US$3,000,000, and US$3,070,000 in cash.

On April 4, 2017 the Company changed its Corporate name from Greenestone Healthcare Corporation (“Jaintheelal”). The Company and Jaintheelal entered into a revised Share Purchase Agreement on December 16, 2014.to Ethema Health Corporation.

Recent Developments

 

JaintheelalOn November 2, 2017, Ethema entered into an Agreement of Purchase and Sale (the “Agreement”) to purchase from AREP 5400 EastAvenueisLLC, a Delaware limited liability company (“Seller”) certain buildings inownedWestbyDr.Jay Parekh,Palm Beach, Florida, totaling approximately 80,000 square feet, on which theCompany’sformerMedical director in chargeofEndoscopy. present tenant operates a substance abuse treatment center (the “Property”). The salepurchase priceof CAD$1,282,002included theassumption Property is $20,530,000, and the Company is obligated under the Agreement to make a series of nonrefundable down payments totaling $2,210,000. The closing of the transaction, which is subject to standard due diligence, conditions to closing and deliverables, is scheduled to occur on May 8, 2018 , or such earlier date as is agreed upon by Jaintheelal of debtthe parties.inthesame amount asthesale price,whichdebt wasowedby1816191totheCompany intheamountof CAD$895,496and toJaintheelal ofCAD$386,542. Atclosing, Jaintheelaloffsettheassumeddebttotheregistrantof CAD$895,496 by US$277,500 throughthecancellation of2,408,268 sharesoftheCompany’s commonstock,for a net amountduetotheCompanyof US$493,807.The remainderoftheassumeddebtowedby1816191totheCompanywas originallyduetotheCompanyonJune30,2015,which duedate was extendedto December31,2015,thisloanhasnotbeenextendedbeyond thisdateasofthedatehereof, is intheformofan interest bearingnote withacouponof 5%per annum.

 

On December 1, 2017, Ethema and its wholly owned subsidiaries Ethema Clinic Muskoka Inc.(“previously GreeneStone Clinic Muskoka Inc.), an Ontario corporation, CCH, an Ontario corporation and Seastone, a Florida limited liability company (the “Subsidiaries”) closed on a private offering (the “Private Offering”) to raise up to USD$1,500,000 in capital. Pursuant to the Private Offering, the Company and the Subsidiaries jointly and severally issued one senior secured convertible promissory note (the “Note”), bearing a principal amount of up to $1,650,000 in total, to Leonite Capital, LLC, a Delaware limited liability company (the “Investor”). The Note bears interest at the rate of 6.5% per annum. The initial draw under the Note was $300,000 with a $150,000 original issue discount for a total of $450,000. The Company issued the Investor 1,650,000 shares of the Company’s principaloperationscommon stock in connection with the closing and paid $20,000 of the Investor’s legal fees. The Note’s initial maturity date is June 1, 2018. During the term of the Note the Company and the Subsidiaries will be obligated to make monthly payment of accrued and unpaid interest. The Note contains Company and Subsidiary representations and warranties, covenants, events of default, and registration rights. The amounts due under the Note are convertible, at the Investors request, into shares of the Company’s common stock at an initial price of $0.06 per share, subject to adjustment.arenow theprovisionofaddictiontreatment services.

 

Corporate StructureOn 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 (the “A&R 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; and (d) issue an additional 250,000 shares of the Company’s common stock to the Investor. In connection with the execution of the A&R Note, 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 (the “Warrant”); (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 A&R Note, effective January 2, 2018 (the “First Amendment” and together with the foregoing agreements theAncillaryAgreements”). 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.

 

TheCorporate Structure

During 2017, the Company currently has one,disposed of its wholly owned, operating subsidiary, GreeneStone Muskoka.

GreeneStone Muskoka Treatment Center

On February 1, 2011,Dr.Paul Garfunkel was retained on a six-month consulting contract to adviseand formed two new subsidiaries, Seastone Delray Healthcare, LLC (“Seastone Delray”) and Delray Andrews RE, LLC (“Delray Andrews”), both Florida limited liability companies. The Company acquired, from Leon Developments, 100% of the Company on its plan to go into the addiction treatment business.Dr.Garfunkel formed a Clinical Advisory Group (“CAG”) including himself,Dr.Clive Chamberlain,Dr.Greg Donahue and Janice Harris R.N. The CAG created the mission and protocols for the addiction treatment business and was tasked to hire a leader for the addiction treatmentbusiness.

On April 1, 2011, the Company through GreeneStone Muskoka, entered into a lease (the “Bala Lease”) with Cranberry Cove Holdings Ltd. (“Cranberry”),stock of CCH, the owner of the Bala, Ontario property (the “Bala Property”) in orderreal estate which houses Greenestone Muskoka, and subsequently leased the clinic real estate to operate a mental health and addiction treatment center at the property. On April 1, 2011 (the “Purchase Date”), GreeneStone Muskoka purchased allpurchaser of the assets of Greenestone Clinic that were previously used for the operation of the executive medical center located at the Bala Property. This gave GreeneStone Muskoka a turnkey opportunity to start up its addiction treatment business (the “GreeneStone Muskoka TreatmentCenter”).

On April 1, 2011,Dr.Susan K. Blank was hired under a one-year contract to run the GreeneStone Muskoka Treatment Center.Dr.Blank worked withassets. The Company also acquired the CAG to refine the missionbusiness of Seastone Delray and protocols for the GreeneStone Muskoka Treatment Centercertain real property in Delray Beach, and worked on the policies and procedures for the operation of the treatmentcenter. 

Table of Contents2

In August 2011, the GreeneStone Muskoka Treatment Center began providing addiction treatment services and tookis currently operating it through its first paying clients. The GreeneStone Muskoka Treatment Center offers clients a 45day program that costs between CAD$27,000 and CAD$37,000 per treatment period. Treatment is individualized, providing the first two weeks of treatment, with an assessment thereafter and often, a recommendation to extend treatment. The treatment offered is concurrent, with addiction and co-occurring mental health disorders treated at the same time. The center has a 36 bed capacity and can easily be expanded beyond that capacity. Treatment consists of group and individual therapy, as well as recreation therapy. Clients are taught about nutrition and are provided with nutritious food while intreatment.

In November of 2011, the CAG was disbanded after achieving its goals. In March 2012, Dr. Blank and two contract therapists, all of whom were from the United States, were replaced by a more permanent team of Canadian doctors and therapists.subsidiary, Seastone Delray.

 

Employees

 

As of December 31, 2015, GreeneStone Healthcare2017, Ethema Health Corporation had no14 employees and its subsidiary GreeneStone Clinic Muskoka had approximately 32 employees..


Marketing

 

The addiction treatment business in the USA operates as a private payan Insured Healthcare service. The customers get no government or OHIP subsidy to attend our treatment facility. The decision to attend the treatment center is made by each individual, making it important to market our services to the individual. There are a large number of mental health professionals that refer to the treatment center and we ensure that we maintain contact with and market to these professionals. Our marketing efforts are long term processes of establishing relationships with relevant professionals and our treatment staff.We use industry specific conferences and functions to network with these professionals.

 

Approximately 70% of our clients are sourced via the Internet. This is the single biggest focus for our marketing team, Search Engine Optimization (SEO) is very important and the Company aggressively seeks the maximum cost/benefit relationships with specialist firms in this field.Webelieve our marketing efforts are successful and effective.

 

Competition

 

The private pay addiction treatment business is not well established in Canada and there are only a few competitors that provide these services. Two of the biggest providers are also government hospital licensed facilities, that do both OHIP insured services and privately paid services. Most hospitals have a mental health unit that can handle detoxification, but do not provide addiction treatment programs. There is only one large competitor with a similar offering to GreeneStone Muskoka, located on the west coast of Canada. There are hundredsa significant amount of private paidtreatment facilities in the United States, and they collectively, represent a major competitorwe compete with these clinics for those with the ability to pay for addictionpatients who are typically covered by Insured Healthcare services. Addiction service facilities in the United States that offer the same level of treatment offered by our Company are generally 50% to 100% more expensive than we are. We believe that travel to the United States by potential customers with potential travel restrictions as well as the higher cost eliminates many U.S. facilities as competition.

 

Environmental Regulations

 

The Company is not currently subject to any pending administrative or judicial enforcement proceedings arising under environmental laws or regulations. Environmental laws and regulations may be adopted in the future which may have an impact upon the Company’s operations.

 

Item 1A. Risk Factors.

 

Not applicable because we are a smaller reporting company.

 

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3

Item 1B. Unresolved Staff Commentsnone.

none.

 

Item 2. Properties.

GreenestoneEthema Executive Offices and Endoscopy Unit

 

The Company’s executive offices are located in our owned premises at 5734 Yonge Street, Suite 300, Toronto, Ontario, Canada M2M 4E7, consisting of approximately 8,000 sq. ft. and takes up the entire third floor of the building (the “Yonge Street Facility”). This facility was leased by 1816191 and the primary activity at this facility was endoscopy procedures. The Company entered into a sublease for office space at these premises from 1816191 on a month to month basis.810 Andrews Avenue, Delray Beach, Florida, USA.

 

Greenestone Muskoka Treatment Facility

The BalaGreenestone Muskoka Treatment Facility is located in Bala, Ontario at 3571 Highway 169. The property is 43 acres in size and contains approximately 48,000 square feet of buildings. The property is owned by Ethema’s wholly owned Canadian subsidiary CCH and has been leased from Cranberry Coveto the new owner of the Muskoka Clinic for a term of five years, which commencedends on April 1, 2014 and hasFebruary 28, 2022. The Lease gives the tenant an option to extend for anthree additional three years. Further, the Company hasfive (5) year terms, an option to purchase the property at any time duringfor a purchase price of $7,000,000 in the first thirty six (36) months of the term and thereafter at a purchase price increased by $1,500,000 for each successive year up to a maximum of the lease for $10.0 million dollars$10,000,000, and a right of first refusal in the event of a sale to a third party.

Delray Beach Real Estate

The real estate acquired in Delray Beach, Florida consist of two parcels of land. The first parcel is located at 810 Andrews Avenue, Delray Beach, Florida, is 0.34 acres in size and has a two-story, 2,839 square foot CBS office building constructed in 1963. It is in good condition, and is currently used as an office for addiction treatment services. The second parcel, is located at 801 Andrews Avenue, Delray Beach, Florida, is 0.34 acres in size and has a two-story, residential condominium building containing 10 units totaling 8,844 square feet. The improvements were constructed in 1971 with the latest renovation occurring in 2014. The property was being used as a sober home.


Item 3. Legal Proceedings.

A former employee has filed suit against the Company asserting wrongful dismissal, claiming damages between CDN$43,500 and CDN$50,000 this matter was settled for CDN14,070, including applicable legal feews, the settlement remains unpaid as the plaintiff has not signed the minutes of settlement..

 

WeOther than disclosed above, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pendingor,to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 4. Mine Safety DisclosuresDisclosures..None.

 

None.

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

(a)Market Information

(a)Market Information

 

The Company’s common stock is quoted on the Over-the-counter Bulletin BoardMarket (the “OTCBB”“OTCQB”) under the symbol “GRST”. The Company was sponsored by the market maker Wilson Davis & Co. from Salt LakeCity,Utah, which filed a Form 15c2-11 application with the Financial Industry Regulatory Authority (“FINRA”) for the Company in 2011. This application was approved by FINRA in February 2012, and Wilson Davis & Co. first quoted the stock in March 2012.

 

The following table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as reported by the OTCBB.OTCQB. These quotations reflect inter-dealerinterdealer prices, without retail mark-up, mark-downmarkup, markdown or commission and may not necessarily represent actual transactions.

 Period Ending December 31, 2015
Quarter Ended High $ Low $
 March 31   0.08   0.02 
           
 June 30   0.04   0.03 
           
 September 30   0.04   0.03 
           
 December 31   0.08   0.01 
           
  Period Ending December 31, 2014
 Quarter Ended     High $     Low $ 
 March 31   0.31   0.11 
           
 June 30   0.16   0.05 
           
 September 30   0.15   0.05 
           
 December 31   0.13   0.05 

  HIGH  LOW 
    
Fiscal Year 2017        
First quarter $0.08  $0.02 
Second quarter $0.06  $0.03 
Third quarter $0.09  $0.05 
Fourth quarter $0.09  $0.05 
         
Fiscal Year 2016        
First quarter $0.08  $0.02 
Second quarter $0.06  $0.02 
Third quarter $0.06  $0.03 
Fourth quarter $0.03  $0.02 

 

Quotations on the OTCBB reflect bid and ask quotations, may reflect inter-dealerinterdealer prices, without retail markup, markdown or commission and may not represent actual transactions.

 

(b)Holders

(b)Holders

 

The number of record holders of the Company’s common stock as of April 10, 2015, was approximately 149.11, 2018 is 144.

 

(c)Dividends

(c)Dividends

 

We have never paid any cash dividends on our common shares, and we do not anticipate that we will pay any dividends with respect to those securities in the foreseeable future. Our current business plan is to retain any future earnings to finance the expansion development of our business.

 

(d)Securities Authorized for Issuance Under Equity Compensation Plans

(d)Securities Authorized for Issuance Under Equity Compensation Plans

 

As of December 31, 2015,2017, there were 10,000,000 common securities authorized for issuance under the Company’s 2013 Stock Option Plan (which was previously approved by securityholders). 

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security holders) of which there were 480,000 options outstanding as of December 31, 2017.

Recent Sales of Unregistered Securities

 

In the securities transactions described below, shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(a)(2) promulgated thereunder due to the fact that the issuance did not involve a public offering because of the insubstantial number of persons involved in each offering, the size of the offering, manner of the offering and number of shares offered. Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(a) (2) of the Securities Act for these transactions.

 


The following is a summary of the securities transactions during the year ended December 31, 2015:2017:

 

On January 15, 2015 the Company issued 300,000 shares of the Company’s common stock to JMJ pursuant to the conversion of a convertible note totaling US$8,117 at a conversion price of US$0.027 per share.

1.On February 2, 2017, the Company entered into a Securities Purchase Agreement with an investor whereby the Company borrowed $100,000 in exchange for a convertible promissory note of $110,000 in terms of an unsecured convertible promissory note with a maturity date of August 2, 2017. The note bore interest at a rate of 8% per annum. The note was convertible upon a repayment default, at the lower of 60% of the lowest traded price over the preceding 30 day trading period prior to the issuance of this note or 60% of the lowest traded price 30 days prior to the conversion date. The note was repaid on May 26, 2017.

 

On March 31, 2015, the Company cancelled 2,909 shares of the Company’s common stock pursuant to a convertible note conversion to recognize the effect of the currency exchange difference in the note conversion.

2.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. The property is 43 acres in size and contains approximately 48,000 square feet of buildings. The property is owned by Ethema’s wholly owned Canadian subsidiary CCH and has been leased to the new owner of the Muskoka Clinic for an initial term of five years.

 

On March 31, 2015, the Company issued 250,000 shares of the Company’s common stock and 106,000 of the Company’s Series B Preferred stock to Castelli as compensation for services rendered totaling$56,096.

3.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.

 

4.On June 19, 2017, the Company, entered into a Securities Purchase Agreement with an investor whereby the Company borrowed $110,000 in exchange for a convertible promissory note of $113,500. The Note had a maturity date of March 20, 2018 and bore interest at the at the rate of eight percent per annum. The note was repaid on December 14, 2017.

On April 30, 2015, the Company issued 1,060,000 shares of the Company’ common stock to Castelli upon conversion of the 106,000 Series B Preferred stock, mentioned above, at a conversion ratio of10:1.

5.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.

6.On November 6, 2017, the company entered into a Securities Purchase Agreement with an investor whereby the Company borrowed $100,000 in exchange for a convertible promissory note of $103,000. The Note has a maturity date of August 15, 2018 and bears interest at 12% per annum. The note is convertible into shares of common stock 180 days after the issue date at a conversion price of 61% of the market price of the common stock determined by the lowest trading price in the preceding 10 day trading period.

7.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.

8.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.

 

Penny Stock

 

The U.S. Securities and Exchange Commission (the “SEC”) has adopted rules that regulate broker-dealerbroker dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer,broker dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws;laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price;price; (d) contains a toll-freetollfree telephone number for inquiries on disciplinary actions;actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks;stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

 

The broker-dealerbroker dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock;stock; (b) the compensation of the broker-dealerbroker dealer and its salesperson in the transaction;transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock;stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account.

 

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealerbroker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

 

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.

 

Table of Contents6

Item 6. Selected Financial Data.

 

Not applicable as we are a smaller reporting company.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Special Note Regarding Forward-Looking Statements

 

Forward-Looking Statements

This annual reportMany of the matters discussed within this Annual Report on Form 10-K (“Annual Report”) contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) on our current expectations and other reports filedprojections about future events. In some cases, you can identify forward-looking statements by Greenestone Healthcare Corp. (“we,terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. Such risks and uncertainties include the risks noted under Part 1. “Business,” Part 1A “Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere. We do not undertake any obligation to update any forward-looking statements. Unless the context requires otherwise, references to “we,” “us,” “our,” or the “Company”) from timeand “Icagen,” refer to time with the SEC contain or may containIcagen, Inc. and its subsidiaries.

Furthermore, if our forward-looking statements and information that are based upon beliefsprove to be inaccurate, the inaccuracy may be material. In light of and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance onsignificant uncertainties in these forward-looking statements, which are only predictionsyou should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and speak only as of the date hereof. When usedplans in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,”any specified time frame, or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company doesat all. We do not intendundertake any obligation to update any of the forward-looking statements to conform these statements to actual results.statements.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates. This discussion and analysis should be read in conjunction with the Company’s financial statements and accompanying notes to the financial statements for the year ended December 31, 2015.2017.

 

Plan of Operation

 

DuringOn February 14, 2017, and in terms of the next twelve months,agreements entered into on May 19, 2016, GreeneStone completed a series of transactions (referred to collectively as the “Restructuring Transactions”), including a share purchase agreement (the“SPA”)whereby Ethema acquired the stock of the company holding the Muskoka Healthcare Clinic real estate, an asset purchase agreement (the“APA”)and lease (the “Lease”) whereby the Company plans to continue and expand its operations as a provider of addiction and after-care treatment services. The Company plans to focus on the growth of its addiction and aftercare treatment units while simultaneously reducing costs in current operations.

The Company finalized the terms for the acquisitionsold all of the property currentlyMuskoka clinic business assets and leased by the Company. The property, which isclinic building to the locationbuyer, and a real estate purchase agreement and asset purchase agreement whereby Ethema purchased the real estate and business assets of GreeneStone's Muskoka addiction treatment center, encompasses approximately 48,000 square feet of buildings on 43 acres and is adjacent to Lake Muskoka in Ontario. The Company expects this deal to close by the second quarter of the 2016 financial year, once the appropriate funding has been raised.Seastone Delray (the “Florida Purchase”).

The Company plans to expand its addiction treatment business with acquisitions. In 2014, the Company entered into an Agreement to purchase certain buildings inWestPalm Beach, Florida, totaling approximately 80,000 square feet, on which the present tenant operates a non-binding lettersubstance abuse treatment center. The purchase price of intent with Venture Academythe Property is $20,530,000. The closing of the transaction, which is subject to acquire teen addition treatment centers in Ontariostandard due diligence, conditions to closing and British Columbia. The Company will needdeliverables, is scheduled to raise additional capital for this acquisition, which would requireoccur on May 8, 2018 , or such earlier date as is agreed upon by the sale of its equity and/or debt securities and securing bank financing.parties.

 

Results of Operationsoperations for the year ended December 31, 2017 and the year ended December 31, 2016.

 

ForThe company sold its Greenestone Muskoka Treatment Center effective February 17, 2017, simultaneously with the Fiscal Year Endedpurchase of the assets and real estate of an addiction treatment center in Delray Beach, Florida. The disposal of the Greenestone Muskoka Treatment Center has been reflected as a discontinued operation in the financial statements as of December 31, 2015, Compared to2017 and 2016 and the Fiscal Year Ended December 31, 2014

Table of Contents7

Revenue

We had revenues totaling $3,138,878results of operations and $3,416,342cash flows for the years ended December 31, 20152017 and 2014, respectively, a decrease of $277,464 or 8.1%. We operate in Canada2016.

Revenue

Revenue was $929,416 and our functional currency is the Canadian Dollar. Our revenue, in Canadian Dollars increased from CAD$3,963,274 to CAD$4,003,090$0 for the years ended December 31, 20142017 and 2015, respectively, an increase of $39,816 or 1.0%.2016, respectively. The decrease in revenue in US$ terms is attributable to the relative strength of the US$ against the CAD$ during the current year, the average exchange rate between the CAD$2017 represents revenues earned from our Seastone operations, located in Delray Beach and the US$ has weekend from $0.9051acquired in February 2017. Revenue in the prior year to $0.7833 inis reflected under discontinued operation described below. Since this is the currentfirst year a decrease in the average exchange rate of 15.5%. The Company believes that revenue will grow over the next year.operations for Seastone, we have no meaningful comparison.


Operating Expenses

 

Operating expenses totaled $3,459,450was $2,382,573 and $4,757,851$790,880 for the years ended December 31, 20152017 and 2014,2016, respectively, a decreasean increase of $1,298,401$1,591.693 or 27%201.3%. The decreaseincrease in operating expenses in US$ terms is attributable to the relative strength of the US$ against the CAD$ during the current year, the average exchange rate between the CAD$ and the US$ has weekend from $0.9051 in the prior year to $0.7833 in the current year, a decrease in the average exchange rate of 15.5%. The decline in the currency exchange rate accounts for approximately $530,156 of the differential. The non-currency decrease is primarily attributed to a reduction in labor of $903,217 due to a reduction in labor overhead costs and the cessation of aftercare services.  to:

General and administrative expenses of $762,325 and $144,536 for the years ended December 31, 2017 and 2016, respectively, an increase of $617,789 or 427.4%, primarily due to the operating expenses of Seastone, acquired during February 2018.
Management fees of $289,125 and $257,283 for the years ended December 31, 2017 and 2016, respectively, increased by $31,842 or 12.4%, primarily due to additional effort required by our CEO to operate the business.
Professional fees of $626,548 and $249,395 for the years ended December 31, 2017 and 2016, respectively, increased by $377,153 or 151.2%, primarily legal fees related to the Corporate restructure, the disposal of GreeneStone Muskoka’s business, the acquisition of Seastone of Delray and the acquisition of CCH during the current year.
Salaries and wages of $770,076 and $139,666 for the years ended December 31, 2017 and 2016, respectively, increased by $630,410 or 451.4%, primarily due to salaries related to the Seastone operation which was acquired in February 2017. Salaries for Greenestone Muskoka are reflected in discontinued operations in 2016.
Depreciation was $223,623 and $0 for the years ended December 31, 2017 and 2016, respectively, the depreciation consist primarily of depreciation on property, plant and equipment related to the acquisition of the assets of Seastone of Delray and the acquisition of CCH, which owns the buildings in which Canadian Addiction Residential Treatment, now operates.

Operating loss

 

The operating loss totaled $320,572was $1,453,157 and $1,341,509$790,880 for the years ended December 31, 20152017 and 2014,2016, respectively, a decreasean increase of $1,020,937, primarily due$662,277 or 83.7%. The increase is attributable to the declinemovement in revenue and operating expenses explainedabove.discussed above.

 

Other expenseincome

 

Other expenseincome of $457,913 consists primarily of the provision of $446,476 raised against the receivable on the sale of the Endoscopy clinic. This receivable was fully provided for as there were no payments received in accordance with the agreement or any payments received as of the date hereof.

Interest expense

Interest expense totaled $192,104$475,487 and $310,583$72,508 for the years ended December 31, 20152017 and 2014,2016, respectively, a decreasean increase of $118,479$402,979 or 38.1%555.8%. The declineOther income in the current period consists of an approximate declinethe reversal of $29,871 duea provision raised against a receivable on the disposal of the Endoscopy Clinic in prior years amounting to $472,368, the deterioration inreceivable was assigned to Leon Developments as part of the exchange rate and a reduction inpurchase consideration paid on the interest bearing convertible notes which were carriedacquisition of CCH. Other income in the prior year offset byrepresented the proceeds related to the sale of certain oil rights which belonged to the Company prior to changing its operations to that of drug rehabilitation and treatment centers.

Other expense

Other expense of $5,093,954 and $156,387 for the years ended December 31, 2017 and 2016, an increase of $4,937,567 or 3,157.3%, represents; ; i) $5,074,689 of the excess of the purchase price paid over the carrying value of the assets of CCH. This expenditure is classified as once-off compensation expense to our CEO who owns 100% of Leon Developments, the counterparty to the purchase of the CCH Subsidiary; ii) $19,265 represents the loss realized on disposing of a portion of the mortgage owned by the Company in CCH, at a discount to face value. Other expense in the prior period consists primarily of expenses incurred in operating the Seastone of Delray Clinic, in terms of a management agreement, prior to its acquisition on February 14, 2017.

Interest income

Interest income of $32,074 consists primarily of interest earned on the receivable from the sale of our Endoscopy Clinic in prior years. The interest due on this receivable was reversed in prior periods due to uncertainty as to the collectability of this amount. The receivable was assigned to Leon Developments as part of the purchase consideration for CCH.


Interest expense

Interest expense of $367,547 and $29,504 for the years ended December 31, 2017 and 2016, respectively, an increase of $338,043 or 1,145.8% was primarily due to interest due on the mortgage loans assumed by the Company when it acquired CCH and on the purchase money mortgage loan entered into to acquire the properties associated with Seastone of Delray. In the prior year the interest expense attributable toconsisted primarily of interest on payrollthe short term convertible note advanced to the Company during the prior period and Harmonized SalesTax(“HST”), and accruals for income taxpenalties.subsequently paid off before the prior period end.

 

Debt discount

Debt discount was $668,916 and $93,244 for the year ended December 31, 2017 and 2016, respectively, an increase of $575,672 or 617.4%. The charge during the current period represents the amortization of the value of the warrants issued in terms of the convertible loan agreements entered into during December 2016 and January 2017 and the amortization of the fair value of the beneficial conversion feature of convertible notes issued to note holders during 2017, the fair value of the warrants and the beneficial conversion feature are amortized over a six to twelve month period, the term of the underlying convertible securities. The $93,244, incurred in the prior period represents the amortization of the value of warrant and original issue discount attached to a short-term loan.

Derivative liability movement

The derivative liability movement during the current year represents the mark to market movements of variably priced convertible notes and warrants issued during the current year. These securities are marked to market on a quarterly basis and the resultant gain or loss is booked as a derivative liability movement in the statement of operations.

Foreign exchange movements

Foreign exchange movements of $184,586, represent$(81,031) and $811 for the years ended December 31, 2017 and 2016, represents the realized exchange lossgains and (losses) on monetary assets and liabilities settled during the current year as well as mark to market adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars.

 

Net lossincome (loss) from discontinued operations

During the prior year, the Company disposed of its Endoscopy Clinic to a related party. The net lossincome from discontinued operations amounted to $248,181.

Table of Contents8

Net Loss

Net loss totaled $1,155,176of $6,821,889 and $1,900,273$735,987 for the years ended December 31, 20152017 and 2014,2016, respectively, a decreasean increase of $745,097,$6,085,902 or 826.9%:

The current year income is primarily made up as follows:

Operating loss of $300,439, the operations were disposed of on February 14, 2017, and the loss includes expenditure incurred to dispose of the operation.
Profit on sale of the business of the Canadian Rehab Clinic of $7,494,828 represents the excess of the proceeds received over the assets disposed of as reflected in note 1 and 3 to the consolidated financial statements.
Foreign exchange loss of $135,190 which represents the realized gains on the monetary assets and liabilities settled during each period as well as mark to market adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars.

Net loss

Net loss of $1,368,487 and $260,709 for the years ended December 31, 2017 and 2016, respectively, an increase of $1,107,778 or 424.98%, is primarily due to the decrease in operating expenses,profit realized on the sale of the Canadian Rehab clinic of $7,494,828, the reversal of the provision raised against the loan on sale of the Endoscopy unit inclinic of $472,368, offset by the prior yearcompensation charge of $5,074,689 relating to the acquisition of CCH, the amortization of $668,916 of debt discount during the current period and the decline in interest expense, discussed above.mark-to-market movements of the derivative financial liabilities.

 

Contingency related to outstanding payroll tax liabilities:liabilities

 

The Company wasis delinquent in filing previous payrollits USA tax returns, resulting in taxes, interest andthese returns are currently being prepared by our tax advisors, although we do not anticipate any taxation liability to arise, we may be faced with penalties payable at December 31, 2015 and 2014. As of December 31, 2015 and 2014 as part of Taxes Payable, thefor failing to file tax returns timeously.

The Company has payrollalso not filed certain foreign assets forms due to the US Federal Government. A provision of $250,000 was made for any potential penalties due This issue is being addressed by our tax liabilitiesadvisors together with our tax returns mentioned above. remaining liability of approximately $2,429,032 and $2,065,000, respectively due$250,000 relates to various taxing authorities on the consolidated balance sheets. If the Company does not satisfy these liabilities, the taxing authorities may place liens on its bank accounts which would have a negative impact on its ability to operate. Further, the actual liability may be higher due to interest or penalties assessed by the taxing authorities.filing of certain foreign assets forms. This issue is currently being addressed.


Liquidity and Capital Resources

 

The following table summarizes working capital at December 31, 2015,2017, compared to December 31, 2014.2016.

 

  

December 31,

2015

 

December 31,

2014

 

Increase (Decrease)

Current Assets $199,245  $783,178  $(583,933)
Current Liabilities  (3,596,511)  (3,847,826)  251,315 
Working Capital (Deficit) $(3,397,266) $(3,064,648) $(332,618)

  December 31, 2017  December 31, 2016  Increase (Decrease) 
          
Current assets $334,619  $275,575  $59,044 
Current liabilities  (6,860,178)  (3,637,111)  (3,223,067)
             
  $(6,525,559) $(3,361,536) $(3,164,023)

The increase in current assets during the current year is primarily due to the increase in receivable of $218,858 from the Seastone operations an increase in prepaid expenses of $$96,632 offset by a reduction in the discontinued operation asset of $183,219 in the prior year.

The increase in current liabilities, includes, a derivative liability of $2,859,832, the fair value of convertible securities which are marked-to-market on a quarterly basis. This derivative has no impact on cash flow. In addition there is a payable of approximately $2,597,000 owing primarily to Leon Developments, a company wholly owned by our CEO Shawn Leon, this payable arose primarily on the acquisition of CCH during the current year.

 

Over the next twelve months we estimate that the company will require $3.5million to cover the$3.0 million in working capital deficitas it continues to develop its Seastone of Delray business and properly market and promoteconcludes the company.acquisition of the 174 bed rehabilitation center located on West Palm Beach. The company willmay have to raise equity or secure debt. 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, the Company’s liquidity risk is assessed as high and remains unchangedmedium, a change from the prior year.years, high risk assessment, due to the settlement of the outstanding tax liabilities mentioned above.

Item 8. Financial Statements and Supplementary Data.

 

GREENESTONE HEALTHCAREETHEMA HEALTH CORPORATION

 

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US$ unless otherwise indicated)

 

 PAGE
Report of Independent Registered Public Accounting Firm11F-1
Consolidated Balance Sheets as of December 31, 20152017 and 2014201612F-2
Consolidated Statements of Operations and comprehensive loss for the year ended December 31, 20152017 and 2014201613F-3
Consolidated Statements of Changes in Stockholders Deficit for the years ended December 31, 20152017 and 2014.2016.14F-4
Consolidated Statements of Cash Flows for the years ended December 31, 20152017 and 2014201615F-5
Notes to the Consolidated Financial Statements17F-6

 

Table of Contents10

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Ethema Health Corporation 

 

StockholdersofGreeneStone HealthcareCorporation

Wehave auditedtheaccompanying consolidated balancesheetsofGreeneStone Healthcare Ethema Health Corporation (“the Company”) asofDecember31, 20152016 and2014andtherelatedconsolidatedstatementsof operationsandothercomprehensive loss, stockholders’ deficit and cash flows fortheyearsendedDecember31, 2015and2014.2016. Theseconsolidatedfinancial statementsaretheresponsibilityoftheCompany’s management.Ourresponsibility is to express anopinionontheseconsolidatedfinancial statements basedonouraudit.

 

Weconducted our auditin accordancewith thestandardsofthePublic CompanyAccountingOversight Board (United States). Those standards requirethatweplanand performthe audittoobtainreasonable assuranceabout whether thefinancial statementsarefreeofmaterial misstatement. The Company isnotrequired tohave,norwereweengagedtoperform,anauditof itsinternal controloverfinancial reporting.Our audit includedconsiderationofinternal controloverfinancial reporting as a basis fordesigningauditproceduresthatareappropriate inthecircumstances,but notforthepurposeofexpressing anopinionontheeffectivenessoftheCompany’s internal controloverfinancial reporting. Accordingly,weexpressnosuchopinion.An auditalsoincludesexamining, ona test basis,evidence supportingtheamounts and disclosures inthefinancial statements, assessingthe accountingprinciplesused and significant estimates madebymanagement, aswellasevaluating theoverall financial statement presentation.Webelieve thatour auditprovidesa reasonable basis forouropinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of GreeneStone HealthcareEthema Health Corporation as of December 31, 2015 and 20142017 and the results of its operations and its cash flows for the years ended December 31, 2015 and 20142016 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 36 to the consolidated financial statements, the Company has sustained net losses and has a working capital and stockholder’s deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3.6. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ RBSM LLP

 

New York, NY 10022

April 14, 201617, 2018


ETHEMA HEALTH CORPORATION

GREENESTONE HEALTHCARE CORPORATION
CONSOLDATED BALANCE SHEETS
     
  December 31, 2015 December 31, 2014
ASSETS    
Current assets        
Cash $174  $88,152 
Accounts receivable, net  183,583   164,832 
Prepaid expenses  15,489   36,388 
Due on sale of Subsidiary  —     493,806 
Total current assets  199,245   783,178 
Non-current assets        
Cash - Restricted  72,250   86,200 
Deposits  8,217   9,879 
Fixed assets, net  193,131   256,543 
Total non-current assets  273,598   352,622 
Total assets $472,843  $1,135,800 
         
LIABILITIES AND STOCKHOLDERS' DEFICIT        
         
Current liabilities        
Bank overdraft $15,801   —   
Accounts payable and accrued liabilities  606,274   808,971 
Taxes payable  2,490,506   2,806,297 
Deferred revenue  181,075   143,839 
Current portion of loan payable  6,684   7,625 
Short-term loan  21,675   29,758 
Related party payables  274,496   51,336 
Total current liabilities  3,596,511   3,847,826 
Non-current liabilities        
Loan payable  8,788   18,460 
Total liabilities  3,605,299   3,866,286 
         
Stockholders' deficit        
Preferred stock - Series A; $0.01 par value, 3,000,000 authorized, nil outstanding as of December 31, 2015 and 2014.  —     —   
Preferred Stock - Series B; $0.01 par value, 10,000,000 authorized, nil outstanding as of December 31 2015 and 2014 respectively  —     —   
Common stock; $0.01 par value, 500,000,000 shares authorized; 47,738,855 and 46,131,764 shares issued and outstanding  as of December 31, 2015 and 2014 respectively  477,389   461,318 
Additional paid-in capital  16,177,534   16,129,038 
Accumulated other comprehensive income  933,826   245,187 
Accumulated deficit  (20,721,205)  (19,566,029)
Total stockholders' deficit  (3,132,456)  (2,730,486)
         
Total liabilities and stockholders' deficit $472,843  $1,135,800 

The accompanying notes are an integral part of the consolidated financial statements

GREENESTONE HEALTHCARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS

  

Year ended December 31,

2015

 

Year ended December 31,

2014

         
Revenues $3,138,878  $3,416,342 
         
Operating expenses        
Depreciation and amortization  90,862   83,701 
General  and administrative  790,136   903,019 
Management fees  96,705   122,271 
Professional fees  346,257   308,349 
Rent  383,163   412,488 
Salaries and wages  1,752,327   2,928,023 
Total  operating expenses  3,459,450   4,757,851 
         
Operating loss  (320,572)  (1,341,509)
         
Other expense        
Other expense  (457,913)  —   
Interest expense  (192,104)  (310,583)
Foreign  exchange movements  (184,586)  —   
Net loss before taxation from continuing operations  (1,155,176)  (1,652,092)
Taxation  —     —   
Net loss from continuing operations  (1,155,176)  (1,652,092)
Loss from discontinued operations, net of tax  —     (248,181)
Net loss  (1,155,176)  (1,900,273)
Accumulated  other comprehensive loss        
Foreign  currency  translation adjustment  688,639   71,356 
         
Total comprehensive loss $(466,537) $(1,828,917)
         
Basic and diluted loss per common share continuing  operations $(0.02) $(0.04)
Basic and diluted loss per common share $(0.02) $(0.04)
         
Weighted average common shares  outstanding  47,317,928   46,701,090 

BALANCE SHEETS

         

The accompanying notes are an integral part of the consolidated financial statements                

GREENESTONE HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                 
  

Preferred

Series "B"

 Common Additional Paid in Comprehensive Accumulated   
  Shares Amount Shares Amount Capital Income Deficit Total
                                 
Balance as of December 31, 2013  —    $—     41,065,582  $410,656  $13,920,629  $264,135  $(17,665,756) $(3,070,336)
                                 
Surrender of shares as part of sale of subsidiary  —     —     (2,408,268)  (24,083)  (253,417)  —     —     (277,500)
Disposition of subsidiary  —     —             1,104,407   (90,304)      1,014,103 
Common stock issued for convertible notes  —     —     728,459   7,285   190,445   —     —     197,730 
Common stock issued for short term note  —     —     2,245,991   22,460   104,616   —     —     127,076 
Shares issued for cash  —     —     4,500,000   45,000   337,500   —     —     382,500 
Stock option compensation  —     —     —     —     679,858   —     —     679,858 
Beneficial conversion feature of debt issuances  —     —     —     —     45,000   —     —     45,000 
Foreign currency translation  —     —     —     —     —     71,356   —     71,356 
Net loss, year ended December 31, 2014  —     —     —     —     —     —     (1,900,273)  (1,900,273)
Balance as of December 31, 2014  —    —     46,131,764   461,318   16,129,038   245,187   (19,566,029)  (2,730,486)
                                 
Shares issued for debt conversion  —     —     300,000   3,000   5,117   —     —     8,117 
Shares issued for services  106,000   1,060   250,000   2,500   53,346   —     —     56,906 
Conversion of Series "B" Preferred shares to common  (106,000)  (1,060)  1,060,000   10,600   (9,540)  —     —     —   
Adjustments to previously issued shares for debt conversion, due to exchange adjustments  —     —     (2,909)  (29)  (427)  —     —     (456)
Foreign currency translation          —     —     —     688,639   —     688,639 
Net loss, year ended December 31, 2015  —     —     —     —     —     —     (1,155,176)  (1,155,176)
Balance as of December 31, 2015  —    $—     47,738,855  $477,389  $16,177,534  $933,826  $(20,721,205) $(3,132,456)

The accompanying notes are an integral part of the consolidated financial statements

GREENESTONE HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
  Year ended December 31, 2015 Year ended December 31, 2014
Operating activities        
Net loss $(1,155,176) $(1,900,273)
Net loss from discontinued operations  —     248,181 
Net loss from continuing operations  (1,155,176)  (1,652,092)
Adjustment to reconcile net loss to net cash (used in) provided by operating activities:        
Depreciation and amortization  90,862   83,701 
Provision for bad debts  (14,010)  (1,148)
Provision against receivable on sale of subsidiary  446,476   —   
Stock issued for services  56,906   679,858 
Other foreign exchange movements  46,874   —   
Amortization of beneficial conversion feature  12,709   21,650 
Changes in operating assets and liabilities        
Accounts receivable  (4,740)  30,819 
Prepaid expenses  20,899   38,256 
Accounts payable and accrued liabilities  (202,697)  368,364 
Taxes payable  (315,791)  434,378 
Deferred revenue  37,236   36,364 
Net cash (used in) provided by operating activities - continuing operations  (980,452)  40,150 
Net cash provided by operating activities - discontinued operations  —     531,788 
Net cash (used in) provided by operating activities  (980,452)  571,938 
         
Investing activities        
Purchase of fixed assets  (27,450)  (56,998)
Movement in deposits  1,662   —   
Net cash used in investing activities  (25,788)  (56,998)
         
Financing activities        
Decrease in restricted cash  13,950   7,820 
Increase (decrease) in bank overdraft  15,801   (126,073)
Repayment of loan payable  (10,613)  (9,992)
Repayment of notes payable  (34,350)  (328)
Proceeds from short-term notes  21,675   150,000 
Proceeds from related party notes  223,160   —   
Repayment of related party notes  —     (203,541)
Proceeds from the sale of common stock  —     382,500 
Net cash provided by financing activities - continuing operations  229,623   200,386 
Net cash used in financing activities - discontinued operations  —     (698,530)
Net cash provided by financing activities  229,623   (498,144)
         
Effect of exchange rate on cash  688,639   71,356 
         
Net change in cash  (87,978)  88,152 
Beginning cash balance  88,152   —   
Ending (overdraft) cash balance $174  $88,152 
         
Supplemental cash flow information        
Cash paid for interest $19,202  $80,531 
Cash paid for income taxes $—    $—   
         
Non cash investing and financing activities        
Common stock issued on conversion of convertible notes $8,117  $197,730 
Common stock issued on conversion of short term notes payable $—    $127,076 
Common stock surrendered on disposition of subsidiary $—    $277,500 
  December 31, 2017  December 31, 2016 
       
ASSETS   
       
Current assets        
Cash $339  $4,779 
Accounts receivable  218,858    
Prepaid expenses  99,342   2,710 
Discontinued operations     183,219 
Related party Receivables  16,080   84,867 
Total current assets  334,619   275,575 
Non-current assets        
Investment     110,000 
Deposit on real Estate  1,825,000     
Due on sale of subsidiary  1,191,225    
Property, plant and equipment  7,573,858    
Goodwill  1,580,000    
Cash - Restricted     74,480 
Total non-current assets  11,933,809   184,480 
Total assets $12,268,428  $460,055 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
         
Current liabilities        
Bank overdraft $28,927  $56,116 
Accounts payable and accrued liabilities  372,244   374,317 
Taxes payable  689,240   2,798,824 
Convertible loans  160,453   250,258 
Loans payable  152,402    
Derivative liability  2,859,832    
Related party payables  2,597,080   157,596 
Total current liabilities  6,860,178   3,637,111 
Non-current liabilities        
Loan payable  7,183,892    
Total liabilities  14,044,070   3,637,111 
         
Stockholders’ deficit        
Preferred stock - Series A; $0.01 par value, 3,000,000 authorized, nil outstanding as of December 31, 2017 and 2016.      
Preferred Stock - Series B; $0.01 par value, 10,000,000 authorized, nil outstanding as of December 31, 2017 and 2016.      
Common stock; $0.01 par value, 500,000,000 shares authorized; 122,989,230 and 48,738,855 shares issued and outstanding  as of December 31, 2017 and  2016, respectively.  1,232,393   487,389 
Additional paid-in capital  18,545,913   16,509,906 
Accumulated other comprehensive income  796,453   807,563 
Accumulated deficit  (22,350,401)  (20,981,914)
Total stockholders’ deficit  (1,775,642)  (3,177,056)
Total liabilities and stockholders’ deficit $12,268,428  $460,055 

 

The accompanying notes are an integral part of the consolidated financial statements


ETHEMA HEALTH CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS 

AND COMPREHENISIVE LOSS

  Year ended December 31, 2017  Year ended December 31, 2016 
       
Revenues $929,416  $ 
         
Operating expenses        
General and administrative  762,325   144,536 
Management fees  289,125   257,283 
Professional fees  626,548   249,395 
Salaries and wages  770,076   139,666 
Depreciation and amortization  223,623    
Total operating expenses  2,382,573   790,880 
         
Operating loss  (1,453,157)  (790,880)
         
Other Income (expense)        
Other income  475,487   72,508 
Other expense  (5,093,954)  (156,387)
Interest income  32,074    
Interest expense  (367,547)  (29,504)
Debt discount  (668,916)  (93,244)
Derivative liability movement  (1,033,332)   
Foreign exchange movements  (81,031)  811 
Net loss before taxation from continuing operations  (8,190,376)  (996,696)
Taxation      
Net loss from continuing operations  (8,190,376)  (996,696)
Gain on disposal of business      
Operating income from discontinued operations, net of tax  6,821,889   735,987 
Net income from discontinued operations, net of tax  6,821,889   735,987 
Net loss  (1,368,487)  (260,709)
Accumulated other comprehensive loss        
Foreign currency translation adjustment  (11,110)  (126,263)
         
Total comprehensive loss $(1,379,597) $(386,972)
         
Basic loss per common share from continuing operations $(0.08) $(0.02)
Basic income per share from discontinued operations $0.06  $0.02 
Basic loss per common share $(0.02) $ 
Diluted loss per common share from continuing operations $(0.06) $(0.02)
Diluted income per share from discontinued operations $0.05  $0.02 
Diluted loss per common share $(0.01) $ 
Weighted average common shares outstanding - Basic  107,352,184   48,305,978 
Weighted average common shares outstanding - Diluted  148,801,780   48,305,978 

The accompanying notes are an integral part of the consolidated financial statements

Table of Contents16

GREENESTONE HEALTHCARE

ETHEMA HEALTH CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) 

  Preferred Series B  Common  Additional          
  Shares  Amount  Shares  Amount  Paid in Capital  Comprehensive Income  Accumulated Deficit  Total 
                         
Balance at January 1, 2016    $   47,738,855  $477,389  $16,177,534  $933,826  $(20,721,205) $(3,132,456)
Shares issued for services        1,000,000   10,000   40,000         50,000 
Fair value of warrants issued              291,955         291,955 
Proceeds received on warrants issued              417         417 
Foreign currency translation                 (126,263)     (126,263)
Net loss                    (260,709)  (260,709)
Balance as of December 31, 2016    $   48,738,855  $487,389  $16,509,906  $807,563  $(20,981,914) $(3,177,056)
                                 
Shares issued to acquire subsidiary        60,000,000   600,000   1,584,000         2,184,000 
Conversion of debt to equity        12,500,375   125,004   250,007           375,011 
Fair value of warrants issued              71,000         71,000 
Shares issued for services        100,000   1,000   3,000         4,000 
Shares issued for commitment fee        1,900,000   19,000   128,000           147,000 
Foreign currency translation                 11,110      11,110 
Net loss                    (1,368,487)  (1,368,487)

Balance as of December 31, 2017

    $   123,239,230  $1,232,393  $18,545,913  $796,453  $(22,350,401) $(1,775,642)

The accompanying notes are an integral part of the consolidated financial statements


ETHEMA HEALTH CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS 

  Year ended December 31, 2017  Year ended December 31, 2016 
Operating activities        
Net loss $(1,368,487) $(260,709)
Net income from discontinued operations $(6,821,889) $(735,987)
Net loss from continuing operations $(8,190,376) $(996,695)
Adjustment to reconcile net loss to net cash (used in) provided by operating activities:        
Depreciation  444,959   93,244 
Non cash compensation expense on acquisition of subsidiary  5,074,689    
Non cash interest accrual  (32,074)   
Non cash compensation for services  151,000    
Loss on sale of mortgage  19,853    
Other foreign exchange movements     50,000 
Amortization of debt discount  668,916    
Derivative liability movements  1,033,332    
Provision against receivable on sale of subsidiary  (472,368)   
Amortization of beneficial conversion feature     494 
Changes in operating assets and liabilities        
Accounts receivable  (218,591)   
Prepaid expenses  (85,176)  (2,710)
Accrued purchase consideration  236,982    
Accounts payable and accrued liabilities  (232,628)  (232,105)
Taxes payable  (2,158,233)  308,318 
Net cash used in operating activities - continuing operations  (3,981,052)  (779,455)
Net cash (used in) provided by operating activities - discontinued operations  (426,398)  775,313 
   (4,407,450)  (4,142)
Investing activities        
Investments in Seastone  (2,960,000)  (110,000)
Deposit on property  (1,748,988)   
Purchase of fixed assets  (241,514)   
Net cash used in investing activities - continuing operations  (4,950,502)  (110,000)
Net cash provided by (used in) investing activities - discontinued operations  6,497,400   (3,199)
   1,546,898   (113,199)
         
Financing activities        
(Decrease) Increase in bank overdraft  (28,718)  40,315 
Repayment of loan payable     (15,472)
Proceeds from short-term notes     124,350 
Repayment of short-term note     (148,603)
Proceeds from mortgage sold  110,294    
Proceeds from mortgage  4,391,452    
Repayment of mortgage  (3,408,995)   
Proceeds from convertible notes  1,897,500   668,969 
Repayment of convertible notes  (388,458)  (220,000)
Proceeds from related party notes  366,222   (201,766)
Proceeds from warrants issued     417 
Net cash provided by financing activities  2,939,297   248,210 
         
Effect of exchange rate on cash  (83,185)  (126,263)
         
Net change in cash  (4,440)  4,605 
Beginning cash balance  4,779   174 
Ending cash balance $339  $4,779 
         
Supplemental cash flow information        
Cash paid for interest $253,256  $39,136 
Cash paid for income taxes $  $ 
         
Non cash investing and financing activities        
Common shares issued to acquire subsidiary $2,184,000  $ 
Conversion of debt to equity $375,011  $ 
Fair value of warrants issued $71,000  $ 
Assumption of mortgage liabilities on acquisition of subsidiary $3,145,549  $ 
Debt discount relating to warrants issued with convertible debt $  $291,955 

The accompanying notes are an integral part of the consolidated financial statements


ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.Nature of Business

1.Nature of Business

 

GreeneStone HealthcareEthema 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 corporate name to GreeneStone Healthcare Corporation from Nova Natural Resources Corporation. As atof December 31, 2015 and 2014,2017, the Company ownsowned 100% of the outstanding shares of GreenestoneGreeneStone Clinic Muskoka Inc., which was 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. Greenestoneand 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 theSPA,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 theAPA,the assets of the Canadian Rehab Clinic were sold by the Company, through its subsidiary, GreeneStone Clinic Muskoka Inc. provides medical services(“Muskoka”), to various patientsCanadian Addiction Residential Treatment LP (the “Purchaser”), for a total consideration of CDN$10,000,000, plus an additional performance payment of up to CDN$3,000,000 as a performance payment to be received in a2019 if certain clinic locatedperformance metrics are met. The Purchaser completed the sale with cash proceeds to the Company of CDN$10,000,000, of which CDN$1,500,000 will remain in escrow for up to two years to cover indemnities given by the regional municipalityCompany. The proceeds of Muskoka.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.

 

2.SummaryThrough theAPA,substantially all of Significant Accounting Policiesthe 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.

 

a)Financial ReportingThe Florida Purchase

Immediately after closing on the sale of the assets of the Canadian Rehab Clinic, the Company closed on the acquisition of the business and real estate assets of Seastone Delray pursuant to certain real estate and asset purchase agreements This business is operated through its wholly owned subsidiary Seastone. The purchase price for the Seastone assets was US$6,070,000 financed with a purchase money mortgage of US$3,000,000, and US$3,070,000 in cash.

On November 2, 2017, the Company entered into an Agreement of Purchase and Sale (the “Agreement”) to purchase from AREP 5400 EastAvenueLLC, a Delaware limited liability company (“Seller”) certain buildings inWestPalm Beach, Florida, totaling approximately 80,000 square feet, on which the present tenant operates a substance abuse treatment center (the “Property”). The purchase price of the Property is $20,530,000, and the Company is obligated under the Agreement to make a series of nonrefundable down payments totaling $2,210,000. The closing of the transaction, which is subject to standard due diligence, conditions to closing and deliverables, is scheduled to occur on May 8, 2018 , or such earlier date as is agreed upon by the parties.


ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

2.Summary of Significant Accounting Policies

a)Financial Reporting

 

The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America. Revenues and expenses are reported on the accrual basis, which means that income is recognized as it is earned and expenses are recognized as they are incurred.

 

Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company'sCompany’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.

 

b)Use of Estimates

b)Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

c)Principals of consolidation and foreign currency translation

c)Principals of consolidation and foreign currency translation

 

The accompanying consolidated financial statements include the accounts of the Company, its subsidiary. All inter-companyintercompany transactions and balances have been eliminated on consolidation.

 

TheCertain of the Company’s subsidiary’s functional currency is the Canadian dollar, while the Company’s reporting currency is the U.S. dollar. All transactions initiated in Canadian dollars are translated into US dollars in accordance with ASC 830, “Foreign Currency Translation"Translation” as follows:

 

Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date.
Equity at historical rates.
Revenue and expense items at the average rate of exchange prevailing during the period.
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).

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

2.Summary of Significant Accounting Policies(continued)

c)Principals of consolidation and foreign currency translation (continued)

 

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, 20152017 a closing rate of CAD$1.0000 equals US$0.722500.7971 and an average exchange rate of CAD$1.0000 equals US$0.7833.0.7867.


ETHEMA HEALTH CORPORATION

 

d)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.     Summary of Significant Accounting Policies (continued)

d)Revenue Recognition

The Company has two operating segments from which it derives revenues, i) rental income from leasing of a rehabilitation facility to third parties and ii) in-patient revenues for rehabilitation services provided to customers. Revenue Recognitionis recognized as follows:

i.Rental Income

In terms of the lease agreement, on a monthly basis as long as the facility is utilized by the tenant

ii.In-patient revenue

The customers have been treated and provided with services by the Company; there is clear evidence that an arrangement exists; the amount of revenue and related costs can be measured reliably; and it is probable that the economic benefits associated with the transaction will flow to the Company.

 

The Company recognizes revenue from the rendering of services when they are earned; specifically, when all of the following conditions are met:

 

the significant risks and rewards of ownership are transferred to customers and the Company retains neither continuing involvement nor effective control;
there is clear evidence that an arrangement exists;
the amount of revenue and related costs can be measured reliably; and
it is probable that the economic benefits associated with the transaction will flow to the Company.
the significant risks and rewards of ownership are transferred to customers and the Company retains neither continuing involvement nor effective control;
there is clear evidence that an arrangement exists;
the amount of revenue and related costs can be measured reliably; and
it is probable that the economic benefits associated with the transaction will flow to the Company.

 

In particular, the Company recognizes:

 

Fees for out-patient counselling, coaching, intervention, psychological assessments and other related services when patients receive the service; and
Fees for in-patient addiction treatments proportionately over the term of the patient’s treatment.
Fees for outpatient counselling, coaching, intervention, psychological assessments and other related services when patients receive the service; and
Fees for inpatient addiction treatments proportionately over the term of the patient’s treatment.

 

Deferred revenue represents monies deposited by the patients for future services to be provided by the Company. Such monies will be recognized into revenue as the patient progresses through their treatment term.

e)Non-monetary transactions

e)Nonmonetary transactions

 

The Company’s policy is to measure an asset exchanged or transferred in a non-monetarynonmonetary transaction at the more reliable measurement of the fair value of the asset given up and the fair value of the asset received, unless:

 

The transaction lacks commercial substance;
The transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange;
Neither the fair value of the asset received nor the fair value of the asset given up is reliably measurable; or
The transaction is a non-monetary, non-reciprocal transfer to owners that represents a spin-off or other form of restructuring or liquidation.
The transaction lacks commercial substance;
The transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange;
Neither the fair value of the asset received nor the fair value of the asset given up is reliably measurable; or
The transaction is a nonmonetary, nonreciprocal transfer to owners that represents a spinoff or other form of restructuring or liquidation.

 

Table of Contents18f)Cash and cash equivalents

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

2.Summary of Significant Accounting Policies(continued)

f)Cash and cash equivalents

 

The Company'sCompany’s policy is to disclose bank balances under cash, including bank overdrafts with balances that fluctuate frequently from being positive to overdrawn and term deposits with a maturity period of three months or less from the date of acquisition.


ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.    Summary of Significant Accounting Policies (continued)

g)Accounts receivable

Accounts receivable primarily consists of amounts due from third-party payors (non-governmental) and private pay patients and is recorded net of allowances for doubtful accounts and contractual discounts. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Accordingly, accounts receivable reported in the Company’s consolidated financial statements is recorded at the net amount expected to be received. The Company’s primary collection risks are (i) the risk of overestimating net revenues at the time of billing that may result in the Company receiving less than the recorded receivable, (ii) the risk of non-payment as a result of commercial insurance companies denying claims, (iii) the risk that patients will fail to remit insurance payments to the Company when the commercial insurance company pays out-of-network claims directly to the patient, (iv) resource and capacity constraints that may prevent the Company from handling the volume of billing and collection issues in a timely manner, (v) the risk that patients do not pay the Company for their self-pay balances (including co-pays, deductibles and any portion of the claim not covered by insurance) and (vi) the risk of non-payment from uninsured patients.

h)Allowance for Doubtful Accounts, Contractual and Other Discounts

 

The Company has $72,250 (CAD$100,000)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 restricted cash held by their bank to cover againstpayments that differ from the possibility of credit card charge backs, for services not performed.

g)Accounts receivable

Company’s estimates. The Company provides anCompany’s allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimate is based on historical collection experience, but management also takes into consideration the age of accounts, creditworthiness and a review ofcurrent economic trends when evaluating the current status of trade accounts receivable. It is reasonably possible that the Company’s estimateadequacy of the allowance for doubtful accounts will change. At December 31, 2015 and December 31, 2014,accounts. An account is written off only after the Company has a $0 and $27,294 allowance for doubtful accounts, respectively.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.

 

h)Financial instruments

i)Financial instruments

 

The Company initially measures its financial assets and liabilities at fair value, except for certain non-arm'snon-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, loanloans payable and related party notes.

 

Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income. The Company recognizes its transaction costs in net income in the period incurred. However, financial instruments that will not be subsequently measured at fair value are adjusted by the transaction costs that are directly attributable to their origination, issuance or assumption.

 

FASB ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 establishes a three-tierthree 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.
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 does not have assets ormeasures its convertible debt and derivative liabilities measuredassociated therewith at fair value on a recurring basis at December 31, 2015value. These liabilities are revalued periodically and 2014. The Company did not have any fair value adjustments for assets and liabilities measured at fair value on a non-recurring basis during the year ended December 31, 2015 and 2014.resultant gain or loss is realized through the Statement of Operations.

Table of Contents19j)Plant and equipment

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

2.Summary of Significant Accounting Policies(continued)

i)Plant and equipment

Fixed assets are recorded at cost. Depreciation is calculated on the declining balance method atstraight line basis over the following annual rates:estimated life of the asset:

 

Computer Equipment30%
Computer Software100%
Furniture and Equipment30%
Medical Equipment25%
Vehicles30%100%

 

Leasehold improvements are depreciated using the straight-line method over the term of the lease. Half rates are used for all fixed assets in the year of acquisition.

k)Goodwill

Goodwill acquired in business combinations is initially computed as the amount paid by the acquiring company in excess of the fair value of the net assets acquired. Goodwill is not amortized. It is the Company’s policy to test for impairment no less than annually, by considering qualitative factors to determine whether it is more likely than not that a that the Company’s goodwill carrying value is greater than its fair value. Such factors may include the following: a significant decline in expected revenues, significant decline in the Company’s stock price, a significant downturn in the general economic business conditions, the loss of key personnel or when conditions occur that may indicate impairment. The Company’s intangible assets, which consist of goodwill of $1,580,000 recorded in connection with the Seastone acquisition, was tested for impairment during the fourth quarter, 2017, and we determined that no adjustment for impairment was necessary. 

j)Leases

l)Leases

 

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.


k)Income taxesETHEMA HEALTH CORPORATION

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.    Summary of Significant Accounting Policies (continued)

m)Income taxes

The Company accounts for income taxes under the provisions of ASCTopic740,“IncomeTaxes”.Under ASCTopic740, 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.

 

ASCTopic740 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.Tothe 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 20132017 are subject to audit or review by the US tax authority,authorities, whereas fiscal 2010 through 20132017 are subject to audit or review by the Canadian tax authority.

n)Net income (loss) per Share

Basic net income (loss) per share is computed on the basis of the weighted average number of common stock outstanding during the period.

 

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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.

 

2.SummaryDilution 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 Significant Accounting Policies(continued)

l)Loss per share information

FASB ASC 260-10, “Earnings Per Share” providesthe 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 calculationconvertible preferred stocks. Under this method, convertible preferred stock is assumed to be converted at the beginning of "basic"the period (or at the time of issuance, if later), and "diluted" earnings per share. Basicpreferred 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 includes no dilution and is computed by dividing net income (loss) applicable to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. The effect of computing diluted(or increases loss per share is anti-dilutive and, as such, basic and diluted loss per share is the same for the years ended December 31, 2015 and 2014.share). 

o)Stock based compensation

 

m)Stock based compensation

ASC 718-10 "Compensation - Stock Compensation" prescribes accounting and reporting standards for all stock-based payments awarded to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights that may be classified as either equity or liabilities. The Company should determine if a present obligation to settle cost is measured at the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity.

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50 "Equity - Based Payments to Non-Employees". Measurement of share-based payment transactions with non-employees shall begrant date, based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. Theestimated fair value of the share-based payment transaction should be determined ataward and is recognized as expense over the earlieremployee’s requisite service period or vesting period on a straight-line basis. Share-based compensation expense recognized in the consolidated statements of performance commitment date or performance completion date.

n)Legal proceedings

The costs of prosecuting and defending legal actions are expensed as incurred.

o)Accounting for uncertainty in income taxes

The Financial Accounting Standards Board has issued guidance on Accounting for Uncertainty in Income Taxes, FASB ASC 740, Income Taxes which prescribes a recognition threshold and a measurement attributeoperations for the financial statement recognitionyear ended December 31, 2017 and measurement of tax positions taken or2016 is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. This estimate will be takenrevised in a tax return. Forsubsequent periods if actual forfeitures differ from those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Management has concluded that the Company has takenestimates. We have minimal awards with performance conditions and no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. When applicable, the Company will include interest and penalties related to uncertain tax positions in income tax expense.awards dependent on market conditions. 

Table of Contents21p)Derivatives

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

2.Summary of Significant Accounting Policies(continued)

p)Derivatives

 

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-ScholesBlack 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-ScholesBlack Scholes Option Pricing model require estimates, including such items as estimated volatility of the Company’s stock, risk-freerisk 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.


q)Recent accounting pronouncementsETHEMA HEALTH CORPORATION

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.     Summary of Significant Accounting Policies (continued)

q)Recent accounting pronouncements

In January 2015,2017, theFASBissued Accounting Standards Update No. (“ASU”) 2017-02, an amendment toTopic805, Business Combinations. The amendments in this Update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this Update affect all reporting entities that must determine whether they have acquired or sold a business. The amendments in this Update provide a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this Update apply to annual periods beginning after December 15, 2017. The amendments in this Update should be applied prospectively on or after the effective date. No disclosures are required at transition. The Company does not expect this guidance to have a material impact on its financial statements.

In January 2017, theFASBissued ASU No. 2015-01, “Income Statement - Extraordinary2017-04, an amendment toTopic350, Intangibles – Goodwill and Unusual Items (Subtopic 225-20): Simplifying Income Statement PresentationOther, an entity no longer will determine goodwill impairment by Eliminatingcalculating the Conceptimplied fair value of Extraordinary Items.” Thisgoodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Because these amendments eliminate Step 3 2 from the goodwill impairment test, they should reduce the cost and complexity of evaluating goodwill for impairment. An entity should apply the amendments in this Update on a prospective basis. The amendments in this Update are effective for Goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.Weare currently evaluating the effect ASU eliminates2017-04 will have on our consolidated financial statements.

In February 2017, theFASBissued ASU 2017-05, an amendment to Subtopic 610-20, Other Income—Gains and Losses from U.S. GAAPthe Derecognition of Nonfinancial Assets The amendments in this Update are required for public business entities and other entities that have goodwill reported in their financial statements, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The amendments in this Update modify the concept of extraordinary items.impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. An entity should apply the amendments in this Update on a prospective basis. The amendments in this Update are effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.Weare currently evaluating the effect ASU 2015-012017-05 will have on our consolidated financial statements.


ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.Summary of Significant Accounting Policies (continued)

o)Recent accounting pronouncements (continued)

In July 2017, theFASBissued Accounting Standards Update No. (“ASU’’) 2017-11, Earnings Per Share(Topic260), Distinguishing Liabilities from Equity(Topic480) and Derivatives and Hedging(Topic815). The amendments in this Update provide guidance about:

1.Accounting for certain financial instruments with down round features

2.Replacement of the indefinite deferral for mandatorily redeemable financial instruments of certain non-public entities and certain non-controlling interests

The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance withTopic260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (inTopic260).

The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect.

The amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. We do not expect the adoption of ASU 2015-01 to have a material effect on our financial position, results of operations or cash flows.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification and improves current U.S. GAAP by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (“VIE”), and changing consolidation conclusions for companies in several industries that typically make use of limited partnerships or VIEs. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.2018. Early adoption is permitted for all entities, including adoption in an interim period. WeIf an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part 1 of this Update should be applied in either of the following ways: 1. Retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective 2. Retrospectively to outstanding financial instruments with a down round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10.

The amendments in Part II of this Update do not expectrequire any transition guidance because those amendments do not have an accounting effect.

The Company is currently evaluating the adoption ofimpact this ASU 2015-02 towill have a material effect on ourits consolidated financial position, results of operations or cash flows.

statements.

 

In April 2015, August 2017, theFASBissued Accounting StandardsASU 2017-12, Derivatives and Hedging,(Topic815),TargetedImprovements to accounting for Hedging Activities. The amendments in this update provide guidance about:

The amendments in this Update (“ASU”) No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifyingbetter align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the Presentation of Debt Issuance Costs, is to simplify presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU does not affect the recognitiondesignation and measurement guidance for debt issuance costs. For public companies,qualifying hedging relationships and the ASU is effectivepresentation of hedge results.Tomeet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial statements issued for fiscal years beginning after December 15, 2015,risk components and interim periods within those fiscal years. Early application is permitted. This updated guidance is not expected to have a material impact on our resultsalign the recognition and presentation of operations, cash flows orthe effects of the hedging instrument and the hedged item in the financial condition.

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS statements.

 

2.Summary of Significant Accounting Policies(continued)

q)Recent accounting pronouncements (continued)

In April 2015, FASB issued Accounting Standards Update No. 2015-05,Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees paid in a Cloud Computing Arrangement, provides guidance to customers about whether a cloud computing arrangement includes a software license. If such an arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for it as a service contract. For public business entities, the ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early application is permitted. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.

In April 2015, FASB issued Accounting Standardsamendments in this Update No. 2015-06,Earnings Per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions, specifies that, for purposes of calculating historical earnings per unit under the two-class method, the earnings (losses) of a transferred business before the date of a drop down transaction should be allocated entirely to the general partner. In that circumstance, the previously reported earnings per unit of the limited partners (which is typically the earnings per unit measure presented in the financial statements) would not change as a result of the dropdown transaction. Qualitative disclosures about how the rights to the earnings (losses) differ before and after the dropdown transaction occurs for purposes of computing earnings per unit under the two-class method also are required. The ASU is effective for fiscal years beginning after December 15, 2015,2018, and interim periods within those fiscal years. Earlier application is permitted. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.

In May 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (“ASU 2015-07”). This guidance eliminates the requirement to categorize investments within the fair value hierarchy if their fair value is measured using the net asset value (“NAV”) per share practical expedient in the FASB’s fair value measurement guidance. The new standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015 The Company does not expect the adoption of ASU 2015-07 to have a material effect on its consolidated financial statements.

In July 2015, FASB issued Accounting Standards Update (“ASU”) No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). The amendments in this ASU do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost.An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, this ASU isthe amendments are effective for fiscal years beginning after December 15, 2016,2019, and interim periods within fiscal years beginning after December 15, 2017. The amendments2020. Early application is permitted in this ASUany interim period after issuance of the Update. Transition Requirements For cash flow and net investment hedges existing at the date of adoption, an entity should be applied prospectivelyapply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with earlier application permitteda corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an interim or annual reporting period. We are currently reviewingentity adopts the provisions ofamendments in this Update. The amended presentation and disclosure guidance is required only prospectively.

The impact this ASU will have on the Company’s consolidated financial statements is expected to determine if there will be any impact on our results of operations, cash flows or financial condition.immaterial.

Table of Contents23

GREENESTONE HEALTHCAREETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.Summary of Significant Accounting Policies (continued)

2.Summary of Significant Accounting Policies(continued)

o)Recent accounting pronouncements (continued)

 

q)Recent accounting pronouncements (continued)

In August 2015,September 2017, theFASBissued Accounting Standards Update (“ASU”) No.2015-14, “ASU 2017-13, Revenue Recognition(Topic605), Revenue from Contracts with Customers(Topic606): Deferral of the Effective Date” defers the effective date ASU No. 2014-09 for all entities by one year. Public, Leases(Topic840 and Leases(Topic842). The amendments in this update provide guidance about:

The transition provisions in ASCTopic606 require that a public business entities, certain not-for-profit entities,entity and certain employee benefit plans should apply the guidance in Update 2014-09 toother specified entities adopt ASCTopic606 for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in Update 2014-09are required to adopt ASCTopic606 for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU No. 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU No. 2014-09. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

 

In August 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-15, “Interest - Imputation of Interest (Subtopic 835-30).” ASU 2015-15 provides guidance as to the presentation and subsequent measurement of debt issuance costs associated with line of credit arrangements. We do not expect the adoption of ASU 2015-15 to have a material effect on our financial position, results of operations or cash flows.

In September 2015,FASB issued Accounting Standards Update (“ASU”) No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments”requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement periodThe transition provisions in the reporting period in which the adjustment amounts are determined. The amendments in this UpdateASCTopic842 require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. For public business entity and certain other specified entities the amendments are effectiveadopt ASCTopic842 for fiscal years beginning after December 15, 2015, including2018, and interim periods within those fiscal years. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update with earlier application permitted for financial statements that have not been issued. For allFN3 All other entities the amendments are effectiverequired to adopt ASCTopic842 for fiscal years beginning after December 15, 2016,2019, and interim periods within fiscal years beginning after December 15, 2017.2020.

The impact this ASU will have on the Company’s consolidated financial statements is expected to be immaterial.

In November 2017, theFASBissued ASU 2017-14, Income Statement – Reporting Comprehensive Income (Topic220), Revenue Recognition(Topic605) and Revenue from Contracts with Customers(Topic606). The amendments in this update provide guidance about:

Certain amendments made to SEC materials and staff guidance relating to Operating-Differential subsidiaries, and amendments to the wording and disclosure requirements of Topic 605, Revenue Recognition.


ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.Summary of Significant Accounting Policies (continued)

o)Recent accounting pronouncements (continued)

In February 2018, the FASB issued ASU 2018-3 Technical Corrections and Improvements to Financial Instruments – Overall (Sub topic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update provide guidance about:

The amendment clarifies that an entity measuring an equity security using the measurement alternative may change its measurement approach to a fair value method in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should measure all future purchases of identical or similar investments of the same issuer using a fair value method in accordance with Topic 820.

The amendment clarifies that the adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that the observable transaction for a similar security took place.

The amendment clarifies that remeasuring the entire value of forward contracts and purchased options is required when observable transactions occur on the underlying equity securities.

The amendment clarifies that when the fair value option is elected for a financial liability, the guidance in paragraph 825-10- 45-5 should be applied, prospectivelyregardless 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 adjustmentsthe 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 provisional amounts that occur after the effective dateguidance inTopic944, Financial Services— Insurance, should apply a prospective transition method 4 Area for Correction or Improvement Summary of Amendments when applying the amendments related to equity securities without readily determinable fair values. An insurance entity should apply the selected prospective transition method consistently to the entity’s entire population of equity securities for which the measurement alternative is elected.

The amendments in this Update with earlier application permitted for financial statements that have not yet been made available for issuance. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

In November 2015, the FASB issued (ASU) 2015-17, Balance Sheet Classification of Deferred Taxes. Currently deferred taxes for each tax jurisdiction are presented as a net current asset or liability and net noncurrent asset or liability on the balance sheet. To simplify the presentation, the new guidance requires that deferred tax liabilities and assets for all jurisdictions along with any related valuation allowances be classified as noncurrent in a classified statement of financial position. This guidance is effective for interim and annual reporting periodsfiscal years beginning after December 15, 2016,2017, and interim periods within those fiscal years beginning after June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018, and public business entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments in Update 2016-01. For all other entities, the effective date is the same as the effective date in Update 2016-01. All entities may early adoption is permitted. 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 Company has adoptedamendments in this guidance in the fourth quarter of the year ended December 31, 2015 on a retrospective basis. The adoption of this guidance didupdate are not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows,statements.

In March 2018, theFASBissued ASU 2018-4 Investments – Debt Securities(Topic320) and didRegulated Operations(Topic980), Amendments to SEC Paragraphs pursuant to SEC Staff Accounting Bulletin no.117and SEC Release No. 33-9273. The amendments in this update provide guidance about:

Certain amendments made to SEC materials and staff guidance relating to Investments – Debt Securities (Topic 320) and Regulated Operations (Topic 980).

The amendments in this update are not expected to have any effecta material impact on prior periods due to the full valuation allowance against the Company’s net deferred tax assets.

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS consolidated financial statements.

 

2.Summary of SignificantIn March 2018, theFASBissued ASU 2018-5, IncomeTaxes (Topic740) Amendments to SEC paragraphs pursuant to SEC Staff Accounting Policies(continued)Bulletin No.118

 

q)RecentThese amendments affect the wording of SEC paragraphs in the accounting pronouncements (continued)standard codification dealing with Income Taxes (Topic 740).

 

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidanceThe amendments in U.S. GAAPthis update are not expected to have a material impact on the classification and measurement ofCompany’s consolidated financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.statements.

 

Any new accounting standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.


ETHEMA HEALTH CORPORATION

 

r)Financial instrumentsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.Summary of Significant Accounting Policies (continued)

p)Reclassification of PriorYear Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

q)Financial instruments Risks

 

The Company is exposed to various risks through its financial instruments. The following analysis provides a measure of the Company’s risk exposure and concentrations at the balance sheet date, December 31, 20152017 and 2014.2016.

 

i.Credit risk

I)Credit risk

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 Greenestone Clinic Muskoka Inc.Seastone of Delray is mitigated dueas only a percentage of the revenue billed to balances from many customers,health insurance companies is recognized as wellincome until such time as through credit checks and frequent reviews of receivables to ensure timely collection. In addition, therethe actual funds are collected. The revenue is no concentration risk withconcentrated amongst several health insurance companies located in the Greenestone Clinic Muskoka Inc. accounts receivable balance since balances are due from many customers.US.

 

In the opinion of management, credit risk with respect to accounts receivable is assessed as low, not material and remains unchanged from the prior year.low.

 

ii.Liquidity risk

II)Liquidity risk

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 $(3,397,266) and$5,710,511 accumulated deficit of $(20,721,205)$(16,967,612). As disclosed in note 3, theThe 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.

 

Table of Contents25iii.Market risk

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

2.Summary of Significant Accounting Policies(continued)

r)Financial instruments (continued)

III)Market risk

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.

 

i. Interest rate risk

a.Interest rate risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to minimal interest rate risk on its bank indebtedness as there is a balance owing of $15,801 at$28,927 as of December 31, 2015.2017. This liability is based on floating rates of interest that have been stable during the current reporting period. In the opinion of management, interest rate risk is assessed aslow,not material and remains unchanged from the prior year.

 

ii. Currency risk

b.Currency risk

 

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 itsit has subsidiaries that operate in Canada and are subject to fluctuations in the Canadian dollar. MostA substantial portion of the Company’s financial assets and liabilities are denominated in Canadian dollars. Based on the net exposures at December 31, 2015,2017, a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an approximate $58,200$29,500 increase or decrease in the Company’s after-taxafter tax net lossincome from continuing operation.operations. The Company has not entered into any hedging agreements to mediate this risk. In the opinion of management, currency risk is assessed aslow,material and remains unchanged from the prior year.

 

iii. Other price risk

c.Other price risk

 

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. In the opinion of management, the Company is not exposed to this risk and remains unchanged from the prior year.


ETHEMA HEALTH CORPORATION

 

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3.Disposal of Business

On February 14, 2017, in terms of the details outlined in note 1 above, the Company disposed of the business and certain assets of its Canadian Rehab Clinic for gross proceeds of CDN$10,000,000, a total of CDN$1,500,000 of the gross proceeds is being held in escrow for up to two years, in addition there is an earnout payment of up to CDN$3,000,000 to be received in 2019, if certain clinic performance metrics are met, see note 9 below.

 

3.The proceeds realized from the sale of the Canadian Rehab Clinic were used to settle outstanding tax liabilities, refer note 12 below, and to acquire the business of Seastone of Delray, refer note 5 below.

The proceeds realized on disposal have been allocated as follows:

   Amount 
     
Proceeds on disposal $7,644,000 
     
Assets sold:    
Accounts receivable  113,896 
Plant and equipment  109,075 
   222,971 
Liabilities assumed by purchaser    
Deferred revenue  (73,799)
     
Net assets and liabilities sold  149,172 
     
Net profit realized on disposal $7,494,828 

4.Acquisition of Subsidiary

On February 14, 2017, the Company acquired 100% of the equity of CCH, from Leon Developments, a company wholly owned by our CEO. The total consideration paid by the Company was CDN$3,517,062, including the assumption of certain liabilities of CCH, which was funded by the assignment to Leon Developments of certain indebtedness owing to the Company in the amount of CDN$659, 918 (US$504,442) on the disposal of a subsidiary, 1816191 Ontario, which principal amount had previously been fully provided for during 2015; and the issuance of 60,000,000 shares of the Company’s common stock at US$0.0364 per share for proceeds of $2,184,000.

On June 1, 2017, the Company had the property owned by CCH appraised by an independent valuer, the appraisal obtained was for CDN$10,000,000, which resulted an increase in the value of the assets acquired by $1,146,000 and a corresponding reduction in the excess purchased consideration allocated to the shareholder.


4.Acquisition of Subsidiary (continued)

The allocation of the purchase price is as follows:

 

 Amount 
Purchase price paid:    
Common shares issued to Seller $2,184,000 
Receivable assumed by the Seller  504,442 
   2,688,442 
Allocated as follows:    
     
Assets acquired:
Property  2,942,585 
Receivable from Ethema Health Corporation  299,743 
   3,242,328 
Liabilities assumed:    
Accounts payable and other accruals  158,093 
Related party payable to Leon Developments  2,057,392 
Mortgage liability owing to Ethema Health Corporation  267,540 
Mortgage liability  3,145,550 
   5,628,575 
     
Net liabilities acquired  (2,386,247)
     
Excess purchase consideration allocated to shareholders compensation $5,074,689 

5.Acquisition of the business of Seastone Delray

The Company, utilized a portion of the proceeds realized on the sale of the Canadian Rehab Clinic to acquire certain assets of Seastone of Delray.

The Company obtained its own license to run a rehabilitation Clinic in Florida in December 2016 and began operations, through its wholly owned subsidiary, Seastone of Delray, LLC, effective January 2017.

The assets acquired were as follows:

  Amount 
    
Purchase price paid:    
Cash paid to seller $2,960,000 
Deposits previously paid to seller  110,000 
Mortgage liability funds  3,000,000 
   6,070,000 
Assets acquired:    
Property  4,410,000 
Furniture and fixtures  80,000 
Goodwill  1,580,000 
     
  $6,070,000 


6.           Going Concern

 

The Company’s consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business. As at December 31, 20152017 the Company has a working capital deficiency of $(3,397,266)$(6,525,559) and accumulated deficit of $(20,721,205)$(22,350,401). Management believes that current available resources will not be sufficient to fund the Company’s planned expenditures including past due payroll and sales tax payments, as well as estimated penalties and interest, over the next 12 months. Accordingly, the Company will be dependent upon the raising of additional capital through placement of common shares, and, and/or debt financing in order to implement its business plan, and or generating sufficient revenue in excess of costs. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain geographical areas, or techniques that it might otherwise seek to retain. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. These 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.

 

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.

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.

 

4.Accounts receivable

The accounts receivable balance consists primarilyThese 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 amounts due fromrecorded assets and liabilities or other adjustments that may be necessary should the following parties:

  December 31, 2015 December 31, 2014
         
Treatment program $183,583  $175,585 
Outpatient services  —     16,541 
   183,583   192,126 
Allowance for doubtful accounts  —     (27,294)
  $183,583  $164,832 

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

5.Due from sale of subsidiaryCompany not be able to continue as a going concern.

 

OnDecember17,2014,theCompany completedthesaleofallthe outstandingsharesoftheEndoscopy clinic,forthesumof CAD$1,282,002,comprisedoftheagreed purchase priceof CAD$1,250,000andtheacquisition ofnet assets atclosing ofCAD$32,002The sale priceof CAD$1,282,002included theassumptionbythe buyerof debtinthesame amount asthesale price,whichdebt wasowedbytheEndoscopyclinictotheCompany intheamountofCAD$895,460and tothe buyerofCAD $386,542. Atclosing,the buyeroffsettheassumeddebttotheCompanyofCAD$895,460byUS$277,500throughthecancellation of2,408,268 sharesoftheCompany’s commonstock,for a net amountduetotheCompanyofCAD$617,960.Thisdebtisowedbythe buyertotheCompany intheformofan interest bearingnote withacouponof 5%per annum. Thenotewas originallydueonJune30, 2015 whichwasrecentlyextendedto December31, 2015. The amountoutstandingofCAD$617,960wasrevalued atUS$446,476andUS$493,806asofDecember31, 2015and2014,respectively. Managementevaluatedthisreceivable asofDecember31, 2015and a provision forthefullvalueofthe notewasraised asofDecember31,2015.7.            Discontinued Operations

 

The amount due on the sale if subsidiaryassets and liabilities of discontinued operations as of December 31, 2016 is as follows: 

  December 31, 2016 
Current assets    
Accounts receivable, net $123,358 
Prepaid expenses and other current assets  11,253 
Total current assets  134,611 
Non-current assets    
Plant and equipment, net  129,127 
Deposits   
Total assets  263,738 
     
Current liabilities    
Deferred revenues  80,519 
     
Discontinued operation  183,219 


7.            Discontinued Operations (continued)

The Statement of operations for discontinued operations is as follows:

 

  December 31, 2015 December 31, 2014
         
Principal outstanding $446,476  $493,806 
Accrued interest  —     —   
   446,476   493,806 
Provision raised  (446,476)  —   
  $—    $493,806 
  Year ended December  Yearended December 
  31, 2017  31, 2016 
       
Revenues $196,866  $3,653,399 
         
Operating expenses        
Depreciation and amortization  4,196   63,391 
General and administrative  116,671   751,553 
Professional fees  32,818   (3,889)
Rent  106,495   385,401 
Salaries and wages  201,723   1,592,444 
Total operating expenses  461,903   2,788,900 
         
Operating (loss) income  (265,037)  864,499 
         
Other Income (expense)        
Other income  7,494,828   720 
Other expense     (617)
Interest expense  (1,021)  (154,605)
Foreign exchange movements  (135,190)  25,990 
Net income (loss) before taxation  7,093,580   735,987 
Taxation  (271,691)   
Net income (loss) from discontinued operations $6,821,889  $735,987 

 

8.Deposit on Real Estate

On November 2, 2017, the Company entered into an Agreement to purchase from AREP 5400 EastAvenueLLC certain buildings inWestPalm Beach, Florida, totaling approximately 80,000 square feet, on which the present tenant operates a substance abuse treatment center. The purchase price of the Property is $20,530,000, and the Company is obligated under the Agreement to make a series of nonrefundable down payments totaling $2,210,000. To date the Company has made deposits amounting to $1,825,000, primarily through borrowed funds, refer note 13 and 16 below.

9.Due on sale of subsidiary

A net amount of CDN$617,960 was due to the Company on the sale of the Endoscopy Clinic as of December 31, 2016. This amount was past due and had fully provided for as of December 31, 2016.

 

6.PlantOn February 14, 2017, the Company acquired CCH from Leon Developments and equipmentsettled a portion of the purchase consideration by assigning the proceeds due to the Company on the sale of the Endoscopy Clinic to Leon Developments. The note together with accrued interest thereon of CDN$41,959 amounted to CDN$659,919 (US$504,442). The provision raised against the note was reversed and the unrecorded interest thereon was recognized during the current period.

 

PlantOn February 14, 2017, the Company sold its Canadian Rehab Clinic for gross proceeds of CDN$10,000,000, of which CDN$1,500,000 (US$1,155,900) has been retained in an escrow account for a period of up to two years in order to guarantee the warranties provided by the Company in terms of theAPA.In addition, the Company may earn up to an additional CDN$3,000,000 as a performance payment based on the attainment of certain clinic performance metrics.


10.          Property, plant and equipment

Property, plant and equipment consists of the following:

 

 

Cost

Accumulated depreciation

 

Net book value

December 31, 2015

 

Net book value

December 31, 2014

                 
Computer equipment $21,278  $15,333  $5,945  $7,352 
Computer software  9,848   4,924   4,924   —   
Furniture and equipment  352,379   257,728   94,651   114,306 
Medical equipment  4,490   3,443   1,047   1,391 
Vehicles  64,175   42,993   21,182   40,023 
Leasehold improvements  142,793   77,411   65,382   93,471 
  $594,963  $401,832  $193,131  $256,543 
  December 31, 2017  December 31, 2016 
  Cost  

Amortization and

Impairment

  Net book value  Net book value 
             
Land  1,470,000      1,470,000     
Property $6,228,340  $(208,482) $6,019,858  $ 
Furniture and fixtures  105,000   (21,000)  84,000    
                 
  $7,803,340  $(229,482) $7,573,858  $ 

 

Depreciation expense for the year ended December 31, 20152017 and 20142016 was $90,862$223,423 and $83,701,$0, respectively.

 

Table of Contents2811.Goodwill

In terms of the acquisition of Seastone of Delray, the Company acquired the business as a going concern and certain real property. The property was valued using an independent valuer. The excess of the purchase price paid over the fair market value of the assets (note 1 above), has been assigned to goodwill.

12.TaxesPayable

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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.

 

7.The remaining taxes payable consist of:

A payroll tax liability of $155,894 (CDN$195,569) in Greenestone Muskoka which has not been settled as yet.
The Company has assets and operates businesses in Canada and is required to disclose these operations to the US taxation authorities, the requisite disclosure has not been made. Management has reserved the maximum penalty due to the IRS in terms of non-disclosure. This noncompliance with US disclosure requirements is currently being addressed. An amount of $250,000 has been accrued for any potential exposure the Company may have.

  December 31, 2017  December 31, 2016 
       
Payroll taxes $155,894  $2,548,824 
US penalties due  250,000   250,000 
Income tax payable  283,346    
         
  $689,240  $2,798,824 

13.Short-term Convertible Notes

The short-term convertible notes consist of the following:

  

Interest

rate

  Maturity date Principal  Interest  Debt Discount  

December 31,

2017

  

December 31,

2016

 
                  
Leonite Investments LLC  8.5% December 1, 2018 $1,650,000  $2,885  $(1,514,384) $138,502  $ 
                           
Power Up Lending Group Ltd  12.0% August 15, 2018  103,000   1,862   (82,911) $21,951     
                           
Series L Convertible notes  0.0% June 30, 2017                 250,258 
                           
                     160,453   250,258 

Leonite Capital, LLC

On December 1, 2017, the Company closed on a private offering to raise US $1,500,000 in capital. The Company issued one senior secured convertible promissory note with a principal amount of US $1,650,000 to Leonite Capital, LLC. The Note bears interest at the rate of 6.5% per annum. The initial draw under the Note was $300,000 with a $150,000 original issue discount for a total of $450,000. The Company issued 1,650,000 shares of the Company’s common stock as a commitment fee and paid $20,000 towards the lenders legal fees. The Note’s initial maturity date is June 1, 2018. During the term of the Note the Company and the Subsidiaries will be obligated to make monthly payment of accrued and unpaid interest. The Note contains Company and Subsidiary representations and warranties, covenants, events of default, and registration rights.

The Note provided that the parties use reasonable best efforts to close on the remaining $1,200,000 of availability under the Note by January 1, 2018. As a condition to the closing of the Balance Tranche, the parties must finalize and enter into additional agreements related to the Private Offering, including, but not limited to, (i) a Securities Purchase Agreement; (ii) a Warrant Agreement under which the Investor will have the right to purchase up to 27,500,000 shares of the Company’ common stock for $0.10 per share, subject to adjustment, for a period of five years; (iii) a Securities Pledge Agreement under which the Company and the Subsidiaries will grant the lender a blanket lien on their assets, and the Company will pledge its equity ownership in the Subsidiaries. Upon the closing of the Balance Tranche the maturity date of the Note will become December 1, 2018.

On December 29, 2017, effective as of December 1, 2017, the Company and the Subsidiaries entered into an Amended and Restated Senior Secured Convertible Promissory Note, which note amends and restates the Note to (a) extend the maturity date to December 1, 2018; (b) remove CCH, as an obligor; (c) increase the interest rate by 2.00% per annum, to 8.5% per annum; and (d) issue an additional 250,000 shares of the Company’s common stock to the Investor. In connection with the execution of the amendment, the parties entered into (i) a Securities Purchase Agreement; (ii) a Warrant Agreement under which the Investor will have the right to purchase up to 27,500,000 shares of the Company’ common stock for $0.10 per share, subject to adjustment, for a period of five years; (iii) a Security and Pledge Agreement and a General Security Agreement under which the Company and the Subsidiaries will grant the Investor a blanket lien on their assets, and the Company will pledge its equity ownership in the Subsidiaries; and (iv) a First Amendment to the, effective January 2, 2018.

At the execution of the Note, the Investor funded an initial tranche of $300,000. Thereafter the Investor funded a second tranche of $156,136. Upon the execution of the A&R Note the Investor funded a third tranche of $100,000. Upon the execution of the First Amendment the Investor funded a final tranche of $850,000, with the remaining $93,764 of availability under the A&R Note, as amended, serving as a holdback pursuant to the terms of the First Amendment.

Amounts under the Note are convertible, at the Investors request, into shares of the Company’s common stock at an initial price of $0.06 per share, subject to adjustment.


13.Short-term Convertible Notes (continued)

Power Up Lending Group LTD

On June 19, 2017, the Company, entered into a Securities Purchase Agreement with Power Up Lending Group Ltd., pursuant to which the Company issued to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $113,500. The Note has a maturity date of March 20, 2018 and bears interest at the at the rate of eight percent per annum from the date on which the Note is issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the average lowest closing bid prices of the Company’s common stock for the ten trading days prior to conversion. The note, together with interest thereon of $6,567 and early settlement penalty of $36,020 was repaid on December 14, 2017.

On November 6, 2017, the Company, entered into a Securities Purchase Agreement with Power Up Lending Group Ltd., pursuant to which the Company issued to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $103,000. The Note has a maturity date of August 15, 2018 and bears interest at the at the rate of twelve percent per annum from the date on which the Note is issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the average lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion.

Labrys Fund, LP

On February 2, 2017, the Company entered into a Securities Purchase Agreement with LABRYS FUNDLP,in terms of the agreement the Company borrowed $110,000 in terms of an unsecured convertible promissory note with a maturity date of August 2, 2017. The note bears interest at a rate of 8% per annum. The note is only convertible upon a repayment default, at the lower of 60% of the lowest traded price over the preceding 30 day trading period prior to the issuance of this note or 60% of the lowest traded price 30 days prior to the conversion date. The Company issued 1,200,000 common shares to the note holder as a commitment fee which returnable shares will be returned to the company if fully repaid prior to August 2, 2017.

On May 26, 2017, the Company repaid the note for gross proceeds of $112,744, including interest thereon of $2,744. The 1,200,000 commitment fee shares were returned to the Company.

Series L convertible notes

The Company entered into Series L Convertible Securities Purchase Agreements with 8 individuals on December 30, 2016. In terms of these agreements, the Company borrowed an aggregate principal amount of $468,969 in terms of a senior ranking convertible promissory note with a maturity date six months from the issue date and bearing interest at 0% per annum. The notes are convertible at the option of the holder into shares of common stock of the Company at a conversion price of $0.03 per share, subject to certain recapitalization adjustments. On December 30, 2016, it was determined that the beneficial conversion feature related to the discounted note and warrant issuances amounting to $218,711 would be amortized over the life of the loans.

During January 2017, the Company borrowed a further aggregate principal amount of $71,000 in terms of three senior ranking convertible promissory notes with a maturity date six months from the issue date and bearing interest at 0% per annum. The notes are convertible at the option of the holder into shares of common stock of the Company at a conversion price of $0.03 per share, subject to certain recapitalization adjustments. In January 2017, it was determined that the beneficial conversion feature related to the discounted note and warrant issuances amounting to $104,793 would be amortized over the life of the loans.

On May 4, 2017, the Company repaid $20,000 of the principal outstanding to one investor. During July and August 2017, the Company repaid a further $144,958 of the principal outstanding to five investors.

During July 2017, five investors converted an aggregate principal amount of $375,011 of convertible notes into shares of common stock at a conversion price of $0.03 per share.

In terms of the Series L Convertible notes issued above, during January 2017, the Company granted three-year warrants to the Series L Convertible noteholders, exercisable for 2,366,667 shares of common stock at an exercise price of $0.03, subject to certain recapitalization adjustments, per share, expiring between January 16 and January 17, 2020. (Refer note 17 (c) below).


14.Loans Payable

On February 14, 2017, the Company acquired 100% of the equity of CCH, from Leon Developments. The subsidiary has certain mortgage indebtedness amounting to CDN$4,115,057 (US$3,145,549) at the date of acquisition, which was assumed by the Company.

On February 14, 2017, the Company acquired certain assets of Seastone of Delray, including fixed property. A portion of the purchase consideration was funded by a purchase money mortgage secured over the properties acquired, amounting to $3,000,000.

Loans payable is as follows:

  Interest
rate
  Maturity date Principal
Outstanding
  Accrued
interest
  December 31,
2017
  December 31,
2016
 
                  
Cranberry Cove Holdings                      
First Mortgage  8.0% August 14, 2017 $  $  $  $ 
Second Mortgage  12.0% November 4, 2018            
Pace Mortgage  4.2% July 19,2022  4,343,376   5,998   4,349,374    
Seastone of Delray                      
Mortgage  5.0% February 13, 2020  2,974,526  $12,394   2,986,920    
        $7,317,902  $18,392  $7,336,294  $ 
Disclosed as follows:                      
Short-term portion               $152,402  $ 
Long-term portion                7,183,892    
                $7,336,294  $ 

The aggregate amount outstanding is payable as follows:

  Amount 
2018  134,010 
2019  3,048,904 
2020  110,444 
2021  115,662 
2022  3,908,884 
Total $7,317,902 

Cranberry Cove Holdings

First Mortgage

The first mortgage with an aggregate principal amount outstanding of CDN$3,500,000, including late charges, interest and penalties of CDN$165,057 for a gross aggregate amount outstanding of CDN$3,663,380, over the CCH properties is secured by the property located at 3571 Muskoka Road, #169, Bala, described as PTLT15 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 PTLT15 CON F Medora PT1 35R5958, PT 2 &3 35R11290, Muskoka Lakes. The mortgage bears interest at the rate of 12% per annum on the aggregate principal outstanding of CDN$525,000, and matures on November 4, 2018, with monthly interest payments of CDN$3,500.

This mortgage was repaid in full on July 21, 2017 out of the proceeds derived from a new mortgage agreement entered into on July 19, 2017, see below.


14.Loans payable (continued)

Pace Mortgage

On July 19, 2017, CCH, a wholly owned subsidiary closed on a loan agreement in the principal amount of CDN$5,500,000. The loan is secured by a first mortgage on the premises owned by CCH located at 3571 Muskoka Road 169, Bala, Ontario (the “Property”). The loan bears interest at the fixed rate of 4.2% with a 5-year primary term and a 25-year amortization. The Company has guaranteed the loan and the Company’s chief executive officer and controlling shareholder also has personally guaranteed the Loan. CCH and the Company have granted the Lender a general security interest in its assets to secure repayment of the Loan. The loan is amortized with monthly installments of CDN

$29,531.

Seastone of Delray

The Company entered into a Mortgage and Security Agreement with Seastone Delray Healthcare, LLC on February 13, 2017 for the aggregate principal sum of $3,000,000, bearing interest at the rate of 5% per annum, maturing on February 13, 2020, with monthly repayments of interest and principal of $15,000. The proceeds of the mortgage of $3,000,000 was used to fund the acquisition of the Seastone Delray properties, described as follows:

 

The Company hashad an automobile loan payable during the prior year, bearing interest at 4.49% with blended monthly payments of $835 that matures in March 2018. This loan was settled during the current financial year. The loan iswas secured by the vehicle with a net book value as at December 31, 2015 of $14,960.

 

  December 31, 2015 December 31, 2014
Automobile loan        
Short-term portion $6,684  $7,625 
Long-term portion  8,788   18,460 
  $15,472  $26,085 
15.Derivative liability

 

Estimated principal re-payments are as follows:

   Amount
           
 2016     $6,684 
 2017      6,991 
 2018       1,797 
        $15,472 

8.Short-termThe short-term convertible loan

notes issued to Leonite Capital LLC, Labrys Fund LP and Power Up Lending Group, LTD, disclosed in note 13 above, have variable priced conversion rights with no fixed floor price and will reprice dependent on the share price performance over varying periods of time. This gives rise to a derivative financial liability, which was initially valued at inception of the convertible notes at $1,976,500, the maximum amount permissible, using a Black-Scholes valuation model.

In May 2013 the Company entered into a promissory note of up to $500,000 where the maturity date was one year after the lender provides the borrower with funds. A onetime interest rate of 12% was applied in case of nonpayment within the initial 90 days. The note was convertible at the lesser of $0.30 or 70% of the lowest trading price in the 25 trading days prior to conversion. In 2014 the Company received $105,000 in proceeds and converted $127,076 into 2,245,991 shares of common stock. As of December 31, 2014 the net balance of this loan amounted to $29,758 comprised of a principal balance of $42,467 and a net debt discount of $12,709. During the year ended December 31, 2015 the Company made cash payments amounting to $34,350 principal plus interest of $6,870 and converted $8,117 through the issuance of 300,000addition, warrants exercisable over 27,500,000 shares of common stock were issued to repayLeonite Investments, in terms of the loan infull.

9.Taxation PayableSecurities Purchase Agreement and the Warrant Agreement entered into. Refer note 13 above.

 

The Company hasfollowing assumptions were used in the following outstanding tax liabilities:Black-Scholes valuation model:

 

a)Harmonized Sales taxes

This represents sales tax liabilities in Canada, these taxes were never paid, management intends paying these taxation liabilities together with interest and penalties thereon, when sufficient funds are raised to do so.

b)Payroll taxes

Year ended December 31, 2017
Calculated stock price$0.03 to $0.08
Risk free interest rate0.64% to 2.13%
Expected life of convertible notes3 to 12 months
expected volatility of underlying stock134.9% to 534.8%
Expected dividend rate0%

 

The Company is delinquentmovement in filing its payroll tax returns resulting in taxes, interest and penalties payable at December 31, 2015 and 2014. As of December 31, 2015 and 2014 as part ofTaxesPayable, the Company has payroll tax liabilities of approximately $1,780,000 and $2,065,000, respectively due to various taxing authorities. If the Company does not satisfy these liabilities, the taxing authorities may place liens on its bank accounts which would have a negative impact on its ability to operate. Further, the actualderivative liability may be higher due to interest or penalties assessed by the taxingauthorities.

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

9.Taxation Payable (continued)

c)US taxation and penalties

The Company has assets and operates a business in Canada and is required to disclose these operations to the US taxation authorities, the requisite disclosure has not been made and management has reserved the maximum penalty due to the IRS in terms of non-disclosure. This non-compliance with US disclosure requirements is currently being addressed.

The taxes and penalties due as of December 31, 2015 and 2014 is as follows:

 

  December 31, 2015 December 31, 2014
         
Payroll taxes and Harmonized sales taxes $2,290,506  $2,656,297 
US taxes and penalties  200,000   150,000 
  $2,490,506  $2,806,297 
  

Year ended December 31, 2017

 
    
Opening balance $ 
Derivative liability arising from convertible notes $1,826,500 
Fair value adjustment to derivative liability  1,033,332 
  $2,859,832 

F-24

16.Related Party Transactions

 

10.Related party Transactions

GreeneStoneGreenstone Clinic Inc.

As of December 31, 20152017 and 2014,2016, the Company owed $5,284had a payable of $0 and $84,736,$79,592, respectively. GreeneStoneGreenstone Clinic Inc., is controlled by one of the Company’s directors. The balance owingpayable is non-interest bearing, not secured and has no specified terms of repayment.specific repayment terms.

 

The Company incurred management fees from GreeneStone Clinic, Inc., totaling $96,705 and $122,271 for the years ended December 31, 2015 and 2014, respectively.1816191 Ontario

 

Shawn E. Leon

As of December 31, 20152017 and 2016, the Company owed $159,551and ashad a payable of December 31, 2014, the Company was owed $33,400 from Shawn E. Leon our CEO. The amounts owed$15,921 and owing are non-interest bearing and have no fixed repayment terms.

1816191 Ontario

As of December 31, 2015, the Company owes $22,305$70,763, respectively, to 1816191 Ontario, the Endoscopy Clinic, which was sold at the end of the prior year. The payable is non-interest bearing, and has no specific repayment terms.

Cranberry Cove Holdings Ltd.

The Company enteredintoan agreement to lease premisesfromCranberryCoveHoldingsLtd. at market terms. The Company had rental expenseamountingto CAD$451,380and CAD$412,488fortheyearendedDecember31, 2015and2014,respectively. CranberryCoveHoldingsLtd. is related totheCompanybyvirtueof itsshareholder owning 1816191 Ontario.

Shawn E. Leon

As of December 31, 2015,2017 and 2016 the Company had a receivable of $16,080 and a payable of $8,492, respectively to Shawn E. Leon, a director and CEO of the Company. The balances receivable and payable are non-interest bearing and have no fixed repayment terms.

Mr. Leon was paid management fees of $289,125and $257,283 during the year ended December 31, 2017 and 2016. In addition to this the Company recorded compensation expense in other expenses, relating to the excess of the fair value of the assets acquired in CCH. Mr. Leon is the owner of Leon Developments, the counterparty in the acquisition of the CCH subsidiary referred to in note 1 and 4 above.

Leon Developments, Ltd.

The Company acquired CCH from Leon Developments, Ltd., on February 14, 2017, refer note 1 and 4 above. CCH owns the facility utilized by the Canadian Rehab Clinic which was sold to a third party on February 14, 2017. CCH owed CDN $2,692,512 to Leon Developments. The amount owing to Leon Developments Ltd., as of December 31, 2017 was CDN$2,692,512 or $1,703,976.

Cranberry Cove holdings $87,356 (CAD$120,908)Holdings Ltd.

The Company acquired CCH on February 14, 2017. CCH owns the real estate previously utilized by the Canadian Rehab Clinic and now utilized by the purchaser of the business. As of December 31, 2016, the Company had a receivable of $84,867 from CCH.

Prior to the acquisition of CCH, the Company paid rental expense to CCH of $47,493 for the period ended December 31 ,2017 and $385,401 for the year ended December 31, 2016.

Eileen Greene

Eileen Greene is the spouse of our CEO, Shawn Leon. During October and November 2017, we borrowed CDN$1,122,000 from Eileen Greene, principally to fund the deposit on the real estate transaction, disclosed in accrued rent.note 8 above. The funds advanced is non-interest bearing and has no fixed repayment terms. As of December 31, 2017, the amount owing to Eileen Greene amounted to $877,182.

On December 30, 2016 we entered into a Securities Purchase agreement with Ms. Greene, whereby $163,011 (CDN $220,000) was advanced to the Company in the form of a promissory note, bearing interest at 0% per annum and convertible into shares of common stock at a conversion price of

$0.03 per share. On January 17,2017, Ms. Greene advanced the company a further $40,000 in the form of a promissory note, bearing interest at 0$ per annum and convertible into shares of common stock at a conversion price of $0.03 per share. In connection with the issue pf promissory notes, Ms. Greene was also awarded warrants exercisable over 6,767,042 shares of common stock at an exercise price of $0.03 per share.

 

All related party transactions occur in the normal course of operations and in terms of agreements entered into between the parties.


Table of Contents3017.Stockholders’ deficit

a)Common shares

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

11.Stockholders’ deficit

a)Common shares

Authorized,

On June 30, 2012, the Company filed a Certificate of Amendment with the Colorado Secretary of State to increase the aggregate number of shares, which the Company has authority to issue to 100,000,000 common shares, issued at $0.01 par value per share from 50,000,000 common shares with par value at $0.01. The amendment was approved by the Colorado Secretary of State in May 2012.

On March 25, 2013, the Company filed a certificate of Amendment with the Colorado Secretary of State to increase the aggregate number of shares which the Company has the authority to issue to 500,000,000 common shares, issued at $0.01 par value per share from 100,000,000 common shares with par value at $0.01. The amendment was approved by the Colorado Secretary of State on March 26, 2013.

Issued and outstanding

The Company has authorized 500,000,000 shares with a totalpar value of 47,738,855 and 46,131,764$0.01 per share. The company has issued and outstanding common shares as at123,239,230 and 48,738,755 on December 31, 20152017 and 2014,2016, respectively.

 

TheOn February 14, 2017, the Company issued 300,00060,000,000 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 itsthe 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 stockshares to satisfy its obligations under thea 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 ofrights and converted an aggregate principal amount of $8,117

$375,011 into 12,500,375 shares of convertible promissory notes on January 14, 2015.common stock at a conversion price or $0.03 per share.

 

On March 31, 2015,December 1, 2017, the Company adjustedissued 1,650,000 shares of common stock in connection with the numberclosing of a financing of a Senior Secured Convertible Note. The shares previously issued by 2,909 common shares pursuant to convertible note conversions to reflect the currency exchange differences not previously taken into account.were valued at $132,000, or $0.08 per share on December 1, 2017.

 

On march 31, 2015,December 29, 2017, the Company issued an additional 250,000 shares of its common stock and 106,000upon the amendment of the Senior Secured Convertible note, disclosed in 4 above. The shares of its Series B preferred stock as compensation for services rendered amounting to$56,096.were valued at $15,000 or $0.06 per share on December 29, 2017.

 

On April 30, 2015, the holders of 106,000 Series “B” preferred shares converted their shares into 1,060,000 common shares at a conversion ratio of 10 common shares for 1 Series B preferred share.

b)Preferred shares

 

b)Preferred sharesAuthorized, issued and outstanding

Authorized

On March 25, 2013, theThe Company under the certificate of amendment filed above also to authorize 3,000,000 series A convertiblehas 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 also to authorize 10,000,000 series B convertible preferred shares. The Company has no preferred shares par value $0.01issued and outstanding.

c)Warrants

In terms of the short-term Series L Convertible notes entered into with 3 parties, as disclosed in note 13 above, the Company awarded three year warrants exercisable over 2,366,666 shares of common stock, at an exercise price of $0.03 per share. Each series B convertible preferred share is convertible into 10 Common shares. The amendment was approved by the Colorado Secretary of State on March 26, 2013.

 

Issued and outstanding

TheIn terms of the agreements entered into with Leonite Capital, LLC, the Company had no issued and outstanding preferredagreed to issue warrants exercisable over 27,500,000 shares asof common stock at December 31, 2015.

On April 30, 2015, the holdersan exercise price of 106,000 Series “B” preferred shares converted their shares into 1,060,000 common shares at a conversion ratio of 10 common shares for 1 Series B preferred$0.10 per share.

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

11.Stockholders’ deficit(continued)

c)Warrants

No warrants were issued, exercised or cancelled for the year under review.

 

The movement in warrants outstanding is summarized below.fair value of Warrants awarded and revalued during the year ended December 31, 2017 were valued at $1,826,500 using the Black Scholes pricing model utilizing the following weighted average assumptions:

 

  

Number of

warrants outstanding

 Weighted average exercise price per share
           
 Outstanding at January 1, 2014   4,500,000  $0.15 
 Granted   1,800,000   0.13 
 Cancelled/forfeited   —     —   
 Exercised   —     —   
 Outstanding at December 31, 2014   6,300,000  $0.14 
 Granted   —     —   
 Cancelled/forfeited   —     —   
 Exercised   —     —   
 Outstanding at December 31, 2015   6,300,000  $0.14 

Year ended December 31, 2017
Calculated stock price$0.02 to $0.08
Risk free interest rate1.48% to 2.13%
Expected life of warrants (years)3 to 5 years
expected volatility of underlying stock398% to 535%
Expected dividend rate0%

 

The volatility of the common stock is estimated using historical data of the Company’s common stock. The risk-free interest rate used in the Black Scholes pricing model is determined by reference to historical U.S. Treasury constant maturity rates with maturities approximate to the life of the warrants granted. An expected dividend yield of zero is used in the valuation model, because the Company does not expect to pay any cash dividends in the foreseeable future. As of December 31, 2017, the Company does not anticipate any awards will be forfeited in the valuation of the warrants.


17.       Stockholders’ deficit (continued)

c)Warrants

A summary of all of the Company’s warrant activity during the period January 1, 2016 to December 31, 2017 is as follows:

   No. of shares  Exercise price per
share
  Weighted average exercise price 
           
Outstanding January 1, 2016   6,300,000   0.0033 to $.0.03  $0.0033 
Granted   19,337,409   0.03   0.0300 
Forfeited/cancelled   (6,000,000)  0.15   0.1500 
Exercised          
Outstanding December 31, 2016   19,637,409   0.0033 to $.0.03   0.0033 
Granted   29,866,666   $0.03 to $0.10   0.0945 
Forfeited/cancelled          
Exercised          
Outstanding December 31, 2017   49,504,075   $0.033 to $0.10  $0.0690 

 

The following table summarizes information about warrants outstanding at December 31, 2015

  Warrants outstanding and exercisable

Exercise price

 

Number of warrants

Weighted average remaining contractual years 

Weighted average exercise price

               
$0.003   300,000   *  $0.003 
$0.15   6,000,000   0.28   0.15 
     6,300,000      $0.14 

* In terms of an agreement entered into with an investor relations company, 300,000 warrants were to be issued as part of the Investor Relations Agreement. These warrants have not been issued as yet, therefore the warrant terms are uncertain.2017:

 

As of December 31, 2015 the 6,300,000 warrants were all vested, there were no unrecognized compensation costs related to these warrants and the intrinsic value

   Warrants outstanding  Warrants vexercisable 

 

Exercise price

  

 

No. of shares

  

Weighted average

remaining years

  

Weighted average

exercise price

  

 

No. of shares

  

Weighted average

exercise price

 
                 
$0.0033   300,000   *       300,000     
$0.03   21,704,075   2.20       21,704,075     
$0.10   27,500,000   4.90       27,500,000     
                      
    49,504,075   3.71  $0.0690   49,504,075  $0.0690 

*In terms of an agreement entered into with an investor relations company, 300,000 warrants were to be issued as part of the Investor Relations Agreement. These warrants have not been issued as yet, therefore the warrant terms are uncertain.

All of the warrants outstanding as of December 31, 2015 is $20,000. 2017 are vested. The warrants outstanding as of December 31, 2017 have an intrinsic value of

$668,123.

 

Table of Contents32d)Stock options

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

 

11.Stockholders’ deficit(continued)

d) Stock options

Our board of directors adopted the GreeneStoneGreenestone 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.Wehave granted a total of 480,000 options as of December 31, 20152017 under the Plan.

 

No options were issued, exercised or cancelled forduring the year under review.ended December 31, 2017.


17.Stockholders’ deficit (continued)

d)     Stock options (continued

 

The movement in options outstandingA summary of all the Company’s option activity during the period January 1, 2016 to December 31, 2017 is summarized below.as follows:

 

  Number of options outstanding Weighted average exercise price per share
           
 Outstanding at January 1, 2014   3,600,000  $0.20 
 Granted   480,000   0.12 
 Cancelled/forfeited   (3,600,000)  (0.20)
 Exercised   —       
 Outstanding at December 31, 2014   480,000   0.12 
 Granted   —     —   
 Cancelled/forfeited   —     —   
 Exercised   —     —   
 Outstanding at December 31, 2015   480,000  $0.12 
  No. of shares  Exercise price per
share
  Weighted average
exercise price
 
          
Outstanding January 1, 2016  480,000  $0.12  $0.12 
Granted         
Forfeited/cancelled         
Exercised         
Outstanding December 31, 2016  480,000  $0.12   0.12 
Granted - non plan options         
Forfeited/cancelled         
Exercised         
Outstanding December 31, 2017  480,000  $0.12  $0.12 

 

The following table summarizes information about options outstanding atas of December 31, 20152017:

 

  Options outstanding Options Exercisable

 

Exercise price

 

Number of options

Weighted average remaining contractual years 

Weighted average exercise price

Number of optionsWeighted average exercise price
$0.12   480,000   3.84  $0.12   280,000  $0.12 

   Options outstanding  Options exercisable 

 

Exercise price

  No. of shares  

Weighted average

remaining years

  

Weighted average

exercise price

  No. of shares  

Weighted average

exercise price

 
                 
$0.12   480,000   1.83       480,000     
                      
    480,000   1.83  $0.12   480,000  $0.12 

 

The Company agreed to issueissued 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, 20152017 there was no unrecognized compensation costs related to these options and the intrinsic value of the options as of December 31, 20152017 is $0.

Table of Contents3318.Segmental Information

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

Due to the recent acquisition of the CCH subsidiary on February 14, 2017, the Company has two reportable operating segments;

 

a.Rental income from the property owned by CCH subsidiary located at 3571 Muskoka Road, #169, Bala, on which the operations of the Canadian Rehab Clinic were located prior to disposal on February 14, 2017 and subsequently leased to the purchasers of the business of the Canadian Rehab Clinic, for a period of 5 years renewable for a further three five-year periods and with an option to acquire the property at a fixed price.

12.Discontinued operations – 1816191 Ontario limited

b.Rehabilitation Services provided to customers, during the nine months ended September 30, 2017, these services were provided to customers at our Seastone of Delray business acquired on February 14, 2017. The Rehabilitation services provided by our Canadian Rehab Center for the years ended December 31, 2017 and 2016 are reported under discontinued operations and have not been reported as part of the Segment Information.

18.Segmental Information (continued)

The segment operating results of the reportable segments are disclosed as follows:

 

Intheprior year,OnDecember17,2014,theCompany completedthesaleoftheEndoscopybusiness to a CompanyownedbyDr.Jay Parekh, forthesumof CAD$1,282,002,comprisedoftheagreed purchase priceof CAD$1,250,000andtheacquisition ofnet assets atclosing ofCAD$32,002The sale priceof CAD$1,282,002included theassumptionbythe buyerof debtinthesame amount asthesale price,whichdebtisowedbytheEndoscopyclinictotheCompany intheamountofCAD$895,460and tothe buyerofCAD$386,542. Atclosing,the buyeroffsettheassumeddebttotheCompanyofCAD$895,460byUS$277,500throughthecancellation of2,408,268 sharesoftheCompany’s commonstock,for a net amountduetotheCompanyofCAD$617,960.Thisdebtisowedbythe buyertotheCompany intheformofan interest bearingnote withacouponof 5%perannum.

  

 

Rental Operations

  

Year ended December 31, 2017

In-Patient services

  

 

Total

 
       
Revenue $291,583  $637,833  $929,416 
Operating expenditure  195,529   2,187,044   2,382,573 
             
Operating (loss) income  96,054   (1,549,211)  (1,453,157)
             
Other (expense) income            
Other income     475,487   475,487 
Other expense     (5,093,9541)  (5,093,954)
Interest income     32,074   32,074 
Interest expense  (179,037)  (188,510)  (367,547)
Amortization of debt discount     (668,916)  (668,916)
Loss on change in fair value of derivative liability     (1,033,332)  (1,033,332)
Foreign exchange movements  (12,003)  (69,028)  (81,031)
Net loss before taxation from continuing operations  (94,986)  (8,095,390)  (8,190,376)
Taxation         
Net loss from continuing operations $(94,986) $(8,095,390) $(8,190,376)

 

13.Commitments and contingencies

a)Operating leases

 

The Company has entered into a lease agreement for the rental of premises operated by GreeneStone Clinic Muskoka Inc. which term initially expires on March 31, 2019. The Company has an option to extend the lease for an additional three terms, each term being an additional three years. The Company also has an option to purchase the property for $10,000,000, which option must be exercised in writing, accompanied by a $250,000 depositoperating assets and must be closed within 30 days of exercising the option. The Company also has a right of first refusal should the landlord receive an acceptable offer for the premises, the Company would be entitled to acquire the premises on the same terms and conditionsliabilities of the acceptable offer, provided the Company has met certain covenants. The rental expense forreportable segments are as follows:

  Rental Operations  In-Patient services  Total 
          
Purchase of fixed assets  219,751   21,763   241,514 
Assets            
Current assets  201   334,418   334,619 
Non-current assets  3,182,638   8,751,171   11,933,809 
Liabilities            
Current liabilities  (2,209,462)  (4,650,716)  (6,860,178)
Non-current liabilities  (4,349,208)  (2,834,684)  (7,183,892)
Intercompany balances  (791,263)  791,263    
Net (liability) asset position  (4,167,095)  2,391,453   (1,775,642)


19.Net income (loss) per common share

For the year ended December 31, 2015 was $352,044.2017 the computation of basic and diluted earnings per share is as follows:

  Amount  Number of shares  Per share amount 
       
Basic earnings per share            
Net loss per share from continuing operations $(8,190,376)  107,352,184  $(0.08)
Net income per share from discontinued operations  6,821,889   107,352,184   0.06 
             
Basic income per share  (1,368,487)  107,352,184   (0.02)
             
Effect of dilutive securities            
             
Warrants     11,135,388     
Convertible debt     30,314,208     
             
Diluted earnings per share            
Net loss per share from continuing operations  (8,190,376)  148,801,780   (0.06)
Net income per share from discontinued operations  6,821,889   148,801,780   0.05 
             
  $(1,368,487)  148,801,780  $(0.01)

 

The future minimum annual rental payments under the operating lease are estimated as follows, usingFor the year end exchange rateended December 31, 2016, the following options and warrants were excluded from the computation of CAD$1 equals US$0,7225:diluted net loss per share as the results would have been anti-dilutive.

 

    Amount
           
 2016      $356,435 
 2017      400,194 
 2018       443,962 
 2019      113,806 
       $1,314,397 

  Year ended December 31, 2016 
    
Stock options $480,000 
Warrants to purchase shares of common stock  19,637,409 
  $20,117,409 

 

20.Commitments and contingencies

b)

a.Contingency related to outstanding penalties

Contingency related to outstanding tax liabilities

The Company is delinquent in paying harmonized sales tax, filing and paying payroll taxes and may also be subject to US taxation and penalties as fully disclosed in note 9 above.

As of December 31, 2015, the Company had estimated Canadian tax liabilities outstanding of $2,290,506, which may result in the Canadian tax authorities placing liens on the Company bank accounts which would impact on the Company’s ability to operate. The Company has also provided for potential US tax liabilitiespenalties of $200,000$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.

 

b.Operating leases

c)Other

The Company has assumed operating leases for certain vehicles and office equipment. The future commitment of these operating leases are as follows:

 

   Amount 
     
2018  $8,014 
2019   270 
Total  $8,284 
      


20.Commitments and contingencies (continued)

c.Mortgage loans

The company has two mortgage loans as disclosed in note 14 above. The future commitments under these loans are as follows:

   Amount 
     
2018  $134,010 
2019   3,048,904 
2020   110,444 
2021   115,662 
2022   3,908,884 
Total  $7,317,902 
d.Convertible loans

The Company has an interest bearing convertible loan which requires monthly interest payments: the future interest payments under this loan is as follows:

   Amount 
     
2018  $128,723 
Total  $128,723 

e.Other

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.

Table of Contents3421.Income taxes

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

14.Income taxes

 

The Company is not current in its tax filings as of December 31, 2015.2017 and 2016

 

The Company accounts for income taxes under Accounting Standards Codification 740, Income Taxes “ASC 740”. ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. ASC 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Internal Revenue Code Section 382 “IRC 382” places a limitation on the amount of taxable income that can be offset by carry forwards after a change in control (generally greater than a 50% change in ownership).

         
  
Year ended December
31, 2017
  Year ended December
31, 2016
 
         
Tax expense at the federal statutory rate  (1,288,471)  (394,991)
Foreign taxation  (1,325,577)  198,560 
Permanent differences  1,606,144   56,768 
Foreign tax rate differential  (203,943)  98,381 
Valuation allowance  1,211,846   41,282 
       


21.Income taxes (continued)

 

The components of the Company’s deferred taxes asset as at December 31, 20152017 and December 31, 20142016 are as follows:

  December 31, 2015 December 31, 2014
Deferred tax asset        
Net operating loss carry forward $20,021,906  $19,566,029 
Provisions raised  176,938     
Valuation allowance  (20,198,844) (19,566,029)
  $—    $—   

A reconciliation of income taxes computed at the 35% statutory rate to the income tax recorded is as follows:

  December 31, 2015 December 31, 2014
         
Taxation benefit at statutory tax rate $464,746 $665,096 

Foreign taxation

  (4,647)  —   
Permanent Differences  (26,674)  —   
Timing differences not provided for  (176,938)  —   
Foreign tax rate differential  (5,701)  —   
Valuation allowance  (250,786)  (665,096)
  $—  $—   
         
  December 31, 2017  December 31, 2016 
Deferred tax assets        

Net operating loss carry forward

  20,303,013   20,198,844 
Net Operating Loss utilized - Discontinued operations  (2,775,870)   
Net taxable loss  3,029,615   104,169 
Valuation allowance  (20,556,758)  (20,303,013)
       

 

As atof December 31, 2015,2017, the Company is in arrears on filing its statutory income tax returns and the amounts presented above are based on estimates. The actual losses available could differ from these estimates. In addition, the Company could be subject to penalties for these unfiled tax returns.

 

During the year ended December 31, 2015,2017, the Company has accrued and expensed $200,000 (2014: $150,000)$250,000 (2016: $250,000) in penalties and interest attributable to delinquent tax returns. Management believes the Company has adequately provided for any ultimate amounts that are likely to result from audits of these returns once filed; however, final assessments, if any, could be significantly different than the amounts recorded in the financial statements.

 

The Company operates in foreign jurisdictions and is subject to audit by taxing authorities. These audits may result in the assessment of amounts different than the amounts recorded in the consolidated financial statements. The Company liaises with the relevant authorities in these jurisdictions in regard to its income tax and other returns. Management believes the Company has adequately provided for any taxes, penalties and interest that may fall due.

 

Table of Contents22.35Subsequent events

GREENESTONE HEALTHCARE CORPORATION 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

 

15.Subsequent events

TheOn March 9, 2018, the Company, is currently negotiatingentered into a Securities Purchase Agreement with JMJ Financial inPower Up Lending Group Ltd., pursuant to which the Company will borrow $200,000issued to the Purchaser a Convertible Promissory Note in termsthe aggregate principal amount of an unsecured convertible promissory note with$153,000. The Note has a maturity date of seven monthsDecember 30, 2018 and bears interest at the at the rate of twelve percent per annum from the closing date for net proceeds of $160,000, after a 10% original issue discounton which the Note is issued until the same becomes due and a 10% one-time interest charge. The promissory note is only convertiblepayable, whether at maturity or upon a repayment default, at a price to be determined.acceleration or by prepayment or otherwise. The Company will also issue,shall have the right to prepay the Note in terms of agreement. The outstanding principal amount of the financing, 3,703,700 warrants exercisable overNote 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 sharesstock at $0.03 per share, which warrants contain a cashless exercise option.conversion price equal to 61% of the average lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion.

 

Other than disclosedthe above, the Company has evaluated subsequent events through the date of the consolidated financial statements were available to be issued and has concluded that no such events or transactions took place that would require disclosure herein.

Table of Contents36

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A. Controls and Procedures.

 

a)Evaluation of Disclosure and Control Procedures

a)Evaluation of Disclosure and Control Procedures

 

The Company’s disclosure controls and procedures are designed to ensure (i) that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms;forms; and (ii) that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Our principal executive officer and principal financial officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2015,2017, and concluded that the disclosure controls and procedures were not effective as a whole, and that the deficiency involving internal controls constituted a material weakness as discussed below.

 

b)Management’s Assessment of Internal Control over Financial Reporting

b)Management’s Assessment of Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f). A system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

Under the supervision and with the participation of management, including the principal executive officer and the principal financial officer, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2015,2016, based on the criteria established in a report entitled “Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission” and the interpretive guidance issued by the Commission in Release No. 34-55929. Based on this evaluation, the Company’s management, including the Company’s principal executive officer and principal financial officer, has evaluated and concluded that the Company’s internal control over financial reporting was ineffective as of December 31, 2015,2017, and identified the following material weaknesses:

 

There are insufficient written policies and procedures to insure the correct application of accounting and financial reporting with respect to the current requirements of GAAP and SEC disclosure requirements; and Notwithstanding the existence of this material weakness in our internal control over financial reporting, our management believes that the consolidated financial statements included in its reports fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented.
There are insufficient written policies and procedures to ensure the correct application of accounting and financial reporting with respect to the current requirements of GAAP and SEC disclosure requirements; and Notwithstanding the existence of this material weakness in our internal control over financial reporting, our management believes that the consolidated financial statements included in its reports fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. The Company’s registered public accounting firm was not required to issue an attestation on its internal controls over financial reporting pursuant to temporary rules of the Securities and Exchange Commission. The Company will continue to evaluate the effectiveness of internal controls and procedures on an on-goingongoing basis.

 

c)Changes in Internal Control over Financial Reporting

c)Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.Other Information.

 

Not applicable.


 

Item 10. Directors, Executive Officers, and Corporate Governance.

 

The following table sets forth the names and ages of the members of the Company’s Board of Directors (the “Board”) and executive officers, and the positions held by each:

 

Name(1)(2)(3)Position Position
Shawn E. Leon5658Chief Executive Officer, Chief Financial Officer, President and  Director (4)
   
John O’Bireck (5)5759Director
   
Gerald T Miller (5)5860Director

 

(1)Michael Hewlett resigned as a director of the Company, without cause, with effect from June 15, 2015
(2)Dr. Luke Fazio resigned as a director of the company, without cause, with effect from June 17, 2015.
(3)Mr William Sklar resigned as the Chief Financial Officer of the Company with effect from August 19,2015.
(4)Mr. Leon was appointed as the Chief Financial Officer of the Company upon the resignation of Mr. William Sklar on August 19, 2015.
(5)Mr. O’Bireck and Mr. Miller were appointed to the board of directors on November 2, 2015 to replace the vacancies left by Mr. Hewlett and Dr. Fazio.

Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.

Shawn E. Leon, Chief Executive Officer, Chief Financial Officer, President and Director

 

Shawn E. Leon has been an officer and director of the Company since November 2010 and served as the President of the Company’s subsidiaries at all times. In April 2011, Mr. Leon was appointed as the Company’s Chief Executive Officer. Prior to joining the Company, Mr. Leon held the role of President of Greenestone Clinic Inc., Leon Developments Ltd, Port Carling Inn Developments Ltd., 1871 at the Locks Developments Ltd. and Leon Developments Ltd. Mr. Leon graduated with Honors in Business Administration from Wilfrid Laurier University in 1982. Mr. Leon was elected to the Board because of his prior management experience.

 

John O’Bireck, Director

 

John O’Bireck 57 of Aurora, Ontario, Canada has been a Control Systems Engineer, since graduating in 1982, and has since been involved with building engineering teams to provide solutions for industrial and transportation industry. He was a co-foundercofounder of Hay-DriveHayDrive Technologies Ltd. a publicly listed company where he held the positions of Director, Vice-President,Vice-president, Chief Technology Officer and Vice President of Advanced Product Development. Mr. O’Bireck was also the co-founder,cofounder, Director and President of Supernova Performance Technologies Ltd., a privately held company. In 2014 Mr. O’Bireck was elected as a Director to the Board of Sparta Capital Ltd.

 

Gerald T. Miller, Director

 

Gerry Miller 58 of Toronto, Ontario, Canada is the Managing Partner of the Law Firm Gardiner Miller Arnold LLP. Mr. Miller’s practice focuses on a comprehensive range of business, finance and real estate issues. In addition to managing the law firm. Mr. Miller’s runs the business law and real estate practice at Gardiner Miller Arnold LLP Law firm. He advises small to medium sized companies in manufacturing, investing and service related industries. Mr. Miller supervises all merger and acquisition transactions and institutional finance work.

Involvement in Certain Legal Proceedings

 

ToA former employee has filed suit against the Company asserting wrongful dismissal, claiming damages between CDN$43,500 and CDN$50,000 this matter is under discussion with the plaintiff, we feel that the damages claimed are remote

Other than disclosed above, to the best of our knowledge, during the past ten years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);; (3) being subject to any order, judgment or decree, not subsequently reversed, suspended vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities;activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 


Compliance with Section 16(A) of the Exchange Act

 

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).

 

Based solely on our review of certain reports filed with the SEC pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, at December 31, 2015,2017, none of the officers, directors or 10% shareholders were in compliance with Section 16(a).

 

Code of Ethics

 

The Board adopted a Code of Business Conduct and Ethics applicable to all of our directors, officers and employees, including our Chief Executive Officer. A copy of our Code of Ethics is incorporated by reference to an exhibit in our exhibit table. Shareholders may also request a copy of the Code of Ethics from the Company’s headquarters.

 

Board Meetings and Committees

 

The Company holds regular Board meetings each quarter. There are no sub committees of the Board. All Directors act on all matters before the Board.

 

Audit Committee

 

Effective May 6, 2003, the SEC adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-auditnonaudit related service, the engagement be:

 

approved by our audit committee; or
entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management.
approved by our audit committee; or
entered into pursuant to preapproval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management.

 

We do not currently have an audit committee. The Board pre-approvespreapproves all services provided by our independent auditors and otherwise performs the functions of an audit committee. The Company does not believe that not having an audit committee will have any adverse effect on the Company’s financial statements or current operations. The Company’s management will assess whether an audit committee may be necessary in the future.

Item 11. Executive Compensation. Executive Compensation

 

There has been no annuity, pension or retirement benefits paid to our officers or directors during the past two fiscal years. We currently do not have an employment agreement with the Company’s Chief Executive Officer.

On November 1, 2014, There is no compensation committee of the Company entered into an employmentBoard. The Board approved the terms of a certain management agreement with William L. Sklar, our Chief Financial Officer. Pursuant to this employment agreement, Mr. Sklar is entitled to a salary of CAD$18,000 per annum and he received options exercisable over 480,000 shares of common stock of the Company at an exercise price of $0.12 per share. The stock option vest over a twenty-four-month period, contain a cashless exercise provision and will expire on October 31, 2019. Mr. Sklar was subject to a two year non-compete and non-solicitation clause under his employment agreement. Mr. Sklar’s employment agreement did not provide for any payments upon a change of control. Mr Sklar resigned asGreenestone Clinic, Inc., wholly owned by the Company’s Chief FinancialExecutive Officer, on August 19, 2015.Shawn Leon, and with Shawn Leon, whereby a management agreement was initially for a term of one year and was for the development of medical clinics in Ontario, Canada. The agreement has been extended from year to year and has been expanded to include overall company management and the development of clinics in the United States. The management agreement allowed for a maximum compensation of $300,000 per year.

 

The table below summarizes all compensation awarded to, earned by, or paid to each named executive officer for our last two completed fiscal years for all services rendered to us.

Summary Compensation Table

 

SUMMARY COMPENSATION TABLE 

Name and principal position Year 

Salary

($)

 

Bonus

($)

 

Stock Awards

($)

 

Option Awards

($)

 

Non-Equity Incentive Plan Compensation

($)

 

Nonqualified Deferred Compensation Earnings ($)

 All Other Compensation ($) 

 

Total ($)

Shawn E. Leon,
Chief Executive Officer, Chief Financial Officer
  2015   —     —     —     —     —     —     —     —   
President (1)  2014   —     —     —     —     —     —     —     —   
                                     
William L. Sklar
Chief Financial Officer (2)
  2015   5,840   —     —     —     —     —     —     5,840 
Financial  2014   3,879   —     —     20,844   —     —     —     24,723 
Name and Principal Position Year  Salary ($)  Bonus ($)  Option Awards ($)  Non-Equity Plan Compensation ($)  Non Qualified Deferred Compensation Earnings ($)  All Other Compensation ($)  Total ($) 
                         
Shawn E. Leon, President CEO, CFO (1)  2017                  289,125   289,125 
   2016                  257,283   257,283 

 

(1)MrAll other compensation represents a management fee of $289,125 (2016:257,283) paid to a company controlled by Mr. Leon and a further management fee for services rendered. The verbal management agreement was entered into with Greenstone Clinic, Inc., a wholly owned subsidiary of Shawn Leon, and Shawn Leon, was appointed asinitially for a term of one year and was for the Company’s Chief Financial Officer on August 19, 2015.
(2)Mr. Sklar resigned asdevelopment of medical clinics in Ontario, Canada. The agreement has been extended from year to year and has been expanded to include overall company management and the Company’s Chief Financial Officer on August 19, 2015.development of clinics in the United States. The management agreement allowed for a maximum compensation of $300,000 per year.

 


Outstanding Equity Awards at Fiscal Year End

 

There were no equity awards issued to executive officers during the fiscal year ended December 31, 20152017 and there are no outstanding equity awards to named officers as of December 31, 2015.2017.

 

Information regarding equity compensations plans is set forth in the table below:

 

Plan category 

 

 

 

Number of securities to be issued upon exercise of outstanding options

 

 

 

 

 

Weighted average exercise price of outstanding options

 Number of securities available for future issuance under equity compensation plans
Equity compensation plans approved by security holders  480,000   0.12   9,520,000 
             
Equity compensation plans not approved by security holders  —     —     —   
             
Total  480,000   0.12   9,520,000 

  Number of securities
to be issued upon exercise of
outstanding options
  Weighted average exercise price of outstanding options  Number of securities remaining for future issuance under
equity compensation plans
 
          
Equity Compensation plans approved by the stockholders            
2013 Equity compensation plan  480,000  $0.12   9,520,000 
Equity Compensation plans not approved by the stockholders            
None    $    
             
   480,000.0  $3.59   9,520,000 

 

Directors Compensation

 

The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named directors by us during the year ended December 31, 2014.2017.

 

DIRECTORS COMPENSATION TABLE

DirectorNameFees earned or paid in cash ($)  

Directors fees Earned or Paid in Cash

Stock awards ($)

  

Stock Awards

Option awards ($)

  

Option Awards

Non-Equity
Plan Compensation ($)

  

Non-Equity

Incentive Plan

Non Qualified Deferred Compensation

Earnings ($)

  

Non-Qualified

DeferredAll Other Compensation Earnings

($)

  

All Other

Compensation

Total ($)

Total

($)

 
                             
Shawn E. Leon                     
                             
John O’Bireck(5)O’ Bireck                     
                             
Gerald T Miller(5)                    
Dr. Luke Fazio—  —  —  —  —  —  —  
Michael Howlett—  —  —  —  —  —  —   


 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth the beneficial ownership of our capital stock by each executive officer and director, by each person known by us to beneficially own more than five percent (5%) of any class of stock and by the executive officers and directors as a group. Except as otherwise indicated, all shares of common stock are owned directly and the percentage shown is based on 47,738,855109,938,855 shares of common Stock issued and outstanding as of April 10, 2016.11,2018.

 

Name Amount and Nature of Beneficial Ownership of Common Stock 

Percent of Common Stock Beneficially Owned (1(2))

         
Directors and officers        
Shawn E. Leon  8,005,150(3)  16.4%
         
John O’Bireck  —     —   
         
Gerald T Miller  —     —   
         
5% Shareholders        
Irwin Zalcberg  5,300,000(4)  10.4%
         
All officers and directors as a group (3 persons)  8,005,150   16.4%
Name of beneficial owner Amount and
nature of beneficial
ownership,
including common
stock
 

Percentage of
common stock
beneficially owne

d (1)

       
Directors and Officers        
Shawn E. Leon  80,389,234(2)  62.0%
         
5% Shareholders        
Leonite Capital LLC  29,400,000   19.5%
         
All officers and directors as a group (10 persons)  80,389,234   62.0%

(1)(1)Based on 47,738,855122,989,230 shares of common stock outstanding as of April 6, 2016.11, 2018.
(2)Beneficial ownership means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have “beneficial ownership” of any security that such person has the right to acquire within 60 days of April 6, 2015.
(3)(2)Includes 1,910,0002,257,850 shares of common stock; 8,677,042 shares of common stock and warrants for 6,767,042 shares of common stock held by Eileen Greene, the spouse of Shawn Leon,Leon; 2,687,300 shares of common stock held by GreeneStone Clinic Inc., which is controlled by Mr. LeonLeon; and warrants exercisable over 1,150,000a further 60,000,000 shares of common stock held by Eileen Greene.issued to Leon Developments Ltd upon the acquisition of CCH on February 14, 2017. Mr. Leon resides at 46 Fairway Heights Drive, Thornhill, Ontario, Canada.
(4)Includes 2,300,000 shares of common stock held by Irwin L. Zalcberg, warrants exercisable over 1,000,000 shares of common stock and further warrants exercisable over 2,000,000 shares of common stock owned by the Irwin Zalcberg profit sharing plan.


 

Item 13. Certain Relationships and Related Party Transactions, and Director Independence.Independence

 

Related Party Transactions

 

The Company leases the premises on which the clinic is situated on from Cranberry Cove Holdings, LTD, which is owned by our CEO, Shawn Leon. The clinic is in Bala, Ontario at 3571 Highway 169. The property is 43 acres in size and contains approximately 48,000 square feet of buildings. The initial term of the lease is for a five-year period which commenced on April 1, 2014 and has renewal options for an additional three terms, each additional term being for a period of three years. The lease is a net lease and the Company has a non-disturbance agreement from the mortgage lenders on the property for the whole term. Further, the Company has an option to purchase the property at any time during the term of the lease for $10,000,000. Shawn Leon, the Company’s Chief Executive Officer is also the managing partner of Cranberry Cove Holdings LTD.

As of December 31, 2015,2017, a total of $274,496$72,729 is owedpayable to executive officers or their affiliates for loans payable,net related party payables, as detailed in the below table:

 

Description Amount
     
Shawn Leon (1) $159,551 
     
1816191 Ontario (2)  22,305 
     
Greenestone Clinic (3)  5,284 
     
Cranberry Cove Holdings LTD.(4)  87,356 
     
  $274,496 

Name Amount 
Owing to the Company    
Shawn E. Leon(1) $16,080 
Owing by the Company    
1816191 Ontario(2)  (15,922)
Leon Developments, LTD(3)  (1,703,976)
Eileen Greene(4)  (877,182)
Total $(2,581,000)

(1)Shawn Leon is the Chief Executive Officer of the company
(2)1816191 Ontario is the Endoscopy Clinic sold to Dr. Parekh in December 2014.
(3)Leon Developments is wholly owned by Shawn Leon, the Company’s Chief Executive Officer
(4)Eileen Greene is the spouse of Shawn Leon.

Shawn E. Leon

As of December 31, 2017 and 2016 the Company had a receivable of $16,080 and a payable of $8,492, respectively to Shawn E. Leon, isa director and CEO of the Company’s Chief Executive Officer.

(2) 1816191 Ontario is the Endoscopy Clinic sold to Dr. Parekh in December 2014. Dr. Parekh is indebted to the company for $446,476 as of December 31, 2015, this amount has been fully provided for.

(3) Shawn Leon is the Chief Executive Officer of GreeneStone Clinic, Inc.

(4) Dr. Parekh, the owner of 1816191 Ontario, is the owner of Cranberry Cove Holdings LTD.Company. The balances receivable and payable are non-interest bearing and have no fixed repayment terms.

 

The Company’sMr. Leon was paid management fee expense amounted to $96,705 and $122,271 for the years ended December 31, 2015 and 2014 which fees were paid to Greenestone Clinic Inc. for services which are included in management fees.

The Company entered into an agreement to lease premises from Cranberry Cove Holdings Ltd. On an arm’s length basis. Duringof $289,125 during the year ended December 31, 2015,2017. In addition to this the Company recorded a once off compensation expense in other expenses, relating to the excess of the fair value of the assets acquired in CCH. Mr. Leon is the owner of Leon Developments, the counterparty in the acquisition of the CCH.

1816191 Ontario

As of December 31, 2017 the Company had rent expensea payable of $352,044$15,921 to Cranberry Cove Holdings1816191 Ontario, the Endoscopy Clinic, which was sold at the end of the prior year. The payable is non-interest bearing, and has no specific repayment terms.

Leon Developments, Ltd. Cranberry Cove Holdings

The Company acquired CCH from Leon Developments, Ltd., on February 14, 2017, CCH owns the facility utilized by the Canadian Rehab Clinic which was sold to a third party on February 14, 2017. CCH owed CDN $2,692,512 to Leon Developments. The amount owing to Leon Developments Ltd., as of December 31, 2017 was CDN$2,692,512 or US$1,703,976.

Eileen Greene

Eileen Greene is relatedthe spouse of our CEO, Shawn Leon.

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 by virtuein the form of its shareholder being a directorpromissory 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.company a further $40,000 in the form of a promissory note, bearing interest at 0$ per annum and convertible into shares of common stock at a conversion price of $0.03 per share. In connection with the issue pf promissory notes, Ms. Greene was also awarded warrants exercisable over 6,767,042 shares of common stock at an exercise price of $0.03 per share.

 

These promissory notes were converted into 6,767,042 common shares during July 2017.

During October and November 2017, we borrowed CDN$1,122,000 from Eileen Greene, principally to fund the deposit on a real estate transaction. The funds advanced is non-interest bearing and has no fixed repayment terms. As of December 31, 2017, the amount owing to Eileen Greene amounted to $877,182.


DirectorDirectors Independence

The common stock of the Company is currently quoted on the OTCBB, a quotation system which currently does not have director independence requirements. On an annual basis, each director and executive officer will be obligated to disclose any transactions with the Company in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest in accordance with Item 407(a) of Regulation S-K.SK. Following completion of these disclosures, the Board will make an annual determination as to the independence of each director using the current standards for “independence” that satisfy the criteria for the NASDAQ Stock Market, Inc.

 

As of December 31, 2015,2017, the Board determined that the following directors are independent under these standards: John O’Bireck and Gerald T Miller.Miller are independent and that Mr. Leon is not independent under these standards.

 

Item 14. Principal Accountant Fees and Services.

On March 9,2018, the Company dismissed RBSM LLP as the Company’s independent registered public accounting firm. The decision to change was approved by the Company’s Board of Directors.

The audit report of Company’s independent registered public accounting firm on the financial statements for each of the past two years ended December 31, 2016 and 2015 did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope, or accounting principles, with the exception that: the reports dated April 17, 2017, and April 14, 2016, contained the following explanatory paragraph: “The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has sustained net losses and has a working capital and stockholder’s deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 6. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.”

During the Company’s two most recent fiscal years and the subsequent interim periods preceding its dismissal of RBSM, there were: (i) no disagreements with RBSM on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of RBSM, would have caused it to make reference to the subject matter of the disagreements in its reports on the consolidated financial statements of the Company; and (ii) no reportable events as described in Item 304(a)(1)(v) of Regulation S-K.

Appointment of Daszkal Bolton LLP

On March 9, 2018, the Company engaged Daszkal Bolton LLP (“Daszkal”), as the Company’s independent registered public accounting firm to audit the Company’s financial statements. Prior to retaining Daszkal, the Company did not consult with Daszkal regarding either: (i) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements; or (ii) any matter that was the subject of a “disagreement” (as described in Item 304(a)(1)(iv) of Regulation S-K) or a “reportable event” (as described in Item 304(a)(1)(v) of Regulation S-K).

 

The following is a summary of the fees paid by us to RBSM LLP for professional services rendered for the years ended December 31, 20152017 and 2014:2016:

 

Fee Category  December 31, 2015 December 31, 2014
          
Audit fees  $66,000  $75,725 
Audit related fees   —     —   
Taxation fees   —     —   
All other fees   —     —   
   $66,000 $75,725 

  Year ended December
31, 2017
 Year ended December
31, 2016
     
Audit fees and expenses $64,790  $62,500 
Taxation preparation fees        
Audit related fees        
Other fees  —     —   
  $64,790  $62,500 

 

Audit Fees

Consists of fees billed for professional services rendered for the audit of our financial statements and review of interim financial statements included in quarterly reports and services that are normally provided by RBSM LLP in connection with statutory and regulatory filings or engagements in fiscal year ended December 31, 20152017 and 2014,2016, respectively.

 

Audit Related Fees

Consists of fees billed for accounting, assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees”.

 


Tax Fees

Tax Fees consist of the aggregate fees billed for professional services rendered by our principal accounts for tax compliance, tax advice, and tax planning. These services include preparation for federal and state income tax returns.

 

All Other Fees

We did not incur any other fees billed by auditors for services rendered to our Company, other than the services listed above for the fiscal years ended December 31, 20152017 and 2014,2016, respectively.

Table of Contents44

PART IV

 

Item 15. Exhibits, Financial Statement Schedules.Item 15.Exhibits and Financial Statement Schedules and Reports on Form 10-K

(a)(1)   The following financial statements are included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

 

(a)FinancialStatements and Schedules

See Item 8.

(b)Exhibits

 Exhibit No.  Description  Form   SEC File No. Date   Exhibit   Filing  Filed Herewith Furnished Herewith
 3.1  Articles of Incorporation of NNRC, Inc.  (as filed with the Secretary of State of Colorado on April 1, 1993)  10-K   000-15078   3.1   March 28, 2013     
                         
 3.2  Articles of Amendment to the Articles of Incorporation of Nova Natural Resources, Inc. (as filed with the Secretary of State of Colorado on May 8, 2012)  10-K   000-15078   3.2   March 28, 2013     
                         
 3.3  Articles of Amendment to the Articles of Incorporation of Greenestone Healthcare Corporation (as filed with the Secretary of State of Colorado on March 26, 2013)  8-K   000-15078   3.3   March 29, 2013     
                         
 3.4  Amended and Restated Bylaws of Greenestone Healthcare Corporation  8-K   000-15078   3.4   March 29, 2013     
                         
 10.1  Stock Purchase Agreement I  8-K   000-15078   10.01   March 29, 2013     
                         
 10.2  Form of Warrant I  8-K   000-15078   10.01   December 30, 2013     
                         
 10.3  Form of Warrant II  8-K   000-15078   10.01   December 30, 2013     
                         
 10.4  Stock Purchase Agreement II  8-K   000-15078   10.01   December 30, 2013     
                         
 10.5  Share Purchase Agreement, dated as of December 16, 2014, by and between the Registrant    and    Jain heel    Parekh   Medicine Professional Corporation  8-K   000-15078   10.1   December 23,2014     
                         
 1.Independent Auditor’s Report
 10.6  

CollateralNote,dated December16,2014

  8-K   000-15078   10.2   December 23, 2014    
                         
 16.1  Letterfrom JarvisRyanAssociates,LLP  8-K   000-15078   16.1   July 9, 2014     
                         
 31.1  Certification by the Principal Executive Officer of registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule15d-14(a))                 X 
                         
 31.2  Certification by the Principal Financial Officer of registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a))                 X 
                         
 32.1  Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                 X 
                         
 32.2  Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                 X 
                         
 101.INS  INSXBRLInstanceDocument                   X
                         
 101.SCH  SCH XBRLSchemaDocument                   X
                         
 101.CAL  CAL XBRLCalculationLinkbaseDocument                   X
                         
 101.DEF  DEF XBRLDefinitionLinkbaseDocument                   X
                         
 101.LAB  LAB XBRLLabelLinkbaseDocument                   X
                         
 101.PRE  PRE XBRLPresentationLinkbaseDocument            ��      X

 

2.Consolidated Balance Sheets as of December 31, 2017 and 2016

3.Consolidated Statements of Operations and comprehensive loss for the years ended December 31, 2017 and 2016

4.Consolidated Statements of changes in Stockholders’ Deficit for the years ended December 31, 2017 and 2016

5.Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016

6.Notes to Consolidated Financial Statements

(a)(2)All financial statement schedules have been omitted as the required information is either inapplicable or included in the Consolidated Financial Statements or related notes.


(b) Exibits

 

Exhibit No.DescriptionFormSEC File No.DateFiled HerewithFiled by Reference
       
3.1Articles of Incorporation of NNRC, Inc. (as filed with the Secretary of State of Colorado on April 1, 1993)10-K000-15078March 28,2013 X
       
3.2Articles of Amendment to the Articles of Incorporation of Nova Natural Resources, Inc. (as filed with the Secretary of State of Colorado on May 8, 2012)10-K000-15078March 28,2013 X
       
3.3Articles of Amendment to the Articles of Incorporation of Greenestone Healthcare Corporation (as filed with the Secretary of State of Colorado on March 26, 2013)8-K000-15078March 29, 2013 X
       
3.4Amended and Restated Bylaws of Greenestone Healthcare Corporation8-K000-15078March 29, 2013 X
       
3.5Articles of Amendment to the Articles of Incorporation re: Name Change8-K000-15078April 10, 2017 X
       
3.6First amendment to Amended and Restated Bylaws8-K000-15078April 10, 2017 X
       
4.1Form of Series L Convertible Note and Warrant Agreement8-K000-1507842740 X
       
4.2Form of LABRYS LP Convertible Note Agreement8-K000-15078February 2, 2017 X
       
10.1Stock Purchase Agreement I8-K000-1507841362X
      
10.2Form of Warrant I8-K000-15078December 30, 2013 X
       
10.3Form of Warrant II8-K000-15078December 30, 2013 X
       
10.4Stock Purchase Agreement  II8-K000-15078December 30, 2013 X
       
10.5Share Purchase Agreement, dated as of December 16,2014 by and between the Registrant and Jainheel Patekh Medical Professional Corporation8-K000-15078December 23, 2014 X
       
10.6Collateral Note, Dated December 16, 20148-K000-15078December 23, 2014 X
       
10.7Seastone of Delray Asset Purchase Agreement, Management Services Agreement and Commercial Real Estate Contract8-K000-15078May 23, 2016 X
       
10.8Stock Purchase Agreement re: Cranberry Cove Holdings Ltd.8-K000-15078February 17,2017 X
       
10.9Asset Purchase Agreement re: Sale of Muskoka Clinic8-K000-15078February 17, 2017 X
       
10.10Lease of Muskoka Clinic8-K000-15078February 17, 2017 X
       
16.1Letter from Jarvis Ryan Associates, LLP8-K000-15078July 19, 2014 X


Table of Contents 46 
31.1Certification of the Principal Executive Officer of the registrant pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (Rule 13(a) -14(a) or Rule 15(d( - 14 (a)X
 
31.2Certification of the Principal Financial Officer of the registrant pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (Rule 13(a) -14(a) or Rule 15(d( - 14 (a)X
32.1Certification of the Principal Executive Officer pursuant to Rule 18 U.S.C 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002X
32.2Certification of the Principal Financial Officer pursuant to Rule 18 U.S.C 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002X
101.INS INS XBRL Instance DocumentX
101.SCH SCH XBRL Schema DocumentX
101.CAL CAL XBRL Calculation Linkbase DocumentX
101.DEF DEF XBRL Definition Linkbase DocumentX
101.LAB LAB XBRL Label Linkbase DocumentX
101.PRE PRE XBRL Presentation Linkbase DocumentX

21

SIGNATURE

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

GREENESTONE HEALTHCARE CORP.ETHEMA HEALTH CORPORATION.

 

Date: April 17, 2018

Date: April 18, 2016By: /s/ Shawn E. Leon
Name: Shawn E. Leon
Title: Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)  

By: /s/Shawn E. Leon

Name: Shawn E. Leon

Title: Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

NamePositionDate

/s/Shawn E. Leon

Chief Executive Officer (Principal Executive Officer),

April 18, 201617, 2018

Shawn Leon

Chief Financial Officer (Principal Financial

Officer),

President and Director

 
   
/s/ John O’BireckDirectorApril 18, 201617, 2018
John O’Bireck  
   
/s/ Gerald T. MillerDirectorApril 18, 201617, 2018
Gerald T. Miller