NOTES
TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
Ethema
Health Corporation (the “Company”) was incorporated under the laws of the state of Colorado, USA, on April 1, 1993.
Effective April 4, 2017, the Company changed its name to Ethema Health Corporation and prior to that, on May 2012, the Company
had changed its name to GreeneStone Healthcare Corporation from Nova Natural Resources Corporation. As of June 30, 2017, the
Company owned 100% of the outstanding shares of GreeneStone Clinic Muskoka Inc., incorporated in 2010 under the laws of the Province
of Ontario, Canada; Cranberry Cove Holdings Ltd., incorporated on January 9, 2004 under the laws of the Province of Ontario,
Canada. and Seastone Delray Healthcare, LLC, incorporated on May 17, 2016 under the laws of Florida, USA; and Delray Andrews
RE, LLC, incorporated on May 17, 2016 under the laws of Florida, USA.
During
December 2016, the Company obtained a license to operate and provide addiction treatment healthcare services in Florida, USA.
The company commenced operations under this license with effect from January 2017.
On
February 14, 2017, the Company completed a series of transactions (referred to collectively as the “Restructuring Transactions”),
including a Share Purchase Agreement (the “SPA”) whereby the Company acquired 100% of the stock of Cranberry Cove
Holdings Ltd., which holds the real estate on which the Company’s Rehabilitation Clinic (“the Canadian Rehab Clinic”)
operates, an asset purchase agreement (the “APA”) and lease (the “Lease”) whereby the Company sold all
of the Canadian Rehab Clinic business assets and leased the real estate to the buyer, and a real estate purchase agreement and
asset purchase agreement whereby the Company purchased the real estate and business assets of Seastone Delray (the “Florida
Purchase”).
The
Share Purchase Agreement
Under
the SPA, the Company acquired 100% of the stock of Cranberry Cove Holdings Ltd. (“CCH”) from Leon Developments Ltd.
(“Leon Developments”), a company wholly owned by Shawn E. Leon, who is the President, CEO, and CFO of the Company
(“Mr. Leon”). CCH owns the real estate on which the Canadian Rehab Clinic is located. The total consideration paid
by the Company was CDN$3,517,062, including the assumption of certain liabilities of CCH, which was funded by the assignment to
Leon Developments of certain indebtedness owing to the Company in the amount of CDN$659,918, and the issuance of 60,000,000 shares
of the Company’s common stock to Leon Developments, valued at US$0.0364 per share.
The
Asset Purchase Agreement and Lease
Under
the APA, the assets of the Canadian Rehab Clinic were sold by the Company, through its subsidiary, GreeneStone Clinic Muskoka
Inc. (“Muskoka”), to Canadian Addiction Residential Treatment LP (the “Purchaser”), for a total consideration
of CDN$10,000,000, plus an additional performance payment of up to CDN$3,000,000 as a performance payment to be received in 2019
if certain clinic performance metrics are met. The Purchaser completed the sale with cash proceeds to the Company of CDN$10,000,000,
of which CDN$1,500,000 will remain in escrow for up to two years to cover indemnities given by the Company. The proceeds of the
Muskoka clinic asset sale were used to pay down certain tax debts and operational costs of the Company and to fund the Florida
Purchase, mentioned below.
Through
the APA, substantially all of the assets of the Canadian Rehab Clinic were sold, leaving Ethema with only the underlying clinic
real estate, which the Company, through its newly acquired subsidiary, CCH concurrently leased to the Purchaser. The Lease is
a triple net lease and provides for a five (5) year primary term with three (3) five year renewal options, annual base rent for
the first year at CDN$420,000 with annual increases, an option to tenant to purchase the leased premises and certain first refusal
rights.
The
Florida Purchase
Immediately
after closing on the sale of the assets of the Canadian Rehab Clinic, the Company closed on the acquisition of the business
and real estate assets of Seastone Delray pursuant to certain real estate and asset purchase agreements This business is
operated through its wholly owned subsidiary Seastone. The purchase price for the Seastone assets was US$6,070,000 financed
with a purchase money mortgage of US$3,000,000, and US$3,070,000 in cash.
ETHEMA
HEALTH CORPORATION
(formerly
Greenstone Healthcare Corporation)
NOTES
TO THE UNAUDITED CONDENSED CONSOLDATED 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 full year. The balance sheet
at December 31, 2016 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.
|
2.
|
Summary of Significant Accounting
Policies
|
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, its subsidiary. 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.
|
|
●
|
Equity at historical rates.
|
|
●
|
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’
deficit as a component of accumulated other comprehensive income or loss. Therefore, translation adjustments are not included
in determining net income (loss) but reported as other comprehensive income (loss).
For
foreign currency transactions, the Company translates these amounts to the Company’s functional currency at the exchange
rate effective on the invoice date. If the exchange rate changes between the time of purchase and the time actual payment is made,
a foreign exchange transaction gain or loss results which is included in determining net income for the period.
The
relevant translation rates are as follows: For the six months ended June 30, 2017; a closing rate of CAD$1.0000 equals US$0.7706
and an average exchange rate of CAD$1.0000 equals US$0.7437.
|
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
|
2.
|
Summary of Significant Accounting
Policies (continued)
|
The
Company has two operating segments from which it derives revenues, i) rental income from leasing of a rehabilitation facility
to third parties and ii) in-patient revenues for rehabilitation services provided to customers. Revenue is recognized as follows:
In
terms of the lease agreement entered into, on a monthly basis as long as the facility is utilized by the tenant
The
customers have been treated and provided with services by the Company; there is clear evidence that an arrangement exists;
the amount of revenue and related costs can be measured reliably; and it is probable that the economic benefits associated
with the transaction will flow to the Company.
In
particular, the Company recognizes 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, the
FASB issued Accounting Standards Update No. ("ASU'') 2017-09, Compensation – Stock Compensation, an amendment to Topic
718. 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:
|
1.
|
The
fair value (or calculated value or intrinsic value, if such an alternative measurement
method is used) of the modified award is the same as the fair value (or calculated value
or intrinsic value, if such an alternative measurement method is used) of the original
award immediately before the original award is modified. If the modification does not
affect any of the inputs to the valuation technique that the entity uses to value the
award, the entity is not required to estimate the value immediately before and after
the modification.
|
|
2.
|
The
vesting conditions of the modified award are the same as the vesting conditions of the
original award immediately before the original award is modified.
|
|
3.
|
The
classification of the modified award as an equity instrument or a liability instrument
is the same as the classification of the original award immediately before the original
award is modified.
|
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
|
2.
|
Summary of Significant Accounting
Policies (continued)
|
|
e)
|
Recent accounting
pronouncements (continued)
|
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:
|
a)
|
Controls
or has the ability to modify or approve the services that the operating entity must provide
with the infrastructure, to whom it must provide them, and at what price
|
|
b)
|
Controls,
through ownership, beneficial entitlement, or otherwise, any residual interest in the
infrastructure at the end of the term of the arrangement.
|
In a service concession
arrangement within the scope of Topic 853, the operating entity should not account for the infrastructure as a lease or as property,
plant, and equipment. An operating entity should refer to other Topics to account for various aspects of a service concession
arrangement. For example, an operating entity should account for revenue relating to construction, upgrade, or operation services
in accordance with Topic 605, Revenue Recognition, or Topic 606, Revenue from Contracts with Customers.
The amendments in
this Update apply to the accounting by operating entities for service concession arrangements within the scope of Topic 853. These
updates are effective when the Company adopts the updates to Topic 606. The amendments proposed in this ASU are not expected to
have an impact on our consolidated financial statements.
Any new accounting
standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are
not expected to have a material impact on the financial statements upon adoption.
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, 2017 and December 31, 2016.
Credit
risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge
an obligation. Financial instruments that subject the Company to credit risk consist primarily of accounts receivable.
Credit
risk associated with accounts receivable of Seastone of Delray is mitigated as only a percentage of the revenue billed to health
insurance companies is recognized as income until such time as the actual funds are collected. The revenue is concentrated amongst
several health insurance companies located in the US.
In
the opinion of management, credit risk with respect to accounts receivable is assessed as low.
Liquidity
risk is the risk the Company will not be able to meet its financial obligations as they fall due. The Company is exposed to liquidity
risk through its working capital deficiency of $6,348,925 and accumulated deficit of $14,665,204. As disclosed in note 6, 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.
ETHEMA
HEALTH CORPORATION
(formerly
Greenstone Healthcare Corporation)
NOTES
TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
2.
|
Summary of Significant Accounting Policies (continued)
|
|
f)
|
Financial instruments (continued)
|
Market risk is the risk
that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk
comprises of three types of risk: interest rate risk, currency risk, and other price risk. The Company is exposed to interest rate
risk and currency risk.
Interest rate risk is
the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest
rates. The Company is exposed to minimal interest rate risk on its bank indebtedness as there is a balance owing of $19,511 as
of June 30, 2017. This liability is based on floating rates of interest that have been stable during the current reporting period.
In the opinion of management, interest rate risk is assessed as low, not material and remains unchanged from the prior year.
Currency risk is the risk that
the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The
Company is subject to currency risk as its subsidiaries 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, a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in
an approximate $5,900 increase or decrease in the Company’s after tax net income from operations. The Company has not entered
into any hedging agreements to mediate this risk. In the opinion of management, currency risk is assessed as low, material and
remains unchanged from the prior year.
Other price risk is the
risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other
than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual
financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. In the opinion
of management, the Company is not exposed to this risk and remains unchanged from the prior year.
|
g)
|
Derivative instrument liability
|
The Company accounts for
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 for
changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedging relationships and the
types of relationships designated are based on the exposures hedged. At June 30, 2017, the Company had a derivative liability amounting
to $128,968.
ETHEMA
HEALTH CORPORATION
(formerly
Greenstone Healthcare Corporation)
NOTES
TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
2.
|
Summary of Significant Accounting
Policies (continued)
|
|
h)
|
Convertible Instruments
|
The Company evaluates and
accounts 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 risks of the embedded
derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the
hybrid instrument that embodies both the embedded derivative instrument 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 Meaning 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 notes for the intrinsic value of conversion options embedded in debt instruments based upon
the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective
conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt
to their earliest date of redemption. The Company also records when necessary deemed dividends 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 transaction and the effective conversion price embedded in the note.
On February 14, 2017, in
terms of the details outlined in note 1 above, the Company disposed of the business and certain assets of its Canadian Rehab Clinic
for gross proceeds of CDN$10,000,000, a total of CDN$1,500,000 of the gross proceeds is being held in escrow for up to two years,
in addition there is an earnout payment of up to CDN$3,000,000 to be received in 2019, if certain clinic performance metrics are
met, see note 8 below.
The proceeds realized from
the sale of the Canadian Rehab Clinic were used to settle outstanding tax liabilities, refer note 11 below, and to acquire the
business of Seastone of Delray, refer note 5 below.
The proceeds realized on disposal
have been allocated as follows:
|
|
Amount
|
|
|
|
|
|
Proceeds on disposal
|
|
$
|
7,644,000
|
|
|
|
|
|
|
Assets sold:
|
|
|
|
|
Accounts receivable
|
|
|
113,896
|
|
Plant and equipment
|
|
|
109,075
|
|
|
|
|
222,971
|
|
Liabilities assumed by purchaser
|
|
|
|
|
Deferred revenue
|
|
|
(73,799
|
)
|
|
|
|
|
|
Net assets and liabilities sold
|
|
|
149,172
|
|
|
|
|
|
|
Net profit realized on disposal
|
|
$
|
7,494,828
|
|
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED
FINANCIAL STATEMENTS
|
4.
|
Acquisition of subsidiary
|
On February 14, 2017, the
Company acquired 100% of the equity of CCH, from Leon Developments, a company wholly owned by our CEO. The total consideration
paid by the Company was CDN$3,517,062, including the assumption of certain liabilities of CCH, which was funded by the assignment
to Leon Developments of certain indebtedness owing to the Company in the amount of CDN$659,918 (US$504,442) on the disposal of
a subsidiary, 1816191 Ontario, which principal amount had previously been fully provided for during 2015; and the issuance
of 60,000,000 shares of the Company’s common stock at US$0.0364 per share for proceeds of $2,184,000.
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 $1,146,600 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
|
|
|
5.
|
Acquisition of the business of Seastone of Delray
|
The Company, utilized a
portion of the proceeds realized on the sale of the Canadian Rehab Clinic to acquire certain assets of Seastone of Delray.
The Company obtained its
own license to run a rehabilitation Clinic in Florida in December 2016 and began operations, through its wholly owned subsidiary,
Seastone of Delray, LLC, effective January 2017.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED
FINANCIAL STATEMENTS
|
5.
|
Acquisition of the business of Seastone of Delray (continued)
|
The assets acquired were as follows:
|
|
Amount
|
|
|
|
|
|
Purchase price paid:
|
|
|
|
|
Cash paid to seller
|
|
$
|
2,960,000
|
|
Deposits previously paid to seller
|
|
|
110,000
|
|
Mortgage liability funds
|
|
|
3,000,000
|
|
|
|
|
6,070,000
|
|
Assets acquired:
|
|
|
|
|
Property
|
|
|
4,410,000
|
|
Furniture and fixtures
|
|
|
80,000
|
|
Intangibles - to be classified
|
|
|
1,438,525
|
|
Receivables
|
|
|
141,475
|
|
|
|
$
|
6,070,000
|
|
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, the Company has a working capital deficiency of $6,348,925 and accumulated deficit of $14,665,204. 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; however, there can be no assurance the Company will be successful
in these efforts.
|
7.
|
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 and for the three and six month period ended
June 30, 2017 and 2016. Refer note 3 above.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED
FINANCIAL STATEMENTS
|
7.
|
Discontinued Operations (continued)
|
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
|
|
|
8.
|
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
8.
|
Due
from sale of subsidiary (continued)
|
On
February 14, 2017, the Company sold its Canadian Rehab Clinic for gross proceeds of CDN$10,000,000, of which CDN$1,500,000 (US$1,155,900)
has been retained in an escrow account for a period of up to two years in order to guarantee the warranties provided by the Company
in terms of the APA. In addition, the Company may earn up to an additional CDN$3,000,000 as a performance payment based on the
attainment of certain clinic performance metrics. 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.
9.
|
Property,
plant and equipment
|
Property,
plant and equipment consists of the following:
|
|
June
30,
2017
|
|
|
December
31,
2016
|
|
|
|
Cost
|
|
|
Amortization
and Impairment
|
|
|
Net
book value
|
|
|
Net
book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
$
|
12,124,997
|
|
|
$
|
(176,770
|
)
|
|
$
|
11,948,227
|
|
|
$
|
—
|
|
Furniture and fixtures
|
|
|
80,000
|
|
|
|
(9,000
|
)
|
|
|
71,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,204,997
|
|
|
|
(185,770
|
)
|
|
$
|
12,019,227
|
|
|
$
|
—
|
|
Depreciation
expense for the three months ended June 30, 2017 and 2016 was $125,340 and $0, respectively, and for the six months ended June
30, 2017 and 2016 was $182,406 and $0, 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.
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 $147,027 (CDN$190,800) in Greenestone Muskoka which has not
been settled as yet.
|
|
●
|
The
Company has assets and operates businesses in Canada and is required to disclose these
operations to the US taxation authorities, the requisite disclosure has not been made.
Management has reserved the maximum penalty due to the IRS in terms of non-disclosure.
This noncompliance with US disclosure requirements is currently being addressed. An amount
of $250,000 has been accrued for any potential exposure the Company may have.
|
ETHEMA
HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL
STATEMENTS
12.
|
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
|
|
Labrys
Fund, LP
On
February 2, 2017, the Company entered into a Securities Purchase Agreement with LABRYS FUND LP, in terms of the agreement the
Company borrowed $110,000 in terms of an unsecured convertible promissory note with a maturity date of August 2, 2017. The note
bears interest at a rate of 8% per annum. The note is only convertible upon a repayment default, at the lower of 60% of the lowest
traded price over the preceding 30 day trading period prior to the issuance of this note or 60% of the lowest traded price 30
days prior to the conversion date. The Company issued 1,200,000 common shares to the note holder as a commitment fee which returnable
shares will be returned to the company if fully repaid prior to August 2, 2017.
On
May 26, 2017, the Company repaid the note for gross proceeds of $112,744, including interest thereon of $2,744. The
1,200,000 commitment fee shares were returned to the Company.
Power
Up Lending Group LTD
On
June 19, 2017, the Company, entered into a Securities Purchase Agreement with Power Up Lending Group Ltd., pursuant to which the
Company issued to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $113,500. The Note has a maturity
date of March 20, 2018 and bears interest at the at the rate of eight percent per annum from the date on which the Note is issued
until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall
have the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at
any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following
the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the average lowest
closing bid prices of the Company’s common stock for the ten trading days prior to conversion. The 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
The
Company entered into Series L Convertible Securities Purchase Agreements with 8 individuals on December 30, 2016. In terms of
these agreements, the Company borrowed an aggregate principal amount of $468,969 in terms of a senior ranking convertible promissory
note with a maturity date six months from the issue date and bearing interest at 0% per annum. The notes are convertible at the
option of the holder into shares of common stock of the Company at a conversion price of $0.03 per share, subject to certain recapitalization
adjustments. On December 30, 2016, it was determined that the beneficial conversion feature related to the discounted note and
warrant issuances amounting to $218,711 would be amortized over the life of the loans.
During
January 2017, the Company borrowed a further aggregate principal amount of $71,000 in terms of three senior ranking convertible
promissory notes with a maturity date six months from the issue date and bearing interest at 0% per annum. The notes are convertible
at the option of the holder into shares of common stock of the Company at a conversion price of $0.03 per share, subject to certain
recapitalization adjustments. In January 2017, it was determined that the beneficial conversion feature related to the discounted
note and warrant issuances amounting to $104,793 would be amortized over the life of the loans.
ETHEMA
HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL
STATEMENTS
12.
|
Short-term
Convertible Notes (continued)
|
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 of common stock at an exercise price of $0.03, subject to certain
recapitalization adjustments, per share, expiring between January 16 and January 17, 2020. (Refer note 16 (b) below).
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.
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
|
|
14.
|
Related
Party Transactions
|
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 CONSOLDATED FINANCIAL
STATEMENTS
14.
|
Related
Party Transactions (continued)
|
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.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
—
|
|
Seastone of Delray
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
5.0
|
%
|
|
February 13, 2020
|
|
|
2,989,937
|
|
|
|
5,480
|
|
|
|
2,995,417
|
|
|
|
—
|
|
|
|
|
|
|
|
|
$
|
6,217,478
|
|
|
$
|
7,143
|
|
|
$
|
6,224,621
|
|
|
$
|
—
|
|
Disclosed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,234,684
|
|
|
$
|
—
|
|
Long-term portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,989,937
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,224,621
|
|
|
$
|
—
|
|
ETHEMA
HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL
STATEMENTS
15.
|
Loans
payable (continued)
|
The
aggregate amount outstanding is payable as follows:
|
|
|
Amount
|
|
|
|
|
|
|
2017
|
|
|
$
|
3,234,684
|
|
2018
|
|
|
|
—
|
|
2019
|
|
|
|
—
|
|
2020
|
|
|
|
2,989,937
|
|
Total
|
|
|
$
|
6,224,621
|
|
Cranberry
Cove Holdings
The
first mortgage with an aggregate principal amount outstanding of CDN$3,500,000, including late charges, interest and penalties
of CDN$165,057 for a gross aggregate amount outstanding of CDN$3,663,380, over the Cranberry Cove Holdings properties is secured
by the property located at 3571 Muskoka Road, #169, Bala, described as PT LT 15 CON F Medora PT1 35R5958, PT 2 &3 35R11290,
Muskoka Lakes. The mortgage bears interest at the rate of 8% per annum on the aggregate principal outstanding of $3,500,000 and
matures on August 14, 2017, with monthly interest payments of $23,118 (CDN 30,000).
During
March 2017, the Company made a principal payment of CDN$100,000 on the first mortgage.
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:
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.
16.
|
Stockholders’
equity (deficit)
|
On February 2, 2017, the Company issued 1,200,000 common shares to a convertible note holder in terms
of a returnable commitment fee. 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 probable or certain. The convertible loan was repaid and the 1,200,000 common shares were returned to the
Company, refer note 12 above.
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, the Company issued 100,000 common shares to a vendor in lieu of services rendered at a market value of US$0.04 per
share.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED
FINANCIAL STATEMENTS
|
16.
|
Stockholders’ equity (deficit) (continued)
|
In
terms of the short-term Series L Convertible notes entered into with 3 parties, as disclosed in note 12 above, the Company awarded
three year warrants exercisable over 2,366,666 shares of common stock, at an exercise price of $0.03 per share.
The
fair value of Warrants awarded during the six months ended June 30, 2017 were valued at $94,620 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
|
%
|
The
movements in warrants is summarized as follows:
|
|
|
No. of shares
|
|
|
Exercise price
per share
|
|
|
Weighted
average
exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2016
|
|
|
|
6,300,000
|
|
|
|
$0.0033 to $0.03
|
|
|
$
|
0.14
|
|
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
|
|
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
|
|
|
*
|
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, 2017 are vested. The warrants outstanding as of June 30, 2017 have an intrinsic value
of $668,123.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES
TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
16.
|
Stockholders’ equity (deficit) (continued)
|
Our
board of directors adopted the GreeneStone Healthcare Corporation 2013 Stock Option Plan (the “Plan”) to promote our
long- term growth and profitability by (i) providing our key directors, officers and employees with incentives to improve stockholder
value and contribute to our growth and financial success and (ii) enable us to attract, retain and reward the best available persons
for positions of substantial responsibility. A total of 10,000,000 shares of our common stock have been reserved for issuance
upon exercise of options granted pursuant to the Plan. The Plan allows us to grant options to our employees, officers and directors
and those of our subsidiaries; provided that only our employees and those of our subsidiaries may receive incentive stock
options under the Plan. We have granted a total of 480,000 options as of June 30, 2017 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.
|
|
|
Options outstanding
|
|
|
Options exercisable
|
|
Exercise price
|
|
|
|
No. of shares
|
|
|
Weighted
average
remaining
years
|
|
|
Weighted
average
exercise price
|
|
|
No. of shares
|
|
|
Weighted
average
exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.12
|
|
|
|
480,000
|
|
|
|
2.34
|
|
|
|
|
|
|
|
480,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480,000
|
|
|
|
2.34
|
|
|
$
|
0.12
|
|
|
|
480,000
|
|
|
$
|
0.12
|
|
As
of June 30, 2017, there was no unrecognized compensation costs related to these options and the intrinsic value of the options
is $0.
Due to the recent acquisition
of the Cranberry Cove subsidiary on February 14, 2017, the Company has two reportable operating segments;
|
i.
|
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.
|
|
ii.
|
Rehabilitation Services provided to customers, during the six months ended June 30, 2017, these services were provided to customers at our Seastone of Delray business acquired on February 14, 2017. The Rehabilitation services provided by our Canadian Rehab Center for the six months ended June 30, 2017 and 2016 are reported under discontinued operations and have not been reported as part of the Segment Information.
|
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
17.
|
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
services
|
|
|
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
|
)
|
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
17.
|
Segment information (continued)
|
The operating assets and liabilities
of the reportable segments are as follows:
|
|
Rental
Operations
|
|
|
In-Patient
services
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
$
|
|
—
|
|
|
$
|
8,878
|
|
|
$
|
8,878
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
4,795
|
|
|
|
593,202
|
|
|
|
597,997
|
|
Non-current assets
|
|
|
7,604,277
|
|
|
|
7,130,340
|
|
|
|
14,734,617
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(5,389,542
|
)
|
|
|
(1,557,380
|
)
|
|
|
(6,946,922
|
)
|
Non-current liabilities
|
|
|
—
|
|
|
|
(2,989,937
|
)
|
|
|
(2,989,937
|
)
|
Intercompany balances
|
|
|
150,644
|
|
|
|
(150,644
|
)
|
|
|
—
|
|
Net asset position
|
|
$
|
2,370,174
|
|
|
$
|
3,025,581
|
|
|
$
|
5,395,755
|
|
|
18.
|
Net income (loss) per common share
|
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 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
|
|
$
|
(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
|
|
|
$
|
—
|
|
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
|
18.
|
Net income (loss) per common share (continued)
|
For the six months ended
June 30, 2017 the computation of basic and diluted earnings per share is as follows:
|
|
Amount
|
|
|
Number of
shares
|
|
|
Per
share
amount
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share from continuing operations
|
|
$
|
(1,095,933
|
)
|
|
|
93,821,728
|
|
|
$
|
(0.01
|
)
|
Net income per share from discontinued operations
|
|
|
7,412,643
|
|
|
|
93,821,728
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
|
6,316,710
|
|
|
|
93,821,728
|
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
—
|
|
|
|
11,135,387
|
|
|
|
|
|
Options
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share from continuing operations
|
|
|
(1,095,933
|
)
|
|
|
104,957,115
|
|
|
|
(0.01
|
)
|
Net income per share from discontinued operations
|
|
|
7,412,643
|
|
|
|
104,957,115
|
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share
|
|
$
|
6,316,710
|
|
|
|
104,957,115
|
|
|
$
|
0.06
|
|
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
|
19.
|
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.
From
time to time, the Company and its subsidiaries enter into legal disputes in the ordinary course of business. The Company believes
there are no material legal or administrative matters pending that are likely to have, individually or in the aggregate, a material
adverse effect on its business or results of operations.
The Company is not current
in its tax filings as of June 30, 2017.
On July 19, 2017, Cranberry
Cove Holdings, LTD. (“CCH”), a wholly owned subsidiary closed on a loan agreement in the principal amount of CDN$5,500,000.
The loan is secured by a first mortgage on the premises owned by CCH located at
3571 Muskoka
Road 169, Bala, Ontario (the “Property”). The Loan bears interest at the fixed rate of 4.2% with a 5 year primary term
and a 25 year amortization. The Company has guaranteed the Loan and the Company’s chief executive officer and controlling
shareholder also has personally guaranteed the Loan. CCH and the Company have granted the Lender a general security interest in
its assets to secure repayment of the Loan.
On August 3, 2017, the
Company entered into an agreement to acquire a property at 45 West 17
th
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.
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.
This quarterly report on Form
10Q and other reports filed by Ethema Health Corporation (“we,” “us,” “our,” or the “Company”)
from time to time with the SEC contain or may contain forward-looking statements and information that are based upon beliefs of,
and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s
management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and
speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,”
“expect,” “future,” “intend,” “plan,” or the negative of these terms and similar
expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements
reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and
other factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect,
actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes
that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results,
levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United
States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are
prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting
principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments and assumptions
upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions
are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date
of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial
statements would be affected to the extent there are material differences between these estimates. This discussion and analysis
should be read in conjunction with the Company’s financial statements and accompanying notes to the financial statements
for the year ended December 31, 2016.
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, 2017 and the three months ended June 30, 2016.
Revenue
Revenues was $402,220 and $0 for
the three months ended June 30, 2017 and 2016, respectively, an increase of $402,220. The Company disposed of its Canadian Rehab
Clinic on February 14, 2017 and simultaneously acquired the operations of Seastone of Delray. 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 and $171,515 for the three months ended June 30, 2017 and 2016, respectively, an increase of $251,584. 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 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:
|
●
|
General and administrative
expenses of $57,905, primarily operating costs incurred by our recently acquired Seastone of Delray business.
|
|
●
|
Professional fees of $66,403, primarily legal fees related to the
recent corporate restructure
|
|
●
|
Salaries and wages of $173,451, primarily related to the Seastone
acquisition
|
|
●
|
Depreciation of $125,340, related to the assets of our recently
acquired subsidiary Cranberry Cove Holdings and of the acquisition of the Seastone business on February 14, 2017.
|
Operating loss
Operating
loss amounted to $20,879 and $171,515 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.
Other
income
Other income was $63,960
and $12,508 for the three months ended June 30, 2017 and 2016, respectively, an increase of $51,452 or 411.4%. Other income in
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.
Other
expense
Other expense was $1,127,335 and $0 for the
three months ended June 30, 2017, an increase of $1,127,335 or 100%. Other expense represents; i) an adjustment of $1,146,600 to 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, 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.
Interest expense
Interest expense was $93,603
and $7,110 for the three months ended June 30, 2017 and 2016, respectively, an increase of $86,493, the increase is primarily due
to interest due on 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.
Debt Discount
Debt discount was $241,666
and $33,262 for the three months ended June 30, 2017 and 2016, respectively, an increase of $208,404 or 100% and represents the amortization
of the value of the warrants issued in terms of the convertible loan agreements entered into during December 2016 and January 2017
and the amortization of the fair value of the beneficial conversion feature of convertible notes issued to note holders during
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.
Derivative liability movement
Derivative liability
movement was $167,580 and $0 for the three months ended June 30, 2017 and 2016, respectively, an increase of $167,580 or
100%. 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 2017 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.
Foreign exchange movements
Foreign exchange movements
were $(6,438) and $2,039 for the three months ended June 30, 2017 and 2016, respectively, represents the realized exchange losses
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.
Net (loss) income from discontinued
operations
The net (loss) income from discontinued operations was $(141,177) and $266,260, for the three months ended
June 30, 2017 and 2016, respectively, an increase in loss 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 Dollar during the current period, giving rise to the foreign currency loss.
The prior income from discontinued
operations represents the trading operations of the Canadian Rehab clinic.
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, 2017 and the six months ended June 30, 2016.
Revenue
Revenues
was $724,730 and $0 for the six months ended June 30, 2017 and 2016, respectively, an increase of $724,730. The Company disposed
of its Canadian Rehab Clinic on February 14, 2017 and simultaneously acquired the operations of Seastone of Delray. 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 and $206,242 for the six months ended June 30, 2017 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 $46,577 and professional fees of $75,045.
The
operating expenses in the current six month period include the following:
|
●
|
General and administrative expenses of $408,442,
primarily management fees of $199,219 charged by our CEO and operating costs incurred by our recently acquired Seastone of Delray
business, which are individually insignificant to discuss separately;
|
|
●
|
Professional fees of $399,204, primarily legal fees related to the
recent corporate restructure;
|
|
●
|
Salaries and wages of $382,695, primarily related to the Seastone
acquisition
|
|
●
|
Depreciation of $182,406 for the assets of our recently acquired
subsidiary Cranberry Cove Holdings and of the acquisition of the Seastone business on February 14, 2017.
|
Operating loss
Operating loss amounted
to $648,017 and $206,242 for the six months ended June 30, 2017 and 2016, respectively, an increase of $441,775 or 214.2%,
primarily due to the additional professional fees incurred on the corporate restructure, management fees paid and
depreciation expense during the current period.
Other
income
Other income was $568,309
and $12,508 for the six months ended June 30, 2017 and 2016, respectively, an increase of $555,801. Other income in the current
period consists of the reversal of a provision raised against a receivable on the disposal of the Endoscopy Clinic in prior years
amounting to $472,368, the receivable was assigned to Leon Developments 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.
Other
expense
Other
expense was $392,539 and $0 for the six months ended June 30, 2017 and 2016, respectively, an increase of $392,539 or
100%. Other expense consists of; i) $373,274 of the excess of the purchase price paid over the fair market 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.
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 and $7,103 for the six months ended June 30, 2017 and 2016, respectively, an increase of $149,517, the increase
is primarily due to interest due on 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.
Debt Discount
Debt
discount was $429,325 and $33,262 for the six months ended June 30, 2017 and 2016, respectively, an increase of $396,063. The
charge during the current period represents the amortization of the value of the warrants issued in terms of the convertible loan
agreements entered into during December 2016 and January 2017 and the amortization of the fair value of the beneficial conversion
feature of convertible notes issued to note holders during 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.
Derivative liability movement
Derivative
liability movement was $94,532 and $0 for the six months ended June 30, 2017 and 2016, respectively, an increase of $94,532 or
100%. 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 2017 and June 2017. The February note was prepaid in May 2017 and
an additional note was issued in June 2017.
Foreign exchange movements
Foreign
exchange movements were $(164,347) and $2,734 for the six months ended June 30, 2017 and 2016, respectively, represents the realized
exchange losses 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.
Net income from discontinued
operations
The
net income from discontinued operations was $7,412,643 and $443,779, for the six months ended June 30, 2017 and 2016, respectively,
an increase of $6,968,864.
The current period income is primarily
made up as follows:
|
●
|
Operating loss of $172,896, the operations were disposed of on February 14, 2017, and the loss
includes expenditure incurred to dispose of the operation.
|
|
●
|
Profit on sale of the business of the Canadian Rehab Clinic of $7,494,828 represents the excess
of the proceeds received over the assets disposed of as reflected in note 1 and 3 to the unaudited condensed consolidated financial
statements.
|
|
●
|
Foreign exchange gain of $91,704 which represents the realized gains on the monetary assets and
liabilities settled during each period as well as mark to market adjustments on monetary assets and liabilities reflected on the
balance sheet and denominated in Canadian Dollars.
|
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
income was $6,316,710 and $212,414 for the six months ended June 30, 2017 and 2016, respectively, an increase of $6,104,296,
primarily due to the profit realized on the sale of the Canadian Rehab clinic of $7,494,828, offset by the compensation charge
of $373,274 relating to the acquisition of Cranberry cove and the amortization of $429,325 of debt discount during the current
period.
Liquidity and Capital Resources
The following table summarizes
working capital as of June 30, 2017 and December 31, 2016.
|
|
June
30,
2017
|
|
|
December
31,
2016
|
|
|
Increase
(decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
$
|
597,997
|
|
|
$
|
275,575
|
|
|
$
|
322,422
|
|
Current
Liabilities
|
|
|
(6,946,922
|
)
|
|
|
(3,637,111
|
)
|
|
|
(3,309,811
|
)
|
Working
capital Deficit
|
|
$
|
(6,348,925
|
)
|
|
$
|
(3,361,536
|
)
|
|
$
|
(2,987,389
|
)
|
The Company realized proceeds
of CDN$8,500,000 (US$6,479,400) from 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 used for working capital purposes
and to fund the restructuring transactions.
The Company borrowed an additional
$294,500 in terms of convertible short-term notes during the period January to June 2017, of which $130,000 was paid 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. We estimate that the Company will require an additional $1,000,000
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 prior year.