Exhibit 99.2
Condensed Interim Consolidated
Financial Statements
(Expressed in U.S. dollars)
Greenbrook
TMS Inc.
Three and six months ended June 30,
2021 and 2020
(Unaudited)
Greenbrook
TMS Inc.
Condensed
Interim Consolidated Statements of Financial Position
(Expressed
in U.S. dollars, unless otherwise stated)
(Unaudited)
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
18,980,884
|
|
|
$
|
18,806,742
|
|
|
Accounts receivable
(note 18(b))
|
|
|
10,793,064
|
|
|
|
10,708,062
|
|
|
Prepaid
expenses and other
|
|
|
2,428,444
|
|
|
|
1,150,675
|
|
|
Total current assets
|
|
|
32,202,392
|
|
|
|
30,665,479
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment (note
5)
|
|
|
1,754,115
|
|
|
|
1,691,336
|
|
|
Intangible assets (note 6)
|
|
|
5,512,733
|
|
|
|
5,744,399
|
|
|
Goodwill
|
|
|
3,707,650
|
|
|
|
3,707,650
|
|
|
Right-of-use assets
(note 7)
|
|
|
26,481,578
|
|
|
|
26,791,544
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
69,658,468
|
|
|
$
|
68,600,408
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities (note 8)
|
|
$
|
9,935,304
|
|
|
$
|
9,523,809
|
|
|
Current portion
of loans payable (note 9(a))
|
|
|
2,075,020
|
|
|
|
1,106,654
|
|
|
Current portion
of deferred grant income (note 10)
|
|
|
182,384
|
|
|
|
176,746
|
|
|
Current portion
of lease liabilities (note 7)
|
|
|
5,247,329
|
|
|
|
5,169,478
|
|
|
Other payables
(note 12)
|
|
|
386,962
|
|
|
|
250,891
|
|
|
Non-controlling
interest loans (note 9(b))
|
|
|
81,075
|
|
|
|
77,137
|
|
|
Deferred
and contingent consideration (note 11)
|
|
|
–
|
|
|
|
11,369,429
|
|
|
Total current liabilities
|
|
|
17,908,074
|
|
|
|
27,674,144
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable (note 9(a))
|
|
|
14,308,819
|
|
|
|
15,098,560
|
|
|
Deferred grant income (note 10)
|
|
|
108,681
|
|
|
|
200,567
|
|
|
Lease liabilities
(note 7)
|
|
|
22,718,300
|
|
|
|
22,743,395
|
|
|
Total liabilities
|
|
|
55,043,874
|
|
|
|
65,716,666
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity (deficit):
|
|
|
|
|
|
|
|
|
|
Common shares (note 13)
|
|
|
86,557,612
|
|
|
|
60,129,642
|
|
|
Contributed surplus
(note 14)
|
|
|
3,734,173
|
|
|
|
3,348,636
|
|
|
Deficit
|
|
|
(74,604,355
|
)
|
|
|
(60,201,976
|
)
|
|
Total shareholder’s equity (deficit)
excluding non-controlling interest
|
|
|
15,687,430
|
|
|
|
3,276,302
|
|
|
Non-controlling
interest (note 22)
|
|
|
(1,072,836
|
)
|
|
|
(392,560
|
)
|
|
Total shareholders’ equity (deficit)
|
|
|
14,614,594
|
|
|
|
2,883,742
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis of preparation and going concern
(note 2)
|
|
|
|
|
|
|
|
|
|
Contingencies (note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and shareholders’ equity (deficit)
|
|
$
|
69,658,468
|
|
|
$
|
68,600,408
|
|
See accompanying
notes to condensed interim consolidated financial statements.
Greenbrook
TMS Inc.
Condensed
Interim Consolidated Statements of Net Loss and Comprehensive Loss
(Expressed
in U.S. dollars, unless otherwise stated)
(Unaudited)
|
|
|
Three months
ended
|
|
|
Six months
ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
revenue
|
|
$
|
13,707,212
|
|
|
$
|
9,788,555
|
|
|
$
|
25,020,387
|
|
|
$
|
21,209,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
center and patient care costs
|
|
|
6,854,000
|
|
|
|
5,166,153
|
|
|
|
13,214,023
|
|
|
|
11,047,442
|
|
|
Other regional
and center support costs (note 23)
|
|
|
4,470,242
|
|
|
|
3,411,038
|
|
|
|
9,441,178
|
|
|
|
6,804,330
|
|
|
Depreciation
(notes 5 and 7)
|
|
|
1,461,631
|
|
|
|
1,436,562
|
|
|
|
2,935,965
|
|
|
|
2,842,687
|
|
|
|
|
|
12,785,873
|
|
|
|
10,013,753
|
|
|
|
25,591,166
|
|
|
|
20,694,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional
operating income (loss)
|
|
|
921,339
|
|
|
|
(225,198
|
)
|
|
|
(570,779
|
)
|
|
|
514,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center
development costs
|
|
|
182,974
|
|
|
|
140,861
|
|
|
|
463,407
|
|
|
|
370,368
|
|
|
Corporate,
general and administrative expenses (note 23)
|
|
|
5,823,483
|
|
|
|
3,134,173
|
|
|
|
10,539,565
|
|
|
|
7,010,669
|
|
|
Share-based
compensation
|
|
|
203,362
|
|
|
|
175,447
|
|
|
|
409,332
|
|
|
|
284,852
|
|
|
Amortization
(note 6)
|
|
|
115,833
|
|
|
|
115,833
|
|
|
|
231,666
|
|
|
|
231,666
|
|
|
Interest
expense
|
|
|
1,334,187
|
|
|
|
694,208
|
|
|
|
2,362,099
|
|
|
|
1,352,042
|
|
|
Interest
income
|
|
|
(11
|
)
|
|
|
(1,078
|
)
|
|
|
(2,193
|
)
|
|
|
(9,561
|
)
|
|
Earn-out
consideration (note 11)
|
|
|
–
|
|
|
|
5,250,000
|
|
|
|
–
|
|
|
|
5,250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before
income taxes
|
|
|
(6,738,489
|
)
|
|
|
(9,734,642
|
)
|
|
|
(14,574,655
|
)
|
|
|
(13,975,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (note 17)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
for the period and comprehensive loss
|
|
$
|
(6,738,489
|
)
|
|
$
|
(9,734,642
|
)
|
|
$
|
(14,574,655
|
)
|
|
$
|
(13,975,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for
the period attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest (note 22)
|
|
$
|
37,336
|
|
|
$
|
(257,137
|
)
|
|
$
|
(172,276
|
)
|
|
$
|
(339,660
|
)
|
|
Common
shareholders of Greenbrook TMS
|
|
|
(6,775,825
|
)
|
|
|
(9,477,505
|
)
|
|
|
(14,402,379
|
)
|
|
|
(13,635,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(6,738,489
|
)
|
|
$
|
(9,734,642
|
)
|
|
$
|
(14,574,655
|
)
|
|
$
|
(13,975,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
per share (note 21):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.48
|
)
|
|
$
|
(0.76
|
)
|
|
$
|
(1.04
|
)
|
|
$
|
(1.13
|
)
|
|
Diluted
|
|
|
(0.48
|
)
|
|
|
(0.76
|
)
|
|
|
(1.04
|
)
|
|
|
(1.13
|
)
|
See accompanying
notes to condensed interim consolidated financial statements.
Greenbrook
tms Inc.
Condensed
Interim Consolidated Statements of Changes in Equity (Deficit)
(Expressed
in U.S. dollars, unless otherwise stated)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
Total
|
|
|
|
|
Common
Shares
|
|
|
Contributed
|
|
|
|
|
|
controlling
|
|
|
equity
|
|
|
Six
months ended June 30, 2020
|
|
Number1
|
|
|
Amount
|
|
|
surplus
|
|
|
Deficit
|
|
|
interest
|
|
|
(deficit)
|
|
|
Balance, December 31, 2019
|
|
|
11,683,689
|
|
|
$
|
50,185,756
|
|
|
$
|
2,757,252
|
|
|
$
|
(30,441,280
|
)
|
|
$
|
444,405
|
|
|
$
|
22,946,133
|
|
|
Loss for the period and comprehensive
loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(13,635,778
|
)
|
|
|
(339,660
|
)
|
|
|
(13,975,438
|
)
|
|
Issuance of common shares (note 13)
|
|
|
1,818,788
|
|
|
|
10,156,967
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
10,156,967
|
|
|
Share-based compensation (note
14)
|
|
|
–
|
|
|
|
–
|
|
|
|
284,852
|
|
|
|
–
|
|
|
|
–
|
|
|
|
284,852
|
|
|
Payments
to non-controlling interest
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(143,500
|
)
|
|
|
(143,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2020
|
|
|
13,502,477
|
|
|
$
|
60,342,723
|
|
|
$
|
3,042,104
|
|
|
$
|
(44,077,058
|
)
|
|
$
|
(38,755
|
)
|
|
$
|
19,269,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
Total
|
|
|
|
|
Common
Shares
|
|
|
Contributed
|
|
|
|
|
|
controlling
|
|
|
equity
|
|
|
Six
months ended June 30, 2021
|
|
Number1
|
|
|
Amount
|
|
|
surplus
|
|
|
Deficit
|
|
|
interest
|
|
|
(deficit)
|
|
|
Balance, December 31, 2020
|
|
|
13,502,477
|
|
|
$
|
60,129,642
|
|
|
$
|
3,348,636
|
|
|
$
|
(60,201,976
|
)
|
|
$
|
(392,560
|
)
|
|
$
|
2,883,742
|
|
|
Loss for the period and comprehensive
loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(14,402,379
|
)
|
|
|
(172,276
|
)
|
|
|
(14,574,655
|
)
|
|
Issuance of common shares (note 13)
|
|
|
2,584,358
|
|
|
|
26,352,366
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
26,352,366
|
|
|
Exercise of stock options
|
|
|
5,500
|
|
|
|
46,875
|
|
|
|
(18,125
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
28,750
|
|
|
Share-based compensation (note
14)
|
|
|
–
|
|
|
|
–
|
|
|
|
409,332
|
|
|
|
–
|
|
|
|
–
|
|
|
|
409,332
|
|
|
Redemption of warrants
|
|
|
1,800
|
|
|
|
28,729
|
|
|
|
(5,670
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
23,059
|
|
|
Payments
to non-controlling interest
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(508,000
|
)
|
|
|
(508,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2021
|
|
|
16,094,135
|
|
|
$
|
86,557,612
|
|
|
$
|
3,734,173
|
|
|
$
|
(74,604,355
|
)
|
|
$
|
(1,072,836
|
)
|
|
$
|
14,614,594
|
|
|
|
(1)
|
Reflects
the Company’s share consolidation on February 1, 2021 (Note 2(d))
|
See accompanying
notes to condensed interim consolidated financial statements.
Greenbrook
TMS Inc.
Condensed
Interim Consolidated Statements of Cash Flows
(Expressed
in U.S. dollars, unless otherwise stated)
(Unaudited)
|
|
|
Six
months ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Cash (used in) provided by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
Loss
for the period
|
|
$
|
(14,574,655
|
)
|
|
$
|
(13,975,438
|
)
|
|
Adjusted
for:
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
231,666
|
|
|
|
231,666
|
|
|
Depreciation
|
|
|
2,935,965
|
|
|
|
2,842,687
|
|
|
Interest
expense
|
|
|
2,362,099
|
|
|
|
1,352,042
|
|
|
Interest
income
|
|
|
(2,193
|
)
|
|
|
(9,561
|
)
|
|
Share-based
compensation
|
|
|
409,332
|
|
|
|
284,852
|
|
|
Earn-out
considerations
|
|
|
–
|
|
|
|
5,250,000
|
|
|
Change
in non-cash operating working capital:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(85,002
|
)
|
|
|
(776,426
|
)
|
|
Prepaid
expenses and other
|
|
|
(1,277,769
|
)
|
|
|
(151,068
|
)
|
|
Accounts
payable and accrued liabilities
|
|
|
411,495
|
|
|
|
1,295,488
|
|
|
Provisions
|
|
|
–
|
|
|
|
(18,792
|
)
|
|
Other
payables
|
|
|
136,071
|
|
|
|
–
|
|
|
|
|
|
(9,452,991
|
)
|
|
|
(3,674,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Net proceeds
on issuance of common shares (note 13)
|
|
|
23,256,567
|
|
|
|
10,156,967
|
|
|
Net proceeds
on exercise of stock options
|
|
|
28,750
|
|
|
|
–
|
|
|
Interest
paid
|
|
|
(2,164,951
|
)
|
|
|
(1,328,707
|
)
|
|
Broker
warrants exercised
|
|
|
23,059
|
|
|
|
–
|
|
|
Financing
costs incurred
|
|
|
(29,493
|
)
|
|
|
–
|
|
|
Bank loans
advanced
|
|
|
–
|
|
|
|
3,080,760
|
|
|
Bank loans
repaid
|
|
|
(71,339
|
)
|
|
|
(42,317
|
)
|
|
Principal
repayment of lease liabilities
|
|
|
(2,628,872
|
)
|
|
|
(2,181,141
|
)
|
|
Net non-controlling
interest loans advanced (repaid)
|
|
|
3,938
|
|
|
|
3,557
|
|
|
Distribution
to non-controlling interest
|
|
|
(508,000
|
)
|
|
|
(143,500
|
)
|
|
|
|
|
17,909,659
|
|
|
|
9,545,619
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase
of property, plant and equipment
|
|
|
(11,089
|
)
|
|
|
–
|
|
|
Interest
received
|
|
|
2,193
|
|
|
|
–
|
|
|
Deferred
and contingent consideration paid (note 11)
|
|
|
(8,273,630
|
)
|
|
|
(224,402
|
)
|
|
|
|
|
(8,282,526
|
)
|
|
|
(224,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash
|
|
|
174,142
|
|
|
|
5,646,667
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
18,806,742
|
|
|
|
7,947,607
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
18,980,884
|
|
|
$
|
13,594,274
|
|
See accompanying
notes to condensed interim consolidated financial statements.
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
Greenbrook
TMS Inc. (the “Company”), an Ontario corporation along with its subsidiaries, controls and operates a network of outpatient
mental health services centers that specialize in the provision of Transcranial Magnetic Stimulation (“TMS”) therapy for
the treatment of depression and related psychiatric services.
Our head
and registered office is located at 890 Yonge Street, 7th Floor, Toronto, Ontario, Canada M4W 3P4. Our United States corporate headquarters
is located at 8401 Greensboro Drive, Suite 425, Tysons Corner, Virginia, USA, 22102.
These
condensed interim consolidated financial statements for the three and six months ended June 30, 2021 have been prepared in accordance
with IAS 34 – Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”)
and the basis of presentation outlined in note 2(b) on the assumption that the Company is a going concern and will continue in operation
for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course
of business.
The
Company has experienced losses since inception and has negative cash flow from operating activities of $9.5 million for the six months
ended June 30, 2021 (six months ended June 30, 2020 – negative cash flow of $3.7 million). The coronavirus pandemic
(“COVID-19”), including the related government-imposed social distancing and “shelter-in-place” measures, continues
to have a negative impact on the Company’s cash flow used in operating activities. On December 31, 2020, the Company entered
into a credit and security agreement (the “Credit Agreement”) for a $30 million secured credit facility (the “Credit
Facility”) with Oxford Finance LLC (the “Lender”). See (note 9(a)). The Credit Facility provided a $15 million term
loan that was funded at closing on December 31, 2020, with an option of drawing up to an additional $15 million in three $5 million
delayed-draw term loan tranches within the 24 months following closing, subject to achieving specific financial milestones. The terms
of the Credit Agreement require the Company to satisfy various affirmative and negative covenants and to meet certain financial tests.
A failure to comply with these covenants, including a failure to meet the financial tests, would result in an event of default under
the Credit Agreement and would allow the Lender to accelerate the debt, which could materially and adversely affect the business, results
of operations and financial condition of the Company. On June 14, 2021, the Company completed a non-brokered private placement of
common shares for aggregate gross proceeds of $23.5 million. See note 13.
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
2.
|
Basis
of preparation (continued):
|
Although
the Company believes it will become cash flow positive in the future, the timing of this will be negatively impacted until the global
impact of the COVID-19 pandemic subsides. The Company has historically been able to obtain financing from supportive shareholders and
other sources when required. The Company will require additional financing to fund its operating and investing activities and such additional
financing is required in order for the Company to repay its short-term obligations. The failure to raise such capital when required could
result in the delay or indefinite postponement of current business objectives and additional financing may not be available on favorable
terms or at all. These conditions indicate the existence of substantial doubt as to the Company’s ability to continue as a going
concern.
These
condensed interim consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumptions
were not appropriate. If the going concern basis was not appropriate for these condensed interim consolidated financial statements, then
adjustments would be necessary to the carrying value of assets and liabilities, the reported expenses, and the condensed interim consolidated
statements of financial position classification used, and these adjustments may be material.
|
|
(b)
|
Statement
of compliance:
|
These
condensed interim consolidated financial statements for the three and six months ended June 30, 2021 have been prepared in accordance
with IAS 34 – Interim Financial Reporting, as issued by the IASB. The disclosures contained in these condensed interim consolidated
financial statements do not include all of the requirements of International Financial Reporting Standards as issued by the IASB (“IFRS”)
for annual consolidated financial statements. The condensed interim consolidated financial statements should be read in conjunction with
the audited consolidated financial statements of the Company as at and for the year ended December 31, 2020.
These
condensed interim consolidated financial statements comprise the accounts of Greenbrook TMS Inc., the parent company, and its subsidiaries.
The Company accounts for its controlled subsidiaries using the consolidation method of accounting from the date that control commences
and is deconsolidated from the date control ceases. All intercompany transactions and balances have been eliminated on consolidation.
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
2.
|
Basis
of preparation (continued):
|
These
condensed interim consolidated financial statements were approved by the Board of Directors of the Company (the “Board”)
and authorized for issue by the Board on August 5, 2021.
|
|
(c)
|
Basis of
measurement:
|
These
condensed interim consolidated financial statements have been prepared on a historic cost basis except for financial instruments classified
as fair value through profit or loss, which are stated at their fair value. Other measurement bases are described in the applicable notes.
Presentation
of the condensed interim consolidated statements of financial position differentiates between current and non-current assets and liabilities.
The condensed interim consolidated statements of net loss and comprehensive loss is presented using the function classification of expense.
Regional
operating income (loss) presents regional operating income (loss) on an entity-wide basis and is calculated as total service revenue
less direct center and patient care costs, other regional and center support costs, and depreciation. These costs encapsulate all costs
(other than incentive compensation such as share-based compensation granted to senior regional employees) associated with the center
and regional management infrastructure, including the cost of the delivery of TMS treatments to patients and the cost of the Company’s
regional patient acquisition strategy.
|
|
(d)
|
Comparative
information:
|
On
January 12, 2021, the shareholders of the Company approved a special resolution for an amendment to the Company’s
articles and authorized a consolidation (the “Share Consolidation”) of the common shares on the basis of a ratio that
would permit the Company to qualify for a secondary listing on the NASDAQ Stock Market LLC (“Nasdaq”). On
January 12, 2021, following the shareholder approval of the Share Consolidation, the Board authorized the implementation of the
Share Consolidation on the basis of one (1) post-consolidation common share for every five (5) pre-consolidation common
shares. The Share Consolidation was completed on February 1, 2021 and resulted in the number of issued and outstanding common
shares being reduced from approximately 67.5 million to approximately 13.5 million, on a non-diluted basis, and no fractional common
shares were issued as a result of the Share Consolidation. Any fractional interest in common shares that would otherwise have
resulted from the Share Consolidation were rounded up to the next whole common share,
if the fractional interest was equal to or greater than one-half of a common share, and rounded down to the next whole common share if
the fractional interest was less than one-half of a common share.
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
2.
|
Basis
of preparation (continued):
|
Effective
on the date of the Share Consolidation, the exercise price and number of common shares issuable upon the exercise of outstanding stock
options, warrants and other outstanding convertible securities were proportionately adjusted to reflect the Share Consolidation in accordance
with the terms of such securities for the holders of such instruments.
The
Company has retrospectively presented the number of common shares, options and warrants on a post-Share Consolidation basis in these
condensed interim consolidated financial statements.
In addition,
certain comparative figures have been reclassified to conform with current year presentation.
|
|
3.
|
Significant
accounting policies:
|
These
condensed interim consolidated financial statements have been prepared using the significant accounting policies consistent with those
applied in the Company’s December 31, 2020 audited consolidated financial statements, except as noted below:
|
|
(a)
|
Deferred
share units:
|
The
Company has a deferred share units (“DSU”) plan for its non-employee directors (the “DSU Plan”). Each tranche
in an award is considered a separate award with its own grant date fair value. Grants of DSUs are recorded at fair value in corporate,
general and administrative expenses. As these DSUs are cash settled, the fair value is recognized as a liability in the consolidated
statements of financial position. The DSUs are subsequently remeasured at the end of each reporting period and any changes are recognized
as an expense in the consolidated statement of net loss and comprehensive loss until the award is settled.
The
uncertainties around the outbreak of COVID-19 requires the use of judgements and estimates which resulted in no material impacts for
the period ended June 30, 2021. The future impact of COVID-19 uncertainties could generate, in future reporting periods, a significant
risk of material adjustment to the carrying amounts of the following: goodwill and intangible assets, right-of-use assets, impairment,
business combinations, provisions, litigation and claims.
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
3.
|
Significant
accounting policies (continued):
|
In addition,
areas involving judgements and estimation uncertainty include:
Due
to the nature of the industry and complexity of the Company’s revenue arrangements, where price lists are subject to the discretion
of payors, variable consideration exists that may result in price concessions and constraints to the transaction price for the services
rendered.
In estimating
this variable consideration, the Company uses significant judgement and considers various factors including, but not limited to, the
following:
|
|
·
|
commercial
payors and the administrators of federally-funded healthcare programs exercise discretion
over pricing and may establish a base fee schedule for TMS (which is subject to change prior
to final settlement) or negotiate a specific reimbursement rate with an individual TMS provider;
|
|
|
·
|
average
of previous net service fees received by the applicable payor and fees received by other
patients for similar services;
|
|
|
·
|
management’s
best estimate, leveraging industry knowledge and expectations of third-party payors’
fee schedules;
|
|
|
·
|
factors
that would influence the contractual rate and the related benefit coverage, such as obtaining
pre-authorization of services and determining whether the procedure is medically necessary;
|
|
|
·
|
probability
of failure in obtaining timely proper provider credentialing (including re-credentialling)
and documentation, in order to bill various payors which may result in enhanced price concessions;
and
|
|
|
·
|
variation
in coverage for similar services among various payors and various payor benefit plans.
|
The
Company updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is
constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during
the reporting period in which such variances become known.
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
3.
|
Significant
accounting policies (continued):
|
The
above factors are not related to the creditworthiness of the large medical insurance companies and government-backed health plans encompassing
the significant majority of the Company’s payors. The payors (large insurers and government agencies) have the ability and intent
to pay, but price lists for the Company’s services are subject to the discretion of payors. As a result, the adjustment to reduce
the transaction price and constrain the variable consideration is a price concession and not indicative of credit risk on the payors
(i.e. not a bad debt expense).
The
Company considers a default to be a change in circumstances that results in the payor no longer having the ability and intent to pay.
In these circumstances, the Company will recognize a write-off against the related accounts receivable balance and a corresponding bad
debt expense.
In estimating
the collectability of its accounts receivable, the Company considers macroeconomic factors in assessing accounts receivable. Such factors
would need to be significant in order to affect the ability and intent of the Company’s payors given their size and stature. As
at June 30, 2021, no such factors were identified and therefore no bad debt was recognized (June 30, 2020 – nil).
|
|
4.
|
Recent
accounting pronouncements:
|
There
are no recent accounting pronouncements that are applicable or that are expected to have a significant impact on the Company.
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
5.
|
Property,
plant and equipment:
|
|
|
|
Furniture
and
equipment
|
|
|
Leasehold
improvements
|
|
|
TMS
devices
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2020
|
|
$
|
175,416
|
|
|
$
|
183,103
|
|
|
$
|
2,126,091
|
|
|
$
|
2,484,610
|
|
|
Additions
|
|
|
–
|
|
|
|
–
|
|
|
|
246,399
|
|
|
|
246,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2021
|
|
$
|
175,416
|
|
|
$
|
183,103
|
|
|
$
|
2,372,490
|
|
|
$
|
2,731,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
$
|
112,176
|
|
|
$
|
30,884
|
|
|
$
|
650,214
|
|
|
$
|
793,274
|
|
|
Depreciation
|
|
|
18,650
|
|
|
|
16,500
|
|
|
|
148,470
|
|
|
|
183,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2021
|
|
$
|
130,826
|
|
|
$
|
47,384
|
|
|
$
|
798,684
|
|
|
$
|
976,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
$
|
63,240
|
|
|
$
|
152,219
|
|
|
$
|
1,475,877
|
|
|
$
|
1,691,336
|
|
|
Balance,
June 30, 2021
|
|
|
44,590
|
|
|
|
135,719
|
|
|
|
1,573,806
|
|
|
|
1,754,115
|
|
|
|
|
Management
service agreement
|
|
|
Covenant
not
to complete
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
$
|
6,020,000
|
|
|
$
|
310,000
|
|
|
$
|
6,330,000
|
|
|
Additions
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2021
|
|
$
|
6,020,000
|
|
|
$
|
310,000
|
|
|
$
|
6,330,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
$
|
507,240
|
|
|
$
|
78,361
|
|
|
$
|
585,601
|
|
|
Amortization
|
|
|
200,666
|
|
|
|
31,000
|
|
|
|
231,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2021
|
|
$
|
707,906
|
|
|
$
|
109,361
|
|
|
$
|
817,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
$
|
5,512,760
|
|
|
$
|
231,639
|
|
|
$
|
5,744,399
|
|
|
Balance, June 30,
2021
|
|
|
5,312,094
|
|
|
|
200,639
|
|
|
|
5,512,733
|
|
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
7.
|
Right-of-use assets and leases
liabilities:
|
The Company
enters into lease agreements related to TMS devices and center locations. These lease agreements range from one year to seven years in
length.
Right-of-use
assets are initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made
at or before the commencement date, plus any initial direct costs incurred.
|
|
|
TMS
devices
|
|
|
Center
locations
|
|
|
Total
|
|
|
Right-of-use assets, December 31,
2020
|
|
$
|
10,931,943
|
|
|
$
|
15,859,601
|
|
|
$
|
26,791,544
|
|
|
Additions to right-of-use assets
|
|
|
1,824,344
|
|
|
|
853,345
|
|
|
|
2,677,689
|
|
|
Exercise of buy-out options
into property, plant and equipment
|
|
|
(235,310
|
)
|
|
|
–
|
|
|
|
(235,310
|
)
|
|
Depreciation
on right-of-use assets
|
|
|
(1,259,546
|
)
|
|
|
(1,492,799
|
)
|
|
|
(2,752,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets, June 30,
2021
|
|
$
|
11,261,431
|
|
|
$
|
15,220,147
|
|
|
$
|
26,481,578
|
|
Lease
liabilities have been measured by discounting future lease payments using a rate implicit in the lease or the Company’s incremental
borrowing rate. The Company’s incremental borrowing rate during the period ended June 30, 2021 is 10% (December 31, 2020
– 10%).
|
|
|
Total
|
|
|
Lease liabilities, December 31,
2020
|
|
$
|
27,912,873
|
|
|
Additions to lease liability
|
|
|
2,681,628
|
|
|
Interest expense on lease liabilities
|
|
|
1,355,260
|
|
|
Payments
of lease liabilities
|
|
|
(3,984,132
|
)
|
|
|
|
|
|
|
|
Lease liabilities, June 30, 2021
|
|
|
27,965,629
|
|
|
Less current
portion of lease liabilities
|
|
|
5,247,329
|
|
|
|
|
|
|
|
|
Long
term portion of lease liabilities
|
|
$
|
22,718,300
|
|
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
8.
|
Accounts payable and accrued
liabilities:
|
The accounts
payable and accrued liabilities are as follows:
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
Accounts payable
|
|
$
|
7,983,129
|
|
|
$
|
6,871,970
|
|
|
Accrued
liabilities
|
|
|
1,952,175
|
|
|
|
2,651,839
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,935,304
|
|
|
$
|
9,523,809
|
|
|
|
|
Device
Loans
(i), (ii)
|
|
|
Paycheck
Protection
Program (iii)
|
|
|
Credit
Facility (iv)
|
|
|
Total
|
|
|
Total at June 30, 2021
|
|
$
|
82,346
|
|
|
$
|
2,874,607
|
|
|
$
|
13,426,886
|
|
|
$
|
16,383,839
|
|
|
Short Term
|
|
|
51,968
|
|
|
|
1,702,606
|
|
|
|
320,446
|
|
|
|
2,075,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
Term
|
|
$
|
30,378
|
|
|
$
|
1,172,001
|
|
|
$
|
13,106,440
|
|
|
$
|
14,308,819
|
|
|
|
(i)
|
During
the year ended December 31, 2018, the Company assumed loans from four separate banking
institutions that were previously extended for the purchase of TMS devices to non-controlling
interest holder partners. The TMS device loans were assumed as part of partnerships with
local physicians, behavioral health groups or other strategic investors, which own minority
interests in certain TMS center subsidiaries. These TMS device loans bear an average interest
rate of 10% with average monthly blended interest and capital payments of $1,575 and mature
or have matured during the years ended or ending December 31, 2019 to December 31,
2023, as the case may be. There are no covenants associated with these loans.
|
During
the year ended December 31, 2019, the Company assumed loans from two separate banking institutions that were previously extended
for the purchase of TMS devices to non-controlling interest holder partners. The TMS device loans were assumed as part of partnerships
with local physicians, behavioral health groups or other investors, which own minority interests in certain TMS center subsidiaries.
These TMS device loans bear an average interest rate of 13% with average monthly blended interest and capital payments of $1,756 and
mature during the year ending December 31, 2021.
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
9.
|
Loans
payable (continued):
|
During
the year ended December 31, 2020, the Company was released from its obligations pertaining to one of the TMS device loans assumed
during the year ended December 31, 2019 in the amount of $45,680 as a result of the disposal of the related TMS device.
During
the six months ended June 30, 2021, the Company repaid TMS device loans totalling $33,839 (June 30, 2020 – $42,317).
|
|
(ii)
|
During
the year ended December 31, 2020, the Company entered into a promissory note with U.S.
Bank National Association, evidencing an unsecured loan in the amount of $3,080,760 (the
“Loan”) made to the Company under the U.S. Paycheck Protection Program (the “PPP”).
The PPP is a program organized by the U.S. Small Business Administration established under
the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The
Loan bears interest at a fixed rate of 1.0% per annum with average monthly blended interest
and capital payments of $172,145 and matures on January 23, 2023. Payments are deferred
for the first 16 months under the Loan with the first payments due August 23, 2021.
|
The effective
interest rate used to measure the fair value of the Loan is 10% and the benefit of the interest rate concession is a grant which gives
the Company economic benefits over the term of the Loan and is recorded as deferred grant income (see note 10). The undiscounted face
value of the Loan as at June 30, 2021 is $3,080,760 (December 31, 2020 – $3,080,760). As at the inception date, the carrying
value of the debt was $2,587,871. During the three and six months ended June 30, 2021, $62,678 and $123,323 of accretion expense,
respectively, was recorded (June 30, 2020 – $43,576 and $43,576, respectively) and as at June 30, 2021 the carrying amount
is $2,874,607 (December 31, 2020 – $2,751,284).
|
|
(iii)
|
On
December 31, 2020, the Company entered into the Credit Agreement for the Credit Facility
with the Lender. The Credit Facility provided a $15 million term loan that was funded at
closing on December 31, 2020, with an option of drawing up to an additional $15 million
in three $5 million delayed-draw term loan tranches within the 24 months following closing,
subject to the Company achieving specific financial milestones. All amounts borrowed under
the Credit Facility will bear interest at a rate equal to 30-day LIBOR plus 7.75%, subject
to a minimum interest rate of 8.75%. The Credit Facility has a five-year term and amortizes
over the life of the Credit Facility with 1% of the principal amount outstanding amortized
over years one to four with the remaining outstanding principal repaid in installments over
the fifth year. The undiscounted face value of the Credit Facility as at June 30, 2021
is $14,962,500 and the carrying amount is $13,426,886 (December 31, 2020 – $13,337,745).
Transaction costs of $1,691,748 were incurred and are deferred over the term of the Credit
Facility. Amortization of deferred transaction costs for the three and six months ended June 30,
2021 were $78,726 and $156,134, respectively (June 30, 2020 – nil and nil, respectively),
and were included in interest expense.
|
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
9.
|
Loans
payable (continued):
|
The Credit
Facility contains financial covenants including consolidated minimum revenue and minimum qualified cash that became effective March 31,
2021 as well as a number of negative covenants that came into effect on December 31, 2020. The Company has granted general security
over all assets of the Company in connection with the performance and prompt payment of all obligations of the Credit Facility.
The Company
is in compliance with the financial covenants and there have been no events of default as at June 30, 2021.
|
|
(b)
|
Non-controlling
interest loans:
|
|
|
|
June 30,
|
|
|
December 31
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Non-controlling interest
loans
|
|
$
|
81,075
|
|
|
$
|
77,137
|
|
The
non-controlling interest holder partners of the Company, from time to time, provide additional capital contributions in the form of capital
loans to the Company’s subsidiaries. These loans bear interest at a rate of 10%, compounded on a monthly basis. The loans are unsecured
and are repayable subject to certain liquidity and solvency requirements and are classified as current liabilities.
|
|
10.
|
Deferred
grant income:
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Deferred grant income
|
|
$
|
291,065
|
|
|
$
|
377,313
|
|
|
Less: current portion of deferred
grant income
|
|
|
182,384
|
|
|
|
176,746
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of deferred
grant income
|
|
$
|
108,681
|
|
|
$
|
200,567
|
|
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
10.
|
Deferred
grant income (continued):
|
The deferred
grant income is due to the benefit of the interest rate concession as part of the Loan (see note 9(a)). During the three and six months
ended June 30, 2021, $43,700 and $86,247, respectively (June 30, 2020 – $29,932 and $29,932, respectively) of deferred
grant income was recorded as a reduction of interest expense.
|
|
11.
|
Deferred
and contingent consideration:
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Deferred and contingent
consideration
|
|
$
|
–
|
|
|
$
|
11,369,429
|
|
On September 26,
2019, the Company, through its wholly-owned subsidiary, TMS NeuroHealth Centers Inc., completed the acquisition of all of the issued
and outstanding membership interests of each of Achieve TMS Centers, LLC and Achieve TMS Alaska, LLC (collectively “Achieve TMS”).
The acquisition of Achieve TMS was subject to an earn-out based on the earnings before interest, tax, depreciation and amortization (EBITDA)
achieved by Achieve TMS during the twelve-month period following the closing of the acquisition.
The earn-out
in relation to the acquisition of Achieve TMS was confirmed to be $10,319,429, of which $3,095,799 was settled through the issuance of
an aggregate of 231,011 common shares to the vendors on March 26, 2021. Of the remaining $7,223,630 of earn-out payable, $2,780,590
was paid in cash on March 26, 2021.
Certain
vendors agreed to defer $4,443,040 of the cash earn-out consideration due to them until June 30, 2021 in exchange for additional
cash consideration in the aggregate amount of $300,000 which was to be made concurrently with the deferred cash payment. See note 23.
The deferred cash payment and the additional cash consideration were paid in full to the vendors on June 28, 2021.
In addition,
the remaining $1,050,000 of deferred consideration held in an escrow account has also been finalized as all escrow conditions have been
satisfied. On March 26, 2021, the amount held in escrow as part of the acquisition of Achieve TMS was released in accordance with
the membership interest purchase agreement.
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
|
June 30
|
|
|
December 31
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Lender
warrants
|
|
$
|
319,950
|
|
|
$
|
250,891
|
|
|
Less: current
portion of lender warrants
|
|
|
319,950
|
|
|
|
250,891
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
portion of lender warrants
|
|
$
|
–
|
|
|
$
|
–
|
|
As consideration
for providing the Credit Facility (see note 9(a)(iv)), the Company issued 51,307 common share purchase warrants to the Lender, each exercisable
for one common share of the Company at an exercise price of C$11.20 per common share, expiring on December 31, 2025.
As the
exercise price is denoted in a different currency than the Company’s functional currency, the lender warrants are recorded as a
financial liability on the condensed interim consolidated statements of financial position. As at June 30, 2021, the value of the
lender warrants was $319,950 (December 31, 2020 – $250,891).
The change
in fair value of the lender warrants during the three and six months ended June 30, 2021 was a decrease of $5,080 and an increase
of $69,059, respectively (June 30, 2020 – nil and nil, respectively) and was recorded in corporate, general and administrative
expenses.
To the
extent that the Company draws down additional financing under the Credit Facility, the Company will be required to issue additional lender
warrants in an amount equal to 3% of the amounts drawn divided by the lesser of (i) the closing price for the common shares on the
day prior to the issuance of such additional lender warrants and (ii) the average closing price of the common shares on the Toronto
Stock Exchange for the 10 days prior to the issuance of such additional lender warrants, in either case subject to approval by the Toronto
Stock Exchange.
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
12.
|
Other
payables (continued):
|
|
|
(b)
|
Deferred
share units:
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Deferred share units
|
|
$
|
67,012
|
|
|
$
|
–
|
|
On May 6,
2021, the Company adopted the DSU Plan for non-employee directors. Each non-employee director (a “Director”) is required
to take at least 50% of their annual retainer (other than annual committee Chair retainers) in DSUs and may elect to take additional
amounts in the form of DSUs. Discretionary DSUs may also be granted to Directors under the DSU Plan. The DSUs granted vest immediately.
Following
a Director ceasing to hold all positions with the Company, the Director will receive a payment in cash at the fair market value of the
common shares represented by the Director’s DSUs generally within ten days of the Director’s elected redemption date.
As the
DSUs are cash-settled, the DSUs are recorded as cash-settled share based payments and a financial liability has been recognized on the
condensed interim consolidated statements of financial position. During the three and six months ended June 30, 2021, 5,536 and
5,536 DSUs were granted, respectively (June 30, 2020 – nil and nil, respectively). As at June 30, 2021, the value of
the financial liability attributable to the DSUs was $67,012 (December 31, 2020 – nil).
The Company
is authorized to issue an unlimited number of common shares and an unlimited number of preferred shares, issuable in series. As at June 30,
2021 and December 31, 2020, there were nil preferred shares issued and outstanding.
|
|
|
|
|
|
Total
|
|
|
|
|
Number
|
|
|
amount
|
|
|
December 31, 2020
|
|
|
13,502,477
|
|
|
$
|
60,129,642
|
|
|
Common shares issuances:
|
|
|
|
|
|
|
|
|
|
Settlement
of contingent consideration in shares
|
|
|
231,011
|
|
|
|
3,095,799
|
|
|
Private
placement
|
|
|
2,353,347
|
|
|
|
23,256,567
|
|
|
Exercise of warrants
|
|
|
1,800
|
|
|
|
28,729
|
|
|
Exercise of stock options
|
|
|
5,500
|
|
|
|
46,875
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
16,094,135
|
|
|
$
|
86,557,612
|
|
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
13.
|
Common
shares (continued):
|
The earn-out
in relation to the acquisition of Achieve TMS was confirmed to be $10,319,429, of which $3,095,799 was settled through the issuance of
an aggregate of 231,011 common shares to the vendors on March 26, 2021 (see note 11). The common shares issued were based on a price
per common share equal to the volume-weighted average trading price of the Company’s common shares on the Toronto Stock Exchange
for the five trading days ending two trading days prior to March 26, 2021.
On June 14,
2021, the Company issued a total of 2,353,347 common shares at an offering price of $10.00 per common share in connection with a non-brokered
private placement of common shares for aggregate gross proceeds of $23,533,470 (the “Private Placement”). The Company incurred
transaction costs of $276,903.See note 20.
During
the six months ended June 30, 2021, the Company issued a total of 1,800 common shares upon the exercise of broker warrants (see
note 14(b)).
During
the six months ended June 30, 2021, the Company issued a total of 5,500 common shares upon the exercise of vested stock options
(see note 14(a)).
Contributed
surplus is comprised of share-based compensation and broker warrants.
|
|
(a)
|
Share-based
compensation:
|
On
May 6, 2021, the stock options-based payment compensation plan was amended and restated (the “Equity Incentive Plan) to
permit the Company to grant restricted share units (“RSUs”) and performance share units (“PSUs”). Under the
plan, the Company pays equity instruments of the Company, or a cash payment equal to the fair market value thereof, as consideration
in exchange for employee and similar services provided to the Company. The plan is open to employees, directors, officers and
consultants of the Company and its affiliates; however, directors are not entitled to receive grants of PSUs.
Stock
options granted under the Equity Incentive Plan are equity-settled. The fair value of the grant of the options is recognized as an expense
in the condensed interim consolidated statements of net loss and comprehensive loss. The total amount to be expensed is determined by
the fair value of the options granted. The total expense is recognized over the vesting period which is the period over which all of
the service vesting conditions are satisfied.
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
14.
|
Contributed
surplus (continued):
|
The
vesting period is determined at the discretion of the Board and has ranged from immediate vesting to over three years.
The
maximum number of common shares reserved for issuance, in the aggregate, under the Equity Incentive Plan is 10% of the aggregate number
of common shares outstanding, provided that the maximum number of RSUs and PSUs shall not exceed 5% of the aggregate number of common
shares outstanding. As at June 30, 2021, this represented 1,609,413 and 804,706 common shares, respectively.
As at
June 30, 2021, 859,500 stock options are outstanding. The Company has not issued any RSUs or PSUs under the Equity Incentive Plan.
The
options have an expiry date of ten years from the applicable date of issue.
|
|
|
June 30,
2021
|
|
|
December
31, 2020
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number
|
|
|
average
|
|
|
Number
|
|
|
average
|
|
|
|
|
of stock
|
|
|
exercise
|
|
|
of stock
|
|
|
exercise
|
|
|
|
|
options
|
|
|
price
|
|
|
options
|
|
|
price
|
|
|
Outstanding, beginning of period
|
|
|
736,500
|
|
|
$
|
7.35
|
|
|
|
599,634
|
|
|
$
|
6.80
|
|
|
Granted
|
|
|
144,500
|
|
|
|
15.89
|
|
|
|
159,500
|
|
|
|
9.45
|
|
|
Cancelled
|
|
|
(16,000
|
)
|
|
|
(11.99)
|
|
|
|
(22,634
|
)
|
|
|
(7.50)
|
|
|
Exercised
|
|
|
(5,500
|
)
|
|
|
(5.23
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period
|
|
|
859,500
|
|
|
$
|
8.71
|
|
|
|
736,500
|
|
|
$
|
7.35
|
|
The
weighted average contractual life of the outstanding options as at June 30, 2021 was 6.6 years (December 31, 2020 – 6.4
years).
The
total number of stock options exercisable as at June 30, 2021 was 604,233 (December 31, 2020 – 546,367).
During
the three and six months ended June 30, 2021, the Company recorded a total share-based options compensation expense of $203,362
and $409,332, respectively (June 30, 2020 – $175,447 and $284,852, respectively).
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
14.
|
Contributed
surplus (continued):
|
The following stock options
were granted during the six months ended June 30, 2021:
|
|
(i)
|
The fair
value of the stock options granted on February 17, 2021 was estimated to be $9.03 per
option using the Black-Scholes option pricing model based on the following assumptions: volatility
of 46.36% calculated based on a comparable company; remaining life of ten years; expected
dividend yield of 0%; forfeiture rate of 4.39% and an annual risk-free interest rate of 1.11%.
|
|
|
(ii)
|
The fair
value of the stock options granted on May 14, 2021 was estimated to be $6.08 per option
using the Black-Scholes option pricing model based on the following assumptions: volatility
of 45.92% calculated based on a comparable company; remaining life of ten years; expected
dividend yield of 0%; forfeiture rate of 4.05% and an annual risk-free interest rate of 1.55%.
|
The following
stock options were granted during the year ended December 31, 2020:
|
|
(i)
|
The fair
value of the stock options granted on February 3, 2020 was estimated to be $5.50 per
option using the Black-Scholes option pricing model based on the following assumptions: volatility
of 46.12% calculated based on a comparable company; remaining life of ten years; expected
dividend yield of 0%; forfeiture rate of 0% and an annual risk-free interest rate of 2.02%.
|
As at
June 30, 2021, the total compensation cost not yet recognized related to options granted is approximately $ 1,248,569 (December 31,
2020 – $530,357) and will be recognized over the remaining average vesting period of 2.08 years (December 31, 2020 –
1.70 years).
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Number
|
|
|
|
average
|
|
|
|
Number
|
|
|
|
average
|
|
|
|
|
|
of
broker
|
|
|
|
exercise
|
|
|
|
of
broker
|
|
|
|
exercise
|
|
|
|
|
|
warrants
|
|
|
|
price
|
|
|
|
warrants
|
|
|
|
price
|
|
|
Outstanding, beginning
of year
|
|
|
112,909
|
|
|
$
|
12.07
|
|
|
|
213,638
|
|
|
$
|
11.10
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Expired
|
|
|
(111,109
|
)
|
|
|
(12.07
|
)
|
|
|
(100,729
|
)
|
|
|
(10.00
|
)
|
|
Exercised
|
|
|
(1,800
|
)
|
|
|
(12.07
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period
|
|
|
–
|
|
|
$
|
–
|
|
|
|
112,909
|
|
|
$
|
12.07
|
|
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
14.
|
Contributed
surplus (continued):
|
There
were no broker warrants issued during the six months ended June 30, 2021 or the year ended December 31, 2020.
The weighted
average contractual life of the outstanding broker warrants as at June 30, 2021 was nil years (December 31, 2020 – 0.4
years).
The total
number of broker warrants exercisable as at June 30, 2021 was nil December 31, 2020 – 112,909).
The aggregate
fair value of the broker warrants outstanding as at June 30, 2021 was nil (December 31, 2020 – $355,660).
The Company
may be involved in certain legal matters arising from time to time in the normal course of business. The Company records provisions that
reflect management’s best estimate of any potential liability relating to these matters. The resolution of these matters is not
expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
The Company
has adopted a defined contribution pension plan for its employees whereby the Company matches contributions made by participating employees
up to a maximum of 3.5% of such employees’ annual salaries. During the three and six months ended June 30, 2021, contributions,
which were recorded as expenses within direct center and patient care costs, other regional and center support costs and corporate, general
and administrative expenses, amounted to $172,886 and $289,083, respectively (June 30, 2020 – $70,099 and $157,304, respectively).
During
the six months ended June 30, 2021, there were no significant changes to the Company’s tax position.
|
|
18.
|
Risk
management arising from financial instruments:
|
In the
normal course of business, the Company is exposed to risks related to financial instruments that can affect its operating performance.
These risks, and the actions taken to manage them, are as follows:
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
18.
|
Risk
management arising from financial instruments (continued):
|
The
Company has Level 1 financial instruments which consists of cash, accounts receivable and accounts payable and accrued liabilities which
approximates their fair value given their short-term nature. The Company also has lender warrants and DSUs that are considered a Level
2 financial instrument (see note 12). The Company does not have any Level 3 financial instruments.
The
carrying value of the non-current portion of loans payable, finance lease obligations and deferred and contingent consideration approximates
their fair value given the difference between the discount rates used to recognize the liabilities in the condensed interim consolidated
statements of financial position and the market rates of interest is insignificant.
Financial
instruments are classified into one of the following categories: financial assets or financial liabilities.
Credit
risk arises from the potential that a counterparty will fail to perform its obligations. The Company is exposed to credit risk from patients
and third-party payors including federal and state agencies (under the Medicare programs), managed care health plans and commercial insurance
companies. The Company’s exposure to credit risk is mitigated in large part due to the majority of the accounts receivable balance
being receivable from large, creditworthy medical insurance companies and government-backed health plans.
The
Company’s aging schedule in respect of its accounts receivable balance as at June 30, 2021 and December 31, 2020 is provided
below:
|
|
|
June 30,
|
|
|
December 31,
|
|
|
Days since service
delivered
|
|
2021
|
|
|
2020
|
|
|
0 - 90
|
|
$
|
6,281,949
|
|
|
$
|
5,009,224
|
|
|
91 - 180
|
|
|
2,323,631
|
|
|
|
2,317,030
|
|
|
181 - 270
|
|
|
1,047,471
|
|
|
|
1,746,512
|
|
|
270+
|
|
|
1,140,013
|
|
|
|
1,635,296
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accounts
receivable
|
|
$
|
10,793,064
|
|
|
$
|
10,708,062
|
|
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
18.
|
Risk
management arising from financial instruments (continued):
|
Based
on the Company’s industry, none of the accounts receivable in the table above are considered “past due”. Furthermore,
the payors have the ability and intent to pay, but price lists for the Company’s services are subject to the discretion of payors.
As such, the timing of collections is not linked to increased credit risk. The Company continues to collect on services rendered in excess
of 24 months from the date such services were rendered.
Liquidity
risk is the risk that the Company may encounter difficulty in raising funds to meet its financial commitments or can only do so at excessive
cost. The Company ensures there is sufficient liquidity to meet its short-term business requirements, taking into account its anticipated
cash flows from operations, its holdings of cash and its ability to raise capital from existing or new investors and/or lenders (see
note 2(a)).
Currency
risk is the risk to the Company’s earnings that arises from fluctuations in foreign exchange rates and the degree of volatility
of those rates. The Company has minimal exposure to currency risk as substantially all of the Company’s revenue, expenses, assets
and liabilities are denominated in U.S. dollars. The Company pays certain vendors and payroll costs in Canadian dollars from time to
time, but due to the limited size and nature of these payments it does not give rise to significant currency risk.
Interest
rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. The Company is exposed to changes in interest rates on its cash and long-term debt. The Credit Facility (see note 9(a))
bears interest at a rate equal to 30-day LIBOR plus 7.75%, subject to a minimum interest rate of 8.75%. A 1% increase in interest rates
would result in a $634,550 increase to interest expense on the condensed interim consolidated statements of net loss and comprehensive
loss over the term of the Credit Facility.
The Company’s
objective is to maintain a capital structure that supports its long-term growth strategy, maintains creditor and customer confidence,
and maximizes shareholder value.
The capital
structure of the Company consists of its shareholders’ equity (deficit), including contributed surplus and deficit, as well as
loans payable.
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
19.
|
Capital
management (continued):
|
The Company’s
primary uses of capital are to finance operations, finance new center start-up costs, finance acquisitions, increase non-cash working
capital and capital expenditures. The Company’s objectives when managing capital are to ensure the Company will continue to have
enough liquidity so it can provide its services to its customers and returns to its shareholders. The Company, as part of its annual
budgeting process, evaluates its estimated annual cash requirements to fund planned expansion activities and working capital requirements
of existing operations. Based on this cash budget and taking into account its anticipated cash flows from operations and its holdings
of cash, the Company validates whether it has the sufficient capital or needs to obtain additional capital.
|
|
20.
|
Related
party transactions:
|
Transactions
with significant shareholder – Greybrook Health Inc.:
As at
June 30, 2021, nil is included in accounts payable and accrued liabilities for amounts payable for management services rendered
and other overhead costs incurred by Greybrook Health Inc. in the ordinary course of business (December 31, 2020 – $71,286).
These amounts were recorded at their exchange amount, being the amount agreed to by the parties.
During
the three and six months ended June 30, 2021, the Company recognized $28,880 and $88,879, respectively, in corporate, general and
administrative expenses (June 30, 2020 – $88,686 and $158,237, respectively) related to transactions with Greybrook Health
Inc.
On June 14,
2021, Greybrook Health Inc. purchased 200,000 common shares from the Company at a subscription price of $10.00 per common share in connection
with the Private Placement, for aggregate gross proceeds to the Company of $2,000,000. In connection with the Private Placement, the
Company also granted Greybrook Health Inc. the right to appoint a nominee to the board of directors of the Company as well as rights
to participate in future equity issuances by the Company to maintain Greybrook Health Inc.’s pro rata ownership interest
in the Company for so long as Greybrook Health Inc. (together with its affiliates) owns, controls or directs, directly or indirectly,
at least 5% of the outstanding common shares (on a partially-diluted basis). In addition, Greybrook Health received customary resale,
demand and “piggy-back” registration rights. See note 13.
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
21.
|
Basic
and diluted loss per share:
|
|
|
|
Three
months ended
|
|
|
Six months
ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Net loss attributable to
the shareholders of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenbrook
TMS
|
|
$
|
(6,775,825
|
)
|
|
$
|
(9,477,505
|
)
|
|
$
|
(14,402,379
|
)
|
|
$
|
(13,635,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
14,155,799
|
|
|
|
12,492,039
|
|
|
|
13,837,398
|
|
|
|
12,085,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.48
|
)
|
|
$
|
(0.76
|
)
|
|
$
|
(1.04
|
)
|
|
$
|
(1.13
|
)
|
For the
three and six months ended June 30, 2021, the effect of 859,500 options (June 30, 2020 – 759,134), 51,307 lender warrants
(June 30, 2020 – nil) and nil broker warrants (June 30, 2020 – 112,908) have been excluded from the diluted calculation
because this effect would be anti-dilutive.
|
|
22.
|
Non-controlling
interest:
|
As a
result of operating agreements with non-wholly owned entities, the Company has control over these entities under IFRS, as the Company
has power over all significant decisions made by these entities and thus 100% of the financial results of these subsidiaries are included
in the Company’s consolidated financial results.
The following
table summarizes the aggregate financial information for the Company’s non-wholly owned entities as at June 30, 2021 and December 31,
2020:
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
|
|
22.
|
Non-controlling
interest (continued):
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Cash
|
|
$
|
1,935,851
|
|
|
$
|
2,258,199
|
|
|
Accounts receivable,
net
|
|
|
6,416,543
|
|
|
|
6,326,473
|
|
|
Prepaid expenses
and other
|
|
|
378,143
|
|
|
|
273,295
|
|
|
Property,
plant and equipment
|
|
|
933,472
|
|
|
|
926,243
|
|
|
Right-of-use
assets
|
|
|
8,637,272
|
|
|
|
9,445,773
|
|
|
Accounts payable
and accrued liabilities
|
|
|
1,249,305
|
|
|
|
1,184,246
|
|
|
Lease liabilities
|
|
|
9,208,592
|
|
|
|
9,822,224
|
|
|
Loans payable
|
|
|
12,228,084
|
|
|
|
9,998,536
|
|
|
Deficit attributable
to the shareholders of Greenbrook TMS
|
|
|
(3,102,253
|
)
|
|
|
(1,382,465
|
)
|
|
Deficit attributable
to non-controlling interest
|
|
|
(815,824
|
)
|
|
|
(433,937
|
)
|
|
Distributions
paid to non-controlling interest
|
|
|
(1,518,130
|
)
|
|
|
(1,010,130
|
)
|
|
Subsidiary
investment by non-controlling interest
|
|
|
–
|
|
|
|
45,716
|
|
|
Historical
subsidiary investment by non-controlling interest
|
|
|
1,051,507
|
|
|
|
1,005,791
|
|
The following
table summarizes the aggregate financial information for the Company’s non-wholly owned entities for the three and six months ended
June 30, 2021 and June 30, 2020:
|
|
|
Three months
ended
|
|
|
Six months
ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Revenue
|
|
$
|
6,553,346
|
|
|
$
|
4,379,233
|
|
|
$
|
12,040,493
|
|
|
$
|
10,104,239
|
|
|
Net loss
attributable to the shareholders of Greenbrook TMS
|
|
|
(281,410
|
)
|
|
|
(941,891
|
)
|
|
|
(1,071,098
|
)
|
|
|
(1,574,922
|
)
|
|
Net income
(loss) attributable to non-controlling interest
|
|
|
37,336
|
|
|
|
(257,137
|
)
|
|
|
(172,276
|
)
|
|
|
(339,660
|
)
|
Greenbrook
TMS Inc.
Notes
to Condensed Interim Consolidated Financial Statements (continued)
(Expressed
in U.S. dollars, unless otherwise stated)
Three
and six months ended June 30, 2021 and 2020
(Unaudited)
The components
of the Company’s other regional and center support costs include the following:
|
|
|
Three months
ended
|
|
|
Six months
ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Salaries and bonuses
|
|
$
|
3,068,947
|
|
|
$
|
2,323,340
|
|
|
$
|
6,055,262
|
|
|
$
|
4,849,530
|
|
|
Marketing expenses
|
|
|
1,401,295
|
|
|
|
1,087,698
|
|
|
|
3,385,916
|
|
|
|
1,954,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,470,242
|
|
|
$
|
3,411,038
|
|
|
$
|
9,441,178
|
|
|
$
|
6,804,330
|
|
The components
of the Company’s corporate, general and administrative expenses include the following:
|
|
|
Three months
ended
|
|
|
Six months
ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Salaries and bonuses
|
|
$
|
3,670,679
|
|
|
$
|
2,398,594
|
|
|
$
|
6,557,263
|
|
|
$
|
5,022,025
|
|
|
Professional and legal fees
|
|
|
1,175,461
|
|
|
|
115,322
|
|
|
|
1,925,859
|
|
|
|
517,934
|
|
|
Computer supplies and software
|
|
|
323,587
|
|
|
|
181,920
|
|
|
|
632,292
|
|
|
|
395,304
|
|
|
Marketing expenses
|
|
|
181,799
|
|
|
|
298,237
|
|
|
|
342,833
|
|
|
|
603,685
|
|
|
Deferral payment expense
|
|
|
–
|
|
|
|
–
|
|
|
|
300,000
|
|
|
|
–
|
|
|
Insurance
|
|
|
168,107
|
|
|
|
26,863
|
|
|
|
207,183
|
|
|
|
62,414
|
|
|
Travel, meals and entertainment
|
|
|
53,326
|
|
|
|
4,799
|
|
|
|
74,975
|
|
|
|
130,411
|
|
|
Other
|
|
|
250,524
|
|
|
|
108,438
|
|
|
|
499,160
|
|
|
|
278,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,823,483
|
|
|
$
|
3,134,173
|
|
|
$
|
10,539,565
|
|
|
$
|
7,010,669
|
|
The deferral
payment expense of $300,000 that was recognized during the six months ended June 30, 2021 (June 30, 2020 – nil) relates
to cash consideration payable to certain vendors who have agreed to defer $4,443,040 of the cash earn-out consideration owed as part
of the acquisition of Achieve TMS. This amount was paid on June 28, 2021.
Exhibit 99.3
Greenbrook TMS Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the three- and six-month periods ended June 30,
2021 and 2020
August 5, 2021
TABLE OF CONTENTS
|
BASIS OF PRESENTATION
|
3
|
|
CAUTIONARY NOTE REGARDING NON-IFRS MEASURES AND INDUSTRY METRICS
|
3
|
|
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
|
4
|
|
BUSINESS OVERVIEW
|
5
|
|
FACTORS AFFECTING OUR PERFORMANCE
|
6
|
|
COMPONENTS OF OUR RESULTS OF OPERATIONS AND TRENDS AFFECTING OUR BUSINESS
|
7
|
|
FACTORS AFFECTING THE COMPARABILITY OF OUR RESULTS
|
10
|
|
KEY HIGHLIGHTS AND RECENT DEVELOPMENTS
|
11
|
|
RESULTS OF OPERATIONS
|
12
|
|
Analysis of Results for Q2 2021 and YTD 2021
|
13
|
|
QUARTERLY FINANCIAL INFORMATION
|
18
|
|
EBITDA AND ADJUSTED EBITDA
|
19
|
|
RECONCILIATION OF LOSS ATTRIBUTABLE TO THE COMMON SHAREHOLDERS OF GREENBROOK TO EBITDA AND ADJUSTED EBITDA
|
19
|
|
RECONCILIATION OF ACCOUNTS RECEIVABLE
|
20
|
|
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
|
20
|
|
INDEBTEDNESS
|
21
|
|
Off-Balance Sheet Arrangements
|
23
|
|
Share Information
|
23
|
|
Related Party Transactions
|
23
|
|
Risks and Uncertainties
|
24
|
|
DISCLOSURE
CONTROLS & PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
|
27
|
|
Critical Accounting Estimates and Judgments
|
30
|
|
RISK FACTORS
|
31
|
|
ADDITIONAL INFORMATION
|
31
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management’s
Discussion and Analysis (“MD&A”) provides information concerning the financial condition and results of operations
of Greenbrook TMS Inc. (the “Company”, “Greenbrook”, “us” or “we”).
This MD&A should be read in conjunction with our unaudited condensed interim consolidated financial statements for the three- and
six-month periods ended June 30, 2021 and 2020, including the related notes thereto, and our audited consolidated financial statements,
including the related notes thereto, for the fiscal years ended December 31, 2020 and 2019 and the related MD&A.
BASIS OF PRESENTATION
Our
unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard
(“IAS”) 34 – Interim Financial Reporting, as issued by the International Accounting Standards Board
(“IASB”). Our fiscal year is the 12-month period ending December 31. The next fiscal year will occur in the 12-month
period ending December 31, 2021.
All
references in this MD&A to “Q2 2021” are to our fiscal quarter for the three-month period ended June 30,
2021 and all references to “Q2 2020” are to our fiscal quarter for the three-month period ended June 30, 2020.
All references in this MD&A to “Q1 2021” are to our fiscal quarter for the three-month period ended March 31,
2021. All references in this MD&A to “YTD 2021” or “year-to-date 2021” are to the six-month
period ended June 30, 2021 and all references to “YTD 2020” or “year-to-date 2020” are to the
six-month period ended June 30, 2020. All references in this MD&A to “Fiscal 2020” are to our fiscal year
ended December 31, 2020 and all references in this MD&A to “Fiscal 2021” are to our fiscal year ending December 31,
2021.
On
January 12, 2021, at a special meeting of shareholders, our shareholders approved a special resolution authorizing our board of directors
(the “Board”) to amend our articles of incorporation (“Articles”) to effect a consolidation (the
“Share Consolidation”) of all of the issued and outstanding common shares of the Company (the “Common Shares”),
such that the trading price of the Common Shares following the Share Consolidation would permit us to qualify for listing on the Nasdaq
Capital Market of The Nasdaq Stock Market LLC (“Nasdaq”). On February 1, 2021, the Board effected the Share Consolidation
on the basis of one post-consolidation Common Share for every five pre-consolidation Common Shares and on February 4, 2021, the Common
Shares began trading on a post-consolidation basis on the Toronto Stock Exchange (“TSX”). The Common Shares
began trading on Nasdaq on March 16, 2021 under the symbol “GBNH”. Unless otherwise indicated, all Common Share numbers
in this MD&A have been adjusted to give effect to the Share Consolidation.
Amounts
stated in this MD&A are in United States dollars, unless otherwise indicated.
CAUTIONARY NOTE REGARDING NON-IFRS MEASURES AND INDUSTRY METRICS
This
MD&A makes reference to certain non-IFRS (as defined below) measures including certain metrics specific to the industry in
which we operate. These measures are not recognized measures under International Financial Reporting Standards (“IFRS”),
do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other companies.
Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of
our results of operations from management’s perspective. Accordingly, these measures are not intended to represent, and should not
be considered as alternatives to, loss attributable to the common shareholders of Greenbrook or other performance measures derived in
accordance with IFRS as measures of operating performance or operating cash flows or as a measure of liquidity. In addition to our results
determined in accordance with IFRS, we use non-IFRS measures including, “EBITDA” and “Adjusted EBITDA” (each as
defined below). This MD&A also refers to “Same-Region Sales Growth” (as defined below), which is an operating metric used
in the industry in which we operate but may be calculated differently by other companies. These non-IFRS measures and industry metrics
are used to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that
may not otherwise be apparent when relying solely on IFRS measures. We also believe that securities analysts, investors and other interested
parties frequently use non-IFRS measures and industry metrics in the evaluation of issuers. Our management also uses non-IFRS measures
and industry metrics to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts
and to determine components of management compensation.
We define such non-IFRS measures
and industry metrics as follows:
“Adjusted EBITDA”
is defined as net income (loss) before amortization, depreciation, interest expenses, interest income and income taxes, adjusted for share-based
compensation expenses, center development costs and one-time expenses. We believe our Adjusted EBITDA metric is a meaningful financial
metric as it measures the ability of our current TMS Center (as defined below) operations to generate earnings while eliminating the impact
of one-time expenses and share-based compensation expenses, neither of which has an impact on the operating performance of our existing
TMS Center network.
“EBITDA”
is defined as net income (loss) before amortization, depreciation, interest expenses, interest income and income taxes.
“Same-Region Sales
Growth” is a metric that we calculate as the percentage change in sales derived from our established management regions in a
certain financial period as compared to the sales from the same management regions in the same period of the prior year. This metric reflects
growth achieved through marketing and operational focus to increase volumes at existing TMS Centers as well as growth achieved through
the opening of additional TMS Centers within established management regions. Our established management regions are defined as management
regions containing open TMS Centers that have performed billable TMS (as defined below) services for a period of at least one full year
prior to each of the comparable periods. Within a management region we focus on increasing patient volume in addition to assessing individual
TMS Center locations on a standalone basis. As a result, we will from time to time establish a TMS Center that may, over the short term,
negatively impact the patient volume at another TMS Center, but which is expected to add incremental patient volume to the management
region as a whole in an economically beneficial manner. For more information regarding how we define our management regions, see “Business
Overview”. We believe Same-Region Sales Growth is a useful metric to investors because it helps quantify our sales growth within
regional management areas and the growth achieved by adding TMS Center density within established management regions. Our Same-Region
Sales Growth is unique to our financial management strategy and may be calculated differently compared to other companies.
See
“Reconciliation of Loss Attributable to the Common Shareholders of Greenbrook to EBITDA and Adjusted EBITDA” for a
reconciliation of certain of the foregoing non-IFRS measures to their most directly comparable measures calculated in accordance with
IFRS.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
Some
of the information contained in this MD&A, including with respect to the impact of the COVID-19 (coronavirus) pandemic (“COVID-19”)
and the Company’s response thereto, the Company’s expectations regarding the expansion of the Spravato® (esketamine nasal
spray) pilot program (the “Spravato® Pilot Program”), expansion opportunities, our expectations of future results,
performance, achievements, prospects or opportunities, constitutes “forward-looking information” within the meaning of applicable
securities laws in Canada and the United States, including the United States Private Securities Litigation Reform Act of 1995. This information
is based on management’s reasonable assumptions and beliefs in light of the information currently available to us and is current
as of the date of this MD&A. Actual results and the timing of events may differ materially from those anticipated in the forward-looking
information contained in this MD&A as a result of various factors.
Particularly, information
regarding our expectations of future results, performance, achievements, prospects or opportunities or the markets in which we operate
is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology
such as “plans”, “targets”, “expects” or “does not expect”, “is expected”,
“an opportunity exists”, “budget”, “scheduled”, “estimates”, “outlook”, “forecasts”,
“projection”, “prospects”, “strategy”, “intends”, “anticipates”, “does
not anticipate”, “believes”, or variations of such words and phrases or statements that certain actions, events or results
“may”, “could”, “would”, “might”, “will”, “will be taken”, “occur”
or “be achieved”. In addition, any statements that refer to expectations, intentions, projections or other characterizations
of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not facts
but instead represent management’s expectations, estimates and projections regarding future events or circumstances.
Many factors could cause our
actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed
or implied by the forward-looking statements, including, without limitation, the factors discussed in the “Risks and Uncertainties”
section of this MD&A. Additional risks and uncertainties are discussed in the Company’s materials filed with the Canadian securities
regulatory authorities and the United States Securities and Exchange Commission (the “SEC”) from time to time, including
the Company’s annual information form dated March 30, 2021 in respect of the fiscal year ended December 31, 2020. These
factors are not intended to represent a complete list of the factors that could affect us; however, these factors should be considered
carefully.
The purpose of the forward-looking
information is to provide the reader with a description of management’s current expectations regarding the Company’s financial
performance and may not be appropriate for other purposes; readers should not place undue reliance on forward-looking information contained
herein. To the extent any forward-looking information in this MD&A constitutes future-oriented financial information or financial
outlook, within the meaning of applicable securities laws, such information is being provided to demonstrate the potential of the Company
and readers are cautioned that this information may not be appropriate for any other purpose. Future-oriented financial information and
financial outlook, as with forward-looking information generally, are based on current assumptions and are subject to risks, uncertainties
and other factors. Furthermore, unless otherwise stated, the forward-looking statements contained in this MD&A are made as of the
date of this MD&A and we have no intention and undertake no obligation to update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise, except as required by applicable securities law. The forward-looking statements
contained in this MD&A are expressly qualified by this cautionary statement.
BUSINESS OVERVIEW
We
are a leading provider of Transcranial Magnetic Stimulation (“TMS”) therapy in the United States for the treatment
of Major Depressive Disorder (“MDD”) and other mental health disorders. Our predecessor, TMS NeuroHealth Centers Inc.
(“TMS US”) was established in 2011 to take advantage of the opportunity created through the paradigm-shifting technology
of TMS, an FDA-cleared, non-invasive therapy for the treatment of MDD. In 2018, our TMS Centers (as defined below) began offering treatment
for obsessive compulsive disorder. Our business model takes advantage of the opportunity for a new, differentiated service channel for
the delivery of TMS – a patient-focused, centers-based service model to make treatment easily accessible to all patients while maintaining
a high standard of care.
After
opening our first center in 2011 in Tysons Corner in Northern Virginia, we have grown to control and operate a network of outpatient
mental health service centers that specialize in TMS treatment (each, a “TMS Center”) across the United States. We
offer treatment facilities in convenient locations to provide easy access to patients and physicians. As at June 30, 2021, the Company
owned and operated 129 TMS Centers in the Commonwealth of Virginia, and the States of North Carolina, South Carolina, Maryland, Delaware,
Missouri, Illinois, Ohio, Connecticut, Florida, Texas, Michigan, Alaska, Oregon and California. As of the date of this MD&A,
the Company owns and operates 129 TMS Centers.
Our regional model seeks to
develop leading positions in key regional markets, leveraging operational efficiencies by combining smaller local treatment centers that
are strategically located within a single region for convenient patient and physician access, with regional management infrastructure
in place to support center operations. Management regions typically cover a specific metropolitan area that meets a requisite base population
threshold. The management region is typically defined by a manageable geographic area in terms of size, which facilitates the use of regional
staff working across the various TMS Center locations within the management region, and which resides within a marketing capture area
that allows for efficiencies in advertising cost. Management regions often have similar economic characteristics and are not necessarily
defined by state lines, other geographic borders, or differentiating methods of services delivery, but rather are defined by a functional
management area.
In Q1 2021, we implemented
the Spravato® Pilot Program at select TMS Centers to treat adults with treatment-resistant depression and depressive symptoms in adults
with MDD with suicidal thoughts or actions. See “Spravato® Pilot Program” below.
FACTORS AFFECTING OUR PERFORMANCE
We
believe that our performance and future success depend on a number of factors that present significant opportunities for us. These factors
are also subject to a number of inherent risks and challenges, some of which are discussed below. See also the “Risks and
Uncertainties” section of this MD&A.
Number of TMS Centers
We believe we have a meaningful
opportunity to continue to grow the number of our TMS Centers in the United States through organic in-region growth, establishing new
regions and potential future acquisitions. The opening and success of new TMS Centers is subject to numerous factors, including our ability
to locate the appropriate space, finance the operations, build relationships with physicians, negotiate suitable lease terms and local
payor arrangements, and other factors, some of which are beyond our control.
Competition
The
market for TMS is becoming increasingly competitive. We compete principally on the basis of our reputation and brand, the location of
our centers, the quality of our TMS services and the reputation of our partner physicians. In the markets in which we are operating, or
anticipate operating in the future, competition predominantly consists of individual psychiatrists that have a TMS device, an FDA-regulated
medical device specifically manufactured to transmit the magnetic pulses required to stimulate the cortical areas in the brain to effectively
treat MDD and other mental health disorders (each, a “TMS Device”), in their office and who can offer TMS therapy directly
to their patients. We also face competition from a limited number of multi-location psychiatric practices or behavioral health groups
that offer TMS therapy as part of their overall practice, as well as a few other specialist TMS providers.
We
also face indirect competition from pharmaceutical and other companies that develop competitive products, such as anti-depressant medications,
with certain competitive advantages such as widespread market acceptance, ease of patient use and well-established reimbursement. Our
commercial opportunity could be reduced or eliminated if these competitors develop and commercialize anti-depressant medications or other
treatments that are safer or more effective than TMS. At any time, these and other potential market entrants may develop treatment alternatives
that may render our products uncompetitive or less competitive.
We
are also subject to competition from providers of invasive neuromodulation therapies such as electroconvulsive therapy and vagus nerve
stimulation.
Capital Management
Our
objective is to maintain a capital structure that supports our long-term growth strategy, maintain creditor and customer confidence, and
maximize shareholder value. Our primary uses of capital are to finance operations, finance new center start-up costs, increase non-cash
working capital and capital expenditures. We may also use capital to finance potential acquisitions. See “Key Highlights and Recent
Developments” below. We have experienced losses since inception and, although we completed a $23.5 million private placement in
Q2 2021 (see “Key Highlights and Recent Developments—Private Placement” below), we expect that we will require additional
financing to fund our operating, investing and acquisition activities and such additional financing is required in order for us to repay
our short-term obligations. See the “Financial Condition, Liquidity and Capital Resources” section of this MD&A.
Industry Trends
Our revenue is impacted by
changes to United States healthcare laws, our clinical partners’ and contractors’ healthcare costs, the ability to secure
favorable pricing structures with device manufacturers and payors’ reimbursement criteria and associated rates.
Technology
Our revenues are affected
by the availability of, and reimbursement for, new TMS indications, new technology or other novel treatment modalities and our ability
to incorporate the new technology into our TMS Centers.
Segments
We evaluate our business and
report our results based on organizational units used by management to monitor performance and make operating decisions on the basis of
one operating and reportable segment: Outpatient Mental Health Service Centers. We currently measure this reportable operating segment’s
performance based on total revenues and entity-wide regional operating income.
COMPONENTS OF OUR RESULTS OF OPERATIONS AND
TRENDS AFFECTING OUR BUSINESS
In assessing our results of
operations and trends affecting our business, we consider a variety of financial and operating measures that affect our operating results.
Total Revenue
Total revenue consists of
service revenue attributable to the performance of treatments. In circumstances where the net patient fees have not yet been received,
the amount of revenue recognized is estimated based on an expected value approach. Due to the nature of the industry and complexity of
our revenue arrangements, where price lists are subject to the discretion of payors, variable consideration exists that may result in
price concessions and constraints to the transaction price for the services rendered.
In estimating this variable
consideration, we consider various factors including, but not limited to, the following:
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commercial payors and the administrators of federally-funded healthcare programs exercise discretion over
pricing and may establish a base fee schedule for TMS (which is subject to change prior to final settlement) or negotiate a specific reimbursement
rate with an individual TMS provider;
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average of previous net service fees received by the applicable payor and fees received by other patients
for similar services;
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management’s best estimate, leveraging industry knowledge and expectations of third-party payors’
fee schedules;
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factors that would influence the contractual rate and the related benefit coverage, such as obtaining
pre-authorization of services and determining whether the procedure is medically necessary;
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probability of failure in obtaining timely proper provider credentialing (including re-credentialling)
and documentation, in order to bill various payors which may result in enhanced price concessions; and
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variation in coverage for similar services among various payors and various payor benefit plans.
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We update the estimated transaction
price (including updating our assessment of whether an estimate of variable consideration is constrained) to represent faithfully the
circumstances present at the end of the reporting period and the changes in circumstances during the reporting period in which such variances
become known.
Third-party payors include
federal and state agencies (under the Medicare programs), managed care health plans and commercial insurance companies. Variable consideration
also exists in the form of settlements with these third-party payors as a result of retroactive adjustments due to audits and reviews.
We apply constraint to the transaction price, such that net revenues are recorded only to the extent that it is probable that a significant
reversal in the amount of the cumulative revenue recognized will not occur in the future.
Entity-Wide Regional Operating Income (Loss) and Direct Center
and Regional Costs
Regional operating income
presents regional operating income on an entity-wide basis and is calculated as total revenue less direct center and regional costs. Direct
center and regional costs consist of direct center and patient care costs, regional employee compensation, regional marketing expenses,
and depreciation. These costs encapsulate all costs (other than incentive compensation such as share-based compensation granted to senior
regional employees) associated with the center and regional management infrastructure, including the cost of the delivery of treatments
to patients and the cost of our regional patient acquisition strategy. Beginning in Q1 2020, the Company has excluded amortization from
entity-wide regional operating income (loss) based on the nature of the expense as it is not associated with center and regional infrastructure.
We have retrospectively updated our annual and quarterly financial information below to reflect this change (See “Results of Operations”
and “Quarterly Financial Information” below).
Center Development Costs, Capital Expenditure and Working Capital
Investment
Center development costs represent
direct expenses associated with developing new TMS Centers, including small furnishings and fittings, wiring and electrical and, in some
cases, the cost of minor space alterations. However, the main cash requirement for center development relates to working capital investment.
This includes rental deposits or other non-capital costs required to open TMS Centers and the cost of treatment delivery while collections
initially lag until payor contracting, credentialing and enrollment processes are completed.
Corporate Employee Compensation
Corporate employee compensation
represents compensation incurred to manage the centralized business infrastructure of the Company, including annual base salary, annual
cash bonuses and other non-equity incentives.
Corporate Marketing Expenses
Corporate marketing expenses
represent costs incurred that impact the Company on an overall basis including investments in website functionality and brand management
activities.
Other Corporate, General and Administrative Expenses
Other corporate, general and
administrative expenses represent expenses related to the corporate infrastructure required to support our ongoing business including
insurance costs, professional and legal costs and costs incurred related to our corporate offices.
Earn-Out Consideration
A portion of the purchase
price payable in respect of acquisition of Achieve TMS Centers, LLC and Achieve TMS Alaska, LLC (collectively, “Achieve TMS”)
in September 2019 (the “Achieve TMS Acquisition”) was subject to an earn-out based on the earnings before interest,
tax, depreciation and amortization achieved by Achieve TMS during the twelve-month period following the September 26, 2019 closing
date of the Achieve TMS Acquisition (the “Earn-Out”). The Earn-Out was confirmed to be $10,319,429, of which $3,095,799
was settled through the issuance of an aggregate of 231,011 Common Shares to the vendors on March 26, 2021. Of the remaining $7,223,630
of Earn-Out consideration payable, $2,780,590 was paid in cash on March 26, 2021. Certain vendors agreed to defer $4,443,040 of the
cash Earn-Out consideration due to them until June 30, 2021 in exchange for additional cash consideration in the aggregate amount
of $300,000, which payment was made in full concurrently with the deferred cash payment on June 28, 2021.
Share-Based Compensation
Share-based compensation represents
stock options granted as consideration in exchange for employee and similar services to align personnel performance with the Company’s
long-term goals.
Amortization
Amortization relates to the
reduction in useful life of the Company’s intangible assets that were realized as part of the Achieve TMS Acquisition.
Interest
Interest expense relates to
interest incurred on loans and lease liabilities. Interest income relates to income realized as a result of investing excess funds into
investment accounts.
Adjusted EBITDA
Adjusted
EBITDA is a non-IFRS measure that deducts share-based compensation expenses and expenses that represent one-time costs incurred for purposes
of enhancing the performance of the business and to achieve our TMS Center growth. This measure is not a recognized financial measure
under IFRS, does not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented
by other companies. See also “Cautionary Note Regarding Non-IFRS Measures and Industry Metrics.” One-time costs include the
recognition of a deferred payment cost with respect to the Earn-Out consideration in connection with the Achieve TMS Acquisition and costs
related to the listing of our Common Shares on the Nasdaq (the “Nasdaq listing”). On June 25, 2021, the
Company elected to withdraw its previously announced public offering of Common Shares in light of market conditions (the “Withdrawn
Public Offering”). Due to their nature, professional and legal fees associated with the Withdrawn Public Offering and the Private
Placement (defined below) (collectively, the “Equity Financing”) are also considered one-time costs and, accordingly,
have been excluded from Adjusted EBITDA.
FACTORS AFFECTING THE COMPARABILITY OF OUR RESULTS
COVID-19
During Fiscal 2020, we took
the below measures to control costs as a result of the COVID-19 pandemic:
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approximately 20% of the Company’s employees were furloughed as of May 1, 2020. During the
period of furlough, Greenbrook paid 100% of employer and employee medical premiums;
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a Company-wide hiring freeze was implemented;
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each member of the Company’s executive management team agreed to a 10% salary deferral; and
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budgeted discretionary expenses were reduced by approximately $2.0 million for Fiscal 2020.
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In Fiscal 2021, the Company
has reverted to normalized spending conditions.
See “Key Highlights
and Recent Developments – COVID-19 Business Impact” and “Risks and Uncertainties” below.
Adjustment to Variable Consideration Estimate
In an effort to strengthen
our billing relationship and rate negotiation position with payors, as well as optimize billing processes, including credentialling as
we continue to scale our business, we decided to improve our collection practices by consolidating our billing structure to begin remitting
claims on a state-wide basis in Fiscal 2020. This process included multiple re-credentialling processes across our payor population. This
has caused a temporary disruption in collections as further described below in “Analysis of Results for Q2 2021 and YTD 2021 –
Total Revenue”.
The COVID-19 pandemic negatively
impacted payor processes through a lack of timely and accurate communication resulting in a greater chance of price concession. As a result,
the following factors involved in estimating variable consideration further constrained the transaction price for services rendered:
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management’s best estimate, leveraging industry knowledge and expectations of third-party payors’
fee schedules;
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probability of failure in obtaining timely and accurate benefits information;
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probability of failure in obtaining timely and accurate pre-authorization of services; and
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probability of failure in obtaining timely proper provider credentialing (including re-credentialling)
and documentation, in order to bill various payors.
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During the initial onset of
the COVID-19 pandemic, we expected a temporary impact to the payor processes, as described above, including the impact of our billing
enhancements. However, when operations began to normalize in the fourth quarter of Fiscal 2020 (“Q4 2020”), management
determined that additional price concessions were necessary based on the continued nature of the impact to payor processes at that time.
These additional price concessions have persisted, but are expected to decline as a percentage of revenue during Fiscal 2021. See “Reconciliation
of Accounts Receivable”.
Regional Development Activity
Our regional model seeks to
develop leading positions in key markets, and to leverage operational efficiencies by combining smaller local treatment centers within
a region under a single shared regional management infrastructure. Part of our core strategy is to continue to develop new TMS Centers
within our existing regions as well as in new management regions, in each case, organically or through acquisitions of existing centers
or businesses, which may affect comparability of results.
Seasonality
Typically, we experience seasonal
factors in the first quarter of each fiscal year that result in reduced revenues in those quarters as compared to the other three quarters
of the year. These seasonal factors include cold weather and the reset of deductibles during the first part of the year.
KEY HIGHLIGHTS AND RECENT DEVELOPMENTS
During Q2 2021, we achieved
strong growth in revenue, regional operating income and treatment volumes, achieving our highest quarterly consolidated revenue results
to date and a strong return to entity-wide regional operating profitability. As the COVID-19 pandemic continued to create a challenging
operating environment, especially early in the quarter, we displayed our ability to adapt our business to current conditions while continuing
to deliver the highest quality of care at all of our TMS Centers. Quarterly revenue increased by 40% to a record of $13.7 million as compared
to Q2 2020 and by 21% as compared to Q1 2021. YTD 2021 revenue increased by 18% to $25.0 million, as compared to YTD 2020.
We also experienced a record
quarterly high in new patient starts, which we anticipate will be a catalyst for accelerated future growth (see “Cautionary Note
Regarding Forward-Looking Information” above). The continued roll-out of our Spravato® Pilot Program further builds on our long-term
business plan of utilizing our TMS Centers as platforms for the delivery of innovative treatments to patients suffering from MDD and other
mental health disorders.
We added one new active TMS
Centers during the quarter, while an additional seven TMS Centers remain in development. As at June 30, 2021, our current total TMS
Center network is comprised of 129 TMS Centers. As of the date of this MD&A, our total TMS network is comprised of 129 TMS Centers.
We believe our development
pipeline remains robust and primed for further expansion (see “Risk Cautionary Note Regarding Forward-Looking Information”).
Spravato® Pilot Program
During
Q2 2021, we continued the Spravato® Pilot Program at select TMS Centers to treat adults with treatment-resistant depression and depressive
symptoms in adults with MDD with suicidal thoughts or actions. Based on the promising findings to date, we expect to expand our offering
of Spravato® to an additional 8 TMS Centers, bringing our total to 13 TMS Centers offering Spravato®. We will
also explore opportunities to: (i) utilize the “buy and bill” billing method where possible from a regulatory perspective;
and (ii) explore offering Spravato® using mid-level practitioners such as nurse practitioners or physician assistants.
Participation in BrainsWay Smoking Cessation Trial
On April 29, 2021, our
Richmond Heights, Missouri TMS Center was named as one of the participating centers in BrainsWay Ltd.’s (“BrainsWay”)
roll-out of its smoking cessation TMS therapy. BrainsWay recently received FDA clearance for the use of their H4-coil TMS Device in aiding
short-term smoking cessation.
Private Placement
On June 14, 2021, the
Company completed a non-brokered private placement (the “Private Placement”) of Common Shares in reliance upon Rule 506(c) under
the U.S. Securities Act. Pursuant to the Private Placement, an aggregate of 2,353,347 Common Shares were issued at a price of $10.00 per
Common Share, for aggregate gross proceeds to the Company of $23,533,470. The financing was led by new investor Masters Special Situations,
LLC and affiliates thereof (“MSS”). Additional new investors, including BioStar Capital, Steward Capital Holdings,
LP and Avenaero Holdings, LLC, also participated in the financing, along with existing investors, Greybrook Health Inc. and 1315 Capital
II, L.P. (“1315 Capital”). The Company is using the net proceeds from the Private Placement to develop new TMS Centers
as well as for working capital and general corporate purposes.
In connection with the Private
Placement, MSS, Greybrook Health Inc. and 1315 Capital (collectively, the “Investors”) each received the right to appoint
a nominee to the board of directors of the Company as well as rights to participate in future equity issuances by the Company to maintain
such investors’ pro rata ownership interest in the Company for so long as the applicable Investor (together with its affiliates)
owns, controls or directs, directly or indirectly, at least 5% of the outstanding Common Shares (on a partially-diluted basis). In addition,
each of the subscribers in the Private Placement received customary resale, demand and “piggy-back” registration rights.
RESULTS OF OPERATIONS
Selected Financial Information
The
following table summarizes our results of operations for the periods indicated. The selected consolidated financial information
set out below have been derived from our unaudited condensed interim consolidated financial statements and related notes.
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(US$)
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Q2 2021
(unaudited)
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Q2 2020
(unaudited)
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YTD 2021
(unaudited)
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YTD 2020
(unaudited)
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Total revenue
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13,707,212
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9,788,555
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25,020,387
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21,209,057
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Direct center and patient care costs
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6,854,000
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5,166,153
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13,214,023
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11,047,442
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Regional employee compensation
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|
3,068,947
|
|
|
|
2,323,340
|
|
|
|
6,055,262
|
|
|
|
4,849,530
|
|
|
Regional marketing expenses
|
|
|
1,401,295
|
|
|
|
1,087,698
|
|
|
|
3,385,916
|
|
|
|
1,954,800
|
|
|
Depreciation
|
|
|
1,461,631
|
|
|
|
1,436,562
|
|
|
|
2,935,965
|
|
|
|
2,842,687
|
|
|
Total direct center and regional costs
|
|
|
12,785,873
|
|
|
|
10,013,753
|
|
|
|
25,591,166
|
|
|
|
20,694,459
|
|
|
Regional operating income (loss)
|
|
|
921,339
|
|
|
|
(225,198
|
)
|
|
|
(570,779
|
)
|
|
|
514,598
|
|
|
Center development costs
|
|
|
182,974
|
|
|
|
140,861
|
|
|
|
463,407
|
|
|
|
370,368
|
|
|
Corporate employee compensation
|
|
|
3,670,679
|
|
|
|
2,398,594
|
|
|
|
6,557,263
|
|
|
|
5,022,025
|
|
|
Corporate marketing expenses
|
|
|
181,799
|
|
|
|
298,237
|
|
|
|
342,833
|
|
|
|
603,685
|
|
|
Other corporate, general and administrative expenses
|
|
|
1,971,005
|
|
|
|
437,342
|
|
|
|
3,639,469
|
|
|
|
1,384,959
|
|
|
Share-based compensation
|
|
|
203,362
|
|
|
|
175,447
|
|
|
|
409,332
|
|
|
|
284,852
|
|
|
Amortization
|
|
|
115,833
|
|
|
|
115,833
|
|
|
|
231,666
|
|
|
|
231,666
|
|
|
Interest expense
|
|
|
1,334,187
|
|
|
|
694,208
|
|
|
|
2,362,099
|
|
|
|
1,352,042
|
|
|
Interest income
|
|
|
(11
|
)
|
|
|
(1,078
|
)
|
|
|
(2,193
|
)
|
|
|
(9,561
|
)
|
|
Earn-out consideration
|
|
|
–
|
|
|
|
5,250,000
|
|
|
|
–
|
|
|
|
5,250,000
|
|
|
Loss before income taxes
|
|
|
(6,738,489
|
)
|
|
|
(9,734,642
|
)
|
|
|
(14,574,655
|
)
|
|
|
(13,975,438
|
)
|
|
Income tax expense
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Loss for the period and comprehensive loss
|
|
|
(6,738,489
|
)
|
|
|
(9,734,642
|
)
|
|
|
(14,574,655
|
)
|
|
|
(13,975,438
|
)
|
|
Loss attributable to non-controlling interest
|
|
|
37,336
|
|
|
|
(257,137
|
)
|
|
|
(172,276
|
)
|
|
|
(339,660
|
)
|
|
Loss attributable to the common shareholders of Greenbrook
|
|
|
(6,775,825
|
)
|
|
|
(9,477,505
|
)
|
|
|
(14,402,379
|
)
|
|
|
(13,635,778
|
)
|
|
Net loss per share (basic and diluted) (1)
|
|
|
(0.48
|
)
|
|
|
(0.76
|
)
|
|
|
(1.04
|
)
|
|
|
(1.13
|
)
|
Notes:
|
(1) The Company has retrospectively presented the net loss per share calculations reflecting the number of Common Shares outstanding following the Share Consolidation. See “Basis of Presentation” above.
|
Selected Financial Position Data
The
following table provides selected financial position data for the years and periods indicated:
|
|
|
As at June 30,
|
|
|
As at December 31,
|
|
|
(US$)
|
|
2021
(unaudited)
|
|
|
2020
(unaudited)
|
|
|
2020
|
|
|
Cash
|
|
|
18,980,884
|
|
|
|
13,594,274
|
|
|
|
18,806,742
|
|
|
Current assets (excluding cash)
|
|
|
13,221,508
|
|
|
|
12,931,325
|
|
|
|
11,858,737
|
|
|
Total assets
|
|
|
69,658,468
|
|
|
|
65,508,189
|
|
|
|
68,600,408
|
|
|
Current liabilities
|
|
|
17,908,074
|
|
|
|
21,309,121
|
|
|
|
27,674,144
|
|
|
Non-current liabilities
|
|
|
37,135,800
|
|
|
|
24,930,054
|
|
|
|
38,042,522
|
|
|
Total liabilities
|
|
|
55,043,874
|
|
|
|
46,239,175
|
|
|
|
65,716,666
|
|
|
Non-controlling interests
|
|
|
(1,072,836
|
)
|
|
|
(38,755
|
)
|
|
|
(392,560
|
)
|
|
Shareholders’ equity
|
|
|
14,614,594
|
|
|
|
19,269,014
|
|
|
|
2,883,742
|
|
Selected Operating Data
The following table provides
selected operating data for the years and periods indicated:
|
|
|
As at June 30,
|
|
|
As at December 31,
|
|
|
(unaudited)
|
|
2021
|
|
|
2020
|
|
|
2020
|
|
|
Number of active TMS Centers(1)
|
|
|
122
|
|
|
|
113
|
|
|
|
116
|
|
|
Number of TMS Centers-in-development(2)
|
|
|
7
|
|
|
|
12
|
|
|
|
9
|
|
|
Total TMS Centers
|
|
|
129
|
|
|
|
125
|
|
|
|
125
|
|
|
Number of management regions
|
|
|
13
|
|
|
|
13
|
|
|
|
13
|
|
|
Number of TMS Devices installed
|
|
|
209
|
|
|
|
189
|
|
|
|
198
|
|
|
Number of regional personnel
|
|
|
343
|
|
|
|
275
|
|
|
|
305
|
|
|
Number of shared-services / corporate personnel(3)
|
|
|
51
|
|
|
|
44
|
|
|
|
49
|
|
|
Number of TMS providers(4)
|
|
|
124
|
|
|
|
112
|
|
|
|
117
|
|
|
Number of consultations performed(5)
|
|
|
7,124
|
|
|
|
4,435
|
|
|
|
11,305
|
|
|
Number of patient starts(5)
|
|
|
3,242
|
|
|
|
2,544
|
|
|
|
5,445
|
|
|
Number of treatments performed(5)
|
|
|
110,345
|
|
|
|
90,551
|
|
|
|
195,992
|
|
|
Average revenue per treatment(5)
|
|
$
|
227
|
|
|
$
|
234
|
|
|
$
|
220
|
|
Notes:
|
|
(1)
|
Active TMS Centers represent TMS Centers that have performed billable TMS services during the applicable
period.
|
|
|
(2)
|
TMS Centers-in-development represents TMS Centers that have committed to a space lease agreement and the
development process is substantially complete.
|
|
|
(3)
|
Shared-services / corporate personnel is disclosed on a full-time equivalent basis. The Company utilizes
part-time staff and consultants as a means of managing costs.
|
|
|
(4)
|
Represents physician partners that are involved in the provision of TMS therapy services from our TMS
Centers.
|
|
|
(5)
|
Figure calculated for the applicable year or period ended.
|
Analysis of Results for
Q2 2021 and YTD 2021
The following section provides
an overview of our financial performance during Q2 2021 compared to Q2 2020 and during YTD 2021 compared to YTD 2020.
Total Revenue
Consolidated
revenue increased to a record high of $13.7 million in Q2 2021, a 40% increase compared to Q2 2020 (Q2 2020: $9.8 million), and
$25.0 million in YTD 2021, an 18% increase compared to YTD 2020 (YTD 2020: $ 21.2 million). This increase is due to record quarterly treatments
performed in Q2 2021 as a result of record patient starts as market conditions continue to normalize after the initial onset of the COVID-19
pandemic as well as an increase in reimbursement rates from certain payors with which we have had long-standing relationships in our established
regions.
New
patient starts increased to 1,659 in Q2 2021, a 36% increase compared to Q2 2020 (Q2 2020: 1,218), and increased to 3,242 in YTD 2021,
a 27% increase compared to YTD 2020 (YTD 2020: 2,544). Treatment volumes were 58,219, a 37% increase compared to Q2 2020 (Q2 2020: 42,581),
and were 110,345 in YTD 2021, a 22% increase compared to YTD 2020 (YTD 2020: 90,551). Consultations were 3,533 in Q2 2021, a 70% increase
compared to Q2 2020 (Q2 2020: 2,075), and were 7,124 in YTD 2021, a 61% increase compared to YTD 2020 (YTD 2020: 4,435). The continued
strong performance of these key operating metrics demonstrates sound business fundamentals and positive forward momentum, positioning
us well for continued future growth as operating conditions normalize. We also believe that the COVID-19 pandemic has increased demand
for mental health services (including TMS therapy), which we believe will promote continued growth (see “Cautionary Note Regarding
Forward-Looking Information” above).
Same-Region
Sales Growth was 38% in Q2 2021 and 16% in YTD 2021 as compared to -19% in Q2 2020 and 2% in YTD 2020. The increase was primarily
due to increased revenue as market conditions continue to normalize after the initial onset of the COVID-19 pandemic (see “Cautionary
Note Regarding Non-IFRS Measures and Industry Metrics” above).
Average
revenue per treatment increased by 2% to $235 in Q2 2021 compared to Q2 2020 (Q2 2020: $230) and decreased by 3% to $227 in YTD
2021 compared to YTD 2020 (YTD 2020: $234). This was primarily attributable to the adjustment to variable consideration estimate (see
“Factors Affecting the Comparability of our Results – Adjustment to Variable Consideration Estimate” and “Reconciliation
of Accounts Receivable”) offset by an increase in reimbursement rates from certain payors with which we have had long-standing relationships
in our established regions.
Accounts Receivable
Accounts
receivable decreased by $0.1 million to $10.8 million as at the end of Q2 2021 (end of Q2 2020: $10.9 million) and increased by
$0.1 million as compared to the end of Fiscal 2020 (end of Fiscal 2020: $10.7 million). This is despite strong quarter-over-quarter revenue
growth.
In
an effort to strengthen our billing relationship and rate negotiation position with payors, as well as optimize billing processes, including
credentialling, we decided to improve our collection practices by consolidating our billing structure to begin remitting claims on a state-wide
basis in Fiscal 2020. This process included multiple re-credentialling processes across our payor population. The impact of COVID-19
on payor processes including the billing enhancements noted above, through a lack of timely and accurate communication, resulted in additional
price concessions and an adjustment to variable consideration estimate that persisted into Q2 2021 (see “Factors Affecting the Comparability
of our Results – Adjustments to Variable Consideration Estimate” and “Reconciliation of Accounts Receivable”).
As a result of our new billing
structure coupled with the transition to a scalable billing and reimbursement platform in Fiscal 2019, we set a quarterly record in cash
collections in Q2 2021. We believe the changes to our billing processes will allow us to continue to significantly improve our billing
and collection capabilities in the future. See “Cautionary Note Regarding Forward-Looking Information” above.
We also continue to collect
on services rendered in excess of 24 months from the date such services were rendered.
Entity-Wide Regional Operating Income (Loss) and Direct Center
and Regional Costs
Direct center and regional
costs increased by 28% to $12.8 million during Q2 2021 (Q2 2020: $10.0 million) and by 24% to $25.6 million during YTD 2021 (YTD 2020:
$20.7 million). This increase is primarily due to an increase in treatments, operating 122 active TMS Centers as at June 30, 2021
as compared to 113 active TMS Centers as at June 30, 2020.
Q2
2021 marked a return to entity-wide regional operating profitability, achieving entity-wide regional operating income of $0.9 million
in Q2 2021 as compared to an entity-wide regional operating loss of $0.2 million in Q2 2020. This was predominately attributable to the
consolidated revenue growth rate of 40% in Q2 2021 eclipsing the direct center and regional cost growth rate of 28% over the same period.
YTD
2021 resulted in an entity-wide regional operating loss of $0.6 million as compared to entity-wide regional operating income of
$0.5 million in YTD 2020. The entity-wide regional operating loss in YTD 2021 is primarily attributable to an adjustment to variable consideration
estimate due to the continued impact of the COVID-19 pandemic on payor processes (see “Factors Affecting the Comparability of our
Results – Adjustment to Variable Consideration Estimate” and “Reconciliation of Accounts Receivable”) and increased
marketing spend, to lessen the impact of the COVID-19 pandemic on our operating metrics and increase momentum as market conditions began
to normalize. The inclusion of nine newly active TMS Centers as compared to Q2 2020 and seven TMS Centers in development during Q2 2021,
which will take time to generate positive regional operating income, also contributed to the loss position. The entity-wide regional operating
income margin was 6.7% in Q2 2021 as compared to -2.3% in Q2 2020. The regional operating income margin was -2.3% in YTD 2021 as compared
to 2.4% in YTD 2020.
Center Development Costs, Capital Expenditures and Working Capital
Investment
Center
development costs increased by 30% to $0.2 million during Q2 2021 (Q2 2020: $0.1 million) and by 25% to $0.5 million during YTD
2021 (YTD 2020: $0.4 million) predominantly as a result of the resumption in development activity in Q2 2021 after a curtailment of spend
in Q2 2020 as a result of the COVID-19 pandemic (see “Factors Affecting the Comparability of our Results – COVID-19”).
Average cash investment to establish new TMS Centers, including center development costs, capital expenditures and working capital investment,
remained consistent at $0.16 million in Q2 2021 and YTD 2021 (Q2 2020 and YTD 2020: $0.16 million).
Corporate Employee Compensation
Corporate
employee compensation incurred to manage the centralized business infrastructure of the Company increased by 53% to $3.7 million
during Q2 2021 (Q2 2020: $2.4 million) and increased by 31% to $6.6 million during YTD 2021 (YTD 2020: $5.0 million). Corporate employee
compensation in Q2 2020 and YTD 2020 was comparatively low due to measures put in place to control costs during the COVID-19 pandemic
(see “Factors Affecting the Comparability of our Results – COVID-19”). As a result, the normalization of this spending
in Q2 2021 and YTD 2021, coupled with the increase in corporate employee compensation due to key investment in our human resources, billing,
operations and compliance capabilities, contributed to the increase in corporate employee compensation.
Corporate Marketing Expenses
Corporate
marketing expenses decreased by 39% to $0.2 million during Q2 2021 (Q2 2020: $0.3 million) and by 43% to $0.3 million during YTD
2021 (YTD 2020: $0.6 million). The decrease was primarily a result of the timing of discretionary spending.
Other Corporate, General and Administrative Expenses
Other
corporate, general and administrative expenses increased by 351% to $2.0 million during Q2 2021 (Q2 2020: $0.4 million). Other
corporate, general and administrative expenses in Q2 2020 were comparatively low due to measures put in place to control costs during
the COVID-19 pandemic (see “Factors Affecting the Comparability of our Results – COVID-19”). The normalization of this
spending in Q2 2021 and YTD 2021, coupled with the one-time professional and legal fees related to the Nasdaq listing and Equity Financing
(see “Adjusted EBITDA and One-Time Expenses” below), was primarily attributable for the increase in other corporate, general
and administrative expenses.
Other
corporate, general and administrative expenses increased by 163% to $3.6 million during YTD 2021 (YTD 2020: $1.4 million). Other corporate,
general and administrative expenses in YTD 2020 were comparatively low due to measures put in place to control costs during the COVID-19
pandemic (see “Factors Affecting the Comparability of our Results – COVID-19”). The normalization of this spending
in Q2 2021 and YTD 2021, coupled with the one-time deferred payment costs with respect to the Earn-Out consideration in connection with
the Achieve TMS Acquisition and one-time professional and legal fees related to the Nasdaq listing and Equity Financing (see “Adjusted
EBITDA and One-Time Expenses” below), was primarily attributable to the increase in other corporate, general and administrative
expenses.
Earn-Out Consideration
The
Earn-Out consideration decreased by $5.3 million to nil in Q2 2021 and YTD 2021 (Q2 2020 and YTD 2020: $5.3 million). The decrease is
a result of the Earn-Out amount confirmed during Q1 2021 and paid during YTD 2021. See “Components of Our Results of Our
Operations and Trends Affecting our Business” – Earn-Out Consideration”.
Share-Based Compensation
Share-based
compensation increased by 16% to $0.2 million during Q2 2021 (Q2 2020: $0.2 million) and increased by 44% to $0.4 million during
YTD 2021 (YTD 2020: $0.3 million), predominantly due to the timing and fair value of stock options granted to key personnel to ensure
retention and long-term alignment with the goals of the Company.
Amortization
Amortization
remained consistent at $0.1 million during Q2 2021 (Q2 2020: $0.1 million) and remained consistent at $0.2 million during YTD 2021
(YTD 2020: $0.2 million). The amortization was a result of the intangible assets acquired by the Company in connection with the Achieve
TMS Acquisition.
Interest
Interest
expense increased by 92% to $1.3 million during Q2 2021 (Q2 2020: $0.7 million) and by 75% to $2.4 million during YTD 2021 (YTD
2020: $1.4 million). The increase in interest expense is primarily due to the addition of new lease liabilities in connection with the
execution of our regional growth strategy and the credit and security agreement (the “Credit Agreement”) entered into
on December 31, 2020 for a secured $30 million credit facility (“Credit Facility”) with Oxford Finance LLC (the
“Lender”). See “Indebtedness”.
Interest
income decreased by 99% during Q2 2021 (Q2 2020: $0.001 million) and by 77% during YTD 2021 (YTD 2020: $0.01 million) as a result
of a decrease in the amount of excess funds invested.
Loss for the Period and Comprehensive Loss
and Loss for the Period Attributable to the Common Shareholders of Greenbrook
The
loss for the period and comprehensive loss decreased by 31% to $6.7 million during Q2 2021 (Q2 2020: $9.7 million) predominately due to
the record quarterly revenue achieved in Q2 2021 offset by the recognition of one-time professional and legal fees related to the Nasdaq
listing and Equity Financing (see “Adjusted EBITDA and One-Time Expenses” below). In Q2 2020, we recognized Earn-Out
consideration in connection with the Achieve TMS Acquisition that did not occur in Q2 2021.
The
loss for the period and comprehensive loss increased by 4% to $14.6 million during YTD 2021 (YTD 2020: $14.0 million). This was
predominantly due to an adjustment to variable consideration estimate due to the continued impact of the COVID-19 pandemic on payor processes
(see “Factors Affecting the Comparability of our Results – Adjustment to Variable Consideration Estimate”, “Total
Revenue” and “Reconciliation of Accounts Receivable”) and increased marketing spend, to lessen the impact of the COVID-19
pandemic on our operating metrics and increase momentum as market conditions started to normalize. In addition, we recognized one-time
deferred payment costs with respect to the Earn-Out consideration in connection with the Achieve TMS Acquisition and one-time professional
and legal fees related to the Nasdaq listing and Equity Financing (see “Adjusted EBITDA and One-Time Expenses” below). In
YTD 2020, we recognized Earn-Out consideration in connection with the Achieve TMS Acquisition that did not occur in YTD 2021. The inclusion
of nine newly active TMS Centers and seven TMS Centers in development (which will take time to generate positive entity-wide regional
operating income as described above) also contributed to the loss position (see “Entity-Wide Regional Operating Income (Loss) and
Direct Center and Regional Costs”, and “Cautionary Note Regarding Non-IFRS Measures and Industry Metrics” above).
The
loss attributable to the common shareholders of Greenbrook decreased by 29% to $6.8 million during Q2 2021 (Q2 2020: $9.5 million). The
loss attributable to the common shareholders of Greenbrook increased by 6% to $14.4 million during YTD 2021 (YTD 2020: $13.6 million).
This was predominantly due to the factors described above impacting net losses.
Adjusted EBITDA and One-Time Expenses
The
Adjusted EBITDA loss position increased by 62% to $2.7 million during Q2 2021 (Q2 2020: $1.7 million) and by 103% to $6.7 million during
YTD 2021 (YTD 2020: $3.3 million) predominately due to an adjustment to variable consideration estimate due to the continued impact
of the COVID-19 pandemic on payor processes (see “Factors Affecting the Comparability of our Results –Adjustment to Variable
Consideration Estimate”, “Total Revenue” and “Reconciliation of Accounts Receivable”) and increased marketing
spend, to lessen the impact of the COVID-19 pandemic on our operating metrics and increase momentum as market conditions started to normalize.
In
YTD 2020, aggregate corporate costs (including corporate employee compensation, corporate marketing expenses and other corporate, general
and administrative expenses) and regional costs were comparatively low due to measures put in place to control costs during the COVID-19
pandemic (see “Factors Affecting the Comparability of our Results – COVD-19”). The normalization of this spending in
Q2 2021 and YTD 2021, in addition to the inclusion of nine newly-active TMS Centers and seven TMS Centers in development (which will take
time to generate positive entity-wide regional operating income as described above), also contributed to the loss position. See “Cautionary
Note Regarding Non-IFRS Measures and Industry Metrics”. Also refer to “Corporate Employee Compensation”, “Other
Corporate, General and Administrative Expenses”, “Entity-Wide Regional Operating Income (Loss) and Direct Center and Regional
Costs” in this MD&A.
Due
to their nature, the deferred payment costs with respect to the Earn-Out consideration in connection with the Achieve TMS Acquisition
was a one-time expense incurred during YTD 2021 and was therefore excluded from Adjusted EBITDA. One-time professional and legal fees
incurred in connection with the Nasdaq listing and the Equity Financing have also been excluded from Adjusted EBITDA.
QUARTERLY FINANCIAL INFORMATION
Selected Quarterly Financial Information
The following table summarizes
the results of our operations for the eight most recently completed fiscal quarters:
|
(unaudited)
|
|
Q2
2021
|
|
|
Q1
2021
|
|
|
Q4
2020
|
|
|
Q3
2020
|
|
|
Q2
2020
|
|
|
Q1
2020
|
|
|
Q4
2019
|
|
|
Q3
2019
|
|
|
Revenue
|
|
|
13,707,212
|
|
|
|
11,313,175
|
|
|
|
9,913,552
|
|
|
|
12,006,570
|
|
|
|
9,788,555
|
|
|
|
11,420,502
|
|
|
|
12,536,671
|
|
|
|
8,459,103
|
|
|
Regional
operating income (loss)(1)
|
|
|
921,339
|
|
|
|
(1,492,118
|
)
|
|
|
(2,050,168
|
)
|
|
|
967,584
|
|
|
|
(225,198
|
)
|
|
|
739,796
|
|
|
|
2,056,836
|
|
|
|
770,813
|
|
|
Net
loss attributable to common shareholders of Greenbrook
|
|
|
(6,775,825
|
)
|
|
|
(7,626,554
|
)
|
|
|
(8,391,630
|
)
|
|
|
(7,636,132
|
)
|
|
|
(9,477,505
|
)
|
|
|
(4,158,274
|
)
|
|
|
(7,034,356
|
)
|
|
|
(3,431,009
|
)
|
|
Adjusted
EBITDA
|
|
|
(2,705,666
|
)
|
|
|
(4,013,910
|
)
|
|
|
(4,223,446
|
)
|
|
|
(937,073
|
)
|
|
|
(1,665,672
|
)
|
|
|
(1,648,053
|
)
|
|
|
(1,296,201
|
)
|
|
|
(1,033,876
|
)
|
|
Net
loss per share – Basic(2)
|
|
|
(0.48
|
)
|
|
|
(0.56
|
)
|
|
|
(0.60
|
)
|
|
|
(0.57
|
)
|
|
|
(0.76
|
)
|
|
|
(0.39
|
)
|
|
|
(0.62
|
)
|
|
|
(0.31
|
)
|
|
Net
loss per share – Diluted(2)
|
|
|
(0.48
|
)
|
|
|
(0.56
|
)
|
|
|
(0.60
|
)
|
|
|
(0.57
|
)
|
|
|
(0.76
|
)
|
|
|
(0.39
|
)
|
|
|
(0.62
|
)
|
|
|
(0.31
|
)
|
Notes:
|
|
(1)
|
Regional
operating income (loss) for the fourth quarter ended December 31, 2019 has been updated
to exclude amortization. See “Components of Our Results of Our Operations and Trends
Affecting our Business” above.
|
|
|
(2)
|
The Company
has retrospectively presented the number of Common Shares and net loss per share calculations
reflecting the number of Common Shares following the Share Consolidation. See “Basis
of Presentation” above.
|
Selected Quarterly Operating Data
The following table provides
selected operating data for the periods indicated:
|
(unaudited)
|
|
Q2 2021
|
|
|
Q1 2021
|
|
|
Q4 2020
|
|
|
Q3 2020
|
|
|
Q2 2020
|
|
|
Q1 2020
|
|
|
Q4 2019
|
|
|
Q3 2019
|
|
|
Number of active TMS Centers(1)
|
|
|
122
|
|
|
|
119
|
|
|
|
116
|
|
|
|
114
|
|
|
|
113
|
|
|
|
110
|
|
|
|
102
|
|
|
|
94
|
|
|
Number of TMS Centers-in-development(2)
|
|
|
7
|
|
|
|
9
|
|
|
|
9
|
|
|
|
11
|
|
|
|
12
|
|
|
|
14
|
|
|
|
17
|
|
|
|
12
|
|
|
Total TMS Centers
|
|
|
129
|
|
|
|
128
|
|
|
|
125
|
|
|
|
125
|
|
|
|
125
|
|
|
|
124
|
|
|
|
119
|
|
|
|
106
|
|
|
Number of management regions
|
|
|
13
|
|
|
|
13
|
|
|
|
13
|
|
|
|
13
|
|
|
|
13
|
|
|
|
13
|
|
|
|
13
|
|
|
|
13
|
|
|
Number of TMS Devices installed
|
|
|
209
|
|
|
|
201
|
|
|
|
198
|
|
|
|
191
|
|
|
|
189
|
|
|
|
189
|
|
|
|
178
|
|
|
|
164
|
|
|
Number of regional personnel
|
|
|
343
|
|
|
|
317
|
|
|
|
305
|
|
|
|
286
|
|
|
|
275
|
|
|
|
302
|
|
|
|
273
|
|
|
|
253
|
|
|
Number
of shared-services / corporate personnel(3)
|
|
|
51
|
|
|
|
49
|
|
|
|
49
|
|
|
|
47
|
|
|
|
44
|
|
|
|
47
|
|
|
|
44
|
|
|
|
36
|
|
|
Number of TMS providers(4)
|
|
|
124
|
|
|
|
116
|
|
|
|
117
|
|
|
|
113
|
|
|
|
112
|
|
|
|
117
|
|
|
|
109
|
|
|
|
102
|
|
|
Number of consultations performed(5)
|
|
|
3,533
|
|
|
|
3,591
|
|
|
|
3,587
|
|
|
|
3,283
|
|
|
|
2,075
|
|
|
|
2,360
|
|
|
|
2,479
|
|
|
|
2,177
|
|
|
Number of patient starts(5)
|
|
|
1,659
|
|
|
|
1,583
|
|
|
|
1,428
|
|
|
|
1,473
|
|
|
|
1,218
|
|
|
|
1,326
|
|
|
|
1,192
|
|
|
|
1,049
|
|
|
Number of treatments performed(5)
|
|
|
58,219
|
|
|
|
52,126
|
|
|
|
54,408
|
|
|
|
51,033
|
|
|
|
42,581
|
|
|
|
47,970
|
|
|
|
51,247
|
|
|
|
37,890
|
|
|
Average revenue per treatment(5)
|
|
$
|
235
|
|
|
$
|
217
|
|
|
$
|
182
|
|
|
$
|
235
|
|
|
$
|
230
|
|
|
$
|
238
|
|
|
$
|
245
|
|
|
$
|
223
|
|
Notes:
|
|
(1)
|
Active TMS Centers represent TMS Centers that have performed billable TMS services during the applicable
period.
|
|
|
(2)
|
TMS Centers-in-development represents TMS Centers that have committed to a space lease agreement and the
development process is substantially complete.
|
|
|
(3)
|
Shared-services / corporate personnel is disclosed on a full-time equivalent basis. The Company utilizes
part-time staff and consultants as a means of managing costs.
|
|
|
(4)
|
Represents physician partners that are involved in the provision of TMS therapy services from our TMS
Centers.
|
|
|
(5)
|
Figures calculated for the applicable period ended.
|
New patient starts were 1,659
in Q2 2021, representing a 5% quarter-over-quarter increase compared to Q1 2021 (Q1 2021: 1,583). Treatment volumes were 58,219 in Q2
2021, representing a 12% quarter-over-quarter increase compared to Q1 2021 (Q1 2021: 52,126). Consultations were 3,533 in Q2 2021, remaining
relatively flat compared to Q1 2021 (Q1 2021: 3,591).
We
achieved our highest quarterly consolidated revenue results to date of $13.7 million in Q2 2021, representing a 21% quarter-over-quarter
increase compared to Q1 2021 (Q1 2021: $11.3 million). Average revenue per treatment was $235 in Q2 2021, representing an 8% quarter-over-quarter
increase compared to Q1 2021 (Q1 2021: $217). This was primarily attributable to record quarterly treatments performed in Q2 2021, an
increase in reimbursement rates from certain payors with which we have had long-standing relationships in our established regions and
a reduction in the adjustment to variable consideration estimate as a percentage of revenue recognized based on expected value during
Q2 2021 compared to Q1 2021. See “Factors Affecting the Comparability of our Results – Adjustment to Variable Consideration
Estimate” and “Reconciliation of Accounts Receivable”.
We
experienced entity-wide regional operating income of $0.9 million in Q2 2021 as compared to an entity-wide regional operating loss
of $1.5 million in Q1 2021, primarily as a result of our highest quarterly consolidated revenue results to date in Q2 2021.
The
loss attributable to the common shareholders of Greenbrook was $6.8 million in Q2 2021, representing a 11% quarter-over-quarter
decrease compared to Q1 2021 (Q1 2021: $7.6 million). The decrease in the loss attributable to the common shareholders of Greenbrook was
predominately due to achieving our highest quarterly consolidated revenue results to date, partially offset by an increase in one-time
expenses in Q2 2021 as compared to Q1 2021. See “Analysis of Results for Q2 2021 and YTD 2021 – Adjusted EBITDA and One-Time
Expenses” above.
The
Adjusted EBITDA loss position decreased to $2.7 million in Q2 2021, representing a 33% quarter-over-quarter decrease compared to
Q1 2021 (Q1 2021: $4.0 million). This was primarily attributable to our highest quarterly consolidated revenue results to date, an increase
in reimbursement rates from certain payors with which we have had long-standing relationships in our established regions and a reduction
in the adjustment to variable consideration estimate as a percentage of revenue recognized based on expected value during Q2 2021 compared
to Q1 2021. See “Factors Affecting the Comparability of our Results – Adjustment to Variable Consideration Estimate”
and “Reconciliation of Accounts Receivable”.
EBITDA AND ADJUSTED EBITDA
The table below illustrates
our EBITDA and Adjusted EBITDA for the periods presented:
|
(US$)
|
|
Q2 2021
(unaudited)
|
|
|
Q2 2020
(unaudited)
|
|
|
YTD 2021
(unaudited)
|
|
|
YTD 2020
(unaudited)
|
|
|
EBITDA
|
|
|
(3,864,185
|
)
|
|
|
(7,231,980
|
)
|
|
|
(8,874,842
|
)
|
|
|
(9,218,944
|
)
|
|
Adjusted EBITDA
|
|
|
(2,705,666
|
)
|
|
|
(1,665,672
|
)
|
|
|
(6,719,576
|
)
|
|
|
(3,313,724
|
)
|
See “Cautionary Note
Regarding Non-IFRS Measures and Industry Metrics” and “Reconciliation of Loss Attributable to the Common Shareholders of Greenbrook
to EBITDA and Adjusted EBITDA” immediately below.
RECONCILIATION
OF LOSS ATTRIBUTABLE TO THE COMMON SHAREHOLDERS OF GREENBROOK TO EBITDA AND ADJUSTED EBITDA
The table below illustrates
a reconciliation of loss attributable to the common shareholders of Greenbrook to EBITDA and Adjusted EBITDA for the periods presented:
|
(US$)
|
|
Q2 2021
(unaudited)
|
|
|
Q2 2020
(unaudited)
|
|
|
YTD 2021
(unaudited)
|
|
|
YTD 2020
(unaudited)
|
|
|
Loss attributable to the common shareholders of Greenbrook
|
|
|
(6,775,825
|
)
|
|
|
(9,477,505
|
)
|
|
|
(14,402,379
|
)
|
|
|
(13,635,778
|
)
|
|
Add the impact of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,334,187
|
|
|
|
694,208
|
|
|
|
2,362,099
|
|
|
|
1,352,042
|
|
|
Amortization
|
|
|
115,833
|
|
|
|
115,833
|
|
|
|
231,666
|
|
|
|
231,666
|
|
|
Depreciation
|
|
|
1,461,631
|
|
|
|
1,436,562
|
|
|
|
2,935,965
|
|
|
|
2,842,687
|
|
|
Less the impact of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(11
|
)
|
|
|
(1,078
|
)
|
|
|
(2,193
|
)
|
|
|
(9,561
|
)
|
|
EBITDA
|
|
|
(3,864,185
|
)
|
|
|
(7,231,980
|
)
|
|
|
(8,874,842
|
)
|
|
|
(9,218,944
|
)
|
|
Add the impact of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
203,362
|
|
|
|
175,447
|
|
|
|
409,332
|
|
|
|
284,852
|
|
|
TMS Center development costs
|
|
|
182,974
|
|
|
|
140,861
|
|
|
|
463,407
|
|
|
|
370,368
|
|
|
Add the impact of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferral payment expense in relation to Achieve TMS cash
Earn-Out consideration owed
|
|
|
–
|
|
|
|
–
|
|
|
|
300,000
|
|
|
|
–
|
|
|
Earn-Out consideration
|
|
|
–
|
|
|
|
5,250,000
|
|
|
|
–
|
|
|
|
5,250,000
|
|
|
Nasdaq listing related professional and legal fees
|
|
|
240,761
|
|
|
|
–
|
|
|
|
451,105
|
|
|
|
–
|
|
|
Equity Financing related professional and legal fees
|
|
|
531,422
|
|
|
|
–
|
|
|
|
531,422
|
|
|
|
–
|
|
|
Adjusted EBITDA
|
|
|
(2,705,666
|
)
|
|
|
(1,665,672
|
)
|
|
|
(6,719,576
|
)
|
|
|
(3,313,724
|
)
|
RECONCILIATION OF ACCOUNTS RECEIVABLE
A quantitative reconciliation
of accounts receivable in respect of the three- and six-month periods ended June 30, 2021 and 2020, and the year ended December 31,
2020 is provided below, which includes a quantification of the adjustment to variable consideration estimate resulting from the additional
price concessions which were deemed necessary:
|
(US$)
|
|
Q2 2021
(unaudited)
|
|
|
Q2 2020
(unaudited)
|
|
|
YTD 2021
(unaudited)
|
|
|
YTD 2020
(unaudited)
|
|
|
Fiscal 2020
(unaudited)
|
|
|
Opening accounts receivable balance
|
|
|
10,736,212
|
|
|
|
10,956,475
|
|
|
|
10,708,062
|
|
|
|
10,091,087
|
|
|
|
10,091,087
|
|
|
Revenue recognized based on expected value
|
|
|
14,932,972
|
|
|
|
9,788,555
|
|
|
|
27,415,484
|
|
|
|
21,209,057
|
|
|
|
46,284,419
|
|
|
Adjustment to variable consideration estimate
|
|
|
(1,225,760
|
)
|
|
|
–
|
|
|
|
(2,395,097
|
)
|
|
|
–
|
|
|
|
(3,155,240
|
)
|
|
Payments received
|
|
|
(13,650,360
|
)
|
|
|
(9,877,517
|
)
|
|
|
(24,935,385
|
)
|
|
|
(20,432,631
|
)
|
|
|
(42,512,204
|
)
|
|
Ending accounts receivable balance at the period end date
|
|
$
|
10,793,064
|
|
|
$
|
10,867,513
|
|
|
$
|
10,793,064
|
|
|
$
|
10,867,513
|
|
|
$
|
10,708,062
|
|
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company’s primary
uses of capital are to finance operations, finance new TMS Center development costs, increase non-cash working capital and fund investments
in its centralized business infrastructure. The Company’s objectives when managing capital are to ensure that the Company will continue
to have enough liquidity to provide services to its customers and provide returns to its shareholders. We may also use capital to finance
potential acquisitions. See “Key Highlights and Recent Developments” above.
The
Company, as part of its annual budgeting process, evaluates its estimated annual cash requirements to fund planned expansion activities
and working capital requirements of existing operations. Based on this budget and considering its anticipated cash flows from regional
operations and its holdings of cash, the Company believes that it has sufficient capital to meet its future operating expenses, capital
expenditures and future debt service requirements for approximately the next 12 to 14 months as of the date of this MD&A. However,
our ability to fund operating expenses, capital expenditures and future debt service requirements will depend on, among other things,
our ability to source external funding, our future operating performance, which will be affected by the velocity of our regional development
strategy and general economic, financial and other factors, including factors beyond our control such as the COVID-19 pandemic. See “Cautionary
Note Regarding Forward-Looking Information”, “Risks and Uncertainties” and “Factors Affecting our Performance”
in this MD&A.
On June 14, 2021, the
Company completed the Private Placement for aggregate gross proceeds of $23,533,470. The Company is using the net proceeds from the Private
Placement to develop new TMS Centers as well as for working capital and general corporate purposes. See “Key Highlights and Recent
Developments – Private Placement”.
Analysis of Cash Flows for YTD 2021
The following table presents
our cash flows for each of the periods presented:
|
(US$)
|
|
YTD 2021
|
|
|
YTD 2020
|
|
|
Net cash used in operating activities
|
|
|
(9,452,991
|
)
|
|
|
(3,674,550
|
)
|
|
Net cash generate from (used in) financing activities
|
|
|
17,909,659
|
|
|
|
9,545,619
|
|
|
Net cash used in investing activities
|
|
|
(8,282,526
|
)
|
|
|
(224,402
|
)
|
|
Increase in cash
|
|
|
174,142
|
|
|
|
5,646,667
|
|
Cash Flows used in Operating Activities
For
YTD 2021, cash flows used in operating activities (which includes the full cost of developing new TMS Centers) totaled $9.5 million, as
compared to $3.7 million in YTD 2020. The increase in cash flows used in operating activities is primarily attributable to increased losses
(excluding the Earn-Out consideration with respect to the Achieve TMS Acquisition) during the period (see “Loss for the Period and
Comprehensive Loss and Loss for the Period Attributable to the Common Shareholders of Greenbrook” above), as well as the normalization
of spending in YTD 2021 subsequent to the measures put in place to control costs during the COVID-19 pandemic in YTD 2020 (see
“Factors Affecting the Comparability of our Results – COVID-19”). Of the net cash used in operating activities during
YTD 2021, $6.2 million related to Q1 2021 and $3.2 million related to Q2 2021.
Cash Flows generated from (used in) Financing
Activities
For
YTD 2021, cash flows generated from financing activities amounted to $17.9 million as compared to $9.5 million in YTD 2020. This
change is largely driven by the difference in the net proceeds received by the Company in connection with the Private Placement in Q2
2021 as compared to the net proceeds received by the Company in connection with its public offering of Common Shares completed in Q2 2020
for net proceeds of approximately $10.2 million and the PPP Loan (defined below). This was partially offset by an increase in distributions
to non-controlling interests during YTD 2021 compared to YTD 2020 and interest payments made in connection with the Credit Facility.
Cash Flows used in Investing Activities
For
YTD 2021, cash flows used in investing activities totaled $8.3 million as compared to $0.2 million in YTD 2020, which primarily
relates to the release of the deferred consideration held in an escrow account upon satisfying all escrow conditions and the Earn-Out
consideration in relation to the Achieve TMS Acquisition. See “Components of our Results of our Operations and Trends Affecting
our Business” – Earn-Out Consideration”.
INDEBTEDNESS
During
the year ended December 31, 2018, the Company assumed loans from four separate banking institutions that were previously extended
for the purchase of TMS Devices to non-controlling interest holder partners. The device loans were assumed as part of partnerships with
local physicians, behavioral health groups or other investors, which own minority interests in certain TMS Center subsidiaries. These
device loans bear an average interest rate of 10% with average monthly blended interest and capital payments of $1,575 and mature
or matured, as applicable, during the years ended December 31, 2019 to December 31, 2023. There are no significant financial
covenants associated with these loans. The loans related to one of the banking institutions were repaid during Fiscal 2019.
During
Fiscal 2019, the Company assumed loans from two separate banking institutions that were previously extended for the purchase of TMS Devices
to non-controlling interest holder partners. The device loans were assumed as part of partnerships with local physicians, behavioral health
groups or other investors, which own minority interests in certain TMS Center subsidiaries. These device loans bear an average interest
rate of 13% with average monthly blended interest and capital payments of $1,756 and mature during the year ending December 31,
2021. There are no significant financial covenants associated with these loans.
During Fiscal 2020, the Company
was released from its obligations pertaining to one of the bank loans assumed during Fiscal 2019 in the amount of $45,680 as a result
of the disposal of the related TMS Device.
During
YTD 2021, the Company repaid TMS Device loans totalling $0.03 million (YTD 2020: $0.05 million).
On
April 21, 2020, Greenbrook entered into a promissory note with the U.S. Bank National Association (the “PPP Lender”),
evidencing an unsecured loan in the amount of $3,080,760 (the “PPP Loan”) made to the Company under the United States
Paycheck Protection Program (the “PPP”). The PPP is a program organized by the U.S. Small Business Administration established
under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP Loan bears interest at a fixed
rate of 1.0% per annum with a maturity date of two years from the date of the Loan. Payments are deferred for the first 16 months under
the PPP Loan, and the PPP Loan may be forgiven, in whole or in part, subject to various factors including that the proceeds from the PPP
Loan are used by Greenbrook to cover payroll costs, rent and utilities.
The Company has applied for
forgiveness of the PPP Loan it received under the PPP, though there can be no assurances at this time that the PPP Loan will be forgiven,
whether in part or in whole.
On December 31, 2020,
we entered into the Credit Agreement for our $30 million Credit Facility with the Lender. The Credit Facility provided a $15 million term
loan that was funded at closing on December 31, 2020, with an option of drawing up to an additional $15 million in three $5 million
delayed-draw term loan tranches within the 24 months following closing, subject to achieving specific financial milestones relating to
the achievement of certain tiered EBITDA and revenue targets; debt-to-EBITDA ratio and debt-to-enterprise value ratio targets; and minimum
unrestricted cash and daily average unrestricted cash requirements. As of the date of this MD&A, the Company does not currently meet
these financial milestones and is, therefore, unable to draw down on any of the delayed-draw term loan tranches under the Credit Facility
at this time. All amounts borrowed under the Credit Facility will bear interest at a rate equal to 30-day LIBOR plus 7.75%, subject to
a minimum interest rate of 8.75%. The Credit Facility has a five-year term and amortizes over the life of the Credit Facility with 1%
of the principal amount outstanding amortized over years one to four with the remaining outstanding principal repaid in installments over
the fifth year. The Company has granted general security over all assets of the Company in connection with the performance and prompt
payment of all obligations of the Credit Facility.
The terms of the Credit Agreement
require us to satisfy various affirmative and negative covenants and to meet certain financial tests, including but not limited to, consolidated
minimum revenue and minimum qualified cash, each of which became effective on March 31, 2021. These covenants limit, among other
things, our ability to incur additional indebtedness outside of what is permitted under the Credit Agreement, create certain liens on
assets, declare dividends and engage in certain types of transactions. As of the end of Q2 2021, we were in compliance with such covenants.
The Credit Agreement includes customary events of default, including payment and covenant breaches, bankruptcy events and the occurrence
of a change of control.
As consideration for providing
the Credit Facility, we issued 51,307 common share purchase warrants (the “Lender Warrants”), each exercisable for
one Common Share at an exercise price of C$11.20 per Common Share, to the Lender. The Lender Warrants will expire on December 31,
2025.
On March 30, 2021, the
Company and TMS US received a waiver from the Lender with respect to their obligation under the Credit Agreement to deliver annual audited
financial statements with respect to Fiscal 2020 that do not contain any “going concern” or similar qualification or exception.
As consideration for the waiver granted by the Lender, the Company, TMS US and each of the other parties to the Credit Agreement covenanted
that the Company would complete an equity and/or subordinated debt offering for proceeds of at least $12 million, which was satisfied
through the completion of the Private Placement on June 14, 2021.
Contractual Obligations
The following table summarizes
our significant contractual obligations as of June 30, 2021:
|
(unaudited)
|
|
Total
|
|
|
Less than 1
year
|
|
|
1 – 3 years
|
|
|
3 - 5 years
|
|
|
More than 5
years
|
|
|
Loans Payable
|
|
|
24,909,783
|
|
|
|
3,833,792
|
|
|
|
4,626,492
|
|
|
|
16,449,499
|
|
|
|
-
|
|
|
Rental Leases
|
|
|
24,326,012
|
|
|
|
3,859,451
|
|
|
|
7,026,941
|
|
|
|
5,800,516
|
|
|
|
7,639,104
|
|
|
Device Leases
|
|
|
12,949,090
|
|
|
|
3,387,865
|
|
|
|
3,686,127
|
|
|
|
3,007,092
|
|
|
|
2,868,006
|
|
|
Total
|
|
|
62,184,885
|
|
|
|
11,081,108
|
|
|
|
15,339,560
|
|
|
|
25,257,107
|
|
|
|
10,507,110
|
|
Off-Balance Sheet Arrangements
The Company has not engaged
in any off-balance sheet financing transactions.
Share Information
The
Company is authorized to issue an unlimited number of Common Shares and an unlimited number of preferred shares, issuable in series.
As of June 30, 2021, there were 16,094,135 Common Shares and nil preferred shares issued and outstanding. In addition, there were
859,500 stock options and 51,307 Lender Warrants, each representing a right to acquire one Common Share, issued and outstanding. As of
the date of this MD&A, assuming exercise and exchange of all outstanding options and Lender Warrants, there are 17,004,942 equity
securities of the Company issued and outstanding on a fully-diluted basis.
Related Party Transactions
Compensation of key management personnel
The Company transacts with
key individuals from management who have authority and responsibility to plan, direct, and control the activities of the Company. Key
management personnel are defined as the executive officers of the Company, including the President and Chief Executive Officer (“CEO”),
the Chief Financial Officer (“CFO”), the Chief Operating Officer, the Chief Marketing Officer and the Chief Medical
Officer.
On April 20, 2021, the
Interim Chief Financial Officer stepped down from his role which he held since November 2020. During Q2 2021, he fully transitioned
all responsibilities to the CFO, who has returned from his leave of absence.
Transactions with significant shareholder – Greybrook Health
Inc.
As
at June 30, 2021, nil was included in accounts payable and accrued liabilities related to payables for management services
and other overhead costs rendered by Greybrook Health Inc. (“Greybrook Health”) to the Company in the ordinary course
of business under the MSA (as defined below) (June 30, 2020: $0.03 million).
On January 1, 2015, we
entered into a management and consulting services agreement (the “MSA”) with our significant shareholder, Greybrook
Health, pursuant to which Greybrook Health provided us and our subsidiaries with certain incidental services, including financial advisory
services, business development advisory services and business and operating consulting services (collectively, the “Services”).
More specifically, these Services included: (i) the provision of office space for our head office in Toronto, Ontario, and (ii) compensation
for our CFO, COO and twelve other employees consisting of our general counsel, ten full-time employees and one part-time employee that,
together, provided customary administrative, finance and accounting services to us and one part-time employee that provided customary
IT infrastructure services to us. All of the Services provided by Greybrook Health were provided on a cost basis whereby we reimbursed
Greybrook Health for costs incurred in connection with the provision of such Services. There was no mark-up charged by Greybrook Health
for the provision of the Services. The aggregate amount paid by us to Greybrook Health under the MSA for each of YTD 2021 and YTD 2020
was $0.1 million and $0.2 million, respectively. The MSA was terminated effective February 1, 2021.
Subsequent to September 30,
2019, compensation for all employees noted above, except for the Chief Operating Officer and the part time contractor that provides customary
IT infrastructure services to us, is no longer being provided by Greybrook Health and is being paid directly by us. Following the termination
of the MSA on February 1, 2021, the compensation for the COO and the part time contractor that provides customary IT infrastructure
services to the Company is being paid directly by the Company. Following termination of the MSA, we entered into a license agreement with
Greybrook Capital Inc. for the provision of office space for our head office in Toronto, Ontario, effective as of February 1, 2021.
Under the license, we are required to pay approximately C$10,000 per month. The initial term of the agreement expires on December 31,
2021, subject to the mutual agreement of the parties to extend the term. The license may be terminated by either party with 90 days’
written notice to the other party.
On
June 14, 2021, Greybrook Health Inc. purchased 200,000 Common Shares from the Company at a subscription price of $10.00 per Common
Share in connection with the Private Placement, for aggregate gross proceeds to the Company of $2,000,000. In connection with the
Private Placement, the Company also granted Greybrook Health Inc. the right to appoint a nominee to the board of directors of the Company
as well as rights to participate in future equity issuances by the Company to maintain Greybrook Health Inc.’s pro rata ownership
interest in the Company for so long as Greybrook Health Inc. (together with its affiliates) owns, controls or directs, directly or indirectly,
at least 5% of the outstanding Common Shares (on a partially-diluted basis). In addition, Greybrook Health received customary resale,
demand and “piggy-back” registration rights.
Risks and Uncertainties
We are exposed to a variety
of financial risks in the normal course of our business, including currency, interest rate, credit, and liquidity risks. Our overall risk
management program and business practices seek to minimize any potential adverse effects on our consolidated financial performance. Risk
management is carried out under practices approved by the Board. This includes identifying, evaluating and hedging financial risks based
on requirements of our organization. Our Board provides guidance for overall risk management, covering many areas of risk including interest
rate risk, credit risk, liquidity risk and currency risk.
COVID-19
On
January 30, 2020, the World Health Organization declared a global emergency with respect to the outbreak of COVID-19 and then
characterized it as a pandemic on March 11, 2020. The outbreak has spread globally, causing companies and various international jurisdictions
to impose restrictions, such as quarantines, closures, cancellations and travel restrictions. While these effects are expected to be temporary
and may be relaxed or rolled back if and when the COVID-19 pandemic abates, the actions may be reinstated as the pandemic continues to
evolve and in response to actual or potential resurgences. The duration of the resulting business disruptions and related financial impact
cannot be reasonably estimated at this time. While all of our TMS Centers remain open, and are expected to remain open, during the pandemic,
we experienced a temporary decline in both patient visits/treatments and new patient treatment starts during Fiscal 2020 as a result of
the various “stay at home”, “shelter in place” and/or other restrictions imposed in response to the COVID-19 pandemic.
This decline negatively impacted our business, and in particular has negatively impacted our cash flows during the year. As a result of
our lower than expected cash flows during Fiscal 2020, we were required to obtain additional financing under the Credit Facility, the
first $15 million tranche of which closed on December 31, 2020. On June 14, 2021, we also completed the Private Placement for
aggregate gross proceeds of approximately $23.5 million. However, it is possible that our consolidated results in future periods will
be negatively impacted by the COVID-19 pandemic.
We
currently expect to have available liquidity for between 12 to 14 months as of the date of this MD&A. Although we believe we will
become cash flow positive in the future, we will require additional financing to fund our operating and investing activities, and we can
provide no assurance that such financing will be available on acceptable terms, or at all.
We rely on payors to make
timely payments to us for services provided to their beneficiaries. If payors are negatively impacted by a decline in the economy, including
as a result of the COVID-19 pandemic, we may experience slowdowns in collections and a reduction in the amounts we expect to collect.
We
also rely on third-party suppliers and manufacturers for our TMS Devices. This outbreak has resulted in the extended shutdown of certain
businesses around the globe, which may in turn result in disruptions or delays to our supply chain. These may include disruptions from
the temporary closure of third-party supplier and manufacturer facilities, interruptions in TMS Device supply or restrictions on the export
or shipment of TMS Devices. Any disruption to our suppliers and their contract manufacturers will likely impact our revenue and operating
results. The outbreak of the COVID-19 pandemic may also impact the availability of key TMS Device components, logistics flows and the
availability of other resources to support critical operations.
A
local, regional, national or international outbreak of a contagious disease, including, but not limited to, COVID-19, Middle East Respiratory
Syndrome, Severe Acute Respiratory Syndrome, H1N1 influenza virus, avian flu or any other similar illness, or a fear of any of the foregoing,
could adversely impact us by causing operating delays and disruptions, labor shortages and shutdowns (including as a result of government
regulation and prevention measures). If we are unable to mitigate the impacts of the COVID-19 pandemic on our operations, our costs
may increase and revenue could decrease. It is unknown how we may be affected if such an epidemic persists for an extended period of time.
A widespread health crisis could adversely affect the global economy, resulting in an economic downturn that could impact demand for the
services we provide.
The future impact of the outbreak
is highly uncertain and cannot be predicted, and there is no assurance that the outbreak will not have a material adverse impact on our
future results. The extent of the impact will depend on future developments, including actions taken to contain COVID-19.
Interest Rate Risk
Interest
rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest
rates. We are exposed to changes in interest rates on our cash and long-term debt. The Credit Facility bears interest at a rate
equal to 30-day LIBOR plus 7.75%, subject to a minimum interest rate of 8.75%.
Credit Risk
Credit
risk arises from the potential that a counterparty will fail to perform its obligations. We are exposed to credit risk from patients and
third-party payors including federal and state agencies (under the Medicare programs), managed care health plans and commercial insurance
companies. Our exposure to credit risk is mitigated in large part by the fact that the majority of our accounts receivable balances
are receivable from large, creditworthy medical insurance companies and government-backed health plans.
Based on the Company’s
industry, none of the accounts receivable is considered “past due”. Furthermore, the payors have the ability and intent to
pay, but price lists for the Company’s services are subject to the discretion of payors. As such, the timing of collections is not
linked to increased credit risk. The Company continues to collect on services rendered in excess of 24 months from the date such services
were rendered.
Currency Risk
Currency
risk is the risk to our earnings that arises from fluctuations in foreign exchange rates and the degree of volatility of those rates.
We have minimal exposure to currency risk as substantially all of our revenue, expenses, assets and liabilities are denominated in U.S.
dollars. We pay certain vendors and payroll costs in Canadian dollars from time to time, but due to the limited size and nature of these
payments they do not expose us to significant currency risk.
Liquidity Risk
Liquidity
risk is the risk that we may encounter difficulty in raising funds to meet our financial commitments or can only do so at an excessive
cost. We aim to ensure there is sufficient liquidity to meet our short-term business requirements, taking into account our anticipated
cash flows from operations, our holdings of cash and our ability to raise capital from existing or new investors and/or lenders.
Cash Flow From Operations and Need for Additional
Financing
To
date, we have had negative cash flow from operating activities. Although we believe that we will have positive cash flow from
operating activities in the future, we may require additional financing to fund operating and investing activities. To the extent
that we have negative cash flows in future periods, a portion of the proceeds of any offering may need to be allocated to
funding this negative cash flow in addition to our operational expenses or other activities. While the Credit Facility provides the
Company with an option of drawing up to an additional $15 million in three $5 million delayed-draw term loan tranches within the 24
months following closing of the Credit Facility, the ability to draw on such delayed-draw term loans is subject to the Company
achieving specific financial milestones. See “Indebtedness”.
The Company, as part of its
annual budgeting process, evaluates its estimated annual cash requirements to fund planned expansion activities and working capital requirements
of existing operations. Based on this cash budget and considering its anticipated cash flows from regional operations, its holdings of
cash, the Credit Facility and the net proceeds from the Private Placement, the Company believes that it has sufficient capital to meet
its future operating expenses, capital expenditures and future debt service requirements for approximately the next 12 to 14 months. The
Company’s cash balance and working capital as at June 30, 2021 was approximately $19.0 million and $14.3 million, respectively.
If additional liquidity is
required, management plans to secure the necessary financing through the issuance of new public or private equity or debt instruments.
There is no assurance that additional future funding will be available to the Company, or that it will be available on terms which are
acceptable to management. The failure to raise such capital could result in the delay or indefinite postponement of all or any of the
Company’s current contemplated or future business objectives and expansion plans and impede its continued development and growth.
There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms
of such financing will be favorable to the Company. If additional funds are raised through issuances of equity, existing shareholders
could suffer significant dilution, and any new equity securities issued could have rights, preferences and privileges superior to those
of holders of Common Shares.
DISCLOSURE
CONTROLS & PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
Disclosure Controls & Procedures
Management
is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reasonable assurance that all
material information relating to the Company is gathered and reported to senior management, including the CEO and the CFO, on a timely
basis so that appropriate decisions can be made regarding public disclosure, including to ensure that information required to be disclosed
by the Company in reports that the Company files or submits under the U.S. Securities Exchange Act of 1934, as amended (the “U.S.
Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms
of the SEC. Management, under the oversight of the CEO and CFO, has evaluated the design and effectiveness of the Company’s disclosure
controls and procedures as of June 30, 2021. Based on this evaluation, the CEO and the CFO concluded that, as of June 30, 2021,
the Company’s disclosure controls and procedures (as defined in National Instrument 52-109 – Certification of Disclosure
in Issuers’ Annual and Interim Filings and in Rule 13a-15(e) and Rule 15d-15(e) under the U.S. Exchange
Act) were ineffective as a result of material weaknesses identified in the Company’s internal control over financial reporting,
which is further described below.
The Company’s disclosure
controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the CEO and CFO do not expect
that the disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived or operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
There has been no change in
the Company’s disclosure controls and procedures that occurred during the three and six months ended June 30, 2021 that has
materially affected, or is reasonably likely to materially affect, the Company’s disclosure controls and procedures.
Internal Controls over Financial Reporting
Management is also responsible
for establishing and maintaining adequate internal controls over financial reporting (“ICFR”) which is a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial reports for external
purposes in accordance with IFRS. In designing such controls, it should be recognized that, due to inherent limitations, any controls,
no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and may not
prevent or detect misstatements. Additionally, management is required to use judgment in evaluating controls and procedures.
An evaluation of the design
and effectiveness of the Company’s internal controls over financial reporting was carried out by management, under the supervision
of the CEO and CFO. In making this evaluation, the CEO and CFO used the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) Internal Control – Integrated Framework (2013). Based on this evaluation, the CEO and CFO concluded
that, as of June 30, 2021, the Company’s internal control over financial reporting was ineffective as a result of identified
material weaknesses.
In connection with the audit
of our consolidated financial statements that were prepared in accordance with IFRS, and audited in accordance with the standards of the
Public Company Accounting Oversight Board (United States), our management identified material weaknesses in our internal control over
financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting
such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented
or detected on a timely basis.
The Company discovered that,
as an emerging growth company, it did not have the formalized internal control environment necessary to satisfy the accounting and financial
reporting requirements, including a lack of documentation of its existing internal control environment. The control breakdown that gave
rise to the material audit adjustment to revenue for the estimate for variable consideration identified by the external auditors was inadequate
review and scrutiny of judgement involved in the application of IFRS 15, Revenue from Contracts with Customers to changes to variable
consideration estimates at December 31, 2020. The material weaknesses that our management identified related to the following:
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|
•
|
the Company did not have an effective risk assessment process that successfully identified and assessed
risks of misstatement to ensure controls were designed and implemented to respond to those risks;
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|
|
•
|
the Company did not have an effective monitoring process to assess the consistent operation of internal
control over financial reporting and to remediate known control deficiencies; and
|
|
|
•
|
the Company did not effectively design and maintain appropriate segregation of duties and controls over
the effective preparation, review and approval, and associated documentation of journal entries.
|
These control deficiencies
are pervasive in impact and resulted in certain material misstatements to the Company’s financial statements identified through
the audit, and which were corrected by management. Identified errors resulted in certain adjustments to the amounts or disclosures included
revenue, share-based compensation, contributed surplus, cash, accounts receivable, accounts payable and accrued liabilities, loans payable,
Lender Warrants, and professional and legal fees. These errors were corrected prior to the release of our annual financial statements
for the financial year ended December 31, 2020.
The existence of these material
weaknesses creates a reasonable possibility that an error may not be prevented or detected in the Company’s annual or interim financial
statements on a timely basis.
We have established a remediation
plan which includes the following specific remedial actions undertaken by management:
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•
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implementing a system to manage and automate our internal control over financial reporting processes and
procedures;
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•
|
hiring additional accounting and finance resources and personnel with expertise in internal control over
financial reporting;
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•
|
implementing processes and controls to better identify and manage the consistent operation of internal
control over financial reporting and remediate known control deficiencies, including maintaining appropriate segregation of duties;
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|
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•
|
implementing
journal entry approval workflow within our key financial system; and
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•
|
retaining an international accounting firm to conduct a comprehensive assessment of our internal control
over financial reporting processes and procedures and make recommendations for additional improvements to such processes and procedures.
|
We will take all measures
necessary to address and cure the underlying causes of the material weaknesses. Once implemented, our remediation plan may take significant
time and expense to be fully implemented and may require significant management attention, and our efforts may not prove to be successful
in remediating the material weakness and do not guarantee that we will not suffer additional material weaknesses and/or significant deficiencies
in the future. Management has and will continue to take actions to implement these remedial measures throughout Fiscal 2021. At this time,
management estimates that it will have remediated the material weaknesses described above by the end of Fiscal 2021.
Despite
the material weaknesses, and based on management’s assessment, management has concluded that the Company’s control environment
continued to result in financial statements in prior periods that presented fairly, in all material respects, the Company’s financial
position, results of operations, changes in equity (deficit) and cash flows in accordance with IFRS. As a result, no changes to the required
conclusions made by the Company’s certifying officers were necessary. Furthermore, management has concluded that the annual financial
statements for the financial year ended December 31, 2020 and the unaudited condensed interim consolidated financial statements
for the three and six months ended June 30, 2021 present fairly, in all material respects, the Company’s financial position,
results of operations, changes in equity (deficit) and cash flows in accordance with IFRS.
If our management is unable
to certify the effectiveness of our internal controls or if additional material weaknesses in our internal controls are identified, we
could be subject to regulatory scrutiny and a loss of public confidence, which could harm our business and cause a decline in the price
of the Common Shares. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not
be able to accurately report our financial performance on a timely basis, which could cause a decline in the market price of the Common
Shares and harm our ability to raise capital.
We do not expect that our
disclosure controls and procedures and internal controls over financial reporting will prevent all error or fraud. A control system, no
matter how well-designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives
will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues within an organization are detected. The inherent limitations include the realities that judgments
in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented
by individual acts of certain persons, by collusion of two or more people or by management override of the controls. Due to the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected in a timely manner
or at all. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results could be materially
adversely affected, which could also cause investors to lose confidence in our reported financial information, which in turn could result
in a reduction in the trading price of the Common Shares.
As a result of our Nasdaq
listing, we are now subject to the requirements of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). Section 404
of Sarbanes-Oxley (“Section 404”) requires companies subject to the reporting requirements of the U.S. securities
laws to complete a comprehensive evaluation of our internal controls over financial reporting. To comply with this statute, we will be
required to document and test our internal control procedures and our management will be required to assess and issue a report concerning
our internal controls over financial reporting. Pursuant to the Jumpstart Our Business Startups Act (“JOBS Act”), we
are classified as an “emerging growth company”. Under the JOBS Act, emerging growth companies are exempt from certain reporting
requirements, including the independent auditor attestation requirements of Section 404(b) of Sarbanes-Oxley. Under this exemption,
our independent auditor will not be required to attest to and report on management’s assessment of our internal control over financial
reporting during a transition period of up to five years from our initial registration in the United States. We will need to prepare for
compliance with Section 404 by strengthening, assessing and testing our system of internal controls to provide the basis for our
report. However, the continuous process of strengthening our internal controls and complying with Section 404 is complicated and
time-consuming. Furthermore, we believe that our business will grow in the United States, in which case our internal controls will become
more complex and will require significantly more resources and attention to ensure our internal controls remain effective overall. During
the course of our testing, our management may identify additional material weaknesses or significant deficiencies, which may not be remedied
in a timely manner. If our management cannot favorably assess the effectiveness of our internal controls over financial reporting, or
our independent registered public accounting firm identifies additional material weaknesses in our internal controls, investor confidence
in our financial results may weaken, and the market price of our securities may suffer.
There
has been no change in the Company’s ICFR that occurred during the three and six months ended June 30, 2021 that has materially
affected, or is reasonable likely to materially affect, the Company’s ICFR.
Critical Accounting Estimates
and Judgments
There have been no changes to the Company’s
critical accounting estimates and judgments since the fiscal year ended December 31, 2020, except for the following additional disclosures
noted below.
Revenue recognition:
Due to the nature of the industry
and complexity of the Company’s revenue arrangements, where price lists are subject to the discretion of payors, variable consideration
exists that may result in price concessions and constraints to the transaction price for the services rendered.
In estimating this variable
consideration, the Company uses significant judgement and considers various factors including, but not limited to, the following:
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•
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commercial payors and the administrators of federally-funded healthcare programs exercise discretion over
pricing and may establish a base fee schedule for TMS (which is subject to change prior to final settlement) or negotiate a specific reimbursement
rate with an individual TMS provider;
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•
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average of previous net service fees received by the applicable payor and fees received by other patients
for similar services;
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•
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management’s best estimate, leveraging industry knowledge and expectations of third-party payors’
fee schedules;
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•
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factors that would influence the contractual rate and the related benefit coverage, such as obtaining
pre-authorization of services and determining whether the procedure is medically necessary;
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•
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probability of failure in obtaining timely proper provider credentialing (including re-credentialling)
and documentation, in order to bill various payors which may result in enhanced price concessions; and
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variation in coverage for similar services among various payors and various payor benefit plans.
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The Company updates the estimated
transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully
the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period in which such
variances become known.
The above factors are not
related to the creditworthiness of the large medical insurance companies and government-backed health plans encompassing the significant
majority of the Company’s payors. The payors (large insurers and government agencies) have the ability and intent to pay, but price
lists for the Company’s services are subject to the discretion of payors. As a result, the adjustment to reduce the transaction
price and constrain the variable consideration is a price concession and not indicative of credit risk on the payors (i.e. not a bad debt
expense).
Accounts receivable:
The Company considers a default
to be a change in circumstances that results in the payor no longer having the ability and intent to pay. In these circumstances, a write-off
of the related accounts receivable balance to bad debt would be recognized.
In estimating the collectability
of its accounts receivable, the Company considers macroeconomic factors in assessing accounts receivable. Such factors would need to be
significant to affect the ability and intent of the Company’s payors given their size and stature. No such factors were identified
as at June 30, 2021, or the comparative period, and therefore no bad debt was recognized.
COVID-19:
The uncertainties around the
outbreak of COVID-19 required the use of judgements and estimates which resulted in no material impacts for the period ended June 30,
2021. The future impact of COVID-19 uncertainties could generate, in future reporting periods, a significant risk of material adjustment
to the carrying amounts of the following: goodwill and intangible assets impairment, leases, business combinations, provisions, litigations
and claims.
The Company has experienced
losses since inception and has negative cash flow from operating activities of $9.5 million for the six months ended June 30, 2021
(six months ended June 30, 2020 – negative cash flow of $3.7 million). The COVID-19 pandemic, including the related government-imposed
social distancing and “shelter-in-place” measures, continues to have a negative impact on the Company’s cash flow used
in operating activities. Although the Company anticipates that it will have positive cash flow from operating activities in the future,
the Company anticipates that its overall cash flows may continue to be negatively impacted until the global economic impact of COVID-19
subsides. The Company expects it will require additional financing to fund its operating and investing activities and such additional
financing is required in order for the Company to repay its short-term obligations. These conditions indicate the existence of a material
uncertainty that may cast substantial doubt as to the Company’s ability to continue as a going concern. The Company also has strong
supportive shareholders and a proven track record of successfully raising capital when required. The failure to raise such capital when
required could result in the delay or indefinite postponement of current business objectives and additional financing may not be available
on favorable terms or at all.
The condensed interim consolidated
financial statements do not reflect adjustments that would be necessary if the going concern assumptions were not appropriate. If the
going concern basis was not appropriate for the condensed interim consolidated financial statements, then adjustments would be necessary
to the carrying value of assets and liabilities, the reported expenses, and the condensed interim consolidated statements of financial
position classification used.
Changes
in Significant Accounting Policies
Other than as described herein,
there are no recent accounting pronouncements that are applicable to the Company or that are expected to have a significant impact on
the Company.
RISK FACTORS
For
a detailed description of risk factors associated with the Company, refer to the “Risk Factors” section of the Company’s
annual information form dated March 30, 2021 for its fiscal year ended December 31, 2020, which is available on SEDAR at www.sedar.com
and on EDGAR at www.sec.gov, and the “Risks and Uncertainties” section in this MD&A.
ADDITIONAL INFORMATION
Additional
information relating to the Company, including the Company’s annual information form, is available on SEDAR at www.sedar.com
and on EDGAR at www.sec.gov. The Company’s Common Shares are listed for trading on the Nasdaq under the symbol
“GBNH” and on the TSX under the symbol “GTMS”.
