UNITED STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549 FORM 10-K



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



For the fiscal
year ended: December 31, 2016



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 or any amendment to this Form 10-K. ☒



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, 2017, based
on a closing share price of $0.06 was approximately $2,962,022. As of April 10, 2018, the registrant had 122,989,230 shares of
its common stock, par value $0.01 per share, outstanding.











ETHEMA
HEALTH CORPORATION

YEAR
ENDED DECEMBER 31, 2017

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 | 4   
|Item 6.      | Selected  Financial Data                                                                                    | 6   
|Item 7.      | Management’s Discussion and Analysis of Financial Condition and Results of  Operations                      | 6   
|Item 8.      | Financial Statements and  Supplementary Data                                                                | 10  
|Item 9.      | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                        | 11  
|Item 9A.     | Controls and Procedures                                                                                     | 11  
|Item 9B.     | Other Information                                                                                           | 11  
|             |                                                                                                             |     
|PART
    III |                                                                                                             |     
|Item 10.     | Directors, Executive Officers and Corporate Governance                                                      | 12  
|Item 11.     | Executive  Compensation                                                                                     | 13  
|Item 12.     | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters              | 15  
|Item 13.     | Certain Relationships and Related Transactions, and Director Independence                                   | 16  
|Item 14.     | Principal Accountant Fees and Services                                                                      | 17  
|Part IV.     |                                                                                                             |     
|Item 15.     | Exhibits and Financial Statements Schedules                                                                 | 19  
|SIGNATURES   | 22                                                                                                          |     













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.



The
Asset Purchase Agreement and Lease

Under
the APA,the assets of the 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 as a performance payment to be received in 2019
if certain clinic performance metrics are met. The Purchaser completed the sale with cash proceeds to the Company of CDN$10,000,000,
of which CDN$1,500,000 will remain in escrow for up to two years to cover indemnities given by the Company. The proceeds of the
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.



1

















The
Florida Purchase

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



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



Recent
Developments



On
November 2, 2017, Ethema entered into an Agreement of Purchase and Sale (the “Agreement”) to purchase from AREP 5400
East AvenueLLC, a Delaware limited liability company (“Seller”) certain
buildings in WestPalm Beach, Florida, totaling approximately 80,000 square feet,
on which the present tenant operates a substance abuse treatment center (the “Property”). The purchase price of the
Property is $20,530,000, and the Company is obligated under the Agreement to make a series of nonrefundable down payments totaling
$2,210,000. The closing of the transaction, which is subject to standard due diligence, conditions to closing and deliverables,
is scheduled to occur on May 8, 2018 , or such earlier date as is agreed upon by the parties.



On
December 1, 2017, Ethema and its wholly owned subsidiaries Ethema Clinic Muskoka Inc.(“previously GreeneStone Clinic Muskoka
Inc.), an Ontario corporation, CCH, an Ontario corporation and Seastone, a Florida limited liability company (the
“Subsidiaries”) closed on a private offering (the “Private Offering”) to raise up to USD$1,500,000
in capital. Pursuant to the Private Offering, the Company and the Subsidiaries jointly and severally issued one senior secured
convertible promissory note (the “Note”), bearing a principal amount of up to $1,650,000 in total, to Leonite
Capital, LLC, a Delaware limited liability company (the “Investor”). The Note bears interest at the rate of
6.5% per annum. The initial draw under the Note was $300,000 with a $150,000 original issue discount for a total of $450,000.
The Company issued the Investor 1,650,000 shares of the Company’s common stock in connection with the closing and paid $20,000
of the Investor’s legal fees. The Note’s initial maturity date is June 1, 2018. During the term of the Note the Company
and the Subsidiaries will be obligated to make monthly payment of accrued and unpaid interest. The Note contains Company and Subsidiary
representations and warranties, covenants, events of default, and registration rights. The amounts due under the Note are convertible,
at the Investors request, into shares of the Company’s common stock at an initial price of $0.06 per share, subject to adjustment.



On
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 (the “A&R 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; and (d)
issue an additional 250,000 shares of the Company’s common stock to the Investor. In connection with the execution of the
A&R Note, 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 (the “Warrant”); (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 A&R Note, effective January 2, 2018 (the “First
Amendment” and together with the foregoing agreements the “AncillaryAgreements”). 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.



Corporate
Structure



During
2017, the Company disposed of its wholly owned, operating subsidiary, GreeneStone Muskoka and formed two new subsidiaries, Seastone
Delray Healthcare, LLC (“Seastone Delray”) and Delray Andrews RE, LLC (“Delray Andrews”), both Florida
limited liability companies. The Company acquired, from Leon Developments, 100% of the stock of CCH, the owner of the real estate
which houses Greenestone Muskoka, and subsequently leased the clinic real estate to the purchaser of the GreeneStone Muskoka assets.
The Company also acquired the business of Seastone Delray and certain real property in Delray Beach, and is currently operating
it through its subsidiary, Seastone Delray.



Employees



As
of December 31, 2017, Ethema Health Corporation had 14 employees .



2







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. Webelieve our marketing efforts are successful and effective.



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 Commentsnone.



Item
2. Properties.



Ethema
Executive Offices



The
Company’s executive offices are located in our owned premises at 810 Andrews Avenue, Delray 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.



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.



3







Item
3. 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 CDN14,070,
including applicable legal feews, the settlement remains unpaid as the plaintiff has not signed the minutes of settlement..



Other
than disclosed above, we are currently not involved in any litigation that we believe could have a material adverse effect on
our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by
any court, public board, government agency, self-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.



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 2017 |  |      |      |  |     |  
|First quarter    |  | $    | 0.08 |  |     | $
|Second quarter   |  | $    | 0.06 |  |     | $
|Third quarter    |  | $    | 0.09 |  |     | $
|Fourth quarter   |  | $    | 0.09 |  |     | $
|                 |  |      |      |  |     |  
|Fiscal Year 2016 |  |      |      |  |     |  
|First quarter    |  | $    | 0.08 |  |     | $
|Second quarter   |  | $    | 0.06 |  |     | $
|Third quarter    |  | $    | 0.06 |  |     | $
|Fourth quarter   |  | $    | 0.03 |  |     | $



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 11, 2018 is 144.



| | (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, 2017, 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, 2017.



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.





4







The
following is a summary of the securities transactions during the year ended December 31, 2017:



| | 1. | On
                                         February 2, 2017, 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
                                         $110,000 in terms of an unsecured convertible promissory note with a maturity date of
                                         August 2, 2017. 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 May 26, 2017.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | 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. 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
                                         an initial term of five years.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | On
                                         June 19, 2017, the Company, entered into a Securities Purchase Agreement with an investor
                                         whereby the Company borrowed $110,000 in exchange for a convertible promissory note of
                                         $113,500. The Note had a maturity date of March 20, 2018 and bore interest at the at
                                         the rate of eight percent per annum. The note was repaid on December 14, 2017.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. | On
                                         November 6, 2017, 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
                                         $103,000. The Note has a maturity date of August 15, 2018 and bears interest at 12% per
                                         annum. The note is convertible into shares of common stock 180 days after the issue date
                                         at a conversion price of 61% of the market price of the common stock determined by the
                                         lowest trading price in the preceding 10 day trading period.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7. | 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.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8. | 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.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.





5







Item
6. Selected Financial Data.



Not
applicable as we are a smaller reporting company.



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

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 Part 1. “Business,” Part 1A “Risk Factors” and Part II, 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 “Icagen,” refer to Icagen, Inc. 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.



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, 2017.



Plan
of Operation



On
February 14, 2017, and in terms of the agreements entered into on May 19, 2016, GreeneStone completed a series of transactions
(referred to collectively as the “Restructuring Transactions”), including a share purchase agreement (the “SPA”)whereby Ethema acquired the stock of the company holding the Muskoka Healthcare Clinic real estate, an asset purchase agreement
(the “APA”)and lease (the “Lease”) whereby the Company sold
all of the Muskoka clinic business assets and leased the clinic building to the buyer, and a real estate purchase agreement and
asset purchase agreement whereby Ethema purchased the real estate and business assets of Seastone Delray (the “Florida Purchase”).

The
Company entered into an Agreement to purchase certain buildings in WestPalm 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 closing of the transaction, which is subject to standard due diligence, conditions
to closing and deliverables, is scheduled to occur on May 8, 2018 , or such earlier date as is agreed upon by the parties.



Results
of operations for the year ended December 31, 2017 and the year ended December 31, 2016.



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 2016 and the results of
operations and cash flows for the years ended December 31, 2017 and 2016.



Revenue



Revenue
was $929,416 and $0 for the years ended December 31, 2017 and 2016, respectively. The revenue in 2017 represents revenues earned
from our Seastone operations, located in Delray Beach and acquired in February 2017. Revenue in the prior year is reflected under
discontinued operation described below. Since this is the first year of operations for Seastone, we have no meaningful comparison.



6







Operating
Expenses



Operating
expenses was $2,382,573 and $790,880 for the years ended December 31, 2017 and 2016, respectively, an increase of $1,591.693 or
201.3%. The increase in operating expenses is attributable to:



| | ● | General
                                         and administrative expenses of $762,325 and $144,536 for the years ended December 31,
                                         2017 and 2016, respectively, an increase of $617,789 or 427.4%, primarily due to the
                                         operating expenses of Seastone, acquired during February 2018.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | Management
                                         fees of $289,125 and $257,283 for the years ended December 31, 2017 and 2016, respectively,
                                         increased by $31,842 or 12.4%, primarily due to additional effort required by our CEO
                                         to operate the business.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | Professional
                                         fees of $626,548 and $249,395 for the years ended December 31, 2017 and 2016, respectively,
                                         increased by $377,153 or 151.2%, primarily 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 during the current year.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | Salaries
                                         and wages of $770,076 and $139,666 for the years ended December 31, 2017 and 2016, respectively,
                                         increased by $630,410 or 451.4%, primarily due to salaries related to the Seastone operation
                                         which was acquired in February 2017. Salaries for Greenestone Muskoka are reflected in
                                         discontinued operations in 2016.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | Depreciation
                                         was $223,623 and $0 for the years ended December 31, 2017 and 2016, respectively, the
                                         depreciation consist 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operating
loss



The
operating loss was $1,453,157 and $790,880 for the years ended December 31, 2017 and 2016, respectively, an increase of $662,277
or 83.7%. The increase is attributable to the movement in revenue and operating expenses discussed above.



Other
income



Other
income of $475,487 and $72,508 for the years ended December 31, 2017 and 2016, respectively, an increase of $402,979 or 555.8%.
Other income in the current period consists of the reversal of a provision raised against a receivable on the disposal of the
Endoscopy Clinic in prior years amounting to $472,368, the receivable was assigned to Leon Developments as part of the purchase
consideration paid on the acquisition of CCH. Other income in the prior year represented the proceeds related to the sale of certain
oil rights which belonged to the Company prior to changing its operations to that of drug rehabilitation and treatment centers.



Other
expense



Other
expense of $5,093,954 and $156,387 for the years ended December 31, 2017 and 2016, an increase of $4,937,567 or 3,157.3%, represents;
; i) $5,074,689 of the excess of the purchase price paid over the carrying value of the assets of CCH. This expenditure is classified
as once-off compensation expense to our CEO who owns 100% of Leon Developments, the counterparty to the purchase of the 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. Other expense in the prior period consists primarily of expenses incurred in operating the Seastone of Delray Clinic,
in terms of a management agreement, prior to its acquisition on February 14, 2017.



Interest
income

Interest
income of $32,074 consists primarily of interest earned on the receivable from the sale of our Endoscopy Clinic in prior years.
The interest due on this receivable was reversed in prior periods due to uncertainty as to the collectability of this amount.
The receivable was assigned to Leon Developments as part of the purchase consideration for CCH.





7







Interest
expense



Interest
expense of $367,547 and $29,504 for the years ended December 31, 2017 and 2016, respectively, an increase of $338,043 or 1,145.8%
was primarily due to interest due on the mortgage loans assumed by the Company when it acquired CCH and on the purchase money
mortgage loan entered into to acquire the properties associated with Seastone of Delray. In the prior year the interest expense
consisted primarily of interest on the short term convertible note advanced to the Company during the prior period and subsequently
paid off before the prior period end.



Debt
discount



Debt
discount was $668,916 and $93,244 for the year ended December 31, 2017 and 2016, respectively, an increase of $575,672 or 617.4%.
The charge during the current period represents the amortization of the value of the warrants issued in terms of the convertible
loan agreements entered into during December 2016 and January 2017 and the amortization of the fair value of the beneficial conversion
feature of convertible notes issued to note holders during 2017, the fair value of the warrants and the beneficial conversion
feature are amortized over a six to twelve month period, the term of the underlying convertible securities. The $93,244, incurred
in the prior period represents the amortization of the value of warrant and original issue discount attached to a short-term loan.



Derivative
liability movement

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 year. These securities are marked to market on a quarterly basis and the resultant gain
or loss is booked as a derivative liability movement in the statement of operations.



Foreign
exchange movements



Foreign
exchange movements of $(81,031) and $811 for the years ended December 31, 2017 and 2016, 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 (loss) from discontinued operations



The
net income from discontinued operations of $6,821,889 and $735,987 for the years ended December 31, 2017 and 2016, respectively,
an increase of $6,085,902 or 826.9%:



The
current 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Net
loss



Net
loss of $1,368,487 and $260,709 for the years ended December 31, 2017 and 2016, respectively, an increase of $1,107,778 or 424.98%,
is primarily due to the profit realized on the sale of the Canadian Rehab clinic of $7,494,828, the reversal of the provision
raised against the loan on sale of the Endoscopy clinic of $472,368, offset by the compensation charge of $5,074,689 relating
to the acquisition of CCH, the amortization of $668,916 of debt discount during the current period and the mark-to-market movements
of the derivative financial liabilities.





Contingency
related to outstanding payroll tax liabilities



The
Company is delinquent in filing its USA tax returns, these returns are currently being prepared by our tax advisors, although
we do not anticipate any taxation liability to arise, we may be faced with penalties for failing to file tax returns timeously.



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 together with our tax returns mentioned above. remaining
liability of approximately $250,000 relates to the not filing of certain foreign assets forms. This issue is currently being addressed.



8







Liquidity
and Capital Resources



The
following table summarizes working capital at December 31, 2017, compared to December 31, 2016.





|                    |  | December 31, 2017 |            |   | December 31, 2016 |   |            | Increase (Decrease) | 
|------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | ------------------- | 
|                    |  |                   |            |   |                   |   |            |                     | 
|Current assets      |  | $                 | 334,619    |   |                   | $ | 275,575    |                     | 
|Current liabilities |  |                   | (6,860,178 | ) |                   |   | (3,637,111 | )                   | 
|                    |  |                   |            |   |                   |   |            |                     | 
|                    |  | $                 | (6,525,559 | ) |                   | $ | (3,361,536 | )                   | 







The
increase in current assets during the current year is primarily due to the increase in receivable of $218,858 from the Seastone
operations an increase in prepaid expenses of $$96,632 offset by a reduction in the discontinued operation asset of $183,219 in
the prior year.



The
increase in current liabilities, includes, a derivative liability of $2,859,832, the fair value of convertible securities which
are marked-to-market on a quarterly basis. This derivative has no impact on cash flow. In addition there is a payable of approximately
$2,597,000 owing primarily to Leon Developments, a company wholly owned by our CEO Shawn Leon, this payable arose primarily on
the acquisition of CCH during the current year.





Over
the next twelve months we estimate that the company will require $3.0 million in working capital as it continues to develop its
Seastone of Delray business and concludes the acquisition of the 174 bed rehabilitation center located on West Palm Beach. 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, a change from the prior years, high risk
assessment, due to the settlement of the outstanding tax liabilities mentioned above.



9







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 Firm                                                    | F-1 
|Consolidated Balance Sheets as of December 31, 2017 and 2016                                               | F-2 
|Consolidated Statements of Operations and comprehensive loss for the year ended December 31, 2017 and 2016 | F-3 
|Consolidated Statements of Changes in Stockholders Deficit for the years ended December 31, 2017 and 2016. | F-4 
|Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016                       | F-5 
|Notes to the Consolidated Financial Statements                                                             | F-6 





10







(graphic)







REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To
the Board of Directors and Stockholders of Ethema Health Corporation



We
have audited the accompanying consolidated balance sheets of Ethema Health Corporation (“the Company”) as of December
31, 2016 and the related consolidated statements of operations and other comprehensive loss, stockholders’ deficit and cash
flows for the years ended December 31, 2016. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.



Weconducted our audit in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
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. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. Webelieve that
our audit provides a reasonable basis for our opinion.



In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Ethema Health Corporation as of December 31, 2017 and the results of its operations and its cash flows for
the years ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America.



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.



/s/
RBSM LLP



New
York, NY 10022

April
17, 2018



F-1







ETHEMA
HEALTH CORPORATION

CONSOLIDATED
BALANCE SHEETS





|                                                                                                                                                                         |  | December 31, 2017 |             |   | December 31, 2016 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ----------- | - | ----------------- | -
|                                                                                                                                                                         |  |                   |             |   |                   |  
|ASSETS                                                                                                                                                                   |  |                   |            
|                                                                                                                                                                         |  |                   |             |   |                   |  
|Current assets                                                                                                                                                           |  |                   |             |   |                   |  
|Cash                                                                                                                                                                     |  | $                 | 339         |   |                   | $
|Accounts receivable                                                                                                                                                      |  |                   | 218,858     |   |                   |  
|Prepaid expenses                                                                                                                                                         |  |                   | 99,342      |   |                   |  
|Discontinued operations                                                                                                                                                  |  |                   | —           |   |                   |  
|Related party Receivables                                                                                                                                                |  |                   | 16,080      |   |                   |  
|Total current assets                                                                                                                                                     |  |                   | 334,619     |   |                   |  
|Non-current assets                                                                                                                                                       |  |                   |             |   |                   |  
|Investment                                                                                                                                                               |  |                   | —           |   |                   |  
|Deposit on real Estate                                                                                                                                                   |  |                   | 1,825,000   |   |                   |  
|Due on sale of subsidiary                                                                                                                                                |  |                   | 1,191,225   |   |                   |  
|Property, plant and equipment                                                                                                                                            |  |                   | 7,573,858   |   |                   |  
|Goodwill                                                                                                                                                                 |  |                   | 1,580,000   |   |                   |  
|Cash - Restricted                                                                                                                                                        |  |                   | —           |   |                   |  
|Total non-current assets                                                                                                                                                 |  |                   | 11,933,809  |   |                   |  
|Total assets                                                                                                                                                             |  | $                 | 12,268,428  |   |                   | $
|                                                                                                                                                                         |  |                   |             |   |                   |  
|LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                                    |  |                   |             |   |                   |  
|                                                                                                                                                                         |  |                   |             |   |                   |  
|Current liabilities                                                                                                                                                      |  |                   |             |   |                   |  
|Bank overdraft                                                                                                                                                           |  | $                 | 28,927      |   |                   | $
|Accounts payable and accrued liabilities                                                                                                                                 |  |                   | 372,244     |   |                   |  
|Taxes payable                                                                                                                                                            |  |                   | 689,240     |   |                   |  
|Convertible loans                                                                                                                                                        |  |                   | 160,453     |   |                   |  
|Loans payable                                                                                                                                                            |  |                   | 152,402     |   |                   |  
|Derivative liability                                                                                                                                                     |  |                   | 2,859,832   |   |                   |  
|Related party payables                                                                                                                                                   |  |                   | 2,597,080   |   |                   |  
|Total current liabilities                                                                                                                                                |  |                   | 6,860,178   |   |                   |  
|Non-current liabilities                                                                                                                                                  |  |                   |             |   |                   |  
|Loan payable                                                                                                                                                             |  |                   | 7,183,892   |   |                   |  
|Total liabilities                                                                                                                                                        |  |                   | 14,044,070  |   |                   |  
|                                                                                                                                                                         |  |                   |             |   |                   |  
|Stockholders’ deficit                                                                                                                                                    |  |                   |             |   |                   |  
|Preferred stock - Series A; $0.01 par value, 3,000,000 authorized, nil outstanding as of December 31, 2017 and 2016.                                                     |  |                   | —           |   |                   |  
|Preferred Stock - Series B; $0.01 par value, 10,000,000 authorized, nil outstanding as of December 31, 2017 and 2016.                                                    |  |                   | —           |   |                   |  
|Common stock; $0.01 par value, 500,000,000 shares authorized; 122,989,230 and 48,738,855 shares issued and outstanding  as of December 31, 2017 and  2016, respectively. |  |                   | 1,232,393   |   |                   |  
|Additional paid-in capital                                                                                                                                               |  |                   | 18,545,913  |   |                   |  
|Accumulated other comprehensive income                                                                                                                                   |  |                   | 796,453     |   |                   |  
|Accumulated deficit                                                                                                                                                      |  |                   | (22,350,401 | ) |                   |  
|Total stockholders’ deficit                                                                                                                                              |  |                   | (1,775,642  | ) |                   |  
|Total liabilities and stockholders’ deficit                                                                                                                              |  | $                 | 12,268,428  |   |                   | $





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, 2017 |             |   | Year ended December 31, 2016 |  
|--------------------------------------------------------- |  | ---------------------------- | ----------- | - | ---------------------------- | -
|                                                          |  |                              |             |   |                              |  
|Revenues                                                  |  | $                            | 929,416     |   |                              | $
|                                                          |  |                              |             |   |                              |  
|Operating expenses                                        |  |                              |             |   |                              |  
|General and administrative                                |  |                              | 762,325     |   |                              |  
|Management fees                                           |  |                              | 289,125     |   |                              |  
|Professional fees                                         |  |                              | 626,548     |   |                              |  
|Salaries and wages                                        |  |                              | 770,076     |   |                              |  
|Depreciation and amortization                             |  |                              | 223,623     |   |                              |  
|Total operating expenses                                  |  |                              | 2,382,573   |   |                              |  
|                                                          |  |                              |             |   |                              |  
|Operating loss                                            |  |                              | (1,453,157  | ) |                              |  
|                                                          |  |                              |             |   |                              |  
|Other Income (expense)                                    |  |                              |             |   |                              |  
|Other income                                              |  |                              | 475,487     |   |                              |  
|Other expense                                             |  |                              | (5,093,954  | ) |                              |  
|Interest income                                           |  |                              | 32,074      |   |                              |  
|Interest expense                                          |  |                              | (367,547    | ) |                              |  
|Debt discount                                             |  |                              | (668,916    | ) |                              |  
|Derivative liability movement                             |  |                              | (1,033,332  | ) |                              |  
|Foreign exchange movements                                |  |                              | (81,031     | ) |                              |  
|Net loss before taxation from continuing operations       |  |                              | (8,190,376  | ) |                              |  
|Taxation                                                  |  |                              | —           |   |                              |  
|Net loss from continuing operations                       |  |                              | (8,190,376  | ) |                              |  
|Gain on disposal of business                              |  |                              | —           |   |                              |  
|Operating income from discontinued operations, net of tax |  |                              | 6,821,889   |   |                              |  
|Net income from discontinued operations, net of tax       |  |                              | 6,821,889   |   |                              |  
|Net loss                                                  |  |                              | (1,368,487  | ) |                              |  
|Accumulated other comprehensive loss                      |  |                              |             |   |                              |  
|Foreign currency translation adjustment                   |  |                              | (11,110     | ) |                              |  
|                                                          |  |                              |             |   |                              |  
|Total comprehensive loss                                  |  | $                            | (1,379,597  | ) |                              | $
|                                                          |  |                              |             |   |                              |  
|Basic loss per common share from continuing operations    |  | $                            | (0.08       | ) |                              | $
|Basic income per share from discontinued operations       |  | $                            | 0.06        |   |                              | $
|Basic loss per common share                               |  | $                            | (0.02       | ) |                              | $
|Diluted loss per common share from continuing operations  |  | $                            | (0.06       | ) |                              | $
|Diluted income per share from discontinued operations     |  | $                            | 0.05        |   |                              | $
|Diluted loss per common share                             |  | $                            | (0.01       | ) |                              | $
|Weighted average common shares outstanding - Basic        |  |                              | 107,352,184 |   |                              |  
|Weighted average common shares outstanding - Diluted      |  |                              | 148,801,780 |   |                              |  







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



F-3









ETHEMA
HEALTH CORPORATION

CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)



|                                     |  | Preferred Series B |   |  | Common |   |   | Additional |  |  |             |  |  |                 |           |  |                      |  
|------------------------------------ |  | ------------------ | - |  | ------ | - | - | ---------- |  |  | ----------- |  |  | --------------- | --------- |  | -------------------- | -
|                                     |  | Shares             |   |  | Amount |   |   | Shares     |  |  | Amount      |  |  | Paid in Capital |           |  | Comprehensive Income |  
|                                     |  |                    |   |  |        |   |   |            |  |  |             |  |  |                 |           |  |                      |  
|Balance at January 1, 2016           |  |                    | — |  |        | $ | — |            |  |  | 47,738,855  |  |  | $               | 477,389   |  |                      | $
|Shares issued for services           |  |                    | — |  |        |   | — |            |  |  | 1,000,000   |  |  |                 | 10,000    |  |                      |  
|Fair value of warrants issued        |  |                    | — |  |        |   | — |            |  |  | —           |  |  |                 | —         |  |                      |  
|Proceeds received on warrants issued |  |                    | — |  |        |   | — |            |  |  | —           |  |  |                 | —         |  |                      |  
|Foreign currency translation         |  |                    | — |  |        |   | — |            |  |  | —           |  |  |                 | —         |  |                      |  
|Net loss                             |  |                    | — |  |        |   | — |            |  |  | —           |  |  |                 | —         |  |                      |  
|Balance as of December 31, 2016      |  |                    | — |  |        | $ | — |            |  |  | 48,738,855  |  |  | $               | 487,389   |  |                      | $
|                                     |  |                    |   |  |        |   |   |            |  |  |             |  |  |                 |           |  |                      |  
|Shares issued to acquire subsidiary  |  |                    | — |  |        |   | — |            |  |  | 60,000,000  |  |  |                 | 600,000   |  |                      |  
|Conversion of debt to equity         |  |                    | — |  |        |   | — |            |  |  | 12,500,375  |  |  |                 | 125,004   |  |                      |  
|Fair value of warrants issued        |  |                    | — |  |        |   | — |            |  |  | —           |  |  |                 | —         |  |                      |  
|Shares issued for services           |  |                    | — |  |        |   | — |            |  |  | 100,000     |  |  |                 | 1,000     |  |                      |  
|Shares issued for commitment fee     |  |                    | — |  |        |   | — |            |  |  | 1,900,000   |  |  |                 | 19,000    |  |                      |  
|Foreign currency translation         |  |                    | — |  |        |   | — |            |  |  | —           |  |  |                 | —         |  |                      |  
|Net loss                             |  |                    | — |  |        |   | — |            |  |  | —           |  |  |                 | —         |  |                      |  
|Balance
as of December 31, 2017      |  |                    | — |  |        | $ | — |            |  |  | 123,239,230 |  |  | $               | 1,232,393 |  |                      | $





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, 2017 |            |   | Year ended December 31, 2016 |  
|---------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---------------------------- | -
|Operating activities                                                                     |  |                              |            |   |                              |  
|Net loss                                                                                 |  | $                            | (1,368,487 | ) |                              | $
|Net income from discontinued operations                                                  |  | $                            | (6,821,889 | ) |                              | $
|Net loss from continuing operations                                                      |  | $                            | (8,190,376 | ) |                              | $
|Adjustment to reconcile net loss to net cash (used in) provided by operating activities: |  |                              |            |   |                              |  
|Depreciation                                                                             |  |                              | 444,959    |   |                              |  
|Non cash compensation expense on acquisition of subsidiary                               |  |                              | 5,074,689  |   |                              |  
|Non cash interest accrual                                                                |  |                              | (32,074    | ) |                              |  
|Non cash compensation for services                                                       |  |                              | 151,000    |   |                              |  
|Loss on sale of mortgage                                                                 |  |                              | 19,853     |   |                              |  
|Other foreign exchange movements                                                         |  |                              | —          |   |                              |  
|Amortization of debt discount                                                            |  |                              | 668,916    |   |                              |  
|Derivative liability movements                                                           |  |                              | 1,033,332  |   |                              |  
|Provision against receivable on sale of subsidiary                                       |  |                              | (472,368   | ) |                              |  
|Amortization of beneficial conversion feature                                            |  |                              | —          |   |                              |  
|Changes in operating assets and liabilities                                              |  |                              |            |   |                              |  
|Accounts receivable                                                                      |  |                              | (218,591   | ) |                              |  
|Prepaid expenses                                                                         |  |                              | (85,176    | ) |                              |  
|Accrued purchase consideration                                                           |  |                              | 236,982    |   |                              |  
|Accounts payable and accrued liabilities                                                 |  |                              | (232,628   | ) |                              |  
|Taxes payable                                                                            |  |                              | (2,158,233 | ) |                              |  
|Net cash used in operating activities - continuing operations                            |  |                              | (3,981,052 | ) |                              |  
|Net cash (used in) provided by operating activities - discontinued operations            |  |                              | (426,398   | ) |                              |  
|                                                                                         |  |                              | (4,407,450 | ) |                              |  
|Investing activities                                                                     |  |                              |            |   |                              |  
|Investments in Seastone                                                                  |  |                              | (2,960,000 | ) |                              |  
|Deposit on property                                                                      |  |                              | (1,748,988 | ) |                              |  
|Purchase of fixed assets                                                                 |  |                              | (241,514   | ) |                              |  
|Net cash used in investing activities - continuing operations                            |  |                              | (4,950,502 | ) |                              |  
|Net cash provided by (used in) investing activities - discontinued operations            |  |                              | 6,497,400  |   |                              |  
|                                                                                         |  |                              | 1,546,898  |   |                              |  
|                                                                                         |  |                              |            |   |                              |  
|Financing activities                                                                     |  |                              |            |   |                              |  
|(Decrease) Increase in bank overdraft                                                    |  |                              | (28,718    | ) |                              |  
|Repayment of loan payable                                                                |  |                              | —          |   |                              |  
|Proceeds from short-term notes                                                           |  |                              | —          |   |                              |  
|Repayment of short-term note                                                             |  |                              | —          |   |                              |  
|Proceeds from mortgage sold                                                              |  |                              | 110,294    |   |                              |  
|Proceeds from mortgage                                                                   |  |                              | 4,391,452  |   |                              |  
|Repayment of mortgage                                                                    |  |                              | (3,408,995 | ) |                              |  
|Proceeds from convertible notes                                                          |  |                              | 1,897,500  |   |                              |  
|Repayment of convertible notes                                                           |  |                              | (388,458   | ) |                              |  
|Proceeds from related party notes                                                        |  |                              | 366,222    |   |                              |  
|Proceeds from warrants issued                                                            |  |                              | —          |   |                              |  
|Net cash provided by financing activities                                                |  |                              | 2,939,297  |   |                              |  
|                                                                                         |  |                              |            |   |                              |  
|Effect of exchange rate on cash                                                          |  |                              | (83,185    | ) |                              |  
|                                                                                         |  |                              |            |   |                              |  
|Net change in cash                                                                       |  |                              | (4,440     | ) |                              |  
|Beginning cash balance                                                                   |  |                              | 4,779      |   |                              |  
|Ending cash balance                                                                      |  | $                            | 339        |   |                              | $
|                                                                                         |  |                              |            |   |                              |  
|Supplemental cash flow information                                                       |  |                              |            |   |                              |  
|Cash paid for interest                                                                   |  | $                            | 253,256    |   |                              | $
|Cash paid for income taxes                                                               |  | $                            | —          |   |                              | $
|                                                                                         |  |                              |            |   |                              |  
|Non cash investing and financing activities                                              |  |                              |            |   |                              |  
|Common shares issued to acquire subsidiary                                               |  | $                            | 2,184,000  |   |                              | $
|Conversion of debt to equity                                                             |  | $                            | 375,011    |   |                              | $
|Fair value of warrants issued                                                            |  | $                            | 71,000     |   |                              | $
|Assumption of mortgage liabilities on acquisition of subsidiary                          |  | $                            | 3,145,549  |   |                              | $
|Debt discount relating to warrants issued with convertible debt                          |  | $                            | —          |   |                              | $







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.
and Seastone Delray Healthcare, LLC, incorporated on May 17, 2016 under the laws of Florida, USA; and Delray Andrews RE, LLC,
incorporated on May 17, 2016 under the laws of Florida, USA.



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



On
February 14, 2017, the Company completed a series of transactions (referred to collectively as the “Restructuring Transactions”),
including a Share Purchase Agreement (the “SPA”) whereby the Company acquired 100% of the stock of 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 performance payment of up to CDN$3,000,000 as a performance payment
to be received in 2019 if certain clinic performance metrics are met. The Purchaser completed the sale with cash proceeds to the
Company of CDN$10,000,000, of which CDN$1,500,000 will remain in escrow for up to two years to cover indemnities given by the
Company. The proceeds of the Muskoka clinic asset sale were used to pay down certain tax debts and operational costs of the Company
and to fund the Florida Purchase, mentioned below.



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



The
Florida Purchase

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



On
November 2, 2017, the Company entered into an Agreement of Purchase and Sale (the “Agreement”) to purchase from AREP
5400 East AvenueLLC, a Delaware limited liability company (“Seller”)
certain buildings in WestPalm Beach, Florida, totaling approximately 80,000 square
feet, on which the present tenant operates a substance abuse treatment center (the “Property”). The purchase price
of the Property is $20,530,000, and the Company is obligated under the Agreement to make a series of nonrefundable down payments
totaling $2,210,000. The closing of the transaction, which is subject to standard due diligence, conditions to closing and deliverables,
is scheduled to occur on May 8, 2018 , or such earlier date as is agreed upon by the parties.



F-6







ETHEMA
HEALTH CORPORATION



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | Summary
                                         of Significant Accounting Policies
|-- | -----------------------------------------------------------------------------------



| | a) | Financial
                                         Reporting
| | -- | ------------------------------------------------------------



The
Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of
America. Revenues and expenses are reported on the accrual basis, which means that income is recognized as it is earned and expenses
are recognized as they are incurred.



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.



| | b) | Use
                                         of Estimates
| | -- | ---------------------------------------------------------



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



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



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



Certain
of the Company’s subsidiary’s 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, 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)



| | d) | Revenue
                                         Recognition
| | -- | ------------------------------------------------------------



The
Company has two operating segments from which it derives revenues, i) rental income from leasing of a rehabilitation facility
to third parties and ii) in-patient revenues for rehabilitation services provided to customers. Revenue is recognized as follows:



| | i. | Rental
                                         Income
| | -- | ------------------------------------------------------

In
terms of the lease agreement, on a monthly basis as long as the facility is utilized by the tenant



| | ii. | In-patient
                                         revenue
| | --- | -----------------------------------------------------------

The
customers have been treated and provided with services by the Company; there is clear evidence that an arrangement exists; the
amount of revenue and related costs can be measured reliably; and it is probable that the economic benefits associated with the
transaction will flow to the Company.



The
Company recognizes revenue from the rendering of services when they are earned; specifically, when all of the following conditions
are met:



| | ● | the
                                         significant risks and rewards of ownership are transferred to customers and the Company
                                         retains neither continuing involvement nor effective control;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | there
                                         is clear evidence that an arrangement exists;
| | - | --------------------------------------------------------------------------------------------

| | ● | the
                                         amount of revenue and related costs can be measured reliably; and
| | - | --------------------------------------------------------------------------------------------------------------

| | ● | it
                                         is probable that the economic benefits associated with the transaction will flow to the
                                         Company.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
particular, the Company recognizes:



| | ● | Fees
                                         for outpatient counselling, coaching, intervention, psychological assessments and other
                                         related services when patients receive the service; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | Fees
                                         for inpatient addiction treatments proportionately over the term of the patient’s
                                         treatment.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e) | Nonmonetary
                                         transactions
| | -- | -----------------------------------------------------------------



The
Company’s policy is to measure an asset exchanged or transferred in a nonmonetary transaction at the more reliable measurement
of the fair value of the asset given up and the fair value of the asset received, unless:



| | ● | The
                                         transaction lacks commercial substance;
| | - | ------------------------------------------------------------------------------------

| | ● | The
                                         transaction is an exchange of a product or property held for sale in the ordinary course
                                         of business for a product or property to be sold in the same line of business to facilitate
                                         sales to customers other than the parties to the exchange;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | Neither
                                         the fair value of the asset received nor the fair value of the asset given up is reliably
                                         measurable; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | The
                                         transaction is a nonmonetary, nonreciprocal transfer to owners that represents a spinoff
                                         or other form of restructuring or liquidation.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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.



F-8







ETHEMA
HEALTH CORPORATION



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



2.    Summary
of Significant Accounting Policies (continued)



| | 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.



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:



|Computer
    Software | 100%
|--------------------- | ----



Leasehold
improvements are depreciated using the straight-line method over the term of the lease. Half rates are used for all fixed assets
in the year of acquisition.

| | k) | Goodwill
| | -- | --------

Goodwill
acquired in business combinations is initially computed as the amount paid by the acquiring company in excess of the fair value
of the net assets acquired. Goodwill is not amortized. It is the Company’s policy to test for impairment no less than annually,
by considering qualitative factors to determine whether it is more likely than not that a that the Company’s goodwill carrying
value is greater than its fair value. Such factors may include the following: a significant decline in expected revenues, significant
decline in the Company’s stock price, a significant downturn in the general economic business conditions, the loss of key personnel
or when conditions occur that may indicate impairment. The Company’s intangible assets, which consist of goodwill of $1,580,000
recorded in connection with the Seastone acquisition, was tested for impairment during the fourth quarter, 2017, and we determined
that no adjustment for impairment was necessary.

| | l) | 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.



F-9







ETHEMA
HEALTH CORPORATION



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



2.    Summary
of Significant Accounting Policies (continued)

| | m) | Income
                                         taxes
| | -- | -----------------------------------------------------



The
Company accounts for income taxes under the provisions of ASC Topic740, “Income
Taxes”.Under ASC Topic740,
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
Topic740 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. Tothe 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.

| | n) | 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).

| | o) | 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, 2017 and 2016 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.

| | p) | 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-10







ETHEMA
HEALTH CORPORATION



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



2.     Summary
of Significant Accounting Policies (continued)

| | q) | Recent
                                         accounting pronouncements
| | -- | -------------------------------------------------------------------------



In
January 2017, the FASBissued Accounting Standards Update No. (“ASU”)
2017-02, an amendment to Topic805, Business Combinations. The amendments in this
Update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this Update affect all reporting
entities that must determine whether they have acquired or sold a business. The amendments in this Update provide a more robust
framework to use in determining when a set of assets and activities is a business. The amendments in this Update apply to annual
periods beginning after December 15, 2017. The amendments in this Update should be applied prospectively on or after the effective
date. No disclosures are required at transition. The Company does not expect this guidance to have a material impact on its financial
statements.



In
January 2017, the FASBissued ASU 2017-04, an amendment to Topic350, Intangibles – Goodwill and Other, an entity no longer will determine goodwill impairment by calculating the
implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that
reporting unit had been acquired in a business combination. Because these amendments eliminate Step 3 2 from the goodwill impairment
test, they should reduce the cost and complexity of evaluating goodwill for impairment. An entity should apply the amendments
in this Update on a prospective basis. The amendments in this Update are effective for Goodwill impairment tests in fiscal years
beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing
dates after January 1, 2017. Weare currently evaluating the effect ASU 2017-04 will
have on our consolidated financial statements.



In
February 2017, the FASBissued ASU 2017-05, an amendment to Subtopic 610-20, Other
Income—Gains and Losses from the Derecognition of Nonfinancial Assets The amendments in this Update are required for public
business entities and other entities that have goodwill reported in their financial statements, under the amendments in this Update,
an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with
its carrying amount. The amendments in this Update modify the concept of impairment from the condition that exists when the carrying
amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds
its fair value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning
the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business
combination. An entity should apply the amendments in this Update on a prospective basis. The amendments in this Update are effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests
performed on testing dates after January 1, 2017. Weare currently evaluating the
effect ASU 2017-05 will have on our consolidated financial statements.



F-11







ETHEMA
HEALTH CORPORATION



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | Summary
                                         of Significant Accounting Policies (continued)
|-- | -----------------------------------------------------------------------------------------------



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



In
July 2017, the FASBissued Accounting Standards Update No. (“ASU’’)
2017-11, Earnings Per Share (Topic260), Distinguishing Liabilities from Equity (Topic480) and Derivatives and Hedging (Topic815). The amendments in this Update
provide guidance about:



| | 1. | Accounting
                                         for certain financial instruments with down round features
| | -- | --------------------------------------------------------------------------------------------------------------



| | 2. | Replacement
                                         of the indefinite deferral for mandatorily redeemable financial instruments of certain
                                         non-public entities and certain non-controlling interests
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded
features) with down round features. When determining whether certain financial instruments should be classified as liabilities
or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is
indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments.
As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for
as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified
financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as
a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options
that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic
470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic260).



The
amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented
as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect.



The
amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts
the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes
that interim period. The amendments in Part 1 of this Update should be applied in either of the following ways: 1. Retrospectively
to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the statement of
financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links
to this paragraph is effective 2. Retrospectively to outstanding financial instruments with a down round feature for each prior
reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10.



The
amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting
effect.

The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.



In
August 2017, the FASBissued ASU 2017-12, Derivatives and Hedging, (Topic815), TargetedImprovements to accounting for Hedging Activities. The amendments
in this update provide guidance about:



The
amendments in this Update better align an entity’s risk management activities and financial reporting for hedging relationships
through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of
hedge results. Tomeet that objective, the amendments expand and refine hedge accounting
for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument
and the hedged item in the financial statements.



For
public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and
interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after
December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted in
any interim period after issuance of the Update. Transition Requirements For cash flow and net investment hedges existing at the
date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness
to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the
beginning of the fiscal year that an entity adopts the amendments in this Update. The amended presentation and disclosure guidance
is required only prospectively.



The
impact this ASU will have on the Company’s consolidated financial statements is expected to be immaterial.



F-12







ETHEMA
HEALTH CORPORATION



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | Summary
of Significant Accounting Policies (continued)
| | -- | ------------------------------------------------------



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



In
September 2017, the FASBissued ASU 2017-13, Revenue Recognition (Topic605), Revenue from Contracts with Customers (Topic606), Leases (Topic840 and Leases (Topic842). The amendments in this update provide guidance
about:



The
transition provisions in ASC Topic606 require that a public business entity and
certain other specified entities adopt ASC Topic606 for annual reporting periods
beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities are required
to adopt ASC Topic606 for annual reporting periods beginning after December 15,
2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.



The
transition provisions in ASC Topic842 require that a public business entity and
certain other specified entities adopt ASC Topic842 for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. FN3 All other entities are required to adopt ASC Topic842 for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December
15, 2020.



The
impact this ASU will have on the Company’s consolidated financial statements is expected to be immaterial.



In
November 2017, the FASBissued ASU 2017-14, Income Statement – Reporting Comprehensive
Income (Topic220), Revenue Recognition (Topic605) and Revenue from Contracts with
Customers (Topic606). The amendments in this update provide guidance about:



Certain
amendments made to SEC materials and staff guidance relating to Operating-Differential subsidiaries, and amendments to the wording
and disclosure requirements of Topic 605, Revenue Recognition.



F-13







ETHEMA
HEALTH CORPORATION



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | Summary
of Significant Accounting Policies (continued)
| | -- | ------------------------------------------------------



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



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 amendments in this update provide
guidance about:



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 Topic944, Financial Services— Insurance, should
apply a prospective transition method 4 Area 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. Public business entities with fiscal years beginning between December 15, 2017, and June
15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018, and public business
entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments
before adopting the amendments in Update 2016-01. For all other entities, the effective date is the same as the effective date
in Update 2016-01. 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 Company’s consolidated financial statements.



In
March 2018, the FASBissued ASU 2018-4 Investments – Debt Securities (Topic320) and Regulated Operations (Topic980), Amendments to SEC Paragraphs pursuant
to SEC Staff Accounting Bulletin no. 117and SEC Release No. 33-9273. The amendments
in this update provide guidance about:



Certain
amendments made to SEC materials and staff guidance relating to Investments – Debt Securities (Topic 320) and Regulated
Operations (Topic 980).



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



In
March 2018, the FASBissued ASU 2018-5, Income Taxes
(Topic740) Amendments to SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 118



These
amendments affect the wording of SEC paragraphs in the accounting standard codification dealing with Income Taxes (Topic 740).



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



Any
new accounting standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption until a
future date are not expected to have a material impact on the financial statements upon adoption.



F-14







ETHEMA
HEALTH CORPORATION



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS



|2. | Summary
                                         of Significant Accounting Policies (continued)
|-- | -----------------------------------------------------------------------------------------------



| | 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.



| | q) | 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, 2017 and 2016.



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



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



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



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



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



Liquidity
risk is the risk the Company will not be able to meet its financial obligations as they fall due. The Company is exposed to liquidity
risk through its working capital deficiency of $5,710,511 accumulated deficit $(16,967,612). 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 on its bank indebtedness as there is a balance owing
of $28,927 as of December 31, 2017. This liability is based on floating rates of interest that have been stable during the current
reporting period. In the opinion of management, interest rate risk is assessed as low,not
material and remains unchanged from the prior year.



| | 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, 2017, a 5% depreciation or appreciation of the Canadian dollar against the
U.S. dollar would result in an approximate $29,500 increase or decrease in the Company’s after tax net income from operations.
The Company has not entered into any hedging agreements to mediate this risk. In the opinion of management, currency risk is assessed
as low,material and remains unchanged from the prior year.



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



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



F-15







ETHEMA
HEALTH CORPORATION



NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

|3. | Disposal
                                         of Business
|-- | -------------------------------------------------------------



On
February 14, 2017, in terms of the details outlined in note 1 above, the Company disposed of the business and certain assets of
its Canadian Rehab Clinic for gross proceeds of CDN$10,000,000, a total of CDN$1,500,000 of the gross proceeds is being held in
escrow for up to two years, in addition there is an earnout payment of up to CDN$3,000,000 to be received in 2019, if certain
clinic performance metrics are met, see note 9 below.



The
proceeds realized from the sale of the Canadian Rehab Clinic were used to settle outstanding tax liabilities, refer note 12 below,
and to acquire the business of Seastone of Delray, refer note 5 below.



The
proceeds realized on disposal have been allocated as follows:



|                                     |  |   | Amount    |  
|------------------------------------ |  | - | --------- | -
|                                     |  |   |           |  
|Proceeds
    on disposal             |  | $ | 7,644,000 |  
|                                     |  |   |           |  
|Assets
    sold:                     |  |   |           |  
|Accounts receivable                  |  |   | 113,896   |  
|Plant
    and equipment              |  |   | 109,075   |  
|                                     |  |   | 222,971   |  
|Liabilities
    assumed by purchaser |  |   |           |  
|Deferred revenue                     |  |   | (73,799   | )
|                                     |  |   |           |  
|Net
    assets and liabilities sold  |  |   | 149,172   |  
|                                     |  |   |           |  
|Net
    profit realized on disposal  |  | $ | 7,494,828 |  





|4. | Acquisition
                                         of Subsidiary
|-- | ------------------------------------------------------------------



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



On
June 1, 2017, the Company had the property owned by CCH appraised by an independent valuer, the appraisal obtained was for CDN$10,000,000,
which resulted an increase in the value of the assets acquired by $1,146,000 and a corresponding reduction in the excess purchased
consideration allocated to the shareholder.



F-16







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





The
allocation of the purchase price is as follows:



|                                                                     |  | Amount |           
|-------------------------------------------------------------------- |  | ------ | ----------
|Purchase price paid:                                                 |  |        |           
|Common shares issued to Seller                                       |  | $      | 2,184,000 
|Receivable assumed by the Seller                                     |  |        | 504,442   
|                                                                     |  |        | 2,688,442 
|Allocated as follows:                                                |  |        |           
|                                                                     |  |        |           
|Assets acquired:                                                    
|Property                                                             |  |        | 2,942,585 
|Receivable from Ethema Health Corporation                            |  |        | 299,743   
|                                                                     |  |        | 3,242,328 
|Liabilities assumed:                                                 |  |        |           
|Accounts payable and other accruals                                  |  |        | 158,093   
|Related party payable to Leon Developments                           |  |        | 2,057,392 
|Mortgage liability owing to Ethema Health Corporation                |  |        | 267,540   
|Mortgage liability                                                   |  |        | 3,145,550 
|                                                                     |  |        | 5,628,575 
|                                                                     |  |        |           
|Net liabilities acquired                                             |  |        | (2,386,247
|                                                                     |  |        |           
|Excess purchase consideration allocated to shareholders compensation |  | $      | 5,074,689 



|5. | Acquisition
                                         of the business of Seastone Delray
|-- | ---------------------------------------------------------------------------------------



The
Company, utilized a portion of the proceeds realized on the sale of the Canadian Rehab Clinic to acquire certain assets of Seastone
of Delray.



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



The
assets acquired were as follows:



|                                   |  | Amount |          
|---------------------------------- |  | ------ | ---------
|                                   |  |        |          
|Purchase price paid:               |  |        |          
|Cash paid to seller                |  | $      | 2,960,000
|Deposits previously paid to seller |  |        | 110,000  
|Mortgage liability funds           |  |        | 3,000,000
|                                   |  |        | 6,070,000
|Assets acquired:                   |  |        |          
|Property                           |  |        | 4,410,000
|Furniture and fixtures             |  |        | 80,000   
|Goodwill                           |  |        | 1,580,000
|                                   |  |        |          
|                                   |  | $      | 6,070,000





F-17







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, 2017 the Company has a working capital deficiency of $(6,525,559) and accumulated deficit of $(22,350,401).
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 assets and liabilities of discontinued operations as of December 31, 2016 is as follows:



|                                          |  | December 31, 2016 |        
|----------------------------------------- |  | ----------------- | -------
|Current assets                            |  |                   |        
|Accounts receivable, net                  |  | $                 | 123,358
|Prepaid expenses and other current assets |  |                   | 11,253 
|Total current assets                      |  |                   | 134,611
|Non-current assets                        |  |                   |        
|Plant and equipment, net                  |  |                   | 129,127
|Deposits                                  |  |                   | —      
|Total assets                              |  |                   | 263,738
|                                          |  |                   |        
|Current liabilities                       |  |                   |        
|Deferred revenues                         |  |                   | 80,519 
|                                          |  |                   |        
|Discontinued operation                    |  |                   | 183,219





F-18









7.            Discontinued
Operations (continued)



The Statement of operations for discontinued operations is as follows:



|                                               |  | Year ended December |           |   | Year ended December |  
|---------------------------------------------- |  | ------------------- | --------- | - | ------------------- | -
|                                               |  | 31, 2017            |           |   | 31, 2016            |  
|                                               |  |                     |           |   |                     |  
|Revenues                                       |  | $                   | 196,866   |   |                     | $
|                                               |  |                     |           |   |                     |  
|Operating expenses                             |  |                     |           |   |                     |  
|Depreciation and amortization                  |  |                     | 4,196     |   |                     |  
|General and administrative                     |  |                     | 116,671   |   |                     |  
|Professional fees                              |  |                     | 32,818    |   |                     |  
|Rent                                           |  |                     | 106,495   |   |                     |  
|Salaries and wages                             |  |                     | 201,723   |   |                     |  
|Total operating expenses                       |  |                     | 461,903   |   |                     |  
|                                               |  |                     |           |   |                     |  
|Operating (loss) income                        |  |                     | (265,037  | ) |                     |  
|                                               |  |                     |           |   |                     |  
|Other Income (expense)                         |  |                     |           |   |                     |  
|Other income                                   |  |                     | 7,494,828 |   |                     |  
|Other expense                                  |  |                     | —         |   |                     |  
|Interest expense                               |  |                     | (1,021    | ) |                     |  
|Foreign exchange movements                     |  |                     | (135,190  | ) |                     |  
|Net income (loss) before taxation              |  |                     | 7,093,580 |   |                     |  
|Taxation                                       |  |                     | (271,691  | ) |                     |  
|Net income (loss) from discontinued operations |  | $                   | 6,821,889 |   |                     | $



| | 8. | Deposit
                                         on Real Estate
| | -- | ---------------------------------------------------------------



On
November 2, 2017, the Company entered into an Agreement to purchase from AREP 5400 East AvenueLLC certain buildings in WestPalm Beach, Florida, totaling approximately 80,000
square feet, on which the present tenant operates a substance abuse treatment center. The purchase price of the Property is $20,530,000,
and the Company is obligated under the Agreement to make a series of nonrefundable down payments totaling $2,210,000. To date
the Company has made deposits amounting to $1,825,000, primarily through borrowed funds, refer note 13 and 16 below.



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



A
net amount of CDN$617,960 was due to the Company on the sale of the Endoscopy Clinic as of December 31, 2016. This amount was
past due and had fully provided for as of December 31, 2016.



On
February 14, 2017, the Company acquired CCH from Leon Developments and settled a portion of the purchase consideration by assigning
the proceeds due to the Company on the sale of the Endoscopy Clinic to Leon Developments. The note together with accrued interest
thereon of CDN$41,959 amounted to CDN$659,919 (US$504,442). The provision raised against the note was reversed and the unrecorded
interest thereon was recognized during the current period.



On
February 14, 2017, the Company sold its Canadian Rehab Clinic for gross proceeds of CDN$10,000,000, of which CDN$1,500,000 (US$1,155,900)
has been retained in an escrow account for a period of up to two years in order to guarantee the warranties provided by the Company
in terms of the APA.In addition, the Company may earn up to an additional CDN$3,000,000
as a performance payment based on the attainment of certain clinic performance metrics.



F-19







10.          Property,
plant and equipment



Property, plant and equipment consists of the following:



|                       |  | December 31, 2017 |           |  | December 31, 2016           |  
|---------------------- |  | ----------------- | --------- |  | --------------------------- | -
|                       |  | Cost              |           |  | Amortization and Impairment |  
|                       |  |                   |           |  |                             |  
|Land                   |  |                   | 1,470,000 |  |                             |  
|Property               |  | $                 | 6,228,340 |  |                             | $
|Furniture and fixtures |  |                   | 105,000   |  |                             |  
|                       |  |                   |           |  |                             |  
|                       |  | $                 | 7,803,340 |  |                             | $



Depreciation
expense for the year ended December 31, 2017 and 2016 was $223,423 and $0, respectively.



| | 11. | Goodwill
| | --- | --------



In
terms of the acquisition of Seastone of Delray, the Company acquired the business as a going concern and certain real property.
The property was valued using an independent valuer. The excess of the purchase price paid over the fair market value of the assets
(note 1 above), has been assigned to goodwill.



| | 12. | TaxesPayable
| | --- | ------------



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



The
remaining taxes payable consist of:



| | ● | A
                                         payroll tax liability of $155,894 (CDN$195,569) in Greenestone Muskoka which has not
                                         been settled as yet.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



|                   |  | December 31, 2017 |         |  | December 31, 2016 |  
|------------------ |  | ----------------- | ------- |  | ----------------- | -
|                   |  |                   |         |  |                   |  
|Payroll taxes      |  | $                 | 155,894 |  |                   | $
|US penalties due   |  |                   | 250,000 |  |                   |  
|Income tax payable |  |                   | 283,346 |  |                   |  
|                   |  |                   |         |  |                   |  
|                   |  | $                 | 689,240 |  |                   | $



F-20











| | 13. | Short-term
                                         Convertible Notes
| | --- | ---------------------------------------------------------------------



The
short-term convertible notes consist of the following:



|                           |  | Interest rate |      |   | Maturity date |                  | Principal |   |           | Interest |  |   | Debt Discount |  |  | December 31, 2017 |            |   | December 31, 2016 |  
|-------------------------- |  | ------------- | ---- | - | ------------- | ---------------- | --------- | - | --------- | -------- |  | - | ------------- |  |  | ----------------- | ---------- | - | ----------------- | -
|                           |  |               |      |   |               |                  |           |   |           |          |  |   |               |  |  |                   |           
|Leonite Investments LLC    |  |               | 8.5  | % |               | December 1, 2018 |           | $ | 1,650,000 |          |  | $ | 2,885         |  |  | $                 | (1,514,384 | ) |                   | $
|                           |  |               |      |   |               |                  |           |   |           |          |  |   |               |  |  |                   |            |   |                   |  
|Power Up Lending Group Ltd |  |               | 12.0 | % |               | August 15, 2018  |           |   | 103,000   |          |  |   | 1,862         |  |  |                   | (82,911    | ) |                   | $
|                           |  |               |      |   |               |                  |           |   |           |          |  |   |               |  |  |                   |            |   |                   |  
|Series L Convertible notes |  |               | 0.0  | % |               | June 30, 2017    |           |   |           |          |  |   |               |  |  |                   |            |   |                   |  
|                           |  |               |      |   |               |                  |           |   |           |          |  |   |               |  |  |                   |            |   |                   |  
|                           |  |               |      |   |               |                  |           |   |           |          |  |   |               |  |  |                   |            |   |                   |  



Leonite
Capital, LLC



On
December 1, 2017, the Company closed on a private offering to raise US $1,500,000 in capital. The Company issued one senior secured
convertible promissory note with a principal amount of US $1,650,000 to Leonite Capital, LLC. The Note bears interest at the rate
of 6.5% per annum. The initial draw under the Note was $300,000 with a $150,000 original issue discount for a total of $450,000.
The Company issued 1,650,000 shares of the Company’s common stock as a commitment fee and paid $20,000 towards the lenders
legal fees. The Note’s initial maturity date is June 1, 2018. During the term of the Note the Company and the Subsidiaries
will be obligated to make monthly payment of accrued and unpaid interest. The Note contains Company and Subsidiary representations
and warranties, covenants, events of default, and registration rights.



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.



Amounts
under the Note are convertible, at the Investors request, into shares of the Company’s common stock at an initial price
of $0.06 per share, subject to adjustment.



F-21









| | 13. | 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., 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 Lending Group Ltd., pursuant to which
the Company issued to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $103,000. The Note has
a maturity date of August 15, 2018 and bears interest at the at the rate of twelve percent per annum from the date on which the
Note is issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise.
The Company shall have the right to prepay the Note in terms of agreement. 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 price of the Company’s common stock for the ten trading days prior to conversion.



Labrys
Fund, LP

On
February 2, 2017, the Company entered into a Securities Purchase Agreement with LABRYS FUND LP,in terms of the agreement the Company borrowed $110,000 in terms of an unsecured convertible promissory note with a maturity
date of August 2, 2017. The note bears interest at a rate of 8% per annum. The note is only convertible upon a repayment default,
at the lower of 60% of the lowest traded price over the preceding 30 day trading period prior to the issuance of this note or
60% of the lowest traded price 30 days prior to the conversion date. The Company issued 1,200,000 common shares to the note holder
as a commitment fee which returnable shares will be returned to the company if fully repaid prior to August 2, 2017.



On
May 26, 2017, the Company repaid the note for gross proceeds of $112,744, including interest thereon of $2,744. The 1,200,000
commitment fee shares were returned to the Company.



Series
L convertible notes

The
Company entered into Series L Convertible Securities Purchase Agreements with 8 individuals on December 30, 2016. In terms of
these agreements, the Company borrowed an aggregate principal amount of $468,969 in terms of a senior ranking convertible promissory
note with a maturity date six months from the issue date and bearing interest at 0% per annum. The notes are convertible at the
option of the holder into shares of common stock of the Company at a conversion price of $0.03 per share, subject to certain recapitalization
adjustments. On December 30, 2016, it was determined that the beneficial conversion feature related to the discounted note and
warrant issuances amounting to $218,711 would be amortized over the life of the loans.



During
January 2017, the Company borrowed a further aggregate principal amount of $71,000 in terms of three senior ranking convertible
promissory notes with a maturity date six months from the issue date and bearing interest at 0% per annum. The notes are convertible
at the option of the holder into shares of common stock of the Company at a conversion price of $0.03 per share, subject to certain
recapitalization adjustments. In January 2017, it was determined that the beneficial conversion feature related to the discounted
note and warrant issuances amounting to $104,793 would be amortized over the life of the loans.



On
May 4, 2017, the Company repaid $20,000 of the principal outstanding to one investor. During July and August 2017, the Company
repaid a further $144,958 of the principal outstanding to five investors.



During
July 2017, five investors converted an aggregate principal amount of $375,011 of convertible notes into shares of common stock
at a conversion price of $0.03 per share.



In
terms of the Series L Convertible notes issued above, during January 2017, the Company granted three-year warrants to the Series
L Convertible noteholders, exercisable for 2,366,667 shares of common stock at an exercise price of $0.03, subject to certain
recapitalization adjustments, per share, expiring between January 16 and January 17, 2020. (Refer note 17 (c) below).



F-22









| | 14. | Loans
                                         Payable
| | --- | ------------------------------------------------------



On
February 14, 2017, the Company acquired 100% of the equity of CCH, from Leon Developments. The subsidiary has certain mortgage
indebtedness amounting to CDN$4,115,057 (US$3,145,549) at the date of acquisition, which was assumed by the Company.



On
February 14, 2017, the Company acquired certain assets of Seastone of Delray, including fixed property. A portion of the purchase
consideration was funded by a purchase money mortgage secured over the properties acquired, amounting to $3,000,000.



Loans
payable is as follows:





|                        |  | Interest  rate |      |   | Maturity date |                   | Principal  Outstanding |   |           | Accrued  interest |  |   | December 31, 2017 |  |  | December 31, 2016 |          
|----------------------- |  | -------------- | ---- | - | ------------- | ----------------- | ---------------------- | - | --------- | ----------------- |  | - | ----------------- |  |  | ----------------- | ---------
|                        |  |                |      |   |               |                   |                        |   |           |                   |  |   |                   |  |  |                   |          
|Cranberry Cove Holdings |  |                |      |   |               |                   |                        |   |           |                   |  |   |                   |  |  |                   |          
|First Mortgage          |  |                | 8.0  | % |               | August 14, 2017   |                        | $ | —         |                   |  | $ | —                 |  |  | $                 | —        
|Second Mortgage         |  |                | 12.0 | % |               | November 4, 2018  |                        |   | —         |                   |  |   | —                 |  |  |                   | —        
|Pace Mortgage           |  |                | 4.2  | % |               | July 19,2022      |                        |   | 4,343,376 |                   |  |   | 5,998             |  |  |                   | 4,349,374
|Seastone of Delray      |  |                |      |   |               |                   |                        |   |           |                   |  |   |                   |  |  |                   |          
|Mortgage                |  |                | 5.0  | % |               | February 13, 2020 |                        |   | 2,974,526 |                   |  | $ | 12,394            |  |  |                   | 2,986,920
|                        |  |                |      |   |               |                   |                        | $ | 7,317,902 |                   |  | $ | 18,392            |  |  | $                 | 7,336,294
|Disclosed as follows:   |  |                |      |   |               |                   |                        |   |           |                   |  |   |                   |  |  |                   |          
|Short-term portion      |  |                |      |   |               |                   |                        |   |           |                   |  |   |                   |  |  | $                 | 152,402  
|Long-term portion       |  |                |      |   |               |                   |                        |   |           |                   |  |   |                   |  |  |                   | 7,183,892
|                        |  |                |      |   |               |                   |                        |   |           |                   |  |   |                   |  |  | $                 | 7,336,294



The
aggregate amount outstanding is payable as follows:



|      |  | Amount |          
|----- |  | ------ | ---------
|2018  |  |        | 134,010  
|2019  |  |        | 3,048,904
|2020  |  |        | 110,444  
|2021  |  |        | 115,662  
|2022  |  |        | 3,908,884
|Total |  | $      | 7,317,902



Cranberry
Cove Holdings



First Mortgage

The
first mortgage with an aggregate principal amount outstanding of CDN$3,500,000, including late charges, interest and penalties
of CDN$165,057 for a gross aggregate amount outstanding of CDN$3,663,380, over the CCH properties is secured by the property located
at 3571 Muskoka Road, #169, Bala, described as PT LT15 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 LT15 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.



F-23







| | 14. | Loans
payable (continued)
| | --- | -------------------------



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.



Seastone
of Delray

The
Company entered into a Mortgage and Security Agreement with Seastone Delray Healthcare, LLC on February 13, 2017 for the aggregate
principal sum of $3,000,000, bearing interest at the rate of 5% per annum, maturing on February 13, 2020, with monthly repayments
of interest and principal of $15,000. The proceeds of the mortgage of $3,000,000 was used to fund the acquisition of the Seastone
Delray properties, described as follows:



The
Company had an automobile loan payable during the prior year, bearing interest at 4.49% with blended monthly payments of $835
that matures in March 2018. This loan was settled during the current financial year. The loan was secured by the vehicle with
a net book value as at December 31, 2015 of $14,960.



| | 15. | Derivative
                                         liability
| | --- | -------------------------------------------------------------



The
short-term convertible notes issued to Leonite Capital LLC, Labrys Fund LP and Power Up Lending Group, LTD, disclosed in note
13 above, have variable priced conversion rights with no fixed floor price and will reprice dependent on the share price performance
over varying periods of time. This gives rise to a derivative financial liability, which was initially valued at inception of
the convertible notes at $1,976,500, the maximum amount permissible, using a Black-Scholes valuation model.

In
addition, warrants exercisable over 27,500,000 shares of common stock were issued to Leonite Investments, in terms of the Securities
Purchase Agreement and the Warrant Agreement entered into. Refer note 13 above.



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



|                                        |  | Year ended December 31, 2017 |                 
|--------------------------------------- |  | ---------------------------- | ----------------
|                                        |  |                              |                 
|Calculated stock price                  |  |                              | $0.03 to $0.08  
|Risk free interest rate                 |  |                              | 0.64% to 2.13%  
|Expected life of convertible notes      |  |                              | 3 to 12 months  
|expected volatility of underlying stock |  |                              | 134.9% to 534.8%
|Expected dividend rate                  |  |                              | 0               



The
        movement in derivative liability is as follows:



|                                                        |  | Year
                                         ended December 31, 2017 |          
|------------------------------------------------------- |  | --------------------------------------------------------------------- | ---------
|                                                        |  |                                                                       |          
|Opening
    balance                                     |  | $                                                                     | —        
|Derivative
    liability arising from convertible notes |  | $                                                                     | 1,826,500
|Fair
    value adjustment to derivative liability       |  |                                                                       | 1,033,332
|                                                        |  | $                                                                     | 2,859,832



F-24







| | 16. | Related
Party Transactions
| | --- | --------------------------



Greenstone
Clinic Inc.



As
of December 31, 2017 and 2016, the Company had a payable of $0 and $79,592, respectively. Greenstone Clinic Inc., is controlled
by one of the Company’s directors. The balance payable is non-interest bearing, not secured and has no specific repayment
terms.



1816191
Ontario



As
of December 31, 2017 and 2016, the Company had a payable of $15,921 and $70,763, respectively, to 1816191 Ontario, the Endoscopy
Clinic, which was sold at the end of the prior year. The payable is non-interest bearing, and has no specific repayment terms.



Shawn
E. Leon

As
of December 31, 2017 and 2016 the Company had a receivable of $16,080 and a payable of $8,492, respectively to Shawn E. Leon,
a director and CEO of the Company. The balances receivable and payable are non-interest bearing and have no fixed repayment terms.



Mr.
Leon was paid management fees of $289,125and $257,283 during the year ended December 31, 2017 and 2016. In addition to this the
Company recorded compensation expense in other expenses, 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 1 and
4 above.



Leon
Developments, Ltd.

The
Company acquired CCH from Leon Developments, Ltd., on February 14, 2017, refer note 1 and 4 above. CCH owns the facility utilized
by the Canadian Rehab Clinic which was sold to a third party on February 14, 2017. CCH owed CDN $2,692,512 to Leon Developments.
The amount owing to Leon Developments Ltd., as of December 31, 2017 was CDN$2,692,512 or $1,703,976.



Cranberry
Cove Holdings Ltd.

The
Company acquired CCH on February 14, 2017. CCH owns the real estate previously utilized by the Canadian Rehab Clinic and now utilized
by the purchaser of the business. As of December 31, 2016, the Company had a receivable of $84,867 from CCH.



Prior
to the acquisition of CCH, the Company paid rental expense to CCH of $47,493 for the period ended December 31 ,2017 and $385,401
for the year ended December 31, 2016.



Eileen
Greene

Eileen
Greene is the spouse of our CEO, Shawn Leon. During October and November 2017, we borrowed CDN$1,122,000 from Eileen Greene, principally
to fund the deposit on the real estate transaction, disclosed in note 8 above. The funds advanced is non-interest bearing and
has no fixed repayment terms. As of December 31, 2017, the amount owing to Eileen Greene amounted to $877,182.



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 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 $40,000 in the form of a promissory note, bearing interest
at 0$ per annum and convertible into shares of common stock at a conversion price of $0.03 per share. In connection with the issue
pf promissory notes, Ms. Greene was also awarded warrants exercisable over 6,767,042 shares of common stock at an exercise price
of $0.03 per share.



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



F-25







| | 17. | Stockholders’
                                         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 123,239,230
and 48,738,755 on December 31, 2017 and 2016, 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.



| | 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.



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



In
terms of the short-term Series L Convertible notes entered into with 3 parties, as disclosed in note 13 above, the Company awarded
three year warrants exercisable over 2,366,666 shares of common stock, at an exercise price of $0.03 per share.



In
terms of the agreements entered into with Leonite Capital, LLC, the Company agreed to issue warrants exercisable over 27,500,000
shares of common stock at an exercise price of $0.10 per share.



The
fair value of Warrants awarded and revalued during the year ended December 31, 2017 were valued at $1,826,500 using the Black
Scholes pricing model utilizing the following weighted average assumptions:





|                                        |  | Year ended December 31, 2017 |               
|--------------------------------------- |  | ---------------------------- | --------------
|                                        |  |                              |               
|Calculated stock price                  |  |                              | $0.02 to $0.08
|Risk free interest rate                 |  |                              | 1.48% to 2.13%
|Expected life of warrants (years)       |  |                              | 3 to 5 years  
|expected volatility of underlying stock |  |                              | 398% to 535%  
|Expected dividend rate                  |  |                              | 0             



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, 2017, the Company
does not anticipate any awards will be forfeited in the valuation of the warrants.



F-26







17.       Stockholders’
deficit (continued)



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



A
summary of all of the Company’s warrant activity during the period January 1, 2016 to December 31, 2017 is as follows:





|                              |  |  | No. of shares |            |   | Exercise price per  share |  |                  | Weighted average exercise price | 
|----------------------------- |  |  | ------------- | ---------- | - | ------------------------- |  | ---------------- | ------------------------------- | 
|                              |  |  |               |            |   |                           |  |                  |                                 | 
|Outstanding January 1, 2016   |  |  |               | 6,300,000  |   |                           |  | 0.0033 to $.0.03 |                                 | 
|Granted                       |  |  |               | 19,337,409 |   |                           |  | 0.03             |                                 | 
|Forfeited/cancelled           |  |  |               | (6,000,000 | ) |                           |  | 0.15             |                                 | 
|Exercised                     |  |  |               | —          |   |                           |  | —                |                                 | 
|Outstanding December 31, 2016 |  |  |               | 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 |   |                           |  | $0.033 to $0.10  |                                 | 



The
following table summarizes information about warrants outstanding at December 31, 2017:





|               |  |  | Warrants outstanding |            |  | Warrants vexercisable            | 
|-------------- |  |  | -------------------- | ---------- |  | -------------------------------- | 
|Exercise price |  |  | No. of shares        |            |  | Weighted average remaining years | 
|               |  |  |                      |            |  |                                  | 
|$0.0033        |  |  |                      | 300,000    |  |                                  | 
|$0.03          |  |  |                      | 21,704,075 |  |                                  | 
|$0.10          |  |  |                      | 27,500,000 |  |                                  | 
|               |  |  |                      |            |  |                                  | 
|               |  |  |                      | 49,504,075 |  |                                  | 



| | * | In
                                         terms of an agreement entered into with an investor relations company, 300,000 warrants
                                         were to be issued as part of the Investor Relations Agreement. These warrants have not
                                         been issued as yet, therefore the warrant terms are uncertain.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



All
of the warrants outstanding as of December 31, 2017 are vested. The warrants outstanding as of December 31, 2017 have an intrinsic
value of

$668,123.



| | 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, 2017
under the Plan.



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



F-27







| | 17. | Stockholders’
                                         deficit (continued)
| | --- | --------------------------------------------------------------------------



d)     Stock
options (continued



A
summary of all the Company’s option activity during the period January 1, 2016 to December 31, 2017 is as follows:



|                              |  | No. of shares |         |  | Exercise price per  share |   |      | Weighted average  exercise price | 
|----------------------------- |  | ------------- | ------- |  | ------------------------- | - | ---- | -------------------------------- | 
|                              |  |               |         |  |                           |   |      |                                  | 
|Outstanding January 1, 2016   |  |               | 480,000 |  |                           | $ | 0.12 |                                  | 
|Granted                       |  |               | —       |  |                           |   | —    |                                  | 
|Forfeited/cancelled           |  |               | —       |  |                           |   | —    |                                  | 
|Exercised                     |  |               | —       |  |                           |   | —    |                                  | 
|Outstanding December 31, 2016 |  |               | 480,000 |  |                           | $ | 0.12 |                                  | 
|Granted - non plan options    |  |               | —       |  |                           |   | —    |                                  | 
|Forfeited/cancelled           |  |               | —       |  |                           |   | —    |                                  | 
|Exercised                     |  |               | —       |  |                           |   | —    |                                  | 
|Outstanding December 31, 2017 |  |               | 480,000 |  |                           | $ | 0.12 |                                  | 



The following table summarizes information about options outstanding as of December 31, 2017:





|               |  |  | 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, 2017 there was no unrecognized compensation costs related to these options and the intrinsic value of the options
as of December 31, 2017 is $0.

| | 18. | Segmental
                                         Information
| | --- | --------------------------------------------------------------



Due
to the recent acquisition of the CCH subsidiary on February 14, 2017, 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, during the nine months ended September 30, 2017, these
                                         services were provided to customers at our Seastone of Delray business acquired on February
                                         14, 2017. The Rehabilitation services provided by our Canadian Rehab Center for the years
                                         ended December 31, 2017 and 2016 are reported under discontinued operations and have
                                         not been reported as part of the Segment Information.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-28







|18. | Segmental
                                         Information (continued)
|--- | --------------------------------------------------------------------------



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



|                                                         |  | Rental
                                         Operations |          |   | Year
                                         ended December 31, 2017 In-Patient
                                         services |   |             | Total | 
|-------------------------------------------------------- |  | ---------------------------------------------------------- | -------- | - | ---------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | ----- | 
|                                                         |  |                                                            |          |   |                                                                                                                                    |  
|Revenue                                                  |  | $                                                          | 291,583  |   |                                                                                                                                    | $ | 637,833     |       | 
|Operating expenditure                                    |  |                                                            | 195,529  |   |                                                                                                                                    |   | 2,187,044   |       | 
|                                                         |  |                                                            |          |   |                                                                                                                                    |   |             |       | 
|Operating
    (loss) income                              |  |                                                            | 96,054   |   |                                                                                                                                    |   | (1,549,211  | )     | 
|                                                         |  |                                                            |          |   |                                                                                                                                    |   |             |       | 
|Other
    (expense) income                               |  |                                                            |          |   |                                                                                                                                    |   |             |       | 
|Other
    income                                         |  |                                                            | —        |   |                                                                                                                                    |   | 475,487     |       | 
|Other
    expense                                        |  |                                                            | —        |   |                                                                                                                                    |   | (5,093,9541 | )     | 
|Interest
    income                                      |  |                                                            | —        |   |                                                                                                                                    |   | 32,074      |       | 
|Interest
    expense                                     |  |                                                            | (179,037 | ) |                                                                                                                                    |   | (188,510    | )     | 
|Amortization
    of debt discount                        |  |                                                            | —        |   |                                                                                                                                    |   | (668,916    | )     | 
|Loss
    on change in fair value of derivative liability |  |                                                            | —        |   |                                                                                                                                    |   | (1,033,332  | )     | 
|Foreign
    exchange movements                           |  |                                                            | (12,003  | ) |                                                                                                                                    |   | (69,028     | )     | 
|Net
    loss before taxation from continuing operations  |  |                                                            | (94,986  | ) |                                                                                                                                    |   | (8,095,390  | )     | 
|Taxation                                                 |  |                                                            | —        |   |                                                                                                                                    |   | —           |       | 
|Net
    loss from continuing operations                  |  | $                                                          | (94,986  | ) |                                                                                                                                    | $ | (8,095,390  | )     | 





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



|                                   |  | Rental
    Operations |            |   | In-Patient
    services |  |            | Total | 
|---------------------------------- |  | --------------------- | ---------- | - | ----------------------- |  | ---------- | ----- | 
|                                   |  |                       |            |   |                         |  |            |       | 
|Purchase
    of fixed assets       |  |                       | 219,751    |   |                         |  | 21,763     |       | 
|Assets                             |  |                       |            |   |                         |  |            |       | 
|Current assets                     |  |                       | 201        |   |                         |  | 334,418    |       | 
|Non-current assets                 |  |                       | 3,182,638  |   |                         |  | 8,751,171  |       | 
|Liabilities                        |  |                       |            |   |                         |  |            |       | 
|Current liabilities                |  |                       | (2,209,462 | ) |                         |  | (4,650,716 | )     | 
|Non-current liabilities            |  |                       | (4,349,208 | ) |                         |  | (2,834,684 | )     | 
|Intercompany
    balances          |  |                       | (791,263   | ) |                         |  | 791,263    |       | 
|Net
    (liability) asset position |  |                       | (4,167,095 | ) |                         |  | 2,391,453  |       | 





F-29







|19. | Net
                                         income (loss) per common share
|--- | ---------------------------------------------------------------------------



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 earnings per
    share                          |  |        |            |   |                      |  |             |                      | 
|Net loss
    per share from continuing operations     |  | $      | (8,190,376 | ) |                      |  | 107,352,184 |                      | 
|Net income per share
    from discontinued operations |  |        | 6,821,889  |   |                      |  | 107,352,184 |                      | 
|                                                      |  |        |            |   |                      |  |             |                      | 
|Basic income per share                                |  |        | (1,368,487 | ) |                      |  | 107,352,184 |                      | 
|                                                      |  |        |            |   |                      |  |             |                      | 
|Effect
    of dilutive securities                     |  |        |            |   |                      |  |             |                      | 
|                                                      |  |        |            |   |                      |  |             |                      | 
|Warrants                                              |  |        | —          |   |                      |  | 11,135,388  |                      | 
|Convertible debt                                      |  |        | —          |   |                      |  | 30,314,208  |                      | 
|                                                      |  |        |            |   |                      |  |             |                      | 
|Diluted earnings per
    share                        |  |        |            |   |                      |  |             |                      | 
|Net loss per share
    from continuing operations     |  |        | (8,190,376 | ) |                      |  | 148,801,780 |                      | 
|Net income per share
    from discontinued operations |  |        | 6,821,889  |   |                      |  | 148,801,780 |                      | 
|                                                      |  |        |            |   |                      |  |             |                      | 
|                                                      |  | $      | (1,368,487 | ) |                      |  | 148,801,780 |                      | 





For
the year ended December 31, 2016, 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, 2016 |           
|----------------------------------------------- |  | -------------------------------- | ----------
|                                                |  |                                  |           
|Stock options                                   |  | $                                | 480,000   
|Warrants
    to purchase shares of common stock |  |                                  | 19,637,409
|                                                |  | $                                | 20,117,409



| | 20. | 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 assumed operating leases for certain vehicles and office equipment. The future commitment of these operating leases
are as follows:





|      |  |  | Amount |      
|----- |  |  | ------ | -----
|      |  |  |        |      
|2018  |  |  | $      | 8,014
|2019  |  |  |        | 270  
|Total |  |  | $      | 8,284
|      |  |  |        |      







F-30









|20. | Commitments
                                         and contingencies (continued)
|--- | ----------------------------------------------------------------------------------



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



The
company has two mortgage loans as disclosed in note 14 above. The future commitments under these loans are as follows:





|      |  |  | Amount |          
|----- |  |  | ------ | ---------
|      |  |  |        |          
|2018  |  |  | $      | 134,010  
|2019  |  |  |        | 3,048,904
|2020  |  |  |        | 110,444  
|2021  |  |  |        | 115,662  
|2022  |  |  |        | 3,908,884
|Total |  |  | $      | 7,317,902

| | d. | Convertible
                                         loans
| | -- | ----------------------------------------------------------



The
Company has an interest bearing convertible loan which requires monthly interest payments: the future interest payments under
this loan is as follows:





|      |  |  | Amount |        
|----- |  |  | ------ | -------
|      |  |  |        |        
|2018  |  |  | $      | 128,723
|Total |  |  | $      | 128,723







| | e. | Other
| | -- | -----



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.

| | 21. | Income
                                         taxes
| | --- | -----------------------------------------------------



The
Company is not current in its tax filings as of December 31, 2017 and 2016



The
Company accounts for income taxes under Accounting Standards Codification 740, Income Taxes “ASC 740”. ASC 740 requires
the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements
and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit
carry forwards. ASC 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization
of deferred tax assets. Internal Revenue Code Section 382 “IRC 382” places a limitation on the amount of taxable income
that can be offset by carry forwards after a change in control (generally greater than a 50% change in ownership).

|                                          |  |                                      |            |   |                                     |  |          |  
|----------------------------------------- |  | ------------------------------------ | ---------- | - | ----------------------------------- |  | -------- | -
|                                          |  | Year
    ended December
31,
    2017 |            |   | Year
    ended December31,
    2016 | 
|                                          |  |                                      |            |   |                                     |  |          |  
|Tax expense at the federal statutory rate |  |                                      | (1,288,471 | ) |                                     |  | (394,991 | )
|Foreign taxation                          |  |                                      | (1,325,577 | ) |                                     |  | 198,560  |  
|Permanent differences                     |  |                                      | 1,606,144  |   |                                     |  | 56,768   |  
|Foreign tax rate differential             |  |                                      | (203,943   | ) |                                     |  | 98,381   |  
|Valuation allowance                       |  |                                      | 1,211,846  |   |                                     |  | 41,282   |  
|                                          |  |                                      | —          |   |                                     |  | —        |  





F-31









| | 21. | Income
                                         taxes (continued)
| | --- | -----------------------------------------------------------------



The
components of the Company’s deferred taxes asset as at December 31, 2017 and December 31, 2016 are as follows:



|                                                                          |  |                       |             |   |                       |  |             |  
|------------------------------------------------------------------------- |  | --------------------- | ----------- | - | --------------------- |  | ----------- | -
|                                                                          |  | December
    31, 2017 |             |   | December
    31, 2016 | 
|Deferred
    tax assets                                                   |  |                       |             |   |                       |  |             |  
|Net
                                         operating loss carry forward |  |                       | 20,303,013  |   |                       |  | 20,198,844  |  
|Net Operating Loss
    utilized - Discontinued operations                 |  |                       | (2,775,870  | ) |                       |  | —           |  
|Net taxable loss                                                          |  |                       | 3,029,615   |   |                       |  | 104,169     |  
|Valuation
    allowance                                                   |  |                       | (20,556,758 | ) |                       |  | (20,303,013 | )
|                                                                          |  |                       | —           |   |                       |  | —           |  



As
of December 31, 2017, the Company is in arrears on filing its statutory income tax returns 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.



During
the year ended December 31, 2017, the Company has accrued and expensed $250,000 (2016: $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.



|22. | Subsequent
                                         events
|--- | ----------------------------------------------------------



On
March 9, 2018, the Company, entered into a Securities Purchase Agreement with Power Up Lending Group Ltd., pursuant to which the
Company issued to the Purchaser a Convertible Promissory Note in the aggregate principal amount of $153,000. The Note has a maturity
date of December 30, 2018 and bears interest at the at the rate of twelve percent per annum from the date on which the Note is
issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company
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 price of the Company’s common stock for the ten trading days prior to conversion.



Other
than the above, the Company has evaluated subsequent events through the date the consolidated financial statements were available
to be issued and has concluded that no such events or transactions took place that would require disclosure herein.





F-32









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, 2017, 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, 2016, 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, 2017, 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.





11









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 | 58
|                  |   
|John O’Bireck     | 59
|                  |   
|Gerald T Miller   | 60



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 cofounder, 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 is under discussion with the plaintiff, we feel that the damages claimed are remote



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.





12









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, 2017, 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 nonaudit
related service, the engagement be:



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

| | ● | entered
                                         into pursuant to preapproval 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.





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) |  |      | 2017 |  |                |  | — |               |  |  | —                     |  |  |                                      | — |  |                                                      |  | — |                                |  |  | —             | 
|                                          |  |      | 2016 |  |                |  | — |               |  |  | —                     |  |  |                                      | — |  |                                                      |  | — |                                |  |  | —             | 





| | (1) | All other
                                         compensation represents a management fee of $289,125 (2016:257,283) 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.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





13









Outstanding
Equity Awards at Fiscal Year End



There
were no equity awards issued to executive officers during the fiscal year ended December 31, 2017 and there are no outstanding
equity awards to named officers as of December 31, 2017.



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





|                                                           |  | Number of securities
 to be issued upon exercise of
 outstanding options |           |  | Weighted average exercise price of outstanding options |   |      | Number of securities remaining for future issuance under
 equity 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 |  |                                                        | $ | 3.59 |                                                                                     | 





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, 2017.





|Name            |  | Fees
    earned or paid in cash ($) |   |  | Stock
    awards ($) |  |   | Option
    awards ($) |  |  | Non-Equity

    Plan Compensation ($) |  |  | Non
    Qualified Deferred Compensation Earnings ($) |   |  | All
    Other Compensation ($) |  |   | Total ($) | 
|--------------- |  | ----------------------------------- | - |  | -------------------- |  | - | --------------------- |  |  | ------------------------------------- |  |  | ---------------------------------------------------- | - |  | ------------------------------ |  | - | --------- | 
|                |  |                                     |   |  |                      |  |   |                       |  |  |                                       |  |  |                                                      |   |  |                                |  |   |           | 
|Shawn E. Leon   |  |                                     | — |  |                      |  | — |                       |  |  | —                                     |  |  |                                                      | — |  |                                |  | — |           | 
|                |  |                                     |   |  |                      |  |   |                       |  |  |                                       |  |  |                                                      |   |  |                                |  |   |           | 
|John O’ Bireck  |  |                                     | — |  |                      |  | — |                       |  |  | —                                     |  |  |                                                      | — |  |                                |  | — |           | 
|                |  |                                     |   |  |                      |  |   |                       |  |  |                                       |  |  |                                                      |   |  |                                |  |   |           | 
|Gerald T Miller |  |                                     | — |  |                      |  | — |                       |  |  | —                                     |  |  |                                                      | — |  |                                |  | — |           | 







14









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
109,938,855 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 of  common stock  beneficially owne
                                                                                d (1)
|-------------------------------------------------- |  | -------------------------------------------------------------------- | ---------- | ------------------------------------------------------------------------------------------------------------------------------------
|                                                   |  |                                                                      |            |                                                                                                                                     
|Directors and Officers                             |  |                                                                      |            |                                                                                                                                     
|Shawn E. Leon                                      |  |                                                                      | 80,389,234 | (2)                                                                                                                                 
|                                                   |  |                                                                      |            |                                                                                                                                     
|5% Shareholders                                    |  |                                                                      |            |                                                                                                                                     
|Leonite Capital LLC                                |  |                                                                      | 29,400,000 |                                                                                                                                     
|                                                   |  |                                                                      |            |                                                                                                                                     
|All officers and directors as a group (10 persons) |  |                                                                      | 80,389,234 |                                                                                                                                     



| | (1) | Based
                                         on 122,989,230 shares of common stock outstanding as of April 11, 2018.
| | --- | ----------------------------------------------------------------------------------------------------------------------

| | (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.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







15









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



Related
Party Transactions



As
of December 31, 2017, a total of $72,729 is 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)          |  | $      | 16,080    
|Owing by the Company      |  |        |           
|1816191 Ontario(2)        |  |        | (15,922   
|Leon Developments, LTD(3) |  |        | (1,703,976
|Eileen Greene(4)          |  |        | (877,182  
|Total                     |  | $      | (2,581,000





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

| | (2) | 1816191
                                         Ontario is the Endoscopy Clinic sold to Dr. Parekh in December 2014.
| | --- | ---------------------------------------------------------------------------------------------------------------------

| | (3) | Leon
                                         Developments is wholly owned by Shawn Leon, the Company’s Chief Executive Officer
| | --- | -------------------------------------------------------------------------------------------------------------------------------

| | (4) | Eileen
                                         Greene is the spouse of Shawn Leon.
| | --- | -----------------------------------------------------------------------------------



Shawn
E. Leon

As
of December 31, 2017 and 2016 the Company had a receivable of $16,080 and a payable of $8,492, respectively to Shawn E. Leon,
a director and CEO of the Company. The balances receivable and payable are non-interest bearing and have no fixed repayment terms.



Mr.
Leon was paid management fees of $289,125 during the year ended December 31, 2017. In addition to this the Company recorded a
once off compensation expense in other expenses, relating to the excess of the fair value of the assets acquired in CCH. Mr. Leon
is the owner of Leon Developments, the counterparty in the acquisition of the CCH.



1816191
Ontario

As
of December 31, 2017 the Company had a payable of $15,921 to 1816191 Ontario, the Endoscopy Clinic, which was sold at the end
of the prior year. The payable is non-interest bearing, and has no specific repayment terms.



Leon
Developments, Ltd.

The
Company acquired CCH from Leon Developments, Ltd., on February 14, 2017, CCH owns the facility utilized by the Canadian Rehab
Clinic which was sold to a third party on February 14, 2017. CCH owed CDN $2,692,512 to Leon Developments. The amount owing to
Leon Developments Ltd., as of December 31, 2017 was CDN$2,692,512 or US$1,703,976.



Eileen
Greene

Eileen
Greene is the spouse of our CEO, Shawn Leon.



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 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 $40,000
in the form of a promissory note, bearing interest at 0$ per annum and convertible into shares of common stock at a conversion
price of $0.03 per share. In connection with the issue pf promissory notes, Ms. Greene was also awarded warrants exercisable over
6,767,042 shares of common stock at an exercise price of $0.03 per share.



These
promissory notes were converted into 6,767,042 common shares during July 2017.



During
October and November 2017, we borrowed CDN$1,122,000 from Eileen Greene, principally to fund the deposit on a real estate transaction.
The funds advanced is non-interest bearing and has no fixed repayment terms. As of December 31, 2017, the amount owing to Eileen
Greene amounted to $877,182.





16







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, 2017, 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 3 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 RBSM LLP for professional services rendered for the years ended December 31,
2017 and 2016:





|                              |  | Year
    ended December
 31, 2017 |        | Year
    ended December
 31, 2016
|----------------------------- |  | --------------------------------- | ------ | ---------------------------------
|                              |  |                                   |        |                                  
|Audit fees
    and expenses   |  | $                                 | 64,790 |                                  
|Taxation preparation
    fees |  |                                   |        |                                  
|Audit related fees            |  |                                   |        |                                  
|Other
    fees                |  |                                   | —      |                                  
|                              |  | $                                 | 64,790 |                                  





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 RBSM LLP in connection with statutory and regulatory
filings or engagements in fiscal year ended December 31, 2017 and 2016, 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”.





17









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, 2017 and 2016, respectively.





18







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, 2017.



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



| | 2. | Consolidated Balance Sheets as of December 31,
    2017 and 2016
| | -- | ----------------------------------------------------------------



| | 3. | Consolidated Statements
    of Operations and comprehensive loss for the years ended December 31, 2017 and 2016
| | -- | ---------------------------------------------------------------------------------------------------------------



| | 4. | Consolidated Statements
    of changes in Stockholders’ Deficit for the years ended December 31, 2017 and 2016
| | -- | --------------------------------------------------------------------------------------------------------------



| | 5. | Consolidated Statements of Cash Flows for the
    years ended December 31, 2017 and 2016
| | -- | ----------------------------------------------------------------------------------------



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



| | (a)(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.
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





19











(b)
Exibits





|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                     
|                |                                                                                                                                                                           |      |                  |                    |                    |                       
|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                     





20









|        |                                                                                                                                                                                |  |  |  |   |  
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  |  | - | -
|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



21







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 17, 2018

By:
/s/ Shawn E. Leon

Name:
Shawn E. Leon

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



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



|Name                     | Position                                                                                              | Date                  
|------------------------ | ----------------------------------------------------------------------------------------------------- | ----------------------
|/s/Shawn
        E. Leon | Chief
        Executive Officer (Principal Executive Officer),                                        | April
        17, 2018
|Shawn Leon               | Chief
        Financial Officer (Principal Financial
        Officer),
        President and Director |                       
|                         |                                                                                                       |                       
|/s/
    John O’Bireck    | Director                                                                                              | April
    17, 2018    
|John O’Bireck            |                                                                                                       |                       
|                         |                                                                                                       |                       
|/s/
    Gerald T. Miller | Director                                                                                              | April
    17, 2018    
|Gerald T. Miller         |                                                                                                       |                       







22