ETHEMA HEALTH CORPORATIONUNITED STATES
(formerly Greenstone Healthcare Corporation)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 FORM 10-Q
FORM 10-Q/A
☒[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For thequarterly period ended:
June 30, 20172018
OR
☐[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______________ to _______________
Commission File Number:000-15078
Commission File Number: 000-15078
ETHEMA HEALTH CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 84-1227328
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
810 AndrewsAvenue,Delray Beach, Florida 33483
(Address (Address of principal executive offices and zip code)
(416) 222-5501 (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 section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days.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 ST (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.Yes ☒ [X] No ☐
[ ]
Indicate by check mark 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 | Accelerated filer | ||
Non-accelerated filer | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
[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 of August 14, 2017,20, 2018, there were 108,738,855124,009,230 shares outstanding of the registrant’s common stock.
EXPLANTORY NOTE
ETHEMA HEALTHCARE CORPORATION is filing this Amendment no. 1 on Form 10-Q/A (the “Amendment”) to amend our QUARTERLY Report on Form 10-Q for the quarter ended June 30, 2017, originally filed on August 21, 2017 (the “Form 10-Q”). The purpose of the Amendment is to fix typographical errors found in Part 1, Item 1 of the Form 10-Q. The Amendment should be read in conjunction with the original Form 10-Q filed to SEC.
The following amendments were made to Part I, Item 1 of the Form 10-Q:
ETHEMA HEALTH CORPORATION
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q/A10-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/A,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,” “projects,” “contemplates,” ’‘believes,” “seeks,” “goals,” “estimates,” ’‘predicts,” ’‘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” and elsewhere in this Quarterly Report on Form 10-Q/A,10-Q, and those identified under Part I, Item 1A of our Annual Report on Form 10-K10-K/A for the year ended December 31, 20162017 filed with the SEC on April 17, 2017.18, 2018. 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/A,10-Q, “Ethema,” the “Company,” “we,” “us” and “our” refer to Ethema HealthcareHealth Corporation.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
SIX MONTHS ENDED JUNE 30, 2017
TABLE OF CONTENTS
ETHEMA HEALTH CORPORATION | |||
SIX MONTHS ENDED JUNE 30, 2018 TABLEOF CONTENTS | Page | ||
PART I. | |||
Item 1. | Financial Statements | 1 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 | |
PART II. | |||
Item 1 | Legal Proceedings | 30 | |
Item 1A. | Risk factors | 30 | |
Item 2 | Unregistered sale of equity securities and use of proceeds | 30 | |
Item 3 | Defaults upon senior securities | 30 | |
Item 4 | Mine Safety Disclosures | 30 | |
Item 5 | Other Information | 30 | |
Item 6 | Exhibits | 31 | |
SIGNATURES | 32 |
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
PART I
Item 1. Financial Statements.
INDEX TO THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US Dollars unless otherwise indicated)
PAGE | ||||
Condensed | 1 | |||
Unaudited Condensed Consolidated Statements of Operations and Comprehensive loss for the three and six months ended June 30, | 2 | |||
Unaudited Condensed Consolidated | 3 | |||
Unaudited Condensed Consolidated | 4 | |||
Notes to the unaudited Condensed Consolidated Financial Statements | 5 |
ETHEMA HEALTH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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
(formerly Greenstone Healthcare 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 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
2 |
ETHEMA HEALTH CORPORATION
UNAUDITED CONDENSED CONSOLDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
June 30, 2017 | December 31, 2016 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 30,683 | $ | 4,779 | ||||
Accounts receivable | 468,826 | — | ||||||
Prepaid expenses | 9,486 | 2,710 | ||||||
Discontinued operations | — | 183,219 | ||||||
Related party Receivables | 89,002 | 84,867 | ||||||
Total current assets | 597,997 | 275,575 | ||||||
Non-current assets | ||||||||
Investment | — | 110,000 | ||||||
Due on sale of subsidiary | 1,253,747 | — | ||||||
Property, plant and equipment | 12,019,227 | — | ||||||
Intangibles | 1,438,525 | — | ||||||
Cash - Restricted | 23,118 | 74,480 | ||||||
Total non-current assets | 14,734,617 | 184,480 | ||||||
Total assets | $ | 15,332,614 | $ | 460,055 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
Current liabilities | ||||||||
Bank overdraft | $ | 19,511 | $ | 56,116 | ||||
Accounts payable and accrued liabilities | 420,743 | 374,317 | ||||||
Taxes payable | 397,029 | 2,798,824 | ||||||
Convertible loans | 516,201 | 250,258 | ||||||
Loans payable | 3,234,684 | — | ||||||
Derivative liability | 128,968 | — | ||||||
Related party payables | 2,229,786 | 157,596 | ||||||
Total current liabilities | 6,946,922 | 3,637,111 | ||||||
Non-current liabilities | ||||||||
Loans payable | 2,989,937 | — | ||||||
Total liabilities | 9,936,859 | 3,637,111 | ||||||
Stockholders' equity (deficit) | ||||||||
Preferred stock - Series A; $0.01 par value, 3,000,000 authorized, 0 outstanding as of June 30, 2017 and December 31, 2016 | — | — | ||||||
Preferred Stock - Series B; $0.01 par value, 10,000,000 authorized, 0 outstanding as of June 30, 2017 and December 31, 2016 | — | — | ||||||
Common stock; $0.01 par value, 500,000,000 shares authorized; 108,838,855 and 48,738,855 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively | 1,088,389 | 487,389 | ||||||
Additional paid-in capital | 18,201,699 | 16,509,906 | ||||||
Accumulated other comprehensive income | 770,871 | 807,563 | ||||||
Accumulated deficit | (14,665,204 | ) | (20,981,914 | ) | ||||
Total stockholders' equity (deficit) | 5,395,755 | (3,177,056 | ) | |||||
Total liabilities and stockholders' equity (deficit) | $ | 15,332,614 | $ | 460,055 |
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 STATEMENTS OF CASH FLOWS
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 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
ETHEMA HEALTH CORPORATION(formerly Greenstone Healthcare Corporation)
UNAUDITED CONDENSED CONSOLDATED STATEMENTS OF OPERATIONS
Three months ended June 30, | Three Months ended June | Six months ended June | Six Months ended June | |||||||||||||
2017 | 30, 2016 | 30, 2017 | 30, 2016 | |||||||||||||
Revenues | $ | 402,220 | $ | — | $ | 724,730 | $ | — | ||||||||
Operating expenses | ||||||||||||||||
General and administrative | 57,905 | 102,970 | 408,442 | 110,197 | ||||||||||||
Professional fees | 66,403 | 53,545 | 399,204 | 75,045 | ||||||||||||
Salaries and wages | 173,451 | 15,000 | 382,695 | 21,000 | ||||||||||||
Depreciation and amortization | 125,340 | — | 182,406 | — | ||||||||||||
Total operating expenses | 423,099 | 171,515 | 1,372,747 | 206,242 | ||||||||||||
Operating loss | (20,879 | ) | (171,515 | ) | (648,017 | ) | (206,242 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Other income | 63,960 | 12,508 | 568,309 | 12,508 | ||||||||||||
Other expense | 1,127,335 | — | (392,539 | ) | — | |||||||||||
Interest income | — | — | 32,074 | — | ||||||||||||
Interest expense | (93,603 | ) | (7,110 | ) | (156,620 | ) | (7,103 | ) | ||||||||
Debt discount | (241,666 | ) | (33,262 | ) | (429,325 | ) | (33,262 | ) | ||||||||
Derivative liability movement | 167,580 | — | 94,532 | — | ||||||||||||
Foreign exchange movements | (6,438 | ) | 2,039 | (164,347 | ) | 2,734 | ||||||||||
Net income (loss) before taxation from continuing operations | 996,289 | (197,340 | ) | (1,095,933 | ) | (231,365 | ) | |||||||||
Taxation | — | — | — | — | ||||||||||||
Net income (loss) from continuing operations | 996,289 | (197,340 | ) | (1,095,933 | ) | (231,365 | ) | |||||||||
Gain on disposal of business | — | — | 7,494,828 | — | ||||||||||||
Operating (loss) income from discontinued operations, net of tax | (141,177 | ) | 266,260 | (82,185 | ) | 443,779 | ||||||||||
Net (loss) income from discontinued operations | (141,477 | ) | 266,260 | 7,412,643 | 443,779 | |||||||||||
Net income (loss) | 855,112 | 68,920 | 6,316,710 | 212,414 | ||||||||||||
Accumulated other comprehensive income (loss) | ||||||||||||||||
Foreign currency translation adjustment | 154,255 | 7,789 | (36,692 | ) | (215,276 | ) | ||||||||||
Total comprehensive income (loss) | $ | 1,009,367 | $ | 76,709 | $ | 6,280,018 | $ | (2,862 | ) | |||||||
Basic income (loss) per common share from continuing operations | $ | 0.01 | $ | — | $ | (0.01 | ) | $ | — | |||||||
Basic income per share from discontinued operations | $ | — | $ | — | $ | 0.08 | $ | — | ||||||||
Basic income per common share | $ | 0.01 | $ | — | $ | 0.07 | $ | — | ||||||||
Diluted income (loss) per common share from continuing operations | $ | 0.01 | $ | — | $ | (0.01 | ) | $ | — | |||||||
Diluted income per share from discontinued operations | $ | — | $ | — | $ | 0.07 | $ | — | ||||||||
Diluted income per common share | $ | 0.01 | $ | — | $ | 0.06 | $ | — | ||||||||
Weighted average common shares outstanding - Basic | 108,772,921 | 47,991,602 | 93,838,855 | 47,865,229 | ||||||||||||
Weighted average common shares outstanding - Diluted | 119,908,308 | 49,192,552 | 104,974,243 | 49,066,179 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
2
4 |
ETHEMA HEALTH CORPORATION(formerly Greenstone Healthcare Corporation)UNAUDITED CONDENSED CONSOLDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
Additional | ||||||||||||||||||||||||
Common | Paid in | Comprehensive | Accumulated | |||||||||||||||||||||
Shares | Amount | Capital | Income | Deficit | Total | |||||||||||||||||||
�� | ||||||||||||||||||||||||
Balance at January 1, 2017 | 48,738,855 | $ | 487,389 | $ | 16,509,906 | $ | 807,563 | $ | (20,981,914 | ) | $ | (3,177,056 | ) | |||||||||||
Shares issued to acquire subsidiary | 60,000,000 | 600,000 | 1,584,000 | — | — | 2,184,000 | ||||||||||||||||||
Shares issued for services | 100,000 | 1,000 | 3,000 | — | — | 4,000 | ||||||||||||||||||
Fair value of warrants issued | — | — | 104,793 | — | — | 104,793 | ||||||||||||||||||
Foreign currency translation | — | — | — | (36,692 | ) | — | (36,692 | ) | ||||||||||||||||
Net income | — | — | — | — | 6,316,710 | 6,316,710 | ||||||||||||||||||
Balance as of June 30, 2017 | 108,838,855 | $ | 1,088,389 | $ | 18,201,699 | $ | 770,871 | $ | (14,665,204 | ) | $ | 5,395,755 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
ETHEMA HEALTH CORPORATION(formerly Greenstone Healthcare Corporation)
UNAUDITED CONDENSED CONSOLDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2017 | Six months ended June 30, 2016 | |||||||
Operating activities | ||||||||
Net income | $ | 6,316,710 | $ | 212,414 | ||||
Net income from discontinued operations | $ | (7,412,643 | ) | $ | (443,779 | ) | ||
Net loss from continuing operations | $ | (1,095,933 | ) | $ | (231,365 | ) | ||
Adjustment to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
Depreciation | 182,406 | — | ||||||
Non cash compensation expense on acquisition of subsidiary | 373,274 | — | ||||||
Loss on mortgage sold | 19,265 | |||||||
Non cash compensation for services | 4,000 | 50,000 | ||||||
Other foreign exchange movements | (27,476 | ) | 7,238 | |||||
Amortization of debt discount | 429,325 | 33,262 | ||||||
Derivative liability movements | (94,532 | ) | — | |||||
Provision against receivable on sale of subsidiary | (446,476 | ) | — | |||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | (327,351 | ) | — | |||||
Prepaid expenses | (6,776 | ) | (90,015 | ) | ||||
Accounts payable and accrued liabilities | (150,095 | ) | (292,787 | ) | ||||
Taxes payable | (2,401,665 | ) | 231,588 | |||||
Net cash used in operating activities - continuing operations | (3,542,034 | ) | (292,079 | ) | ||||
Net cash provided by operating activities - discontinued operations | 101,033 | 423,018 | ||||||
(3,441,001 | ) | 130,939 | ||||||
Investing activities | ||||||||
Investments in Seastone | (2,960,000 | ) | — | |||||
Proceeds from restricted cash | 51,362 | — | ||||||
Investment in deposits | — | (207,158 | ) | |||||
Purchase of fixed assets | (8,878 | ) | — | |||||
Net cash used in investing activities - continuing operations | (2,917,516 | ) | (207,158 | ) | ||||
Net cash provided by (used in) investing activities - discontinued operations | 6,241,082 | (1,053 | ) | |||||
3,323,566 | (208,211 | ) | ||||||
Financing activities | ||||||||
(Decrease) Increase in bank overdraft | (36,605 | ) | 15,834 | |||||
Repayment of loan payable | — | (3,443 | ) | |||||
Proceeds from short-term notes | — | 283,386 | ||||||
Repayment of short-term note | — | (107,639 | ) | |||||
Proceeds from mortgage sold | 111,554 | — | ||||||
Repayment of mortgage | (85,613 | ) | — | |||||
Proceeds from convertible notes | 294,500 | — | ||||||
Repayment of convertible notes | (130,000 | ) | — | |||||
Proceeds from related party notes | 26,195 | 153,273 | ||||||
Net cash provided by financing activities | 180,031 | 341,411 | ||||||
Effect of exchange rate on cash | (36,692 | ) | (215,276 | ) | ||||
Net change in cash | 25,904 | 48,863 | ||||||
Beginning cash balance | 4,779 | 174 | ||||||
Ending cash balance | $ | 30,683 | $ | 49,037 | ||||
Supplemental cash flow information | ||||||||
Cash paid for interest | $ | 153,817 | $ | 7,548 | ||||
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 | $ | — |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
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 June 30,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;Canada; Cranberry Cove Holdings Ltd., incorporated on January 9, 2004 under the laws of the Province of Ontario, Canada. and Seastone Delray Healthcare, LLC, incorporated on May 17, 2016 under the laws of Florida, USA;USA; and Delray Andrews RE, LLC, incorporated on May 17, 2016 under the laws of Florida, USA.
During December 2016, the Company obtained a license to operate and provide addiction treatment healthcare services in Florida, USA. The company commenced operations under this license with effect from January 2017.
On February 14, 2017, the Company completed a series of transactions (referred to collectively as the “Restructuring Transactions”), including a Share Purchase Agreement (the “SPA”) whereby the Company acquired 100% of the stock of Cranberry Cove Holdings Ltd.,CCH, which holds the real estate on which the Company’s Rehabilitation ClinicCompany previously operated a rehabilitation clinic (“the Canadian Rehab Clinic”) operates,. The Company entered into an asset purchase agreementAsset 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, andbuyer. Simultaneously with this transaction, the Company entered into a real estate purchaseReal Estate \Purchase agreement and asset purchase agreementAsset Purchase Agreement whereby the Company purchased the real estate and business assets of Seastone Delray (the “Florida Purchase”).
The Share Purchase Agreement
Under the SPA, the Company acquired 100% of the stock of Cranberry Cove Holdings Ltd. (“CCH”)CCH from Leon Developments Ltd. (“Leon Developments”), a company wholly owned by Shawn E. Leon, who is the President, CEO, and CFO of the Company (“Mr. Leon”). CCH owns the real estate on which the Canadian Rehab Clinic is located. The total consideration paid by the Company was CDN$3,517,062, including the assumption of certain liabilities of CCH, which was funded by the assignment to Leon Developments of certain indebtedness owing to the Company in the amount of CDN$659,918, and the issuance of 60,000,000 shares of the Company’s common stock to Leon Developments, valued at US$0.0364 per share.
The Asset Purchase Agreement and Lease
Under the APA, the assets of the Canadian Rehab Clinic were sold by the Company, through its subsidiary, GreeneStone Clinic Muskoka Inc. (“Muskoka”), to Canadian Addiction Residential Treatment LP (the “Purchaser”), for a total consideration of CDN$10,000,000, plus an additional performance payment of up to CDN$3,000,000 as a performance payment to be received in 2019 if certain clinic performance metrics are met. The Purchaser completed the sale with cash proceeds to the Company of CDN$10,000,000, of which CDN$1,500,000 will remain in escrow for up to two years to cover indemnities given by the Company. The proceeds of the Muskoka clinic asset sale were used to pay down certain tax debts and operational costs of the Company and to fund the Florida Purchase, mentioned below.
Through the APA, substantially all of the assets of the Canadian Rehab Clinic were sold, leaving Ethema with only the underlying clinic real estate, which the Company, through its newly acquired subsidiary, CCH concurrently leased to the Purchaser. The Lease is a triple net lease and provides for a five (5) year primary term with three (3) five yearfive-year renewal options, annual base rent for the first year at CDN$420,000 with annual increases, an option to tenant to purchase the leased premises and certain first refusal rights.
The Florida Purchase
Immediately after closing on the sale of the assets of the Canadian Rehab Clinic, the Company closed on the acquisition of the business and real estate assets of Seastone Delray pursuant to certain real estate and asset purchase agreements This business is operated through its wholly owned subsidiary Seastone.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.
5
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
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
1. | Nature of Business (continued) |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim consolidated financial information and Rule 8-03 of Regulation SX. Accordingly, these unaudited condensed consolidated financial statements do not include all the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.
All adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included in these unaudited condensed consolidated financial statements. Operating results for the three and six month period presented are not necessarily indicative of the results that may be expected for any other interim period or for the fullyear.The balance sheet at December 31, 20162017 has been derived from audited consolidated financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto for the year ended December 31, 2016.2017.
2. | 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 America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
b) | Principals of consolidation and foreign currency translation |
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, and its subsidiary.wholly owned subsidiaries. All intercompany transactions and balances have been eliminated on consolidation.
The Company previously owned an operational subsidiary whose functional currency was the Canadian dollar, while the Company’s reporting currency is the U.S. dollar. The Company recently acquired a property-owning subsidiary, CCH, whose functional currency is the Canadian dollar. All transactions initiated in Canadian dollars are translated into US dollars in accordance with ASC 830, “Foreign Currency Translation” as follows:
● | Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date. |
● |
● | Revenue and expense items at the average rate of exchange prevailing during the period. |
Adjustments arising from such translations are deferred until realization and are included as a separate component of stockholders’ deficitequity 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 sixthree months ended June 30, 2017;2018; a closing rate of CAD$1.0000 equals US$0.77060.7594 and an average exchange rate of CAD$1.0000 equals US$0.7437.0.7715.
6 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued)
c) | Cash and cash equivalents |
The Company's policy is to disclose bank balances under cash, including bank overdrafts with balances that fluctuate frequently from being positive to overdrawn and term deposits with a maturity period of three months or less from the date of acquisition.
The Company has $23,118 (CAD$30,000) in restricted cash held by their bank to cover against the possibility of credit card charge backs, for services not performed. The Company is working on releasing these funds as it no longer operates the Canadian Rehab Clinic, which was sold on February 14, 2017.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
d) | Revenue Recognition |
The Company has two operating segments from which it derives revenues, i) rental income from leasing of a rehabilitation facility to third parties and ii) in-patient revenues for rehabilitation services provided to customers. Revenue is recognized as follows:
i. | Rental Income |
In terms of the lease agreement, entered into, 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;Company; there is clear evidence that an arrangement exists;exists; the amount of revenue and related costs can be measured reliably;reliably; and it is probable that the economic benefits associated with the transaction will flow to the Company.
The Company recognizes revenue from the rendering of services when they are earned; specifically, when all of the following conditions are met:
● | the significant risks and rewards of ownership are transferred to customers and the Company retains neither continuing involvement nor effective control; |
● | there is clear evidence that an arrangement exists; |
● | the amount of revenue and related costs can be measured reliably; and |
● | it is probable that the economic benefits associated with the transaction will flow to the Company. |
In particular, the Company recognizes fees for inpatient addiction treatments proportionately over the term of the patient’s treatment.recognizes:
● | Fees for outpatient counselling, coaching, intervention, psychological assessments and other related services when patients receive the service; and |
● | Fees for inpatient addiction treatments proportionately over the term of the patient’s treatment. |
Deferred revenue represents monies deposited by the patients for future services to be provided by the Company. Such monies will be recognized into revenue as the patient progresses through their treatment term.
e) | Recent accounting pronouncements |
In May 2017,June 2018, the FASB issued Accounting Standards Update No. ("ASU'') 2017-09, Compensation – ASU 2018-07, Compensation—Stock Compensation an amendment(Topic 718) Improvements to Topic 718. Nonemployee Share-Based Payment Accounting.
The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.2. An entity should account for the effects of a modification unless all the following are met:
The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this Update. The amendments in this Update are effective for all entities for annual periods beginning after December 15,2017. Early adoption is permitted and should be applied prospectively to an award modified on or after the adoption date. The amendments proposed in this ASU are not expected to have a material impact on our consolidated financial statements.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
In May 2017, the FASB issued ASU 2017-10, service concession Arrangements, an amendment to Topic 853. Topic 853 provides guidance for operating entities when they enter into a service concession arrangement with a public-sector grantor who both:
In a service concession arrangement withinexpand the scope of Topic 853, the operating718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not account forapply to share-based payments used to effectively provide (1) financing to the infrastructureissuer or (2) awards granted in conjunction with selling goods or services to customers as a lease or as property, plant, and equipment. An operating entity should refer to other Topics to account for various aspectspart of a service concession arrangement. For example, an operating entity should accountcontract accounted for revenue relating to construction, upgrade, or operation services in accordance with Topic 605, Revenue Recognition, orunder Topic 606, Revenue from Contracts with Customers.
The amendments in this Update apply to the accounting by operatingare effective for public business entities for service concession arrangementsfiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the scopeamendments 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 853. These updates are effective when the Company adopts the updates to Topic 606.
The amendments proposed inimpact of this ASU areon the Company’s financial statements is not expected to be material.
7 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued)
e) | Recent accounting pronouncements (continued) |
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 an impact on our consolidatedits 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 instruments |
The Company is exposed to various risks through its financial instruments. The following analysis provides a measure of the Company’s risk exposure and concentrations at the balance sheet date, June 30, 20172018 and December 31, 2016.2017.
i. | Credit risk |
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Financial instruments that subject the Company to credit risk consist primarily of accounts receivable.
Credit risk associated with accounts receivable of Seastone of Delray is mitigated as only a percentage of the revenue billed to health insurance companies is recognized as income until such time as the actual funds are collected. The revenue is concentrated amongst several health insurance companies located in the US.
In the opinion of management, credit risk with respect to accounts receivable is assessed as low.
ii. | Liquidity risk |
Liquidity risk is the risk the Company will not be able to meet its financial obligations as they fall due. The Company is exposed to liquidity risk through its working capital deficiency of $6,348,925$10,108,841 and accumulated deficit of $14,665,204.$26,498,019. As disclosed in note 6,4, 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.
8 |
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued)
f) | Financial instruments (continued) |
iii. | Market risk |
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises of three types of risk: interest rate risk, currency risk, and other price risk. The Company is exposed to interest rate risk and currency risk.
a. | Interest rate risk |
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to minimal interest rate risk on its bank indebtedness as there is a balance owing of $19,511$768 as of June 30, 2017.2018. This liability is based on floating rates of interest that have been stable during the current reporting period. In the opinion of management, interest rate risk is assessed as low, not material and remains unchanged from the prior year.
b. | Currency risk |
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is subject to currency risk as itsit has subsidiaries that operate in Canada and are subject to fluctuations in the Canadian dollar. A substantial portion of the Company’s financial assets and liabilities are denominated in Canadian dollars. Based on the net exposures at June 30, 2017,2018, a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an approximate $5,900$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 liability |
The Company accountsevaluates 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 instruments in accordance with ASC815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value regardless of hedging relationship designation. Accounting forwith 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 derivative instruments depends on whether the derivatives qualify as hedging relationshipsCompany’s stock, risk free interest rate and the typesestimated life of relationships designated are based on the exposures hedged. At June 30, 2017, the Company had a derivative liability amounting to $128,968.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
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
The Company evaluates and accountsfinalized the Purchase Price allocation for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities.” Professional standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risksacquisition of the embedded derivative instrument are not clearlyassets of Seastone and closely related toCCH during December 2017. This resulted in the economic characteristics and risksretroactive restatement of the host contract, (b)statement of the hybrid instrument that embodies both the embedded derivative instrumentunaudited condensed consolidated statement of operations and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaningunaudited condensed consolidated statement of Conventional Convertible Debt Instrument.” The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notescash flows for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fairthree and six months ended June 30, 2017.
The value of the underlying Common Stock at the commitment date of the note transactionassets acquired were adjusted in line with valuations received and the effective conversion price embeddedcorresponding depreciation charge was adjusted accordingly.
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 note. Debt discounts under these arrangements are amortized over the termassociated depreciation charge of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends$51,442 and $74,912 for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transactionthree months and the effective conversion price embedded in the note.six months ended June 30, 2017, respectively.
On February 14,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, in termsrespectively, to modify the Company’s estimate of deferred purchase price consideration due on the details outlined in note 1 above, the Company disposeddisposal of the business and certain assets of its Canadian Rehab Clinic for gross proceeds of CDN$10,000,000, a total of CDN$1,500,000 of the gross proceeds is being held in escrow for up to two years, in addition there is an earnout payment of up to CDN$3,000,000 to be received in 2019, if certain clinic performance metrics are met, see note 8 below.Muskoka.
The proceeds realized from the salereconciliation of the Canadian Rehab Clinic were used to settle outstanding tax liabilities, refer note 11 below, and to acquireunaudited condensed consolidated statement of operations for the business of Seastone of Delray, refer note 5 below.
The proceeds realized on disposal have been allocatedthree months ended June 30, 2017 is as follows:
ETHEMA HEALTH CORPORATION
(Formerly known as Greenestone Healthcare Corporation)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Amount | ||||
Proceeds on disposal | $ | 7,644,000 | ||
Assets sold: | ||||
Accounts receivable | 113,896 | |||
Plant and equipment | 109,075 | |||
222,971 | ||||
Liabilities assumed by purchaser | ||||
Deferred revenue | (73,799 | ) | ||
Net assets and liabilities sold | 149,172 | |||
Net profit realized on disposal | $ | 7,494,828 |
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
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
On February 14, 2017, the Company acquired 100% of the equity of CCH, from Leon Developments, a company wholly owned by our CEO. The total consideration paid by the Company was CDN$3,517,062, including the assumption of certain liabilities of CCH, which was funded by the assignment to Leon Developments of certain indebtedness owing to the Company in the amount of CDN$659,918 (US$504,442) on the disposal of a subsidiary, 1816191 Ontario, which principal amount had previously been fully provided for during 2015; and the issuance of 60,000,000 shares of the Company’s common stock at US$0.0364 per share for proceeds of $2,184,000.
During the current quarter, on June 1, 2017, the Company had the property owned by CCH appraised by an independent valuer, the appraisal obtained was for CDN$10,000,000, which resulted an increase in the value of the assets acquired by $930,600 and a corresponding reduction in the excess purchased consideration allocated to the shareholder.
The allocation of the purchase price is as follows:
Amount | ||||
Purchase price paid: | ||||
Common shares issued to Seller | $ | 2,184,000 | ||
Receivable assumed by the Seller | 504,442 | |||
2,688,442 | ||||
Allocated as follows: | ||||
Assets acquired: | ||||
Property | 7,644,000 | |||
Receivable from Ethema Health Corporation | 299,743 | |||
7,943,743 | ||||
Liabilities assumed: | ||||
Accounts payable and other accruals | 158,094 | |||
Related party payable to Leon Developments | 2,057,392 | |||
Mortgage liability owing to Ethema Health Corporation | 267,540 | |||
Mortgage liability | 3,145,549 | |||
5,628,575 | ||||
Net assets acquired | 2,315,168 | |||
Excess purchase consideration allocated to shareholders compensation | $ | 373,274 |
The Company, utilized a portionreconciliation of the proceeds realized onunaudited condensed consolidated statement of operations for the sale of the Canadian Rehab Clinic to acquire certain assets of Seastone of Delray.six months ended June 30, 2017 is as follows:
The Company obtained its own license to run a rehabilitation Clinic in Florida in December 2016 and began operations, through its wholly owned subsidiary, Seastone of Delray, LLC, effective January 2017.ETHEMA HEALTH CORPORATION
(Formerly 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
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
The assets acquired werereconciliation 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)
Amount | ||||
Purchase price paid: | ||||
Cash paid to seller | $ | 2,960,000 | ||
Deposits previously paid to seller | 110,000 | |||
Mortgage liability funds | 3,000,000 | |||
6,070,000 | ||||
Assets acquired: | ||||
Property | 4,410,000 | |||
Furniture and fixtures | 80,000 | |||
Intangibles - to be classified | 1,438,525 | |||
Receivables | 141,475 | |||
$ | 6,070,000 |
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
Going |
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business. As of June 30, 2017,2018, the Company has a working capital deficiency of $6,348,925$10,108,841 and accumulated deficit of $14,665,204.$26,498,019. Management believes that current available resources will not be sufficient to fund the Company’s planned expenditures over the next 12 months. Accordingly, the Company will be dependent upon the raising of additional capital through placement of common shares, and/or debt financing in order to implement its business plan, and, or generating sufficient revenue in excess of costs. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain geographical areas, or techniques that it might otherwise seek to retain. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. These unaudited condensed consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue operations.
The ability of the Company to continue as a going concern is dependent on the Company generating cash from the sale of its common stock or obtaining debt financing and attaining future profitable operations. Management's plans include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations;operations; however, there can be no assurance the Company will be successful in these efforts.
5. Discontinued Operations
On February 14, 2017, the Company completed a series of transactions, including an APA whereby the Company sold certain of the Canadian Rehab Clinic assets. The assets disposed of business represented substantially all of the operating assets of the Canadian Rehab Clinic and has been disclosed as a discontinued operation for comparative purposes as of December 31, 2016 andJune 30, 2017. And for the three and six month periodmonths ended June 30, 2017.
The Statement of operations for discontinued operations at June 30, 2017 and 2016. Refer note 3 above.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
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
6. | Deposit on Real Estate |
On November 2, 2017, the Company entered into an Agreement to purchase from AREP 5400 East Avenue LLC certain buildings in West Palm Beach, Florida, totaling approximately 80,000 square feet, on which the present tenant operates a substance abuse treatment center. The purchase price of the Property is $20,530,000, and made a series of 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.
7. |
The assets and liabilities of discontinued operations as of December 31, 2016 is as follows:
December 31, | ||||
2016 | ||||
Current assets | ||||
Accounts receivable, net | $ | 123,358 | ||
Prepaid expenses and other current assets | 11,253 | |||
Total current assets | 134,611 | |||
Non-current assets | ||||
Plant and equipment, net | 129,127 | |||
Deposits | — | |||
Total assets | 263,738 | |||
Current liabilities | ||||
Deferred revenues | 80,519 | |||
Discontinued operation | 183,219 |
The statement of operations for discontinued operations is as follows:
Three months | Three months | Six months | Six months | |||||||||||||
ended June 30, | ended June 30, | ended June 30, | ended June 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues | $ | (112 | ) | $ | 1,024,384 | $ | 232,040 | $ | 1,847,222 | |||||||
Operating expenses | ||||||||||||||||
Depreciation and amortization | — | 15,412 | 4,196 | 30,746 | ||||||||||||
General and administrative | 31,330 | 187,589 | 118,706 | 343,480 | ||||||||||||
Professional fees | 33,466 | — | 32,818 | 6,144 | ||||||||||||
Rent | 2,975 | 105,721 | 47,493 | 180,112 | ||||||||||||
Salaries and wages | (31,913 | ) | 423,464 | 201,723 | 811,981 | |||||||||||
Total operating expenses | 35,858 | 732,186 | 404,936 | 1,372,463 | ||||||||||||
Operating (loss) income | (35,970 | ) | 292,198 | (172,896 | ) | 474,759 | ||||||||||
Other Income | ||||||||||||||||
Profit on sale of business | — | — | 7,494,828 | — | ||||||||||||
Other income | — | 21,042 | — | 21,042 | ||||||||||||
Interest expense | (204 | ) | (38,547 | ) | (993 | ) | (76,743 | ) | ||||||||
Foreign exchange movements | (105,003 | ) | (8,433 | ) | 91,704 | 24,721 | ||||||||||
Net income before taxation | (141,177 | ) | 266,260 | 7,412,643 | 443,779 | |||||||||||
Taxation | — | — | — | — | ||||||||||||
Net income from discontinued operations | $ | 141,177 | $ | 266,260 | $ | 7,412,643 | $ | 443,779 |
Due from sale of subsidiary |
A net amount of CDN$617,960 was due to the Company on the sale of the Endoscopy Clinic as of December 31, 2016. This amount was past due and had fully provided for as of December 31, 2016.
On February 14, 2017, the Company acquired CCH from Leon Developments and settled a portion of the purchase consideration by assigning the proceeds due to the Company on the sale of the Endoscopy Clinic to Leon Developments. The note together with accrued interest thereon of CDN$41,959 amounted to CDN$659,919 (US$504,442). The provision raised against the note was reversed and the unrecorded interest thereon was recognized during the current quarter.
ETHEMA HEALTH CORPORATION(formerly Greenstone Healthcare Corporation)NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
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) hashad been retained in an escrow account for a period of up to two years in order to guarantee the warranties provided by the Company in terms of the APA. In addition,During the six months ended June 30, 2018, CDN960,000 of the escrow was released to the Company, may earn up towith an additional CDN$3,000,000 as a performance payment based on the attainment of certain clinic performance metrics. The Company estimates that the earnout will approximate $663,000 and is accruing this additional amount over a period of twenty three and a half months. The accrual is recorded as other income, as of June 30, 2017, the company had accrued $97,847 (at closing exchange rates) as additional income.540,000 still outstanding.
8. | Property, plant and equipment |
Property, plant and equipment consists of the following:
June 30, 2017 | December 31, 2016 | June 30, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||
Cost | Amortization and Impairment | Net book value | Net book value | Cost | Amortization and Impairment | Net book value | Net book value | |||||||||||||||||||||||||
Property | $ | 12,124,997 | $ | (176,770 | ) | $ | 11,948,227 | $ | — | |||||||||||||||||||||||
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 | 80,000 | (9,000 | ) | 71,000 | — | 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 | ||||||||||||||||||||||||
$ | 12,204,997 | (185,770 | ) | $ | 12,019,227 | $ | — |
Depreciation expense for the three months ended June 30, 2018 and 2017 was $68,041 and 2016 was $125,340 and $0,$73,898, respectively, and depreciation expense for the six months ended June 30, 2018 and 2017 was $136,456 and 2016 was $182,406 and $0,$107,494, respectively.
In terms of the acquisition of Seastone of Delray, the Company paid an amount of $1,438,525 (Note 1 above) in excess of the fair market value of the assets acquired. This amount will be allocated to different classes of intangible assets when an independent valuation of the intangibles is performed.
TaxesPayable |
The Company settled the tax liabilities owing to the Canadian Revenue Authorities out of the proceeds of the disposal of the Canadian Rehab Clinic on February 14, 2017. The Company paid CDN$2,929,886 to settle outstanding payroll liabilities, CDN$441,598 to settle outstanding GST/HST liabilities and a further CDN$ 57,621 to settle other Canadian tax liabilities.
The remaining taxes payable consist of:
● | A payroll tax liability of |
● | 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. |
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 |
14 |
ETHEMA HEALTH CORPORATION(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
Short-term Convertible Notes |
The short-term convertible notes consist of the following:
Interest rate | Maturity date | Principal Outstanding | Accrued interest | Unamortized Discount | June 30, 2017 | December 31, 2016 | |||||||||||||||||||
Labrys Fund, LP | 8.0 | % | August 2, 2017 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Power Up Lending Group LTD. | 12.0 | % | March 20, 2018 | $ | 113,500 | $ | 410 | $ | (108,943 | ) | $ | 4,967 | $ | — | |||||||||||
Series L Convertible notes | 0.0 | % | June 30, 2017 to July 17, 2017 | 519,969 | — | (8,735 | ) | 511,234 | 250,258 | ||||||||||||||||
$ | 633,469 | $ | 410 | $ | (117,678 | ) | $ | 516,201 | $ | 250,258 | |||||||||||||||
Disclosed as follows: | |||||||||||||||||||||||||
Short-term portion | $ | 516,201 | $ | 250,258 | |||||||||||||||||||||
Long-term portion | — | — | |||||||||||||||||||||||
$ | 516,201 | $ | 250,258 |
Interest rate | Maturity date | Principal | Interest | Debt Discount | June 30, 2018 | December 31, 2017 | |||||||
Leonite Investments LLC | 8.5% | 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 Ltd | 12.0% | August 15, 2018 | - | - | - | - | 21,951 | ||||||
12.0% | December 30, 2018 | 153,000 | 5,684 | (94,591) | 64,093 | - | |||||||
Series N Convertible notes | 6.0% | 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. The Note bears interest at the rate of 6.5% per annum. The initial draw under the Note was $300,000 with a $150,000 original issue discount for a total of $450,000. The Company issued 1,650,000 shares of the Company’s common stock as a commitment fee and paid $20,000 towards the lenders legal fees. The Note’s initial maturity date is June 1, 2018. During the term of the Note the Company and the Subsidiaries will be obligated to make monthly payment of accrued and unpaid interest. The Note contains Company and Subsidiary representations and warranties, covenants, events of default, and registration rights.
Labrys Fund, LPThe 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 FebruaryDecember 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, 2017,2018.
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 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 with LABRYS FUND LP, in terms of the agreementpursuant to which the Company borrowed $110,000issued a Convertible Promissory Note in termsthe aggregate principal amount of $330,000, including an unsecured convertible promissoryOriginal Issue Discount of $30,000, for net proceeds of $300,000. The note withhas a maturity date of August 2, 2017.March 19, 2018. The outstanding principal amount of the note bears interestis 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 rate of 8%conversion price equal to $0.06 per annum. The note is only convertible upon a repayment default, at the lower of 60% of the lowest tradedshare subject to price over the preceding 30 day trading period prior to the issuance ofprotection and anti-dilution protection. In conjunction with this note or 60% of the lowest traded price 30 days prior to the conversion date. The Company issued 1,200,000warrants to purchase 5,500,000 shares of common shares tostock at an exercise price of $0.10 per share.
In Conjunction with this note the note holderCompany issued 330,000 shares as a commitment fee which returnable shares will be returned to the company if fullyat a price of $0.06 per share.
The note was repaid prior to August 2, 2017.during March 2018.
15 |
On May 26, 2017, the Company repaid the note for gross proceeds of $112,744, including interest thereon of $2,744. The 1,200,000 commitment fee shares were returned to the Company.ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. | Short-term Convertible Notes (continued) |
Leonite Capital, LLC (continued)
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 has a maturity date of April 28, 2018. 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 Company paid a commitment fee of $11,550 settled through the issue of 165,000 shares at a price of $0.07 per share.
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 May 8, 2018. 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 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 shares of common stock at an initial exercise price of $0.10 per share, subject to anti-dilution and price protection.
Power Up Lending Group LTD
On June 19,November 6, 2017, the Company, entered into a Securities Purchase Agreement with Power Up Lending Group Ltd., pursuant to which the Company issued to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $113,500.$103,000. The Note has a maturity date of March 20,August 15, 2018 and bears interest at the at the rate of eighttwelve 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 pricesprice of the Company’s common stock for the ten trading days prior to conversion. The balance of the Note plus accrued interest at June 30, 2017 was $4,967, net of unamortized discount of $108,943.
Series L convertible notes 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.
The
On March 9,2018, the Company, entered into Series L Convertiblea Securities Purchase AgreementsAgreement with 8 individuals on December 30, 2016. In terms of these agreements,Power Up Lending Group Ltd., pursuant to which the Company borrowed anissued to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $468,969$153,000. The Note has a maturity date of December 30, 2018 and bears interest at the at the rate of twelve percent per annum from the date on which the Note is issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of a senior rankingagreement. The outstanding principal amount of the Note is convertible promissory note with a maturityat any time and from time to time at the election of the Purchaser during the period beginning on the date six months fromthat is 180 days following the issue date and bearing interest at 0% per annum. The notes are convertible at the option of the holder 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.
Series N Convertible Notes
On May 31, 2018, The Company closed a private offering (the “Private Offering”) in which it raised $1,450,000 in capital from 4 accredited investors through the issuance to the investors of the Company’s Series N Convertible Notes, in the total original principal amount of $1,400,000, which Notes are convertible into the Company’s common stock at a conversion price of $0.03$0.08 per share subject(the “Notes”) together with Warrants to certain recapitalization adjustments. On December 30, 2016, it was determined that the beneficial conversion feature relatedpurchase up to the discounted note and warrant issuances amounting to $218,711 would be amortized over the lifea total of 17,500,000 shares of the loans.
During January 2017, the Company borrowed a further aggregate principal amount of $71,000 in terms of three senior ranking convertible promissory notes with a maturity date six months from the issue date and bearing interest at 0% per annum. The notes are convertible at the option of the holder into shares of common stock of the Company at a conversion price of $0.03 per share, subject to certain recapitalization adjustments. In January 2017, it was determined that the beneficial conversion feature related to the discounted note and warrant issuances amounting to $104,793 would be amortized over the life of the loans.
ETHEMA HEALTH CORPORATION(formerly Greenstone Healthcare Corporation)NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
On May 4, 2017, the Company repaid $20,000 of the principal outstanding to one investor.
The amortization charge of the debt discount for the three months and six months ended June 30, 2017 was $161,750 and $314,769, respectively.
In terms of the Series L Convertible notes issued above, during January 2017, the Company granted three year warrants to the Series L Convertible noteholders, exercisable for 2,366,667 shares ofCompany’s common stock at an exercise price of $0.03,$0.12 per share the. Both the conversion price under the Notes and the exercise price under the Warrants are subject to certain recapitalization adjustments, per share, expiring between January 16standard adjustment mechanisms. The Notes mature on November 30, 2018, and January 17, 2020. (Refer note 16 (b) below).the Warrants are exercisable until May 31, 2021.
The short-term convertible notes issued to Labrys Fund LP and Power Up Lending Group, LTD, disclosed in note 12 above, have variable priced conversion rights with no fixed floor price and will reprice dependent on the share price performance over varying periods of time. This gives rise to a derivative financial liability, which was initially valued at inception of the convertible notes at $223,500, the maximum amount permissible, using a Black-Scholes valuation model.ETHEMA HEALTH CORPORATION
The Labrys Fund note was repaid in May 2017; therefore, the derivative liability was no longer required, the total derivative liability relating to this note of $183,048 was released to the statement of operations. The value of the Power Up convertible note was re-assessed as of June 30, 2017 and a further charge of $15,468 was made to the statement of operations. The value of the derivative liability will be re assessed at each financial reporting period, with any movement thereon recorded in the statement of operations in the period in which it is incurred.
The following assumptions were used in the Black-Scholes valuation model:
Six months ended June 30, 2017 | ||||
Calculated stock price | $0.03 to $0.06 | |||
Risk free interest rate | 0.64% to 1.24% | |||
Expected life of convertible notes | 3 to 9 months | |||
expected volatility of underlying stock | 134.9% to 180.5% | |||
The movement in derivative liability is as follows: | ||||
Six months ended June 30, 2017 | ||||
Opening balance | $ | — | ||
Derivative liability arising from convertible notes | $ | 223,500 | ||
Fair value adjustment to derivative liability | (94,532 | ) | ||
$ | 128,968 |
Greenstone Clinic Inc.
As of June 30, 2017, the Company had a receivable of $63,471 and as of December 31, 2016, the Company had a payable of $79,592, respectively. Greenstone Clinic Inc., is controlled by one of the Company’s directors. The balance payable is noninterest bearing, not secured and has no specific repayment terms.
ETHEMA HEALTH CORPORATION(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
1816191 Ontario
As of June 30, 2017, and December 31, 2016, the Company had a payable of $16,055 and $70,763, respectively, to 1816191 Ontario, the Endoscopy Clinic, which was sold at the end of the prior year. The payable is noninterest bearing, and has no specific repayment terms.
Shawn E. Leon
As of June 30, 2017, and December 31, 2016 the Company had a receivable of $25,531 and a payable of $8,492, respectively to Shawn E. Leon, a director and CEO of the Company. The balances receivable and payable are noninterest bearing and have no fixed repayment terms.
Mr. Leon was paid management fees of $100,000 during the six months ended June 30, 2017. In addition to this the Company recorded a once off compensation expense in other expenses, relating to the excess of the fair value of the assets acquired in Cranberry Cove Holdings, Ltd. Mr. Leon is the owner of Leon Developments, the counterparty in the acquisition of the Cranberry Cove subsidiary referred to in note 1 and 4 above.
Leon Developments, Ltd.
The Company acquired CCH from Leon Developments, Ltd., on February 14, 2017, refer note 1 and 4 above. CCH owns the facility utilized by the Canadian Rehab Clinic which was sold to a third party on February 14, 2017. CCH owed CDN$2,692,512 to Leon Developments, this amount has remained unchanged since acquisition. The amount owing is valued at $2,213,731 as of June 30, 2017.
Cranberry Cove Holdings Ltd.
The Company acquired CCH on February 14, 2017. CCH owns the real estate previously utilized by the Canadian Rehab Clinic and now utilized by the purchaser of the business. As of December 31, 2016, the Company had a receivable of $84,867 from CCH.
Prior to the acquisition of CCH, the Company paid rental expense to CCH of CDN$58,925 and CDN$226,250 for the six months ended June 30, 2017 and 2016, respectively.
Loans payable |
On February 14, 2017, the Company acquired 100% of the equity of CCH, from Leon Developments. The subsidiary has certain mortgage indebtedness amounting to CDN$4,115,057 (US$3,145,549) at the date of acquisition, which was assumed by the Company.
On February 14, 2017, the Company acquired certain assets of Seastone of Delray, including fixed property. A portion of the purchase consideration was funded by a purchase money mortgage secured over the properties acquired, amounting to $3,000,000.
The loans payable is as follows:
Interest rate | Maturity date | Principal Outstanding | Accrued interest | June 30, 2017 | December 31, 2016 | Interest rate | Maturity date | Principal Outstanding | Accrued interest | June 30, 2018 | December 31, 2017 | |||||||||||||||||||||
Cranberry Cove Holdings | ||||||||||||||||||||||||||||||||
First Mortgage | 8.0 | % | August 14, 2017 | $ | 2,822,979 | $ | — | $ | 2,822,979 | $ | — | |||||||||||||||||||||
Second Mortgage | 12.0 | % | November 4, 2018 | 404,562 | 1,663 | 406,225 | — | |||||||||||||||||||||||||
Pace Mortgage | 4.2% | July 19,2022 | 4,087,994 | 5,130 | 4,093,124 | 4,349,374 | ||||||||||||||||||||||||||
Seastone of Delray | ||||||||||||||||||||||||||||||||
Mortgage | 5.0 | % | February 13, 2020 | 2,989,937 | 5,480 | 2,995,417 | — | 5.0% | February 13, 2020 | 2,958,725 | $ 12,328 | 2,971,053 | 2,986,920 | |||||||||||||||||||
$ | 6,217,478 | $ | 7,143 | $ | 6,224,621 | $ | — | $ 7,046,719 | $ 17,458 | $ 7,064,177 | $ 7,336,294 | |||||||||||||||||||||
Disclosed as follows: | ||||||||||||||||||||||||||||||||
Short-term portion | $ | 3,234,684 | $ | — | $ 133,617 | $ 152,402 | ||||||||||||||||||||||||||
Long-term portion | 2,989,937 | — | 6,930,560 | 7,183,892 | ||||||||||||||||||||||||||||
$ | 6,224,621 | $ | — | $ 7,064,177 | $ 7,336,294 |
ETHEMA HEALTH CORPORATION(formerly Greenstone Healthcare Corporation)NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
The aggregate amount outstanding is payable as follows:
Amount | |||||
2017 | $ | 3,234,684 | |||
2018 | — | ||||
2019 | — | ||||
2020 | 2,989,937 | ||||
Total | $ | 6,224,621 |
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 |
Cranberry Cove HoldingsPace Mortgage
The first mortgage with an aggregateOn July 19, 2017, CCH, a wholly owned subsidiary closed on a loan agreement in the principal amount outstanding of CDN$3,500,000, including late charges, interest and penalties of CDN$165,057 for a gross aggregate amount outstanding of CDN$3,663,380, over the Cranberry Cove Holdings properties5,500,000. The loan is secured by a first mortgage on the propertypremises owned by CCH located at 3571 Muskoka Road #169,169, Bala, described as PT LT 15 CON F Medora PT1 35R5958, PT 2 &3 35R11290, Muskoka Lakes.Ontario (the “Property”). The mortgageloan bears interest at the fixed rate of 8% per annum on4.2% with a 5-year primary term and a 25-year amortization. The Company has guaranteed the aggregate principal outstandingloan 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 $3,500,000 and matures on August 14, 2017,the Loan. The loan is amortized with monthly interest paymentsinstallments of $23,118 (CDN 30,000).CDN $29,531.
During March 2017, the Company made a principal payment of CDN$100,000 on the first mortgage.
The second mortgage had an initial principal amount outstanding of CDN$350,000, on May 23, 2017, the Company sold CDN$175,000 of the mortgage it owned to the second mortgage holder for gross proceeds of CDN$150,000, the balance outstanding on the second mortgage is now CDN$525,000, the mortgage is secured by the Cranberry Cove Holdings properties located at 3571 Muskoka Road, #169, Bala, described as PT LT 15 CON F Medora PT1 35R5958, PT 2 &3 35R11290, Muskoka Lakes. The mortgage bears interest at the rate of 12% per annum on the aggregate principal outstanding of CDN$525,000, and matures on November 4, 2018, with monthly interest payments of CDN$3,500.
Seastone of Delray
The Company entered into a Mortgage and Security Agreement with Seastone Delray Healthcare, LLC on February 13, 2017 for the aggregate principal sum of $3,000,000, bearing interest at the rate of 5% per annum, maturing on February 13, 2020, with monthly repayments of interest and principal of $15,000. The proceeds of the mortgage of $3,000,000 was used to fund the acquisition of the Seastone Delray properties, described as follows:properties.
17 |
ETHEMA HEALTH CORPORATION
Parcel 1, Moore’s Landing according to the Plat thereof, as recorded in Plat Book 42, page 72, Public Records of Palm Beach County, Florida
Unit numbers 1 to 10, inclusive of Seastone Condominium Apartments, a Condominium, according to The Declaration of Condominium recorded on O.RT. Book 3313, Page 122 and all exhibits thereof, Public Records of Palm Beach County, Florida.NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12. | 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 10 above, have variable priced conversion rights with no fixed floor price and will reprice dependent on the share price performance over varying periods of time. This gives rise to a derivative financial liability, which was initially valued at inception of the convertible notes at $1,085,837 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:
Six months ended June 30, 2018 | ||||
Calculated stock price | $0.024 to $0.10 | |||
Risk free interest rate | 1.6% to 2.73% | |||
Expected life of convertible notes | 1 month to 5 years | |||
expected volatility of underlying stock | 15.4% to 495.3% | |||
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 |
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. | Stockholders’ |
a) | Common shares |
On February 2, 2017,March 29, 2018, the Company issued 1,200,000165,000 shares of common sharesstock to a convertible note holderLeonite Capital, LLC in termsconnection with the closing of a returnable commitment fee.financing of a Senior Secured Convertible Note. The shares are returnable to the Company if the convertible note is repaid prior to maturity, failing which the commitment fee will be earned. These shares were not accounted for as issued as the probability of the commitment fee being assessed was not probablevalued at $11,550, or certain. The convertible loan was repaid and the 1,200,000 common shares were returned to the Company, refer note 12 above.$0.07 per share on March 29, 2018.
On February 14, 2017, in terms of the acquisition of 100% of the capital stock of Cranberry Cove Holdings Ltd. (“CCH”) from Leon Developments, the Company funded a portion of the acquisition by the issuance of 60,000,000 shares of the Company’s common stock at a market value of US$0.0364 per share, totaling $2,184,000, refer note 1 and 4 above.
On May 30, 2017,April 17, 2018, the Company issued 100,000605,000 shares of common stock to Leonite Capital, LLC in connection with the closing of a financing of a Senior Secured Convertible Note. The shares to a vendor in lieu of services renderedwere valued at a market value of US$0.04 per share. $39,450 on June 30, 2018.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
b) | Warrants |
In terms of the short-term Series L Convertible notesconvertible note agreements entered into with 3 parties, asLeonite Capital, LLC, disclosed in note 1210 above, the Company awarded three yearagreed to issue warrants exercisable over 2,366,666a total of 15,583,333 shares of common stock at an exercise price of $0.03$0.10 per share.
In terms of the Series N Convertible debt issued to various accredited investors, disclosed in note 10 above, the Company agreed to issue warrants exercisable over a total of 17,500,000 shares of common stock at an exercise price of $0.12 per share.
The fair value of Warrants awarded and revalued during the six monthsyear ended June 30, 20172018 were valued at $94,620$799,004 using the Black Scholes pricing model utilizing the following weighted average assumptions:
Six months ended June 30, 2017 | ||||
Calculated stock price | $ | 0.04 | ||
Risk free interest rate | 1.48 | % | ||
Expected life of warrants (years) | 3 years | |||
expected volatility of underlying stock | 398 | % | ||
Expected dividend rate | 0 | % |
Six months ended June 30, 2018 | ||||
Calculated stock price | 0.06 TO 0.08 | |||
Risk free interest rate | 2.64 TO 2.75% | |||
Expected life of warrants (years) | 3 to 5 years | |||
expected volatility of underlying stock | 198.8 to 495.3% | |||
Expected dividend rate | 0 | % |
The movements in warrants is summarized as follows:
No. of shares | Exercise price per share | Weighted average exercise price | |||||||
Outstanding January 1, 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 |
No. of shares | Exercise price per share | Weighted average exercise price | |||||||||||
Outstanding January 1, 2016 | 6,300,000 | $0.0033 to $0.03 | $ | 0.14 | |||||||||
Granted | 19,337,409 | 0.03 | 0.0300 | ||||||||||
Forfeited/cancelled | (6,000,000 | ) | 0.15 | 0.1500 | |||||||||
Exercised | — | — | — | ||||||||||
Outstanding December 31, 2016 | 19,637,409 | $0.0033 to $0.03 | 0.0300 | ||||||||||
Granted | 2,366,666 | 0.03 | 0.0300 | ||||||||||
Forfeited/cancelled | — | — | — | ||||||||||
Exercised | — | — | — | ||||||||||
Outstanding June 30, 2017 | 22,004,075 | $0.033 to $0.03 | $ | 0.0300 |
19 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. | Stockholders’ deficit (continued) |
b) | Warrants (continued) |
The following table summarizes information about warrants outstanding at June 30, 2017:
Warrants outstanding | Warrants exercisable | ||||||||||||||||||||
Exercise price | No. of shares | Weighted average remaining years | Weighted average exercise price | No. of shares | Weighted average exercise price | ||||||||||||||||
$0.0033 | 300,000 | * | 300,000 | ||||||||||||||||||
$0.03 | 21,704,075 | 2.69 | 21,704,075 | ||||||||||||||||||
22,004,075 | 2.69 | $ | 0.03 | 22,004,075 | $ | 0.03 |
2018:
Warrants outstanding | Warrants exercisable | ||||||||
Exercise price | No. of shares | Weighted average remaining years | Weighted average exercise price | No. of shares | Weighted average exercise price | ||||
$0.0033 | 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.
All of the warrants outstanding as of June 30, 20172018 are vested. The warrants outstanding as of June 30, 20172018 have an intrinsic value of $668,123.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
$1,108,205.
Stock options |
Our board of directors adopted the GreeneStone Healthcare Corporation 2013 Stock Option Plan (the “Plan”) to promote our long- term growth and profitability by (i) providing our key directors, officers and employees with incentives to improve stockholder value and contribute to our growth and financial success and (ii) enable us to attract, retain and reward the best available persons for positions of substantial responsibility. A total of 10,000,000 shares of our common stock have been reserved for issuance upon exercise of options granted pursuant to the Plan. The Plan allows us to grant options to our employees, officers and directors and those of our subsidiaries;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, 20172018 under the Plan.
No options were issued, exercised or cancelled for the period under review.
The following table summarizes information about options outstanding as of June 30, 2017.2018.
Options outstanding | Options exercisable | Options outstanding | Options exercisable | |||||||||||||||||||||||||||
Exercise price | No. of shares | Weighted average remaining years | Weighted average exercise price | No. of shares | Weighted average exercise price | No. of shares | Weighted average remaining years | Weighted average exercise price | No. of shares | Weighted average exercise price | ||||||||||||||||||||
$0.12 | 480,000 | 2.34 | 480,000 | 480,000 | 1.34 | 480,000 | ||||||||||||||||||||||||
480,000 | 2.34 | $ | 0.12 | 480,000 | $ | 0.12 | 480,000 | 1.34 | $ 0.12 | 480,000 | $ 0.12 |
As of June 30, 2017,2018, there was no unrecognized compensation costs related to these options and the intrinsic value of the options is $0.
20 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
Segment information |
Due to the recent acquisition of the Cranberry Cove subsidiary on February 14, 2017, theThe Company has two reportable operating segments;
Rental income from the property owned by Cranberry Cove subsidiary located at 3571 Muskoka Road, #169, Bala, on which the operations of the Canadian Rehab Clinic were located prior to disposal on February 14, 2017 and subsequently leased to the purchasers of the business of the Canadian Rehab Clinic, for a period of 5 years renewable for a further three five-year periods and with an option to acquire the property at a fixed price. |
Rehabilitation Services provided to customers, during the |
The segment operating results of the reportable segments are disclosed as follows:
Three months ended June 30, 2018 | ||||||||||||
Rental Operations | In-Patient services | Total | ||||||||||
Revenues | $ | 83,031 | $ | (16,337 | ) | $ | 66,694 | |||||
Operating expenses | 45,102 | 750,366 | 795,468 | |||||||||
Operating income (loss) | 37,929 | (766,703 | ) | (728,774 | ) | |||||||
Other (expense) income | ||||||||||||
Interest income | — | (49 | ) | (49 | ) | |||||||
Interest expense | (42,845 | ) | (133,742 | ) | (176,587 | ) | ||||||
Amortization of debt discount | — | (1,339,885 | ) | (1,339,885 | ) | |||||||
Loss on change in fair value of derivative liability | — | (796,795 | ) | (796,795 | ) | |||||||
Foreign exchange movements | 18,345 | 92,283 | 110,628 | |||||||||
Net income (loss) before taxation from continuing operations | 13,429 | (2,944,891 | ) | (2,931,462 | ) | |||||||
Taxation | — | — | — | |||||||||
Net income (loss) from continuing operations | $ | 13,429 | $ | (2,944,891 | ) | $ | (2,931,462 | ) | ||||
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 | ) |
21 |
ETHEMA HEALTH CORPORATION(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
Segment information (continued) |
The segment operating results of the reportable segments are disclosed as follows:
Three months ended June 30, 2017 | ||||||||||||
Rental Operations |
| In-Patient |
| Total | ||||||||
Revenue | $ | 78,088 | $ | 324,132 | $ | 402,220 | ||||||
Operating expenditure | 106,317 | 316,782 | 423,099 | |||||||||
Operating (loss) income | (28,229 | ) | 7,350 | (20,879 | ) | |||||||
Other income (expense) | ||||||||||||
Other income | — | 63,960 | 63,960 | |||||||||
Other expense | 1,146,600 | (19,265 | ) | 1,127,335 | ||||||||
Interest income | — | — | — | |||||||||
Interest expense | (61,535 | ) | (32,068 | ) | (93,603 | ) | ||||||
Amortization of debt discount | — | (241,666 | ) | (241,666 | ) | |||||||
Derivative liability movement | — | 167,580 | 167,580 | |||||||||
Foreign exchange movements | — | (6,438 | ) | (6,438 | ) | |||||||
Net income (loss) before taxation | 1,056,836 | (60,547 | ) | 996,289 | ||||||||
Taxation | — | — | — | |||||||||
Net income (loss) | $ | 1,056,036 | $ | (60,547 | ) | $ | 996,289 |
Six months ended June 30, 2017 | ||||||||||||
Rental | In-Patient | |||||||||||
Operations | services | Total | ||||||||||
Revenue | $ | 120,125 | $ | 604,605 | $ | 724,730 | ||||||
Operating expenditure | 135,865 | 1,236,882 | 1,372,747 | |||||||||
Operating loss | (15,740 | ) | (632,277 | ) | (648,017 | ) | ||||||
Other (expense) income | ||||||||||||
Other income | — | 568,309 | 568,309 | |||||||||
Other expense | (373,274 | ) | (19,265 | ) | (392,539 | ) | ||||||
Interest income | — | 32,074 | 32,074 | |||||||||
Interest expense | (98,188 | ) | (58,432 | ) | (156,620 | ) | ||||||
Amortization of debt discount | — | (429,325 | ) | (429,325 | ) | |||||||
Derivative liability movement | — | 94,532 | 94,532 | |||||||||
Foreign exchange movements | — | (164,347 | ) | (164,347 | ) | |||||||
Net loss before taxation | (487,202 | ) | (608,731 | ) | (1,095,933 | ) | ||||||
Taxation | — | — | — | |||||||||
Net loss | $ | (487,202 | ) | $ | (608,731 | ) | $ | (1,095,933 | ) |
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 | ) | ||||
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(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
Segment information (continued) |
The operating assets and liabilities of the reportable segments at June 30, 2018, are as follows:
Rental | In-Patient | Total | Rental Operations | In-Patient services | Total | ||||||||||||||||||||
Purchase of fixed assets | $ | — | $ | 8,878 | $ | 8,878 | $ | 30,860 | $ | 10,750 | $ | 41,610 | |||||||||||||
Assets | |||||||||||||||||||||||||
Current assets | 4,795 | 593,202 | 597,997 | (11,055 | ) | 480,068 | 469,013 | ||||||||||||||||||
Non-current assets | 7,604,277 | 7,130,340 | 14,734,617 | 3,002,860 | 9,279,083 | 12,281,943 | |||||||||||||||||||
Liabilities | |||||||||||||||||||||||||
Current liabilities | (5,389,542 | ) | (1,557,380 | ) | (6,946,922 | ) | (2,177,320 | ) | (8,400,534 | ) | (10,577,854 | ) | |||||||||||||
Non-current liabilities | — | (2,989,937 | ) | (2,989,937 | ) | (4,016,836 | ) | (2,913,724) | (6,930,560 | ) | |||||||||||||||
Intercompany balances | 150,644 | (150,644 | ) | — | (771,823 | ) | 771,823 | — | |||||||||||||||||
Net asset position | $ | 2,370,174 | $ | 3,025,581 | $ | 5,395,755 | |||||||||||||||||||
Net (liability) asset position | $ | (3,974,174 | ) | $ | (783,284 | ) | $ | (4,757,458 | ) |
Net |
For the three months ended June 30, 2017 the computation of basic and diluted earnings per share is as follows:
Number of | Per share | |||||||||||
Amount | shares | amount | ||||||||||
Basic earnings per share | ||||||||||||
Net income per share from continuing operations | $ | 996,289 | 108,772,921 | $ | 0.01 | |||||||
Net loss per share from discontinued operations | (141,177 | ) | 108,772,921 | $ | (0.00 | ) | ||||||
Basic income per share | 855,112 | 108,772,921 | 0.01 | |||||||||
Effect of dilutive securities | ||||||||||||
Warrants | 11,135,387 | |||||||||||
Options | ||||||||||||
Diluted earnings per share | ||||||||||||
Net loss per share from continuing operations | 996,289 | 119,908,308 | 0.01 | |||||||||
Net income per share from discontinued operations | (141,177 | ) | 119,908,308 | (0.00 | ) | |||||||
Diluted income per share | $ | 855,112 | 119,908,308 | $ | 0.01 |
For the three and six months ended June 30, 20162018, the following options, warrants and convertible notes were excluded from the computation of basic and diluted earningsnet loss per share is as follows:
the results would have been anti-dilutive.
Amount | Number of shares | Per share amount | ||||||||||
Basic earnings per share | ||||||||||||
Net loss per share from continuing operations | $ | (197,340 | ) | 47,991,602 | $ | — | ||||||
Net income per share from discontinued operations | 266,260 | 47,991,602 | $ | — | ||||||||
Basic income per share | 68,920 | 47,991,602 | — | |||||||||
Effect of dilutive securities | ||||||||||||
Warrants | — | 1,200,950 | ||||||||||
Options | — | — | ||||||||||
Diluted earnings per share | ||||||||||||
Net loss per share from continuing operations | (197,340 | ) | 49,192,552 | — | ||||||||
Net income per share from discontinued operations | 266,260 | 49,192,552 | — | |||||||||
Diluted income per share | $ | 68,920 | 49,192,552 | $ | — |
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(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
Net |
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 | ||||||||||||||||||||||
Amount | Number of shares | Per share | ||||||||||||||||||||||
Basic earnings per share | ||||||||||||||||||||||||
Net loss per share from continuing operations | $ | (1,095,933 | ) | 93,821,728 | $ | (0.01 | ) | $ | (5,817,376 | ) | 93,838,855 | $ | (0.06 | ) | ||||||||||
Net income per share from discontinued operations | 7,412,643 | 93,821,728 | $ | 0.08 | 7,412,643 | 93,838,855 | 0.08 | |||||||||||||||||
Basic income per share | 6,316,710 | 93,821,728 | 0.07 | 1,595,267 | 93,838,855 | 0.02 | ||||||||||||||||||
Effect of dilutive securities | ||||||||||||||||||||||||
Warrants | — | 11,135,387 | — | 11,135,388 | ||||||||||||||||||||
Options | — | — | ||||||||||||||||||||||
Convertible debt | — | — | ||||||||||||||||||||||
Diluted earnings per share | ||||||||||||||||||||||||
Net loss per share from continuing operations | (1,095,933 | ) | 104,957,115 | (0.01 | ) | (5,817,376 | ) | 104,974,243 | (0.06 | ) | ||||||||||||||
Net income per share from discontinued operations | 7,412,643 | 104,957,115 | 0.07 | 7,412,643 | 104,974,243 | 0.07 | ||||||||||||||||||
Diluted income per share | $ | 6,316,710 | 104,957,115 | $ | 0.06 | |||||||||||||||||||
$ | 1,595,267 | 104,974,243 | $ | 0.01 |
For the six months ended June 30, 2016 the computation of basic and diluted earnings per share is as follows:
Amount | Number of shares | Per share amount | ||||||||||
Basic earnings per share | ||||||||||||
Net loss per share from continuing operations | $ | (231,365 | ) | 47,865,229 | $ | — | ||||||
Net income per share from discontinued operations | 443,779 | 47,865,229 | $ | — | ||||||||
Basic income per share | 212,414 | 47,865,229 | — | |||||||||
Effect of dilutive securities | ||||||||||||
Warrants | — | 1,200,950 | ||||||||||
Options | — | — | ||||||||||
Diluted earnings per share | ||||||||||||
Net loss per share from continuing operations | (231,365 | ) | 49,066,179 | — | ||||||||
Net income per share from discontinued operations | 443,779 | 49,066,179 | — | |||||||||
Diluted income per share | $ | 212,414 | 49,066,179 | $ | — |
ETHEMA HEALTH CORPORATION(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
Commitments and contingencies |
a. | Contingency related to outstanding penalties |
The Company has provided for potential US penalties of $250,000 due to noncompliance with the filing of certain required returns. The actual liability may be higher due to interest and penalties assessed by these taxing authorities.
b. |
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 for proceeds of $17,250,000 by August 31, 2018, plus any landlord funded improvements. The option to purchase increase by $750,000 per calendar month commencing on August 31, 2018. The initial base rental is $146,337 per month, plus any taxes imposed on the premises or the base rental.
The future commitment of these operating leases and the property lease are as follows:
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 |
24 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
17. | 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 10 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.
Income taxes |
The Company is not current in its tax filings for tax years 2011 to 2017 as of June 30, 2017.2018.
Subsequent events |
On July 19, 2017, Cranberry Cove Holdings, LTD. (“CCH”)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 wholly owned subsidiary closed on a loan agreementConvertible Promissory Note in the aggregate principal amount of CDN$5,500,000.$153,000. The loan is secured byNote has a first mortgage on the premises owned by CCH located at3571 Muskoka Road 169, Bala, Ontario (the “Property”). The Loanmaturity date of May 15, 2019 and bears interest at the fixedat the rate of 4.2% with a 5 year primary termnine percent per annum from the date on which the Note is issued until the same becomes due and a 25 year amortization.payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has guaranteed the Loanright 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 chief executive officer and controlling shareholder also has personally guaranteed the Loan. CCH and the Company have granted the Lendercommon stock at a general security interest in its assetsconversion price equal to secure repayment61% of the Loan.average lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion.
On August 3, 2017, the Company entered into an agreement to acquire a property at 45 West 17th Street, Riviera Beach, Florida, including the completion of the construction of a 20 bed in-patient detoxification facility and the licensing approvals to operate a detoxification facility for a total purchase consideration of $3,000,000, of which $1,000,000 of the financing is to be provided by the seller, bearing interest at 7% per annum for a 22 month period. This agreement is subject to a successful closing on or before November 17, 2017, after which date it may be cancelled by either party.
25 |
During August 2017, we repaid a total of $145,192 of the Series L convertible notes outstanding, the remaining note holders have an outstanding principal of $374,777 and has sent the Company notices of conversion at $0.03 per share.
Other than disclosed above, the Company has evaluated subsequent events through the date of the unaudited condensed consolidated financial statements were available to be issued and has concluded that no such events or transactions took place that would require disclosure herein.
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-K10- K/A for the year ended December 31, 20162017 filed with the Securities and Exchange Commission on April 17, 2017.18, 2018. 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, 2016.2017.
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, 20172018 and the three months ended June 30, 2016.2017.
Revenue
Revenues was $402,220$66,694 and $0$402,220 for the three months ended June 30, 2018 and 2017, and 2016, respectively, an increasea decrease of $402,220.$335,526 or 83.4%. The decrease is primarily due to the Company disposedadjusting its basis of its Canadian Rehab Clinicproviding against gross revenues on February 14, 2017 and simultaneously acquired the operations of Seastone of Delray.limited experience is has had with dealing with US Health care providers. Revenue includes rental income of $78,088 earned by our recently acquired Cranberry Cove subsidiary. The revenues earned for patient treatments from the Canadian Rehab Clinic have been reclassified to discontinued operations. There is no meaningful comparative data to compare our revenues.
Operating Expenses
Operating expenses was $423,099$83,031 and $171,515$78,088 for the three months ended June 30, 2018 and 2017, and 2016, respectively, anthe increase is due to the increase in base rent charged to the tenant, in terms of the lease agreement.Due to the increase of $251,584. The operations of the Canadian Rehab Clinic been reclassified to discontinued operations asrevenue reserve, based on claims experience, the business unit was sold effective February 14, 2017.
The operating expenses incurred during the prior three month period are minimal and consisted primarily of Investor relations fees of $50,000, management fees of $46,577 and professional fees of $53,545.
The operating expenses in the current three month period include the following:
Operating loss
Operating loss amounted to $20,879 and $171,515revenues for the three months ended June 30, 2017 and 2016, respectively, a decrease of $150,636, primarily due to our Seastone operations which has been profitable during the current quarter, offset by corporate operating expenses.2018 was negative.
Other income Operating Expenses
Other income
Operating expenses was $63,960$795,468 and $12,508$371,657 for the three months ended June 30, 20172018 and 2016,2017, respectively, an increase of $51,452 or 411.4%$423,811or 114.0%. Other income inThe increase is primarily due to the current period represents expected additional earnout payments on the disposal of the Canadian Rehab Clinic in February 2017. Other income in the prior period, consisted of the sale of mineral rights owned by the holding company prior to its transformation to a rehabilitation enter.following:
· | An increase in General and administrative expenses 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. |
· | An increase in management fee expense of $45,565, in the prior year, no management fee expense was charged. |
· | An increase in professional fees of $78,685, primarily due to the increase in legal activity related to the potential acquisition of the premises located at 5400, 5402, and 5410 East Avenue, West Palm Beach, Florida. |
· | An increase in salaries and wages of $34,829 due the increase in headcount related to the operations located at 5400, 5402, and 5410 East Avenue, West Palm Beach, Florida. |
Other expense
Other expenseOperating loss
Operating loss was $1,127,335$728,774 and $0a profit of $30,563 for the three months ended June 30, 2018 and 2017, respectively, an increase in loss of $1,127,335 or 100%. Other expense represents; i) an adjustment of $1,146,600$759,337, primarily due to the value ofreduction in revenue based on the Cranberry Cove property acquiredprovisions established against collectability and the corresponding reduction in the amount of the excess purchase consideration paidincreased operating expenses as additional compensation to our controlling shareholder, based on a property valuation dated June 2017; and ii) a loss of $19,265 realized on disposing of a portion of the mortgage owned by the Company in CCH, at a discount to face value.
discussed above.
Interest expense Other income
Interest expenseOther income was $93,603$0 and $7,110$1,000 for the three months ended June 30, 2018 and 2017, respectively.
26 |
Other expense
Other expense was $0 and 2016,$19,265 for the three months ended June 30, 2018 and 2017, respectively, a decrease of $19,265 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 $86,493,$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.Delray, also includes additional interest expense incurred on the convertible notes taken out during the current period.
Debt Discount
Debt discount was $241,666$1,339,885 and $33,262$241,666 for the three months endedJune 30, 20172018 and 2016,2017, respectively, an increase of $208,404$1,098,219 or 100%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 December 2016 and January 2017 and the amortizationcurrent period, The Company raised a total of the fair value$1,950,000 of the beneficial conversion feature ofnet proceeds from convertible notes issued to note holders during February 2017 and June 2017, the fair value of the warrants and the beneficial conversion feature are amortized over a six to nine month period, the term of the underlying convertible securities.current period.
Derivative liability movement
Derivative liability movement was $167,580$(796,795) and $0$167,580 for the three months ended June 30, 2018 and 2017, and 2016, respectively, an increasea net change of $167,580 or 100%.$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 in February 2017during the current period and June 2017. The February note was prepaid in May 2017 and an additional note was issued in June 2017. The $33,262, incurred in the prior period represents the amortization of the value of warrants and original issue discount attached to a short-term loan.year.
Foreign exchange movements
Foreign exchange movements were $(6,438)$110,628 and $2,039$(6,438) for the three months ended June 30, 2018 and 2017, respectively, and 2016, respectively, represents the realized exchangepredominantly unrealized gains and losses on intercompany liabilities and gains, respectively, on monetary assets and liabilities settled during each period as well as mark to market adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars.of our various subsidiaries.
Net (loss)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.
The net (loss) income from discontinued operations
Net loss
Net loss was $(141,177)$(2,931,462) and $266,260,$(303,006) for the three months ended June 30, 20172018 and 2016,2017, respectively, an increase of $2,628,456, primarily due to the increase in lossoperating expenses, the net movement in derivative liabilities and the amortization of $407,437, or 153.0%. The current period loss is made up of professional fees, penalties and a foreign currency loss realized on the remaining assets in the discontinued operation. The discontinued operation has significant receivables from the Group and from the disposal of the rehab clinic, the Canadian Dollar has strengthened against the US Dollardebt discount during the current period, giving rise to the foreign currency loss.discussed above.
The prior income from discontinued operations represents the trading operations of the Canadian Rehab clinic.
26
Net income
Net income was $855,112 and $68,920 for the three months ended June 30, 2017 and 2016, respectively, an increase of $786,192 or 1,140.7%, primarily due to the $1,146,600 adjustment of the value of the Cranberry Cove property acquired and the corresponding reduction in the amount of the excess purchase consideration paid as additional compensation to our controlling shareholder, the mark-to- market movement in the derivative liability, offset by interest expense and debt discount incurred during the current period.
For the six months ended June 30, 20172018 and the six months ended June 30, 2016.2017.
Revenue
Revenues was $724,730$179,996 and $0$724,730 for the six months ended June 30, 2018 and 2017, and 2016, respectively, an increasea decrease of $724,730.$544,734 or 75.2%. The decrease is primarily due to the Company disposedadjusting its basis of its Canadian Rehab Clinicproviding against gross revenues on February 14, 2017 and simultaneously acquired the operations of Seastone of Delray.limited experience is has had with dealing with US Health care providers. Revenue includes rental income of $120,125 earned by our recently acquired Cranberry Cove subsidiary. The revenues earned for patient treatments from the Canadian Rehab Clinic have been reclassified to discontinued operations. There is no meaningful comparative data to compare our revenues.
Operating Expenses
Operating expenses was $1,372,747$167,143 and $206,242$120,125 for the six months ended June 30, 2018 and 2017, the increase is due to the increase in base rental and 2016, respectively, an increase of $1,166,505. The operations of the Canadian Rehab Clinic been reclassified to discontinued operations as the business unit was sold effective February 14, 2017.
The operating expenses incurred during the prior six month period consisted primarily of Investor relations fees of $57,100, management fees of $46,577lease agreement being in operation for only four and professional fees of $75,045.
The operating expensesa half months in the current six month period include the following:
Operating lossprevious period.
Operating loss amounted to $648,017Expenses
Operating expenses were $1,327,315 and $206,242$1,297,835 for the six months ended June 30, 20172018 and 2016,2017, respectively, an increase of $441,775$29,480 or 214.2%,2.3%. The increase is primarily due to the additional professional fees incurred on the corporate restructure, management fees paid and depreciation expense during the current period.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. |
Other income
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Other incomeOperating loss
Operating loss was $568,309$1,147,319 and $12,508$573,105 for the six months ended June 30, 20172018 and 2016,2017, respectively, an increase in loss of $555,801. Other income$574,214, primarily due to the reduction in the current period consists of the reversal of a provision raised against a receivablerevenue based on the disposalprovisions established against collectability of the Endoscopy Clinic in prior years amounting to $472,368, the receivable was assigned to Leon Developmentsreceivables as part of the purchase consideration paid on the acquisition of Cranberry Cove and an accrual of $94,940 relating to expected proceeds on the earnout provision of the Canadian Rehab Clinic disposal.discussed above.
Other expense income
Other expenseincome was $392,539$0 and $0$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 2016,$5,093,954 for the six months ended June 30, 2018 and 2017, respectively, an increasea decrease of $392,539$5,093,954 or 100%100.0%. Other expense consists of; i) $373,274 of the excess of the purchase price paid over the fair marketcarry 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; and ii) $19,265 represents the loss realized on disposing of a portion of the mortgage owned by the Company in CCH, at a discount to face value.Subsidiary
Interest income
Interest income of $32,074 consists primarily of interest earned on the receivable from the sale of our Endoscopy Clinic in prior years. The interest due on this receivable was reversed in prior periods due to uncertainty as to the collectability of this amount. The Receivable was assigned to Leon Developments as part of the purchase consideration for Cranberry Cove Holdings Ltd.
Interest expense
Interest expense was $156,620$347,038 and $7,103$156,620 for the six months ended June 30, 20172018 and 2016,2017, respectively, an increase of $149,517,$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.Delray, also includes additional interest expense incurred on the convertible notes taken out during the current period.
Debt Discount
Debt discount was $429,325$2,092,834 and $33,262$429,325 for thesixmonths endedJune 30, 20172018 and 2016,2017, respectively, an increase of $396,063. The charge during the current period$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 December 2016 and January 2017 and the amortizationcurrent period, The Company raised a total of the fair value$2,550,000 of the beneficial conversion feature ofnet proceeds from convertible notes issued to note holders during February 2017 and June 2017, the fair value of the warrants and the beneficial conversion feature are amortized over a six to nine month period, the term of the underlying convertible securities. The $33,262, incurred in the prior period represents the amortization of the value of warrant and original issue discount attached to a short-term loan.current period.
Derivative liability movement
Derivative liability movement was $94,532$(808,951) and $0$94,532 for the six months ended June 30, 2018 and 2017, and 2016, respectively, an increasea net change of $94,532 or 100%.$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 in February 2017during the current period and June 2017. The February note was prepaid in May 2017 and an additional note was issued in June 2017.the prior year.
Foreign exchange movements
Foreign exchange movements were $(164,347)$248,524 and $2,734$(164,347) for the six months ended June 30, 2018 and 2017, respectively, and 2016, respectively, represents the realized exchangepredominantly unrealized gains and losses on intercompany liabilities and gains, respectively, on monetary assets and liabilities settled during each period as well as mark to market adjustments on monetary assets and reflected on the balance sheet and denominated in Canadian Dollars.of our various subsidiaries.
Net incomeloss from discontinued operations
The net income from discontinued operations wasof $0 and $7,412,643 and $443,779, for the six months ended June 30, 2018 and 2017, and 2016, respectively an increaseconsists primarily of $6,968,864.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.
The current periodNet (loss) income is primarily made up as follows:
The prior period income represents the operating income of the discontinued Canadian Rehab Clinic of $474,759, other income of $21,042 on insurance proceeds received for fire damage, interest expense of $76,743, primarily related to outstanding tax liabilities which have now been settled and net foreign exchange gains of $24,721.
Net income
Net (loss) income was $6,316,710$(4,147,618) and $212,414a net income $1,595,267 for the six months ended June 30, 20172018 and 2016,2017, respectively, an increase in loss of $6,104,296,$5,742,885, primarily due to the profitgain realized on the saledisposal of the Canadian Rehab clinic of $7,494,828,Center in the prior period, offset by the compensation charge of $373,274 relatingincrease in other expenses related to the acquisitionexcess purchase price paid over the assets under common control of Cranberry cove andour CEO, in the prior period, offset by the increase in the amortization of $429,325 of debt discount duringand 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, 20172018 and December 31, 2016.2017.
June 30, 2017 | December 31, 2016 | Increase (decrease) | ||||||||||||||||||||||
June 30, 2018 | December 31, 2018 | Change | ||||||||||||||||||||||
Current Assets | $ | 597,997 | $ | 275,575 | $ | 322,422 | $ | 469,013 | $ | 334,619 | $ | 134,394 | ||||||||||||
Current Liabilities | (6,946,922 | ) | (3,637,111 | ) | (3,309,811 | ) | (10,577,854 | ) | (6,860,178 | ) | (3,717,676 | ) | ||||||||||||
Working capital Deficit | $ | (6,348,925 | ) | $ | (3,361,536 | ) | $ | (2,987,389 | ) | $ | (10,108,841 | ) | $ | (6,525,559 | $ | (3,583,282 | ) |
The Company realized proceedsborrowed an additional $2,550,000 and repaid $433,000 of CDN$8,500,000 (US$6,479,400) fromthis during the disposal of its Canadian Rehab Clinic in February 2017. These proceeds were used to settle outstanding tax liabilities of CDN$3,429,105 (US$2,621,208) and to purchase the property and assets associated with the Seastone of Delray operations on February 14, 2017 amounting to US$2,960,000, the remaining funds were usedcurrent period, for general working capital purposes and to fundpay deposits on real estate, the restructuring transactions.
The Company borrowed an additional $294,500overall increase in termsconvertible loans also includes the amortization of convertible short-term notes during the period Januarydebt discount amounting to June 2017, of which $130,000 was paid$2,093,000 during the current period. A further $111,554 was realized on the sale of portion of the mortgage owned by the Holding Company on the Cranberry Cove properties. The proceeds realized were used to repay $85,613 of the mortgage liability and the balance for general working capital purposes. Subsequent to June 30, 2017, the Company raised an additional CDN$5,500,000 mortgage to repay the current Cranberry Cover mortgages and to fund working capital and reduce other debt. Weestimate that the Company will require an additional $1,000,000$3,000,000 for working capital purposes. The company may be required 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 high and remains unchanged from the prioryear.
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/A,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, 20172018 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.
WeA 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 regulatoryself-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, 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.
TheOn March 29, 2018, the Company issued 1,200,000 returnable165,000 shares toof common stock in connection with the closing of a note holder asfinancing of a commitment fee should the note not be repaid prior to maturity. These shares are not recorded as issued until such time as the commitment fee is probable or likely to occur.Senior Secured Convertible Note. The note was repaid on May 26, 2017 and the shares were returned to the Company.valued at $11,550, or $0.07 per share.
On February 14, 2017,April 17, 2018, the Company issued 60,000,000605,000 shares to Leon Developments as purchase consideration forof common stock in connection with the acquisitionclosing of its wholly owned subsidiary Cranberry Cove Holdings Ltd.
On May 30, 2017, the Company issued 100,000 commona financing of a Senior Secured Convertible Note. The shares to a vendor for services rendered.were valued at $39,450.
Item 3. Defaults upon senior securities
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
Not applicable.
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Item 6. Exhibits
Exhibit No.
Description
31.1 | Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002 * |
32.1 | Certification 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: September 15, 2017May 20, 2018
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.
Name | Position | Date |
/s/Shawn E. Leon | Chief Executive Officer (Principal Executive Officer), |
May 20, 2018 |
Shawn Leon | Chief Financial Officer (Principal Financial Officer), President and Director | |
/s/ John O’Bireck | Director | |
John O’Bireck | ||
/s/ Gerald T. Miller | Director | |
Gerald T. Miller |
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