ETHEMA HEALTH CORPORATIONUNITED STATES
(formerly Greenstone Healthcare Corporation)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 FORM 10-Q
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:ended September 30, 2020
September 30, 2017or
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Periodtransition period from _______________ to _______________
Commission File Number: 000-15078Number 000-54748
ETHEMA HEALTH CORPORATIONCORPORATION.
(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Charter)
| Colorado | 84-1227328 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. employer Identification No.) | |
1590 S. Congress Avenue West Palm Beach, Florida | 33406 | |
| Address of Principal Executive Offices | Zip Code |
(561) 290-0239
Registrant’s Telephone Number, Including Area Code
Colorado 84-1227328
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
810 Andrews Avenue, Delray Beach, Florida 33483 (Address of principal executive officesFormer Name, Former Address and zip code)
(416) 222-5501
(Registrant’s telephone number, including area code)
Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by sectionSection 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]☒ No [ ]
☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation STS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.files). Yes [X]☒ No [ ]
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | 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. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes[ ]Yes ☐ No [X]☒
AsSecurities registered pursuant to Section 12(b) of November 20, 2017, there were 121,339,230the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common shares | GRST | OTC Pink |
Indicate the number of shares outstanding of each of the registrant’sissuer’s classes of common stock.stock, as of the latest practicable date: Number of shares of common stock outstanding as of November 16, 2020 was 1,841,090,247.
ETHEMA HEALTH CORPORATION
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In particular, statements contained in this Quarterly Report on Form 10-Q, including but not limited to, statements regarding the sufficiency of our cash, our ability to finance our operations and business initiatives and obtain funding for such activities; our future results of operations and financial position, business strategy and plan prospects, or costs and objectives of management for future acquisitions, are forward looking statements. These forward-looking statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as “may,“may,” “will,“will,” “should,” “expects,” “plans,” “anticipates,” “intends,” ’‘targets,“targets,” “projects,” “contemplates,” ’‘believes,“believes,” “seeks,” “goals,” “estimates,” ’‘predicts,“predicts,” ’‘potential”“potential” and “continue” or similar words. Readers are cautioned that these forward-looking statements are based on our current beliefs, expectations and assumptions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under Part II, Item 1A. “Risk “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, and those identified under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20162019 filed with the SEC on April 17, 2017.July 10, 2020. Therefore, actual results may differ materially and adversely from those expressed, projected or implied in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
NOTE REGARDING COMPANY REFERENCES
Throughout this Quarterly Report on Form 10-Q, “Ethema,” the “Company,” “we,” “us” and “our” refer to Ethema HealthcareHealth Corporation.
FORM 10-Q ETHEMA HEALTH CORPORATION | |||
TABLE OF CONTENTS | |||
| Page | |||
| PART | I - FINANCIAL INFORMATION | ||
| Item | Financial Statements | 1 | |
| Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019 | 1 | ||
| Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and 2019 | 2 | ||
| Unaudited Condensed Consolidated Statements of Stockholder's Deficit for the three and nine months ended September 30, 2020 and 2019 | 3 | ||
| Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 | 5 | ||
| Notes to the Unaudited Condensed Consolidated Financial Statements | 6 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 31 | |
| Item 3. | Quantitative and Qualitative | ||
| Item 4. | Controls and Procedures | ||
| PART | II - OTHER INFORMATION | ||
| Item | Legal Proceedings | ||
| Item 1A. | Risk | ||
| Item | Unregistered | ||
| Item | Defaults | ||
| Item | Mine Safety Disclosures | ||
| Item | Other Information | ||
| Item | Exhibits | ||
| SIGNATURES | |||
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
PART II: FINANCIAL INFORMATION
Item 1. Financial Statements.Statements
INDEXETHEMA HEALTH CORPORATION
(Expressed in US Dollars unless otherwise indicated)CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2020 | December 31, 2019 | |||||||
| (UNAUDITED) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 4,073 | $ | 2,975 | ||||
| Accounts receivable, net | 2,935 | 105,842 | ||||||
| Prepaid expenses | 17,626 | 26,625 | ||||||
| Other current assets | 442,893 | 120,000 | ||||||
| Total current assets | 467,527 | 255,442 | ||||||
| Non-current assets | ||||||||
| Due on sale of subsidiary | 4,862 | 4,969 | ||||||
| Property and equipment | 2,781,553 | 2,950,668 | ||||||
| Total non-current assets | 2,786,415 | 2,955,637 | ||||||
| Total assets | $ | 3,253,942 | $ | 3,211,079 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Bank overdraft | $ | — | $ | 11,079 | ||||
| Accounts payable and accrued liabilities | 795,297 | 1,022,175 | ||||||
| Taxes payable | 811,834 | 792,915 | ||||||
| Convertible loans, net of discounts | 4,264,319 | 5,041,113 | ||||||
| Short term loans | 108,615 | 106,934 | ||||||
| Mortgage loans | 114,115 | 114,290 | ||||||
| Federal assistance loans | 87,101 | — | ||||||
| Derivative liability | 19,678,918 | 8,694,272 | ||||||
| Dividends payable | 14,927 | — | ||||||
| Related party payables | 2,891,126 | 2,793,080 | ||||||
| Total current liabilities | 28,766,252 | 18,575,858 | ||||||
| Non-current liabilities | ||||||||
| Third party loans | 669,325 | 774,820 | ||||||
| Federal assistance loans | 69,681 | — | ||||||
| Mortgage loans, net of current portion | 3,695,784 | 3,880,945 | ||||||
| Total non-current liabilities | 4,434,790 | 4,655,765 | ||||||
| Total liabilities | 33,201,042 | 23,231,623 | ||||||
| Preferred Stock - Series B; $1.00 par value, 400,000 authorized, 400,000 and 0 issued and outstanding at September 30, 2020 and December 31, 2019, respectively. | 400,000 | — | ||||||
| Stockholders’ deficit | ||||||||
| Preferred stock - Series A; $0.01 par value, 10,000,000 authorized, nil outstanding at September 30, 2020 and December 31, 2019. | — | — | ||||||
| Common stock; $0.01 par value, 10,000,000,000 shares authorized; 1,841,090,247 and 155,483,897 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively. | 18,410,903 | 1,554,838 | ||||||
| Common stock discount | (16,429,220 | ) | — | |||||
| Additional paid-in capital | 23,327,307 | 23,188,527 | ||||||
| Accumulated other comprehensive income | 697,565 | 727,976 | ||||||
| Accumulated deficit | (57,053,655 | ) | (45,491,885 | ) | ||||
| Controlling stockholders’ deficit | (30,647,100 | ) | (20,020,544 | ) | ||||
| Non-controlling interest | 700,000 | — | ||||||
| Total stockholders’ deficit | (29,947,100 | ) | (20,020,544 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 3,253,942 | $ | 3,211,079 | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
1
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
UNAUDITED CONDENSED CONSOLDATED BALANCE SHEETSCONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| September 30, 2017 | December 31, 2016 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 12,623 | $ | 4,779 | ||||
| Accounts receivable | 974,849 | — | ||||||
| Prepaid expenses | 14,724 | 2,710 | ||||||
| Discontinued operations | — | 183,219 | ||||||
| Related party Receivables | 15,756 | 84,867 | ||||||
| Total current assets | 1,017,952 | 275,575 | ||||||
| Non-current assets | ||||||||
| Investment | — | 110,000 | ||||||
| Due on sale of subsidiary | 1,371,512 | — | ||||||
| Property, plant and equipment | 12,189,984 | — | ||||||
| Intangibles | 1,438,525 | — | ||||||
| Cash - Restricted | — | 74,480 | ||||||
| Total non-current assets | 15,000,021 | 184,480 | ||||||
| Total assets | $ | 16,017,973 | $ | 460,055 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current liabilities | ||||||||
| Bank overdraft | $ | 11 | $ | 56,116 | ||||
| Accounts payable and accrued liabilities | 379,972 | 374,317 | ||||||
| Taxes payable | 404,795 | 2,798,824 | ||||||
| Convertible loans | 46,510 | 250,258 | ||||||
| Loans payable | 158,534 | — | ||||||
| Derivative liability | 148,297 | — | ||||||
| Related party payables | 1,756,873 | 157,596 | ||||||
| Total current liabilities | 2,894,992 | 3,637,111 | ||||||
| Non-current liabilities | ||||||||
| Loan payable | 7,232,870 | — | ||||||
| Total liabilities | 10,127,862 | 3,637,111 | ||||||
| Stockholders' equity (deficit) | ||||||||
| Preferred stock - Series A; $0.01 par value, 3,000,000 authorized, nil outstanding as of September 30, 2017 and December 31, 2016. | — | — | ||||||
| Preferred Stock - Series B; $0.01 par value, 10,000,000 authorized, nil outstanding as of September 30, 2017 and December 31, 2016. | — | — | ||||||
| Common stock; $0.01 par value, 500,000,000 shares authorized; 121,339,230 and 48,738,855 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively. | 1,213,393 | 487,389 | ||||||
| Additional paid-in capital | 18,417,913 | 16,509,906 | ||||||
| Accumulated other comprehensive income | 1,048,794 | 807,563 | ||||||
| Accumulated deficit | (14,789,989 | ) | (20,981,914 | ) | ||||
| Total stockholders' equity (deficit) | 5,890,111 | (3,177,056 | ) | |||||
| Total liabilities and stockholders' equity (deficit) | $ | 16,017,973 | $ | 460,055 |
| Three months ended September 30, 2020 | Three months ended September 30, 2019 | Nine months ended September 30, 2020 | Nine months ended September 30, 2019 | |||||||||||||
| Revenues | $ | 89,829 | $ | 148,042 | $ | 255,672 | 328,244 | |||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | 11,991 | 216,004 | 43,805 | 1,123,207 | ||||||||||||
| Rental expense | 1,500 | 432,617 | 4,000 | 1,212,042 | ||||||||||||
| Professional fees | 40,478 | 92,407 | 177,528 | 510,608 | ||||||||||||
| Salaries and wages | 31,297 | 370,341 | 73,287 | 1,103,054 | ||||||||||||
| Depreciation | 32,010 | 47,104 | 91,598 | 179,399 | ||||||||||||
| Total operating expenses | 117,276 | 1,158,473 | 390,218 | 4,128,310 | ||||||||||||
| Operating loss | (27,447 | ) | (1,010,431 | ) | (134,546 | ) | (3,800,066 | ) | ||||||||
| Other Income (expense) | ||||||||||||||||
| Other income | — | 6,600 | — | 6,600 | ||||||||||||
| Other expense | — | (11,729 | ) | — | (11,729 | ) | ||||||||||
| Interest income | 1 | 51 | 629 | 15,313 | ||||||||||||
| Gain on debt extinguishment | — | — | 12,683,678 | — | ||||||||||||
| Loss on debt conversions | — | — | (312,836 | ) | — | |||||||||||
| Loss on disposal of property | — | — | — | (692,488 | ) | |||||||||||
| Warrant exercise | — | — | (95,868 | ) | — | |||||||||||
| Bonus shares issued to investors | — | — | — | (143,500 | ) | |||||||||||
| Interest expense | (124,972 | ) | (299,022 | ) | (492,984 | ) | (841,160 | ) | ||||||||
| Amortization of debt discount | (99,202 | ) | (974,084 | ) | (628,892 | ) | (2,564,338 | ) | ||||||||
| Derivative liability movement | (9,841,979 | ) | 1,875,402 | (22,634,549 | ) | 3,130,273 | ||||||||||
| Foreign exchange movements | (140,811 | ) | 59,983 | 82,551 | (211,967 | ) | ||||||||||
| Net loss before taxation | (10,234,410 | ) | (353,230 | ) | (11,532,817 | ) | (5,113,062 | ) | ||||||||
| Taxation | — | — | — | — | ||||||||||||
| Net loss | (10,234,410 | ) | (353,230 | ) | (11,532,817 | ) | (5,113,062 | ) | ||||||||
| Preferred stock dividend | (24,301 | ) | — | (28,952 | ) | — | ||||||||||
| Net loss available to common stockholders | (10,258,711 | ) | (353,230 | ) | (11,561,769 | ) | (5,113,062 | ) | ||||||||
| Accumulated other comprehensive income (loss) | ||||||||||||||||
| Foreign currency translation adjustment | 54,071 | (21,394 | ) | (30,411 | ) | (60,720 | ) | |||||||||
| Total comprehensive loss | $ | (10,204,640 | ) | $ | (374,624 | ) | $ | (11,592,180 | ) | (5,173,782 | ) | |||||
| Loss per share | ||||||||||||||||
| Basic and diluted | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.01 | ) | (0.04 | ) | |||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic and diluted | 1,841,090,247 | 143,636,081 | 1,498,132,036 | 133,121,771 | ||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
2
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
UNAUDITED CONDENSED CONSOLDATED STATEMENTSCONSOLIDATED STATEMENT OF OPERATIONSSTOCKHOLDERS’ DEFICIT
| Three months ended September 30, 2017 | Three Months ended September 30, 2016 | Nine months ended September 30, 2017 | Nine Months ended September 30, 2016 | |||||||||||||
| Revenues | $ | 648,298 | $ | — | $ | 1,373,028 | $ | — | ||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | 170,491 | 55,124 | 578,931 | 165,319 | ||||||||||||
| Professional fees | 53,830 | 47,135 | 453,034 | 122,180 | ||||||||||||
| Salaries and wages | 200,863 | 89,934 | 583,559 | 110,934 | ||||||||||||
| Depreciation and amortization | 131,784 | — | 314,190 | — | ||||||||||||
| Total operating expenses | 556,968 | 192,193 | 1,929,714 | 398,433 | ||||||||||||
| Operating income (loss) | 91,330 | (192,193 | ) | (556,686 | ) | (398,433 | ) | |||||||||
| Other Income (expense) | ||||||||||||||||
| Other income | 67,596 | 60,000 | 635,904 | 72,507 | ||||||||||||
| Other expense | — | (12,250 | ) | (392,538 | ) | (12,250 | ) | |||||||||
| Interest income | — | — | 32,074 | — | ||||||||||||
| Interest expense | (86,371 | ) | (8,598 | ) | (242,992 | ) | (15,701 | ) | ||||||||
| Debt discount | (13,052 | ) | (39,988 | ) | (442,377 | ) | (73,250 | ) | ||||||||
| Derivative liability movement | (19,329 | ) | — | 75,203 | — | |||||||||||
| Foreign exchange movements | 53,294 | 11,099 | (111,052 | ) | 13,833 | |||||||||||
| Net income (loss) before taxation from continuing operations | 93,468 | (181,930 | ) | (1,002,464 | ) | (413,294 | ) | |||||||||
| Taxation | — | — | — | — | ||||||||||||
| Net income (loss) from continuing operations | 93,468 | (181,930 | ) | (1,002,464 | ) | (413,294 | ) | |||||||||
| Gain on disposal of business | — | — | 7,494,828 | — | ||||||||||||
| Operating (loss) income from discontinued operations, net of tax | (218,253 | ) | 318,901 | (300,439 | ) | 762,680 | ||||||||||
| Net (loss) income from discontinued operations, net of tax | (218,253 | ) | 318,901 | 7,194,389 | 762,680 | |||||||||||
| Net (loss) income | (124,785 | ) | 136,971 | 6,191,925 | 349,386 | |||||||||||
| Accumulated other comprehensive income (loss) | ||||||||||||||||
| Foreign currency translation adjustment | 277,923 | 24,805 | 241,231 | (190,471 | ) | |||||||||||
| Total comprehensive income | $ | 153,138 | $ | 161,776 | $ | 6,433,156 | $ | 158,915 | ||||||||
| Basic loss per common share from continuing operations | $ | — | $ | — | $ | (0.01 | ) | $ | (0.01 | ) | ||||||
| Basic income per share from discontinued operations | $ | — | $ | — | $ | 0.07 | $ | 0.02 | ||||||||
| Basic income per common share | $ | — | $ | — | $ | 0.06 | $ | 0.01 | ||||||||
| Diluted loss per common share from continuing operations | $ | — | $ | — | $ | (0.01 | ) | $ | (0.01 | ) | ||||||
| Diluted income per share from discontinued operations | $ | — | $ | — | $ | 0.06 | $ | 0.02 | ||||||||
| Diluted income per common share | $ | — | $ | — | $ | 0.05 | $ | 0.01 | ||||||||
| Weighted average common shares outstanding - Basic | 119,407,668 | 48,738,855 | 102,455,451 | 48,158,563 | ||||||||||||
| Weighted average common shares outstanding - Diluted | 119,407,668 | 49,005,555 | 117,312,150 | 48,425,263 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
| Preferred Series A | Preferred Series B | Common | Discount to | Additional | Comprehensive | Accumulated | Controlling shareholders’ | Non-controlling | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Par value | capital | Income | deficit | interest | interest | Total | ||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | — | $ | — | — | $ | — | 155,483,897 | $ | 1,554,838 | $ | — | $ | 23,188,527 | $ | 727,976 | $ | (45,491,885 | ) | $ | (20,020,544 | ) | $ | — | $ | (20,020,544 | ) | ||||||||||||||||||||||||||
| Exercise of warrants | — | — | — | — | 103,000,000 | 1,030,000 | (937,048 | ) | — | — | — | 92,952 | — | 92,952 | ||||||||||||||||||||||||||||||||||||||
| Shares issued for commitment fees | — | — | — | — | 2,700,000 | 27,000 | — | 138,780 | — | — | 165,780 | — | 165,780 | |||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes | — | — | — | — | 1,316,679,078 | 13,166,792 | (12,635,787 | ) | — | — | — | 531,005 | — | 531,005 | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | — | — | (185,813 | ) | — | (185,813 | ) | — | (185,813 | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | (10,338,286 | ) | (10,338,286 | ) | — | (10,338,286 | ) | ||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2020 | — | — | — | — | 1,577,862,975 | 15,778,630 | (13,572,835 | ) | 23,327,307 | 542,163 | (55,830,171 | ) | (29,754,906 | ) | (29,754,906 | ) | ||||||||||||||||||||||||||||||||||||
| Exercise of warrants | — | — | — | — | 81,000,000 | 810,000 | (807,084 | ) | — | — | — | 2,916 | — | 2,916 | ||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes | — | — | — | — | 82,227,272 | 822,273 | (793,990 | ) | — | — | — | 28,283 | — | 28,283 | ||||||||||||||||||||||||||||||||||||||
| Extinguishment of debt | — | — | 400,000 | 400,000 | — | — | (280,311 | ) | — | — | — | 119,689 | 700,000 | 819,689 | ||||||||||||||||||||||||||||||||||||||
| Settlement of liabilities | — | — | — | — | 100,000,000 | 1,000,000 | (975,000 | ) | — | — | — | 25,000 | — | 25,000 | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | — | — | 101,331 | — | 101,331 | — | 101,331 | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | — | 9,039,879 | 9,039,879 | — | 9,039,879 | |||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends accrued | — | — | — | — | — | — | — | — | — | (4,652 | ) | (4,652 | ) | — | (4,652 | ) | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | — | — | 400,000 | 400,000 | 1,841,090,247 | 18,410,903 | (16,429,220 | ) | 23,327,307 | 643,494 | (46,794,944 | ) | (20,442,460 | ) | 700,000 | (19,742,460 | ) | |||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | — | — | 54,071 | — | 54,071 | — | 54,071 | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | (10,234,410 | ) | (10,234,410 | ) | — | (10,234,410 | ) | ||||||||||||||||||||||||||||||||||||
| Preferred stock dividends accrued | — | — | — | — | — | — | — | — | — | (24,301 | ) | (24,301 | ) | — | (24,301 | ) | ||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | — | — | 400,000 | $ | 400,000 | 1,841,090,247 | $ | 18,410,903 | $ | (16,429,220 | ) | $ | 23,327,307 | $ | 697,565 | $ | (57,053,655 | ) | $ | (30,647,100 | ) | $ | 700,000 | $ | (29,947,100 | ) | ||||||||||||||||||||||||||
3
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
UNAUDITED CONDENSED CONSOLDATED STATEMENTSCONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)STOCKHOLDERS’ DEFICIT
| Common | Additional | |||||||||||||||||||||||
| Shares | Amount | Paid in Capital | Comprehensive Income | Accumulated 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 | ||||||||||||||||||
| Conversion of debt to equity | 12,500,375 | 125,004 | 250,007 | 375,011 | ||||||||||||||||||||
| Fair value of warrants issued | — | — | 71,000 | — | — | 71,000 | ||||||||||||||||||
| Shares issued for services | 100,000 | 1,000 | 3,000 | — | — | 4,000 | ||||||||||||||||||
| Foreign currency translation | — | — | — | 241,231 | — | 241,231 | ||||||||||||||||||
| Net income | — | — | — | — | 6,191,925 | 6,191,925 | ||||||||||||||||||
| Balance as of September 30, 2017 | 121,339,230 | $ | 1,213,393 | $ | 18,417,913 | $ | 1,048,794 | $ | (14,789,989 | ) | $ | 5,890,111 | ||||||||||||
| Preferred Series A | Preferred Series B | Common | Discount to Par | Additional | Comprehensive | Accumulated | Controlling shareholders’ | Non-controlling | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Value | Capital | Income | deficit | interest | interest | Total | ||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2018 | — | $ | — | — | $ | — | 124,300,341 | $ | 1,243,004 | $ | — | $ | 20,939,676 | $ | 630,411 | $ | (30,529,044 | ) | $ | (7,715,953 | ) | $ | — | $ | (7,715,953 | ) | ||||||||||||||||||||||||||
| Fair value of warrants issued | — | — | — | — | — | — | — | 874,566 | — | — | 874,566 | — | 874,566 | |||||||||||||||||||||||||||||||||||||||
| Shares issued for commitment fees | — | — | — | — | 71,111 | 711 | — | 4,267 | — | — | 4,978 | — | 4,978 | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | 43,097 | — | 43,097 | — | 43,097 | |||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | (3,088,680 | ) | (3,088,680 | ) | — | (3,088,680 | ) | ||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2019 | — | — | — | — | 124,371,452 | 1,243,715 | — | 21,818,509 | 673,508 | (33,617,724 | ) | (9,881,992 | ) | — | (9,881,992 | ) | ||||||||||||||||||||||||||||||||||||
| Fair value of warrants issued | — | — | — | — | — | — | — | 332,209 | — | — | 332,209 | — | 332,209 | |||||||||||||||||||||||||||||||||||||||
| Share based compensation | — | — | — | — | 5,300,000 | 53,000 | — | 318,000 | — | — | 371,000 | — | 371,000 | |||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes | — | — | — | — | 11,875,000 | 118,750 | — | 831,250 | — | — | 950,000 | — | 950,000 | |||||||||||||||||||||||||||||||||||||||
| Bonus shares issued to investors | — | — | — | — | 2,050,000 | 20,500 | — | 123,000 | 143,500 | — | 143,500 | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | — | — | 39,017 | — | 39,017 | — | 39,017 | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | (1,671,152 | ) | (1,671,152 | ) | — | (1,671,152 | ) | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2019 | — | — | — | — | 143,596,452 | 1,435,965 | $ | — | 23,422,968 | 712,525 | (35,288,876 | ) | (9,717,418 | ) | — | (9,717,418 | ) | |||||||||||||||||||||||||||||||||||
| Fair value of warrants issued | — | — | — | — | — | — | — | 113,722 | — | — | 113,722 | — | 113,722 | |||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes | — | — | — | — | 260,416 | 2,605 | — | 15,624 | — | — | 18,229 | — | 18,229 | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | — | (21,394 | ) | — | (21,394 | ) | — | (21,394 | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | (353,230 | ) | (353,230 | ) | — | (353,230 | ) | |||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | — | $ | — | — | $ | — | 143,856,868 | $ | 1,438,570 | $ | — | $ | 23,552,314 | $ | 691,131 | $ | (35,642,106 | ) | $ | (9,960,091 | ) | $ | — | $ | (9,960,091 | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
4
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
UNAUDITED CONDENSED CONSOLDATED STATEMENTSCONSOLIDATED STATEMENT OF CASH FLOWS
| Nine months ended September 30, 2017 | Nine months ended September 30, 2016 | |||||||
| Operating activities | ||||||||
| Net income | $ | 6,191,925 | $ | 349,386 | ||||
| Net income from discontinued operations | $ | (7,194,389 | ) | $ | (762,680 | ) | ||
| Net loss from continuing operations | $ | (1,002,464 | ) | $ | (413,294 | ) | ||
| Adjustment to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Depreciation | 314,190 | — | ||||||
| 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 | 63,962 | 6,951 | ||||||
| Amortization of debt discount | 442,377 | 73,250 | ||||||
| Derivative liability movements | (75,203 | ) | — | |||||
| Provision against receivable on sale of subsidiary | (446,476 | ) | — | |||||
| Non cash earnout accrual | (162,536 | ) | — | |||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (833,374 | ) | — | |||||
| Prepaid expenses | (12,013 | ) | (118,140 | ) | ||||
| Accounts payable and accrued liabilities | (162,834 | ) | (254,195 | ) | ||||
| Taxes payable | (2,393,899 | ) | 240,440 | |||||
| Net cash used in operating activities - continuing operations | (3,871,731 | ) | (414,988 | ) | ||||
| Net cash (used in) provided by operating activities - discontinued operations | (117,221 | ) | 738,967 | |||||
| (3,988,952 | ) | 323,979 | ||||||
| Investing activities | ||||||||
| Investments in Seastone | (2,960,000 | ) | — | |||||
| Proceeds from restricted cash | 74,480 | — | ||||||
| Purchase of fixed assets | (8,878 | ) | — | |||||
| Net cash used in investing activities - continuing operations | (2,894,398 | ) | — | |||||
| Net cash provided by (used in) investing activities - discontinued operations | 6,285,852 | (11,836 | ) | |||||
| 3,391,454 | (11,836 | ) | ||||||
| Financing activities | ||||||||
| Decrease in bank overdraft | (56,105 | ) | (8,657 | ) | ||||
| Repayment of loan payable | — | (4,406 | ) | |||||
| Proceeds from short-term notes | — | 283,386 | ||||||
| Repayment of short-term note | — | (107,639 | ) | |||||
| Proceeds from mortgage sold | 111,554 | — | ||||||
| Proceeds from mortgage | 4,367,000 | — | ||||||
| Repayment of mortgage | (3,482,144 | ) | — | |||||
| Proceeds from convertible notes | 294,500 | — | ||||||
| Repayment of convertible notes | (274,958 | ) | — | |||||
| Proceeds from related party notes | (595,736 | ) | (253,389 | ) | ||||
| Net cash provided by (used in) financing activities | 364,111 | (90,705 | ) | |||||
| Effect of exchange rate on cash | 241,231 | (190,471 | ) | |||||
| Net change in cash | 7,844 | 30,967 | ||||||
| Beginning cash balance | 4,779 | 174 | ||||||
| Ending cash balance | $ | 12,623 | $ | 31,141 | ||||
| Nine months ended September 30, 2020 | Nine months ended September 30, 2019 | |||||||
| Operating activities | ||||||||
| Net loss | $ | (11,532,817 | ) | $ | (5,113,062 | ) | ||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 91,598 | 179,399 | ||||||
| Gain on debt extinguishment | (12,683,678 | ) | — | |||||
| Non-cash interest accrual on escrow deposit | (24 | ) | (15.280 | ) | ||||
| Warrant exercise | 95,868 | — | ||||||
| Loss on debt conversions | 312,836 | 11,729 | ||||||
| Shares issued for services | 165,780 | — | ||||||
| Loss on disposal of property | — | 692,488 | ||||||
| Bonus shares issued to investors | — | 143,500 | ||||||
| Non-cash compensation for services | — | 375,978 | ||||||
| Amortization of debt discount | 628,893 | 2,564,338 | ||||||
| Unrealized foreign exchange gain | (146,385 | ) | — | |||||
| Derivative liability movements | 22,634,549 | (3,130,273 | ) | |||||
| Non-cash deferral of operating lease liability expense | — | 259,299 | ||||||
| Movement in receivables reserve | (2,734 | ) | — | |||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | 105,561 | 38,517 | ||||||
| Prepaid expenses and other current assets | (319,893 | ) | (53,017 | ) | ||||
| Accrued purchase consideration | — | 322,217 | ||||||
| Accounts payable and accrued liabilities | 215,004 | 1,202,253 | ||||||
| Net cash used in operating activities | (435,442 | ) | (2,521,914 | ) | ||||
| Investing activities | ||||||||
| Proceeds on disposal of property, net of closing costs of $183,344 | — | 3,318,141 | ||||||
| Deposit refunded | 5,995 | 15,592 | ||||||
| Purchase of fixed assets | — | (22,868 | ) | |||||
| Net cash provided by investing activities | 5,995 | 3,310,865 | ||||||
| Financing activities | ||||||||
| Proceeds from bank overdraft | — | 28,062 | ||||||
| Repayment bank overdraft | (11,079 | ) | — | |||||
| Repayment of mortgage loans | (79,134 | ) | (3,026,653 | ) | ||||
| Proceeds from convertible notes | 450,000 | 2,912,355 | ||||||
| Repayment of convertible notes | (72,412 | ) | (1,123,666 | ) | ||||
| Proceeds from federal assistance loans | 156,782 | — | ||||||
| Proceeds from promissory notes | — | 153,541 | ||||||
| Repayment of promissory notes | — | (7,552 | ) | |||||
| Dividends paid | (14,012 | ) | — | |||||
| Proceeds from related party notes | 3,174 | 85,484 | ||||||
| Net cash provided by (used in) financing activities | 433,319 | (978,429 | ) | |||||
| Effect of exchange rate on cash | (2,774 | ) | 165,552 | |||||
| Net change in cash | 1,098 | (23,926 | ) | |||||
| Beginning cash balance | 2,975 | 24,674 | ||||||
| Ending cash balance | $ | 4,073 | $ | 748 | ||||
| Supplemental cash flow information | ||||||||
| Cash paid for interest | $ | 251,539 | $ | 683,487 | ||||
| Cash paid for income taxes | $ | — | $ | — | ||||
| Non cash investing and financing activities | ||||||||
| Fair value of warrants issued | $ | — | $ | 1,320,497 | ||||
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
UNAUDITED CONDENSED CONSOLDATED STATEMENTS OF CASH FLOWS
| Supplemental cash flow information | ||||||||
| Cash paid for interest | $ | 253,256 | $ | 9,632 | ||||
| Cash paid for income taxes | $ | — | $ | — | ||||
| Non cash investing and financing activities | ||||||||
| Common shares issued to acquire subsidiary | $ | 2,184,000 | $ | — | ||||
| Conversion of debt to equity | $ | 375,011 | $ | — | ||||
| Fair value of warrants issued | $ | 71,000 | $ | — | ||||
| Assumption of mortgage liabilities on acquisition of subsidiary | $ | 3,145,549 | $ | — | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
5
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
| 1. | Nature of business |
Ethema Health Corporation (the “Company”) was incorporated under the laws of the state of Colorado, USA, on April 1, 1993. Effective April 4, 2017, the Company changed its name to Ethema Health Corporation and prior to that, on May 2012, the Company had changed its name to GreeneStone Healthcare Corporation from Nova Natural Resources Corporation. As of September 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; Cranberry Cove Holdings Ltd., incorporated on January 9, 2004 under the laws of the Province of Ontario, Canada. andCanada; Addiction Recovery Institute of America (“ARIA”) (formerly Seastone Delray Healthcare, LLC,LLC), incorporated on May 17, 2016 under the laws of Florida, USA; and Delray Andrews RE, LLC, incorporated on May 17, 2016 under the laws of Florida, USA.
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”“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”“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 willwas to remain in escrow for up to two years to cover indemnities given by the Company. The proceeds of the Muskoka clinic asset sale were used to pay down certain tax debts and operational costs of the Company and to fund the Florida Purchase, mentioned below.
Through the APA, substantially all of the assets of the Canadian Rehab Clinic were sold, leaving Ethema with only the underlying clinic real estate, which the Company, through its newly acquired subsidiary, CCH, concurrently leased to the Purchaser. The Lease is a triple net lease and provides for a five (5) year primary term with three (3) five-year renewal options, annual base rent for the first year at CDN$420,000 with annual increases, an option to tenant to purchase the leased premises and certain first refusal rights.
The Florida Purchase
Immediately after closing on the sale of the assets of the Canadian Rehab Clinic, the Company closed on the acquisition of the business and real estate assets of Seastone Delray pursuant to certain real estate and asset purchase agreements This business is operated through its wholly owned subsidiary Seastone. The purchase price for the Seastone assets was US$6,070,000 financed with a purchase money mortgage of US$3,000,000, and US$3,070,000 in cash.
On May 23, 2018, the Company converted a purchase agreement with AREP 5400 East Avenue LLC to a ten year lease agreement for a substance abuse treatment center in properties located at 5400, 5402 and 5410 East Avenue, west Palm Beach, Florida. The Company was also granted an option to purchase the property at a price of $17,250,000, increasing by $750,000 per month.
The Company ceased operations in its Delray Beach properties and relocated its treatment facility to the newly leased premises in West Palm Beach.
On April 2, 2019, the Company disposed of the real property located at 801 Andrews Avenue, Delray Beach for gross proceeds of $3,500,000, retaining the property at 810 Andrews Avenue Delray Beach, Florida.
On October 10, 2019, the Company transferred the real Property located at 810 Andrews Avenue, Delray Beach, Florida to Leonite Capital LLC, for net proceeds of $1,398,510, which proceeds were offset against the convertible loan owing to Leonite.
On December 20, 2019 the Company entered into an agreement to terminate the lease agreement with AREP 5400 East Avenue LLC on January 30, 2020, which property was subsequently sold to a third party by the landlord.
6
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
Basis of presentation
The accompanying(a) unaudited condensed consolidated balance sheets as of September 30, 2020, which have been derived from the unaudited condensed consolidated financial statements, and as of December 31, 2019, which have been derived from audited consolidated financial statements, and (b) the unaudited condensed consolidated statements of operations and cash flows of the Company, have been prepared in accordance with accounting principles generally accepted in the United States of America(“US GAAP”) for interim consolidated financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation SX.S-X. Accordingly, these unaudited condensed consolidated financial statementsthey do not include all of the information and disclosuresfootnotes required by accounting principles generally accepted in the United States of AmericaUS GAAP for complete financial statements.
All In the opinion of management, all adjustments (consisting of normal recurring adjustments)accruals) considered necessary for a fair presentation have been included in these unaudited condensed consolidated financial statements.included. Operating results for the three and nine month period presentedmonths ended September 30, 2020 are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The balance sheet atyear ending December 31, 2016 has been derived from audited consolidated financial statements. The2020. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotesnotes thereto included in the Company’s Form 10-K for the year ended December 31, 2016.2019, filed with the Securities and Exchange Commission (“SEC”) on July 10, 2020.
All amounts referred to in the notes to the unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.
| a) | Use of Estimates |
The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of AmericaUS GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
| b) |
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and all of its subsidiary.subsidiaries. All intercompany transactions and balances have been eliminated on consolidation.
The Company previously owned an operational subsidiary whoseCertain of the Company’s subsidiaries functional currency wasis the Canadian dollar, while the Company’s reporting currency is the U.S. dollar. The Company recently acquired a property-owning subsidiary, CCH, whose functional currency is the Canadian dollar. All transactions initiated in Canadian dollars are translated into US dollars in accordance with ASC 830, “Foreign Currency Translation” as follows:
| Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date. |
| Equity at historical rates. |
| Revenue and expense items and cash flows at the average rate of exchange prevailing during the period. |
Adjustments arising from such translations are deferred until realization and are included as a separate component of stockholders’ equitydeficit as a component of accumulated other comprehensive income or loss. Therefore, translation adjustments are not included in determining net income (loss) but reported as other comprehensive income (loss).
For foreign currency transactions, the Company translates these amounts to the Company’s functional currency at the exchange rate effective on the invoice date. If the exchange rate changes between the time of purchase and the time actual payment is made, a foreign exchange transaction gain or loss results which is included in determining net income for the period.
The relevant translation rates are as follows: At September 30, 2020, a closing rate of CDN$1.00 equals US$0.7497 and an average exchange rate of CDN$1.00 equals US$0.7507. For the nine months ended September 30, 2017; a closing rate of CAD$1.0000 equals US$0.8013 and2019, an average exchange rate of CAD$1.0000 equals US$0.7984.
0.7551 and at December 31, 2019 a closing rate of $0.7699.
7
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies (continued) |
| c) | Revenue Recognition |
ASU 2014-09 requires companies to exercise more judgment and recognize revenue using a five-step process.
As a result of certain changes required by ASU 2014-09, the majority of the Company’s provision for doubtful accounts are recorded as a direct reduction to revenue instead of being presented as a separate line item on the condensed consolidated statements of operations. The adoption of ASU 2014-09 has no impact on the Company’s accounts receivable as it was historically recorded net of allowance for doubtful accounts and contractual adjustments, and the Company has eliminated the presentation of allowance for doubtful accounts on the condensed consolidated balance sheets.
2. SummaryAs our performance obligations relate to contracts with a duration of Significant Accounting Policies (continued)one year or less, the Company elected the optional exemption in ASC 606-10-50-14(a). Therefore, the Company is not required to disclose the transaction price for the remaining performance obligations at the end of the reporting period or when the Company expects to recognize the revenue. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients typically are under no obligation to remain admitted in our facilities.
The Company receives payments from the following sources for services rendered in our U.S. Facility: (i) commercial insurers; and (ii) individual patients and clients. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC 606-10-32-18 and did not adjust for the effects of a significant financing component.
The Company derives a significant portion of its revenue from other payors that receive discounts from established billing rates. The various managed care contracts under which these discounts must be calculated are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for different types of services provided in the Company’s in-patient facilities and cost settlement provisions. Management estimates the transaction price on a pay or specific basis given its interpretation of the applicable regulations or contract terms. The services authorized and provided and related reimbursement are often subject to interpretation that could result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management.
Settlements under cost reimbursement agreements with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future periods as final settlements are determined. In the opinion of management, adequate provision has been made for any adjustments and final settlements. However, there can be no assurance that any such adjustments and final settlements will not have a material effect on the Company’s financial condition or results of operations. The Company’s accounts receivables were $2,935 and $105,842 for the nine months ended September 30, 2020 and year ended December 31, 2019, respectively, and were included in other current assets in the condensed consolidated balance sheets. Management believes that these receivables are properly stated and are not likely to be settled for a significantly different amount. The net adjustments to estimated accounts receivable settlements resulted in a decrease in revenues of $0 and $414,603 for the nine months ended September 30, 2020 and the year ended December 31, 2019, respectively.
8
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| c) | Revenue Recognition (continued) |
The Company's policy isCompany’s revenues are recognized when control of the promised goods or services are transferred to disclose bank balances under cash, including bank overdrafts with balancesa customer, in an amount that fluctuate frequently from being positivereflects the consideration that the Company expects to overdrawn and term deposits with a maturity period of three months or lessreceive in exchange for those services. The Company derives its revenues from the datesale of acquisition.its services, as defined below. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its revenue transactions:
| ii. | identify the performance obligations in the contract; | |
| iii. | determine the transaction price; | |
| iv. | allocate the transaction price to performance obligations in the contract; and | |
| v. | recognize revenue as the performance obligation is satisfied. |
The Company has two operating segments from which it derives revenues i) rental income from leasing of a rehabilitation facility to third parties and ii) in-patient revenues for rehabilitation services provided to customers. Revenuewhich is recognized as follows:on the basis described below.
i. Rental Income
In terms of the lease agreement, on a monthly basis as long as the facility is utilized by the tenant
ii. In-patient revenue
The customerspatients 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,During 2020, the Company recognizes fees for inpatient addiction treatments proportionately over the termCompany’s revenues were solely comprised 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.rental income.
In July 2017,The Company’s policy is to measure an asset exchanged or transferred in a non-monetary transaction at the FASB issued Accounting Standards Update No. (“ASU’’) 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). The amendments in this Update provide guidance about:
The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments,asset given up and the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effectfair value of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260).
The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect.asset received, unless:
| The transaction lacks commercial substance; |
| ● | The transaction is a transfer between entities under common control; |
| ● | The transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange; |
| ● | Neither the fair value of the asset received nor the fair value of the asset given up is reliably measurable; or |
| ● | The transaction is a non-monetary, non-reciprocal transfer to owners that represents a spinoff or other form of restructuring or liquidation. |
9
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued)
| 2. | Summary of significant accounting policies (continued) |
| e) |
The amendmentsCompany’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 had no cash equivalents at September 30, 2020 and December 31, 2019.
| f) | Accounts receivable |
Accounts receivable primarily consists of amounts due from third-party payors (non-governmental) and private pay patients and is recorded net of allowances for doubtful accounts and contractual discounts. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Accordingly, accounts receivable reported in Part Ithe Company’s unaudited condensed consolidated financial statements is recorded at the net amount expected to be received. The Company’s primary collection risks are (i) the risk of overestimating net revenues at the time of billing that may result in the Company receiving less than the recorded receivable, (ii) the risk of non-payment as a result of commercial insurance companies denying claims, (iii) the risk that patients will fail to remit insurance payments to the Company when the commercial insurance company pays out-of-network claims directly to the patient, (iv) resource and capacity constraints that may prevent the Company from handling the volume of billing and collection issues in a timely manner, (v) the risk that patients do not pay the Company for their self-pay balances (including co-pays, deductibles and any portion of the claim not covered by insurance) and (vi) the risk of non-payment from uninsured patients.
| g) | Allowance for Doubtful Accounts, Contractual and Other Discounts |
The Company derives the majority of its revenues from commercial payors at out-of-network rates. Management estimates the allowance for contractual and other discounts based on its historical collection experience. The services authorized and provided and related reimbursement are often subject to interpretation and negotiation that could result in payments that differ from the Company’s estimates. The Company’s allowance for doubtful accounts is based on historical experience, but management also takes into consideration the age of accounts, creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. An account is written off only after the Company has pursued collection efforts or otherwise determines an account to be uncollectible. Uncollectible balances are written-off against the allowance. Recoveries of previously written-off balances are credited to income when the recoveries are made.
| h) | Financial instruments |
The Company initially measures its financial assets and liabilities at fair value, except for certain non-arm’s length transactions. The Company subsequently measures all its financial assets and financial liabilities at amortized cost.
Financial assets measured at amortized cost include cash and accounts receivable.
Financial liabilities measured at amortized cost include bank indebtedness, accounts payable and accrued liabilities, harmonized sales tax payable, withholding taxes payable, convertible notes payable, loans payable and related party notes.
Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write- down is recognized in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income. The Company recognizes its transaction costs in net income in the period incurred. However, financial instruments that will not be subsequently measured at fair value are adjusted by the transaction costs that are directly attributable to their origination, issuance or assumption.
10
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies (continued) |
| h) | Financial instruments (continued) |
FASB ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
| · | Level 1. Observable inputs such as quoted prices in active markets; |
| · | Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
| · | Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions. |
The Company measures its convertible debt and derivative liabilities associated therewith at fair value. These liabilities are revalued periodically and the resultant gain or loss is realized through the Statement of Operations and Comprehensive Loss.
| i) | Property and equipment |
Property and equipment is recorded at cost. Depreciation is calculated on the straight line basis over the estimated life of the asset:
| · | Buildings 25 years |
| j) | Income taxes |
The Company accounts for income taxes under the provisions of ASC Topic 740, “Income Taxes”. Under ASC Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income taxes are provided using the liability method. Under this Updatemethod, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax basis of an asset or liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in income in the period of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of, the deferred tax assets will not be realized.
ASC Topic 740 contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties accrued on unrecognized tax benefits within general and administrative expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in general and administrative expenses in the period that such determination is made.
The tax returns for fiscal 2001, through 2019 are subject to audit or review by the US tax authorities, whereas fiscal 2010 through 2019 are subject to audit or review by the Canadian tax authority.
11
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies (continued) |
| k) | Net income (loss) per Share |
Basic net income (loss) per share is computed on the basis of the weighted average number of common stock outstanding during the period.
Diluted net income (loss) per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.
Dilution is computed by applying the treasury stock method for options and warrants. Under this method, “in-the money” options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Dilution is computed by applying the if-converted method for convertible preferred stocks. Under this method, convertible preferred stock is assumed to be converted at the beginning of the period (or at the time of issuance, if later), and preferred dividends (if any) will be added back to determine income applicable to common stock. The shares issuable upon conversion will be added to weighted average number of common stock outstanding. Conversion will be assumed only if it reduces earnings per share (or increases loss per share).
| l) | Stock based compensation |
Stock based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over the employee’s requisite service period or vesting period on a straight-line basis. Share-based compensation expense recognized in the unaudited condensed consolidated statements of operations and comprehensive loss is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual forfeitures differ from those estimates. We have minimal awards with performance conditions and no awards dependent on market conditions.
| m) | Derivatives |
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. The Company uses a Black Scholes Option Pricing model to estimate the fair value of convertible debt conversion features at the end of each applicable reporting period. Changes in the fair value of these derivatives during each reporting period are included in the statements of operations. Inputs into the Black Scholes Option Pricing model require estimates, including such items as estimated volatility of the Company’s stock, risk free interest rate and the estimated life of the financial instruments being fair valued.
If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
12
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies (continued) |
| n) | Recent accounting pronouncements |
Recent accounting pronouncements
In August 2020, the FASB issued ASU No. 2020-06, debt with Conversion and Other Options (subtopic 470-20): and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), certain accounting models for convertible debt instruments with beneficial conversion features or cash conversion features are removed from the guidance and for equity instruments the contracts affected are free standing instruments and embedded features that are accounted for as derivatives, the settlement assessment was simplified by removing certain settlement requirements.
This ASU is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. 2021.
The amendments in Part 1effects of this Update should be applied inASU on the Company’s condensed consolidated financial statements is currently being assessed and is expected to have an impact on the treatment of certain convertible instruments.
The FASB issued several updates during the period, none of these standards are either of the following ways: 1. Retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustmentapplicable to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective 2. Retrospectively to outstanding financial instruments with a down round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10.
The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect.
The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging, an amendment to Topic 815. The amendments in this Update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components 2 and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments in this Update require an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported.
The amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of the Update. All transition requirements and elections should be applied to hedging relationships existing (that is, hedging relationships in which the hedging instrument has not expired, been sold, terminated, or exercised or the entity has not removed the designation of the hedging relationship) on the date of adoption. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.
In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842). The amendments in this ASU deals with the transition and effective dates of implementing to ASU 2014-09, Revenue from contracts with customers, ASU 2016-08, Revenue from contracts with customers, principal versus agent considerations, ASU 2016-10, revenues from contacts with customers; identifying performance obligations and licensing, ASU 2016-12, revenues from contacts with customers, narrow scope improvements and practical expedients, 2016-20, technical corrections and improvements and ASU 2017-05, other income, gains and losses from the derecognition of non-financial assets.
The transition provisions require adoption of Topic 606 for annual reporting periods commencing after December 15, 2017 and the adoption of Topic 842 for annual reporting periods beginning after December 15, 2018 for public business entities, if the requirements of a public business entity as defined in ASU 2017-122 are not met, may adopt Topic 606 for annual reporting periods commencing after December 15, 2018 and for Topic 842 for annual reporting periods commencing after December 15, 2019. Early adoption is permitted of both Topics. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.
Any new accounting standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption untilat a future date and none are not expected to have a material impact on the condensed consolidated financial statements upon adoption.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued)
| Financial instruments Risks |
The Company is exposed to various risks through its condensed consolidated financial instruments. The following analysis provides a measure of the Company’s risk exposure and concentrations at the balance sheet date, September 30, 20172020 and December 31, 2016.2019.
| 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 DelrayARIA 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 $1,877,040$28,298,725 and an accumulated deficit $(14,789,989). As disclosed in note 6, theof $57,053,655. The Company willcontinues to be dependent upon the raising of additional capital in order to implement its business plan. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. In the opinion of management, liquidity risk is assessed as high, material and remains unchanged from the prior year.
| iii. | Market risk |
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises of three types of risk: interest rate risk, currency risk, and other price risk. The Company is exposed to interest rate risk and currency risk.
13
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| o) | Financial instruments Risks (continued) |
| iii. | Market risk (continued) |
| 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 $11no overdraft indebtedness as of September 30, 2017. This liability is based on floating rates of interest that have been stable during the current reporting period.2020. In the opinion of management, interest rate risk is assessed as low, not material and remains unchanged from the prior year.
| b. | Currency risk |
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is subject to currency risk as it has subsidiaries that operate in Canada and are subject to fluctuations in the Canadian dollar. A substantial portion of the Company’s financial assets and liabilities are denominated in Canadian dollars. Based on the net exposures at September 30, 2017,2020, a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an approximate $13,217 $3,722 increase or decrease in the Company’s after tax net income from operations. The Company has not entered into any hedging agreements to mediatemitigate this risk. In the opinion of management, currency risk is assessed as low, 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)
| 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.
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 September 30, 2017, the Company had a derivative liability amounting to $148,297.
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 provide 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.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
| 3. |
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:
On February 14, 2017, the Company acquired 100% of the equity of CCH, from Leon Developments, a company wholly owned by our CEO. The total consideration paid by the Company was CDN$3,517,062, including the assumption of certain liabilities of CCH, which was funded by the assignment to Leon Developments of certain indebtedness owing to the Company in the amount of CDN$659,918 (US$504,442) on the disposal of a subsidiary, 1816191 Ontario, which principal amount had previously been fully provided for during 2015; and the issuance of 60,000,000 shares of the Company’s common stock at US$0.0364 per share for proceeds of $2,184,000.
On June 1, 2017, the Company had the property owned by CCH appraised by an independent valuer, the appraisal obtained was for CDN$10,000,000, which resulted an increase in the value of the assets acquired by $1,146,000 and a corresponding reduction in the excess purchased consideration allocated to the shareholder.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
The allocation of the purchase price is as follows:
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
The assets acquired were as follows:
| Going concern |
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business. As of September 30, 2017,2020 the Company has a working capital deficiency of $1,877,040approximately $28,300,000 and accumulated deficit of $(14,789,989).approximately $57,100,000. Management believes that current available resources will not be sufficient to fund the Company’s planned expenditures over the next 12 months. Accordingly, the Company will be dependent upon the raising of additional capital through placement of common shares, and/or debt financing in order to implement its business plan, and or generating sufficient revenue in excess of costs. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain geographical areas, or techniques that it might otherwise seek to retain. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. These factors create substantial doubt about the Company’s ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include any adjustments relating to the amounts and classificationsrecoverability or classification of recorded assets and liabilities or other adjustments that mightmay be necessary should the Company not be unable to continue operations.
The ability of the Companyable to continue as a going concern is dependent on the Company generating cash from the sale of its common stock or obtaining debt financing and attaining future profitable operations. Management's plans include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.concern.
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 nine month period ended September 30, 2017 and 2016. Refer note 2 above.
14
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
The assets and liabilities of discontinued operations as of December 31, 2016 is as follows:
| Prepaid expenses and other current assets | |||||||
The Statement of operations for discontinued operations is as follows:
| Three months ended September 30, 2017 | Three months ended September 30, 2016 | Nine months ended September 30, 2017 | Nine months ended September 30, 2016 | ||||
| Revenues | $ - | $ 1,076,303 | $ 232,040 | $ 2,923,524 | |||
| Operating expenses | |||||||
| Depreciation and amortization | - | 16,586 | 4,196 | 47,332 | |||
| General and administrative | 353 | 197,854 | 119,058 | 547,477 | |||
| Professional fees | - | - | 32,818 | - | |||
| Rent | - | 104,881 | 47,493 | 284,993 | |||
| Salaries and wages | - | 366,986 | 201,723 | 1,178,968 | |||
| Total operating expenses | 353 | 686,307 | 405,288 | 2,058,770 | |||
| Operating (loss) income | (353) | 389,996 | (173,248) | 864,754 | |||
| Other (Expense) Income | |||||||
| Other income | - | - | - | 21,042 | |||
| Other expense | - | (28,298) | - | (28,298) | |||
| Interest expense | (1,904) | (40,031) | (2,898) | (116,774) | |||
| Foreign exchange movements | (215,996) | (2,766) | (124,293) | 21,956 | |||
| Net (loss) income before taxation | (218,253) | 318,901 | (300,439) | 762,680 | |||
| Taxation | - | - | - | - | |||
| Net (loss) income from discontinued operations | $ (218,253) | $ 318,901 | $ (300,439) | $ 762,680 | |||
| Gain on disposal of business | - | - | 7,494,828 | - | |||
| $ (218,253) | $ 318,901 | $ 7,194,389 | $ 762,680 |
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
A net amount of CDN$617,960 was due toPrepaid expenses and other current assets includes 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.following:
On February 14, 2017,25, 2019, the Company acquired CCH from Leon Developments and settledentered into a portionLetter of theIntent whereby it would purchase consideration by assigning the proceeds due to the Company on the sale of the Endoscopy Clinic to Leon Developments. The note together with accrueda 33.33% interest thereon of CDN$41,959 amounted to CDN$659,919 (US$504,442). The provision raised against the note was reversed and the unrecorded interest thereon was recognized during the current period.
On February 14, 2017, the Company sold its Canadian Rehab Clinicin Local Link Wellness, LLC (“LLW”) for gross proceeds of CDN$10,000,000,$400,000. LLW plans to provide a comprehensive addiction treatment program to large employee groups. The company has advanced LLW a total of $120,000 as at September 30, 2020. These funds were advanced as short-term promissory notes that are immediately due and payable and are classified as other current assets on our unaudited condensed consolidated balance sheet.
The company invested funds in Evernia Health Services, LLC (“Evernia”), a newly formed entity which CDN$1,500,000 (US$1,155,900) has been retainedis 100% owned by American Treatment Holdings, Inc. (“ATHI”), a newly formed entity to hold the investment in an escrow account for a period of up to two years in order to guarantee the warranties provided byEvernia.
On June 30, 2020, the Company entered into a loan agreement with Evernia whereby it had advanced Evernia $290,075, the loan is non-interest bearing per annum and is repayable in termsinstalments which are equal to the cash receipts collected during the previous month less ordinary business expenses and management fees paid to Ethema and Hawkins, which management fee is a maximum of $20,000 per month. The instalments commence on the earlier of; (i) December 31, 2020 and; (ii) the date that Evernia accumulates cash reserves of $200,000. The loan will remain in place until repaid in full. The repayment proceeds will be repaid directly to Leonite in reduction of the APA. In addition,loan funds advanced by Leonite to 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 September 30, 2017, the company had accrued $169,593 (at closing exchange rates) as additional income.Company.
| Property |
Property plant and equipment consists of the following:
| September 30, 2017 | December 31, 2016 | |||||||||||||||
| Cost | Amortization and Impairment | Net book value | Net book value | |||||||||||||
| Property | $ | 12,432,237 | $ | (307,253 | ) | $ | 12,124,984 | $ | — | |||||||
| Furniture and fixtures | 80,000 | (15,000 | ) | 65,000 | — | |||||||||||
| $ | 12,512,237 | $ | (322,253 | ) | $ | 12,189,984 | $ | — | ||||||||
| September 30, 2020 | December 31, 2019 | |||||||||||||||
| Cost | Accumulated depreciation | Net book value | Net book value | |||||||||||||
| Land | $ | 161,181 | $ | — | $ | 161,181 | $ | 165,537 | ||||||||
| Property | 3,049,063 | (428,691 | ) | 2,620,372 | 2,785,131 | |||||||||||
| $ | 3,210,244 | $ | (428,691 | ) | $ | 2,781,553 | $ | 2,950,668 | ||||||||
Depreciation expense for the three months ended September 30, 20172020 and 20162019 was $131,784$32,010 and $0,$47,104, respectively and for the nine months ended September 30, 20172020 and 20162019 was $314,190$91,598 and $0,$179,399 respectively.
In termsOn June 30, 2020, the Company entered into an agreement whereby the Company will acquire 51% of American Treatment Holdings, Inc. (“ATHI”) from The Q Global Trust (“Seller”) and Lawrence B Hawkins (“Hawkins”), which in turn owns 100% of Evernia Health Services LLC. (“Evernia”), which operates drug rehabilitation facilities. The consideration for the acquisition is a loan to be provided by the purchaser to Evernia in the amount of $500,000. As of September 30, 2020, the Company had advanced Evernia approximately $290,100 including accrued interest thereon and the Company has agreed to advance an additional amount of approximately $10,000 (“the First Tranche”) within a reasonable time of concluding the loan agreements. The timing of the acquisitionbalance of Seastonethe advance of Delray,approximately $200,000 will be mutually agreed upon between the parties.
The Company has a 180 day option from the advancement of the First Tranche to purchase an additional 9% of ATHI for a purchase consideration of $50,000, payable to the Seller.
On June 30, 2020, the Company paidentered into an amountagreement whereby the Company will acquire 51% of $1,438,525 (Note 1 above)Behavioral Health Holdings, Inc. (“BHHI”) from The Q Global Trust (“Seller”) and Lawrence B Hawkins, which in excessturn owns 100% of Peace of Mind Counseling Services, Inc. (“PMCS”), which operates drug rehabilitation facilities. The consideration for the acquisition is still to be determined.
The Company has a 180 day option, from the advancement of the fair market valuefirst tranche to Evernia, to purchase an additional 9% of BHHI for a purchase consideration still to be determined, payable to the Seller.
On July 12, 2020, the Company entered into a five year option agreement with Leonite Capital LLC (“Leonite”) and other investors (collectively the “Transferees”), the Company agreed to sell to the Transferees 20% of the assets acquired. This amounttotal outstanding shares of ATHI from the shares of ATHI held by the company. The Company provided Leonite an option to purchase 2,666,667 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $267), based on the advances that Leonite and others made to the Company totaling $300,000. Leonite shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Leonite to the Company, thereafter the option will be allocatedreduced to different classes of intangible assets when an independent valuation50% of the intangibles is performed.shares exercisable under the option.
15
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Taxes Payable |
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. This |
| Estimated income taxes payable in certain of the Canadian operations. |
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
| September 30, 2020 | December 31, 2019 | |||||||
| Payroll taxes | $ | 136,884 | $ | 140,583 | ||||
| HST/GST payable | 59,031 | 26,524 | ||||||
| US penalties due | 250,000 | 250,000 | ||||||
| Income tax payable | 365,919 | 375,808 | ||||||
| $ | 811,834 | $ | 792,915 | |||||
The short-term convertible notes consist of the following:
| Interest rate | Maturity date | Principal Outstanding | Accrued interest | Unamortized Discount | September 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 | $ 3,844 | $ (70,834) | $ 46,510 | $ - | ||||||
| Series L Convertible notes | 0.0% | June 30, 2017 to July 17, 2017 | - | - | - | - | 250,258 | ||||||
| $ 113,500 | $ 3,844 | $ (70,834) | $ 46,510 | $ 250,258 | |||||||||
| Disclosed as follows: | |||||||||||||
| Short-term portion | $ 46,510 | $ 250,258 | |||||||||||
| Long-term portion | - | - | |||||||||||
| $ 46,510 | $ 250,258 |
| Interest rate | Maturity date | Principal | Interest | Debt Discount | September 30, 2020 | December 31, 2019 | ||||||||||||||||||||
| Leonite Capital LLC | 6.5 | % | On demand | $ | 370,000 | $ | 6,776 | $ | (165,151 | ) | $ | 211,625 | $ | 1,213,148 | ||||||||||||
| Power Up Lending Group | — | — | — | — | — | 33,707 | ||||||||||||||||||||
| — | — | — | — | — | 51,827 | |||||||||||||||||||||
| First Fire Global Opportunities Fund | 12.0 | % | August 1, 2020 | — | — | — | — | 247,361 | ||||||||||||||||||
| Auctus Fund, LLC | 10.0 | % | June 1 , 2021 | 225,000 | — | — | 225,000 | 129,016 | ||||||||||||||||||
| 10.0 | % | August 13, 2021 | 100,000 | 1,333 | (86,849 | ) | 14,484 | — | ||||||||||||||||||
| Labrys Fund, LP | 12.0 | % | January 8, 2020 | 200,000 | — | — | 200,000 | 286,057 | ||||||||||||||||||
| Ed Blasiak | 6.5 | % | September 14, 2021 | 55,000 | 159 | (52,589 | ) | 2,570 | — | |||||||||||||||||
| Joshua Bauman | 6.5 | % | September 14, 2021 | 110,000 | 318 | (105,178 | ) | 5,140 | — | |||||||||||||||||
| Series N convertible notes | 6.0 | % | May 17, 2019 to September 16, 2020 | 3,229,000 | 376,500 | - | 3,605,500 | 3,079,997 | ||||||||||||||||||
| $ | 4,264,319 | $ | 5,041,113 | |||||||||||||||||||||||
16
Labrys Fund, LPETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 8. | Short term convertible notes (continued) |
Leonite Capital LLC
On FebruaryDecember 1, 2017, the Company closed on a private offering to raise US $1,500,000 in capital. The Company issued one senior secured convertible promissory note with a principal amount of $1,650,000 to Leonite Capital LLC (“Leonite”). The note is convertible into shares of common stock at a conversion price of $0.06 per share, subject to anti-dilution and price protection. The Note bears interest at the rate of 8.5% per annum. The Note’s amended maturity date was December 1, 2018. During the term of the Note the Company and the Subsidiaries was obligated to make monthly payment of accrued and unpaid interest. The Note contains Company and Subsidiary representations and warranties, covenants, events of default, and registration rights. The Company paid a commitment fee of $132,000 settled through the issue of 1,650,000 shares of common stock and paid $20,000 towards the lenders legal fees. In conjunction with this note, the Company issued a five year warrant to purchase 27,500,000 shares of common stock at an exercise price or $0.10 per share, subject to anti-dilution and price protection.
The Note provided that the parties use reasonable best efforts to close on the remaining $1,200,000 of availability under the Note by January 1, 2018. As a condition to the closing of the Balance Tranche, the parties must finalize and enter into additional agreements related to the Private Offering, including, but not limited to, (i) a Securities Purchase Agreement; (ii) a Warrant Agreement under which the Investor will have the right to purchase up to 27,500,000 shares of the Company’ common stock for $0.10 per share, subject to adjustment, for a period of five years; (iii) a Securities Pledge Agreement under which the Company and the Subsidiaries will grant the lender a blanket lien on their assets, and the Company will pledge its equity ownership in the Subsidiaries. Upon the closing of the Balance Tranche the maturity date of the Note was to become December 1, 2018.
On December 29, 2017, effective as of December 1, 2017, the Company and the Subsidiaries entered into an Amended and Restated Senior Secured Convertible Promissory Note, which note amended and restated 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; 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 $93,764 of availability under the A&R Note, as amended, serving as a holdback pursuant to the terms of the First Amendment.
On March 29, 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 $165,000, including an unsecured convertible promissoryOriginal Issue Discount of $15,000, for net proceeds of $150,000. The note withhad a maturity date of August 2, 2017. The noteDecember 1, 2018 and bears interest at a rate of 8%8.5% per annum. The outstanding principal amount of the note is only convertible upon a repayment default,at any time and from time to time at the lower of 60%election of the lowest traded price overpurchaser following the preceding 30 day trading period prior to the issuance of this note or 60%issue date into shares of the lowest tradedCompany’s common stock at a conversion price 30 days priorequal to the conversion date.$0.06 per share subject to anti-dilution and price protection. The Company issued 1,200,000 common shares to the note holder aspaid a commitment fee which returnableof $11,550 settled through the issue of 165,000 shares will be returnedof common stock. In conjunction with this note the Company issued a five year warrant to the company if fully repaid priorpurchase 5,500,000 shares of common stock at an exercise price of $0.10 per share, subject to August 2, 2017.anti-dilution and price protection.
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.17
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
Leonite Capital LLC (continued)
On April 17, 2018, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $605,000, including an Original Issue Discount of $55,000, for net proceeds of $550,000. The note had a maturity date of December 1, 2018 and bears interest at 8.5% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to price protection and anti-dilution protection. The Company paid a commitment fee of $42,350 settled through the issue of 10,083,333 shares of common stock. In conjunction with this note the Company issued a five year warrant to purchase 10,083,333 shares of common stock at an exercise price of $0.10 per share, subject to anti-dilution and price protection.
On January 17, 2019, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $71,111, including an Original Issue Discount of $7,111, for net proceeds of $64,000. The note had a maturity date of July 25, 2019 and bears interest at 11.0% per annum. The outstanding principal amount of the note was convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to price protection and anti-dilution protection. The Company paid a commitment fee of $4,978 settled through the issue of 71,111 shares of common stock. In conjunction with this note the Company issued a five year warrant to purchase 1,185,183 shares of common stock at an exercise price of $0.10 per share, subject to anti-dilution and price protection.
Effective March 19, 2019, the Company entered into a note extension agreement with Leonite, whereby the convertible notes outstanding to Leonite, amounting to $2,420,000, for consideration of $75,000 added to the principal outstanding on the note on January 1, 2019, a further $75,000 added to the principal outstanding on the note on February 1, 2019 and a further $100,000 added to the principal of the note on March 15, 2019, the maturity date of all of the convertible notes above were extended to December 31, 2019 and has subsequently been partially settled by the transfer of the property located at 810 Andrews Avenue, Delray Beach, Florida, valued at $1,500,000.
On August 26, 2019, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $60,000, including an Original Issue Discount of $10,000, for net proceeds of $47,000. The note had a maturity date of September 10, 2019 and bears interest at 1.0% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to price protection and anti-dilution protection. In conjunction with this note the Company issued a five year warrant to purchase 1,000,000 shares of common stock at an exercise price of $0.10 per share, subject to anti-dilution and price protection.
On October 10, 2019, the Company transferred a warranty deed to the real property located at 810 Andrews Avenue, Delray Beach, Florida to Leonite Capital LLC, in settlement of indebtedness of $1,398,514 and additional expenses related to the disposal of the property of $36,470. These expenses of $36,470 were provided for resulting in net proceeds recognized on the transfer of the property of $1,362,044.
18
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 8. | Short term convertible notes (continued) |
Leonite Capital LLC (continued)
On July 12, 2020, the company entered into a debt extinguishment agreement with Leonite whereby the following occurred:
| 1. | The total amount outstanding under the note, including principal and interest was reduced to $150,000 |
| 2. | $700,000 of the note was converted into Series A Redeemable Preferred shares in the Company’s subsidiary, Cranberry Cove Holdings, accruing dividends at 10% per annum. |
| 3. | $400,000 of the note was converted into series B Preferred stock in the Company for a 12 month period, mandatorily redeemable by the Company accruing dividends at 6% per annum payable in cash or stock, subject to certain conditions. |
| 4. | The remaining balance of $150,000 will accrue interest at 8.5% per annum and is convertible into common stock and repayable in 6 monthly installments of $25,000 commencing after December 12, 2020. |
| 5. | The existing warrants were cancelled and a new five year warrant, with a cashless exercise options, exercisable for a minimum of 326,286,847 shares of common stock and a maximum of 20% of the outstanding equity of the Company at an initial exercise price of $0.10 per share subject to adjustment based on new stock issuances or the lowest volume weighted exercise price of the stock for 30 days immediately preceding the exercise was issued to Leonite. |
On July 12, 2020, the Company entered into a Senior Secured Convertible Note agreement with Leonite for $440,000 with an original issue discount of $40,000 for gross proceeds of $400,000, the initial tranche advanced will be for cash of $200,000 plus the OID of $20,000, the remaining advances will be at the discretion of the Leonite. The loan bears interest at 6.5% per annum and matures on June 12, 2021. The Company is required to make monthly payments of the accrued interest on the advances made. The note is convertible into common shares at the option of the holder at $0.10 per share, or 80% multiplied by the price per share paid in subsequent financings or after a six month period from the effective date at 60% of the lowest trading price during the preceding 21 consecutive trading days. The note has both conversion price protection and anti-dilution protection provisions. As of September 30, 2020, net proceeds of $200,000 was advanced to the Company.
Power Up Lending Group LTD
On June 19, 2017,July 8, 2019, 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.$53,000. The Note hashad a maturity date of March 20, 2018April 30, 2020 and bearsbore interest at the at the rate of eightnine percent per annum from the date on which the Note iswas issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall havehas 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 PurchaserPower Up during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the average lowest closing bid pricesprice of the Company’s common stock for the ten trading days prior to conversion.
Between January 10, 2020 and January 24, 2020, in terms of conversion notices received, Power Up converted the aggregate principal amount of $53,000 and interest thereon of $1,085 into 75,618,509 shares of common stock at an average conversion price of $0.000715 per share.
19
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 8. | Short term convertible notes (continued) |
Power Up Lending Group LTD (continued)
On July 15 2019, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $83,000. The balanceNote has a maturity date of April 30, 2020 and bears interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note plus accrued interestis convertible at September 30, 2017 was $46,510, netany time and from time to time at the election of unamortized discountPower Up during the period beginning on the date that is 180 days following the issue date into shares of $70,834.the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion.
Series LBetween January 24, 2020 and February 27, 2020, in terms of conversion notices received, Power Up converted the aggregate principal amount of $41,400 into 453,800,493 shares of common stock at an average conversion price of 0.0000912 per share.
On June 1, 2020, The Company repaid the Power Up Lending Group $41,600 in full settlement of the convertible notesnote entered into on July 15, 2019.
The
First Fire Global Opportunities Fund
On March 5, 2019, the Company entered into Series L Convertiblea Securities Purchase Agreements with 8 individuals onAgreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $200,000, for net proceeds of $192,000 after the payment of legal fees and origination fees amounting to $8,000. The note has a maturity date of December 9, 2019. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser. 180 days after the issued date into shares of the Company’s common stock at the lower of $0.08 per share or 65% of the lowest trade price during the ten consecutive trading days immediately prior to conversion. The note has certain buyback terms if the Company consummates a registered or unregistered primary offering of securities for capital raising purposes, or an option to convert at a 20% discount to the offering price to investors.
Between September 11, 2019 and December 30, 2016. In2019, in terms of these agreements,a conversion notices received, the Company borrowedissued 11,887,445 shares of Common stock in settlement of $36,592 of principal outstanding.
Between January 6, 2020 and February 26, 2020, in terms of conversion notices received, First Fire converted an aggregate principal amount of $468,969$83,902 into 308,100,000 shares of common stock at an average conversion price of $0.000272 per share.
On June 3, 2020, the Company entered into an agreement with First Fire whereby the remaining balance of the convertible note of $73,006 would be settled by two payments of $25,000 each.
Between July 2, 2020 and August 17, 2020, the Company repaid the remaining principal outstanding of $50,000 plus additional interest charges of $1,500.
Auctus Fund, LLC
On August 7 2019, the Company, entered into a Securities Purchase Agreement with Auctus Fund, LLC, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $225,000. The Note had a maturity date of May 7, 2020 and bore interest at the rate of ten percent per annum from the date on which the Note was issued until the same became due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the election of Auctus Fund, LLC 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 senior rankingconversion price equal to 60% of the lowest closing bid price of the Company’s common stock for the thirty trading days prior to conversion.
On June 15, 2020, The Company entered into an amended agreement with Auctus whereby the Company agreed to discharge the principal amount of the note by nine equal monthly installments of $25,000 commencing in October 2020.
On August 13, 2020, the Company entered into a Securities Purchase Agreement with Auctus Fund LLC, pursuant to which the Company issued a convertible promissory note within the aggregate principal amount of $100,000 for net proceeds of $85,000 after certain fees and expenses of $15,000. The note has a maturity date of August 13, 2021 and bears interest at 10% per annum. The interest due on the note for the full twelve month period is due immediately upon issuance of the note, regardless of acceleration or prepayment. The principal amount of the note is payable in six monthsmonthly instalments of $16,666.66 commencing 180 days after the issuance date, the balance outstanding under the note due at maturity date. In the event a default occurs under the Note, the Note is convertible into shares of common stock at a conversion price equal to the lowest trading price over the prior 5 days prior to the date of the note or the five day volume weighted market price prior to the date of conversion. The Company is required to adhere to certain covenants including covenants concerning distributions of capital stock; restrictions on stock repurchases, additional borrowings sales of assets and loans and advances made by the Company. In conjunction with the issuance of the promissory note, the Company issued a five year warrant exercisable for 66,666,666 shares of common stock at an exercisable price of $0.0015 per share subject to anti-dilution and price protection adjustments. The Company also issued a second five year warrant exercisable for 66,666,666 shares of common stock at an exercisable price of $0.0015 per share subject to anti-dilution and price protection adjustments, which warrants will only be exercisable upon an event of default on the convertible note.
20
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 8. | Short term convertible notes (continued) |
Labrys Fund, LP
On July 8, 2019, the Company, entered into a Securities Purchase Agreement with Labrys Fund, LP, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $282,000 for net proceeds of $253,800 after an original issue discount of $28,200. The Note had a maturity date of January 8, 2020 and bore interest at the rate of twelve percent per annum from the date on which the Note was issued until the same became due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company had the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note was convertible at any time and from time to time at the election of Labrys 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 60% of the lowest closing bid price of the Company's common stock for the thirty trading days prior to conversion. The Company was also required to transfer 2,764,706 unissued shares of common stock, which shares will be returned to the Company if the note is repaid prior to the expiry of 180 days from the date of issuance.
In connection with the issuance of the convertible promissory note to Labrys Fund LP, the Company issued 2,700,000 returnable shares. These shares were returnable if the note was paid prior to maturity date on January 8, 2020. The company had not repaid the note on the maturity date, January 8, 2020, therefore the 2,700,000 shares were expensed as an additional fee amounting to $165,780, the value of the shares on the date of grant.
Between January 15, 2020 and bearingFebruary 25, 2020, in terms of conversion notices received, Labrys Fund LP converted the aggregate principal sum of $8,936 and interest of $19,867 into 479,160,076 shares of common stock at an average conversion price of 0.00006 per share.
On May 15, 2020 the Company entered into an amended agreement with Labrys Fund LP whereby default interest and penalties were waived, no further conversions will be effectuated and the Company committed to make eight equal payments of $25,000 commencing on October 15, 2020, in full settlement of the balance outstanding. No event of default will occur as long as the Company makes all scheduled payments.
Ed Blasiak
On September 14, 2020, the Company entered into a Securities Purchase Agreement with Ed Blasiak (“Blasiak”), pursuant to which the Company issued a senior secured convertible promissory note in the aggregate principal amount of $55,000, including an original issue discount of $5,000. The note bears interest at 0%6.5% per annum.annum and matures on September 14, 2021. The notes arenote is senior to any future borrowings and commencing on October 1, 2020 the Company will make monthly payments of the accrued interest under the note. The note may be prepaid at certain prepayment penalties and is convertible into shares of common stock at a conversion price at the option of the holder at $0.001 per share, adjusted for anti-dilution provisions; or 80% of the price per share of subsequent equity financings or; after six months 60% of the lowest trading price during the preceding six month period.
On September 14, 2020, the Company entered into a five year option agreement with Blasiak and other investors (collectively the “Transferees”), the Company agreed to sell to the Transferees 20% of the total outstanding shares of ATHI. The Company provided Blasiak an option to purchase 571,428 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $57), based on the advances that Blasiak and others made to the Company totaling $400,000. Blasiak shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Blasiak to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
Joshua Bauman
On September 14, 2020, the Company entered into a Securities Purchase Agreement with Joshua Bauman (“Bauman”), pursuant to which the Company issued a senior secured convertible promissory note in the aggregate principal amount of $110,000, including an original issue discount of $10,000. The note bears interest at 6.5% per annum and matures on September 14, 2021. The note is senior to any future borrowings and commencing on October 1, 2020 the Company will make monthly payments of the accrued interest under the note. The note may be prepaid at certain prepayment penalties and is convertible 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 at $0.001 per share, adjusted for anti-dilution provisions; or 80% of the price per share of subsequent equity financings or; after six months 60% of the lowest trading price during the preceding six month period.
On September 14, 2020, the Company entered into a five year option agreement with Bauman and other investors (collectively the “Transferees”), the Company agreed to sell to the Transferees 20% of the total outstanding shares of common stockATHI. The Company provided Bauman an option to purchase 1,142,856 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $114), based on the advances that Bauman and others made to the Company totaling $400,000. Bauman shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Bauman to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
Series N convertible notes
Between January 28, 2019 and September 17, 2019, the Company closed several tranches of Series N Convertible notes in which it raised $1,643,894 in principal from accredited investors through the issuance to the investors of the Company’s Series N convertible notes, in the total original principal amount of $1,643,894, which Notes are convertible into the Company’s common stock at a conversion price of $0.03$0.08 per share together with three year warrants to purchase up to a total of 20,925,000 shares of the Company’s common stock at an exercise price of $0.12 per share. Both the conversion price under the Notes and the exercise price under the warrants are subject to certain recapitalization adjustments. In January 2017, it was determined thatstandard adjustment mechanisms. The notes mature one year from the beneficial conversion feature related to the discounted note and warrant issuances amounting to $71,000 would be amortized over the lifedate of the loans.issuance.
On May 4, 2017,15, 2019, one investor converted the Company repaid $20,000 of the principal outstanding to one investor. During July and August 2017, the Company repaid a further $144,958 of the principal outstanding to five investors.
During July 2017, five investors converted an aggregate principal amount of $375,011$950,000 of Series N convertible notes into 12,500,37511,875,000 shares of common stock at a conversion price of $0.03$0.08 per share.
The amortization charge of the debt discount for the three months and nine months ended September 30, 2017 was $5,917 and$289,711, 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).
21
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
The short-term convertible notes issued to Labrys Fund LP and Power Up Lending Group, LTD,Mortgage Loan payable is 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.as follows:
| Interest rate | Maturity date | Principal Outstanding | Accrued interest | September 30, 2020 | December 31, 2019 | |||||||||||||||||
| Cranberry Cove Holdings, Ltd. | ||||||||||||||||||||||
| Pace Mortgage | 4.2 | % | July 19, 2022 | $ | 3,805,081 | $ | 4,818 | $ | 3,809,899 | $ | 3,995,235 | |||||||||||
| Disclosed as follows: | ||||||||||||||||||||||
| Short-term portion | $ | 114,115 | $ | 114,290 | ||||||||||||||||||
| Long-term portion | 3,695,784 | 3,880,945 | ||||||||||||||||||||
| $ | 3,809,899 | $ | 3,995,235 | |||||||||||||||||||
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 ofaggregate amount outstanding at September 30, 2017 and a further charge of $19,329 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 it2020 is incurred.
The following assumptions were used in the Black-Scholes valuation model:
The movement in derivative liability ispayable as follows:
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
| Amount | ||||||||
| Within 12 months | 114,115 | |||||||
| Within 12 to 24 months | 3,695,784 | |||||||
| Total | $ | 3,809,899 | ||||||
Greenstone Clinic Inc.
As of September 30, 2017 and December 31, 2016, the Company had a payable of $0 and $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.
1816191 Ontario
As of September 30, 2017, and December 31, 2016, the Company had a payable of $16,855 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 September 30, 2017, and December 31, 2016 the Company had a receivable of $15,756 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 $193,156 during the nine months ended September 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 3 above.
Leon Developments, Ltd.
The Company acquired CCH from Leon Developments, Ltd., on February 14, 2017, refer note 1 and 3 above. CCH owns the facility utilized by the Canadian Rehab Clinic which was sold to a third party on February 14, 2017. CCH owed CDN $2,692,512 to Leon Developments. The amount owing to Leon Developments Ltd., as of September 30, 2017 was $1,740,018.
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 $47,493 for the period ended September 30, 2017 and $100,203 and $271,364 for the three and nine months ended September 30, 2017, 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.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
The loans payable is as follows:
| Interest rate | Maturity date | Principal Outstanding | Accrued interest | September 30, 2017 | December 31, 2016 | ||||||
| Cranberry Cove Holdings | |||||||||||
| First Mortgage | 8.0% | August 14, 2017 | $ - | $ - | $ - | $ - | |||||
| Second Mortgage | 12.0% | November 4, 2018 | - | - | - | - | |||||
| Pace Mortgage | 4.2% | July 19,2022 | 4,391,140 | 5,558 | 4,396,698 | - | |||||
| Seastone of Delray | |||||||||||
| Mortgage | 5.0% | February 13, 2020 | 2,982,280 | $ 12,426 | 2,994,706 | - | |||||
| $ 7,373,420 | $ 17,984 | $ 7,391,404 | $ - | ||||||||
| Disclosed as follows: | |||||||||||
| Short-term portion | $ 158,534 | $ - | |||||||||
| Long-term portion | 7,232,870 | - | |||||||||
| $ 7,391,404 | $ - |
The aggregate amount outstanding is payable as follows:
| Amount | |||||||||||
| 2017 | $ 38,438 | ||||||||||
| 2018 | 134,673 | ||||||||||
| 2019 | 140,707 | ||||||||||
| 2020 | 3,032,025 | ||||||||||
| 2021 | 116,262 | ||||||||||
| Thereafter | 3,929,299 | ||||||||||
| Total | $ 7,391,404 |
Cranberry Cove Holdings
First Mortgage
The first mortgage with an aggregate principal amount outstanding of CDN$3,500,000, including late charges, interest and penalties of CDN$165,057 for a gross aggregate amount outstanding of CDN$3,663,380, over the 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.
This mortgage was repaid in full on July 21, 2017 out of the proceeds derived from a new mortgage agreement entered into on July 19, 2017, see below.
Second Mortgage
The second mortgage had an initial principal amount outstanding of CDN$350,000, on May 23, 2017, the Company sold CDN$175,000 of the mortgage it owned to the second mortgage holder for gross proceeds of CDN$150,000, the balance outstanding on the second mortgage is now CDN$525,000, the mortgage is secured by the 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.
This mortgage was repaid in full on July 21, 2017 out of the proceeds derived from a new mortgage agreement entered into on July 19, 2017, see below.
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
Pace Mortgage
On July 19, 2017, Cranberry Cove Holdings, LTD. (“CCH”),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 Loanloan 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 Loanloan and the Company’s chief executive officer and controlling shareholder also has personally guaranteed the Loan. CCH and the Company have granted the Lender a general security interest in its assets to secure repayment of the Loan. The loan is amortized with monthly installments of CDN $29,531.
Seastone of Delray
The Company entered into a Mortgage and Security Agreement with Seastone Delray Healthcare, LLC on February 13, 2017 for the aggregate principal sum of $3,000,000, bearing interest at the rate of 5% per annum, maturing on February 13, 2020, with monthly repayments of interest and principal of $15,000. The proceeds of the mortgage of $3,000,000 was used to fund the acquisition of the Seastone Delray properties, described as follows:
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.
On February 2, 2017,April 12, 2019, Eileen Greene, a related party assigned CDN1,000,000 of the amount owed by the Company issued 1,200,000 common sharesto her to a convertible note holder in terms of a returnable commitment fee.third party. The shares are returnable toloan bears interest at 12% per annum which the Company if the convertible note is repaid prioragreed 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.pay.
On February 14, 2017, in terms September 18, 2020, CDN$202,000 (approximately $153,193)of the acquisition of 100% ofprincipal balance was repaid to 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 3 above.third party.
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.
During July 2017, five Series L Convertible note holders exercised their conversion rights and converted an aggregate principal amount of $375,011 into 12,500,375 shares of common stock at a conversion price or $0.03 per share.
| Derivative liability |
The short-term convertible notes, together with certain warrants issued to Leonite and the short term convertible notes and warrants disclosed in note 8 above and note 13 below, have variable priced conversion rights with no fixed floor price and will reprice dependent on the share price performance over varying periods of time. This gives rise to a derivative financial liability, which was initially valued at inception of the convertible notes at $2,209,959 using a Black-Scholes valuation model.
In terms of various debt extinguishment agreements entered into with convertible note holders, as disclosed in note 8 above, the Company agreed to settle certain convertible debt for a fixed cash price, resulting in a debt extinguishment, which included the extinguishment of the derivative liability which was previously recorded on the variable priced conversion feature of the convertible debt.
22
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
In terms ofaddition, the short-term Series L Convertible notesCompany entered into an agreement with 3 parties, as disclosedLeonite Capital LLC whereby certain warrants held by Leonite Capital LLC were cancelled and new warrants were issued with new pricing terms. The derivative liability associated with these warrants was included 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.extinguishment calculations.
The fair valuederivative liability is marked-to-market on a quarterly basis. As of Warrants awarded during the nine months ended September 30, 2017 were2020, the derivative liability was valued at $94,620 using the Black Scholes pricing model utilizing the following weighted average assumptions:$19,678,918.
The following assumptions were used in the Black-Scholes valuation model:
| Nine months ended September 30, 2020 | |||||||||||
| Calculated stock price | $ | 0.0001 to 0.0034 | |||||||||
| Risk free interest rate | 0.05% to 0.33% | ||||||||||
| Expected life of convertible notes and warrants | 1 to 60 months | ||||||||||
| expected volatility of underlying stock | 193.9% to 779.0% | ||||||||||
| Expected dividend rate | 0 | ||||||||||
The movementsmovement in warrantsderivative liability 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 September 30, 2017 | 22,004,075 | $ 0.033 to $0.03 | $ 0.0300 |
| September 30, 2020 | December 31, 2019 | |||||||
| Opening balance | $ | 8,694,272 | $ | 4,618,080 | ||||
| Derivative liability mark-to-market on convertible debt extinguishment | 126,444,276 | — | ||||||
| Derivative liability on revised convertible notes and warrants arising from convertible debt extinguishment | 6,349,265 | — | ||||||
| Derivative liability cancelled on debt extinguishment | (144,893,444 | ) | — | |||||
| Derivative liability on issued convertible notes and variable priced warrants | 450,000 | 1,477,163 | ||||||
| Fair value adjustments to derivative liability | 22,634,549 | 2,599,029 | ||||||
| Closing balance | $ | 19,678,918 | $ | 8,694,272 | ||||
| Related party transactions |
Shawn E. Leon
As of September 30, 2020 and December 31, 2019 the Company had a payable of $324,804 and $293,072, respectively to Shawn E. Leon. Mr. Leon is a director and CEO of the Company. The balances payable is non-interest bearing and has no fixed repayment terms.
Mr. Leon was paid management fees of $0 for the nine months ended September 30, 2020 and 2019. Mr. Leon is entitled to management fees of $240,000 per annum, the fee is not accrued and will not be paid in arears.
Leon Developments, Ltd.
As of September 30, 2020 and December 31, 2019, the Company owed Leon Developments, Ltd., $869,850 and $904,121, respectively. The balance owing to Leon Developments, Ltd. Is non-interest bearing and has no fixed terms of repayment.
Eileen Greene
As of September 30, 2020 and December 31, 2019, the Company owed Eileen Greene, the spouse of Mr. Leon, $1,565,109 and $1,696,473, respectively. The amount owing to Ms. Greene is non-interest bearing and has no fixed repayment terms.
23
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
Effective August 10, 2020, the Company amended its Articles of Incorporation whereby the authorized share capital was amended to the following:
| · | Ten billion shares of common stock, par value $0.01 per share; |
| · | Ten million shares of Series A Preferred stock, par value $0.01 per share; and |
| · | Four hundred thousand Series B Preferred stock, par value $1.00 per share. |
Series A Preferred stock
The salient terms of the Series A Preferred stock is summarized as follows:
| · | Convertible into ten shares of common stock six months after the date of issue |
| · | No participation in the profits and losses of the corporation |
| · | No dividend entitlement |
| · | Upon redemption, repurchase or conversion, the Series A Preferred shares shall be cancelled and will not be eligible for reissue. |
Series B Preferred stock
The salient terms of the Series B Preferred stock is summarized as follows:
| · | Series B Preferred stock will rank senior to all other classes of stock |
| · | Entitled to cumulative dividends at 6% per annum payable in cash or in kind, monthly on the last day of each month, calculated on 360 day year consisting of 12, 30-day periods. |
| · | No voting rights other than on (i) amendment to the articles of incorporation; (ii) mergers, consolidations or reorganizations; (iii) a sale of substantially all of the assets of the Company; (iv) change of the rights and preferences of the Series B preferred stock; (v) fundamental transactions entered into or liquidation of the Company; |
| · | Redeemable at the option of the Company, one year from date of issue; |
| · | Mandatorily redeemable one year after the date of issuance; |
| · | Entitled to participate in any future debt or equity |
| a) | Common shares |
Authorized, issued and outstanding
The Company has authorized 10,000,000,000 shares with a par value of $0.01 per share. The company has issued and outstanding common shares of 1,841,090,247 and 155,483,897 as of September 30, 2020 and December 31, 2019, respectively.
Between January 6, 2020 and June 9, 2020, the Company issued 1,398,906,350 shares of common stock in terms of conversion notices received from convertible note holders. The shares issued were issued below par based on the market price of the stock on the date of conversion and were valued at $559,285.
On January 8, 2020, the Company recorded the issuance of 2,700,000 shares to Labrys Fund. These shares were originally issued to Labrys fund as shares returnable to the Company dependent on settlement of the convertible note at maturity. The Company did not settle the convertible note or interest thereon at maturity.
Between January 6, 2020 and May 2, 2020, the Company issued 184,000,000 shares of common stock to Leonite Capital LLC in terms of the exercise of 224,390,247 warrants valued at $95,868 at an average exercise price of 0.00043 per share, based on the price protection afforded to the warrant holder.
24
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 13. | Stockholders' deficit (continued) |
| b) | Series A Preferred shares |
Authorized, issued and outstanding
The Company has authorized 10,000,000 Series A preferred shares with a par value of $0.01 per share, with 0 shares issued and outstanding.
| c) | Series B Preferred shares |
With effect from June 12, the Company designated $400,000 of the Leonite Capital LLC convertible loan as Series B Preferred Stock issuable at a par value of $1.00 per share.
| d) | Warrants |
The Company issued warrants to Leonite Capital LLC with an initial exercise price of $0.10 per share. The terms of these warrants included a price protection in the form of a reduction in the exercise price should the Company issue any stock at a price below the exercise price. The Company subsequently issued common stock at a price of $0.0000324 per share thereby triggering the price protection clause in the warrant agreement, resulting in an additional 152,017,272,726 warrants exercisable over shares of common stock. Leonite exercised warrants over 224,338,247 shares of common stock resulting in the issue of 184,000,000 shares of common stock. The remaining Leonite warrants exercisable for 154,300,675,861 shares of common stock were cancelled in terms of the debt extinguishment agreement entered into with Leonite and a further five year warrant exercisable for 326,286,847 shares of common stock, exercisable at $0.10 per share or the lowest volume weighted average price over a 30 day period preceding the date of issuance, exercise or twenty four month anniversary of issuance.
A summary of all of the Company’s warrant activity during the period January 1, 2019 to September 30, 2020 is as follows:
| No. of shares | Exercise price per share | Weighted average exercise price | ||||||||||
| Outstanding as of January 1, 2019 | 97,499,908 | $0.003 to $0.12 | $ | 0.0910000 | ||||||||
| Granted | 27,700,652 | $0.10 to $0.12 | 0.1177300 | |||||||||
| Adjustment due to price protection | 2,456,534,397 | $ | 0.00204 | 0.0020400 | ||||||||
| Forfeited/cancelled | (15,633,709 | ) | 0.03 | 0.0300000 | ||||||||
| Exercised | — | — | — | |||||||||
| Outstanding as of December 31, 2019 | 2,566,101,248 | $0.00204 to $0.12 | $ | 0.0044700 | ||||||||
| Granted | - | - | - | |||||||||
| Adjustment due to price protection | 152,017,272,726 | 0.0000324 | 0.0000324 | |||||||||
| Forfeited/cancelled | (2,366,666 | ) | 0.03 | 0.0300000 | ||||||||
| Granted in terms of debt extinguishment | 326,286,847 | 0.000675 | 0.0006750 | |||||||||
| Cancelled as part of debt extinguishment | (154,300,675,861 | ) | 0.0000324 | 0.0000324 | ||||||||
| Granted | 133,333,332 | 0.0015000 | 0.0015000 | |||||||||
| Exercised | (224,388,247 | ) | 0.0004 | 0.0004000 | ||||||||
| Outstanding as of September 30, 2020 | 515,561,379 | $0.000675 to $0.12 | $ | 0.0131892 | ||||||||
25
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 13. | Stockholders' deficit (continued) |
| d) | Warrants (continued) |
The following table summarizes information about warrants outstanding at September 30, 2017:2020:
| 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 | 2.44 | 21,704,075 | ||||||
| 22,004,075 | 2.44 | $ 0.03 | 22,004,075 | $ 0.03 | |||||
| Warrants outstanding | Warrants exercisable | ||||||||||||||||||||||||||
Exercise price |
No. of shares | Weighted average remaining years | Weighted average exercise price |
No. of shares | Weighted average exercise price | ||||||||||||||||||||||
| $0.000675 | 326,286,847 | 4.78 | 326,286,847 | ||||||||||||||||||||||||
| $0.001500 | 133,333,332 | 4.87 | 133,333,332 | ||||||||||||||||||||||||
| $0.030000 | 3,703,700 | 0.53 | 3,703,700 | ||||||||||||||||||||||||
| $0.120000 | 52,237,500 | 1.14 | 52,237,500 | ||||||||||||||||||||||||
| 515,561,379 | 4.41 | $ | 0.0131892 | 515,561,379 | $ | 0.0131892 | |||||||||||||||||||||
* 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 September 30, 20172020 and December 31, 2019 are vested. The warrants outstanding as of September 30, 20172020 have an intrinsic value of $668,123.$1,280,351.
| Stock options |
Our board of directors adopted the GreeneStoneGreenestone Healthcare Corporation 2013 Stock Option Plan (the “Plan”) to promote our long- termlong-term growth and profitability by (i) providing our key directors, officers and employees with incentives to improve stockholder value and contribute to our growth and financial success and (ii) enable us to attract, retain and reward the best available persons for positions of substantial responsibility. A total of 10,000,000 shares of our common stock have been reserved for issuance upon exercise of options granted pursuant to the Plan. The Plan allows us to grant options to our employees, officers and directors and those of our subsidiaries; provided that only our employees and those of our subsidiaries may receive incentive stock options under the Plan. We have granted a total of 480,000 options as of September 30, 2017 under the Plan.
No options were issued, exercised or cancelled forduring the period under review.nine months ended September 30, 2020 and the year ended December 31, 2019, respectively.
| 14. | Debt extinguishment |
The Company entered into debt extinguishment agreement with the following table summarizes information about options outstandingconvertible debt holders as of September 30, 2017.disclosed in note 8 above.
| 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 | 2.08 | 480,000 | ||||||
| 480,000 | 2.08 | $ 0.12 | 480,000 | $ 0.12 | |||||
As of September 30, 2017, there was no unrecognized compensation costs related to these options and the intrinsic value of the options is $0.
| Auctus Fund, LLC |
| · | First Fire Global Opportunities Fund |
| · | Labrys Fund LP |
| · | Leonite Capital LLC |
| · | Power Up Lending Group LTD |
26
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
Due to the recent acquisitionIn terms of the Cranberry Cove subsidiaryagreements entered into with the convertible debt holders debt the following amounts were recorded as gain on February 14, 2017, thedebt extinguishment:
| Nine months ended September 30, 2020 | ||||
| Convertible debt extinguished | 971,564 | |||
| New debt issued | (668,100 | ) | ||
| Fair value gain on preferred stock issued | 280,311 | |||
| Derivative liability mark-to-market on convertible debt extinguishment | (126,444,276 | ) | ||
| Derivative liability on revised convertible notes and warrants arising from convertible debt extinguishment | (6,349,265 | ) | ||
| Derivative liability eliminated on debt extinguishment | 144,893,444 | |||
| Gain on debt extinguishment | 12,683,678 | |||
| 15. | Segment information |
The Company has two reportable operating segments;segments:
| a. | Rental income from the property owned by |
| b. | Rehabilitation Services provided to customers, |
The segment operating results of the reportable segments areis disclosed as follows:
| Three months ended September 30, 2017 | |||||
| Rental Operations | In-Patient services | Total | |||
| Revenue | $ 83,837 | $ 564,461 | $ 648,298 | ||
| Operating expenditure | 158,808 | 398,160 | 556,968 | ||
| Operating (loss) income | (74,971) | 166,301 | 91,330 | ||
| Other (expense) income | |||||
| Other income | - | 67,596 | 67,596 | ||
| Interest expense | (38,714) | (47,657) | (86,371) | ||
| Amortization of debt discount | - | (13,052) | (13,052) | ||
| Loss on change in fair value of derivative liability | - | (19,329) | (19,329) | ||
| Foreign exchange movements | (18,320) | 71,614 | 53,294 | ||
| Net loss before taxation from continuing operations | (132,005) | 225,473 | 93,468 | ||
| Taxation | - | - | - | ||
| Net loss from continuing operations | $ (132,005) | $ 225,473 | $ 93,468 | ||
| Nine months ended September 30, 2020 | ||||||||||||
| Rental Operations | In-Patient services | Total | ||||||||||
| Revenue | $ | 255,672 | $ | — | $ | 255,672 | ||||||
| Operating expenditure | 103,606 | 286,612 | 390,218 | |||||||||
| Operating income (loss) | 152,066 | (286,612 | ) | (134,546 | ) | |||||||
| Other (expense) income | ||||||||||||
| Interest income | — | 629 | 629 | |||||||||
| Gain on debt extinguishment | — | 12,683,678 | 12,683,678 | |||||||||
| Loss on debt conversion | — | (312,836 | ) | (312,836 | ) | |||||||
| Exercise of warrants | — | (95,868 | ) | (95,868 | ) | |||||||
| Interest expense | (185,370 | ) | (307,614 | ) | (492,984 | ) | ||||||
| Amortization of debt discount | — | (628,892 | ) | (628,892 | ) | |||||||
| Change in fair value of derivative liability | — | (22,634,549 | ) | (22,634,549 | ||||||||
| Foreign exchange movements | (11,318 | ) | 93,869 | ) | 82,551 | |||||||
| Net loss before taxation | (44,622 | ) | (11,488,195 | ) | (11,532,817 | ) | ||||||
| Taxation | — | — | — | |||||||||
| Net loss | $ | (44,622 | ) | $ | (11,488,195 | ) | $ | (11,523,817 | ) | |||
27
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:
| Nine months ended September 30, 2017 | Nine months ended September 30, 2019 | ||||||||||||||||
| Rental Operations | In-Patient services | Total | Rental Operations | In-Patient services | Total | ||||||||||||
| Revenue | $ 203,962 | $ 1,169,066 | $ 1,373,028 | $ | 248,019 | $ | 80,225 | $ | 328,244 | ||||||||
| Operating expenditure | 294,673 | 1,635,041 | 1,929,714 | ||||||||||||||
| Operating expenses | 106,393 | 4,021,917 | 4,128,310 | ||||||||||||||
| Operating loss | (90,711) | (465,975) | (556,686) | ||||||||||||||
| Operating income (loss) | 141,626 | (3,941,692 | ) | (3,800,066 | ) | ||||||||||||
| Other (expense) income | |||||||||||||||||
| Other income | - | 635,904 | 635,904 | — | 6,600 | 6,600 | |||||||||||
| Other expense | (373,274) | (19,264) | (392,538) | — | (11,729 | ) | (11,729 | ) | |||||||||
| Interest income | - | 32,074 | 32,074 | — | 15,313 | 15,313 | |||||||||||
| Loss on disposal of property | — | (692,488 | ) | (692,488 | ) | ||||||||||||
| Bonus shares issued to investors | — | (143,500 | ) | (143,500 | ) | ||||||||||||
| Interest expense | (136,902) | (106,090) | (242,992) | (165,614 | ) | (675,546 | ) | (841,160 | ) | ||||||||
| Amortization of debt discount | - | (442,377) | (442,377) | — | (2,564,338 | ) | (2,564,338 | ) | |||||||||
| Loss on change in fair value of derivative liability | - | 75,203 | 75,203 | — | 3,130,273 | 3,130,273 | |||||||||||
| Foreign exchange movements | (18,320) | (92,732) | (111,052) | (25,752 | ) | (186,215 | ) | (211,967 | ) | ||||||||
| Net loss before taxation from continuing operations | (619,207) | (383,257) | (1,002,464) | ||||||||||||||
| Net loss before taxation | (49,740 | ) | (5,063,322 | ) | (5,113,062 | ) | |||||||||||
| Taxation | - | - | - | — | — | — | |||||||||||
| Net loss from continuing operations | $ (619,207) | $ (383,257) | $ (1,002,464) | ||||||||||||||
| Net loss from operations | $ | (49,740 | ) | $ | (5,063,322 | ) | $ | (5,113,062 | ) | ||||||||
The operating assets and liabilities of the reportable segments areis as follows:
| September 30, 2020 | ||||||||||||
| Rental Operations | In-Patient services | Total | ||||||||||
| Purchase of fixed assets | $ | — | $ | — | $ | — | ||||||
| Assets | ||||||||||||
| Current assets | 3,634 | 463,893 | 467,527 | |||||||||
| Non-current assets | 2,786,415 | — | 2,786,415 | |||||||||
| Liabilities | ||||||||||||
| Current liabilities | (1,361,264 | ) | (27,474,669 | ) | (28,835,933 | ) | ||||||
| Non-current liabilities | (4,365,109 | ) | — | (4,365,109 | ) | |||||||
| Intercompany balances | 1,275,437 | (1,275,437 | ) | — | ||||||||
| Net liability position | $ | (1,660,887 | ) | $ | (28,286,213 | ) | $ | (29,947,100 | ) | |||
| Rental Operations | In-Patient services | Total | ||||||||||
| Purchase of fixed assets | $ | — | $ | 8,878 | $ | 8,878 | ||||||
| Assets | ||||||||||||
| Current assets | 6,391 | 1,011,561 | 1,017,952 | |||||||||
| Non-current assets | 7,825,234 | 7,174,787 | 15,000,021 | |||||||||
| Liabilities | ||||||||||||
| Current liabilities | (2,333,270 | ) | (561,722 | ) | (2,894,992 | ) | ||||||
| Non-current liabilities | (4,311,464 | ) | (2,921,406 | ) | (7,232,870 | ) | ||||||
| Intercompany balances | (1,813,184 | ) | 1,813,184 | — | ||||||||
| Net (liability) asset position | $ | (626,293 | ) | $ | 6,516,404 | $ | 5,890,111 | |||||
| September 30, 2019 | ||||||||||||
| Rental Operations | In-Patient services | Total | ||||||||||
| Purchase of fixed assets | — | 22,868 | 22,868 | |||||||||
| Assets | ||||||||||||
| Current assets | 3,480 | 397,068 | 400,548 | |||||||||
| Non-current assets | 2,852,070 | 20,215,934 | 23,068,004 | |||||||||
| Liabilities | ||||||||||||
| Current liabilities | (1,306,190 | ) | (12,921,036 | ) | (14,227,226 | ) | ||||||
| Non-current liabilities | (4,741,441 | ) | (14,459,976 | ) | (19,201,417 | ) | ||||||
| Intercompany balances | 765,246 | (765,246 | ) | — | ||||||||
| Net liability position | (2,426,835 | ) | (7,533,256 | ) | (9,960,091 | ) | ||||||
28
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
| Net loss |
For the three and nine months ended September 30, 2017, 480,000 options to purchase shares of common stock; 22,004,075 warrants to purchase shares of2020 and 2019, respectively, the following common stock and convertible notes convertible into 3,721,311 shares of common stock at the Company’s share price on September 30, 2017,equivalents were excluded from the calculationcomputation of earningsdiluted net loss per share as the resultresults would have been anti-dilutive.
For the three months ended September 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 | $ (181,930) | 48,738,855 | $ - | ||||
| Net income per share from discontinued operations | 318,901 | 48,738,855 | $ - | ||||
| Basic income per share | 136,971 | 48,738,855 | - | ||||
| Effect of dilutive securities | |||||||
| Warrants | - | 266,700 | |||||
| Options | - | - | |||||
| Diluted earnings per share | |||||||
| Net loss per share from continuing operations | (181,930) | 49,005,555 | - | ||||
| Net income per share from discontinued operations | 318,901 | 49,005,555 | - | ||||
| $ 136,971 | 49,005,555 | $ - |
| Three and nine months ended September 30, 2020 | Three and nine months ended September 30, 2019 | |||||||
| Stock options | — | 480,000 | ||||||
| Warrants to purchase shares of common stock | 515,561,379 | 120,610,091 | ||||||
| Convertible notes | 4,964,723,277 | 94,933,731 | ||||||
| 5,480,284,656 | 216,023,822 | |||||||
For the nine months ended September 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 | $ (1,002,464) | 102,455,451 | $ (0.01) | ||||
| Net income per share from discontinued operations | 7,194,389 | 102,455,451 | $ 0.07 | ||||
| Basic income per share | 6,191,925 | 102,455,451 | 0.06 | ||||
| Effect of dilutive securities | |||||||
| Warrants | - | 14,856,699 | |||||
| Options | - | - | |||||
| Diluted earnings per share | |||||||
| Net loss per share from continuing operations | (1,002,464) | 117,312,150 | (0.01) | ||||
| Net income per share from discontinued operations | 7,194,389 | 117,312,150 | 0.06 | ||||
| $ 6,191,925 | 117,312,150 | $ 0.05 |
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATED FINANCIAL STATEMENTS
For the nine months ended September 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 | $ (413,294) | 48,158,563 | $ - | ||||
| Net income per share from discontinued operations | 762,680 | 48,158,563 | $ - | ||||
| Basic income per share | 349,386 | 48,158,563 | - | ||||
| Effect of dilutive securities | |||||||
| Warrants | - | 266,700 | |||||
| Options | - | - | |||||
| Diluted earnings per share | |||||||
| Net loss per share from continuing operations | (413,294) | 48,425,263 | - | ||||
| Net income per share from discontinued operations | 762,680 | 48,425,263 | - | ||||
| $ 349,386 | 48,425,263 | $ - |
| Commitments and contingencies |
| a. | Contingency related to outstanding penalties |
The Company has provided for potential US penalties of $250,000 due to noncompliancenon-compliance with the filing of certain required tax returns. The actual liability may be higher due to interest and penalties assessed by these taxing authorities.
| b. | Other |
The Company has principal and interest payment commitments under the Convertible notes disclosed under Note 8 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.
The Company is not current in its tax filings as of September 30, 2017.
The Company has accrued $250,000 for not filing certain required returns in the United States.
The Company is also currently evaluating potential tax liabilities due to the gain on disposal of our Canadian Rehab Clinic.
The total tax liabilities, including penalties and interest could be significant and adversely impact stockholder value.
29
ETHEMA HEALTH CORPORATION
(formerly Greenstone Healthcare Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLDATEDCONSOLIDATED FINANCIAL STATEMENTS
| Subsequent events |
On August 3, 2017,In terms of the CompanySenior Secured Convertible Note agreement 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 facilitywith Leonite for a total purchase considerationprincipal amount of $3,000,000,$440,000 including an original issue discount (“OID”) of which $1,000,000$40,000, As of September 30, 2020, Leonite had advanced the Company net proceeds of $200,000 for a note in the principal amount of $220,000.
The following additional advances were received from Leonite in terms 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.
This agreement was subsequently cancelled and all deposits paid were returned.
Senior Secured Note Agreement; (i) On October 31, 2017 and November 6, 2017, Eileen Greene, the spouse of the CEO,20, 2020, Leonite advanced the company CDN $575,000a further $25,000 with an OID of $2,500; (ii) on October 23, 2020, Leonite advanced the Company a further $15,000 with an OID of $1,500; and CDN $327,000, respectively.(iii) between October 28, 2020 and October 30, 2020, Leonite advanced the Company a further $60,000 with an OID of $6,000. The termstotal amount outstanding under the Leonite Senior Secured Convertible Note amount to $330,000 including an OID of the advance are undecided to date. The proceeds of these advances were used to make the initial down payments, as discussed below.$30,000.
On November 6, 2017,October 29, 2020, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd.First Fire Global Opportunities Fund, LLC, (“First Fire”), pursuant to which the Company issued a senior secured convertible promissory note in the aggregate principal amount of $137,500, including an OID of $12,500. The note bears interest at 6.5% per annum and matures on October 29, 2021. The note is senior to any future borrowings and commencing on November 29, 2020 the Company will make monthly payments of the accrued interest under the note. The note may be prepaid at certain prepayment penalties and is convertible into shares of common stock at a conversion price at the option of the holder at $0.001 per share, adjusted for anti-dilution provisions; or 80% of the price per share of subsequent equity financings or; after six months 60% of the lowest trading price during the preceding six month period.
On October 29, 2020, the Company entered into a five year option agreement with First Fire and other investors (collectively the “Transferees”), the Company agreed to sell to the PurchaserTransferees 20% of the total outstanding shares of ATHI. The Company provided First Fire an option to purchase 1,428,571 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $142.86), based on the advances that First Fire and others made to the Company totaling $600,000. First Fire shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by First Fire to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
On October 29, 2020, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $103,000.$88,000, for net proceeds of $85,000 after the payment of legal fees and origination fees amounting to $3,000. The Notenote has a maturity date of August 15, 2018 and bears interest at the at the rate of twelve percent per annum from the date on which the Note is issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the right to prepay the Note in terms of agreement at a prepayment penalty ranging from 112% to 130% of the balance outstanding.29,2021 The outstanding principal amount of the Notenote is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that ispurchaser. 180 days followingafter the issueissued date into shares of the Company'sCompany’s common stock at a conversion price equal to 61% of the lowest closing bidtrade price of the Company's common stock forduring the ten consecutive trading days immediately prior to conversion. The proceedsprincipal plus the accrued interest of this note was also usedthe Note may be prepaid by the Company prior to fund the initial down payment, as discussed below.expiry of 180 days from issuance date at a prepayment penalty ranging from 112% to 130%.
On November 2, 2017,October 31, 2020, the Company entered into an amendment to the agreement dated September 14, 2020, pursuant to which the Company issued a senior secured convertible promissory note of $110,000, increasing the principal amount outstanding by $27,500 to $137,500 for additional net proceeds of $25,000 including an OID of $2,500.
The five year option agreement entered into with Bauman is also amended, so that Bauman and other investors (collectively the “Transferees”), the Company agreed to sell to the Transferees 20% of the total outstanding shares of ATHI. The Company provided Bauman an additional option to purchase certain buildings in West Palm Beach, Florida, totalling approximately 80,000 square feet on which285,714 shares of ATHI from the current tenant operates a substance abuse centerCompany for a purchase consideration of $20,080,000. The$0.0001 per share (a total consideration of $28.57), based on the advances that Bauman and others made to the Company is obligatedtotaling $600,000. Bauman shall share in all distributions by ATHI to make certain non-refundable down paymentsthe Company, on an as exercised basis, equal to the advances made by Bauman to the Company, thereafter the option will be reduced to 50% of $2,210,000. The closing of this transaction is expected to take place on February 28, 2018 or at an earlier date agreed to by the parties.shares exercisable under the option.
Other than disclosed above, the Company has evaluated subsequent events through November 16, 2020, 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.
30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein and the consolidated financial statements and the other information set forth in our Annual Report on Form 10- K for the year ended December 31, 20162019 filed with the Securities and Exchange Commission on April 17, 2017.July 6, 2020. In addition to historical information, the following Management’s Discussion 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.
Covid-19 Explanation
The COVID-19 pandemic has required the management of Ethema Health Corporation (the “Company”) to focus its attention on responding to the challenges presented by the COVID-19 pandemic, including ensuring continuous operations, and adjusting the Company’s operations to address changes in the drug rehabilitation industry.
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“US 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 condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our consolidated 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 consolidated financial statements and accompanying notes to the consolidated financial statements for the year ended December 31, 2016.2019.
Plan of Operation
During the next twelve months, the Company plans to continue and expand itsprovide the requisite funding to Evernia to commence 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.services.
Results of Operations
For the three months ended September 30, 20172020 and the three month months ended September 30, 20162019.
Revenues
Revenue
Revenues was $648,298were $89,829 and $0$148,042 for the three months ended September 30, 20172020 and 2016,2019, respectively, an increasea decrease of $648,298. The Company disposed$58,213 or 39.3%.
In the prior period, the treatment facility was relocated to the East Avenue, West Palm Beach facility and revenue of its Canadian Rehab Clinic on February 14, 2017 and simultaneously acquired$64,500 was generated. In the current period, we had ceased operations of Seastone of Delray. at the East Avenue facility after agreeing with the landlord to cancel the lease agreement.
Revenue includesfrom rental income was $89,829 and $83,542 for the three months ended September 30, 2020 and 2019, respectively. The increase is due to a slight increase in the rental in terms of $83,837 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.agreement and the differing foreign currency exchange rates between the two periods.
31
Operating Expenses
Operating expenses was $556,968were $117,276 and $192,193$1,158,473 for the three months ended September 30, 20172020 and 2016,2019, respectively, an increasea decrease of$364,775, $1,041,197 or 189.8%89.9%. The operations ofdecrease is primarily due to 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 payroll costs of $89,934, management fees of $45,742 and professional fees of $47,135.
The operating expenses in the current period include the following:
| General and administrative expenses was $11,991 and $216,004 for the three months ended September 30, 2020 and 2019, respectively, a decrease of |
| Rent expense was $1,500 and $432,617 for the three months ended September 30, 2020 and 2019, respectively, a decrease of $431,117 due to the cancellation of the property lease as agreed to with the landlord in December 2019. |
| · | Professional fees was $40,478 and $92,407 for the three months ended September 30, 2020 and 2019, respectively, a decrease of |
| Salaries and wages was $31,297 and $370,341 for the three months ended September 30, 2020 and 2019, respectively, a decrease of |
| Depreciation expense was $32,010 and $47,104 for the three months ended September 30, 2020 and 2019, a decrease of |
Operating loss
Operating income (loss)
Operating income (loss) amounted to $91,330The operating loss was $27,447 and $(192,193)$1,010,431 for the three months ended September 30, 20172020 and 2016,2019, respectively, an improvementa decrease of $283,523$982,984 or 147.5%, primarily97.2%. The decrease is due to our Seastone operations which has been profitable during the current quarter, offset by corporatedecrease in operating expenses.expenses as discussed above.
Other incomeInterest expense
Other income
Interest expense was $67,596$124,972 and $60,000$299,022 for the three months ended September 30, 20172020 and 2016,2019, respectively, an increasea decrease of $7,596$174,050 or 12.7%. Other income58.2% was primarily due to the decrease in the current period represents expected additional earnout paymentsmortgage liabilities on the disposal of the Canadian Rehab Clinic in February 2017. Other incomeDelray Beach properties in the prior period consistedand the conversion of convertible debt into equity during the sale of mineral rights owned by the holding company prior to its transformation to a rehabilitation enter.two quarters.
Other expenseDebt discount
Other expense
Debt discount was $0$99,202 and $12,250$974,084 for the three months ended September 30, 2017,2020 and 2019, respectively, a decrease of $12,250$874,882 or 100.0%89.8%. The decrease is primarily due to the maturity date of several convertible notes prior to the current quarter, with the resultant full amortization of debt discount related to those convertible notes, New notes taken out during the current quarter amounted to $485,000, the current period amortization is attributable to the new convertible notes.
Interest expenseDerivative liability movement
Interest expense
The derivative liability movement was $86,371$(9,841,979) and $8,598$1,875,402 for the three months ended September 30, 20172020 and 2016, respectively, an2019, respectively. The derivative liability movement represents the mark to market movements of variably priced convertible notes and warrants issued during the current and prior comparative period. The increase in the mark to market movement of $77,773, the increase is$11,717,381 was primarily due to interest due on the new mortgage loans which replacedimprovement in the mortgage loans assumed bystock price over the Company when it acquired Cranberry Cove Holdings, Ltd and on the purchase money mortgage loan entered into to acquire the properties associatedprior quarter with Seastone of Delray.certain convertible instruments having conversion features at favorable prices.
Debt Discount
32
Debt discountForeign exchange movements
Foreign exchange movements was $13,052$(140,811) and $39,988$59,983 for the three months ended September 30, 20172020 and 2016,2019, respectively, a decrease of $26,936 or 67.4% 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 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 $19,329 and $0 for the three months ended September 30, 2017 and 2016, respectively, an increase of$19,329 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 June 2017.
Foreign exchange movements
Foreign exchange movements were $53,294 and $11,099 for the three months ended September 30, 2017 and 2016, respectively, and representsrepresenting the realized exchange gains and (losses) on monetary assets and liabilities settled during each periodthe current year as well as mark to market adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars.
Net (loss) income from discontinued operationsloss
The net (loss) income from discontinued operations
Net loss was $(218,253)$10,234,410 and $318,901,$353,230 for the three months ended September 30, 20172020 and 2016,2019, respectively, an increase in loss of $537,154, or 168.4%. The current period loss is made up$9,881,180, primarily of foreign exchange loss of $215,996 due to the mark to market of assets denominated in Canadian Dollars in our discontinued Canadian operation. professional fees, penalties and a foreign currency loss realized on the remaining assetsincrease 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 Dollarderivative liability during the current period giving rise tooffset by a reduction in operating costs, interest expense and the foreign currency loss.
The prior income from discontinued operations represents the trading operationsamortization of the Canadian Rehab clinic.
debt discount, as discussed above.
Net (loss) income
Net (loss) income was $(124,785) and $136,971 for the three months ended September 30, 2017 and 2016, respectively, a decrease of $261,756 or 191.1% primarily due to the foreign currency loss on the mark to market of Canadian assets reported under discontinued operations.
For the nine months ended September 30, 20172020 and September 30, 2019.
Revenues
Revenues were $255,672 and $328,244 for the nine months ended September 30, 2016.2020 and 2019, respectively, a decrease of $72,572 or 22.1%.
In the prior period, the treatment facility was relocated to the East Avenue, West Palm Beach facility and revenue of $80,225 was generated, in the current period, we had ceased operations at the East Avenue facility after agreeing with the landlord to cancel the lease agreement.
Revenue from rental income was $255,672 and $248,019 for the nine months ended September 30, 2020 and 2019, respectively. The slight increase is due to the slight increase in rental per the agreement and the differing foreign currency exchange rates between the two periods.
Operating Expenses
Revenue
RevenuesOperating expenses were $390,218 and $4,128,310 for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $3,738,092 or 90.5%. The decrease is primarily due to the following:
| · | General and administrative expenses was $43,805 and $1,123,207 for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $1,079,402 or 96.1%. The decrease is due to the cessation of operations at the East Avenue, West Palm Beach facility during December 2019, in the prior period general and administrative expenses included property taxes of $441,711 and directors fees of $70,000. |
| · | Rent expense was $4,000 and $1,212,042 for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $1,208,042 due to the cancellation of the property lease as agreed to with the landlord in December 2019. |
| · | Professional fees was $177,528 and $510,608 for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $333,080 or 65.2%. The decrease is primarily due to consulting fees that were paid to two individuals in the prior year who had assisted with business development efforts. |
| · | Salaries and wages was $73,287 and $1,103,054 for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $1,029,767 or 93.4%, the decrease is due to the cessation of operations at the East Avenue, West Palm Beach facility in December 2019. |
| · | Depreciation expense was $91,598 and $179,399 for the nine months ended September 30, 2020 and 2019, a decrease of $87,801 or 48.9%, the decrease is primarily due to the disposal of the Delray Beach facility during the prior year. |
33
Operating loss
The operating loss was $1,373,028$134,546 and $3,800,066 for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $3,665,520 or 96.5%. The decrease is due to the decrease in operating expenses as discussed above.
Gain on debt extinguishment
Gain on debt extinguishment was $12,683,678 and $0 for the nine months ended September 30, 20172020 and 2016, respectively, an increase2019, respectively. The company entered into several debt extinguishment agreements with convertible debt holders whereby the amounts payable and the payment terms under these convertible notes were renegotiated, this also resulted in the extinguishment of $1,373,028. 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 $203,962 earned by our recently acquired Cranberry Cove subsidiary. The revenues earned for patient treatments from the Canadian Rehab Clinic have been reclassifiedderivative liabilities related to discontinued operations. There is no meaningful comparative data to compare our revenues.
Operating Expensesthese convertible notes.
Operating expenses was $1,929,714 and $398,433 for the nine months ended September 30, 2017 and 2016, respectively, an increase ofLoss on debt conversions$1,531,281 or 384.3%. 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 nine month period consisted primarily of Investor relations fees of $57,100, management fees of $92,319, professional fees of $122,180 and payroll costs of $110,934.
The operating expenses in the current nine month period include the following:
Operating loss
Operating loss amounted to $(556,686) and $(398,433) for the nine months ended September 30, 2017 and 2016, respectively, an increase of $(158,253) or 39.7%, primarily due to the additional professional fees incurred on the corporate restructure, management fees paid and depreciation expense during the current period, offset by the revenues earned from our Seastone operation of $1,373,028.
Other income
Other incomedebt conversions was $635,904 and $72,507 for the nine months ended September 30, 2017 and 2016, respectively, an increase of $563,397. 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 $162,536 relating to expected proceeds on the earnout provision of the Canadian Rehab Clinic disposal.
Other expense
Other expense was $392,538 and $12,250 for the nine months ended September 30, 2017 and 2016, respectively, an increase of $380,288. 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 representing 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 $242,992 and $15,701 for the nine months ended September 30, 2017 and 2016, respectively, an increase of $227,291, 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 $442,377 and $73,250 for the nine months ended September 30, 2017 and 2016, respectively, an increase of $368,827. 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 $73,250, 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 $75,203$312,836 and $0 for the nine months ended September 30, 20172020 and 2016,2019, respectively, an increase of $75,203$312,836 or 100%. This movement representsThe loss on conversion of convertible debt was due to the markconversion of convertible debentures at a discount to market of the derivative liabilities arising on the beneficial conversion feature of the variable priced notes issued toprice by several convertible note holders in June 2017. The February note was prepaid in May 2017 and an additional note was issued in June 2017.during the current period.
Foreign exchange movementsLoss on disposal of property
Foreign exchange movements were $(111,052)The loss on disposal of property wad $0 and $13,833$692,488 for the nine months ended September 30, 20172020 and 2016,2019, respectively, a decrease of 100% was due to the sale of the condominiums in Delray Beach in the prior period, the proceeds were used to settle the mortgage owing on the properties.
Warrant exercise
Warrant exercise was $95,868 and $0 for the nine months ended September 30, 2020 and 2019, respectively, an increase of $95,868 or 100%. During the current period a warrant holder exercised warrants for a total of 224,388,247 shares of common stock resulting in the expense of $95,868 for the issue of 184,000,000 shares of common stock.
Bonus shares issued to investors
The bonus shares issued to investors of $0 and $143,500 for the nine months ended September 30, 2020 and 2019, respectively, decreased by 100%. Bonus shares were issued to certain investors during the prior period to facilitate additional investment in the Company.
Interest expense
Interest expense was $492,984 and $841,160 for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $348,176 or 41.4%, was primarily due to the decrease in mortgage liabilities on the disposal of the Delray Beach properties in the prior period and the conversion of convertible debt to equity during the current period.
Debt discount
Debt discount was $628,892 and $2,564,338 for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $1,935,446 or 75.5%. The decrease is primarily due to the maturity date of several convertible notes prior to the current period, with the resultant full amortization of debt discount related to those convertible notes.
Derivative liability movement
The derivative liability movement was $(22,634,549) and $3,130,273 for the nine months ended September 30, 2020 and 2019, respectively. The derivative liability movement represents the mark to market movements of variably priced convertible notes and warrants issued during the current and prior comparative period. The increase in the mark to market movement of $25,764,822 was primarily due to the improvement in the stock price. over the prior quarter with certain convertible instruments having conversion features at favorable prices.
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Foreign exchange movements
Foreign exchange movements was $82,551 and $(211,967) for the nine months ended September 30, 2020 and 2019, respectively, representing the realized exchange lossesgains and gains, respectively,(losses) on monetary assets and liabilities settled during each periodthe current year as well as mark to market adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars.
Net income from discontinued operationsloss
The net income from discontinued operations
Net loss was $7,194,389$11,532,817 and $762,680,$5,113,062 for the nine months ended September 30, 20172020 and 2016,2019, respectively, an increase of $6,431,708.
$6,419,755 or 125.6%. The current period incomeincrease is primarily made up as follows:
The prior period income primarily represents the operating income of the discontinued Canadian Rehab Clinic of $912,086, other income of $21,042 on insurance proceeds received for fire damage, interest expense of $116,774, primarily related to outstanding tax liabilities which have now been settled, depreciation of 47,332 and net foreign exchange gains of $21,956.
Net income
Net income was $6,191,925 and $349,386 for the nine months ended September 30, 2017 and 2016, respectively, an increase of $5,842,539, primarily due to the profit realized onincrease in the sale of the Canadian Rehab clinic of $7,494,828, the reversal of the provision raised against the loan on sale of the Endoscopy clinic of $472,368,derivative liability charge offset by the compensation charge of $373,274 relating to the acquisition of Cranberry Cove,gain on debt extinguishment and the amortization of $442,377 of debt discountreduction in operating expenses during the current period.period, as discussed above.
Contingency related to outstanding payroll tax liabilities
The Company also has not filed certain foreign assets forms due to the US Federal Government. A provision of $250,000 was made for any potential penalties due.
Liquidity and Capital Resources
The following table summarizes working capital as of
Cash used in operating activities was $435,442 and $2,521,914 for the nine months ended September 30, 20172020 and December 31, 2016.2019, respectively, a decrease of $2,086,472. The decrease is primarily due to the following:
| Current Assets | $ | 1,017,952 | $ | 275,575 | $ | 742,377 | ||||||
| Current Liabilities | (2,894,992 | ) | (3,637,111 | ) | 742,119 | |||||||
| Working capital Deficit | $ | (1,877,040 | ) | $ | (3,361,536 | ) | $ | 1,484,496 |
| · | the increase in net loss of $6,419,755, discussed under operations above an increase in working capital movements of $1,514,769, primarily due to a reduction in payable in the prior period, offset by non-cash movements of $10,020,997, primarily movements on the gain on debt extinguishment offset by derivative liability movements. |
The Company realized Cash provided by investing activities was $5,995 and $3,310,865 for the nine months ended September 30, 2020 and 2019, respectively. In the prior period proceeds of CDN$8,500,000 (US$6,479,400) from the disposal of its Canadian Rehab Clinic in February 2017. These proceeds$3,318,141 were used to settle outstanding tax liabilities of CDN$3,429,105 (US$2,621,208) and to purchase the propertyand 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 September 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 ownedDelray Beach condominiums.
Cash provided by financing activities was $433,319 and used by financing activities was $978,429 for the Holding Company onnine months ended September 30, 2020 and 2019, respectively. In the Cranberry Cove properties. The Company raisedcurrent period a new mortgage on the Cranberry Cover properties of CDN $5,500,000 ($4,367,000), the proceeds which were used to repay the existing firstfederal assistance loan was received for Covid-19 relief and second mortgage of $3,327,144, the redemption of $144,958 of thea further $450,000 was received from new convertible notes issued. In the prior period net cash raised from convertible notes amounted to $2,912,355, offset by mortgage repayments of $3,026,653 and the balance for working capital purposes. Werepayment of convertible notes amounting to $1,123,666.
Over the next twelve months we estimate that the Companycompany will require an additional $1,000,000 forapproximately $1.5 million in working capital purposes.as it continues to develop its Evernia facility. The Company will also needcompany may have to raise additional funding to meet the minimum deposit requirements and to acquire certain buildings in West Palm Beach, Florida, disclosed under the subsequent events note in the notes to the unaudited condensed consolidated financial statements above.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.medium.
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.
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Off balance sheet arrangements
We do not maintain off-balance sheet arrangements nor do we participate in non-exchange traded contracts requiring fair value accounting treatment.
Inflation
The effect of inflation on our revenue and operating results was not significant.
Climate Change
We believe that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, the Company’s management, including the Principal Executive Officer and the Principal Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that due to a lack of segregation of duties the Company’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules 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 September 30, 20172020 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.
WeIn March 2020 a former employee filed a suit against the Company for unpaid wages amounting to $5,700. The suit was settled out of court for gross wages of $7,500 and legal fees of an additional $3,500.
A suit, claiming past due rent was filed against the Company in March 2020 for rent of a storage warehouse, the warehouse was abandoned during March 2020. The rental expense was accrued in our records as of December 31, 2019.
Other than disclosed above, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors.
Not applicable because we are a smaller reporting company.
Item 2. Unregistered sales of equity securities and use of proceeds
In the securities transactions described below,No shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(a)(2) promulgated thereunder due to the fact that the issuance did not involve a public offering because of the insubstantial number of persons involved in each offering, the size of the offering, manner of the offering and number of shares offered. Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(a) (2) of the Securities Act for these transactions.
The Company issued 1,200,000 returnable shares to a note holder as 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. The note was repaid on May 26, 2017 and the shares were returned to the Company.
On February 14, 2017, the Company issued 60,000,000 shares to Leon Developments as purchase consideration for the acquisition of its wholly owned subsidiary Cranberry Cove Holdings Ltd.
On May 30, 2017, the Company issued 100,000 common shares to a vendor for services rendered.
During July 2017, the Company issued 12,500,375 shares of common stock on the conversion of $375,011 of convertible debt.
Item 3. Defaults upon senior securities
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
Not applicable.
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 |
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 * |
* 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: November 20, 201716, 2020
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), | November |
| Shawn Leon | Chief Financial Officer (Principal Financial Officer), President and Director | |
| /s/ John O’Bireck | Director | November |
| John O’Bireck | ||
| /s/ Gerald T. Miller | Director | November |
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