UNITED STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549 FORM 10-K/A



☒  ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the fiscal
year ended: December 31, 2018



or



☐ TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition
period from to



Commission
file number: 000-15078



Ethema Health
Corporation



(Exact name
of registrant as specified in its charter)



Colorado
84-1227328

(State or other
jurisdiction of incorporation or organization)

(I.R.S. Employer
Identification No.)



810 Andrews
Avenue

Delray Beach,
Florida 33483

(Address of
principal executive offices)



(561) 450-7679

(Registrant’s
telephone number, including area code)



|Securities
    registered under Section 12(b) of the Exchange Act:
|------------------------------------------------------------------
|                                                                  
|Title
    of each class                                           
|                                                                  
|None                                                              



Securities
registered under Section 12(g) of the Act:



Common Stock,
$0.01 par value per share

(Title of class)



Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☐  No  ☒



Indicate by
check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ☐  No  ☒



Indicate by
check mark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. ☒  Yes  No  ☐



Indicate by
check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive
data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No  ☐



Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of issuer’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K/A or any amendment to this Form 10-K/A. ☒



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



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



If an emerging
growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐



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



The aggregate
market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2018, based on a closing
share price of $0.08 was approximately $3,358,696. As of April 15, 2019, the registrant had 124,371,452 shares of its common stock,
par value $0.01 per share, outstanding.















ETHEMA HEALTH
CORPORATION

YEAR ENDED
DECEMBER 31, 2018

TABLE OF
CONTENTS



|           |                                                                                                                 | PAGE
|---------- | --------------------------------------------------------------------------------------------------------------- | ----
|PART I.    |                                                                                                                 |     
|Item 1.    | Business                                                                                                        | 1   
|Item 1A.   | Risk Factors                                                                                                    | 3   
|Item 1B.   | Unresolved  Staff
    Comments                                                                                  | 3   
|Item 2.    | Properties                                                                                                      | 3   
|Item 3.    | Legal Proceedings                                                                                               | 4   
|Item 4.    | Mine Safety Disclosures                                                                                         | 4   
|           |                                                                                                                
|PART II.   |                                                                                                                 |     
|Item 5.    | Market for Registrant’s
    Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities | 5   
|Item 6.    | Selected  Financial
    Data                                                                                    | 7   
|Item 7.    | Management’s Discussion
    and Analysis of Financial Condition and Results of  Operations                      | 8   
|Item 8.    | Financial Statements and  Supplementary
    Data                                                                | 13  
|Item 9.    | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure                        | 14  
|Item 9A.   | Controls and Procedures                                                                                         | 14  
|Item 9B.   | Other Information                                                                                               | 14  
|           |                                                                                                                 |     
|PART III   |                                                                                                                 |     
|Item 10.   | Directors, Executive Officers
    and Corporate Governance                                                      | 15  
|Item 11.   | Executive  Compensation                                                                                         | 16  
|Item 12.   | Security Ownership of Certain
    Beneficial Owners and Management and Related Stockholder Matters              | 18  
|Item 13.   | Certain Relationships and Related
    Transactions, and Director Independence                                   | 19  
|Item 14.   | Principal Accountant Fees and
    Services                                                                      | 20  
|Part IV.   |                                                                                                                 |     
|Item 15.   | Exhibits and Financial Statements
    Schedules                                                                 | 22  
|SIGNATURES | 25                                                                                                              |     













PART
I

Item 1. Business.



Company
History

Ethema Health
Corporation (the “Company” or “Ethema”), a Colorado corporation was incorporated under the laws of the
State of Colorado on April 1, 1993, and is the surviving company of a merger, effective February 1, 1995, between the Company
and Nova Natural Resources Corporation, a Delaware corporation (“Nova Delaware”). The merger was effectuated solely
for the purpose of changing the Company’s domicile from Delaware to Colorado. At all times prior to 2001, the Company was
engaged in the oil and gas exploration business. Nova Delaware was the successor entity to Nova Petroleum Corporation, a Delaware
corporation, and Power Resources Corporation, a Delaware corporation, which merged in 1986 (“the 1986 Merger”). Prior
to the 1986 Merger, Nova Petroleum Corporation and Power Resources Corporation had operated since 1979 and 1972, respectively.
In 2001, the Company entered into the electronics business and this business was active in 2001 and 2002, as part of the Torita
Group. After 2002, the Company continued with various stages of development in this business until 2010.



On April 1,
2010, the Company changed its principal operations from development stage electronics to healthcare services. On March 29, 2010,
the Company entered into a one year consulting agreement with GreeneStone Clinic Inc., a Canadian corporation (“Greenestone
Clinic”), whereby Greenestone Clinic provided consulting services for the Company’s development and operation of medical
clinics in the province of Ontario, Canada. Specifically, Greenestone Clinic provided medical and business expertise in the initial
startup of private clinics and technical assistance to ensure that the clinics were in compliance with governmental policy and
procedure requirements as well as any operational requirements. At the time of entering into this consulting agreement, Greenestone
Clinic operated a clinic at the Muskoka property housing its addiction treatment clinic and provided endoscopy services. The Company
started offering medical services in June 2010, offering various medical services, including endoscopy, cardiology and executive
medicals, which services were subsequently sold.



On May 15,
2010, the Company secured a sublease of space (which was previously the Rothbart Pain Clinic) of approximately 8,000 sq. ft. to
be used as the Company’s executive offices and to run an endoscopy clinic. The Endoscopy clinic was subsequently sold. The
Company, through its wholly owned subsidiary GreeneStone Clinic Muskoka Inc. (“GreeneStone Muskoka”), also entered
into a lease with the owner of the Muskoka premises on April 1, 2011 and provided mental health and addiction treatment services
and operated an in-patient addiction treatment center at this location.



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



On February
14, 2017, the Company completed a series of transactions (referred to collectively as the “Restructuring Transactions”),
including a Share Purchase Agreement (the “SPA”)whereby the
Company acquired 100% of the stock of Cranberry Cove Holdings Ltd. (“CCH”), which held the real estate on which the
Company’s GreeneStone Muskoka operated, an asset purchase agreement (the “APA”)and
lease (the “Lease”) whereby the Company sold certain of the GreeneStone Muskoka business assets and leased the real
estate to the buyer, and a real estate purchase agreement and asset purchase agreement whereby the Company purchased the real
estate and business assets of Seastone Delray (the “Florida Purchase”).



The Share
Purchase Agreement

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



1









The Asset
Purchase Agreement and Lease

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



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



The Florida Purchase



Immediately
after closing on the sale of the assets of the Canadian Rehab Clinic, the Company closed on the acquisition of the business and
real estate assets of Seastone Delray pursuant to certain real estate and asset purchase agreements. This business is operated
through its wholly owned subsidiary, Addiction Recovery Institute of America, LLC (“ARIA”) (formerly Seastone Delray
Healthcare, LLC). The purchase price for the ARIA assets was US$6,070,000 financed with a purchase money mortgage of US$3,000,000,
and US$3,070,000 in cash.



On April 4,
2017 the Company changed its Corporate name from Greenestone Healthcare Corporation to Ethema Health Corporation.



On August
3, 2018, the Company changed the name of its subsidiary Seastone Delray Healthcare, LLC to Addiction Recovery Institute of America,
LLC (“ARIA”).



Recent
Developments





On February
25, 2019, the Company entered into a Letter of Intent whereby it would purchase a 33.33% interest in Local Link Wellness, LLC (“LLW”)
for gross proceeds of $400,000. LLW proposes to provide a comprehensive addiction treatment program to large employee groups.
The company has advanced LLW a total of $110,000 as of April 12, 2019. These funds were advanced as short-term promissory notes
that will be immediately due and payable if the parties fail to reach a binding agreement by April 30, 2019. Upon the closing
of a binding agreement, the short-term promissory notes will be converted to equity.



On April 2, 2019, the Company entered
into a Commercial Contract whereby the real property at 801 Andrews Avenue, Delray Beach, Florida, consisting of land and condominiums
thereon, was sold to JAGGM, LLC for $3,500,000. This transaction is expected to close on April 26, 2019.



Corporate
Structure



The Company
consists of the following entities:



| | · | Ethema
                                         Health Corporation (“Ethema”) (Parent company);
| | - | -----------------------------------------------------------------------------------------------



Ethema
is the publicly traded investment holding company.



| | · | Greenestone
                                         Clinic Muskoka Inc. (“Muskoka”), a Canadian registered company (wholly owned);
| | - | -----------------------------------------------------------------------------------------------------------------------------------



Muskoka
previously owned and operated the addiction treatment center in Canada which was sold to Canadian Addiction Residential Treatment
LP (“CART”). Muskoka has certain receivables collectible from CART and certain remaining liabilities.



| | · | Cranberry
                                         Cove Holdings, Ltd (“CCH”), a Canadian registered company (wholly owned);
| | - | ----------------------------------------------------------------------------------------------------------------------------



This
company was acquired from Leon Developments and owns and leases the property on which CART operates an addiction treatment center.



| | · | Addiction
                                         Recovery Institute of America, LLC(“ARIA”), a US registered company (formerly
                                         Seastone Delray Healthcare, LLC);
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ARIA
operated a treatment center in Delray Beach, Florida out of premises which it had acquired in February 2017. The treatment center
was relocated and is now operated out of leased premises in West Palm Beach Florida. The Company has an option to buy the leased
premises.



| | · | Delray
                                         Andrews RE, LLC (“DARE”), a US registered company (dormant)
| | - | -----------------------------------------------------------------------------------------------------------



DARE
was formed in 2016 to acquire the premises in which ARIA operated its Delray treatment center, the premises were acquired directly
into ARIA. DARE has remained dormant since inception.





2





Employees



As of December
31, 2018, Ethema Health Corporation had 20 employees.



Marketing



The addiction
treatment business in the USA operates as an Insured Healthcare service. Our marketing efforts are long term processes of establishing
relationships with relevant professionals and our treatment staff. We use
industry specific conferences and functions to network with these professionals.



Approximately
70% of our clients are sourced via the Internet. This is the single biggest focus for our marketing team, Search Engine Optimization
(SEO) is very important and the Company aggressively seeks the maximum cost/benefit relationships with specialist firms in this
field. We have also focused much of our effort on building relationships with large employer groups and unions that have large
numbers of employees requiring addiction treatment services. We believe that these relationships will begin to produce significant
referrals in 2019.



Competition





There
are a significant amount of treatment facilities in the United States, we compete with these clinics for patients who are typically
covered by insured healthcare services.



Environmental
Regulations



The Company
is not currently subject to any pending administrative or judicial enforcement proceedings arising under environmental laws or
regulations. Environmental laws and regulations may be adopted in the future which may have an impact upon the Company’s
operations.



Item 1A.
Risk Factors.



Not applicable
because we are a smaller reporting company.



Item 1B.
Unresolved Staff Comments





None.



Item 2.
Properties.



Ethema
Executive Offices



The Company’s executive offices are located at 810 Andrews Avenue, Delray Beach,
Florida, 33483.



West
Palm Beach Treatment Operations



The Company treatment operations are based in our leased premises at 5400 East Avenue, west Palm Beach,
Florida, USA.



Greenestone
Muskoka Treatment Facility



The Greenestone
Muskoka Treatment Facility is located in Bala, Ontario at 3571 Highway 169. The property is 43 acres in size and contains approximately
48,000 square feet of buildings. The property is owned by Ethema’s wholly owned Canadian subsidiary CCH and has been leased
to the new owner of the Muskoka Clinic for a term of five years, which ends on February 28, 2022. The Lease gives the tenant an
option to extend for three additional five (5) year terms, an option to purchase the property at any time for a purchase price
of $7,000,000 in the first thirty six (36) months of the term and thereafter at a purchase price increased by $1,500,000 for each
successive year up to a maximum of $10,000,000, and a right of first refusal in the event of a sale to a third party.



3







Delray
Beach Real Estate



The real
estate acquired in Delray Beach, Florida consist of two parcels of land. The first parcel is located at 810 Andrews Avenue,
Delray Beach, Florida, is 0.34 acres in size and has a two story, 2,839 square foot CBS office building constructed in 1963.
It is in good condition, and is currently used as an office for addiction treatment services. The second parcel is located at
801 Andrews Avenue, Delray Beach, Florida, is 0.34 acres in size and has a two-story, residential condominium building
containing 10 units totaling 8,844 square feet. The improvements were constructed in 1971 with the latest renovation
occurring in 2014. The property was being used as a sober home.





On April
3, 2019, the Company concluded an agreement to dispose of the residential condominium building located at 801 Andrews Avenue,
Delray Beach, Florida, for gross proceeds of $3,500,000.



Item 3. Legal Proceedings.

In 2017, a former employee has filed
suit against the Company asserting wrongful dismissal, claiming damages between CDN$43,500 and CDN$50,000 this matter was
settled for CDN14,070, including applicable legal fees, the settlement remains unpaid as the plaintiff has not signed the
minutes of settlement.





On February
14, 2019, the Company entered into a Settlement Agreement and Release with Gulfstream Roofing, Inc., for improvements made to
the leasehold real property located at 5400 East Avenue, West Palm Beach, Florida. The settlement amount was $251,774 was divided
into two equal installments of $125,887, which were paid on February 21, 2019 and March 5, 2019. All claims that the parties have
or may have against each other were released in terms of the agreement.



Other than
disclosed above, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial
condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending or,to
the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company,
our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities
as such, in which an adverse decision could have a material adverse effect.



Item 4.
Mine Safety Disclosures.



None.



4







PART II



Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.



| | (a) | Market
    Information
| | --- | ----------------------



The Company’s
common stock is quoted on the Over-the-counter Market (the “OTCQB”) under the symbol “GRST”. The Company
was sponsored by the market maker Wilson Davis & Co. from Salt Lake City,Utah,
which filed a Form 15c2-11 application with the Financial Industry Regulatory Authority (“FINRA”) for the Company
in 2011. This application was approved by FINRA in February 2012, and Wilson Davis & Co. first quoted the stock in March 2012.



The following
table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as reported by
the OTCQB. These quotations reflect interdealer prices, without retail markup, markdown or commission and may not necessarily
represent actual transactions.



|                 |  | HIGH |      | LOW
|---------------- |  | ---- | ---- | ---
|                 |  |      |      |    
|Fiscal year 2019 |  |      |      |    
|First quarter    |  | $    | 0.10 |    
|                 |  |      |      |    
|Fiscal Year 2018 |  |      |      |    
|First quarter    |  | $    | 0.07 |    
|Second quarter   |  | $    | 0.09 |    
|Third quarter    |  | $    | 0.09 |    
|Fourth quarter   |  | $    | 0.10 |    
|                 |  |      |      |    
|Fiscal Year 2017 |  |      |      |    
|First quarter    |  | $    | 0.08 |    
|Second quarter   |  | $    | 0.06 |    
|Third quarter    |  | $    | 0.09 |    
|Fourth quarter   |  | $    | 0.09 |    



Quotations on the OTCBB reflect
bid and ask quotations, may reflect interdealer prices, without retail markup, markdown or commission and may not represent actual
transactions.



| | (b) | Holders
| | --- | -------





The number
of record holders of the Company’s common stock as of April 12, 2019 is 148.



| | (c) | Dividends
| | --- | ---------



We have never paid any cash dividends
on our common shares, and we do not anticipate that we will pay any dividends with respect to those securities in the foreseeable
future. Our current business plan is to retain any future earnings to finance the expansion development of our business.



| | (d) | Securities
    Authorized for Issuance Under Equity Compensation Plans
| | --- | ----------------------------------------------------------------------



As of December 31, 2018, there
were 10,000,000 common securities authorized for issuance under the Company’s 2013 Stock Option Plan (which was previously
approved by security holders) of which there were 480,000 options outstanding as of December 31, 2018.



5







Recent
Sales of Unregistered Securities



In the securities
transactions described below, shares were issued pursuant to the exemptions from the registration requirements of the Securities
Act of 1933, as amended, afforded the Company under Section 4(a)(2) promulgated thereunder due to the fact that the issuance did
not involve a public offering because of the insubstantial number of persons involved in each offering, the size of the offering,
manner of the offering and number of shares offered. Based on an analysis of the above factors, we have met the requirements to
qualify for exemption under Section 4(a) (2) of the Securities Act for these transactions.



The following is a summary
of the securities transactions during the year ended December 31, 2018:





On January 1, 2018,
the Company recorded an issuance of 80,000 common shares upon the amendment of a Senior Secured Convertible note. The
shares were valued at $4,800 or $0.08 per share.





On March 9,
2018, the Company entered into a Securities Purchase Agreement with an investor whereby the Company borrowed $150,000 in exchange
for a convertible promissory note of $153,000 in terms of an unsecured convertible promissory note with a maturity date of December
30, 2018. The note bore interest at the rate of 12% per annum. The outstanding principal amount of the Note was convertible at
any time and from time to time at the election of the Purchaser during the period beginning on the date that was 180 days following
the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the average lowest closing
bid price of the Company’s common stock for the ten trading days prior to conversion. During September 2018, the Company
prepaid the aggregate principal outstanding of $153,000 together with interest thereon and penalty interest, was settled for gross
proceeds of $210,800.





On March 29,
2018, the Company entered into a Securities Purchase Agreement with an investor whereby the Company borrowed $150,000 in exchange
for a convertible promissory note of $165,000 in terms of an unsecured convertible promissory note with a maturity date of December
1, 2018. The note bears interest at a rate of 8.5% per annum. The note is convertible upon a repayment default, at the lower of
60% of the lowest traded price over the preceding 30 day trading period prior to the issuance of this note or 60% of the lowest
traded price 30 days prior to the conversion date. The term of the note was extended to July 25, 2019 providing no further events
of default under the note occur.





The Company issued the
note holder 165,000 shares of common stock valued at $11,550 as a commitment fee and a warrant exercisable for 5,500,000 shares
of common stock at an exercise price of $0.10 per share.





On April 17,
2018, the Company entered into a Securities Purchase Agreement with an investor whereby the Company borrowed $550,000 in exchange
for a convertible promissory note of $605,000 in terms of an unsecured convertible promissory note with a maturity date of December
1, 2018. The note bears interest at a rate of 8.5% per annum. The note is convertible upon a repayment default, at the lower of
60% of the lowest traded price over the preceding 30 day trading period prior to the issuance of this note or 60% of the lowest
traded price 30 days prior to the conversion date. The term of the note was extended to July 25, 2019 providing no further events
of default under the note occur.





The Company issued the
note holder 605,000 shares of common stock valued at $42,350 as a commitment fee and a warrant exercisable for 10,083,333 shares
of common stock at an exercise price of $0.10 per share.



On July 31, 2018, the
Company, entered into a Securities Purchase Agreement with an investor pursuant to which the Company borrowed $150,000 in exchange
for a Convertible Promissory Note in the aggregate principal amount of $153,000. The Note has a maturity date of May 15, 2019
and bears interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes due
and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note
in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the election
of the Purchaser during the period beginning on the date that is 180 days following the issue date into shares of the Company’s
common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten
trading days prior to conversion.



On September
10, 2018, the Company, entered into a Securities Purchase Agreement with an investor pursuant to which the Company borrowed $130,000
in exchange for a Convertible Promissory Note in the aggregate principal amount of $133,000. The Note has a maturity date of September
10, 2019 and bears interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes
due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the
Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the
election of the Purchaser during the period beginning on the date that is 180 days following the issue date into shares of the
Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common
stock for the ten trading days prior to conversion.





6









On November 5, 2018,
the Company entered into a Securities Purchase Agreement with an investor whereby the Company borrowed $100,000 in exchange for
a convertible promissory note of $111,111 with a maturity date of November 30, 2018. The note bore interest at a rate of 8% per
annum. The note was convertible upon a repayment default, at the lower of 60% of the lowest traded price over the preceding 30
day trading period prior to the issuance of this note or 60% of the lowest traded price 30 days prior to the conversion date.
The note was repaid on November 30, 2018.





The Company issued the note
holder 111,111 shares of common stock valued at $8.889 as a commitment fee.



Between May
5, 2018 and December 4, 2018, the Company entered into Securities Purchase Agreements with 14 investors whereby the Company borrowed
$2,505,000 in exchange for Convertible Promissory Notes with maturity dates of one year from the date of issuance. The Notes bear
interest at the rate of 6% per annum. The Notes are convertible into the Company’s common stock at a conversion price of
$0.08 per share. The investors were issued Warrants to purchase up to a total of 31,312,500 shares of the Company’s common
stock at an exercise price of $0.12 per share the. Both the conversion price under the Notes and the exercise price under the Warrants
are subject to standard  anti-dilution adjustment mechanisms. The Notes mature one year from date of issuance.



On December 14, 2018, the
Company entered into a Release and Settlement agreement with a former employee whereby the Company issued 100,000 shares of common
stock to the employee valued at $8,000.



Penny Stock



The U.S. Securities
and Exchange Commission (the “SEC”) has adopted rules that regulate broker dealer practices in connection with transactions
in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered
on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker dealer,
prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains
a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
(b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available
to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief,
clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread
between the bid and ask price; (d) contains a tollfree telephone number for inquiries on disciplinary actions; (e) defines
significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information
and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.



The broker
dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations
for the penny stock; (b) the compensation of the broker dealer and its salesperson in the transaction; (c) the number
of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market
for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s
account.



In addition,
the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker dealer
must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s
written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks,
and a signed and dated copy of a written suitability statement.



These disclosure
requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty
selling our securities.



Item 6.
Selected Financial Data.



Not applicable
as we are a smaller reporting company.



Special Note Regarding Forward-Looking
Statements





Many of
the matters discussed within this Annual Report on Form 10-K (“Annual Report”) contain forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) on our current
expectations and projections about future events. In some cases, you can identify forward-looking statements by terminology such
as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,”
“intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements
are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties, many of
which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those
expressed, projected or implied in or by the forward-looking statements. Such risks and uncertainties include the risks noted
under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are
also contained elsewhere. We do not undertake any obligation to update any forward looking statements. Unless the context requires
otherwise, references to “we,” “us,” “our,” and “Ethema,” refer to Ethema Health
Corporation and its subsidiaries.



Furthermore,
if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties
in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other
person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake any obligation
to update any forward-looking statements.



7







Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations.



Our financial
statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments
and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments,
and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities
as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented.
Our financial statements would be affected to the extent there are material differences between these estimates. This discussion
and analysis should be read in conjunction with the Company’s financial statements and accompanying notes to the financial
statements for the year ended December 31, 2018.



Results
of operations for the year ended December 31, 2018 and the year ended December 31, 2017.



The company
sold its Greenestone Muskoka Treatment Center effective February 17, 2017, simultaneously with the purchase of the assets and
real estate of an addiction treatment center in Delray Beach, Florida. The disposal of the Greenestone Muskoka Treatment Center
has been reflected as a discontinued operation in the financial statements as of December 31, 2017 and the results of operations
and cash flows for the years ended December 31, 2017.



Revenue



Revenue was
$432,515 and $929,416 for the years ended December 31, 2018 and 2017, respectively, a decrease of $469,901 or 53.5%.





Revenue from patient
treatment was $101,514 and $637,833 for the years ended December 31, 2018 and 2017, respectively, a decrease of $536,319 or 84.1%.
The decrease is primarily due to the relocation of the Company’s treatment operations to a significantly larger West Palm
Beach facility from the Delray Beach facility during the current year and delays in attracting new patients to our new facility;
and an adjustment to the doubtful accounts provision based on current collection experience. The Company is actively building up
its customer contact base to increase patient revenues.



Revenue from rental income was $331,001 and $291,583 for the years ended December 31, 2018 and 2017,
respectively, an increase of $39,418 or 13.5%. The increase is due to the rental being for a full twelve months during the current
year and only 10.5 months in the prior year. The rental is also affected by average exchange rates of the Canadian Dollar to the
US Dollar. The Canadian Dollar has weakened from $0.7867 during 2017 to 0.7574 during 2018, a decrease of 3.7%.



Operating
Expenses



Operating
expenses was $3,316,833 and $2,382,573 for the years ended December 31, 2018 and 2017, respectively, an increase of $934,260 or
39.2%. The increase in operating expenses is attributable to:



|● | General
    and administrative expenses of $664,784 and $473,201 for the years ended December 31, 2018 and 2017, respectively, an increase
    of $191,583 or 40.5%, primarily due to the increase in operating expenses in running the significantly larger ARIA facility
    in West Palm Beach as compared to the Delray Beach facility in the prior year..
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | ● | Rent expense was $731,818 and $0 for the years ended December 31, 2018 and 2017, an increase of
100%. This was due to the Company converting the option to purchase the property located at 5400 East Avenue, West Palm Beach,
Florida, in which the treatment center is located into an operating lease during May 2018. The Company has an option to acquire
the property.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8







|● | Management
    fees of $182,430 and $289,125 for the years ended December 31, 2018 and 2017, respectively, decreased by $106,695 or 36.9%,
    primarily due to a reduction in fees charged by our CEO to facilitate cash flow in the operations.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|● | Professional
    fees of $510,722 and $626,548 for the years ended December 31, 2018 and 2017, respectively, decreased by $115,826 or 18.5%,
    primarily due to prior year legal fees related to the Corporate restructure, the disposal of GreeneStone Muskoka’s business,
    the acquisition of Seastone of Delray and the acquisition of CCH. The level of corporate activity was also higher than normal
    during the current year due to the relocation to the West Palm Beach facility.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | ● | Salaries and wages of $953,434 and $770,076 for the years ended December 31, 2018 and 2017, respectively,
increased by $183,358 or 22.4%, primarily due to additional staff required to operate the significantly larger West Palm Beach
facility and the operation of the business for 12 months during the current year as opposed to 10.5 months in the prior year.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Depreciation was $273,646 and $223,623 for the years ended December 31, 2018 and 2017, respectively,
an increase of $50,023 or 22.4%. Depreciation consists primarily of depreciation on property, plant and equipment related to the
acquisition of the assets of Seastone of Delray and the acquisition of CCH, which owns the buildings in which Canadian Addiction
Residential Treatment, now operates. Depreciation was recorded for 10.5 months in the prior year and 12 months in the current year.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operating
loss



The operating
loss was $2,884,317 and $1,453,157 for the years ended December 31, 2018 and 2017, respectively, an increase of $1,431,159 or
98.5%. The increase is attributable to the decrease in revenue and the increase in rent and other operating expenses discussed
above.



Other
income



Other income
of $6,009 and $475,487 for the years ended December 31, 2018 and 2017, respectively, a decrease of $469,478 or 98.7%. Other income
in the prior period consisted of the reversal of a provision raised against a receivable on the disposal of the Endoscopy Clinic
amounting to $472,368, the receivable was assigned to Leon Developments as part of the purchase consideration paid on the acquisition
of CCH.



Other
expense



Other expense
of $8,000 and $5,093,954 for the years ended December 31, 2018 and 2017, a decrease of $5,085,954 or 99.8%. Other expense in the
current period represents the settlement of a previous employee claim in the current year. Other expense in the prior year represents;
(i) $5,074,689 of the excess of the purchase price paid over the carrying value of the assets of CCH. This expenditure was classified
as compensation expense to our CEO who owns 100% of Leon Developments, the counterparty to the purchase of the CCH Subsidiary;
(ii) $19,265 represents the loss realized on disposing of a portion of the mortgage owned by the Company in CCH, at a discount
to face value.



Interest
income

Interest income
of $5,334 and $32,074 for the years ended December 31, 2018 and 2017, respectively, a decrease of $26,740 or 83.4%. The interest
earned in the prior year consisted of the receivable from the sale of our Endoscopy.



Interest
expense



Interest expense
of $696,544 and $367,547 for the years ended December 31, 2018 and 2017, respectively, an increase of $329,397 or 89.6% was primarily
due to; (i) mortgages assumed in the prior year for a period of 10.5 months as opposed to 12 months in the current year, (ii)
the increase in convertible note funding during the current year of a net $3,337,889 primarily for working capital purposes and
deposits paid on the West Palm Beach real estate.



Debt
discount



Debt
discount was $4,504,007 and $668,916 for the year ended December 31, 2018 and 2017, respectively, an increase of $3,853,091
or 573.3%. The charge during the current period represents the amortization of the value of the warrants issued over the
terms of the convertible loan agreements entered into during 2018 and 2017 and the amortization of the fair value of the
beneficial conversion feature of the convertible notes issued to note holders during 2018 and 2017. The fair value of the
warrants and the beneficial conversion features are amortized over a six to twelve month period, the term of the underlying
convertible securities.



9







Derivative
liability movement



The derivative
liability movement during the current year represents the mark to market movements of variably priced convertible notes and warrants
issued during the current and prior years. These securities are marked to market on a quarterly basis and the resultant gain or
loss is recorded as a derivative liability movement in the consolidated statement of operations.



Foreign
exchange movements



Foreign exchange
movements of $428,053 and $(81,031) for the years ended December 31, 2018 and 2017, represents the realized exchange gains and
(losses) on monetary assets and liabilities settled during the current year as well as mark to market adjustments on monetary
assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars.





Net income from discontinued
operations



The net income
from discontinued operations of $0 and $6,821,889 for the years ended December 31, 2018 and 2017, respectively, a decrease of
100%:



The prior
year income is primarily made up as follows:



|● | Operating
    loss of $300,439, the operations were disposed of on February 14, 2017, and the loss includes expenditure incurred to dispose
    of the operation.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



|● | Profit
    on sale of the business of the Canadian Rehab Clinic of $7,494,828 represents the excess of the proceeds received over the
    assets disposed of as reflected in note 1 and 3 to the consolidated financial statements.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|● | Foreign
    exchange loss of $135,190 which represents the realized gains on the monetary assets and liabilities settled during each period
    as well as mark to market adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in
    Canadian Dollars.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Taxation





Taxation
of $102,232 and $0 for the years ended December 31, 2018 and 2107, respectively, an increase of 100%. Taxation expense is the
estimated foreign tax liability on our Canadian operations during the current year.



Net
loss



Net loss of
$(8,178,643) and $(1,368,487) for the years ended December 31, 2018 and 2017, respectively, an increase of $6,810,156 or 497.6%,
is primarily due to the increase in operating expenses in the current year, the increase in interest expense and debt discount
over the prior year offset by the derivative liability movement and the foreign exchange gain in the current year. The prior year
included a gain on discontinued operations of $6,821,899 made up of the profit on sale of the Canadian Rehab clinic of $7,494,828,
the reversal of the provision raised against the loan on sale of the Endoscopy clinic of $472,368, offset by the compensation
charge of $5,074,689 relating to the acquisition of CCH.





10







Contingency related to outstanding
payroll tax liabilities





The Company
has also not filed certain foreign assets forms due to the US Federal Government. A provision of $250,000 was made for any potential
penalties due This issue is being addressed by our tax advisors.



Liquidity
and Capital Resources





Cash used
in operating activities from continuing operations of $1,463,544 and $4,218,271 for the years ended December 31, 2018 and 2017,
respectively decreased by $2,754,727 or 65.3%. The decrease is primarily due to the following:



| | · | the
                                         movement in non-cash items decreased by $1,978,602, primarily made up of;
| | - | ----------------------------------------------------------------------------------------------------------------------

| | ○ | the
                                         movement in non-cash compensation on acquisition of subsidiary of $5,074,689;
| | - | --------------------------------------------------------------------------------------------------------------------------

| | ○ | offset
                                         by the increase in the amortization of debt discount of $3,835,091 due to the increase
                                         in warrants and convertible notes issued during the current year;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ○ | the
                                         decrease in derivative liability movements of $610,793 related to mark to market of variably
                                         priced convertible notes and warrants;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ○ | the
                                         increase in the movement on the receivables reserve of $520,092 during the current year.
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | · | The
                                         movement in working capital items of $4,721,596, primarily made up of;
| | - | -------------------------------------------------------------------------------------------------------------------

| | ○ | the
                                         movement in taxes payable of $2,245,547, in the prior year certain long outstanding tax
                                         liabilities were settled;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ○ | a
                                         decrease in the movement in the accounts receivable balances of $754,854 due to lower
                                         activity whilst the business was relocated from Delray Beach to West Palm Beach.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ○ | an increase in the movement in payables balances of $1,146,626 due to the increase in the size of the
operation, the payable relating to leasehold improvements of $251,774 and the management of cash flow during the current year;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ○ | an increase in the movement on accrued purchase consideration of $541,489 as certain escrow deposits were
released during the year.
| | - | -----------------------------------------------------------------------------------------------------------------------------------





Cash used in investing
activities from continuing operations of $1,432,110 and $5,145,360 for the years ended December 31, 2018 and 2017, respectively,
a decrease of $3,713,250 or 72.2%. In the prior year the Company acquired the business of Seastone for $2,960,000 and made deposits
on real estate of $1,748,988, in the current year the deposits on real estate was $1,111,993, a decrease in movement over the
prior year of $636,995. Capital expenditure was $320,117 in the current year, primarily due to the leasehold improvements to the
Delray facility. Capital expenditure in the prior year of $436,372 was predominantly for improvements made to the Muskoka property
currently leased to a third party.



Cash generated
from investing activities from discontinued operations in the prior year was $6,497,400, this was due to the proceeds realized
on the sale of the treatment center in Canada in the prior year.



Cash generated
by financing activities was $3,360,764 and $3,299,299, an increase of $61,465 or 1.9%. The Company raised $4,035,000 from convertible
notes during the current year to fund operations and the additional deposits made on the real estate. Certain convertible notes
amounting to $697,111 were repaid during the current year. In the prior year, the mortgage for our Canadian property was refinanced
resulting in a net increase in mortgage funding of $1,342,459, in addition the Company raised an additional $1,897,500 in convertible
notes and repaid $388,458 of the existing convertible notes.



Over the next
twelve months we estimate that the company will require approximately $2.5 million in working capital as it continues to develop
its West Palm Beach facility and it is also exploring several other treatment center options and sources of patients throughout
the country. The company may have to raise equity or secure debt. There is no assurance that the Company will be successful with
future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s
financial condition. In the opinion of management, the Company’s liquidity risk is assessed as medium. The company has recently
sold its real property located at 801 Andrews Avenue, the proceeds of $3,500,000 will be utilized to settle the outstanding mortgage
liability on the property upon closing with the remaining balance of approximately $500,000 being utilized to settle outstanding
liabilities and for working capital purposes.



11







Subsequent
to December 31, 2018, the Company entered into the following financing transactions:



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



| | · | On
January 17, 2019, the Company, entered into a Securities Purchase Agreement with Leonite Capital, LLC, pursuant to which the Company
issued to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $71,111 for net proceeds of $64,000
after an original issue discount (“OID”) of $7,111. The Note has a maturity date of January 31, 2019 and bears interest
at the rate of one percent per annum from the date on which the Note was issued until the same becomes due and payable, whether
at maturity or upon acceleration or by prepayment or otherwise. The outstanding principal amount of the Note is convertible at
any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following
the issue date into shares of the Company’s common stock at a conversion price equal to the lower of $0.06 or 80% of the
price per share of any subsequent financings. In conjunction with the note the Company issued a five year warrant exercisable
for 1,185,183 shares of common stock at an exercise price of $0.09 per share. This convertible note was repaid on January 31,
2019.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | · | On
                                         January 28, 2019, the Company repaid the Power Up convertible note
                                         entered into on July 31, 2018, of $153,000 together with interest and early settlement
                                         penalty thereon for gross proceeds of $207,679.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Between
                                         January 28, 2019 and March 13, 2019, the Company closed several tranches of
                                         Series N Convertible notes in which it raised $844,252 in principal from 3 accredited
                                         investors through the issuance to the investors of the Company’s Series N convertible
                                         notes, in the total original principal amount of $844,252, which Notes are convertible
                                         into the Company’s common stock at a conversion price of $0.08 per share together
                                         with three year warrants to purchase up to a total of 10,553,150 shares of the Company’s
                                         common stock at an exercise price of $0.12 per share. Both the conversion price under
                                         the Notes and the exercise price under the warrants are subject to standard adjustment
                                         mechanisms. The notes mature one year from the date of issuance.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| | · | On
                                         March 11, 2019, the Company repaid the Power Up convertible note
                                         entered into on September 10, 2018, of $133,000 together with interest and early settlement
                                         penalty thereon for gross proceeds of $180,062..
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On
                                         April 2, 2019, the Company entered into a Commercial Contract whereby the real property
                                         at 801 Andrews Avenue, Delray Beach, Florida, consisting of land and condominiums thereon,
                                         was sold to JAGGM, LLC for $3,500,000. This transaction is expected to close on April
                                         26, 2019.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12





Item 8. Financial Statements
and Supplementary Data.



ETHEMA
HEALTH CORPORATION



INDEX TO
THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed
in US$ unless otherwise indicated)



|                                                                                                                | PAGE
|--------------------------------------------------------------------------------------------------------------- | ----
|Report of Independent Registered
    Public Accounting Firms                                                    | F-1 
|Consolidated Balance Sheets
    as of December 31, 2018 and 2017                                                | F-2 
|Consolidated Statements of Operations
    and comprehensive loss for the years ended December 31, 2018 and 2017 | F-3 
|Consolidated Statements of Changes
    in Stockholders Deficit for the years ended December 31, 2018 and 2017.  | F-4 
|Consolidated Statements of Cash
    Flows for the years ended December 31, 2018 and 2017                        | F-5 
|Notes to the Consolidated Financial
    Statements                                                              | F-6 



13











REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



To the Board of Directors and
Stockholders of Ethema Health Corporation



Opinion on the Financial Statements

We have audited the accompanying consolidated
balance sheets of Ethema Health Corporation (the “Company”) at December 31, 2018 and December 31, 2017, and the related
consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit, and cash flows for years
ended December 31, 2018 and 2017, and the related notes (collectively referred to as the consolidated financial statements). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
at December 31, 2018 and 2017, and the results of its operations and its cash flows for the years ended December 31, 2018 and 2017,
in conformity with accounting principles generally accepted in the United States of America.



The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As described in Note 6 to the consolidated financial
statements, the Company had accumulated deficit of approximately $30.5 million and negative working capital of approximately $13.2
million at December 31, 2018, which raises substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are described in Note 6. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.



Basis for Opinion



These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.



We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are
required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.



Our audits included performing procedures to
assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.





|/s/ Daszkal Bolton LLP                                 
|-------------------------------------------------------
|                                                       
|We have served as the Company’s
    auditor since 2018.
|                                                       
|Fort Lauderdale, Florida                               
|April 16, 2019                                         



F-1







ETHEMA HEALTH
CORPORATION

CONSOLIDATED
BALANCE SHEETS





|                                                                                                                                                                          |  | December 31, 2018 |             | December 31, 2017
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | -----------------
|                                                                                                                                                                          |  |                   |             |                  
|ASSETS                                                                                                                                                                    |  |                  
|                                                                                                                                                                          |  |                   |             |                  
|Current assets                                                                                                                                                            |  |                   |             |                  
|Cash                                                                                                                                                                      |  | $                 | 24,674      |                  
|Accounts receivable                                                                                                                                                       |  |                   | 202,654     |                  
|Prepaid expenses                                                                                                                                                          |  |                   | 147,870     |                  
|Related party Receivables                                                                                                                                                 |  |                   | 32,650      |                  
|Total current assets                                                                                                                                                      |  |                   | 407,848     |                  
|Non-current assets                                                                                                                                                        |  |                   |             |                  
|Deposit on real Estate                                                                                                                                                    |  |                   | 2,940,546   |                  
|Due on sale of subsidiary                                                                                                                                                 |  |                   | 372,366     |                  
|Property, plant and equipment                                                                                                                                             |  |                   | 8,948,349   |                  
|Total non-current assets                                                                                                                                                  |  |                   | 12,261,261  |                  
|Total assets                                                                                                                                                              |  | $                 | 12,669,109  |                  
|                                                                                                                                                                          |  |                   |             |                  
|LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                                     |  |                   |             |                  
|                                                                                                                                                                          |  |                   |             |                  
|Current liabilities                                                                                                                                                       |  |                   |             |                  
|Bank overdraft                                                                                                                                                            |  | $                 | —           |                  
|Accounts payable and accrued liabilities                                                                                                                                  |  |                   | 1,092,882   |                  
|Taxes payable                                                                                                                                                             |  |                   | 775,392     |                  
|Convertible loans, net of discounts                                                                                                                                       |  |                   | 4,403,473   |                  
|Loans payable                                                                                                                                                             |  |                   | 172,276     |                  
|Derivative liability                                                                                                                                                      |  |                   | 4,618,080   |                  
|Related party payables                                                                                                                                                    |  |                   | 2,615,613   |                  
|Total current liabilities                                                                                                                                                 |  |                   | 13,677,716  |                  
|Non-current liabilities                                                                                                                                                   |  |                   |             |                  
|Loan payable                                                                                                                                                              |  |                   | 6,707,346   |                  
|Total liabilities                                                                                                                                                         |  |                   | 20,385,062  |                  
|                                                                                                                                                                          |  |                   |             |                  
|Stockholders’ deficit                                                                                                                                                     |  |                   |             |                  
|Preferred stock - Series A; $0.01 par value, 3,000,000 authorized, nil outstanding as at December 31, 2018 and 2017.                                                      |  |                   | —           |                  
|Preferred Stock - Series B; $0.01 par value, 10,000,000 authorized, nil outstanding as at December 31, 2018 and 2017.                                                     |  |                   | —           |                  
|Common stock; $0.01 par value, 500,000,000 shares authorized; 124,300,341 and 123,239,230 shares issued and outstanding  as at December 31, 2018 and  2017, respectively. |  |                   | 1,243,004   |                  
|Additional paid-in capital                                                                                                                                                |  |                   | 20,939,676  |                  
|Accumulated other comprehensive income                                                                                                                                    |  |                   | 630,411     |                  
|Accumulated deficit                                                                                                                                                       |  |                   | (30,529,044 | )                
|Total stockholders’ deficit                                                                                                                                               |  |                   | (7,715,953  | )                
|Total liabilities and stockholders’ deficit                                                                                                                               |  | $                 | 12,669,109  |                  



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



F-2







ETHEMA HEALTH
CORPORATION

CONSOLIDATED
STATEMENTS OF OPERATIONS

AND COMPREHENISIVE
LOSS



|                                                          |  | Year ended December 31, 2018 |             | Year ended December 31, 2017
|--------------------------------------------------------- |  | ---------------------------- | ----------- | ----------------------------
|                                                          |  |                              |             |                             
|Revenues                                                  |  | $                            | 432,515     |                             
|                                                          |  |                              |             |                             
|Operating expenses                                        |  |                              |             |                             
|General and administrative                                |  |                              | 664,782     |                             
|Rental expense                                            |  |                              | 731,818     |                             
|Management fees                                           |  |                              | 182,430     |                             
|Professional fees                                         |  |                              | 510,722     |                             
|Salaries and wages                                        |  |                              | 953,434     |                             
|Depreciation and amortization                             |  |                              | 273,646     |                             
|Total operating expenses                                  |  |                              | 3,316,832   |                             
|                                                          |  |                              |             |                             
|Operating loss                                            |  |                              | (2,884,317  | )                           
|                                                          |  |                              |             |                             
|Other Income (expense)                                    |  |                              |             |                             
|Other income                                              |  |                              | 6,009       |                             
|Other expense                                             |  |                              | (8,000      | )                           
|Interest income                                           |  |                              | 5,334       |                             
|Interest expense                                          |  |                              | (696,944    | )                           
|Debt discount                                             |  |                              | (4,504,007  | )                           
|Derivative liability movement                             |  |                              | (422,539    | )                           
|Foreign exchange movements                                |  |                              | 428,053     |                             
|Net loss before taxation from continuing operations       |  |                              | (8,076,411  | )                           
|Taxation                                                  |  |                              | (102,232    | )                           
|Net loss from continuing operations                       |  |                              | (8,178,643  | )                           
|Operating income from discontinued operations, net of tax |  |                              | —           |                             
|Net income from discontinued operations, net of tax       |  |                              | —           |                             
|Net loss                                                  |  |                              | (8,178,643  | )                           
|Accumulated other comprehensive loss                      |  |                              |             |                             
|Foreign currency translation adjustment                   |  |                              | (166,042    | )                           
|                                                          |  |                              |             |                             
|Total comprehensive loss                                  |  | $                            | (8,344,685  | )                           
|                                                          |  |                              |             |                             
|Basic loss per common share from continuing operations    |  | $                            | (0.07       | )                           
|Basic income per share from discontinued operations       |  | $                            | —           |                             
|Basic loss per common share                               |  | $                            | (0.07       | )                           
|Diluted loss per common share from continuing operations  |  | $                            | (0.07       | )                           
|Diluted income per share from discontinued operations     |  | $                            | —           |                             
|Diluted loss per common share                             |  | $                            | (0.07       | )                           
|Weighted average common shares outstanding - Basic        |  |                              | 123,852,105 |                             
|Weighted average common shares outstanding - Diluted      |  |                              | 123,852,105 |                             



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





F-3







ETHEMA HEALTH
CORPORATION

CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ DEFICIT



|                                    |  | Preferred Series B |   | Common |  | Additional |   |        |  |                 |             |                     
|----------------------------------- |  | ------------------ | - | ------ |  | ---------- | - | ------ |  | --------------- | ----------- | --------------------
|                                    |  | Shares             |   | Amount |  | Shares     |   | Amount |  | Paid in Capital |             | Comprehensive Income
|                                    |  |                    |   |        |  |            |   |        |  |                 |             |                     
|Balance as of January 1, 2017       |  |                    | — |        |  | $          | — |        |  |                 | 48,738,855  |                     
|                                    |  |                    |   |        |  |            |   |        |  |                 |             |                     
|Shares issued to acquire subsidiary |  |                    | — |        |  |            | — |        |  |                 | 60,000,000  |                     
|Conversion of debt to equity        |  |                    | — |        |  |            | — |        |  |                 | 12,500,375  |                     
|Fair value of warrants issued       |  |                    | — |        |  |            | — |        |  |                 | —           |                     
|Shares issued for services          |  |                    | — |        |  |            | — |        |  |                 | 100,000     |                     
|Shares issued for commitment fee    |  |                    | — |        |  |            | — |        |  |                 | 1,900,000   |                     
|Foreign currency translation        |  |                    | — |        |  |            | — |        |  |                 | —           |                     
|Net income                          |  |                    | — |        |  |            | — |        |  |                 | —           |                     
|Balance as of December 31, 2017     |  |                    | — |        |  | $          | — |        |  |                 | 123,239,230 |                     
|                                    |  |                    |   |        |  |            |   |        |  |                 |             |                     
|Fair value of warrants issued       |  |                    | — |        |  |            | — |        |  |                 | —           |                     
|Shares issued for commitment fees   |  |                    | — |        |  |            | — |        |  |                 | 961,111     |                     
|Shares based compensation           |  |                    | — |        |  |            | — |        |  |                 | 100,000     |                     
|Foreign currency translation        |  |                    | — |        |  |            | — |        |  |                 | —           |                     
|Net loss                            |  |                    | — |        |  |            | — |        |  |                 | —           |                     
|Balance as of December 31, 2018     |  |                    | — |        |  | $          | — |        |  |                 | 124,300,341 |                     





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

F-4







ETHEMA HEALTH
CORPORATION

CONSOLIDATED
STATEMENT OF CASH FLOWS





|                                                                           |  | Year ended December 31, 2018 |            | Year ended December 31, 2017
|-------------------------------------------------------------------------- |  | ---------------------------- | ---------- | ----------------------------
|Operating activities                                                       |  |                              |            |                             
|Net loss                                                                   |  | $                            | (8,178,643 | )                           
|Net income from discontinued operations                                    |  | $                            | —          |                             
|Net loss from continuing operations                                        |  | $                            | (8,178,643 | )                           
|Adjustment to reconcile net loss to net cash used in operating activities: |  |                              |            |                             
|Depreciation                                                               |  |                              | 273,646    |                             
|Non-cash compensation expense on acquisition of subsidiary                 |  |                              | —          |                             
|Non-cash interest accrual                                                  |  |                              | —          |                             
|Non-cash compensation for services                                         |  |                              | 8,000      |                             
|Gain on sale of mortgage                                                   |  |                              | —          |                             
|Amortization of debt discount                                              |  |                              | 4,504,007  |                             
|Derivative liability movements                                             |  |                              | 422,539    |                             
|Provision against receivable on sale of subsidiary                         |  |                              | —          |                             
|Movement in bad debt reserve                                               |  |                              | (520,092   | )                           
|Changes in operating assets and liabilities                                |  |                              |            |                             
|Accounts receivable                                                        |  |                              | 536,296    |                             
|Prepaid expenses                                                           |  |                              | (52,095    | )                           
|Escrow receivable                                                          |  |                              | 541,489    |                             
|Accounts payable and accrued liabilities                                   |  |                              | 913,995    |                             
|Taxes payable                                                              |  |                              | 87,314     |                             
|Net cash used in operating activities - continuing operations              |  |                              | (1,463,544 | )                           
|Net cash used in operating activities - discontinued operations            |  |                              | —          |                             
|                                                                           |  |                              | (1,463,544 | )                           
|Investing activities                                                       |  |                              |            |                             
|Investments in business purchased                                          |  |                              | —          |                             
|Deposit on property                                                        |  |                              | (1,111,993 | )                           
|Purchase of fixed assets                                                   |  |                              | (320,117   | )                           
|Net cash used in investing activities - continuing operations              |  |                              | (1,432,110 | )                           
|Net cash provided by investing activities - discontinued operations        |  |                              | —          |                             
|                                                                           |  |                              | (1,432,110 | )                           
|                                                                           |  |                              |            |                             
|Financing activities                                                       |  |                              |            |                             
|Decrease in bank overdraft                                                 |  |                              | (28,824    | )                           
|Proceeds from mortgage sold                                                |  |                              | —          |                             
|Proceeds from mortgage                                                     |  |                              | —          |                             
|Repayment of mortgage                                                      |  |                              | (123,142   | )                           
|Proceeds from convertible notes                                            |  |                              | 4,035,000  |                             
|Repayment of convertible notes                                             |  |                              | (697,111   | )                           
|Proceeds from related party notes                                          |  |                              | 174,841    |                             
|Net cash provided by financing activities                                  |  |                              | 3,360,764  |                             
|                                                                           |  |                              |            |                             
|Effect of exchange rate on cash                                            |  |                              | (440,775   | )                           
|                                                                           |  |                              |            |                             
|Net change in cash                                                         |  |                              | 24,335     |                             
|Beginning cash balance                                                     |  |                              | 339        |                             
|Ending cash balance                                                        |  | $                            | 24,674     |                             
|                                                                           |  |                              |            |                             
|Supplemental cash flow information                                         |  |                              |            |                             
|Cash paid for interest                                                     |  | $                            | 551,605    |                             
|Cash paid for income taxes                                                 |  | $                            | —          |                             
|                                                                           |  |                              |            |                             
|Non cash investing and financing activities                                |  |                              |            |                             
|Common shares issued to acquire subsidiary                                 |  | $                            | —          |                             
|Conversion of debt to equity                                               |  | $                            | —          |                             
|Fair value of warrants issued                                              |  | $                            | 2,328,785  |                             
|Assumption of mortgage liabilities on acquisition of subsidiary            |  | $                            | —          |                             



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



F-5







ETHEMA HEALTH
CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



|1. | Nature of business
|-- | ------------------





Ethema
Health Corporation (the “Company”) was incorporated under the laws of the state of Colorado, USA, on April 1, 1993.
Effective April 4, 2017, the Company changed its name to Ethema Health Corporation and prior to that, on May 2012, the Company
had changed its name to GreeneStone Healthcare Corporation from Nova Natural Resources Corporation. As of December 31, 2017, the
Company owned 100% of the outstanding shares of GreeneStone Clinic Muskoka Inc., incorporated in 2010 under the laws of the Province
of Ontario, Canada; Cranberry Cove Holdings Ltd., incorporated on January 9, 2004 under the laws of the Province of Ontario, Canada;
Addiction Recovery Institute of America (“ARIA”) (formerly Seastone Delray Healthcare, LLC), incorporated on May 17,
2016 under the laws of Florida, USA; and Delray Andrews RE, LLC, incorporated on May 17, 2016 under the laws of Florida, USA.



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



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



The
Share Purchase Agreement

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



The
Asset Purchase Agreement and Lease



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





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



The
Florida Purchase

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





F-6







ETHEMA HEALTH
CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | Summary of significant
    accounting policies
|-- | ----------------------------------------------



Financial Reporting



The
Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of
America (“USGAAP”).



Management
further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system
of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is
designed to assure, among other items, that i) recorded transactions are valid; ii) valid transactions are recorded; and iii)
transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial
condition, results of operations and cash flows of the Company for the respective periods being presented.



| | a) | Use of Estimates
| | -- | ----------------





The preparation
of financial statements in conformity with USGAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.



| | b) | Principals of consolidation
    and foreign currency translation
| | -- | ----------------------------------------------------------------





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





Certain
of the Company’s subsidiaries functional currency is the Canadian dollar, while the Company’s reporting currency is
the U.S. dollar. All transactions initiated in Canadian dollars are translated into US dollars in accordance with ASC 830, “Foreign
Currency Translation” as follows:



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



| | ● | Equity
    at historical rates.
| | - | -------------------------------



| | ● | Revenue
    and expense items and cash flows at the average rate of exchange prevailing during the period.
| | - | ----------------------------------------------------------------------------------------------------------



Adjustments
arising from such translations are deferred until realization and are included as a separate component of stockholders’
deficit as a component of accumulated other comprehensive income or loss. Therefore, translation adjustments are not included
in determining net income (loss) but reported as other comprehensive income (loss).



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



The
relevant translation rates are as follows: For the year ended December 31, 2018 a closing rate of CDN$1.0000 equals US$0.7330
and an average exchange rate of CDN$1.0000 equals US$0.7574. For the year ended December 31, 2017 a closing rate of CAD$1.0000 equals US$0.7971 and an average exchange
rate of CAD$1.0000 equals US$0.7867.



F-7







ETHEMA HEALTH
CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | Summary of significant
    accounting policies (continued)
|-- | ----------------------------------------------------------



| | c) | Revenue Recognition
| | -- | -------------------





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



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



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



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





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



Settlements
under cost reimbursement agreements with third-party payors are estimated and recorded in the period in which the related services
are rendered and are adjusted in future periods as final settlements are determined. In the opinion of management, adequate provision
has been made for any adjustments and final settlements. However, there can be no assurance that any such adjustments and final
settlements will not have a material effect on the Company’s financial condition or results of operations. The Company’s
cost report receivables were $202,654 and $218,858 for the years ended December 31, 2018 and 2017, respectively, and were
included in other current assets in the consolidated balance sheets. Management believes that these receivables are properly stated
and are not likely to be settled for a significantly different amount. The net adjustments to estimated cost report settlements
resulted in a decrease in revenues of $262,353 and $388,018 for the years ended December 31, 2018 and 2017, respectively.



The
Company has analyzed its revenue transaction pursuant to ASC 606, Revenue, and it has no material impact as a result of the transition
from ASC 605 to 606. The Company’s revenues are recognized when control of the promised goods or services are transferred
to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those services.
The Company derives its revenues from the sale of its services, as defined below. The Company applies the following five steps
in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its revenue
transactions:



| | i. | identify the contract with
    a customer;
| | -- | ------------------------------------------



| | ii. | identify the performance
    obligations in the contract;
| | --- | ---------------------------------------------------------



| | iii. | determine the transaction price;
| | ---- | --------------------------------



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



| | v. | recognize revenue as the performance obligation
    is satisfied.
| | -- | -----------------------------------------------------------------









F-8







ETHEMA HEALTH
CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | Summary of significant
    accounting policies (continued)
|-- | ----------------------------------------------------------



| | f) | Cash and cash equivalents
| | -- | -------------------------



The
Company’s policy is to disclose bank balances under cash, including bank overdrafts with balances that fluctuate frequently
from being positive to overdrawn and term deposits with a maturity period of three months or less from the date of acquisition.



| | g) | Accounts receivable
| | -- | -------------------



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



| | h) | Allowance for Doubtful
    Accounts, Contractual and Other Discounts
| | -- | --------------------------------------------------------------------



The
Company derives the majority of its revenues from commercial payors at out-of-network rates. Management estimates the allowance
for contractual and other discounts based on its historical collection experience. The services authorized and provided and related
reimbursement are often subject to interpretation and negotiation that could result in payments that differ from the Company’s
estimates. The Company’s allowance for doubtful accounts is based on historical experience, but management also takes into
consideration the age of accounts, creditworthiness and current economic trends when evaluating the adequacy of the allowance
for doubtful accounts. An account is written off only after the Company has pursued collection efforts or otherwise determines
an account to be uncollectible. Uncollectible balances are written-off against the allowance. Recoveries of previously written-off
balances are credited to income when the recoveries are made.



| | i) | Financial instruments
| | -- | ---------------------



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



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



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



Financial
assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized
in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting
the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had
the impairment not been recognized previously. The amount of the reversal is recognized in net income. The Company recognizes
its transaction costs in net income in the period incurred. However, financial instruments that will not be subsequently measured
at fair value are adjusted by the transaction costs that are directly attributable to their origination, issuance or assumption.

F-9







ETHEMA HEALTH
CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | Summary of significant
    accounting policies (continued)
|-- | ----------------------------------------------------------



| | i) | Financial instruments
    (continued)
| | -- | -------------------------------------



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



|· | Level
    1. Observable inputs such as quoted prices in active markets;                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|· | Level
    2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and                         
|· | Level
    3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own
    assumptions.



The
Company measures its convertible debt and derivative liabilities associated therewith at fair value. These liabilities are revalued
periodically and the resultant gain or loss is realized through the Statement of Operations.



| | j) | Plant and equipment
| | -- | -------------------



Fixed
assets are recorded at cost. Depreciation is calculated on the straight line basis over the estimated life of the asset:



Leasehold
improvements are depreciated using the straight-line method over the term of the lease.



| | k) | Leases
| | -- | ------



Leases
are classified as either capital or operating leases. Leases that transfer substantially all of the benefits and inherent risks
of ownership of property to the Company are accounted for as capital leases. At the time a capital lease is entered into, an asset
is recorded together with its related long-term obligation to reflect the acquisition and financing. Equipment recorded under
capital leases is amortized on the same basis as described above. Payments under operating leases are expensed as incurred.





| | k) | Income
                                         taxes
| | -- | -----------------------------------------------------



The
Company accounts for income taxes under the provisions of ASC Topic 740, “Income Taxes”.Under ASC Topic 740,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income taxes are provided
using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences
by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities. The tax basis of an asset or liability is the amount attributed to that
asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in income in the period
of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than
not that some portion of, or all of, the deferred tax assets will not be realized.



ASC
Topic 740 contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a
tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that
the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second
step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement.
The Company recognizes interest and penalties accrued on unrecognized tax benefits within general and administrative expense.
To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected
as a reduction in general and administrative expenses in the period that such determination is made. The tax returns for fiscal
2001, through 2017 are subject to audit or review by the US tax authorities, whereas fiscal 2010 through 2017 are subject to audit
or review by the Canadian tax authority.



F-10







ETHEMA HEALTH
CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | Summary of significant
    accounting policies (continued)
|-- | ----------------------------------------------------------



| | l) | Net income (loss) per
    Share
| | -- | -------------------------------



Basic
net income (loss) per share is computed on the basis of the weighted average number of common stock outstanding during the period.



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



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





| | n) | Stock based compensation
| | -- | ------------------------



Stock
based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense
over the employee’s requisite service period or vesting period on a straight-line basis. Share-based compensation expense
recognized in the consolidated statements of operations for the year ended December 31, 2018 and 2017 is based on awards ultimately
expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual
forfeitures differ from those estimates. We have minimal awards with performance conditions and no awards dependent on market conditions.



| | o) | Derivatives
| | -- | -----------



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



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



F-11







ETHEMA HEALTH
CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | Summary of significant
    accounting policies (continued)
|-- | ----------------------------------------------------------



| | p) | Recent accounting pronouncements
| | -- | --------------------------------





In May
2014, FASB issued Accounting Standards Update (“ASU”) No.2014-09, “Revenue from Contracts with Customers (Topic
606). In August 2015, FASB issued ASU 2015-14 delaying the effective implementation date of ASU 2014-09 to fiscal years beginning
after December 15, 2017.



This ASU supersedes
the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605 - Revenue Recognition and most
industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled
in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each
prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the
date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is not expected
to have a material impact on the Company’s consolidated financial position and results of operations.



The
Company adopted ASC 606 and analyzed its revenue transaction pursuant to ASC 606, Revenue, and it has no material impact as a result
of the transition from ASC 605 to 606. The Company’s revenues are recognized when control of the promised goods or services
are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for
those services. The Company derives its revenues from the sale of its services.



In
February 2016, FASB issued ASU, No. 2016-02, Leases (Topic 842) (ASC 842)



The
amendments in this update establishes a comprehensive new lease accounting model. The new standard: (a) clarifies the definition
of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees
to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term
of more than twelve months. The new standard is effective for fiscal years and interim periods beginning after December 15, 2018,
with early adoption permitted.



A
modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements, including a number of optional practical expedients that entities may
elect to apply. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, an update which provides
another transition method, the prospective transition method, which allows entities to initially apply the new lease standard at
the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
The Company will adopt the new standard on January 1, 2019 using the prospective transition method. In preparation for adoption
of the standard.



The
Company has identified all leases and reviewed the leases to determine the impact of ASC 842 on its consolidated financial statements.
The Company has elected to apply all of the practical expedients to its leases, which include not reassessing (1) whether any expired
or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct
costs for any existing leases, and (4) not separating the components of leases into lease and non-lease components. Based on the
Company’s assessment, the Company has concluded that the adoption of the new standard will result in the recording of a right-of-use
asset and a lease liability on the consolidated balance sheet on January 1, 2019. While substantially complete, the Company is
still in the process of finalizing its evaluation of the effect of ASC 842 on its financial statements and disclosures. The adoption
of ASU 2016-02, as amended, is expected to result in the recognition of right of use assets and associated obligations on its consolidated
balance sheets.



In February
2018, the FASB issued ASU 2018-2, Income Statement- Reporting Comprehensive Income (Topic 220), Reclassification of certain tax
effects from accumulated other comprehensive income.



The amendments
in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax
Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments
only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires
that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments
in this Update also require certain disclosures about stranded tax effects.



The
amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods
within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period.
The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods)
in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.



The
Company early adopted this ASU, which was applied retrospectively to the consolidated financial statements and resulted in a reduction
in the tax effect of net operating losses carried forward.



F-12







ETHEMA HEALTH
CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | Summary of significant
    accounting policies (continued)
|-- | ----------------------------------------------------------



| | p) | Recent accounting pronouncements
| | -- | --------------------------------



In
February 2018, the FASB issued ASU 2018-3 Technical Corrections and Improvements to Financial Instruments – Overall (Sub
topic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities.



The
amendment clarifies that an entity measuring an equity security using the measurement alternative may change its measurement approach
to a fair value method in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply
to that security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should
measure all future purchases of identical or similar investments of the same issuer using a fair value method in accordance with
Topic 820.



The
amendment clarifies that the adjustments made under the measurement alternative are intended to reflect the fair value of the
security as of the date that the observable transaction for a similar security took place.



The
amendment clarifies that remeasuring the entire value of forward contracts and purchased options is required when observable transactions
occur on the underlying equity securities.



The
amendment clarifies that when the fair value option is elected for a financial liability, the guidance in paragraph 825-10-45-5
should be applied, regardless of whether the fair value option was elected under either Subtopic 815-15, Derivatives and Hedging—Embedded
Derivatives, or 825-10, Financial Instruments—Overall.



The
amendments clarify that for financial liabilities for which the fair value option is elected, the amount of change in fair value
that relates to the instrument specific credit risk should first be measured in the currency of denomination when presented separately
from the total change in fair value of the financial liability. Then, both components of the change in the fair value of the liability
should be remeasured into the functional currency of the reporting entity using end-of-period spot rates.



The
amendment clarifies that the prospective transition approach for equity securities without a readily determinable fair value in
the amendments in Update 2016-01 is meant only for instances in which the measurement alternative is applied. An insurance entity
subject to the guidance in Topic 944, Financial Services—Insurance, should apply a prospective transition method for Correction
or Improvement Summary of Amendments when applying the amendments related to equity securities without readily determinable fair
values. An insurance entity should apply the selected prospective transition method consistently to the entity’s entire
population of equity securities for which the measurement alternative is elected.



The
amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal
years beginning after June 15, 2018. All entities may early adopt these amendments for fiscal years beginning after December 15,
2017, including interim periods within those fiscal years, as long as they have adopted Update 2016-01.



The
amendments in this update are not expected to have a material impact on the consolidated financial statements.



F-13







ETHEMA HEALTH
CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | Summary of significant
    accounting policies (continued)
|-- | ----------------------------------------------------------



| | p) | Recent accounting pronouncements
    (continued)
| | -- | ------------------------------------------------



In
June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based
Payment Accounting.



The
amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services
from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on
inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards
vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment
transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing
share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively
provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of
a contract accounted for under Topic 606, Revenue from Contracts with Customers.



The
amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including
interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic
606.



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





In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) Changes to the Disclosure Requirements for Fair Value
Measurement.



The
amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement.



Removals

The
following disclosure requirements were removed from Topic 820:



| | 1. | The amount of and reasons for transfers between Level 1 and Level 2 of the
fair value hierarchy
| | -- | -----------------------------------------------------------------------------------------------



| | 2. | The policy for timing of transfers between levels
| | -- | -------------------------------------------------



| | 3. | The valuation processes for Level 3 fair value measurements
| | -- | -----------------------------------------------------------



| | 4. | For nonpublic entities, the changes in unrealized gains and losses for the
period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Modifications

The
following disclosure requirements were modified in Topic 820:



| | 1. | In lieu of a rollforward for Level 3 fair value measurements, a nonpublic
entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level
3 assets and liabilities.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | For investments in certain entities that calculate net asset value, an entity
is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption
might lapse onlyif the investee has communicated the timing to the entity or announced the timing publicly.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | The amendments clarify that the measurement uncertainty disclosure is to
communicate information about the uncertainty in measurement as of the reporting date.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



Additions

The
following disclosure requirements were added to Topic 820:



| | 1. | The changes in unrealized gains and losses for the period included in other
comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | The range and weighted average of significant unobservable inputs used to develop
Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as
the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information
would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair
value measurements.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
addition, the amendments clarify that materiality is an appropriate consideration of entities and their auditors when evaluating
disclosure requirements.



The
amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant
unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should
be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All
other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted
upon issuance of this Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update
and delay adoption of the additional disclosures until their effective date.



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



| | p) | Reclassification
                                         of Prior Year Presentation
| | -- | ------------------------------------------------------------------------------------



Certain
prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect
on the reported results of operations.



F-14







ETHEMA HEALTH
CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | Summary of significant
    accounting policies (continued)
|-- | ----------------------------------------------------------



| | r) | Financial instruments
    Risks
| | -- | -------------------------------





The Company
is exposed to various risks through its financial instruments. The following analysis provides a measure of the Company’s
risk exposure and concentrations at the balance sheet date, December 31, 2018 and 2017.



| | i. | Credit risk
| | -- | -----------



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





Credit
risk associated with accounts receivable of ARIA is mitigated as only a percentage of the revenue billed to health insurance companies
is recognized as income until such time as the actual funds are collected. The revenue is concentrated amongst several health
insurance companies located in the US.



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



| | ii. | Liquidity risk
| | --- | --------------





Liquidity risk is the risk the Company will not be able to meet its
financial obligations as they fall due. The Company is exposed to liquidity risk through its working capital deficiency of
$13,269,867 accumulated deficit of $30,529,044. The Company will be dependent upon the raising of additional capital in
order to implement its business plan. There is no assurance that the Company will be successful with future financing
ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial
condition. In the opinion of management, liquidity risk is assessed as high, material and remains unchanged from the prior
year.



| | iii. | Market risk
| | ---- | -----------



Market
risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. Market risk comprises of three types of risk: interest rate risk, currency risk, and other price risk. The Company is
exposed to interest rate risk and currency risk.



| | a. | Interest rate risk
| | -- | ------------------





Interest
rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. The Company is exposed to minimal interest rate risk as there is no overdraft indebtedness as of December
31, 2018. In the opinion of management, interest rate risk is assessed as low, not material and remains unchanged from the prior
year.



| | b. | Currency risk
| | -- | -------------





Currency
risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign
exchange rates. The Company is subject to currency risk as it has subsidiaries that operate in Canada and are subject to fluctuations
in the Canadian dollar. A substantial portion of the Company’s financial assets and liabilities are denominated in Canadian
dollars. Based on the net exposures at December 31, 2018, a 5% depreciation or appreciation of the Canadian dollar against the
U.S. dollar would result in an approximate $23,700 increase or decrease in the Company’s after tax net income from operations.
The Company has not entered into any hedging agreements to mediate this risk. In the opinion of management, currency risk is assessed
as low, material and remains unchanged from the prior year.







F-15





ETHEMA HEALTH
CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | Summary of significant
    accounting policies (continued)
|-- | ----------------------------------------------------------



| | r) | Financial instruments
    Risks (continued)
| | -- | -------------------------------------------



| | iii. | Market risk (continued)
| | ---- | -----------------------



| | c. | Other price risk
| | -- | ----------------



Other
price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors
specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in
the market. In the opinion of management, the Company is not exposed to this risk and remains unchanged from the prior year.



|3. | Disposal of business
|-- | --------------------



In
the prior year, on February 14, 2017, in terms of the details outlined in note 1 above, the Company disposed of the business and
certain assets of its Canadian Rehab Clinic for gross proceeds of CDN$10,000,000. A total of CDN$1,500,000 of the gross proceeds
was being held in escrow. There is an earnout payment of up to CDN$3,000,000 to be received in 2019, if certain clinic performance
metrics are met.





The proceeds realized from the sale of the Canadian Rehab Clinic
were used to settle outstanding tax liabilities, refer note 11 below, and to acquire the business of Addiction Recovery
Institute of America, LLC (formerly Seastone of Delray) (“ARIA”), refer note 5 below.



The
proceeds realized on disposal have been allocated as follows:



|                                 |  | Year ended
                                                                                December 31, 2017
|-------------------------------- |  | ------------------------------------------------------------------------------------------------------------
|                                 |  |                                                                                                             
|Proceeds on disposal             |  | $                                                                                                           
|                                 |  |                                                                                                             
|Assets sold:                     |  |                                                                                                             
|Accounts receivable              |  |                                                                                                             
|Plant and equipment              |  |                                                                                                             
|                                 |  |                                                                                                             
|Liabilities assumed by purchaser |  |                                                                                                             
|Deferred revenue                 |  |                                                                                                             
|Net assets and liabilities sold  |  |                                                                                                             
|                                 |  |                                                                                                             
|Net profit realized on disposal  |  | $                                                                                                           
|                                 |  |                                                                                                             



|4. | Acquisition of subsidiary
|-- | -------------------------



In
the prior year, on February 14, 2017, the Company acquired 100% of the equity of CCH, from Leon Developments, a company wholly
owned by our CEO. The total consideration paid by the Company was CDN$3,517,062, including the assumption of certain liabilities
of CCH, which was funded by the assignment to Leon Developments of certain indebtedness owing to the Company in the amount of
CDN$659, 918 (US$504,442) on the disposal of a subsidiary, 1816191 Ontario, which principal amount had previously been fully provided
for during 2015; and the issuance of 60,000,000 shares of the Company’s common stock at US$0.0364 per share for proceeds
of $2,184,000.



The
transaction was accounted for under ASC 805-50 Transactions between entities under common control, and the assets and liabilities
were transferred at their carrying amounts at the date of the transaction.

F-16





ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS





|4. | Acquisition of subsidiary
    (continued)
|-- | -----------------------------------------



The allocation of
the purchase price is as follows:





|                                                                     |  | Year ended
                                                                                December 31, 2017
|-------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------
|Purchase price paid:                                                 |  |                                                                                                             
|Common shares issued to Seller                                       |  | $                                                                                                           
|Receivable assumed by the Seller                                     |  |                                                                                                             
|                                                                     |  |                                                                                                             
|Allocated as follows:                                                |  |                                                                                                             
|                                                                     |  |                                                                                                             
|Assets transferred:                                                  |  |                                                                                                             
|Property                                                             |  |                                                                                                             
|Receivable from Ethema Health Corporation                            |  |                                                                                                             
|                                                                     |  |                                                                                                             
|Liabilities assumed:                                                 |  |                                                                                                             
|Accounts payable and other accruals                                  |  |                                                                                                             
|Related party payable to Leon Developments                           |  |                                                                                                             
|Mortgage liability owing to Ethema Health Corporation                |  |                                                                                                             
|Mortgage liability                                                   |  |                                                                                                             
|                                                                     |  |                                                                                                             
|Net liabilities assumed                                              |  |                                                                                                             
|                                                                     |  |                                                                                                             
|Excess purchase consideration allocated to shareholders compensation |  | $                                                                                                           



|5. | Acquisition of ARIA (formerly
    known as Seastone Delray)
|-- | -----------------------------------------------------------



In
the prior year, on February 14, 2017, the Company, utilized a portion of the proceeds realized on the sale of the Canadian Rehab
Clinic to acquire certain assets of ARIA.



The
Company obtained its own license to run a rehabilitation Clinic in Florida in December 2016 and began operations, through its
wholly owned subsidiary, ARIA, effective January
2017.



The assets acquired
were as follows:



|                                   |  | Amount
|---------------------------------- |  | ------
|                                   |  |       
|Purchase price paid:               |  |       
|Cash paid to seller                |  | $     
|Deposits previously paid to seller |  |       
|Mortgage liability funds           |  |       
|                                   |  |       
|Assets acquired:                   |  |       
|Property                           |  |       
|Furniture and fixtures             |  |       
|                                   |  | $     



F-17







ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



|6. | Going concern
|-- | -------------





The Company’s
consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that
the Company will be able to meet its obligations and continue its operations in the normal course of business. As at December
31, 2018 the Company has a working capital deficiency of $(13,269,867) and accumulated deficit of $(30,529,044). Management believes
that current available resources will not be sufficient to fund the Company’s planned expenditures over the next 12 months.
Accordingly, the Company will be dependent upon the raising of additional capital through placement of common shares, and/or debt
financing in order to implement its business plan, and generating sufficient revenue in excess of costs. If the Company raises
additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience
dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible
senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations,
through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators
or strategic partners, the Company may be required to relinquish its rights to certain geographical areas, or techniques that
it might otherwise seek to retain. There is no assurance that the Company will be successful with future financing ventures, and
the inability to secure such financing may have a material adverse effect on the Company’s financial condition. These consolidated
financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be
necessary should the Company be unable to continue operations.



The
ability of the Company to continue as a going concern is dependent on the Company generating cash from the sale of its common
stock or obtaining debt financing and attaining future profitable operations. Management’s plans include selling its equity securities
and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company
will be successful in these efforts.



These
factors create substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial
statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities
or other adjustments that may be necessary should the Company not be able to continue as a going concern.



|7. | Discontinued operations
|-- | -----------------------



The Statement of operations
for discontinued operations is as follows:



|                                        |  | Year ended December 31,
|--------------------------------------- |  | -----------------------
|                                        |  | 2017                   
|                                        |  |                        
|Revenues                                |  | $                      
|                                        |  |                        
|Operating expenses                      |  |                        
|Depreciation and amortization           |  |                        
|General and administrative              |  |                        
|Professional fees                       |  |                        
|Rent                                    |  |                        
|Salaries and wages                      |  |                        
|Total operating expenses                |  |                        
|                                        |  |                        
|Operating loss                          |  |                        
|                                        |  |                        
|Other Income (expense)                  |  |                        
|Other income                            |  |                        
|Interest expense                        |  |                        
|Foreign exchange movements              |  |                        
|Net income before taxation              |  |                        
|Taxation                                |  |                        
|Net income from discontinued operations |  | $                      



F-18





ETHEMA HEALTH
CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



|8. | Deposit on real estate
|-- | ----------------------



On November 2, 2017, the Company entered into an Agreement to purchase from AREP 5400 East Avenue LLC certain
buildings in West Palm Beach, Florida, totaling approximately 80,000 square feet, on which the present tenant operates a substance
abuse treatment center. The purchase price of the Property is $20,530,000. The Company made a series of nonrefundable down payments
totaling $2,940,546 and $1,825,000 as of December 31, 2018 and 2017.



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





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



|9. | Due on sale of business
|-- | -----------------------



In
the prior year, on February 14, 2017, the Company sold its Canadian Rehab Clinic for gross proceeds of CDN$10,000,000, of which
CDN$1,500,000 had been retained in an escrow account for a period of up to two years in order to guarantee the warranties provided
by the Company in terms of the APA. As of December 31, 2018, CDN$626,751 of the
escrow had been refunded to the Company and CDN$365,268 had been used to affect building improvements to the premises owned by
CCH, for a total reduction of CDN$992,019. The remaining escrow balance was CDN$507,981 as of December 31, 2018.



|10. | Property, plant and equipment
|--- | -----------------------------



Property, plant and
equipment consists of the following:





|                       |  | December 31, 2018 |           | December 31, 2017          
|---------------------- |  | ----------------- | --------- | ---------------------------
|                       |  | Cost              |           | Amortization and Impairment
|Land                   |  | $                 | 2,911,530 |                            
|Property               |  |                   | 6,193,681 |                            
|Leasehold improvements |  |                   | 251,774   |                            
|Furniture and fixtures |  |                   | 80,000    |                            
|                       |  | $                 | 9,436,985 |                            



Depreciation expense
for the year ended December 31, 2018 and 2017 was $273,646 and $223,423,respectively.



| | 11. | TaxesPayable
| | --- | ------------





In
the prior year, the Company settled the tax liabilities owing to the Canadian Revenue Authorities out of the proceeds of the disposal
of the Canadian Rehab Clinic on February 14, 2017. The Company paid CDN$2,929,886 to settle outstanding payroll liabilities, CDN$441,598
to settle outstanding GST/HST liabilities and a further CDN$57,621 to settle other Canadian
tax liabilities.





F-19







ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



| | 11. | TaxesPayable
    (continued)
| | --- | ----------------------------



The remaining taxes
payable consist of:



| | ● | A
    payroll tax liability of $133,844 (CDN$182,589) in Greenestone Muskoka which has not been settled as yet.
| | - | ---------------------------------------------------------------------------------------------------------------
| | ● | A GST/HST tax payable of $33,757 (CDN$46,051).                                                                 







| | ● | The
                                         Company has assets and operates businesses in Canada and is required to disclose these
                                         operations to the US taxation authorities, the requisite disclosure has not been made.
                                         Management has reserved the maximum penalty due to the IRS in terms of non-disclosure.
                                         This noncompliance with US disclosure requirements is currently being addressed. An amount
                                         of $250,000 has been accrued for any potential exposure the Company may have.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                   |  | December 31, 2018 |         | December 31, 2017
|------------------ |  | ----------------- | ------- | -----------------
|                   |  |                   |         |                  
|Payroll taxes      |  | $                 | 133,843 |                  
|HST/GST payable    |  |                   | 33,757  |                  
|US penalties due   |  |                   | 250,000 |                  
|Income tax payable |  |                   | 357,792 |                  
|                   |  |                   |         |                  
|                   |  | $                 | 775,392 |                  



| | 12. | Short-term Convertible
    Notes
| | --- | --------------------------------



The
short-term convertible notes consist of the following:



|                           |  | Interest
        rate |      |   | Maturity
    date |                                                  | Principal |   |           | Interest |  |   | Debt
    Discount |  |  | December
                                         31,
        2018 |          |   | December
                                         31,
        2017 |  
|-------------------------- |  | --------------------- | ---- | - | ----------------- | ------------------------------------------------ | --------- | - | --------- | -------- |  | - | ----------------- |  |  | ------------------------------------------------------------------ | -------- | - | ------------------------------------------------------------------ | -
|                           |  |                       |      |   |                   |                                                  |           |   |           |          |  |   |                   |  |  |                                                                    |          |   |                                                                    |  
|Leonite Investments LLC    |  |                       | 8.5  | % |                   | July
                           25,
        2019 |           | $ | 2,420,000 |          |  | $ | 74,180            |  |  | $                                                                  | -        |   |                                                                    | $
|                           |  |                       |      |   |                   |                                                  |           |   |           |          |  |   |                   |  |  |                                                                    |          |   |                                                                    |  
|Power Up Lending Group Ltd |  |                       | 12.0 | % |                   | August 15, 2018                                  |           |   | -         |          |  |   | -                 |  |  |                                                                    | -        |   |                                                                    |  
|                           |  |                       | 12.0 | % |                   | December 30, 2018                                |           |   | -         |          |  |   | -                 |  |  |                                                                    | -        |   |                                                                    |  
|                           |  |                       | 9.0  | % |                   | May 15,2019                                      |           |   | 153,000   |          |  |   | 5,772             |  |  |                                                                    | (64,177  | ) |                                                                    |  
|                           |  |                       | 9.0  | % |                   | September 10, 2019                               |           |   | 133,000   |          |  |   | 3,673             |  |  |                                                                    | (92,189  | ) |                                                                    |  
|                           |  |                       |      |   |                   |                                                  |           |   |           |          |  |   |                   |  |  |                                                                    |          |   |                                                                    |  
|Series N convertible notes |  |                       | 6.0  | % |                   | May 17, 2019 to December 4, 2019                 |           |   | 2,505,000 |          |  |   | 54,330            |  |  |                                                                    | (789,116 | ) |                                                                    |  
|                           |  |                       |      |   |                   |                                                  |           |   |           |          |  |   |                   |  |  |                                                                    |          |   |                                                                    |  
|                           |  |                       |      |   |                   |                                                  |           |   |           |          |  |   |                   |  |  |                                                                    |          |   |                                                                    |  



F-20









ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



| | 12. | Short-term Convertible
    Notes (continued)
| | --- | --------------------------------------------



Leonite
Capital, LLC



On
December 1, 2017, the Company closed on a private offering to raise US $1,500,000 in capital. The Company issued one senior secured
convertible promissory note with a principal amount of $1,650,000 to Leonite Capital, LLC (“Leonite”). The note is
convertible into shares of common stock at a conversion price of $0.06 per share, subject to anti-dilution and price protection.
The Note bears interest at the rate of 8.5% per annum. The Note’s amended maturity date was December 1, 2018. During the
term of the Note the Company and the Subsidiaries will be obligated to make monthly payment of accrued and unpaid interest. The
Note contains Company and Subsidiary representations and warranties, covenants, events of default, and registration rights. The
Company paid a commitment fee of $132,000 settled through the issue of 1,650,000 shares of common stock and paid $20,000 towards
the lenders legal fees. In conjunction with this note, the Company issued a five year warrant to purchase 27,500,000 shares of
common stock at an exercise price or $0.10 per share, subject to anti-dilution and price protection.



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



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



At the execution of the Note, the Investor funded an initial tranche of $300,000. Thereafter the Investor
funded a second tranche of $156,136. Upon the execution of the A&R Note the Investor funded a third tranche of $100,000. Upon
the execution of the First Amendment the Investor funded a final tranche of $850,000, with the remaining $93,764 of availability
under the A&R Note, as amended, serving as a holdback pursuant to the terms of the First Amendment.





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



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



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





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



Effective March 19, 2019, the Company entered into a note extension agreement with Leonite, whereby the
convertible notes outstanding to Leonite, amounting to $2,420,000, for consideration of $75,000 added to the principal outstanding
on the note on January 1, 2019, a further $75,000 added to the principal outstanding on the note on February 1, 2019 and a further
$100,000 added to the principal of the note on March 15, 2019, the maturity date of the convertible notes above were extended to
July 25, 2019.





F-21







ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



| | 12. | Short-term Convertible
    Notes (continued)
| | --- | --------------------------------------------



Power
Up Lending Group LTD



On
June 19, 2017, the Company, entered into a Securities Purchase Agreement with Power Up Lending Group Ltd. (“Power Up”),
pursuant to which the Company issued to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $113,500.
The Note has a maturity date of March 20, 2018 and bears interest at the at the rate of eight percent per annum from the date on
which the Note is issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise.
The Company shall have the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible
at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following
the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the average lowest closing
bid prices of the Company’s common stock for the ten trading days prior to conversion. The note, together with interest thereon
of $6,567 and early settlement penalty of $36,020 was repaid on December 14, 2017.



On
November 6, 2017, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued
to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $103,000. The Note had a maturity date of August
15, 2018 and bore interest at the at the rate of twelve percent per annum from the date on which the Note was issued until the
same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company had the right
to prepay the Note in terms of agreement. The outstanding principal amount of the Note was convertible at any time and from time
to time at the election of the Purchaser during the period beginning on the date that was 180 days following the issue date into
shares of the Company’s common stock at a conversion price equal to 61% of the average lowest closing bid price of the Company’s
common stock for the ten trading days prior to conversion. On May 5, 2018, the aggregate principal outstanding of $103,000 together
with interest and penalty interest thereon, was settled for gross proceeds of $141,824.



On
March 9, 2018, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued to
the Purchaser a Convertible Promissory Note in the aggregate principal amount of $153,000. The Note had a maturity date of December
30, 2018 and bore interest at the rate of twelve percent per annum from the date on which the Note was issued until the same became
due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company had the right to prepay the
Note in terms of agreement. The outstanding principal amount of the Note was convertible at any time and from time to time at the
election of the Purchaser during the period beginning on the date that was 180 days following the issue date into shares of the
Company’s common stock at a conversion price equal to 61% of the average lowest closing bid price of the Company’s
common stock for the ten trading days prior to conversion. During September 2018, the Company prepaid the aggregate principal outstanding
of $153,000 together with interest thereon and penalty interest, was settled for gross proceeds of $210,800.



On
July 31, 2018, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued to
the Purchaser a Convertible Promissory Note in the aggregate principal amount of $153,000. The Note has a maturity date of May
15, 2019 and bears interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes
due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the
Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the
election of the Purchaser during the period beginning on the date that is 180 days following the issue date into shares of the
Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock
for the ten trading days prior to conversion.



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



Series
N convertible notes



During
the period from May 17, 2018 to December 4, 2018, The Company closed several tranches of a private offering in which it raised
$2,505,000 in principal from 12 accredited investors through the issuance to the investors of the Company’s Series N convertible
notes, in the total original principal amount of $2,505,000, which Notes are convertible into the Company’s common stock
at a conversion price of $0.08 per share together with three year warrants to purchase up to a total of 31,312,500 shares of the
Company’s common stock at an exercise price of $0.12 per share. Both the conversion price under the Notes and the exercise
price under the warrants are subject to standard price and anti-dilution adjustment mechanisms. The notes mature between May 16,
2019 to December 3, 2019.





F-22





ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



| | 13. | Loans payable
| | --- | -------------



Loans payable is disclosed
as follows:



|                                                 |  | Interestrate |     |   | Maturity
    date |                   | PrincipalOutstanding |   |           | Accruedinterest |  |   | December
    31,2018 |  |  | December
    31,2017 |          
|------------------------------------------------ |  | ------------ | --- | - | ----------------- | ----------------- | -------------------- | - | --------- | --------------- |  | - | -------------------- |  |  | -------------------- | ---------
|                                                 |  |              |     |   |                   |                   |                      |   |           |                 |  |   |                      |  |  |                      |          
|Cranberry Cove Holdings,
    Ltd.                |  |              |     |   |                   |                   |                      |   |           |                 |  |   |                      |  |  |                      |          
|Pace Mortgage                                    |  |              | 4.2 | % |                   | July 19,
    2022 |                      | $ | 3,905,901 |                 |  | $ | 18,935               |  |  | $                    | 3,924,836
|Addiction Recovery Institute of America,
    LLC |  |              |     |   |                   |                   |                      |   |           |                 |  |   |                      |  |  |                      |          
|Mortgage                                         |  |              | 5.0 | % |                   | February 13, 2020 |                      |   | 2,942,526 |                 |  |   | 12,260               |  |  |                      | 2,954,786
|                                                 |  |              |     |   |                   |                   |                      | $ | 6,848,427 |                 |  | $ | 31,195               |  |  | $                    | 6,879,622
|Disclosed as follows:                            |  |              |     |   |                   |                   |                      |   |           |                 |  |   |                      |  |  |                      |          
|Short-term portion                               |  |              |     |   |                   |                   |                      |   |           |                 |  |   |                      |  |  | $                    | 172,276  
|Long-term portion                                |  |              |     |   |                   |                   |                      |   |           |                 |  |   |                      |  |  |                      | 6,707,346
|                                                 |  |              |     |   |                   |                   |                      |   |           |                 |  |   |                      |  |  | $                    | 6,879,622



The
aggregate amount outstanding is payable as follows:



|      |  | Amount
|----- |  | ------
|2019  |  |       
|2020  |  |       
|2021  |  |       
|2022  |  |       
|Total |  | $     



Cranberry
Cove Holdings, Ltd.





First Mortgage

The first mortgage with an aggregate principal amount
outstanding of CDN$3,500,000, including late charges, interest and penalties of CDN$165,057 for a gross aggregate amount outstanding
of CDN$3,663,380, over the CCH properties is secured by the property located at 3571 Muskoka Road, #169, Bala, described as PT LT 15
CON F Medora PT1 35R5958, PT 2 &3 35R11290, Muskoka Lakes. The mortgage bears interest at the rate of 8% per annum on the aggregate
principal outstanding of $3,500,000 and matures on August 14, 2017, with monthly interest payments of $23,118 (CDN 30,000). During
March 2017, the Company made a principal payment of CDN$100,000 on the first mortgage. This mortgage was repaid in full on July
21, 2017 out of the proceeds derived from a new mortgage agreement entered into on July 19, 2017, see below.



Second Mortgage

The second mortgage had an initial principal amount outstanding of CDN$350,000, on May 23, 2017, the Company
sold CDN$175,000 of the mortgage it owned to the second mortgage holder for gross proceeds of CDN$150,000, the balance outstanding
on the second mortgage is now CDN$525,000, the mortgage is secured by the CCH properties located at 3571 Muskoka Road, #169, Bala,
described as PT LT 15 CON F Medora PT1 35R5958, PT 2 &3 35R11290, Muskoka Lakes. The mortgage bears interest at the
rate of 12% per annum on the aggregate principal outstanding of CDN$525,000, and matures on November 4, 2018, with monthly interest
payments of CDN$3,500. This mortgage was repaid in full on July 21, 2017 out of the proceeds derived from a new mortgage agreement
entered into on July 19, 2017, see below.







Pace Mortgage



On
July 19, 2017, CCH, a wholly owned subsidiary, closed on a loan agreement in the principal amount of CDN$5,500,000. The loan
is secured by a first mortgage on the premises owned by CCH located at 3571 Muskoka Road 169, Bala, Ontario (the
“Property”). The loan bears interest at the fixed rate of 4.2% with a 5-year primary term and a 25-year
amortization. The Company has guaranteed the loan and the Company’s chief executive officer and controlling shareholder
also has personally guaranteed the Loan. CCH and the Company have granted the Lender a general security interest in its
assets to secure repayment of the Loan. The loan is amortized with monthly installments of CDN $29,531.





ARIA

On February 13, 2017, the Company, through its subsidiary, ARIA, entered into a Mortgage and Security
Agreement to purchase the properties located at 801 and 810 Andrews Avenue, Delray Beach, Florida, for an aggregate principal sum
of $3,000,000, bearing interest at the rate of 5% per annum, maturing on February 13, 2020, with monthly installments of $15,000.



| | 14. | Derivative liability
| | --- | --------------------







The
short-term convertible notes, together with certain warrants issued to Leonite and the short term convertible notes issued to Power
Up disclosed in note 12 above and note 16 below, have variable priced conversion rights with no fixed floor price and will reprice
dependent on the share price performance over varying periods of time. This gives rise to a derivative financial liability, which
was initially valued at inception of the convertible notes at $1,335,709 using a Black-Scholes valuation model.







F-23







ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



| | 14. | Derivative liability (continued)
| | --- | --------------------------------



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



|                                                |  | Year ended December 31, 2018
|----------------------------------------------- |  | ----------------------------
|                                                |  |                             
|Calculated stock price                          |  |                             
|Risk free interest rate                         |  |                             
|Expected life of convertible notes and warrants |  |                             
|expected volatility of underlying stock         |  |                             
|Expected dividend rate                          |  |                             



The
movement in derivative liability is as follows:



|                                                                       |  | December 31, 2018 |           | December 31, 2017
|---------------------------------------------------------------------- |  | ----------------- | --------- | -----------------
|                                                                       |  |                   |           |                  
|Opening balance                                                        |  | $                 | 2,859,832 |                  
|Derivative liability on convertible notes and variable priced warrants |  |                   | 1,335,709 |                  
|Fair value adjustments to derivative liability                         |  |                   | 422,539   |                  
|                                                                       |  |                   |           |                  
|Closing balance                                                        |  | $                 | 4,618,080 |                  



| | 15. | Related party transactions
| | --- | --------------------------



Shawn E. Leon

As
of December 31, 2018 and 2017 the Company had a receivable of $32,650 and $16,080 from Shawn E. Leon, respectively. Mr. Leon is
a director and CEO of the Company. The balances receivable is non-interest bearing and has no fixed repayment terms.



Mr.
Leon was paid management fees of $182,430 and $289,125 for the years ended December 31, 2018 and 2017, respectively. In the prior
year, the Company recorded compensation expense in other expenses of $5,074,689 relating to the excess of the fair value of the
assets acquired in CCH. Mr. Leon is the owner of Leon Developments, the counterparty in the acquisition of the CCH subsidiary
referred to in note 4 above.



Leon
Developments, Ltd.



As of
December 31, 2018 and 2017, the Company owed Leon Developments, Ltd. $1,581,499 and $1,703,796, respectively. In the prior year,
on February 14, 2017, the Company acquired CCH from Leon Developments, Ltd., refer note 4 above. CCH owns the facility utilized
by the Canadian Rehab Clinic which was sold to a third party on February 14, 2017. The balance owing to Leon Developments, Ltd.
Is non-interest bearing and has no fixed terms of repayment.



Eileen
Greene

As
of December 31, 2018 and 2017, the Company owed Eileen Greene, the spouse of our CEO, Shawn Leon, $1,034,114 and $877,182, respectively.
During the year ended December 31, 2018, Ms. Greene advanced the company a net $156,932 to fund working capital requirements.
The amount owing to Ms. Greene is non-interest bearing and has no fixed repayment terms.





F-24







ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



| | 15. | Related party transactions
    (continued)
| | --- | ------------------------------------------



Eileen
Greene (continued)

On
December 30, 2016 we entered into a Securities Purchase agreement with Ms. Greene, whereby $163,011 (CDN $220,000) was advanced
to the Company in the form of a Series L convertible promissory note, bearing interest at 0% per annum and convertible into shares
of common stock at a conversion price of $0.03 per share. On January 17,2017, Ms. Greene advanced the company a further $40,000
in the form of a Series L convertible promissory note, bearing interest at 0% per annum and convertible into shares of common
stock at a conversion price of $0.03 per share. During July 2017, Ms. Greene converted the Series L convertible promissory notes
into 6,767,042 shares of common stock.



In
connection with the issue pf promissory notes, Ms. Greene was also granted three year warrants exercisable over 6,767,042 shares
of common stock at an exercise price of $0.03 per share. The warrants expire between December 30, 2019 and January 17, 2020.



1816191
Ontario

As
of December 31, 2018 and 2017, the Company owed $0 and $15,921 to 1816191 Ontario, the Endoscopy Clinic, respectively. The payable
is non-interest bearing, and has no specific repayment terms.



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



| | 16. | Stockholder’s deficit
| | --- | ---------------------



| | a) | Common
    shares
| | -- | -----------------



Authorized, issued
and outstanding

The
Company has authorized 500,000,000 shares with a par value of $0.01 per share. The company has issued and outstanding 124,300,341
and 123,239,230 as of December 31, 2018 and 2017, respectively.

On February 14, 2017, the Company issued 60,000,000
common shares valued at $2,184,000 to Leon Development Ltd, a Company controlled by our CEO, Shawn Leon, in connection with the
purchase of the entire shareholding of CCH, the owner of the premises located in Bala, Ontario at 3571 Highway 169.



On May 30, 2017, the Company issued 100,000 common
shares to a vendor in lieu of services rendered at a market value of $4,000 or US$0.04 per share.



During July 2017, five Series L Convertible note
holders exercised their conversion rights and converted an aggregate principal amount of



$375,011 into 12,500,375 shares of common stock at
a conversion price or $0.03 per share.



On December 1, 2017, the Company issued 1,650,000
shares of common stock in connection with the closing of a financing of a Senior Secured Convertible Note. The shares were valued
at $132,000, or $0.08 per share on December 1, 2017.



On December 29, 2017, the Company issued an additional
250,000 shares of common stock upon the amendment of the Senior Secured Convertible note, disclosed in 4 above. The shares were
valued at $15,000 or $0.06 per share on December 29, 2017.



On
January 1, 2018, the Company recorded the issuance of a further 80,000 shares of common stock to Leonite in connection with a senior
secured convertible promissory note issued in March 2018. The shares were valued at $4,800 on the issue date and recorded as a
debt discount.



On
March 29, 2018, the Company issued 165,000 shares of common stock to Leonite in connection with the closing of a financing of a
Senior Secured Convertible Note. The shares were valued at $11,550 on the issue date and recorded as a debt discount.



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



On
November 6, 2018, the Company issued 111,111 shares of common stock to Leonite in connection with the closing of a financing of
a Senior Secured Convertible Note. The shares were valued at $8,889 on the issue date and recorded as a debt discount.



On
December 13, 2018, the Company entered into a Separation Agreement and Mutual General Release with a previous employee. In terms
of the agreement, the Company issued the employee 100,000 shares of common stock valued at $8,000 on the issue date.



| | b) | Preferred shares
| | -- | ----------------



Authorized, issued
and outstanding

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





F-25





ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



| | 16. | Stockholder’s deficit
    (continued)
| | --- | -------------------------------------



| | c) | Warrants
| | -- | --------





In
terms of the convertible note agreements entered into with Leonite disclosed in note 12 above, the Company granted warrants exercisable
over a total of 16,983,333 shares of common stock at an exercise price of $0.10 per share, which was recorded as a debt discount.



In terms of the Series N Convertible debt issued to various accredited investors, disclosed in note 12
above, the Company granted warrants exercisable over a total of 31,312,500 shares of common stock at an exercise price of $0.12
per share, which was recorded as a debt discount.



The
warrants were valued using a Black Scholes pricing model on the date of grant at $2,974,675 using the following weighted average
assumptions:





|                                        |  | Year ended December 31, 2018
|--------------------------------------- |  | ----------------------------
|                                        |  |                             
|Calculated stock price                  |  | $0.02 to $0.08              
|Risk free interest rate                 |  | 2.6% to 2.9%                
|Expected life of warrants (years)       |  |                             
|expected volatility of underlying stock |  |                             
|Expected dividend rate                  |  |                             





The
volatility of the common stock is estimated using historical data of the Company’s common stock. The risk-free interest
rate used in the Black Scholes pricing model is determined by reference to historical U.S. Treasury constant maturity rates with
maturities approximate to the life of the warrants granted. An expected dividend yield of zero is used in the valuation model,
because the Company does not expect to pay any cash dividends in the foreseeable future. As of December 31, 2018, the Company
does not anticipate any awards will be forfeited in the valuation of the warrants.



A
summary of all of the Company’s warrant activity during the period January 1, 2017 to December 31, 2018 is as follows:





|                                  |  |  | No.
    of shares |            |   | Exercise
    price pershare |  |                                                           | Weighted
    average exercise price | 
|--------------------------------- |  |  | ----------------- | ---------- | - | --------------------------- |  | --------------------------------------------------------- | ----------------------------------- | 
|                                  |  |  |                   |            |   |                             |  |                                                           |                                     | 
|Outstanding
    January 1, 2017   |  |  |                   | 19,637,409 |   |                             |  | $0.0033
                                         to $0.03 |                                     | 
|Granted                           |  |  |                   | 29,866,666 |   |                             |  | $0.03
                                         to $0.10   |                                     | 
|Forfeited/cancelled               |  |  |                   | —          |   |                             |  | —                                                         |                                     | 
|Exercised                         |  |  |                   | —          |   |                             |  | —                                                         |                                     | 
|Outstanding
    December 31, 2017 |  |  |                   | 49,504,075 |   |                             |  | $0.0033
                                         to $0.10 |                                     | 
|Granted                           |  |  |                   | 48,295,833 |   |                             |  | $0.10
                                         to $0.12   |                                     | 
|Forfeited/cancelled               |  |  |                   | (300,000   | ) |                             |  | $0.0033                                                   |                                     | 
|Exercised                         |  |  |                   | —          |   |                             |  | —                                                         |                                     | 
|Outstanding
    December 31, 2018 |  |  |                   | 97,499,908 |   |                             |  | $0.03
                                         to $0.12   |                                     | 



F-26







ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



| | 16. | Stockholder’s deficit
    (continued)
| | --- | -------------------------------------



| | c) | Warrants (continued)
| | -- | --------------------



The following table
summarizes information about warrants outstanding at December 31, 2018:



|               |  |  | Warrants
    outstanding |            |  | Warrants
    exercisable                                                                  | 
|-------------- |  |  | ------------------------ | ---------- |  | ----------------------------------------------------------------------------------------- | 
|Exercise price |  |  | No. of shares            |            |  | Weighted
                                         average
        remaining
        years | 
|               |  |  |                          |            |  |                                                                                           | 
|$0.03          |  |  |                          | 21,704,075 |  |                                                                                           | 
|$0.10          |  |  |                          | 44,483,333 |  |                                                                                           | 
|$0.12          |  |  |                          | 31,312,500 |  |                                                                                           | 
|               |  |  |                          |            |  |                                                                                           | 
|               |  |  |                          | 97,499,908 |  |                                                                                           | 





All of the warrants outstanding as of December 31, 2018 are vested.
The warrants outstanding as of December 31, 2018 have an intrinsic value of $1,085,204.





| | d) | Stock options
| | -- | -------------



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



No options were issued,
exercised or cancelled during the year ended December 31, 2018 and 2017, respectively.



The following table
summarizes information about options outstanding as of December 31, 2018:



|               |  |  | Options
    outstanding |         |  | Options
    exercisable                                                                   | 
|-------------- |  |  | ----------------------- | ------- |  | ----------------------------------------------------------------------------------------- | 
|Exercise price |  |  | No.
    of shares       |         |  | Weighted
                                         average
        remaining
        years | 
|               |  |  |                         |         |  |                                                                                           | 
|$0.12          |  |  |                         | 480,000 |  |                                                                                           | 
|               |  |  |                         |         |  |                                                                                           | 
|               |  |  |                         | 480,000 |  |                                                                                           | 



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



As
of December 31, 2018 there was no unrecognized compensation costs related to these options and the intrinsic value of the options
as of December 31, 2018 is $0.





F-27





ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



| | 17. | Segmental information
| | --- | ---------------------



The Company has two
reportable operating segments:



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



| | b. | Rehabilitation
    Services provided to customers, these services were provided to customers at our Addiction Recovery Institute of America and
    Seastone of Delray operations. The Rehabilitation services provided by our Canadian Rehab Center for the years ended December
    31, 2017 are reported under discontinued operations and have not been reported as part of the Segment Information.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|                                                             |  | Year ended December 31, 2018
|------------------------------------------------------------ |  | ----------------------------
|                                                             |  | Rental Operations           
|                                                             |  |                             
|Revenue                                                      |  | $                           
|Operating expenditure                                        |  |                             
|                                                             |  |                             
|Operating income (loss)                                      |  |                             
|                                                             |  |                             
|Other (expense) income                                       |  |                             
|Other income                                                 |  |                             
|Other expense                                                |  |                             
|Interest income                                              |  |                             
|Interest expense                                             |  |                             
|Amortization of debt discount                                |  |                             
|Loss on change in fair value of derivative liability         |  |                             
|Foreign exchange movements                                   |  |                             
|Net income (loss) before taxation from continuing operations |  |                             
|Taxation                                                     |  |                             
|Net income (loss) from continuing operations                 |  | $                           



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





|                         |  | December 31, 2018
|------------------------ |  | -----------------
|                         |  | Rental Operations
|                         |  |                  
|Purchase of fixed assets |  |                  
|Assets                   |  |                  
|Current assets           |  |                  
|Non-current assets       |  |                  
|Liabilities              |  |                  
|Current liabilities      |  |                  
|Non-current liabilities  |  |                  
|Intercompany balances    |  |                  
|Net liability position   |  |                  





F-28





ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



| | 17. | Segmental information
| | --- | ---------------------



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



|                                                     |  | Year ended December 31, 2017
|---------------------------------------------------- |  | ----------------------------
|                                                     |  | Rental Operations           
|                                                     |  |                             
|Revenue                                              |  | $                           
|Operating expenditure                                |  |                             
|                                                     |  |                             
|Operating income (loss)                              |  |                             
|                                                     |  |                             
|Other (expense) income                               |  |                             
|Other income                                         |  |                             
|Other expense                                        |  |                             
|Interest income                                      |  |                             
|Interest expense                                     |  |                             
|Amortization of debt discount                        |  |                             
|Loss on change in fair value of derivative liability |  |                             
|Foreign exchange movements                           |  |                             
|Net loss before taxation from continuing operations  |  |                             
|Taxation                                             |  |                             
|Net loss from continuing operations                  |  | $                           



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



|                               |  | December 31, 2017
|------------------------------ |  | -----------------
|                               |  | Rental Operations
|                               |  |                  
|Purchase of fixed assets       |  |                  
|Assets                         |  |                  
|Current assets                 |  |                  
|Non-current assets             |  |                  
|Liabilities                    |  |                  
|Current liabilities            |  |                  
|Non-current liabilities        |  |                  
|Intercompany balances          |  |                  
|Net (liability) asset position |  |                  







F-29







ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



| | 18. | Net (loss) income per
    common share
| | --- | --------------------------------------



For
the year ended December 31, 2018, the following options and warrants were excluded from the computation of diluted net loss per
share as the results would have been anti-dilutive.



|                                            |  | Year ended December 31, 2018
|------------------------------------------- |  | ----------------------------
|                                            |  |                             
|Stock options                               |  | $                           
|Warrants to purchase shares of common stock |  |                             
|Convertible notes                           |  |                             
|                                            |  | $                           



For the year ended December
31, 2017 the computation of basic and diluted earnings per share is as follows:



|                                                  |  | Amount |            | Number of shares |  | Per share amount
|------------------------------------------------- |  | ------ | ---------- | ---------------- |  | ----------------
|                                                  |  |        |            |                  |  |                 
|Basic loss per share                              |  |        |            |                  |  |                 
|Net loss per share from continuing operations     |  | $      | (8,190,376 | )                |  |                 
|Net income per share from discontinued operations |  |        | 6,821,889  |                  |  |                 
|                                                  |  |        |            |                  |  |                 
|Basic loss per share                              |  |        | (1,368,487 | )                |  |                 
|                                                  |  |        |            |                  |  |                 
|Effect of dilutive securities                     |  |        |            |                  |  |                 
|                                                  |  |        |            |                  |  |                 
|Warrants                                          |  |        | —          |                  |  |                 
|Convertible debt                                  |  |        | —          |                  |  |                 
|                                                  |  |        |            |                  |  |                 
|Diluted loss per share                            |  |        |            |                  |  |                 
|Net loss per share from continuing operations     |  |        | (8,190,376 | )                |  |                 
|Net income per share from discontinued operations |  |        | 6,821,889  |                  |  |                 
|                                                  |  |        |            |                  |  |                 
|Diluted loss per share                            |  | $      | (1,368,487 | )                |  |                 



| | 19. | Commitments and contingencies
| | --- | -----------------------------



| | a. | Contingency related to outstanding penalties
| | -- | --------------------------------------------



The Company has provided
for potential US penalties of $250,000 due to non-compliance with the filing of certain required returns. The actual liability
may be higher due to interest and penalties assessed by these taxing authorities.



| | b. | Operating leases
| | -- | ----------------



The Company has entered
into operating leases for certain office equipment.



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





F-30





ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



| | 19. | Commitments and contingencies
| | --- | -----------------------------



| | b. | Operating leases (continued)
| | -- | ----------------------------



The future commitment
of these operating leases are as follows:



|                          |  | Amount
|------------------------- |  | ------
|                          |  |       
|Within one year           |  | $     
|One to two years          |  |       
|Two to three years        |  |       
|Three to four years       |  |       
|Four to five years        |  |       
|Five years and thereafter |  |       
|Total                     |  | $     
|                          |  |       



| | c. | Mortgage loans
| | -- | --------------



The company has two
mortgage loans as disclosed in note 13 above. The future commitments under these loans are as follows:



|                    |  | Amount
|------------------- |  | ------
|Within one year     |  |       
|One to two years    |  |       
|Two to three years  |  |       
|Three to four years |  |       
|Total               |  | $     



| | c. | Other
| | -- | -----



The
Company has principal and interest payment commitments under the Convertible notes disclosed under Note 12 above. Conversion of
these notes are at the option of the investor, if not converted these notes may need to be repaid.



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





F-31







ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



| | 20. | Income taxes
| | --- | ------------





The Company is current in its US tax filings, except for its 2017 filing, as of December 31, 2018 and
is not current in its Canadian tax filings with the 2016 and 2017 returns still outstanding.



The income
tax provision/ (benefit) is different from that which would be obtained by applying the statutory Federal income tax rate of 21%
and applicable state tax rates of 5% to income before income tax expense. The items causing this difference for the years ended
December 31, 2018 and 2017 are as follows:





|                                                   |  | Year ended December 31, 2018 |            | Year ended December 31, 2017
|-------------------------------------------------- |  | ---------------------------- | ---------- | ----------------------------
|                                                   |  |                              |            |                             
|Tax credit at the federal and state statutory rate |  |                              | (2,219,152 | )                           
|Foreign taxation                                   |  |                              | 121,579    |                             
|Permanent differences                              |  |                              | 1,280,902  |                             
|Foreign net operating losses utilized              |  |                              | (19,347    | )                           
|Foreign tax rate differential                      |  |                              | —          |                             
|Valuation allowance                                |  |                              | 938,250    |                             
|                                                   |  |                              | 102,232    |                             



Deferred
income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities
at December 31, 2018 and 2017 are as follows:



|                                                      |  | December 31, 2018 |             | December 31, 2017
|----------------------------------------------------- |  | ----------------- | ----------- | -----------------
|Net operating losses                                  |  |                   |             |                  
|Net operating loss carry forward                      |  |                   | 20,556,758  |                  
|Net Operating Loss utilized - Discontinued operations |  |                   | —           |                  
|Net operating loss utilized – continuing operations   |  |                   | (73,007     | )                
|Foreign exchange differential                         |  |                   | (68,925     | )                
|Net taxable loss                                      |  |                   | 3,608,654   |                  
|Valuation allowance                                   |  |                   | (24,023,480 | )                
|                                                      |  |                   | —           |                  





The
company has established a valuation allowance against its gross deferred tax assets sufficient to bring its net deferred tax assets
to zero due to the uncertainty surrounding the realization of such assets. Management has determined it is more likely than not
that the net deferred tax assets are not realizable due to the Company’s historical loss position. The valuation allowance
for the year ended December 31, 2018 increased by $3,466,722 due to the additional operating losses incurred for the year ended
December 31, 2018 and adjustments made to prior year opening balances.



As
of December 31, 2018, the prior three years remain open for examination by the federal or state regulatory agencies for purposes
of an audit for tax purposes.



Pursuant
to the Internal Revenue Code of 1986, as amended (“IRC”), §382, the Company’s ability to use its net operating
loss carry forwards to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more
than 50% within a three-year period.



As of December 31, 2018, the Company is in arrears on certain US and Canadian
tax filings and the amounts presented above are based on estimates. The actual losses available could differ from these estimates.
In addition, the Company could be subject to penalties for these unfiled tax returns.





F-32





ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



| | 20. | Income taxes (continued)
| | --- | ------------------------



As
of December 31, 2018, the Company has accrued and expensed $250,000 (2017: $250,000) in penalties and interest attributable to
delinquent tax returns. Management believes the Company has adequately provided for any ultimate amounts that are likely to result
from audits of these returns once filed; however, final assessments, if any, could be significantly different than the amounts
recorded in the financial statements.



The
Company operates in foreign jurisdictions and is subject to audit by taxing authorities. These audits may result in the assessment
of amounts different than the amounts recorded in the consolidated financial statements. The Company liaises with the relevant
authorities in these jurisdictions in regard to its income tax and other returns. Management believes the Company has adequately
provided for any taxes, penalties and interest that may fall due.



The
Tax Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017 and significantly changes tax law
in the United States by, among other items, reducing the federal corporate income tax rate from a maximum of 35% to 21% (effective
January 1, 2018). The Act embraces a territorial system for the taxation of future foreign earnings and modifies certain
business deductions by, among other changes, repealing the domestic production activities deduction, further limiting the deductibility
of certain executive compensation and increasing the limitation on the deductibility of certain meals and entertainment expenses.
On the other hand, the Act permits 100% bonus depreciation on assets placed in service through 2022 (with a phase-out period through
2026). The full effects of these changes will be reflected for the first time in the determination of income tax expense for the
year ending December 31, 2018. The Company determined that it had no liability as of December 31, 2018 for the one-time
transition tax on deemed repatriated earnings of foreign subsidiaries imposed by the Act.



The
Company will evaluate the impact of the Global Intangible Low-Taxed Income (“GILTI”) provision of the Act, beginning
with the year ending December 31, 2018, the year for which it will first apply. The FASB has issued guidance stating that
a company may elect to treat the additional taxes due in the United States as a result of GILTI inclusions as current period expenses
when incurred or to include such amounts in the company’s determination of deferred taxes. The Company does not have any
GILTI tax liability as of December 31, 2018, therefore no election is applicable.



| | 21. | Subsequent events
| | --- | -----------------





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





On
January 17, 2019, the Company, entered into a Securities Purchase Agreement with Leonite pursuant to which the Company issued a
Convertible Promissory Note in the aggregate principal amount of $71,111 for net proceeds of $64,000 after an original issue discount
(“OID”) of $7,111. The Note has a maturity date of January 31, 2019 and bears interest at the rate of one percent per
annum from the date on which the Note was issued until the same becomes due and payable, whether at maturity or upon acceleration
or by prepayment or otherwise. The outstanding principal amount of the Note is convertible at any time and from time to time at
the election of Leonite during the period beginning on the date that is 180 days following the issue date into shares of the Company’s
common stock at a conversion price equal to the lower of $0.06 or 80% of the price per share of any subsequent financings. In conjunction
with the note the Company issued a five year warrant exercisable for 1,185,183 shares of common stock at an exercise price of $0.09
per share and paid a commitment fee of $7,111, settled by issuing 71,111 shares of common stock. This convertible note was repaid
on January 31, 2019.



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





F-33







ETHEMA
HEALTH CORPORATION



NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS



| | 21. | Subsequent events (continued)
| | --- | -----------------------------



On January 28, 2019, the Company repaid the Power Up, convertible note entered into on July 31, 2018,
of $153,000 together with interest and early settlement penalty thereon for gross proceeds of $207,679.





Between
January 28, 2019 and March 13, 2019, the Company closed several tranches of Series N Convertible notes in which it raised $844,252
in principal from 3 accredited investors through the issuance to the investors of the Company’s Series N convertible notes,
in the total original principal amount of $844,252, which Notes are convertible into the Company’s common stock at a conversion
price of $0.08 per share together with three year warrants to purchase up to a total of 10,553,150 shares of the Company’s
common stock at an exercise price of $0.12 per share. Both the conversion price under the Notes and the exercise price under the
warrants are subject to standard adjustment mechanisms. The notes mature one year from the date of issuance.



On February
14, 2019, the Company entered into a Settlement Agreement and Release with Gulfstream Roofing, Inc., for improvements made to the
leasehold real property located at 5400 East Avenue, West Palm Beach, Florida. The settlement amount was $251,774 was divided into
two equal installments of $125,887, which were paid on February 21, 2019 and March 5, 2019. All claims that the parties have or
may have against each other were released in terms of the agreement.





On
February 25, 2019, the Company entered into a Letter of Intent whereby it would purchase a 33.33% interest in Local Link Wellness,
LLC (“LLW”) for gross proceeds of $400,000. LLW proposes to provide a comprehensive addiction treatment program to
large employee groups. The company has advanced LLW a total of $110,000 as of April 12, 2019. These funds were advanced as short-term
promissory notes that will be immediately due and payable if the parties fail to reach a binding agreement by April 30, 2019.
Upon the closing of a binding agreement, the short-term promissory notes will be converted to equity.



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





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



On March 11, 2019, the Company repaid the Power Up convertible note entered into on September 10, 2018,
of $133,000 together with interest and early settlement penalty thereon for gross proceeds of $180,062.



On April 2, 2019, the
Company entered into a Commercial Contract whereby the real property at 801 Andrews Avenue, Delray Beach, Florida, consisting
of land and condominiums thereon, was sold to JAGGM, LLC for $3,500,000. This transaction is expected to close on April 26, 2019.





F-34





Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.



None.



Item
9A. Controls and Procedures.



| | a) | Evaluation
    of Disclosure and Control Procedures
| | -- | ---------------------------------------------------



The
Company’s disclosure controls and procedures are designed to ensure (i) that information required to be disclosed by the
Company in the reports the Company files or submits under the Exchange Act are recorded, processed, summarized, and reported within
the time periods specified in the SEC’s rules and forms; and (ii) that information required to be disclosed by the
Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management,
including its principal executive officer, or persons performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.



Our
principal executive officer and principal financial officer evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2018, and concluded that the disclosure controls and procedures were not effective
as a whole, and that the deficiency involving internal controls constituted a material weakness as discussed below.



| | b) | Management’s
    Assessment of Internal Control over Financial Reporting
| | -- | ------------------------------------------------------------------------



Management
is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
the Exchange Act Rules 13a-15(f). A system of internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.





Under
the supervision and with the participation of management, including the principal executive officer and the principal financial
officer, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of
December 31, 2018, based on the criteria established in a report entitled “Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission” and the interpretive guidance issued by the Commission
in Release No. 34-55929. Based on this evaluation, the Company’s management, including the Company’s principal executive
officer and principal financial officer, has evaluated and concluded that the Company’s internal control over financial
reporting was ineffective as of December 31, 2018, and identified the following material weaknesses:



| | ● | There
    are insufficient written policies and procedures to ensure the correct application of accounting and financial reporting with
    respect to the current requirements of GAAP and SEC disclosure requirements; and Notwithstanding the existence of this
    material weakness in our internal control over financial reporting, our management believes that the consolidated financial
    statements included in its reports fairly present in all material respects the Company’s financial condition, results
    of operations and cash flows for the periods presented.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



This
annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding
internal control over financial reporting. The Company’s registered public accounting firm was not required to issue an
attestation on its internal controls over financial reporting pursuant to temporary rules of the Securities and Exchange Commission.
The Company will continue to evaluate the effectiveness of internal controls and procedures on an ongoing basis.



| | c) | Changes in
    Internal Control over Financial Reporting
| | -- | --------------------------------------------------------



There
were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.



Item
9B. Other Information.



Not applicable.





14









PART III



Item 10.
Directors, Executive Officers, and Corporate Governance.



The following
table sets forth the names and ages of the members of the Company’s Board of Directors (the “Board”) and executive
officers, and the positions held by each:



|NamePosition        |   
|------------------- | --
|Shawn
    E. Leon   | 59
|                    |   
|John
    O’Bireck   | 60
|                    |   
|Gerald
    T Miller | 61



Set forth
below is a brief description of the background and business experience of each of our current executive officers and directors.



Shawn E.
Leon, Chief Executive Officer, Chief Financial Officer, President and Director

Shawn E. Leon
has been an officer and director of the Company since November 2010 and served as the President of the Company’s subsidiaries
at all times. In April 2011, Mr. Leon was appointed as the Company’s Chief Executive Officer. Prior to joining the Company,
Mr. Leon held the role of President of Greenestone Clinic Inc., Leon Developments Ltd, Port Carling Inn Developments Ltd., 1871
at the Locks Developments Ltd. and Leon Developments Ltd. Mr. Leon graduated with Honors in Business Administration from Wilfrid
Laurier University in 1982. Mr. Leon was elected to the Board because of his prior management experience.



John O’Bireck,
Director



John O’Bireck
of Aurora, Ontario, Canada has been a Control Systems Engineer, since graduating in 1982, and has since been involved with building
engineering teams to provide solutions for industrial and transportation industry. He was a cofounder of HayDrive Technologies
Ltd. a publicly listed company where he held the positions of Director, Vice-president, Chief Technology Officer and Vice President
of Advanced Product Development. Mr. O’Bireck was also the co-founder, Director and President of Supernova Performance Technologies
Ltd., a privately held company. In 2014 Mr. O’Bireck was elected as a Director to the Board of Sparta Capital Ltd.



Gerald
T. Miller, Director

Gerry
Miller of Toronto, Ontario, Canada is the Managing Partner of the Law Firm Gardiner Miller Arnold LLP. Mr. Miller’s practice
focuses on a comprehensive range of business, finance and real estate issues. In addition to managing the law firm. Mr. Miller’s
runs the business law and real estate practice at Gardiner Miller Arnold LLP Law firm. He advises small to medium sized companies
in manufacturing, investing and service related industries. Mr. Miller supervises all merger and acquisition transactions and
institutional finance work.



Involvement
in Certain Legal Proceedings



A
former employee has filed suit against the Company asserting wrongful dismissal, claiming damages between CDN$43,500 and CDN$50,000
this matter was settled for CDN$14,070, including applicable legal fees, the settlement remains unpaid as the plaintiff has not
signed the minutes of settlement.



The
Company entered into a Separation Agreement and Mutual Release with a former employee. In terms of the agreement the Company paid
the employee $4,327 and issued 100,000 shares of common stock to the employee, valued at $8,000.





On February
14, 2019, the Company entered into a Settlement Agreement and Release with Gulfstream Roofing, Inc., for improvements made to
the leasehold real property located at 5400 East Avenue, West Palm Beach, Florida. The settlement amount was $251,774 was divided
into two equal installments of $125,887, which were paid on February 21, 2019 and March 5, 2019. All claims that the parties have
or may have against each other were released in terms of the agreement.



Other than
disclosed above, to the best of our knowledge, during the past ten years, none of the following occurred with respect to a present
or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
(2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and
other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended vacated,
of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or
her involvement in any type of business, securities or banking activities; and being found by a court of competent jurisdiction
(in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended or vacated.





15









Compliance
with Section 16(A) of the Exchange Act



Section 16(a)
of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of
a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial
ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations
of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).



Based solely
on our review of certain reports filed with the SEC pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended,
at December 31, 2018, none of the officers, directors or 10% shareholders were in compliance with Section 16(a).



Code of
Ethics



The Board
adopted a Code of Business Conduct and Ethics applicable to all of our directors, officers and employees, including our Chief
Executive Officer. A copy of our Code of Ethics is incorporated by reference to an exhibit in our exhibit table. Shareholders
may also request a copy of the Code of Ethics from the Company’s headquarters.



Board Meetings
and Committees



The Company
holds regular Board meetings each quarter. There are no sub committees of the Board. All Directors act on all matters before the
Board.



Audit Committee



Effective
May 6, 2003, the SEC adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit
related service, the engagement be:



| | ● | approved
    by our audit committee; or
| | - | ---------------------------------------



| | ● | entered
    into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures
    are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures
    do not include delegation of the audit committee’s responsibilities to management.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We do not
currently have an audit committee. The Board preapproves all services provided by our independent auditors and otherwise performs
the functions of an audit committee. The Company does not believe that not having an audit committee will have any adverse effect
on the Company’s financial statements or current operations. The Company’s management will assess whether an audit
committee may be necessary in the future.



Item
11. Executive Compensation.



There has
been no annuity, pension or retirement benefits paid to our officers or directors during the past two fiscal years. We currently
do not have an employment agreement with the Company’s Chief Executive Officer. There is no compensation committee of the
Board. The Board approved the terms of a certain management agreement with Greenestone Clinic, Inc., wholly owned by the Company’s
Chief Executive Officer, Shawn Leon, and with Shawn Leon, whereby a management agreement was initially for a term of one
year and was for the development of medical clinics in Ontario, Canada. The agreement has been extended from year to year and
has been expanded to include overall company management and the development of clinics in the United States. The management agreement
allowed for a maximum compensation of $300,000 per year.



16







Summary
Compensation Table



|Name
    and Principal Position          |  | Year |      |  | Salary
    ($) |  |   | Bonus
    ($) |  |  | Option
    Awards ($) |  |  | Non-Equity
    Plan Compensation ($) |   |  | Non-Qualified
                                         Deferred Compensation Earnings
        ($) |  |   | All
    Other Compensation ($) |  |  | Total
    ($) | 
|---------------------------------------- |  | ---- | ---- |  | -------------- |  | - | ------------- |  |  | --------------------- |  |  | ------------------------------------ | - |  | ------------------------------------------------------------------------------------------------- |  | - | ------------------------------ |  |  | ------------- | 
|                                         |  |      |      |  |                |  |   |               |  |  |                       |  |  |                                      |   |  |                                                                                                   |  |   |                                |  |  |               | 
|Shawn
    E. Leon, President CEO, CFO(1) |  |      | 2018 |  |                |  | — |               |  |  | —                     |  |  |                                      | — |  |                                                                                                   |  | — |                                |  |  | —             | 
|                                         |  |      | 2017 |  |                |  | — |               |  |  | —                     |  |  |                                      | — |  |                                                                                                   |  | — |                                |  |  | —             | 



| | (1) | All other compensation
    represents a management fee of $182,430 (2017: $289,125) paid to a company controlled by Mr. Leon and a further
    management fee for services rendered. The verbal management agreement was entered into with Greenstone Clinic, Inc., a wholly
    owned subsidiary of Shawn Leon, and Shawn Leon, was initially for a term of one year and was for the development of medical
    clinics in Ontario, Canada. The agreement has been extended from year to year and has been expanded to include overall company
    management and the development of clinics in the United States. The management agreement allowed for a maximum compensation
    of $300,000 per year.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Outstanding
Equity Awards at Fiscal Year End

There
were no equity awards issued to executive officers during the fiscal year ended December 31, 2018 and there are no outstanding
equity awards to named officers as of December 31, 2018.



Information
regarding equity compensations plans is set forth in the table below:



|                                                               |  | Number
    of securitiesto be issued upon exercise ofoutstanding options |           |  | Weighted
    average exercise price of outstanding options |   |      | Number
    of securities remaining for future issuance underequity compensation plans | 
|-------------------------------------------------------------- |  | ------------------------------------------------------------------------ | --------- |  | ---------------------------------------------------------- | - | ---- | ------------------------------------------------------------------------------------- | 
|                                                               |  |                                                                          |           |  |                                                            |   |      |                                                                                       | 
|Equity Compensation plans
    approved by the stockholders     |  |                                                                          |           |  |                                                            |   |      |                                                                                       | 
|2013 Equity compensation plan                                  |  |                                                                          | 480,000   |  |                                                            | $ | 0.12 |                                                                                       | 
|Equity Compensation plans not approved by
    the stockholders |  |                                                                          |           |  |                                                            |   |      |                                                                                       | 
|None                                                           |  |                                                                          | —         |  |                                                            |   | —    |                                                                                       | 
|                                                               |  |                                                                          |           |  |                                                            |   |      |                                                                                       | 
|                                                               |  |                                                                          | 480,000.0 |  |                                                            | $ | 0.12 |                                                                                       | 



17







Directors
Compensation



The following
summary compensation table sets forth all compensation awarded to, earned by, or paid to the named directors by us during the
year ended December 31, 2018.



|Name            |  | Fees
                                         earned or paid in cash
        ($) |   |  | Stock
    awards ($) |  |   | Option
    awards ($) |  |  | Non-EquityPlan Compensation ($) |  |  | Non-Qualified
                                         Deferred Compensation Earnings
        ($) |   |  | All
    Other Compensation ($) |  |   | Total
        ($) | 
|--------------- |  | -------------------------------------------------------------------------------- | - |  | -------------------- |  | - | --------------------- |  |  | ------------------------------- |  |  | ------------------------------------------------------------------------------------------------- | - |  | ------------------------------ |  | - | ----------------- | 
|                |  |                                                                                  |   |  |                      |  |   |                       |  |  |                                 |  |  |                                                                                                   |   |  |                                |  |   |                   | 
|Shawn E. Leon   |  |                                                                                  | — |  |                      |  | — |                       |  |  | —                               |  |  |                                                                                                   | — |  |                                |  | — |                   | 
|                |  |                                                                                  |   |  |                      |  |   |                       |  |  |                                 |  |  |                                                                                                   |   |  |                                |  |   |                   | 
|John O’ Bireck  |  |                                                                                  | — |  |                      |  | — |                       |  |  | —                               |  |  |                                                                                                   | — |  |                                |  | — |                   | 
|                |  |                                                                                  |   |  |                      |  |   |                       |  |  |                                 |  |  |                                                                                                   |   |  |                                |  |   |                   | 
|Gerald T Miller |  |                                                                                  | — |  |                      |  | — |                       |  |  | —                               |  |  |                                                                                                   | — |  |                                |  | — |                   | 



Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.





The following table
sets forth the beneficial ownership of our capital stock by each executive officer and director, by each person known by us to
beneficially own more than five percent (5%) of any class of stock and by the executive officers and directors as a group. Except
as otherwise indicated, all shares of common stock are owned directly and the percentage shown is based on 124,371,452 shares
of common Stock issued and outstanding as of April 11,2018.



|Name of beneficial owner                           |  | Amount and nature of beneficial  ownership,  including common  stock |            | Percentage ofcommon stockbeneficially owned(1)
|-------------------------------------------------- |  | -------------------------------------------------------------------- | ---------- | ----------------------------------------------
|                                                   |  |                                                                      |            |                                               
|Directors and Officers                             |  |                                                                      |            |                                               
|Shawn E. Leon                                      |  |                                                                      | 80,389,234 | (2)                                           
|                                                   |  |                                                                      |            |                                               
|5% Shareholders                                    |  |                                                                      |            |                                               
|Jamie Schacter                                     |  |                                                                      | 8,359,590  | (3)                                           
|Fortunate Sons Ltd.                                |  |                                                                      | 24,227,580 | (4)                                           
|                                                   |  |                                                                      |            |                                               
|All officers and directors as a group (10 persons) |  |                                                                      | 80,389,234 |                                               





| | (1) | Based on 124,371,452
    shares of common stock outstanding as of April 11, 2019.
| | --- | ---------------------------------------------------------------------------------



| | (2) | Includes
    2,257,850 shares of common stock; 8,677,042 shares of common stock and warrants for 6,767,042 shares of common stock held
    by Eileen Greene, the spouse of Shawn Leon; 2,687,300 shares of common stock held by GreeneStone Clinic Inc., which is
    controlled by Mr. Leon; and a further 60,000,000 shares of common stock issued to Leon Developments Ltd upon the acquisition
    of CCH on February 14, 2017. Mr. Leon resides at 46 Fairway Heights Drive, Thornhill, Ontario, Canada.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) | Includes
    4,359,590 shares of common stock and warrant exercisable for 4,000,000 shares of common stock. Mr. Schacter’s address
    is 100 Simcoe Street, Suite 303, Toronto, Ontario M5H 3G2, Canada.                                                                                                                                                                                                                                                                                                    
| | (4) | Includes
    warrants exercisable over 14,375,000 shares of common stock and convertible notes, convertible into 9,852,580 shares of common
    stock at a fixed conversion price of $0.12 per share. Fortunate Sons Ltd., registered address is UBS Annex, 2nd
    floor, East Bay Street, Nassau, Bahamas.                                                                                                                                                                                                 



18







Item 13.
Certain Relationships and Related Party Transactions, and Director Independence



Related
Party Transactions



As of December
31, 2018, amounts payable to executive officers or their affiliates for net related party payables, as detailed in the below table:



|Name                      |  | Amount
|------------------------- |  | ------
|Owing to the Company      |  |       
|Shawn E. Leon(1)          |  | $     
|Owing by the Company      |  |       
|Leon Developments, LTD(2) |  |       
|Eileen Greene(3)          |  |       
|Total                     |  | $     





|(1) | Shawn
    Leon is the Chief Executive Officer of the company
|--- | ------------------------------------------------------------





|(2) | Leon
    Developments is wholly owned by Shawn Leon, the Company’s Chief Executive Officer
|--- | ------------------------------------------------------------------------------------------



|(3) | Eileen
    Greene is the spouse of Shawn Leon.
|--- | ----------------------------------------------



Shawn E. Leon

As of December
31, 2018 and 2017 the Company had a receivable of $32,650 and $16,080 from Shawn E. Leon, respectively. Mr. Leon is a director
and CEO of the Company. The balances receivable is non-interest bearing and has no fixed repayment terms.



Mr. Leon was
paid management fees of $182,430 and $289,125 for the years ended December 31, 2018 and 2017, respectively. In the prior year,
the Company recorded compensation expense in other expenses of $5,074,689 relating to the excess of the fair value of the assets
acquired in CCH. Mr. Leon is the owner of Leon Developments, the counterparty in the acquisition of the CCH subsidiary referred
to in note 4 above.



Leon
Developments, Ltd.



As of
December 31, 2018 and 2017, the Company owed Leon Developments, Ltd., $1,581,499 and $1,703,796, respectively. In the prior year,
on February 14, 2017, the Company acquired CCH from Leon Developments, Ltd. CCH owns the facility utilized by the Canadian Rehab
Clinic which was sold to a third party on February 14, 2017. The balance owing to Leon Developments, Ltd. Is non-interest bearing
and has no fixed terms of repayment.



Eileen
Greene

As of December
31, 2018 and 2017, the Company owed Eileen Greene, the spouse of our CEO, Shawn Leon, $1,034,114 and $877,182, respectively. During
the year ended December 31, 2018, Ms. Greene advanced the company a net $156,932 to fund working capital requirements. The amount
owing to Ms. Greene is non-interest bearing and has no fixed repayment terms.



On December
30, 2016 we entered into a Securities Purchase agreement with Ms. Greene, whereby $163,011 (CDN $220,000) was advanced to the
Company in the form of a Series L convertible promissory note, bearing interest at 0% per annum and convertible into shares of
common stock at a conversion price of $0.03 per share. On January 17,2017, Ms. Greene advanced the company a further $40,000 in
the form of a Series L convertible promissory note, bearing interest at 0% per annum and convertible into shares of common stock
at a conversion price of $0.03 per share. During July 2017, Ms. Greene converted the Series L convertible promissory notes into
6,767,042 shares of common stock.



In connection
with the issue pf promissory notes, Ms. Greene was also granted three year warrants exercisable over 6,767,042 shares of common
stock at an exercise price of $0.03 per share. The warrants expire between December 30, 2019 and January 17, 2020.



1816191
Ontario

As of December
31, 2018 and 2017, the Company owed $0 and $15,921 to 1816191 Ontario, the Endoscopy Clinic, respectively. The payable is non-interest
bearing, and has no specific repayment terms.



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



19











Directors Independence

The common
stock of the Company is currently quoted on the OTCBB, a quotation system which currently does not have director independence
requirements. On an annual basis, each director and executive officer will be obligated to disclose any transactions with the
Company in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material
interest in accordance with Item 407(a) of Regulation SK. Following completion of these disclosures, the Board will make an annual
determination as to the independence of each director using the current standards for “independence” that satisfy
the criteria for the NASDAQ Stock Market, Inc.



As of December
31, 2018, the Board determined that John O’Bireck and Gerald T Miller are independent and that Mr. Leon is not independent
under these standards.



Item 14.
Principal Accountant Fees and Services.



On March 9,
2018, the Company dismissed RBSM LLP as the Company’s independent registered public accounting firm. The decision to change
was approved by the Company’s Board of Directors.





The audit
report of Company’s independent registered public accounting firm on the financial statements for each of the past two years
ended December 31, 2016 and 2015 did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified
as to uncertainty, audit scope, or accounting principles, with the exception that: the reports dated April 17, 2017, and April
14, 2016, contained the following explanatory paragraph: “The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 6 to the consolidated financial statements, the
Company has sustained net losses and has a working capital and stockholder’s deficit. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are
also described in Note 6. The consolidated financial statements do not include any adjustments that might result from the outcome
of this uncertainty.”



During the
Company’s two most recent fiscal years and the subsequent interim periods preceding its dismissal of RBSM, there were: (i)
no disagreements with RBSM on any matter of accounting principles or practices, financial statement disclosure or auditing scope
or procedure, which disagreements, if not resolved to the satisfaction of RBSM, would have caused it to make reference to the
subject matter of the disagreements in its reports on the consolidated financial statements of the Company; and (ii) no reportable
events as described in Item 304(a)(1)(v) of Regulation S-K.



Appointment
of Daszkal Bolton LLP



On March 9,
2018, the Company engaged Daszkal Bolton LLP (“Daszkal”), as the Company’s independent registered public
accounting firm to audit the Company’s financial statements. Prior to retaining Daszkal, the Company did not consult with
Daszkal regarding either: (i) the application of accounting principles to a specified transaction, either contemplated or proposed,
or the type of audit opinion that might be rendered on the Company’s financial statements; or (ii) any matter that was the
subject of a “disagreement” (as described in Item 304(a)(1)(iv) of Regulation S-K) or a “reportable event”
(as described in Item 304(a)(1)(v) of Regulation S-K).



The following
is a summary of the fees paid by us to Daszkal Bolton LLP for the year ended December 31, 2018 and to RBSM LLP for the year ended
December 31, 2017 for professional services rendered:



|                          |  | Year ended December 31, 2018 |        | Year ended December 31, 2017
|------------------------- |  | ---------------------------- | ------ | ----------------------------
|                          |  |                              |        |                             
|Audit fees and expenses   |  | $                            | 70,500 |                             
|Taxation preparation fees |  |                              | 11,863 |                             
|Audit related fees        |  |                              | —      |                             
|Other fees                |  |                              | —      |                             
|                          |  | $                            | 82,363 |                             



20







Audit
Fees



Consists
of fees billed for professional services rendered for the audit of our financial statements and review of interim financial statements
included in quarterly reports and services that are normally provided by Daszkal Bolton LLP and RBSM LLP in connection with statutory
and regulatory filings or engagements in fiscal year ended December 31, 2018 and 2017, respectively.



Audit
Related Fees

Consists of fees billed for accounting,
assurance and related services that are reasonably related to the performance of the audit or review of our financial statements
and are not reported under “Audit Fees”.



Tax
Fees

Tax Fees consist of the aggregate
fees billed for professional services rendered by our principal accounts for tax compliance, tax advice, and tax planning. These
services include preparation for federal and state income tax returns.



All
Other Fees



We did
not incur any other fees billed by auditors for services rendered to our Company, other than the services listed above for the
fiscal years ended December 31, 2018 and 2017, respectively.



21







PART IV



Item 15.
Exhibits, Financial Statement Item 15. Exhibits and Financial Statement Schedules and Reports on Form 10-K



|(a) | (1) | The
    following financial statements are included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
|--- | --- | -----------------------------------------------------------------------------------------------------------------------------------



| | 1. | Independent
    Auditor’s Report
| | -- | --------------------------------



| | 2. | Consolidated
    Balance Sheets as of December 31, 2018 and 2017
| | -- | ----------------------------------------------------------------



| | 3. | Consolidated
    Statements of Operations and comprehensive loss for the years ended December 31, 2018 and 2017
| | -- | ---------------------------------------------------------------------------------------------------------------



| | 4. | Consolidated
    Statements of changes in Stockholders’ Deficit for the years ended December 31, 2018 and 2017
| | -- | --------------------------------------------------------------------------------------------------------------



| | 5. | Consolidated
    Statements of Cash Flows for the years ended December 31, 2018 and 2017
| | -- | ----------------------------------------------------------------------------------------



| | 6. | Notes
    to Consolidated Financial Statements
| | -- | ----------------------------------------------



| | (2) | All
    financial statement schedules have been omitted as the required information is either inapplicable or included in the Consolidated
    Financial Statements or related notes.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





22







|(b) |  | Exhibits
|--- |  | --------



|Exhibit
    No. | Description                                                                                                                                                       | Form | SEC
    File No. | Date                                                             | Filed
    Herewith | Filed
    by Reference
|--------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ---------------- | ---------------------------------------------------------------- | ------------------ | ----------------------
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|3.1             | Articles of Incorporation of NNRC, Inc. (as filed with the Secretary of State of Colorado on April 1, 1993)                                                       | 10-K | 000-15078        | March
                                       28,
        2013    |                    | X                     
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|3.2             | Articles of Amendment to the Articles of Incorporation of Nova Natural Resources, Inc. (as filed with the Secretary of State of Colorado on May 8, 2012)          | 10-K | 000-15078        | March
                                       28,
        2013    |                    | X                     
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|3.3             | Articles of Amendment to the Articles of Incorporation of Greenestone Healthcare Corporation (as filed with the Secretary of State of Colorado on March 26, 2013) | 8-K  | 000-15078        | March
                                       29,
        2013    |                    | X                     
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|3.4             | Amended and Restated Bylaws of Greenestone Healthcare Corporation                                                                                                 | 8-K  | 000-15078        | March
                                       29,
        2013    |                    | X                     
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|3.5             | Articles of Amendment to the Articles of Incorporation re: Name Change                                                                                            | 8-K  | 000-15078        | April
                                       10,
        2017    |                    | X                     
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|3.6             | First amendment to Amended and Restated Bylaws                                                                                                                    | 8-K  | 000-15078        | April
                                       10,
        2017    |                    | X                     
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|4.1             | Form of Series L Convertible Note and Warrant Agreement                                                                                                           | 8-K  | 000-15078        | 42740                                                            |                    | X                     
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|4.2             | Form of LABRYS LP Convertible Note Agreement                                                                                                                      | 8-K  | 000-15078        | February
                                       2,
        2017  |                    | X                     
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|10.1            | Stock Purchase Agreement I                                                                                                                                        | 8-K  | 000-15078        | 41362                                                            |                    | X                     
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|10.2            | Form of Warrant I                                                                                                                                                 | 8-K  | 000-15078        | December
    30, 2013                                            |                    | X                     
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|10.3            | Form of Warrant II                                                                                                                                                | 8-K  | 000-15078        | December
    30, 2013                                            |                    | X                     
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|10.4            | Stock Purchase Agreement  II                                                                                                                                      | 8-K  | 000-15078        | December
    30, 2013                                            |                    | X                     
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|10.5            | Share Purchase Agreement, dated as of December 16,2014 by and between the Registrant and Jainheel Patekh Medical Professional Corporation                         | 8-K  | 000-15078        | December
    23, 2014                                            |                    | X                     
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|10.6            | Collateral Note, Dated December 16, 2014                                                                                                                          | 8-K  | 000-15078        | December
    23, 2014                                            |                    | X                     
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|10.7            | Seastone of Delray Asset Purchase Agreement, Management Services Agreement and Commercial Real Estate Contract                                                    | 8-K  | 000-15078        | May
                                       23,
        2016      |                    | X                     
|                |                                                                                                                                                                   |      |                  |                                                                  |                    |                       
|10.8            | Stock Purchase Agreement re: Cranberry Cove Holdings Ltd.                                                                                                         | 8-K  | 000-15078        | February
                                       17,
        2017 |                    | X                     



23







|Exhibit
    No. | Description                                         | Form | SEC
    File No. | Date                                                               | Filed
    Herewith | Filed
    by Reference
|--------------- | --------------------------------------------------- | ---- | ---------------- | ------------------------------------------------------------------ | ------------------ | ----------------------
|10.9            | Asset Purchase Agreement re: Sale of Muskoka Clinic | 8-K  | 000-15078        | February
                                         17,
        2017 |                    | X                     
|                |                                                     |      |                  |                                                                    |                    |                       
|10.10           | Lease of Muskoka Clinic                             | 8-K  | 000-15078        | February
                                       17
        2017    |                    | X                     
|                |                                                     |      |                  |                                                                    |                    |                       
|16.1            | Letter from Jarvis Ryan Associates, LLP             | 8-K  | 000-15078        | July
                                       19,
        2014       |                    | X                     



|        |                                                                                                                                                                                |  |  |  |   |  
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  |  | - | -
|31.1    | Certification of the Principal Executive Officer of the registrant pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (Rule 13(a) -14(a) or Rule 15(d( - 14 (a)         |  |  |  | X |  
|        |                                                                                                                                                                                |  |  |  |   |  
|31.2    | Certification
    of the Principal Financial Officer of the registrant pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (Rule 13(a)
    -14(a) or Rule 15(d( - 14 (a) |  |  |  | X |  
|        |                                                                                                                                                                                |  |  |  |   |  
|32.1    | Certification of the Principal Executive Officer pursuant to Rule 18 U.S.C 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002                           |  |  |  | X |  
|        |                                                                                                                                                                                |  |  |  |   |  
|32.2    | Certification
    of the Principal Financial Officer pursuant to Rule 18 U.S.C 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley
    Act of 2002                   |  |  |  | X |  
|        |                                                                                                                                                                                |  |  |  |   |  
|101.INS | INS XBRL Instance
    Document                                                                                                                                                 |  |  |  |   | X
|101.SCH | SCH XBRL Schema
    Document                                                                                                                                                   |  |  |  |   | X
|101.CAL | CAL XBRL Calculation
    Linkbase Document                                                                                                                                     |  |  |  |   | X
|101.DEF | DEF XBRL Definition
    Linkbase Document                                                                                                                                      |  |  |  |   | X
|101.LAB | LAB XBRL Label
    Linkbase Document                                                                                                                                           |  |  |  |   | X
|101.PRE | PRE XBRL Presentation
    Linkbase Document                                                                                                                                    |  |  |  |   | X







24







SIGNATURES



Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.



ETHEMA
HEALTH CORPORATION.



Date:
April 16, 2019

By:
/s/ Shawn E. Leon

Name:
Shawn E. Leon

Title:
Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)



Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.



|Name                     | Position                                                                                              | Date              
|------------------------ | ----------------------------------------------------------------------------------------------------- | ------------------
|                         |                                                                                                       |                   
|/s/Shawn E. Leon         | Chief Executive Officer (Principal Executive
    Officer),                                            | April 16, 2019    
|Shawn Leon               | Chief Financial Officer
        (Principal Financial
        Officer), President and
        Director |                   
|                         |                                                                                                       |                   
|/s/
    John O’Bireck    | Director                                                                                              | April
    16, 2019
|John O’Bireck            |                                                                                                       |                   
|                         |                                                                                                       |                   
|/s/
    Gerald T. Miller | Director                                                                                              | April
    16, 2019
|Gerald T. Miller         |                                                                                                       |                   





25