UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 FORM 10-Q

 

[X]FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For thequarterly period ended: June 30, 2018ended March 31, 2019

 

ORor 

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

 

For the Transition Periodtransition period from ___________ to

Commission File Number:000-15078 ___________

 

Commission File Number: 000-15078Number000-54748

ETHEMA HEALTH CORPORATIONCORPORATION.

(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Charter)

Colorado84-1227328
(State or other jurisdiction of
incorporation or organization)		(I.R.S. employer
Identification No.)

810 Andrews Avenue

Delray Beach, Florida

33483

Address of Principal Executive OfficesZip Code

(561) 450-7679

Registrant’s Telephone Number, Including Area Code

 

Colorado 84-1227328

(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

 

810 AndrewsAvenue,Delray Beach, Florida 33483 (Address of principal executive offices and zip code)

(561) 450-7679

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by sectionSection 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 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 past 90 days.  Yes Yes☒     [X] No [ ]☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporateWebsite, ifany,every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation STS-T (§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.files).  Yes Yes☒    [X] No [ ]☐

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

 

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

 

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.   [X]☒

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

As

Securities registered pursuant to Section 12(b) of August 20, 2018, there were 124,009,230the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common shares GRSTNasdaq

Indicate the number of shares outstanding of each of the registrant’sissuer’s classes of common stock.stock, as of the latest practicable date:

Number of shares of common stock outstanding as of May 14, 2019 was 124,371,452.

 

ETHEMA HEALTH CORPORATION

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In particular, statements contained in this Quarterly Report on Form 10-Q, including but not limited to, statements regarding the sufficiency of our cash, our ability to finance our operations and business initiatives and obtain funding for such activities; our future results of operations and financial position, business strategy and plan prospects, or costs and objectives of management for future acquisitions, are forward looking statements. These forward-looking statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as“may, “may,”“will, “will,” “should,” “expects,” “plans,” “anticipates,” “intends,” ’‘targets,“targets,” “projects,” “contemplates,” ’‘believes,“believes,” “seeks,” “goals,” “estimates,” ’‘predicts,“predicts,” ’‘potential”“potential” and “continue” or similar words. Readers are cautioned that these forward-looking statements are based on our current beliefs, expectations and assumptions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identifiedbelow,under Part II, Item 1A. “Risk Factors” andincluded elsewhere in this Quarterly Report on Form 10-Q, and those identified under Part I, Item 1A ofin our Annual Report on Form 10-K/A for the year ended December 31, 20172018 filed with the SEC on April 18, 2018.22, 2019. Therefore, actual results may differ materially and adversely from those expressed, projected or implied in any forward-looking statements.Weundertake no obligation to revise or update any forward-looking statements for any reason.

 

NOTE REGARDING COMPANY REFERENCES

 

Throughout this Quarterly Report on Form 10-Q, “Ethema,” the “Company,” “we,” “us” and “our” refer to Ethema Health Corporation.

 

 

ETHEMA HEALTH CORPORATION

 

FORM 10-Q

TABLE OF CONTENTS

 

 ETHEMA HEALTH CORPORATIONPage
PART I - FINANCIAL INFORMATION 

SIX MONTHS ENDED JUNE 30, 2018

TABLEOF CONTENTS

Item l.

Page

PART I.
Item 1.Financial Statements1
Condensed Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and December 31, 20181
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2019 and 20182
Unaudited Condensed consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2019 and 20183
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 20184
Notes to the Unaudited Condensed Consolidated Financial Statements5
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations2630
Item 3.Quantitative and Qualitative Disclosures About Market Risk34
Item 4.Controls and Procedures34
   
PART II.II - OTHER INFORMATION 
Item 11.Legal Proceedings3034
Item 1A.Risk factorsFactors3034
Item 22.Unregistered saleSales of equity securitiesEquity Securities and useUse of proceedsProceeds3034
Item 33.Defaults upon senior securitiesUpon Senior Securities3034
Item 44.Mine Safety Disclosures3035
Item 55.Other Information3035
Item 66.Exhibits3135
SIGNATURES3236

 

I

 

ETHEMA HEALTH CORPORATION

PART II: FINANCIAL INFORMATION

 

Item 1. Financial Statements.Statements

 

INDEX TO THE

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US Dollars unless otherwise indicated)

PAGE
Condensed consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 20171
Unaudited Condensed Consolidated Statements of Operations and Comprehensive loss for the three and six months ended June 30, 2018 and 2017.2
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the six months ended June 30, 20183
Unaudited Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2018 and 2017.4
Notes to the unaudited Condensed Consolidated Financial Statements5

ETHEMA HEALTH CORPORATION

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  March 31, 2019  December 31, 2018 
  (unaudited)    
ASSETS   
       
Current assets        
Cash $25,579  $24,674 
Accounts receivable  279,929   202,654 
Prepaid expenses and other current assets  246,532   147,870 
Related party receivables  51,011   32,650 
Assets held for resale  1,786,049   — 
Total current assets  2,389,100   407,848 
Non-current assets        
Deposit on real estate  2,924,955   2,940,546 
Due on sale of business  74,833   372,366 
Property, plant and equipment  7,154,381   8,948,349 
Right of use assets  15,736,177   — 
Total non-current assets  25,890,346   12,261,261 
Total assets $28,279,446  $12,669,109 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
         
Current liabilities        
Accounts payable and accrued liabilities $1,621,531  $1,092,882 
Taxes payable  751,900   775,392 
Convertible notes  4,717,256   4,403,473 
Mortgage loans  3,034,927   172,276 
Operating lease liability  782,805   — 
Derivative liability  5,652,403   4,618,080 
Related party payables  2,674,178   2,615,613 
Total current liabilities  19,235,000   13,677,716 
Non-current liabilities        
Mortgage loans  3,877,764   6,707,346 
Operating lease liability  15,048,674   — 
Total non-current liabilities  18,926,438   6,707,346 
Total liabilities  38,161,438   20,385,062 
         
Stockholders’ deficit        
Preferred stock - Series A; $0.01 par value, 3,000,000 authorized, nil outstanding as of March 31, 2019 and December 31, 2018.      — 
Preferred Stock - Series B; $0.01 par value, 10,000,000 authorized, nil outstanding as of March 31, 2019 and December 31, 2018.      — 
Common stock; $0.01 par value, 500,000,000 shares authorized; 124,371,452 and 124,300,341 shares issued and outstanding  as of March 31, 2019 and December 31, 2018, respectively.  1,243,715   1,243,004 
Additional paid-in capital  21,818,509   20,939,676 
Accumulated other comprehensive income  673,508   630,411 
Accumulated deficit  (33,617,724)  (30,529,044)
Total stockholders’ deficit  (9,881,992)  (7,715,953)
Total liabilities and stockholders’ deficit $28,279,446  $12,669,109 

 

  June 30, 2018 December 31, 2017
  (unaudited)  
ASSETS
     
Current assets        
Cash $345,141  $339 
Accounts receivable  60,702   218,858 
Prepaid expenses  43,905   99,342 
Related party Receivables  19,265   16,080 
Total current assets  469,013   334,619 
Non-current assets        
Deposit on real Estate  2,962,210   1,825,000 
Due on sale of subsidiary  410,085   954,951 
Property, plant and equipment  8,909,648   9,153,858 
Total non-current assets  12,281,943   11,933,809 
Total assets $12,750,956  $12,268,428 
         
LIABILITIES AND STOCKHOLDERS' DEFICIT        
         
Current liabilities        
Bank overdraft $768  $28,927 
Accounts payable and accrued liabilities  331,603   372,244 
Taxes payable  664,578   689,240 
Convertible loans  2,225,369   160,453 
Loans payable, current portion  133,617   152,402 
Derivative liability  4,754,620   2,859,832 
Related party payables  2,467,299   2,597,080 
Total current liabilities  10,577,854   6,860,178 
Non-current liabilities        
Loan payable, net of current portion  6,930,560   7,183,892 
Total liabilities  17,508,414   14,044,070 
         
Stockholders' deficit        
Preferred stock - Series A; $0.01 par value, 3,000,000 authorized, nil outstanding as of June 30\, 2018 and December 31, 2017.  —     —   
Preferred Stock - Series B; $0.01 par value, 10,000,000 authorized, nil outstanding as of June 30, 2018 and December 31, 2017.  —     —   
Common stock; $0.01 par value, 500,000,000 shares authorized;  124,009,230 and 123,239,230 shares issued and outstanding  as of June 30, 2018 and December 31, 2017.  1,240,093   1,232,393 
Additional paid-in capital  19,799,660   18,545,913 
Accumulated other comprehensive income  700,808   796,453 
Accumulated deficit  (26,498,019)  (22,350,401)
Total stockholders' deficit  (4,757,458)  (1,775,642)
Total liabilities and stockholders' deficit $12,750,956  $12,268,428 

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

1


ETHEMA HEALTH CORPORATION


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

  Three months ended June 30, 2018 Three months ended June 30, 2017 Six months ended June 30, 2018 Six months ended June 30, 2017
       (Restated)       (Restated) 
Revenues $66,694  $402,220  $179,996  $724,730 
                 
Operating expenses                
General and administrative  328,494   57,905   522,227   408,442 
Management fees  45,565   —     92,098   —   
Professional fees  145,088   66,403   183,098   399,204 
Salaries and wages  208,280   173,451   393,436   382,695 
Depreciation and amortization  68,041   73,898   136,456   107,494 
Total operating expenses  795,468   371,657   1,327,315   1,297,835 
                 
Operating (loss) income  (728,774)  30,563   (1,147,319)  (573,105)
                 
Other Income (expense)                
Other income  —     1,000   —     473,369 
Other expense  —     (19,265)  —     (5,093,954)
Interest income  (49)  —     —     32,074 
Interest expense  (176,587)  (93,603)  (347,038)  (156,620)
Debt discount  (1,339,885)  (241,666)  (2,092,834)  (429,325)
Derivative liability movement  (796,795)  167,580   (808,951)  94,532 
Foreign exchange movements  110,628   (6,438)  248,524   (164,347)
Net loss before taxation from continuing operations  (2,931,462)  (161,829)  (4,147,618)  (5,817,376)
Taxation  —     —     —     —   
Net loss from continuing operations  (2,931,462)  (161,829)  (4,147,618)  (5,817,376)
Gain on disposal of business  —     —     —     7,494,828 
Operating loss from discontinued operations, net of tax  —     (141,177)  —     (82,185)
Net loss from discontinued operations, net of tax  —     (141,177)  —     7,412,643 
Net (loss) income  (2,931,462)  (303,006)  (4,147,618)  1,595,267 
Accumulated other comprehensive (loss) income                
Foreign currency translation adjustment  (53,186)  154,255   (95,645)  (36,692)
                 
Total comprehensive (loss) income $(2,984,648) $(148,751) $(4,243,263) $1,558,575 
                 
Basic loss per common share from continuing operations $(0.02) $—    $(0.03) $(0.06)
Basic income per share from discontinued operations $—    $—    $—    $0.08 
Basic (loss) income per common share $0.02  $—    $0.03  $0.02 
Diluted loss per common share from continuing operations $(0.02) $—    $(0.03) $(0.06)
Diluted income per share from discontinued operations $—    $—    $—    $0.07 
Diluted (loss) income per common share $(0.02) $—    $(0.03) $0.01 
Weighted average common shares outstanding - Basic  123,976,208   108,772,921   123,571,357   93,838,855 
Weighted average common shares outstanding - Diluted  123,976,208   108,772,921   123,571,357   104,974,243 

AND COMPREHENSIVE LOSS

 

  Three months ended
March 31, 2019		  

Three months ended 

March 31, 2018 

 
       
Revenues $82,015  $113,302 
         
Operating expenses        
General and administrative  382,153   193,732 
Rental expense  570,066   — 
Management fees  —   46,533 
Professional fees  44,154   38,010 
Salaries and wages  404,264   185,156 
Depreciation and amortization  75,876   68,415 
Total operating expenses  1,476,513   531,846 
         
Operating loss  (1,394,498)  (418,544)
         
Other Income (expense)        
Interest income  15,277   49 
Interest expense  (345,098)  (170,451)
Debt discount  (761,942)  (752,949)
Derivative liability movement  (473,301)  (12,156)
Foreign exchange movements  (129,118)  137,896 
Net loss before taxation  (3,088,680)  (1,216,155)
Taxation  —   — 
Net loss  (3,088,680)  (1,216,155)
Accumulated other comprehensive loss        
Foreign currency translation adjustment  43,097   (53,186)
         
Total comprehensive loss $(3,045,583) $(1,269,341)
         
Basic and diluted loss per common share $(0.02) $(0.01)
Weighted average common shares outstanding – Basic and diluted  124,358,020   123,242,897 

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

2

 

ETHEMA HEALTH CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT

  Preferred Series B Common Additional      
  Shares Amount Shares Amount Paid in Capital Comprehensive Income Accumulated Deficit Total
                 
Balance at January 1, 2018  —    $—     123,239,230  $1,232,393  $18,545,913  $796,453  $(22,350,401) $(1,775,642)
Shares issued for commitment fee  —     —     770,000   7,700   51,000   —     —     58,700 
Fair value of Series N warrants issued  —     —     —     —     1,202,747   —     —     1,202,747 
Foreign currency translation  —     —     —     —     —     (95,645)  —     (95,645)
Net income  —     —     —     —     —     —     (4,147,618)  (4,147,618)
Balance as of June 30, 2018  —    $—     124,009,230  $1,240,093  $19,799,660  $700,808  $(26,498,019) $(4,757,458)

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

3


ETHEMA HEALTH CORPORATION

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWSSTOCKHOLDERS’ DEFICIT

  Six months ended June 30, 2018 Six months ended June 30, 2017
Operating activities (Restated) 
Net (loss) income from continuing operations $(4,147,618) $1,595,267 
Net income from discontinued operations $—    $(7,412,643)
Net loss from continuing operations $(4,147,618) $(5,817,376)
Adjustment to reconcile net loss to net cash used in operating activities:        
Depreciation  136,456   107,494 
Non cash compensation expense on acquisition of subsidiary  —     5,074,689 
Non cash compensation for services  58,700   4,000 
Non cash discount on convertible notes issued  103,000   —   
Other foreign exchange movements  —     (27,476)
Amortization of debt discount  2,092,834   429,325 
Derivative liability movements  808,951   (94,532)
Movement in receivables reserve  (38,826)  —   
Provision against receivable on sale of subsidiary  —     (446,476)
Loss on mortgage sold  —     19,265 
Changes in operating assets and liabilities        
Accounts receivable  196,982   (327,351)
Prepaid expenses  51,678  (6,776)
Accrued purchase consideration  517,239   —   
Accounts payable and accrued liabilities  6,525   (55,155)
Taxes payable  (3,896)  (2,401,665)
Net cash used in operating activities - continuing operations  (217,777)  (3,542,034)
Net cash provided by operating activities - discontinued operations  —     101,033 
   (217,777)  (3,441,001)
Investing activities        
Investments in Seastone  —     (2,960,000)
Deposits on property  (1,133,657)  —   
Proceeds from restricted cash  —     51,362 
Purchase of fixed assets  (41,610)  (8,878)
Net cash used in investing activities - continuing operations  (1,175,267)  (2,917,516)
Net cash provided by investing activities - discontinued operations  —     6,241,082 
   (1,175,267)  3,323,566 
         
Financing activities        
Decrease in bank overdraft  (28,056)  (36,605)
Proceeds from mortgage sold  —     111,554 
Repayment of mortgage  (66,080)  (85,613)
Proceeds from convertible notes  2,550,000   294,500 
Repayment of convertible notes  (433,000)  (130,000)
(Repayment) proceeds of related party notes  (31,329)  26,195 
Net cash provided by financing activities  1,991,535   180,031 
         
Effect of exchange rate on cash  (253,690)  (36,692)
         
Net change in cash  344,802   25,904 
Beginning cash balance  339   4,779 
Ending cash balance $345,141  $30,683 
         
Supplemental cash flow information        
Cash paid for interest $308,077  $153,817 
Cash paid for income taxes $—    $—   
         
Non cash investing and financing activities        
Common shares issued to acquire subsidiary $—    $2,184,000 
Assumption of mortgage liabilities on acquisition of subsidiary $—    $3,145,549 

  Preferred Series B Common Additional      
  Shares Amount Shares Amount Paid in Capital Comprehensive Income Accumulated Deficit Total
                 
Balance as of December 31, 2018  —    $—     124,300,341  $1,243,004  $20,939,676  $630,411  $(30,529,044) $(7,715,953)
                                 
Fair value of warrants issued  —     —     —     —     874,566   —     —     874,566 
Shares issued for commitment fees  —     —     71,111   711   4,267   —     —     4,978 
Foreign currency translation  —     —     —     —     —     43,097   —     43,097 
Net loss  —     —     —     —     —     —     (3,088,680)  (3,088,680)
Balance as of March 31, 2019  —    $—     124,371,452  $1,243,715  $21,818,509  $673,508  $(33,617,724) $(9,881,992)

  Preferred Series B Common Additional      
  Shares Amount Shares Amount Paid in Capital Comprehensive Income Accumulated Deficit Total
                 
Balance as of December 31, 2017  —    $—     123,239,230  $1,232,393  $18,545,913  $796,453  $(22,350,401) $(1,775,642)
                                 
Shares issued for commitment fees  —     —     165,000   1,650   9,900   —     —     11,550 
Foreign currency translation  —     —     —     —     —     (53,186)  —     (53,186)
Net loss  —     —     —     —     —     —     (1,216,155)  (1,216,155)
Balance as of March 31, 2018  —    $—     123,404,230  $1,234,043  $18,555,813  $743,267  $(23,566,556) $(3,033,433)

 

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

 

4

ETHEMA HEALTH CORPORATION

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 

  

Three months ended 

March 31, 

2019 

  

Three months ended 

March 31, 

2018 

 
Operating activities        
Net loss $(3,088,680) $(1,216,155)
Adjustment to reconcile net loss to net cash (used in) provided by operating activities:        
Depreciation  75,876   68,415 
Non-cash interest accrual on escrow deposit  (15,277)  — 
Non-cash compensation for services  —   11,550 
Non-cash discount on convertible debt  —   48,000 
Amortization of debt discount  761,942   752,949 
Derivative liability movements  473,301   12,156 
Non-cash deferral of operating lease liability expense  95,302   — 
Changes in operating assets and liabilities        
Accounts receivable  (77,275)  42,490 
Prepaid expenses and other current assets  (80,409)  74,630 
Deposit released from escrow  322,156   395,354 
Accounts payable and accrued liabilities  424,777   31,745 
Taxes payable  —   1,933 
Net cash (used in) provided by operating activities  (1,108,287)  223,067 
         
Investing activities        
Deposits paid  (2,658)  (286,912)
Purchase of fixed assets  (8,176)  — 
Net cash used in investing activities  (10,834)  (286,912)
         
Financing activities        
Decrease in bank overdraft  —   (25,878)
Repayment of mortgage loans  (33,396)  (33,186)
Proceeds from convertible notes  1,567,000   600,000 
Repayment of convertible notes  (523,803)  (330,000)
Proceeds from related party notes  (1,081)  21,398 
Net cash provided by financing activities  1,008,720   232,334 
         
Effect of exchange rate on cash  111,306   (141,489)
         
Net change in cash  905   27,000 
Beginning cash balance  24,674   339 
Ending cash balance $25,579  $27,339 
         
Supplemental cash flow information        
Cash paid for interest $411,610  $141,244 
Cash paid for income taxes $—  $— 
         
Non cash investing and financing activities        
Fair value of warrants issued $874,566  $— 

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


ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.Nature of business

1.       Nature of Business

Ethema Health Corporation (the “Company”) was incorporated under the laws of the state of Colorado, USA, on April 1, 1993. Effective April 4, 2017, the Company changed its name to Ethema Health Corporation and prior to that, on May 2012, the Company had changed its name to GreeneStone Healthcare Corporation from Nova Natural Resources Corporation. As of December 31, 2017, the Company owned 100% of the outstanding shares of GreeneStone Clinic Muskoka Inc., incorporated in 2010 under the laws of the Province of Ontario, Canada; Cranberry Cove Holdings Ltd.(“CCH”), incorporated on January 9, 2004 under the laws of the Province of Ontario, Canada. andCanada; Addiction Recovery Institute of America (“ARIA”) (formerly Seastone Delray Healthcare, LLC,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.USA

 

During December 2016, the Company obtained a license to operate and provide addiction treatment healthcare services in Florida, USA. The company commenced operations under this license with effect from January 2017.

 

On February 14, 2017, the Company completed a series of transactions (referred to collectively as the “Restructuring Transactions”), including a Share Purchase Agreement (the “SPA”) whereby the Company acquired 100% of the stock of CCH, which holds the real estate on which the Company previously operated a rehabilitation clinic (“the Canadian Rehab Clinic”). The Company entered into an Asset Purchase Agreement (the “APA”) and lease (the “Lease”) whereby the Company sold all of the Canadian Rehab Clinic business assets and leased the real estate to the buyer. Simultaneously with this transaction, the Company entered into a Real Estate \Purchase agreement and Asset Purchase Agreement whereby the Company purchased the real estate and business assets of Seastone Delray (the “Florida Purchase”).

 

The Share Purchase Agreement

Under the SPA, the Company acquired 100% of the stock of CCH from Leon Developments Ltd. (“Leon Developments”), a company wholly owned by Shawn E. Leon, who is the President, CEO, and CFO of the Company (“Mr. Leon”). CCH owns the real estate on which the Canadian Rehab Clinic is located. The total consideration paid by the Company was CDN$3,517,062, including the assumption of certain liabilities of CCH, which was funded by the assignment to Leon Developments of certain indebtedness owing to the Company in the amount of CDN$659,918, and the issuance of 60,000,000 shares of the Company’s common stock to Leon Developments, valued at US$0.0364 per share.

 

The Asset Purchase Agreement and Lease

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

 

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

 

The Florida Purchase

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

On November 2, 2017, the Company entered into an Agreement of Purchase and Sale (the “Agreement”) to purchase from AREP 5400 East Avenue LLC, a Delaware limited liability company (“Seller”) certain buildings in West Palm Beach, Florida, totaling approximately 80,000 square feet, on which the present tenant operates a substance abuse treatment center (the “Property”). The purchase price of the Property is $20,530,000, and the Company made nonrefundable down payments totaling $2,549,955 as of June 30, 2018.

On May 23, 2018, the Company converted the agreement to purchase AREP 5400 East Avenue LLC. ("the landlord") into a lease agreement with a purchase option of $17,250,000, increasing August 31, 2018 by $750,000 per month until the purchase option is exercised. The premises is located at 5400, 5402 and 5410 East Avenue, West Palm Beach, Florida (the "Property"). The lease is for an initial 10 years and provides for two additional 10 year extensions.

The Company was previously under agreement to purchase the Property from the Landlord. The Property is presently used as a rehabilitation treatment center. The current tenant at the property, Alternatives in Treatment, LLC, a Florida limited liability company, consented to the Lease and concurrent with the execution of the Lease entered into a Sublease Agreement with the Company.

 

5


ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2.1.NatureSummary of Business (continued)significant accounting policies

 

Basis of presentation

The accompanying(a) unaudited condensed consolidated balance sheets as of March 31, 2019, which have been derived from the unaudited condensed consolidated financial statements, and as of December 31, 2018, which have been derived from audited consolidated financial statements, and (b) the unaudited condensed consolidated statements of operations, stockholders’ deficit and cash flows of the Company, have been prepared in accordance with accounting principles generally accepted in the United States of America(“GAAP”) for interim consolidated financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation SX.S-X. Accordingly, these unaudited condensed consolidated financial statementsthey do not include all of the information and disclosuresfootnotes required by accounting principles generally accepted in the United States of AmericaGAAP for complete financial statements.

All In the opinion of management, all adjustments (consisting of normal recurring adjustments)accruals) considered necessary for a fair presentation have been included in these unaudited condensed consolidated financial statements.included. Operating results for the three and six month period presentedmonths ended March 31, 2019 are not necessarily indicative of the results that may be expected for any other interim period or for the fullyear.The balance sheet atyear ending December 31, 2017 has been derived from audited consolidated financial statements. The2019. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotesnotes thereto included in the Company’s Form 10-K/A for the year ended December 31, 2017.2018, filed with the Securities and Exchange Commission (“SEC”) on April 22, 2019.

All amounts referred to in the notes to the unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.

 

2.a)Summary of Significant Accounting Policies

a)Use of Estimates

 

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

 

b)Principals of consolidation and foreign currency translation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated on consolidation.

 

The Company previously owned an operational subsidiary whoseCertain of the Company’s subsidiaries functional currency wasis the Canadian dollar, while the Company’s reporting currency is the U.S. dollar. The Company recently acquired a property-owning subsidiary, CCH, whose functional currency is the Canadian dollar. All transactions initiated in Canadian dollars are translated into US dollars in accordance with ASC 830, “Foreign Currency Translation” as follows:

 

●Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date.

 

●Non monetary assets and equityEquity 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’ equitydeficit as a component of accumulated other comprehensive income or loss. Therefore, translation adjustments are not included in determining net income (loss) but reported as other comprehensive income (loss).

 

For foreign currency transactions, the Company translates these amounts to the Company’s functional currency at the exchange rate effective on the invoice date. If the exchange rate changes between the time of purchase and the time actual payment is made, a foreign exchange transaction gain or loss results which is included in determining net income for the period.

 

The relevant translation rates are as follows: For the three months ended June 30, 2018;March 31, 2019, a closing rate of CAD$1.0000CDN$1.00 equals US$0.75940.7483 and an average exchange rate of CDN$1.00 equals US$0.7522. For the three months ended March 31, 2018, a closing rate of CAD$1.00 equals US$0.7756 and an average exchange rate of CAD$1.0000 equals US$0.7715.

0.7907.

6

 

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

c)Revenue Recognition

ASU 2014-09 requires companies to exercise more judgment and recognize revenue using a five-step process. The Company adopted ASU 2014-09 using the modified retrospective method for all contracts effective January 1, 2018. Modified retrospective adoption requires entities to apply the standard retrospectively to the most current period presented in the financial statements, requiring the cumulative effect of the retrospective application as an adjustment to the opening balance of retained earnings at the date of initial application. Prior periods have not been adjusted. No cumulative effect adjustment in retained earnings was recorded as the adoption of ASU 2014-09 did not significantly impact the Company’s reported historical revenue.

As a result of certain changes required by ASU 2014-09, the majority of the Company’s provision for doubtful accounts are recorded as a direct reduction to revenue instead of being presented as a separate line item on the consolidated statements of operations. The adoption of ASU 2014-09 has no impact on the Company’s accounts receivable as it was historically recorded net of allowance for doubtful accounts and contractual adjustments, and the Company has eliminated the presentation of allowance for doubtful accounts on the consolidated balance sheets.

As our performance obligations relate to contracts with a duration of one year or less, the Company elected the optional exemption in ASC 606-10-50-14(a). Therefore, the Company is not required to disclose the transaction price for the remaining performance obligations at the end of the reporting period or when the Company expects to recognize the revenue. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients typically are under no obligation to remain admitted in our facilities.

The Company receives payments from the following sources for services rendered in our U.S. Facility: (i) commercial insurers; and (ii) individual patients and clients. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC 606-10-32-18 and did not adjust for the effects of a significant financing component.

The Company derives a significant portion of its revenue from other payors that receive discounts from established billing rates. The various managed care contracts under which these discounts must be calculated are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for different types of services provided in the Company’s in-patient facilities and cost settlement provisions. Management estimates the transaction price on a pay or specific basis given its interpretation of the applicable regulations or contract terms. The services authorized and provided and related reimbursement are often subject to interpretation that could result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management.

Settlements under cost reimbursement agreements with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future periods as final settlements are determined. In the opinion of management, adequate provision has been made for any adjustments and final settlements. However, there can be no assurance that any such adjustments and final settlements will not have a material effect on the Company’s financial condition or results of operations. The Company’s cost report receivables were $279,929 and $202,654 for the three months ended March 31, 2019 and year ended December 31, 2018, respectively, and were included in other current assets in the consolidated balance sheets. Management believes that these receivables are properly stated and are not likely to be settled for a significantly different amount. The net adjustments to estimated cost report settlements resulted in a decrease in revenues of $0 and $262,353 for the three months ended March 31, 2019 and the year ended December 31, 2018, respectively.


ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2.       Summary of Significant Accounting Policies (continued)

2.Summary of significant accounting policies (continued)

 

c)Cash and cash equivalentsRevenue Recognition (continued)

The Company's policy isCompany has analyzed its revenue transaction pursuant to disclose bank balances under cash, including bank overdrafts with balancesASC 606, Revenue, and it has no material impact as a result of the transition from ASC 605 to 606. The Company’s revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that fluctuate frequently from being positivereflects the consideration that the Company expects to overdrawn and term deposits with a maturity period of three months or lessreceive in exchange for those services. The Company derives its revenues from the datesale of acquisition.its services, as defined below. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its revenue transactions:

 

d)i.Revenue Recognitionidentify the contract with a customer;

ii.identify the performance obligations in the contract;

iii.determine the transaction price;

iv.allocate the transaction price to performance obligations in the contract; and

v.recognize revenue as the performance obligation is satisfied.

 

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. Revenuewhich is recognized as follows:on the basis described below.

 

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.

 

d)Nonmonetary transactions

The Company recognizes revenue fromCompany’s policy is to measure an asset exchanged or transferred in a nonmonetary transaction at the rendering of services when they are earned; specifically, when allmore reliable measurement of the following conditions are met:fair value of the asset given up and the fair value of the asset received, unless:

 

●the significant risks and rewards of ownership are transferred to customers and the Company retains neither continuing involvement nor effectiveThe transaction lacks commercial substance;

●The transaction is a transfer between entities under common control;

 

●thereThe transaction is clear evidence that an arrangement exists;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 amountfair value of revenue and related costs can be measured reliably; andthe asset received nor the fair value of the asset given up is reliably measurable; or

 

●itThe transaction is probablea nonmonetary, non-reciprocal transfer to owners that the economic benefits associated with the transaction will flow to the Company.represents a spinoff or other form of restructuring or liquidation.

 


In particular, the Company recognizes:ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2.●Fees for outpatient counselling, coaching, intervention, psychological assessments and other related services when patients receive the service; andSummary of significant accounting policies (continued)

●Fees for inpatient addiction treatments proportionately over the term of the patient’s treatment.

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

 

e)Recent accounting pronouncementsCash and cash equivalents

 

In June 2018,The Company’s policy is to disclose bank balances under cash, including bank overdrafts with balances that fluctuate frequently from being positive to overdrawn and term deposits with a maturity period of three months or less from the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718) Improvementsdate of acquisition.

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

g)Allowance for Doubtful Accounts, Contractual and other Discounts

 

The amendmentsCompany 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 this Update expandpayments that differ from the scopeCompany’s estimates. The Company’s allowance for doubtful accounts is based on historical experience, but management also takes into consideration the age of Topic 718 to include share-based payment transactionsaccounts, creditworthiness and current economic trends when evaluating the adequacy of the allowance for acquiring goods and services from nonemployees.doubtful accounts. An entity should applyaccount is written off only after the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs toCompany has pursued collection efforts or otherwise determines an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or servicesaccount to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not applyuncollectible. Uncollectible balances are written-off against the allowance. Recoveries of previously written-off balances are credited to share-based payments used to effectively provide (1) financing toincome when the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.recoveries are made.

h)Financial instruments

 

The amendmentsCompany initially measures its financial assets and liabilities at fair value, except for certain non-arm’s length transactions. The Company subsequently measures all its financial assets and financial liabilities at amortized cost.

Financial assets measured at amortized cost include cash and accounts receivable.

Financial liabilities measured at amortized cost include bank indebtedness, accounts payable and accrued liabilities, harmonized sales tax payable, withholding taxes payable, convertible notes payable, loans payable and related party notes.

Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods withinnet 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 fiscal year. For all other entities,would have been reported at the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606.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.

 

The impact of this ASU on the Company’s financial statements is not expected to be material.

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ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2.Summary of significant accounting policies (continued)

2.       Summary of Significant Accounting Policies (continued)

h)Financial instruments (continued)

FASB ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

e)●Recent accounting pronouncements (continued)Level 1. Observable inputs such as quoted prices in active markets;

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements.

The amendments in this Update provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption consistent with preparers’ requests.

The amendments in this Update provide lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (Topic 606) and both of the following are met: 1. The timing and pattern of transfer of the non-lease component(s) and associated lease component are the same. 2. The lease component, if accounted for separately, would be classified as an operating lease.

The amendments in this Update related to separating components of a contract affect the amendments in Update 2016-02, which are not yet effective but can be early adopted.

The Company is currently considering the impact this ASU will have on its financial statements.

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

f)●Financial instrumentsLevel 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

●Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.

 

The Company measures its convertible debt and derivative liabilities associated therewith at fair value. These liabilities are revalued periodically and the resultant gain or loss is exposed to various risksrealized through its financial instruments. The following analysis provides a measurethe Statement of the Company’s risk exposure and concentrations at the balance sheet date, June 30, 2018 and December 31, 2017.Operations.

 

i.i)Credit riskPlant and equipment

Credit riskFixed assets are recorded at cost. Depreciation is calculated on the risk that one party to a financial instrument will cause a financial loss forstraight line basis over the other party by failing to discharge an obligation. Financial instruments that subjectestimated life of the Company to credit risk consist primarily of accounts receivable.asset:

 

Credit risk associated with accounts receivable of Seastone of Delray is mitigated as only a percentageLeasehold improvements are depreciated using the straight-line method over the term of the revenue billed to health insurance companies is recognized as income until such time as the actual funds are collected. The revenue is concentrated amongst several health insurance companies located in the US.

In the opinion of management, credit risk with respect to accounts receivable is assessed as low.lease.

 

ii.j)Liquidity riskLeases

Liquidity riskLeases 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. Leases that are classified as operating leases are recorded as a right-of-use asset with a corresponding operating lease liability. The right of use asset is amortized over the life of the lease using the effective interest rate method whilst the operating lease obligation is amortized over the term of the lease using the effective interest method after adjusting for the impact of straight line lease payments. The operating lease expense is recorded as an expense in the statement of operations on a straight line basis over the term of the operating lease.

k)Income taxes

The Company accounts for income taxes under the provisions of ASC Topic 740,“Income Taxes”.Under ASC Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income taxes are provided using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax basis of an asset or liability is the riskamount 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 Companyperiod 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 ablerealized.

ASC Topic 740 contains a two-step approach to meet its financial obligationsrecognizing 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 they fall due.the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company is exposed to liquidity risk through its working capital deficiency of $10,108,841recognizes interest and accumulated deficit of $26,498,019. As disclosed in note 4,penalties accrued on unrecognized tax benefits within general and administrative expense. To the Companyextent that accrued interest and penalties do not ultimately become payable, amounts accrued will be dependent uponreduced and reflected as a reduction in general and administrative expenses in the raising of additional capital in orderperiod that such determination is made. The tax returns for fiscal 2001, through 2017 are subject to implement its business plan. There is no assurance thataudit or review by the Company will be successful with future financing ventures, andUS tax authorities, whereas fiscal 2010 through 2017 are subject to audit or review by 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.Canadian tax authority.

 

8


ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2.       Summary of Significant Accounting Policies (continued)

2.f)Financial instrumentsSummary of significant accounting policies (continued)

 

iii.l)Market riskNet income (loss) per Share

Market riskBasic net income (loss) per share is computed on the risk thatbasis of the fair value or future cash flowsweighted average number of a financial instrumentcommon stock outstanding during the period.

Diluted net income (loss) per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.

Dilution is computed by applying the treasury stock method for options and warrants. Under this method, “in-the money” options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Dilution is computed by applying the if-converted method for convertible preferred stocks. Under this method, convertible preferred stock is assumed to be converted at the beginning of the period (or at the time of issuance, if later), and preferred dividends (if any) will fluctuate becausebe added back to determine income applicable to common stock. The shares issuable upon conversion will be added to weighted average number 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.common stock outstanding. Conversion will be assumed only if it reduces earnings per share (or increases loss per share).

 

a.m)Interest rate riskStock based compensation

 

Interest rate riskStock based compensation cost is measured at the risk thatgrant date, based on the estimated fair value of the award and is recognized as expense over the employee’s requisite service period or future cash flowsvesting period on a straight-line basis. Share-based compensation expense recognized in the unaudited condensed consolidated statements 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 $768 as of June 30, 2018. This liabilityoperations for the three months ended March 31, 2019 and the year ended December 31, 2018 is based on floating rates of interest thatawards ultimately expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual forfeitures differ from those estimates. We have been stable during the current reporting period. In the opinion of management, interest rate risk is assessed as low, not materialminimal awards with performance conditions and remains unchanged from the prior year.no awards dependent on market conditions.

 

b.n)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 it has subsidiaries that operate in Canada and are subject to fluctuations in the Canadian dollar. A substantial portion of the Company’s financial assets and liabilities are denominated in Canadian dollars. Based on the net exposures at June 30, 2018, a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an approximate $5,362 increase or decrease in the Company’s after tax net income from operations. The Company has not entered into any hedging agreements to mediate this risk. In the opinion of management, currency risk is assessed as low, material and remains unchanged from the prior year.

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.

g)Derivative instrument liabilityDerivatives

 

The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. The Company uses a Black Scholes Option Pricing model to estimate the fair value of convertible debt conversion features at the end of each applicable reporting period. Changes in the fair value of these derivatives during each reporting period are included in the statements of operations. Inputs into the Black Scholes Option Pricing model require estimates, including such items as estimated volatility of the Company’s stock, risk free interest rate and the estimated life of the financial instruments being fair valued.

 

If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.

 

9


ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2.3.Summary of significant accounting policies (continued)

Restatement of prior period resultso)Recent accounting pronouncements

Adoption of Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FSAB”) issued Accounting Standards Update (“ASU”), No. 2016-02, Leases (Topic 842) (ASC 842)

The amendments in this update establishes a comprehensive new lease accounting model. The new standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. The new standard is effective for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, including a number of optional practical expedients that entities may elect to apply. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, an update which provides another transition method, the prospective transition method, which allows entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted the new standard on January 1, 2019 using the prospective transition method.

The Company has identified all leases and reviewed the leases to determine the impact of ASC 842 on its unaudited condensed consolidated financial statements. The Company has elected to apply the practical expedient to certain classes of leases, whereby the separation of components of leases into lease and non-lease components is not required and all of the practical expedients to all leases, which include not reassessing (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. The adoption of the new standard resulted in the recording of a right-of-use asset and a lease liability on the unaudited condensed consolidated balance sheet on January 1, 2019 of $15,986,074. The adoption of ASU 2016-02, as amended, has had no impact on the unaudited condensed consolidated statements of operations or unaudited condensed consolidated statements of cash flows.

Recent accounting pronouncements

The FASB issued several updated during the period, none of these standards are either applicable to the Company or require adoption at a future date and are not expected to have a material impact on the unaudited condensed consolidated financial statements upon adoption.  

p)Financial instruments Risks

 

The Company finalizedis exposed to various risks through its financial instruments. The following analysis provides a measure of the Purchase Price allocationCompany’s risk exposure and concentrations at the balance sheet date, March 31, 2019 and December 31, 2018.

i.Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the acquisitionother party by failing to discharge an obligation. Financial instruments that subject the Company to credit risk consist primarily of accounts receivable.

Credit risk associated with accounts receivable of ARIA is mitigated as only a percentage of the assets of Seastone and CCH during December 2017. This resultedrevenue billed to health insurance companies is recognized as income until such time as the actual funds are collected. The revenue is concentrated amongst several health insurance companies located in the retroactive restatement of the statement of the unaudited condensed consolidated statement of operations and the unaudited condensed consolidated statement of cash flows for the three and six months ended June 30, 2017.US.

 

The valueIn the opinion of the assets acquired were adjusted in linemanagement, credit risk with valuations received and the corresponding depreciation charge was adjusted accordingly.respect to accounts receivable is assessed as low.

 


This resulted in an increase in other expense of $1,146,600 and $4,701,415 for the three months and six months ended June 30, 2017, respectively, on the transfer of assets between parties under common control and a net reduction in the associated depreciation charge of $51,442 and $74,912 for the three months and six months ended June 30, 2017, respectively.

A further adjustment was made to other income, which was reduced by $62,960 and $94,940, for the three months and six months ended June 30, 2017, respectively, to modify the Company’s estimate of deferred purchase price consideration due on the disposal of Muskoka. 

The reconciliation of the unaudited condensed consolidated statement of operations for the three months ended June 30, 2017 is as follows:

ETHEMA HEALTH CORPORATION

(Formerly known as Greenestone Healthcare Corporation)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

  Three months ended June 20, 2017 As  previously reported Adjustments 

 

 

Three

months ended

June 30, 2017

As Restated

       
Revenues $402,220      $402,220 
             
Operating expenses            
General and administrative  57,905       57,905 
Professional fees  66,403       66,403 
Salaries and wages  173,451       173,451 
Depreciation and amortization  125,340   (51,442)  73,898 
Total operating expenses  423,099   (51,442)  371,657 
             
Operating (loss) gain  (20,879)  51,442   30,563 
             
Other Income (expense)            
Other income  63,960   (62,960)  1,000 
Other expense  1,127,335   (1,146,600)  (19,265)
Interest expense  (93,603)      (93,603)
Debt discount  (241,666)      (241,666)
Derivative liability movement  167,580       167,580 
Foreign exchange movements  (6,438)      (6,438)
Net loss before taxation from continuing operations  996,289   (1,158,118)  (161,829)
Taxation  —     —     —   
Net loss from continuing operations  996,289   (1,158,118)  (161,829)
Net loss from discontinued operations, net of tax  (141,177)      (141,177)
Net income (loss)  855,112   (1,158,118)  (303,006)
Accumulated other comprehensive gain            
Foreign currency translation adjustment  154,255       154,255 
             
Total comprehensive income (loss) $1,009,367  $(1,158,117) $(148,751)
             
Basic income (loss) per common share from continuing operations $0.01  $(0.01) $(0.00)
Basic loss per share from discontinued operations $(0.00) $—    $(0.00)
Basic income per common share $0.01  $0.01 $0.00
Diluted income per share from discontinued operations $(0.00) $—    $(0.00)
Diluted income (loss) per common share $0.01  $(0.01) $(0.00)
Weighted average common shares outstanding - Basic  108,772,921   108,772,921   108,772,921 

10

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2.3.Summary of significant accounting policies (continued)

Restatement of prior period resultsp)Financial instruments Risks (continued)

ii.Liquidity risk

 

Liquidity risk is the risk the Company will not be able to meet its financial obligations as they fall due. The reconciliationCompany is exposed to liquidity risk through its working capital deficiency of $16,845,900 accumulated deficit of $33,617,724. The Company will be dependent upon the raising of additional capital in order to implement its business plan. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. In the opinion of management, liquidity risk is assessed as high, material and remains unchanged from the prior year.

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.

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 as there is no overdraft indebtedness as of March 31, 2019. In the opinion of management, interest rate risk is assessed as low, not material and remains unchanged from the prior year.

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 it has subsidiaries that operate in Canada and are subject to fluctuations in the Canadian dollar. A substantial portion of the unaudited condensed consolidated statementCompany’s financial assets and liabilities are denominated in Canadian dollars. Based on the net exposures at March 31, 2019, a 5% depreciation or appreciation of operationsthe Canadian dollar against the U.S. dollar would result in an approximate $5,250 increase or decrease in the Company’s after tax net income from operations. The Company has not entered into any hedging agreements to mediate this risk. In the opinion of management, currency risk is assessed as low, material and remains unchanged from the prior year.

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.

q)Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the six months ended June 30, 2017 is as follows:current year presentation. These reclassifications had no effect on the reported results of operations.


ETHEMA HEALTH CORPORATION

(Formerly known as Greenestone Healthcare Corporation)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

  Six months ended June 30, 2017 As  previously reported Adjustments 

Six months ended June 30, 2017

As Restated

       
Revenues $724,730      $724,730 
             
Operating expenses            
General and administrative  408,442       408,442 
Professional fees  399,204       399,204 
Salaries and wages  382,695       382,695 
Depreciation and amortization  182,406   (74,912)  107,494 
Total operating expenses  1,372,747   (74,912)  1,297,835 
             
Operating loss  (648,017)  74,912   (573,105)
             
Other Income (expense)            
Other income  568,309   (94,940)  473,369 
Other expense  (392,539)  (4,701,415)  (5,093,954)
Interest income  32,074       32,074 
Interest expense  (156,620)      (156,620)
Debt discount  (429,325)      (429,325)
Derivative liability movement  94,532       94,532 
Foreign exchange movements  (164,347)      (164,347)
Net loss before taxation from continuing operations  (1,095,933)  (4,721,443)  (5,817,376)
Taxation  —     —     —   
Net loss from continuing operations  (1,095,933)  (4,721,443)  (5,817,376)
Net income from discontinued operations, net of tax  7,412,643       7,412,643 
Net income  6,316,710   (4,721,443)  1,595,267 
Accumulated other comprehensive gain            
Foreign currency translation adjustment  (36,692)      (36,692)
             
Total comprehensive income $6,280,018  $(4,721,443) $1,558,575 
             
Basic loss per common share from continuing operations $(0.01) $(0.05) $(0.06)
Basic income per share from discontinued operations $0.08  $—    $0.08 
Basic income per common share $0.07  $(0.05 ) $0.02 
Diluted loss per common share from continuing operations $(0.01) $(0.04) $(0.06)
Diluted income per share from discontinued operations $0.07  $—    $0.07 
Diluted income per common share $0.06  $(0.04) $0.01 
Weighted average common shares outstanding - Basic  93,838,855   93,838,855   93,838,855 
Weighted average common shares outstanding - Diluted  104,974,243   104,974,243   104,974,243 

11

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

3.3.Restatement of prior period results (continued)

The reconciliation of the unadjusted condensed consolidated statement of cash flows for the six months ended June 30, 2017 is as follows:

ETHEMA HEALTH CORPORATION

(Formerly known as Greenestone Healthcare Corporation)

  

June 30, 2017

As previously reported

 Adjustments 

June 30, 2017

 Adjusted Total

Operating activities            
Net income $6,316,710  $(4,721,443) $1,595,267 
Net income from discontinued operations  (7,412,643)      (7,412,643)
Net loss from continuing operations  (1,095,933)  (4,721,443)  (5,817,376)
Adjustment to reconcile net loss to net cash (used in) provided by operating activities:            
Depreciation  182,406   (74,912)  107,494 
Non cash compensation expense on acquisition of subsidiary  373,274   4,701,415   5,074,689 
Loss on mortgage sold  19,265       19,265 
Non cash compensation for services  4,000       4,000 
Other foreign exchange movements  (27,476)      (27,476)
Amortization of debt discount  429,325       429,325 
Derivative liability movements  (94,532)      (94,532)
Provision against receivable on sale of subsidiary  (446,476)      (446,476)
Changes in operating assets and liabilities            
Accounts receivable  (327,351)      (327,351)
Prepaid expenses  (6,776)      (6,776)
Accounts payable and accrued liabilities  (150,095)  94,940   (55,155)
Taxes payable  (2,401,665)      (2,401,665)
Net cash used in operating activities - continuing operations  (3,542,034)  —     (3,542,034)
Net cash provided by operating activities - discontinued operations  101,033       101,033 
   (3,441,001)  —     (3,441,001)
Investing activities            
Investments in Seastone  (2,960,000)      (2,960,000)
Proceeds from restricted cash  51,362       51,362 
Purchase of fixed assets  (8,878)      (8,878)
Net cash used in investing activities - continuing operations  (2,917,516)  —     (2,917,516)
Net cash provided by investing activities - discontinued operations  6,241,082       6,241,082 
   3,323,566   —     3,323,566 
             
Financing activities            
(Decrease) Increase in bank overdraft  (36,605)      (36,605)
Proceeds from mortgage sold  111,554       111,554 
Repayment of mortgage  (85,613)      (85,613)
Proceeds from convertible notes  294,500       294,500 
Repayment of convertible notes  (130,000)      (130,000)
(Repayment of) proceeds from related party notes  26,195       26,195 
Net cash provided by financing activities  180,031   —     180,031 
             
Effect of exchange rate on cash  (36,692)      (36,692)
             
Net change in cash  25,904       25,904 
Beginning cash balance  4,779       4,779 
Ending cash balance $30,683  $—    $30,683 

12

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4.Going concern

 

The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business. As of June 30, 2018,at March 31, 2019 the Company has a working capital deficiency of $10,108,841$16,844,900 and accumulated deficit of $26,498,019.$33,617,724. Management believes that current available resources will not be sufficient to fund the Company’s planned expenditures over the next 12 months. Accordingly, the Company will be dependent upon the raising of additional capital through placement of common shares, and/or debt financing in order to implement its business plan, and or generating sufficient revenue in excess of costs. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain geographical areas, or techniques that it might otherwise seek to retain. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. These factors create substantial doubt about the Company’s ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include any adjustments relating to the amounts and classificationsrecoverability or classification of recorded assets and liabilities or other adjustments that mightmay be necessary should the Company not be unable to continue operations.

The ability of the Companyable 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.concern.

 

4.Prepaid expenses and other current assets

5.       Discontinued Operations

Prepaid expenses and other current assets includes the following:

 

On February 14, 2017,25, 2019, the Company completedentered into a seriesLetter of transactions, including an APAIntent whereby it would purchase a 33.33% interest in Local Link Wellness, LLC (“LLW”) for gross proceeds of $400,000. LLW proposes to provide a comprehensive addiction treatment program to large employee groups. The company has advanced LLW a total of $80,000 as at March 31, 2019 and a further $30,000 as of May 15, 2019. These funds were advanced as short-term promissory notes.

5.Assets held for resale

On April 2, 2019, the Company entered into a Commercial Contract whereby the Companyreal property at 801 Andrews Avenue, Delray Beach, Florida, consisting of land and condominiums thereon, was sold certain of the Canadian Rehab Clinic assets. The assets disposed of business represented substantially all of the operating assets of the Canadian Rehab Clinic and has been disclosed as a discontinued operationto JAGGM, LLC for comparative purposes as of June$3,500,000. This transaction closed on April 30, 2017. And for the three and six months ended June 30, 2017.2019.

 

The Statementland and buildings thereon, net of operationsaccumulated depreciation as at March 31, 2019 of $1,786,049 was reclassified as an asset held for discontinued operations at June 30, 2017 is as follows:

  Three months ended June 30, 2017 Six months ended June 30, 2017
     
Revenues $(112) $232,040 
         
Operating expenses        
Depreciation and amortization  —     4,196 
General and administrative  31,330   118,706 
Professional fees  33,466   32,818 
Rent  2,975   47,493 
Salaries and wages  (31,913)  201,723 
Total operating expenses  35,858   404,936 
         
Operating (loss) income  (35,970)  (172,896)
         
Other (Expense) Income        
Other expense  (204)  (993)
Foreign exchange movements  (105,003)  91,704 
Net (loss) income before taxation  (141,177)  (82,185)
Taxation  —     —   
Net (loss) income from discontinued operations $(141,177) $(82,185)
         
Gain on disposal of business  —     7,494,828 
         
  $(141,177) $7,412,643 

13

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSresale.

 

6.Deposit on Real Estatereal estate

 

On November 2, 2017, the Company entered into an Agreement to purchase from AREP 5400 East Avenue LLC certain buildings in West Palm Beach, Florida, totaling approximately 80,000 square feet, on which the present tenant operates a substance abuse treatment center. The purchase price of the Property is $20,530,000, and$20,530,000. The Company made a series of nonrefundable down payments totaling $2,549,955$2,924,955 as of June 30,March 31, 2019 and $2,940,546 as of December 31, 2018.

On May 23, 2018, the Company converted the agreement to purchase AREP 5400 East Avenue LLC. ("(“the landlord"landlord”) into a lease agreement with a purchase option of $17,250,000, increasing August 31, 2018 by $750,000 per month until the purchase option is exercised. The premises is located at 5400, 5402 and 5410 East Avenue, West Palm Beach, Florida (the "Property"“Property”). The lease is for an initial 10 years and provides for two additional 10 year extensions.

 

The Company was previously under agreement to purchase the Propertyproperty from the Landlord.landlord. The Propertyproperty is presently used as a rehabilitation treatment center. The current tenant at the property, Alternatives in Treatment, LLC, a Florida limited liability company, consented to the Lease and concurrent with the execution of the Lease entered into a Sublease Agreement with the Company.

 


ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.Due fromon sale of subsidiarybusiness

 

On February 14, 2017, the Company sold its Canadian Rehab Clinic for gross proceeds of CDN$10,000,000, of which CDN$1,500,000 (US$1,155,900) had been retained in an escrow account for a period of up to two years in order to guarantee the warranties provided by the Company in terms of the APA. During the six months ended June 30, 2018, CDN960,000As of March 31, 2019, CDN$1,055,042 of the escrow was releasedhad been refunded to the Company with an additionaland CDN$540,000 still outstanding.365,268 had been used to affect building improvements to the premises owned by CCH, for a total reduction of CDN$1,420,310. The remaining escrow balance was CDN$100,000 consisting of principal of CDN$76,690 and accrued interest thereon of CDN$20,310.

 

8.Property, plant and equipment

 

Property, plant and equipment consists of the following:

 

  June 30, 2018 December 31, 2017
  Cost Amortization and Impairment Net book value Net book value
         
Land $2,917,204  $—    $2,917,204  $2,925,305 
Buildings  5,928,619   (313,033)  5,615,586   5,840,268 
Furniture and fixtures  115,750   (34,320)  81,430   72,047 
Leasehold improvements  307,319   (11,891)  295,428   316,238 
  $9,268,892  $(359,244) $8,909,648  $9,153,858 

   

March 31, 
2019 

  December 31, 2018 
   Cost  

Accumulated

depreciation

  Net book value  Net book value 
              
 Land $2,038,510  $—  $2,038,510  $2,911,530 
 Property  5,215,854   (393,771)  4,822,083   5,750,045 
 Leasehold improvements  265,100   (8,304)  256,796   251,774 
 Furniture and fixtures  88,176   (51,184)  36,992   35,000 
   $7,607,640  $(453,259) $7,154,381  $8,948,349 

 

Depreciation expense for the three months ended June 30,March 31, 2019 and 2018 was $75,876 and 2017 was $68,041 and $73,898, respectively, and depreciation expense for the six months ended June 30, 2018 and 2017 was $136,456 and $107,494,$68,415, respectively.

 

9.Leases

Adoption of ASC Topic 842, Leases

On January 1, 2019, the Company adopted Topic 842 using the modified retrospective method applied to leases that were in place as of January 1, 2019. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 840. The Company’s leases consists of operating leases that relate to real estate rental agreements. All of the value of the Company’s lease portfolio relates to a real estate lease agreement that was entered into in May 2018.

Practical Expedients and Elections

The Company elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward our historical lease classification, our assessment on whether a contract is or contains a lease, and our initial direct costs for any leases that exist prior to adoption of the new standard. We also elected the short-term lease recognition exemption for all leases that qualify.

Discount Rate applied to property operating lease

To determine the present value of minimum future lease payments for operating leases at January 1, 2019, the Company was required to estimate a rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment (the “incremental borrowing rate” or “IBR”).

The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used the average of (i) the risk free interest rate adjusted for a premium for Company and liquidity risk; (ii) the weighted average mortgage interest rate currently availed to the Company; and (iii) the fifteen year mortgage interest rate. The weighted average rate the Company determined was 4.76% as an appropriate incremental borrowing rate to apply to its real-estate operating lease.


ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9.Leases (continued)

Right of use assets

Right of use assets are included in the unaudited condensed consolidated Balance Sheet are as follows:

   March 31,
2019		 
     
 Non-current assets    
 Right of use assets, net of amortization
 $15,736,177 

Total operating lease cost

Individual components of the total lease cost incurred by the Company is as follows:

   Three months
ended
March 31,
2019		 
     
 Operating lease expense $534,312 

Minimum rental payments under operating leases are recognized on a straight-line basis over the term of the lease.

Maturity of operating leases

 The amount of future minimum lease payments under operating leases are as follows:

   Amount 
     
 Remainder of 2019 $1,363,592 
 2020  1,882,422 
 2021  1,962,242 
 2022  2,042,062 
 2023 and thereafter  12,436,419 
 Total undiscounted minimum future lease payments  19,686,737 
 Deferred rental liability on straight line amortization  95,302 
 Imputed interest  (3,950,560)
 Total operating lease liability $15,831,479 
      
 Disclosed as:    
 Current portion $782,805 
 Non-current portion  15,048,674 
   $15,831,479 


ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10.TaxesPayable payable

 

The taxes payable consist of:

 

●A payroll tax liability of $144,638$136,638 (CDN$190,459)182,589) in Greenestone Muskoka which is being paid off in instalments.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. The Company is taking steps to complyThis noncompliance with US disclosure requirements and has established a provision in theis currently being addressed. An amount of $250,000.$250,000 has been accrued for any potential exposure the Company may have.
●Estimated income taxes payable in certain of the Canadian operations.

 

  

June 30,

2018

 December 31, 2017
     
Payroll taxes $144,638  $155,894 
US penalties due  250,000   250,000 
Income tax payable  269,940   283,346 
         
  $664,578  $689,240 
   

March 31, 

2019 

  

December 31, 

2018 

 
        
 Payroll taxes $136,638  $133,843 
 HST/GST payable  —   33,757 
 US penalties due  250,000   250,000 
 Income tax payable  365,262   357,792 
          
   $751,900  $775,392 

11.Convertible notes

The convertible notes consist of the following:

 

14
   

Interest 

rate 

  Maturity date Principal  Interest  Debt Discount  

March 31, 

2019 

  

December 31, 

2018 

 
                      
 Leonite Investments LLC  11.0% July 25, 
2019		 $2,494,754  $—  $(169,186) $2,325,568  $2,494,180 
                            
 Power Up Lending Group Ltd  9.0% May 15,2019  —   —   —   —   94,595 
    9.0% September 10, 2019  —   —   —   —   44,484 
    9.0% October 30, 2019  53,000   1,059   (38,398)  15,661   — 
    9.0% November 11, 2019  138,000   2,110   (108,598)  31,512   — 
    9.0% November 15, 2019  128,000   789   (115,402)  13,387   — 
                            
 First Fire Global Opportunities Fund  12.0% December 5, 2019  200,000   712   (181,091)  19,621   — 
                            
 Series N convertible notes  6.0% May 17, 2019 to March 13, 2020  3,506,000   91,050   (1,285,543)  2,311,507   1,770,214 
                            
                      4,717,256   4,403,473 

 


ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11.10.Short-term Convertible Notesnotes (continued)

 

The short-term convertible notes consist of the following:Leonite Investments, LLC

 

Interest 

rate

 Maturity date Principal Interest Debt Discount 

June 30, 

2018

 December 31, 2017
              
Leonite Investments LLC8.5% December 1, 2018  $ 1,650,000  $    10,174  $    (696,164)  $         964,010  $      138,502
 6.5% On Demand        165,000          6,008                     -  $         171,008                    -   
 8.5% On Demand        605,000        18,772                     -  $         623,772                    -   
              
Power Up Lending Group Ltd12.0% August 15, 2018                 -                     -                     -                       -               21,951
 12.0% December 30, 2018        153,000          5,684          (94,591)               64,093                    -   
              
Series N Convertible notes6.0% November 6 to November 30, 2018     1,400,000          4,775     (1,002,289)             402,486                    -   
              
      $ 3,973,000  $    45,413  $ (1,793,044)  $      2,225,369  $      160,453

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.LLC (“Leonite”). The note is convertible into shares of common stock at a conversion price of $0.06 per share, subject to anti-dilution and price protection. The Note bears interest at the rate of 6.5%8.5% 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 initialamended maturity date is Junewas December 1, 2018. During the term of the Note the Company and the Subsidiaries will be obligated to make monthly payment of accrued and unpaid interest. The Note contains Company and Subsidiary representations and warranties, covenants, events of default, and registration rights. The Company paid a commitment fee of $132,000 settled through the issue of 1,650,000 shares of common stock and paid $20,000 towards the lenders legal fees. In conjunction with this note, the Company issued a five year warrant to purchase 27,500,000 shares of common stock at an exercise price or $0.10 per share, subject to antidilution and price protection.

 

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

 

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

 

At the execution of the Note, the Investor funded an initial tranche of $300,000. Thereafter the Investor funded a second tranche of $156,136. Upon the execution of the A&R Note the Investor funded a third tranche of $100,000. Upon the execution of the First Amendment the Investor funded a final tranche of $850,000, with the remaining $43,764$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.

On March 12, 2018, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $330,000, including an Original Issue Discount of $30,000, for net proceeds of $300,000. The note hashad a maturity date of March 19, 2018. The outstanding principal amount of the note was convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to anti-dilution and price protection. The Company paid a commitment fee of $19,800 settled through the issue of 330,000 shares of common stock. This note was repaid on the maturity date for gross proceeds of $330,000.

On March 29, 2018, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $165,000, including an Original Issue Discount of $15,000, for net proceeds of $150,000. The note had a maturity date of December 1, 2018 and bears interest at a rate of 8.5% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to anti-dilution and price protection. The Company paid a commitment fee of $11,550 settled through the issue of 165,000 shares of common stock. In conjunction with this note the Company issued a five year warrant to purchase 5,500,000 shares of common stock at an exercise price of $0.10 per share, subject to anti-dilution and price protection.


ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11.Convertible notes (continued)

Leonite Investments, LLC (continued)

On April 17, 2018, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $605,000, including an Original Issue Discount of $55,000, for net proceeds of $550,000. The note had a maturity date of December 1, 2018 and bears interest at 8.5% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to price protection and anti-dilution protection. The Company paid a commitment fee of $42,350 settled through the issue of 10,083,333 shares of common stock. In conjunction with this note the Company issued warrantsa five year warrant to purchase 5,500,00010,083,333 shares of common stock at an exercise price of $0.10 per share.

In Conjunction with this note the Company issued 330,000 shares as a commitment fee at ashare, subject to anti-dilution and price of $0.06 per share.

The note was repaid during March 2018.

15

ETHEMA HEALTH CORPORATIONprotection.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10.Short-term Convertible Notes (continued)

Leonite Capital, LLC (continued)

On March 29,November 5, 2018, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $165,000,$111,111, including an Original Issue Discount of $15,000,$11,111, for net proceeds of $150,000.$100,000. The note hashad a maturity date of April 28, 2018.November 30, 2018 and bore interest at 1.0% per annum. The outstanding principal amount of the note was convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to price protection and anti-dilution protection. The Company paid a commitment fee of $8,889 settled through the issue of 111,111 shares of common stock. In conjunction with this note the Company issued a five year warrant to purchase 1,400,000 shares of common stock at an exercise price of $0.10 per share, subject to anti-dilution and price protection. This note was repaid on the maturity date for gross proceeds of $111,184.

On January 17, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $71,111, including an Original Issue Discount of $7,111, for net proceeds of $64,000. The note had a maturity date of July 25, 2019 and bears interest at 11.0% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to price protection and anti-dilution protection.

In Conjunction with this note the The Company paid a commitment fee of $11,550$4,978 settled through the issue of 165,00071,111 shares at a price of $0.07 per share.

On April 17, 2018, the Company, entered into a Securities Purchase Agreement pursuant to whichcommon stock. In conjunction with this note the Company issued a Convertible Promissory Note in the aggregate principal amount of $605,000, including an Original Issue Discount of $55,000, for net proceeds of $550,000. The note had a maturity date of May 8, 2018. The outstanding principal amount of the note is convertible at any time and from timefive year warrant to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to price protection and anti-dilution protection.

The Company also issued a further 605,000 shares of common stock to Leonite as a commitment fee, valued at $42,350 at grant date, and a further 10,083,333 warrants to purchase 1,185,183 shares of common stock at an initial exercise price of $0.10 per share, subject to anti-dilution and price protection.

Effective March 19, 2019, the Company entered into a note extension agreement with Leonite, whereby the convertible notes outstanding to Leonite, amounting to $2,420,000, for consideration of $75,000 added to the principal outstanding on the note on January 1, 2019, a further $75,000 added to the principal outstanding on the note on February 1, 2019 and a further $100,000 added to the principal of the note on March 15, 2019, the maturity date of the convertible notes above were extended to July 25, 2019. In Addition, the coupon rate of the note was adjusted to 11% per annum with effect from September 2018.

Power Up Lending Group LTD

On November 6, 2017,July 31, 2018, the Company, entered into a Securities Purchase Agreement with Power Up, Lending Group Ltd., pursuant to which the Company issued to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $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.

On May 5, 2018, the aggregate principal outstanding of $103,000 together with interest and penalty interest thereon, was settled for gross proceeds of $141,824.

On March 9,2018, the Company, entered into a Securities Purchase Agreement with Power Up Lending Group Ltd., pursuant to which the Company issued to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $153,000. The Note has a maturity date of December 30, 2018May 15, 2019 and bears interest at the at the rate of twelvenine percent per annum from the date on which the Note iswas issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the averagelowest closing bid price of the Company’s common stock for the ten trading days prior to conversion. On January 28, 2019, the Company repaid the Power Up, convertible note entered into on July 31, 2018, of $153,000 together with interest and early settlement penalty thereon for gross proceeds of $207,679.


ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11.Convertible notes (continued)

Power Up Lending Group LTD (continued)

On September 10, 2018, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $133,000. The Note has a maturity date of September 10, 2019 and bears interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion. On March 11, 2019, the Company repaid the Power Up convertible note entered into on September 10, 2018, of $133,000 together with interest and early settlement penalty thereon for gross proceeds of $180,062.

On January 9, 2019, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $53,000 for net proceeds of $50,000 after expenses. The Note has a maturity date of October 30, 2019 and bears interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the election of Power Up during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion.

 

On January 28, 2019, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $138,000 for net proceeds of $135,000 after expenses. The Note has a maturity date of November 15, 2019 and bears interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the election of Power Up during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion.

On March 6, 2019, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $128,000, for net proceeds of $125,000 after expenses. The Note has a maturity date of January 30, 2020 and bears interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the election of Power Up during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion.

First Fire Global Opportunities Fund

On March 5, 2019, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $200,000, for net proceeds of $192,000 after the payment of legal fees and origination fees amounting to $8,000. The note has a maturity date of December 9, 2019. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser 180 days after the issued date into shares of the Company’s common stock at the lower of $0.08 per share or 65% of the lowest trade price during the ten consecutive trading days immediately prior to conversion. The note has certain buyback terms if the Company consummates a registered or unregistered primary offering of securities for capital raising purposes, or an option to convert at a 20% discount to the offering price to investors.


ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11.Convertible notes (continued)

Series N Convertible Notesconvertible notes

On

During the period from May 31,17, 2018 to December 4, 2018, The Company closed several tranches of a private offering (the “Private Offering”) in which it raised $1,450,000$2,505,000 in capitalprincipal from 412 accredited investors through the issuance to the investors of the Company’s Series N Convertible Notes,convertible notes, in the total original principal amount of $1,400,000,$2,505,000, which Notes are convertible into the Company’s common stock at a conversion price of $0.08 per share (the “Notes”) together with Warrantsthree year warrants to purchase up to a total of 17,500,00031,312,500 shares of the Company’s common stock at an exercise price of $0.12 per share the.share. Both the conversion price under the Notes and the exercise price under the Warrantswarrants are subject to standard price and anti-dilution adjustment mechanisms. The notes mature between May 16, 2019 to December 3, 2019.

Between January 28, 2019 and March 13, 2019, the Company closed several tranches of Series N Convertible notes in which it raised $1,001,000 in principal from accredited investors through the issuance to the investors of the Company’s Series N convertible notes, in the total original principal amount of $1,001,000, which Notes are convertible into the Company’s common stock at a conversion price of $0.08 per share together with three year warrants to purchase up to a total of 12,512,500 shares of the Company’s common stock at an exercise price of $0.12 per share. Both the conversion price under the Notes and the exercise price under the warrants are subject to standard adjustment mechanisms. The Notesnotes mature on November 30, 2018, andone year from the Warrants are exercisable until May 31, 2021.

16

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSdate of issuance.

 

12.11.Loans payableMortgage loans

 

TheMortgage loans payable is disclosed as follows:

 Interest rate Maturity date Principal Outstanding Accrued interest June 30, 2018 December 31, 2017
            
Cranberry Cove Holdings           
Pace Mortgage4.2% July 19,2022        4,087,994                 5,130          4,093,124          4,349,374
Seastone of Delray           
Mortgage5.0%  February 13, 2020         2,958,725  $           12,328          2,971,053          2,986,920
      $ 7,046,719  $         17,458  $   7,064,177  $   7,336,294
Disclosed as follows:           
Short-term portion         $      133,617  $         152,402
Long-term portion                 6,930,560          7,183,892
          $   7,064,177  $   7,336,294

   Interest 
rate		  Maturity date Principal 
Outstanding		  Accrued 
interest		  March 31,
2019		  December 31,
2018		 
                   
 Cranberry Cove Holdings, Ltd.                      
 Pace Mortgage  4.2% July 19, 2022 $3,954,225  $5,460  $3,959,685   3,924,836 
 ARIA                      
 Mortgage  5.0% February 13, 2020  2,942,526   10,480   2,953,006   2,954,786 
         $6,896,751  $15,940  $6,912,691  $6,879,722 
 Disclosed as follows:                      
 Short-term portion               $3,034,927  $172,276 
 Long-term portion                3,877,764   6,707,346 
                 $6,912,691  $6,879,722 

 

The aggregate amount outstanding is payable as follows:

 

 Amount
Within 1 year $133,617 
1 to 2 years  3,043,331 
2 to 3 years  109,547 
3 to 4 years  114,196 
Thereafter  3,663,486 
Total $7,064,177 

   Amount 
 Within one year  3,034,927 
 One to two years  105,728 
 Two to three years  110,215 
 Three to four years  3,661,821 
 Total $6,912,691 

 

Cranberry Cove Holdings, Ltd – Pace Mortgagemortgage

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.


ETHEMA HEALTH CORPORATION

 

Seastone of DelrayNOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The

12.Mortgage loans payable (continued)

ARIA

On February 13, 2017, the Company, through its subsidiary, ARIA, entered into a Mortgage and Security Agreement with Seastoneto purchase the properties located at 801 and 810 Andrews Avenue, Delray Healthcare, LLC on February 13, 2017Beach, Florida, for thean aggregate principal sum of $3,000,000, bearing interest at the rate of 5% per annum, maturing on February 13, 2020, with monthly repaymentsinstallments 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.

17

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSOn April 2, 2019, the Company entered into a Commercial Contract whereby the real property at 801 Andrews Avenue, Delray Beach, Florida, consisting of land and condominiums thereon, was sold to JAGGM, LLC for $3,500,000. This transaction closed during April 2019 and the principal mortgage liability of $2,942,526, including interest thereon was settled.

 

12.13.Derivative liability

 

The short-term convertible notes, together with certain warrants issued to Leonite Capital LLC, and the short term convertible notes issued to Labrys Fund LP and Power Up Lending Group, LTD, disclosed in note 1011 above and note 15 below, have variable priced conversion rights with no fixed floor price and will reprice dependent on the share price performance over varying periods of time. This gives rise to a derivative financial liability, which was initially valued at inception of the convertible notes at $1,085,837$1,335,709 using a Black-Scholes valuation model.

In addition, warrants exercisable over 5,500,000 shares of common stock were issued to Leonite Investments, in terms of the Securities Purchase Agreement and the Warrant Agreement entered into. Refer note 10 above.

 

The following assumptions were used in the Black-Scholes valuation model:

 

SixThree months ended

June 30, 2018March 31,

2019

Calculated stock price   $0.024$0.07 to $0.10 $0.09 
Risk free interest rate  1.6%2.23% to 2.73%2.56% 
Expected life of convertible notes and warrants   1 month3 to 5 years 60 months 
expected volatility of underlying stock  15.4%124.7% to 495.3%206.8% 
Expected dividend rate  0%

 

The movement in derivative liability is as follows:

 Six months ended June 30, 2018 Year ended December 31, 2017
    
Opening balance $      2,859,832  $                     -   
Derivative liability arising from convertible notes $      1,085,837  $        1,826,500
Fair value adjustment to derivative liability            808,951            1,033,332
Closing balance $      4,754,620  $        2,859,832
   

March 31, 

2019 

  

December 31, 

2018 

 
        
 Opening balance $4,618,080  $2,859,832 
 Derivative liability on convertible notes and variable priced warrants  561,022   1,335,709 
 Fair value adjustments to derivative liability  473,301   422,539 
          
 Closing balance $5,652,403  $4,618,080 

 


13.

Related Party Transactions 1816191 Ontario

During the six months ended June 30, 2018, the Company repaid $15,921 to 1816191 Ontario, the Endoscopy clinic.

Shawn E. Leon

As of June 30, 2018, and December 31, 2017 the Company had a receivable of $19,265 and $16,080, respectively to Shawn E. Leon, a director and CEO of the Company. The balances receivable are non-interest bearing and have no fixed repayment terms.

Mr. Leon was paid management fees of $92,098 during the six months ended June 30, 2018.

 Leon Developments, Ltd.

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 June 30, 2018 was $1,542,681.

Cranberry Cove Holdings Ltd.

The Company acquired CCH on February 14, 2017. CCH owns the real estate previously utilized by the Canadian Rehab Clinic and now utilized by the purchaser of the business.

Prior to the acquisition of CCH, the Company paid rental expense to CCH of $58,925 for the period ended June 30, 2017.

18

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

14.14.Related party transactions

Shawn E. Leon 

As of March 31, 2019 and December 31, 2018 the Company had a receivable of $51,011 and $32,650 from Shawn E. Leon, respectively. Mr. Leon is a director and CEO of the Company. The balances receivable is non-interest bearing and has no fixed repayment terms.

Mr. Leon was paid management fees of $0 and $46,533 for the three months ended March 31, 2019 and 2018 respectively.

Leon Developments, Ltd.

As of March 31, 2019 and December 31, 2018, the Company owed Leon Developments, Ltd., $1,625,908 and $1,581,499, respectively. The balance owing to Leon Developments, Ltd. Is non-interest bearing and has no fixed terms of repayment.

Eileen Greene 

As of March 31, 2019 and December 31, 2018, the Company owed Eileen Greene, the spouse of its CEO, Shawn Leon, $1,048,270 and $1,034,114, respectively. The amount owing to Ms. Greene is non-interest bearing and has no fixed repayment terms.

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

15.Stockholders’ deficit

 

a)Common shares

 

Authorized, issued and outstanding

The Company has authorized 500,000,000 shares with a par value of $0.01 per share. The company has issued and outstanding 124,371,452 and 124,300,341 as of March 31, 2019 and December 31, 2018, respectively.

On March 29, 2018,January 17, 2019, the Company issued 165,00071,111 shares of common stock to Leonite Capital, LLC in connection with the closing of a financing of a Senior Secured Convertible Note. The shares were valued at $11,550, or $0.07 per share$4,978 on March 29, 2018.

On April 17, 2018, the Company issued 605,000 shares of common stock to Leonite Capital, LLC in connection with the closing ofissue date and recorded as a financing of a Senior Secured Convertible Note. The shares were valued at $39,450 on June 30, 2018.debt discount.

 

b)Preferred shares

Authorized, issued and outstanding

The Company has authorized 13,000,000 preferred shares with a par value of $0.01 per share, designated as 3,000,000 series A convertible preferred shares and 10,000,000 series B convertible preferred shares. The Company has no preferred shares issued and outstanding.

c)Warrants

 

In terms of the convertible note agreements entered into with Leonite Capital, LLC, disclosed in note 1011 above, the Company agreed to issuegranted warrants exercisable over a total of 15,583,3331,185,183 shares of common stock at an exercise price of $0.10 per share.share, which was recorded as a debt discount.

 

In terms of the Series N Convertible debt issued to various accredited investors, disclosed in note 1011 above, the Company agreed to issuegranted warrants exercisable over a total of 17,500,00012,512,500 shares of common stock at an exercise price of $0.12 per share.share, which was recorded as a debt discount.

The fair value of Warrants awarded and revalued during the year ended June 30, 2018 were valued at $799,004 using the Black Scholes pricing model utilizing the following weighted average assumptions:

Six months ended June 30, 2018
Calculated stock price 0.06 TO 0.08 
Risk free interest rate2.64 TO 2.75%
Expected life of warrants (years) 3 to 5 years 
expected volatility of underlying stock198.8 to 495.3%
Expected dividend rate0%

 

 The movements in warrants is summarized as follows:

     No. of shares Exercise price per share Weighted average exercise price
          
Outstanding January 1, 2017           19,637,409  $0.0033 to $0.03   $             0.03
Granted           29,866,666  $0.03 to $0.10                  0.0945
Exercised                          -                          -                            -   
Outstanding December 31, 2017           49,504,075 $0.0033 to $0.10                 0.0690
Granted           33,083,333  $0.10 to $0.12                      0.11
Forfeited/cancelled                          -                          -                            -   
Exercised                          -                          -                            -   
Outstanding June 30, 2018           82,587,408 $0.0033 to $0.12 $0.0850

19


ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

15.14.Stockholders’ deficit (continued)

 

b)c)Warrants (continued)

The warrants were valued using a Black Scholes pricing model on the date of grant at $899,049 using the following weighted average assumptions:

Three months ended

March 31,

2019

Calculated stock price$0.07 to $0.09
Risk free interest rate2.19% to 2.58%
Expected life of convertible notes and warrants36 to 60 months
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 March 31, 2019, the Company does not anticipate any awards will be forfeited in the valuation of the warrants.

A summary of all of the Company’s warrant activity during the period January 1, 2018 to March 31, 2019 is as follows:

   No. of shares  Exercise price per 
share		  Weighted average exercise price 
           
Outstanding January 1, 2018   49,504,075   $0.0033 to $.0.10  $0.0690 
Granted   48,295,833   0.10 to 0.12   0.1130 
Forfeited/cancelled   —   —   — 
Exercised   —   —   — 
Outstanding December 31, 2018   97,799,908   0.03 to 0.12  0.0910 
Granted   13,697,683   0.10 to 0.12   0.1183 
Forfeited/cancelled   —   —   — 
Exercised   —   —   — 
Outstanding March 31, 2019   111,197,591   $0.03 to $0.12  $0.0942 

 

The following table summarizes information about warrants outstanding at June 30, 2018:March 31, 2019:

 

 Warrants outstanding Warrants exercisable
Exercise priceNo. 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                   1.70          21,704,075  
$0.10       43,083,333                   4.60          43,083,333  
$0.12       17,500,000                   2.90          17,500,000  
          
        82,587,408                   3.45  $           0.0850        82,587,408  $             0.0850

*       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.

   Warrants outstanding  Warrants exercisable 

Exercise price

  

No. of shares 

  

Weighted average 

remaining years 

  

Weighted average 

exercise price 

  

No. of shares 

  

Weighted average 

exercise price 

 
                 
$0.03   21,704,075   1.00       21,704,075     
$0.10   45,668,516   3.90       45,668,516     
$0.12   43,825,000   2.50       43,825,000     
                      
    111,197,591   2.77  $0.0942   111,197,591  $0.0942 

 

All of the warrants outstanding as of June 30,March 31, 2019 and December 31, 2018 are vested. The warrants outstanding as of June 30, 2018March 31, 2019 have an intrinsic value of $1,108,205.$1,085,204.


ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

15.Stockholders’ deficit (continued)

 

c)d)Stock options

 

Our board of directors adopted the GreeneStoneGreenestone Healthcare Corporation 2013 Stock Option Plan (the “Plan”) to promote our long- termlong-term growth and profitability by (i) providing our key directors, officers and employees with incentives to improve stockholder value and contribute to our growth and financial success and (ii) enable us to attract, retain and reward the best available persons for positions of substantial responsibility. A total of 10,000,000 shares of our common stock have been reserved for issuance upon exercise of options granted pursuant to the Plan. The Plan allows us to grant options to our employees, officers and directors and those of our subsidiaries; provided that only our employees and those of our subsidiaries may receive incentive stock options under the Plan. We have granted a total of 480,000 options as of June 30, 2018March 31, 2019 under the Plan.

 

No options were issued, exercised or cancelled forduring the period under review.three months ended March 31, 2019 and the year ended December 31, 2018, respectively.

 

The following table summarizes information about options outstanding as of June 30, 2018.March 31, 2019:

 

   Options outstanding  Options exercisable 

Exercise price

  No. of shares  

Weighted average 

remaining years 

  

Weighted average 

exercise price 

  No. of shares  

Weighted average 

exercise price 

 
                 
$0.12   480,000   0.59       480,000     
                      
    480,000   0.59  $0.12   480,000  $0.12 

 Options outstanding Options exercisable
Exercise priceNo. of shares Weighted average remaining years Weighted average exercise price No. of shares Weighted average exercise price
          
$0.12            480,000                   1.34               480,000  
          
             480,000                   1.34  $               0.12             480,000  $                0.12

The Company issued Stock options to a former officer vesting over a 24-month period commencing on November 1, 2014 expiring on October 31, 2019, a formal option agreement has not been issued as yet, as such the terms of these options are uncertain.

 

As of June 30, 2018,March 31, 2019 there was no unrecognized compensation costs related to these options and the intrinsic value of the options isas of March 31, 2019 was $0.

20

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS

 

15.16.Segment information

 

The Company has two reportable operating segments;segments:

 

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

 

b.Rehabilitation Services provided to customers, during the three months ended March 31, 2018, these services were provided to customers at ourthe Company’s Addiction Recovery Institute of America and Seastone of Delray business acquired on February 14, 2017. The Rehabilitation services provided by our Canadian Rehab Center for the three months ended March 31, 2017 are reported under discontinued operations and have not been reported as part of the operations.


ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

16.Segment Information.information (continued)

 

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

 

 Three months ended June 30, 2018 Three months ended March 31, 2019
 Rental Operations In-Patient services Total Rental Operations In-Patient services Total
            
Revenues $83,031  $(16,337) $66,694 
Revenue $82,015  $—    $82,015 
Operating expenses  45,102   750,366   795,468   37,358   1,439,155   1,476,513 
                        
Operating income (loss)  37,929   (766,703)  (728,774)  44,657   (1,439,155)  (1,394,498)
                        
Other (expense) income                        
Interest income  —     (49)  (49)  —     15,277   15,277 
Interest expense  (42,845)  (133,742)  (176,587)  (41,512)  (303,586)  (345,098)
Amortization of debt discount  —     (1,339,885)  (1,339,885)  —     (761,942)  (761,942)
Loss on change in fair value of derivative liability  —     (796,795)  (796,795)  —     (473,301)  (473,301)
Foreign exchange movements  18,345   92,283   110,628   (19,291)  (109,827)  (129,118)
Net income (loss) before taxation from continuing operations  13,429   (2,944,891)  (2,931,462)
Net loss before taxation  (16,146)  (3,072,534)  (3,088,680)
Taxation  —     —     —     —     —     —   
Net income (loss) from continuing operations $13,429  $(2,944,891) $(2,931,462)
            
            
Net loss $(16,146) $(3,072,534) $(3,088,680)

 

  Three months ended June 30, 2017
  Rental Operations In-Patient services Total
       
Revenues $78,088  $324,132  $402,220 
Operating expenses  54,875   316,782   371,657 
             
Operating income  23,213   7,350   30,563 
             
Other (expense) income            
Other income  —     1,000   1,000 
Other expense  —     (19,265)  (19,265)
Interest expense  (61,535)  (32,068)  (93,603)
Amortization of debt discount  —     (241,666)  (241,666)
Loss on change in fair value of derivative liability  —     167,580   167,580 
Foreign exchange movements  —     (6,438)  (6,438)
Net loss before taxation from continuing operations  (38,322)  (123,507)  (161,829)
Taxation  —     —     —   
Net loss from continuing operations $(38,322) $(123,507) $(161,829)

The operating assets and liabilities of the reportable segments are as follows:

 

21
   March 31, 2019 
   Rental Operations  In-Patient services  Total 
           
 Purchase of fixed assets  —   8,176   8,176 
 Assets            
 Current assets  471   2,388,629   2,389,100 
 Non-current assets  2,885,893   23,004,453   25,890,346 
 Liabilities            
 Current liabilities  (2,117,691)  (17,117,309)  (19,235,000)
 Non-current liabilities  (3,877,763)  (15,048,675)  (18,926,438)
 Intercompany balances  737,461   (737,461)  — 
 Net liability position  (2,371,629)  (7,510,363)  (9,881,992)

 


ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

16.15.Segment information (continued)

 

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

 

  Six months ended June 30, 2018
  Rental Operations In-Patient services Total
       
Revenues $167,143  $12,853  $179,996 
Operating expenses  76,504   1,250,811   1,327,315 
             
Operating income (loss)  90,639   (1,237,958)  (1,147,319)
             
Other (expense) income            
Interest expense  (92,895)  (254,143)  (347,038)
Amortization of debt discount  —     (2,092,834)  (2,092,834)
Loss on change in fair value of derivative liability  —     (808,951)  (808,951)
Foreign exchange movements  47,555   200,969   248,524 
Net income (loss) before taxation from continuing operations  45,299   (4,192,917)  (4,147,618)
Taxation  —     —     —   
Net income (loss) from continuing operations $45,299  $(4,192,917) $(4,147,618)
             
   Three months ended March 31, 2018 
   

Rental Operations 

  In-Patient services  

Total 

 
           
 Revenue $84,112  $29,190  $113,302 
 Operating expenditure  31,401   500,445   531,846 
              
 Operating income (loss)  52,711   (471,255)  (418,544)
              
 Other (expense) income            
 Interest income  —   49   49 
 Interest expense  (50,049)  (120,402)  (170,451)
 Amortization of debt discount  —   (752,949)  (752,949)
 Loss on change in fair value of derivative liability  —   (12,156)  (12,156)
 Foreign exchange movements  29,209   108,687   137,896 
 Net income (loss) before taxation  31,871   (1,248,026)  (1,216,155)
 Taxation  —   —   — 
 Net income (loss) $31,871  $(1,248,026) $(1,216,155)

 

  Six months ended June 30, 2017
  Rental Operations In-Patient services Total
       
Revenues $120,125  $604,605  $724,730 
Operating expenses  60,953   1,236,882   1,297,835 
             
Operating income (loss)  59,172   (632,277)  (573,105)
             
Other (expense) income            
Other income  —     473,369   473,369 
Other expense  (5,074,689)  (19,265)  (5,093,954)
Interest income  —     32,074   32,074 
Interest expense  (98,188)  (58,432)  (156,620)
Amortization of debt discount  —     (429,325)  (429,325)
Loss on change in fair value of derivative liability  —     94,532   94,532 
Foreign exchange movements  —     (164,347)  (164,347)
Net loss before taxation from continuing operations  (5,113,705)  (703,671)  (5,817,376)
Taxation  —     —     —   
Net loss from continuing operations $(5,113,705) $(703,671) $(5,817,376)

22

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS

15.Segment information (continued)

The operating assets and liabilities of the reportable segments at June 30, 2018, are as follows:

 

  Rental Operations In-Patient services Total
       
Purchase of fixed assets $30,860  $10,750  $41,610 
Assets            
Current assets  (11,055)  480,068   469,013 
Non-current assets  3,002,860   9,279,083   12,281,943 
Liabilities            
Current liabilities  (2,177,320)  (8,400,534)  (10,577,854)
Non-current liabilities  (4,016,836)  (2,913,724)   (6,930,560)
Intercompany balances  (771,823)  771,823   —   
Net (liability) asset  position $(3,974,174) $(783,284) $(4,757,458)

   March 31, 2018 
   Rental Operations  In-Patient services  Total 
           
 Purchase of fixed assets  —   —   — 
 Assets            
 Current assets  —   308,280   308,280 
 Non-current assets  3,066,465   8,524,705   11,591,170 
 Liabilities            
 Current liabilities  (2,222,619)  (5,677,890)  (7,900,509)
 Non-current liabilities  (4,128,074)  (2,904,300)  (7,032,374)
 Intercompany balances  789,576   (789,576)  — 
 Net liability position  (2,494,652)  (538,781)  (3,033,433)

 

17.16.Net loss (income) per common share

 

For the three and six months ended June 30,March 31, 2019 and 2018, the following options warrants and convertible noteswarrants were excluded from the computation of diluted net loss per share as the results would have been anti-dilutive.

   

March 31, 

2019 

  

March 31, 

2018 

 
        
 Stock options  480,000   480,000 
 Warrants  111,197,591   55,004,075 
 Convertible notes  83,671,069   37,244,536 
          
    195,348,660   92,728,611 

 

  Three and six months ended June 30, 2018 Three months ended June 30, 2017
     
Stock options  480,000   480,000 
Warrants to purchase shares of common stock  82,587,408   22,004,075 
Convertible notes  43,916,472   3,101,093 
   126,983,880   25,585,168 

23


ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS

 

18.16.Net loss (income) per common share (continued)

For the six months ended June 30, 2017 the computation of basic and diluted earnings per share is as follows:

  Amount Number of shares Per share amount
       
Basic earnings per share            
Net loss per share from continuing operations $(5,817,376)  93,838,855  $(0.06)
Net income per share from discontinued operations  7,412,643   93,838,855   0.08 
             
Basic income per share  1,595,267   93,838,855   0.02 
             
Effect of dilutive securities            
             
Warrants  —     11,135,388     
Convertible debt  —     —       
             
Diluted earnings per share            
Net loss per share from continuing operations  (5,817,376)  104,974,243   (0.06)
Net income per share from discontinued operations  7,412,643   104,974,243   0.07 
             
  $1,595,267   104,974,243  $0.01 

17.CommitmentsCommitment and contingencies

 

a.a)Contingency related to outstanding penalties

The Company has provided for potential US penalties of $250,000 due to noncompliancenon-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.b)Operating leasesOption to purchase lease property

The Company has assumed operating leases for certain vehicles and office equipment.

 

On May 23, 2018, the Company entered into a Lease Agreement pursuant to which it leased from the AREP 5400 East Avenue LLP (the “Landlord”), the premises located at 5400, 5402, and 5410 East Avenue, West Palm Beach, Florida (the “Property”). The Lease has an initial term of 10 years and provides for 2 additional 10 year extensions. The Company has the option to purchase the property initially for proceeds$17,250,000, which amount has increased to $24,000,000 as of $17,250,000 by August 31, 2018,April 30, 2019, plus any landlord funded improvements. The option to purchase increaseincreases by $750,000 per calendar month commencing on August 31, 2018.month. The initial base rental is $146,337 per month, plus any taxes imposed on the premises or the base rental.

 

c)Future minimum operating lease payments

The future commitment

In terms of these operating leases and the property lease are as follows:agreement mentioned above the Company is obligated to make the following minimum undiscounted lease payments:

 

   Amount 
     
Remainder of 2019  $1,363,592 
2020   1,882,422 
2021   1,962,242 
2022   2,042,062 
2023 and thereafter   12,436,419 
Total undiscounted minimum future lease payments   19,686,737 

  Amount
   
Within 1 year $881,012 
1 to 2 years 1,802,872 
2 - 3 years 1,882,422 
3 - 4 years 1,962,242 
5 years and thereafter 12,165,898 
Total $18,694,445 
d)Mortgage payments

The Company is obligated to make the following mortgage loans payments:

 

24

ETHEMA HEALTH CORPORATION

  Amount 
Within one year  3,034,927 
One to two years  105,728 
Two to three years  110,215 
Three to four years  3,661,821 
Total $6,912,691 

 

NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTSIncluded in the amount due within one year is an amount t of $2,953,006 related to the Assets held for resale, disclosed under note 5 above, this amount was settled out of the proceeds realized on the sale of the property.

 

17.e)Commitments and contingencies (continued)

c.Mortgage bonds

The company has two mortgage loans as disclosed in note 11 above. The future commitments under these loans are as follows:

  Amount
   
Within 1 year $3,071,861 
1 to 2 years 105,087 
2 - 3 years 109,547 
3 - 4 years 114,196 
5 years and thereafter 3,663,486 
Total $7,066,177 

d.Other

 

The Company has principal and interest payment commitments under the Convertible notes disclosed under Note 1011 above. Conversion of these notes are at the option of the investor, if not converted these notes may need to be repaid.

 

From time to time, the Company and its subsidiaries enter into legal disputes in the ordinary course of business. The Company believes there are no material legal or administrative matters pending that are likely to have, individually or in the aggregate, a material adverse effect on its business or results of operations.

 

18.Income taxes

ETHEMA HEALTH CORPORATION

 

The Company is not current in its tax filings for tax years 2011 to 2017 as of June 30, 2018.NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

19.18.Subsequent events

 

On July 31, 2018,April 30, 2019, the Company enteredconcluded the sale of the real property located at 801 Andrews Avenue, Delray Beach consisting of land and condominiums thereon, for gross proceeds of $3,500,000. The proceeds were used to settle the outstanding mortgage loan of $2,987,568, including interest thereon, commissions and expenses related to the sale of the property of approximately $183,819, and certain outstanding property taxes of $77,523. The net proceeds received by the company of $251,000 was used to repay a portion of the convertible debt.

Subsequent to March 31, 2019 we raised an additional CDN$255,000 and a further US$175,000 which together with proceeds of US$70,000 and CDN$75,000 received prior to March 31, 2019 were converted into a Securities Purchase Agreement with Power Up Lending Group Ltd., pursuant to whichSeries N convertible notes.

Other than disclosed above, the Company issued to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $153,000. The Note has a maturity date of May 15, 2019 and bears interest at the at the rate of nine percent per annum fromevaluated subsequent events through the date on which the Note isunaudited condensed consolidated financial statements were available to be issued until the same becomes due and payable, whether at maturityhas concluded that no such events or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the datetransactions took place 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.

would require disclosure herein.

 

25

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein and the consolidated financial statements and the other information set forth in our Annual Report on Form 10- K/A for the year ended December 31, 20172018 filed with the Securities and Exchange Commission on April 18, 2018.22, 2019. In addition to historical information, the followingManagement’sDiscussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the Securities and Exchange Commission.

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.Webelieve 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, 2017.2018.

 

Plan of Operation

 

During the next twelve months, the Company plans to continue and expand its operations as a provider of addiction and aftercare treatment services through marketing efforts undertaken to expand its patient base in Florida. The Company plans to focus on the growth of its addiction and aftercare treatment units by seeking out potential acquisitions.

 

Results of Operations

 

For the three months ended June 30, 2018March 31, 2019 and the three months ended June 30, 2017.March 31, 2018.

Revenues was $66,694were $82,015 and $402,220$113,302 for the three months ended June 30,March 31, 2019 and 2018, and 2017, respectively, a decrease of $335,526$31,287 or 83.4%27.6%.

Revenue from patient treatment was $0 and $29,190 for the three months ended March 31, 2019 and 2018, respectively, a decrease of $29,190 or 100%. The decrease is primarily due to the relocation of the Company’s treatment operations to a significantly larger West Palm Beach facility from the Delray Beach facility and delays in attracting new patients to our new facility. The Company adjustingis actively building up its basis of providing against gross revenues on the limited experience is has had with dealing with US Health care providers. customer contact base to increase patient revenues.

Revenue includesfrom rental income of $83,031was $82,015 and $78,088$84,112 for the three months ended June 30,March 31, 2019 and 2018, respectively, a decrease of $2,097 or 2.5%. The decrease is due to foreign currency movements between the two periods.

Operating Expenses

Operating expenses were $1,476,513 and 2017,$531,846 for the three months ended March 31, 2019 and 2018, respectively, an increase of $944,667 or 177.6%. The increase is primarily due to the following:

●General and administrative expenses of $382,153 and $193,732 for the three months ended March 31, 2019 and 2018, respectively, an increase of $188,401 or 97.2%, primarily due to an increase in property taxes of $357,075 relating to the leased East Avenue Properties, offset by sub-letting income of $205,941 on our 5400 East Avenue properties. All other items included in general and administrative expenses are immaterial.

●Rent expense was $577,066 and $0 for the three months ended March 31, 2019 and 2018, an increase of 100%. This was due to the Company converting the option to purchase the property located at 5400 East Avenue, West Palm Beach, Florida, in which the treatment center is located into an operating lease during May 2018. The Company has an option to acquire the property.


●Management fees of $0 and $46,533 for the three months ended March 31, 2019 and 2018, respectively, decreased by $46,533 or 100%, our CEO did not charge any fees during the current period to facilitate cash flow.

●Professional fees of $44,154 and $38,010 for the three months ended March 31,, 2019 and 2018, respectively, increased by $6,144 or 16.2%, the slight increase is due to activity around the disposal of the property located at 801 Andrews Avenue, Delray Beach, Florida.

●Salaries and wages of $404,264 and $185,156 for the three months ended March 31, 2019 and 2018, respectively, increased by $219,108 or 118.3%, primarily due to additional staff required to operate the significantly larger West Palm Beach facility, which was not in full operation during the prior period.

●Depreciation was $75,876 and $68,415 for the three months ended March 31, 2019 and 2018, respectively, an increase of $7,461 or 10.9%, the increase is attributable to additional depreciation on the leasehold improvements affected on the East Avenue properties at the end of the prior year. Depreciation consists 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 was $1,394,498 and $418,544 for the three months ended March 31, 2019 and 2018, respectively, an increase of $975,954 or 233.2%. The increase is attributable to the decrease in revenue and the increase in rent, property taxes and other operating expenses discussed above.

Interest income

Interest income of $15,277 and $49 for the three months ended March 31, 2019 and 2018, respectively, an increase of $15,228. The interest earned in the current period relates to the escrow deposit on the sale of the Muskoka business in the 2017 year.

Interest expense

Interest expense of $345,098 and $170,451 for the three months ended March 31, 2019 and 2018, respectively, an increase of $174,647 or 102.5% was primarily due to the increase in base rent charged toconvertible note funding during the tenant,prior year of a net $3,337,889 and a further increase in termsnet convertible note funding of $1,043,197 during the lease agreement.Due to the increase of the revenue reserve, based on claims experience, the revenuescurrent period. The funding was used for general working capital purposes.

Debt discount

Debt discount was $761,942 and $752,949 for the three months ended June 30,March 31, 2019 and 2018, was negative.

respectively, an increase of $8,993 or 1.2%. The charge during the current period represents the amortization of the value of the warrants issued over the terms of the convertible loan agreements entered into during the current period and during 2018 and the amortization of the fair value of the beneficial conversion feature of the convertible notes issued to note holders during the current period and 2018. The fair value of the warrants and the beneficial conversion features are amortized over a six to twelve month period, the term of the underlying convertible securities.

 

Operating ExpensesDerivative liability movement

Operating expenses was $795,468The derivative liability movement during the current year represents the mark to market movements of variably priced convertible notes and $371,657warrants issued during the current and prior years. These securities are marked to market on a quarterly basis and the resultant gain or loss is recorded as a derivative liability movement in the unaudited condensed consolidated statement of operations.

Foreign exchange movements

Foreign exchange movements of $(129,118) and $137,896 for the three months ended June 30,March 31, 2019 and 2018, respectively, represents the realized exchange gains and 2017,(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. The average exchange rate utilized during the current year of $0.7522 weakened by 3.0% from $0.7756 in the prior period.


Net loss

Net loss of $(3,088,680) and $(1,216,155) for the three months ended March 31, 2019 and 2018, respectively, an increase of $423,811or 114.0%$1,872,525 or 154.0%, is primarily due to the increase in operating expenses in the current period, the increase in interest expense over the prior period and the increase in the derivative liability movement and the foreign exchange gain in the prior period compared to a loss in the current period

Contingency related to outstanding payroll tax liabilities

The Company has also 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 advisors.

Liquidity and Capital Resources

Cash used in operating activities of $1,108,287 and provided by operations of $223,067 for the three months ended March 31, 2019 and 2018, respectively decreased by $1,331,354 or 596.8%. The increasedecrease is primarily due to the following:

 

·●Anthe increase in General and administrative expensesnet loss of $270,589, which includes rental and operating expense of $172,748 relating to the property lease agreement entered into on May 23, 2018. An increase in stock based compensation of $102,150 relating to commitment fees issued to certain convertible note holders, offset by a reduction in several other immaterial expenses.$1,872,525, discussed under operations above.

·●An increasethe movement in management fee expense of $45,565, in the prior year, no management fee expense was charged.non-cash items increased by $498,074, primarily made up of;

·○An increase in professional feesthe derivative liability movement of $78,685, primarily$461,145 due to the increase in legal activity related to the potential acquisitionmark-to market of the premises located at 5400, 5402, and 5410 East Avenue, West Palm Beach, Florida.current derivative instruments;

·●An increaseThe net movement in salaries and wagesworking capital items of $34,829 due the increase in headcount related to the operations located at 5400, 5402, and 5410 East Avenue, West Palm Beach, Florida.$43,098

   

Operating loss

Operating loss was $728,774Cash used in investing activities of $10,834 and a profit of $30,563$286,912 for the three months ended June 30,March 31, 2019 and 2018, and 2017, respectively, an increase in loss of $759,337, primarily due to the reduction in revenue based on the provisions established against collectability and the increased operating expenses as discussed above.

Other income

Other income was $0 and $1,000 for the three months ended June 30, 2018 and 2017, respectively.

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Other expense

Other expense was $0 and $19,265 for the three months ended June 30, 2018 and 2017, respectively, a decrease of $19,265$276,078 or 100.0%, the charge in the prior period represented a loss on a portion of a mortgage receivable sold to a third party.

Interest expense

Interest expense was $176,587 and $93,603 for the three months ended June 30, 2018 and 2017, respectively, an increase of $82,984 or 88.7%, the increase is primarily due to interest due on the new mortgage loans which replaced the mortgage loans assumed by the Company when it acquired Cranberry Cove Holdings, Ltd and on the purchase money mortgage loan entered into to acquire the properties associated with Seastone of Delray, also includes additional interest expense incurred on the convertible notes taken out during the current period.

Debt Discount

Debt discount was $1,339,885 and $241,666 for the three months endedJune 30, 2018 and 2017, respectively, an increase of $1,098,219 or 454.4% and represents the amortization of the value of the convertible notes and warrants issued in terms of the convertible loan agreements entered into during 2017 and the current period, The Company raised a total of $1,950,000 of net proceeds from convertible notes during the current period.

Derivative liability movement

Derivative liability movement was $(796,795) and $167,580 for the three months ended June 30, 2018 and 2017, respectively, a net change of $964,375. This movement represents the mark to market of the derivative liabilities arising on the beneficial conversion feature of the variable priced notes issued to note holders during the current period and the prior year.

Foreign exchange movements

Foreign exchange movements were $110,628 and $(6,438) for the three months ended June 30, 2018 and 2017, respectively, and represents predominantly unrealized gains and losses on intercompany liabilities and assets of our various subsidiaries.

Net loss from discontinued operations

The net income from discontinued operations of $0 and $141,177, represents professional fees, foreign currency losses and penalty expenses on our discontinued operation which was disposed of on February 14, 2017.

Net loss

Net loss was $(2,931,462) and $(303,006) for the three months ended June 30, 2018 and 2017, respectively, an increase of $2,628,456, primarily due to the increase in operating expenses, the net movement in derivative liabilities and the amortization of debt discount during the current period, discussed above.

For the six months ended June 30, 2018 and the six months ended June 30, 2017.

Revenue

Revenues was $179,996 and $724,730 for the six months ended June 30, 2018 and 2017, respectively, a decrease of $544,734 or 75.2%96.2%. The decrease is primarily due to the Company adjusting its basis of providing against gross revenues on the limited experience is has had with dealing with US Health care providers. Revenue includes rental income of $167,143 and $120,125 for the six months ended June 30, 2018 and 2017, the increase is due to the increase in base rental and the lease agreement being in operation for only four and a half months in the previous period.

Operating Expenses

Operating expenses were $1,327,315 and $1,297,835 for the six months ended June 30, 2018 and 2017, respectively, an increase of $29,480 or 2.3%. The increase is primarily due to the following:

·An increase in General and administrative expenses of $1,123,785, which includes rental and operating expense of $172,748 relating to the property lease agreement entered into on May 23, 2018, an increase in stock based compensation of $131,700 relating to commitment fees issued to certain convertible note holders in the current period, offset by a reduction in legal and professional fees of $254,116 related to the disposal of the Canadian rehab clinic in the prior period.
·An increase in management fee expense of $92,098, in the prior period, no management fee expense was charged.
·A decrease in professional fees of $216,106, related to the disposal of the Canadian rehab clinic in the prior period.
·An increase in salaries and wages of $28,962 due the increase in headcount related to the operations located at 5400, 5402, and 5410 East Avenue, West Palm Beach, Florida.

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Operating loss

Operating loss was $1,147,319 and $573,105 for the six months ended June 30, 2018 and 2017, respectively, an increase in loss of $574,214, primarily due to the reduction in revenue based on the provisions established against collectability of receivables as discussed above.

Other income

Other income was $0 and $473,369 for the six months ended June 30, 2018 and 2017, respectively. In the prior period a provision raised against a receivable from the Endoscopy clinic was reversed upon the assignment of the receivable to Leon Developments.

Other expense

Other expense was $0 and $5,093,954 for the six months ended June 30, 2018 and 2017, respectively, a decrease of $5,093,954 or 100.0%. Other expense consists of the excess of the purchase price paid over the carry over basis value of the assets of Cranberry Cove Holdings Ltd. 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 Cranberry Cove Subsidiary

Interest expense

Interest expense was $347,038 and $156,620 for the six months ended June 30, 2018 and 2017, respectively, an increase of $190,418 or 121.6%, the increase is primarily due to interest due on the new mortgage loans which replaced the mortgage loans assumed by the Company when it acquired Cranberry Cove Holdings, Ltd and on the purchase money mortgage loan entered into to acquire the properties associated with Seastone of Delray, also includes additional interest expense incurred on the convertible notes taken out during the current period.

Debt Discount

Debt discount was $2,092,834 and $429,325 for thesixmonths endedJune 30, 2018 and 2017, respectively, an increase of $1,663,509 or 387.5% and represents the amortization of the value of the convertible notes and warrants issued in terms of the convertible loan agreements entered into during 2017 and the current period, The Company raised a total of $2,550,000 of net proceeds from convertible notes during the current period.

Derivative liability movement

Derivative liability movement was $(808,951) and $94,532 for the six months ended June 30, 2018 and 2017, respectively, a net change of $903,483. This movement represents the mark to market of the derivative liabilities arising on the beneficial conversion feature of the variable priced notes issued to note holders during the current period and the prior year.

Foreign exchange movements

Foreign exchange movements were $248,524 and $(164,347) for the six months ended June 30, 2018 and 2017, respectively, and represents predominantly unrealized gains and losses on intercompany liabilities and monetary assets of our various subsidiaries.

Net loss from discontinued operations

The net income from discontinued operations of $0 and $7,412,643 for the six months ended June 30, 2018 and 2017, respectively consists primarily of the $7,494,828 gain made on the sale of the Canadian Rehab Center in the prior period, offset by the net operating loss incurred in the prior period of $82,185.

Net (loss) income

Net (loss) income was $(4,147,618) and a net income $1,595,267 for the six months ended June 30, 2018 and 2017, respectively, an increase in loss of $5,742,885, primarily due to the gain realized on the disposal of the Canadian Rehab Center in the prior period, offset by the increase in other expenses related to the excess purchase price paid over the assets under common control of our CEO, in the prior period, offset by the increase in the amortization of debt discount and derivative liability movements in the current period.

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Liquidity and Capital Resources

The following table summarizes working capital as of June 30, 2018 and December 31, 2017.

   June 30, 2018   December 31, 2018   Change 
Current Assets $469,013  $334,619  $134,394
Current Liabilities  (10,577,854)  (6,860,178)  (3,717,676)
Working capital Deficit $(10,108,841) $(6,525,559  $(3,583,282)

The Company borrowed an additional $2,550,000 and repaid $433,000 of this during the current period, for general working capital purposes and to pay deposits on real estate of $286,912, while attempting to close the overallpurchase of 5400 East Avenue, West Palm Beach, Florida.

Cash generated by financing activities was $1,008,720 and $232,334, an increase inof $776,386 or 334.2%. The Company raised an additional net $773,197 from convertible loans also includesnotes over the amortization of debt discount amountingprior period to $2,093,000 duringfund working capital purposes

Over the current period.Wenext twelve months we estimate that the Companycompany will require an additional $3,000,000 forapproximately $2.5 million in working capital purposes.as it continues to develop its West Palm Beach facility and it is also exploring several other treatment center options and sources of patients throughout the country. The company may be requiredhave to raise additional 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 highmedium.

On April 30, 2019, the Company concluded the sale of the real property located at 801 Andrews Avenue, Delray beach consisting of land and remains unchanged fromcondominiums thereon, for gross proceeds of $3,500,000. The proceeds were used to settle the outstanding mortgage loan of $2,987,568, including interest thereon, commissions and expenses related to the sale of the property of approximately $183,819, and certain outstanding property taxes of $77,523. The net proceeds received by the company of $251,000 was used to repay a portion of the convertible debt.

In addition, we raised an additional CDN$255,000 and a further US$175,000 which together with proceeds of US$70,000 and CDN$75,000 received prioryear. to March 31, 2019 were converted into Series N convertible notes.

 

Recently Issued Accounting Pronouncements

 

The recent Accounting Pronouncements are fully disclosed in note 2 to our unaudited condensed consolidated financial statements.

 

Management does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have an effect on the accompanying unaudited condensed consolidated financial statements.

 

Off balance sheet arrangements

 

We do not maintain off-balance sheet arrangements nor do we participate in non-exchange traded contracts requiring fair value accounting treatment.

 


Inflation

 

The effect of inflation on our revenue and operating results was not significant.

 

Climate Change

We believe that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.


Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

 

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, the Company’s management, including the Principal Executive Officer and the Principal Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that due to a lack of segregation of duties the Company’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in theSEC’srules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Subject to receipt of additional financing or revenue generated from operations, the Company intends to retain additional individuals to remedy the ineffective controls.

 

Changes in Internal Control

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended June 30, 2018March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

 

Item 1. 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 CDN$14,070, including applicable legal fees, the settlement remains unpaid as the plaintiff has not signed the minutes of settlement.

 

Other 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 pending or, 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 1A. Risk Factors.

 

Not applicable because we are a smaller reporting company.

 

Item 2. Unregistered sales of equity securities and use of proceeds

 

In the securities transactions described below,No 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.

On March 29, 2018, the Company issued 165,000 shares of common stock in connection with the closing of a financing of a Senior Secured Convertible Note. The shares were valued at $11,550, or $0.07 per share.

On April 17, 2018, the Company issued 605,000 shares of common stock in connection with the closing of a financing of a Senior Secured Convertible Note. The shares were valued at $39,450.

 

Item 3. Defaults upon senior securities

None.


Item 4. Mine Safety Disclosures.

None.

 

Item 5. Other Information.

Not applicable.

30

 

Item 6. Exhibits

Exhibit No.

Description

 

Exhibit No.

Description

31.1Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002 *

32.1Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 *

 

101.INS XBRL Instance *

 

101.SCH XBRL Taxonomy Extension Schema * 101.CAL XBRL Taxonomy Extension Calculation * 101.DEF Taxonomy Extension Definition * 101.LAB Taxonomy Extension Labels *

101.PRE Taxonomy Extension Presentation *

101. PRE Taxonomy Extension Presentation *

 

* filed herewith

 

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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.

 

ETHEMA HEALTH CORPORATION

 

Date: May 20, 201815, 2019  

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),

May 20, 2018

15, 2019
Shawn Leon

Chief Financial Officer (Principal Financial

Officer), President and Director

 
   
/s/ John O’BireckDirectorMay 20, 201815, 2019
John O’Bireck  
   
/s/ Gerald T. MillerDirectorMay 20, 201815, 2019
Gerald T. Miller  

 

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