EDGAR 10-K Filing

Company CIK: 792935
Filing Year: 2021
Filename: 792935_10-K_2021_0001721868-21-000220.json

---

ITEM 1. BUSINESS
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 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. The proceeds of the GreeneStone Muskoka asset sale were used to pay down certain tax debts and operational costs of the Company and to fund the Florida Purchase, mentioned below.
Through the APA, substantially all of the assets of GreeneStone Muskoka were sold, leaving Ethema with only the underlying clinic real estate, which the Company, through its newly acquired subsidiary, CCH concurrently leased to the Purchaser. The Lease is a triple net lease and provides for a five (5) year primary term with three (3) five-year renewal options, annual base rent for the first year at CDN$420,000 with annual increases, an option to tenant to purchase the leased premises and certain first refusal rights.
The Florida Purchases and Business
Immediately after closing on the sale of the assets of the Canadian Rehab Clinic, the Company closed on the acquisition of the business and real estate assets of Seastone Delray pursuant to certain real estate and asset purchase agreements. This business is operated through its wholly owned subsidiary, Addiction Recovery Institute of America, LLC (“ARIA”) (formerly Seastone Delray Healthcare, LLC). The purchase price for the ARIA assets was US$6,070,000 financed with a purchase money mortgage of US$3,000,000, and US$3,070,000 in cash.
On April 4, 2017 the Company changed its Corporate name from Greenestone Healthcare Corporation to Ethema Health Corporation.
On November 2, 2017, the Company entered into an Agreement to purchase from AREP 5400 East Avenue LLC certain buildings in West Palm Beach, Florida, totaling approximately 80,000 square feet, on which the Company planned to operate a substance abuse treatment center. The purchase price of the Property was $20,530,000. The Company made a series of nonrefundable down payments totaling $2,940,546 in 2017 and 2018. The Company could not get the necessary financing to close on the deal.
On May 23, 2018, the Company converted the agreement to purchase AREP 5400 East Avenue LLC. (“the landlord”) into a lease agreement with a purchase option of $17,250,000, increasing August 31, 2018 by $750,000 per month until the purchase option is exercised. The premises is located at 5400, 5402 and 5410 East Avenue, West Palm Beach, Florida (the “Property”). The lease was for an initial 10 years and provided for two additional 10 year extensions.
The Company was previously under agreement to purchase the property from the landlord. The property is presently used as a rehabilitation treatment center. The current tenant at the property, Alternatives in Treatment, LLC, a Florida limited liability company, consented to the Lease and concurrent with the execution of the Lease entered into a Sublease Agreement with the Company.
In June 2018, the Company moved its operations out of the Delray Beach properties and into the leased property at 5400 East Avenue in West Palm Beach.
On August 3, 2018, the Company changed the name of its subsidiary Seastone Delray Healthcare, LLC to Addiction Recovery Institute of America, LLC (“ARIA”).
The Company received a license to operate in-patient detoxification and residential treatment services in September 2018.
In June of 2019, the Company and the landlord wished to proceed with marketing the property for sale and agreed to convert the long term lease into a month to month lease for a reduced amount of space on the property and Alternatives in Treatment became a direct tenant of the Landlord in the remainder of the space.
The Company once again had an opportunity to purchase the property in October of 2019 but could not arrange for sufficient financing to complete the purchase and the Landlord subsequently entered into a conditional agreement with another purchaser.
On December 20, 2019, the Company entered into an agreement with the landlord to terminate the lease agreement on January 31, 2020.
The Company has signed a Letter of intent to acquire a new facility at another location nearby which has been delayed by the Corona Virus pandemic and a delay in obtaining the licensing for this facility. The Company has been actively involved in the operation of the treatment center operated by Evernia Health Center LLC (“Evernia”) at 950 Evernia Street, West Palm Beach Florida. The Company is under contract to purchase a majority interest in this company and has been financing the start up operations of this facility. This operation will be the Company’s only treatment center operating and expects the purchase of the majority interest to close in the second quarter of 2021.
Corporate Structure
The Company consists of the following entities:
· Ethema Health Corporation (“Ethema”) (Parent company);
Ethema is the publicly traded investment holding company.
· Greenestone Clinic Muskoka Inc. (“Muskoka”), a Canadian registered company (wholly owned);
Muskoka previously owned and operated the addiction treatment center in Canada which was sold to Canadian Addiction Residential Treatment LP (“CART”). Muskoka has certain receivables collectible from CART and certain remaining liabilities.
· Cranberry Cove Holdings, Ltd (“CCH”), a Canadian registered company (wholly owned);
This company was acquired from Leon Developments and owns and leases the property on which CART operates an addiction treatment center.
· Addiction Recovery Institute of America, LLC(“ARIA”), a US registered company (formerly Seastone Delray Healthcare, LLC);
ARIA operated a treatment center in Delray Beach, Florida out of premises which it had acquired in February 2017. The treatment center was relocated and was operated out of leased premises in West Palm Beach Florida.
· Delray Andrews RE, LLC (“DARE”), a US registered company (dormant)
DARE was formed in 2016 to acquire the premises in which ARIA operated its Delray treatment center, the premises were acquired directly into ARIA. DARE has remained dormant since inception.
Employees
As of December 31, 2020, Ethema Health Corporation had 2 employees.
Marketing
The addiction treatment business in the USA operates as an insured healthcare service. Our marketing efforts are long term processes of establishing relationships with relevant professionals and our treatment staff. We use industry specific conferences and functions to network with these professionals.
Approximately 70% of our clients are sourced via the Internet. This is the single biggest focus for our marketing team, Search Engine Optimization (SEO) is very important and the Company aggressively seeks the maximum cost/benefit relationships with specialist firms in this field.
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
Item 1A. Risk Factors.
Not applicable because we are a smaller reporting company.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

---

ITEM 2. PROPERTIES
Item 2. Properties.
Ethema Executive Offices
The Company’s executive offices are located at 1590 S. Congress Avenue, West Palm Beach, Florida, 33406..
West Palm Beach Treatment Operations
The Company treatment operations were based in our leased premises at 5400 East Avenue, West Palm Beach, Florida, USA.
This facility was operated until January 30, 2020, we have subsequently ceased operations at this facility and are currently exploring new treatment facility options.
The Company has been actively involved in the operation of the treatment center operated by Evernia Health Center LLC (“Evernia”) at 950 Evernia Street, West Palm Beach Florida. The Company is under contract to purchase a majority interest in this company and has been financing the start up operations of this facility. This operation will be the Company’s only treatment center operating and expects the purchase of the majority interest to close in the second quarter of 2021. The Company is accounting for the funds advanced to Evernia as other investments, until such time as the contract to purchase Evernia is closed.
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.

---

ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
A suit, claiming past due rent was filed against the Company in March 2020 for rent of a storage warehouse, the warehouse was abandoned during March 2020. The rental expense was accrued in our records as of December 31, 2019.
Other than disclosed above, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

---

ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
None.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
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 “OTC PINK”) 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.
From March 2012 to January 2020, our common stock has been traded on the OTCQB markets under the symbol “GRST”, in January 2020, the stock was downgraded to the OTC Pink Sheets market.
The last reported sale price of our common stock on the OTC Pink on April 12, 2021, was $0.0056 per share. As of April 12, 2021, there were approximately 154 holders of record of our common stock.
Dividend Policy
We have not paid any cash dividends on our common stock to date, and we have no intention of paying cash dividends in the foreseeable future. Whether we declare and pay dividends is determined by our Board of Directors at their discretion, subject to certain limitations imposed under Nevada corporate law. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.
Equity Compensation Plan Information
See Item 11 - Executive Compensation for equity compensation plan information.
Recent Sales of Unregistered Securities
Other than as set forth below or as previously disclosed in our filings with the Securities and Exchange Commission, we did not sell any equity securities during the year ended December 31, 2020 in transactions that were not registered under the Securities Act.
Between January 6, 2020 and December 28, 2020 in terms of conversion notices received from several convertible note holders the Company issued 1,586,659,618 shares of common stock at a par value of $0.01 per share to settle $551,908 of convertible debt and accrued interest thereon.
Between January 6, 2020 and May 2, 2020, in terms of warrant exercise notices received the Company issued 184,000,000 shares of common stock at par value of $0.01 each, These warrants were exercised on a cashless basis.
On June 1, 2020, the Company issued 100,000,000 shares to Ethan Leon, the son of our CEO in settlement of $25,000 of advances made to the Company by Eileen Greene and assigned to Ethan Leon,
On June 12, 2020, the Company issued 400,000 Series B Preferred shares to an investor at par value of $1.00 per share in partial settlement of convertible debt amounting to $400,000.
During December 2020, the Company issued 4,000,000 Series A Preferred shares at par value of $0.01 per share to Eileen Greene, the spouse of our CEO, in settlement of $40,000 of advances made to the Company.
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 toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
The broker dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.

---

ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data.
Not applicable as we are a smaller reporting company.
Special Note Regarding Forward-Looking Statements
Many of the matters discussed within this Annual Report contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) on our current expectations and projections about future events. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. Such risks and uncertainties include the risks noted under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere. We do not undertake any obligation to update any forward looking statements. Unless the context requires otherwise, references to “we,” “us,” “our,” and “Ethema,” refer to Ethema Health Corporation and its subsidiaries.
Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake any obligation to update any forward-looking statements.

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Our consolidated 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 consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our consolidated financial statements would be affected to the extent there are material differences between these estimates. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and accompanying notes to the consolidated financial statements for the year ended December 31, 2020.
Results of operations for the year ended December 31, 2020 and the year ended December 31, 2019.
Revenue
Revenue was $338,996 and $359,947 for the years ended December 31, 2020 and 2019, respectively, a decrease of $20,951 or 5.8%.
Revenue from patient treatment was $0 and $28,363 for the years ended December 31, 2020 and 2019, respectively, a decrease of $28,363 or 100.0%. The decrease is due to the cessation of operations at our West Palm Beach facility in December 2019. We have entered into an LOI to acquire another facility, however the transaction has not closed as of December 31, 2020.
Revenue from rental income was $338,996 and $331,584 for the years ended December 31, 2020 and 2019, respectively, an increase of $7,412 or 2.2%.
Operating Expenses
Operating expenses was $502,340 and $4,559,682 for the years ended December 31, 2020 and 2019, respectively, a decrease of $4,057,342 or 89.0%. The decrease in operating expenses is attributable to:
● General and administrative expenses of $55,756 and $909,613 for the years ended December 31, 2020 and 2019, respectively, a decrease of $853,857 or 93.9%. The decrease is due to the cessation of operations at the East Avenue, West Palm Beach facility during December 2019, in the prior period general and administrative expenses included property taxes of $441,711 and directors fees of $70,000.
● Rent expense was $5,512 and $1,360,117 for the years ended December 31, 2020 and 2019, a decrease of $1,354,605 or 99.6%, due to the cancellation of the property lease as agreed to with the landlord in December 2019.
● Professional fees were $231,264 and $550,624 for the years ended December 31, 2020 and 2019, respectively, a decrease of $319,360 or 58.0%. The decrease is primarily due to consulting fees that were paid to two individuals in the prior year who had assisted with business development efforts in the prior year.
● Salaries and wages was $88,532 and $1,279,796 for the years ended December 31, 2020 and 2019, respectively, a decrease of $1,191,264 or 93.1%. The decrease is due to the cessation of operations at the East Avenue, West Palm Beach facility in December 2019.
● Depreciation expense was $121,276 and $217,018 for the years ended December 31, 2020 and 2019, respectively, a decrease of $95,742 or 44.1%. The depreciation charge decreased due to the disposal of the two Delray Beach Properties during the prior year.
● Impairment expense was $0 and $242,514 for the years ended December 31, 2020 and 2019, respectively, a decrease of $242,514 or 100.0%. In the prior year the Company impaired the leasehold improvements of $242,514 relating to the West Palm Beach facility as the rental agreement was terminated in December 2019.
Operating loss
The operating loss was $163,344 and $4,199,735 for the years ended December 31, 2020 and 2019, respectively, a decrease of $4,036,391 or 96.1%. The decrease is attributable to the decrease in operating expenses discussed above.
Other income
Other income was $1,183 and $6,600 for the years ended December 31, 2020 and 2019, respectively, a decrease of $5,417 or 82.1%. This amount is immaterial.
Gain on debt extinguishment
Gain on debt extinguishment was $12,683,678 and $0 for the year ended December 31, 2020 and 2019, respectively. The company entered into several debt extinguishment agreements with convertible debt holders whereby the amounts payable and the payment terms under these convertible notes were renegotiated, this also resulted in the extinguishment of derivative liabilities related to these convertible notes.
Gain (loss) on sale of assets
The Gain on sale of assets was $36,470 and the loss on sale of assets was $1,019,812 for the years ended December 31, 2020 and 2019, respectively. The gain in the current year represents an over-accrual for expenses relating to the disposal of the Delray Beach properties and the loss in the prior year represents the loss on the disposal of the Delray Beach properties during 2019.
Warrant exercise
Warrant exercise was $95,868 and $0 for the years ended December 31, 2020 and 2019, respectively, an increase of $95,868 or 100%. During the current period a warrant holder exercised warrants for a total of 224,388,247 shares of common stock resulting in the expense of $95,868 for the issue of 184,000,000 shares.
Penalty on convertible notes
The penalty on convertible notes was $0 and $569,628 for the years ended December 31, 2020 and 2019, respectively. The penalty arose on notes which were in default in 2019, penalties were either levied or provided for in terms of the agreements entered into with the lenders.
Loss on conversion of convertible debentures
Loss on conversion of convertible debentures was $585,351 and $203,981 for the years ended December 31, 2020 and 2019, an increase of 381,370 or 187.0%. The loss on conversion of convertible debentures was due to the conversion of debentures at a discount to market price by several convertible note holders during the current and prior year.
Deposit forfeited
On December 20, 2019, the Company entered into an agreement to terminate the lease agreement on January 30, 2020. The deposit forfeited was $1,665,078 for the year ended December 31, 2019. The deposit forfeited represents deposits initially paid for the acquisition of the West Palm Beach treatment facility located at 5400, 5402 and 5410 East Avenue West Palm Beach. We were unable to consummate the purchase transaction and entered into a lease agreement with the landlord, the deposit initially paid was offset against outstanding rental. The excess was recorded as a forfeiture.
Interest income
Interest income was $629 and $17,226 for the years ended December 31, 2020 and 2019, respectively, a decrease of 16,597 or 96.3%. The interest income in the prior year was earned on the escrow balance due from the sale of Greenstone Muskoka in 2017.
Interest expense
Interest expense was $631,425 and $1,079,038 for the years ended December 31, 2020 and 2019, respectively, a decrease of $447,613 or 41.5%, primarily due to the decrease in mortgage liabilities on the disposal of the Delray Beach properties in the prior year and the conversion of convertible debt to equity during the current year.
Debt discount
Debt discount was $861,657 and $3,338,760 for the years ended December 31, 2020 and 2019, respectively, a decrease of $2,477,103 or 74.2%. The decrease is primarily due to the maturity date of several convertible notes prior to the current year, with the resultant full amortization of debt discount related to those convertible notes.
Derivative liability movement
The derivative liability movement during the current year represents the mark to market movements of variably priced convertible notes and warrants issued during the current and prior years. These securities are marked to market on a quarterly basis and the resultant gain or loss is recorded as a derivative liability movement in the consolidated statements of operations and comprehensive loss.
Foreign exchange movements
Foreign exchange movements was $(175,500) and $(311,606) for the years ended December 31, 2020 and 2019, respectively and 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)
Net income was $3,084,992 and net loss was $(14,962,841) for the years ended December 31, 2020 and 2019, respectively, an increase of $18,047,833 or 120.6%. The increase is primarily due to the reduction in operating expenses and the gain realized on debt extinguishments, offset by the increase in derivative liability movements, as discussed above.
Contingency related to outstanding payroll tax liabilities
The Company has also not filed certain foreign assets forms due to the US Federal Government. A provision of $250,000 was made for any potential penalties due. This issue is being addressed by our tax advisors.
Liquidity and Capital Resources
Cash used in operating activities was $101,970 and $2,895,538 for the years ended December 31, 2020 and 2019, respectively a decrease of $2,793,568 or 96.5%. The decrease is primarily due to the following:
· The decrease in net loss of $18,047,833 as discussed above.
· The decrease in non-cash movements of $13,368,909, primarily due to the gain on extinguishment of debt of $(12,596,352) and the movement on amortization of debt discount of $2,477,103 offset by the derivative liability movement of $4,442,939.
· The decrease in cash generated from working capital movements of $1,885,356, primarily due to the reduction in all working capital balances during the current year.
Cash used in investing activities was $684,454 and cash generated by investing activities was $4,556,698 for the years ended December 31, 2020 and 2019, respectively. We invested $690,449 in a treatment facility based on West Palm Beach which we have committed to acquiring once we have concluded the sale agreement. In the prior year, we realized net proceeds on the disposal of the Delray Beach properties of $4,756,360.
Cash generated by financing activities was $854,019 and cash used by financing activities was $1,951,034 for the years ended December 31, 2020 and 2019, respectively. During the current year we raised $1,129,050 from convertible notes and repaid $210,600 in convertible notes, primarily to fund our new facility in West Palm Beach. In the prior year, we repaid the mortgage outstanding on the Delray properties of $3,067,073 out of the proceeds of the property disposal and repaid $2,504,695 to debt investors during the current year, in the prior year we raised $4,035,000 from debt investors.
Over the next twelve months we estimate that the company will require approximately $6.5 million in funding to repay its obligations, if these obligations are not converted to equity and for funding working capital as we continue to seek opportunities for addiction treatment in the US markets. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. In the opinion of management, the Company’s liquidity risk is assessed as high.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2020 and 2019
Consolidated Statements of Changes in Stockholders Deficit for the years ended December 31, 2020 and 2019.
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019
Notes to the Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Ethema Health Corporation
West Palm Beach, Florida
Opinion on the Consolidated Financial Statements
We have audited the accompanying balance sheets of Ethema Health Corporation (the “Company”) at December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ deficit, and cash flows for each of the years ended December 31, 2020 and 2019, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
The accompanying consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 3 to the consolidated financial statements, the Company had accumulated deficit of approximately $42.4 million and negative working capital of approximately $12.9 million at December 31, 2020, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Critical Audit Matter
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Accounting for Embedded Conversion Features on Convertible Notes - Refer to Notes 12 and 16 to the Financial Statements
The principal considerations for our determination that performing procedures relating to the valuation of derivatives is a critical audit matter are the significant judgment by management when developing the fair value of the derivative liabilities. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the valuation models used and related variable inputs used within those models.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing management’s process for developing the fair value estimate; evaluating the appropriateness of the valuation techniques; testing the completeness and accuracy of underlying data used in the model; and evaluating the significant assumptions used by management, including the values of expected volatility and discount rate. Evaluating management’s assumptions related to the volatility amounts and discount rates involved evaluating whether the assumptions used by management were reasonable considering the current and historical performance, the consistency with external market and industry data, and whether these assumptions were consistent with evidence obtained in other areas of the audit.
/s/ Daszkal Bolton LLP
We have served as the Company’s auditor since 2018.
Sunrise, Florida
April 15, 2021
ETHEMA HEALTH CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2020 December 31, 2019
ASSETS
Current assets
Cash $ 90,500 $ 2,975
Accounts receivable, net 3,075 105,842
Prepaid expenses 19,190 26,625
Other current assets 131,938 120,000
Other investments 690,449 -
Total current assets 935,152 255,442
Non-current assets
Due on sale of subsidiary 5,094 4,969
Property and equipment 2,882,220 2,950,668
Total non-current assets 2,887,314 2,955,637
Total assets $ 3,822,466 $ 3,211,079
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Bank overdraft $ - $ 11,079
Accounts payable and accrued liabilities 833,615 1,022,175
Taxes payable 850,277 792,915
Convertible loans, net of discounts 4,200,217 5,041,113
Short term loans 115,375 106,934
Mortgage loans 115,704 114,290
Government assistance loans 156,782 -
Derivative liability 4,765,387 8,694,272
Accrued dividends 15,594 -
Related party payables 2,811,849 2,793,080
Total current liabilities 13,864,800 18,575,858
Non-current liabilities
Government assistance loans 31,417 -
Third party loans 704,271 774,820
Mortgage loans, net of current portion 3,848,077 3,880,945
Total non-current liabilities 4,583,765 4,655,765
Total liabilities 18,448,565 23,231,623
Preferred stock - Series B; $0.0001 par value, 10,000,000 authorized, 400,000 and 0 outstanding as of December 31, 2020 and 2019, respectively. 400,000 -
Stockholders’ deficit
Preferred stock - Series A; $0.01 par value, 10,000,000 authorized, 4,000,000 and 0 outstanding at December 31, 2020 and 2019, respectively 40,000 -
Common stock - $0.01 par value, 10,000,000,000 shares authorized; 2,207,085,665 and 155,483,897 shares issued and outstanding as of December 31, 2020 and December 31, 2019. 20,270,857 1,554,838
Additional paid-in capital 23,344,885 23,188,527
Discount for shares issued below par value (17,728,779 ) -
Accumulated other comprehensive income 806,719 727,976
Accumulated deficit (42,459,781 ) (45,491,885 )
Total stockholders’ deficit (15,726,099 ) (20,020,544 )
Minority shareholders interest 700,000 -
Total stockholders’ deficit (15,026,099 ) (20,020,544 )
Total liabilities and stockholders’ deficit $ 3,822,466 $ 3,211,079
The accompanying notes are an integral part of the consolidated financial statements
ETHEMA HEALTH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Year ended
December 31, 2020 Year ended
December 31, 2019
Revenues $ 338,996 $ 359,947
Operating expenses
General and administrative 55,756 909,613
Rental expense 5,512 1,360,117
Professional fees 231,264 550,624
Salaries and wages 88,532 1,279,796
Depreciation expense 121,276 217,018
Impairment expense - 242,514
Total operating expenses 502,340 4,559,682
Operating loss (163,344 ) (4,199,735 )
Other Income (expense)
Other income 1,183 6,600
Gain on debt extinguishment 12,601,823 -
Profit (loss) on sale of assets 36,470 (1,019,812 )
Warrants exercised (95,868 ) -
Penalty on convertible notes - (569,628 )
Loss on conversion of convertible debentures (585,351 ) (203,981 )
Deposit forfeited - (1,665,078 )
Interest income 17,226
Interest expense (631,425 ) (1,079,038 )
Debt discount (861,657 ) (3,338,760 )
Derivative liability movement (7,041,968 ) (2,599,029 )
Foreign exchange movements (175,500 ) (311,606 )
Net income (loss) before taxation 3,084,992 (14,962,841 )
Taxation - -
Net income (loss) 3,084,992 (14,962,841 )
Preferred stock dividend (52,888 ) -
Net income (loss) available to ordinary shareholders 3,032,104 (14,962,841 )
Accumulated other comprehensive income - -
Foreign currency translation adjustment 78,743 97,565
Total comprehensive income (loss) $ 3,110,847 $ (14,865,276 )
Basic and diluted loss per common share $ 0.00 $ (0.11 )
Weighted average common shares outstanding - Basic 1,594,016,327 136,165,798
Weighted average common shares outstanding - Diluted 2,045,373,732 136,165,798
The accompanying notes are an integral part of the consolidated financial statements
ETHEMA HEALTH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
Series A Preferred
Common
Shares Amount
Shares Amount Additional Paid in Capital Discount to par value Comprehensive Income Accumulated Deficit Minority
shareholders interest
Total
Balance as of January 1, 2019 - $ -
124,300,341 $ 1,243,003 $ 20,939,677 $ - $ 630,411 $ (30,529,044 )
$ (7,715,953 )
Fair value of warrants issued - -
- - 1,320,497 - - - - 1,320,497
Shares issued for commitment fees - -
71,111 4,267 - - - - 4,978
Conversion of convertible notes - -
23,762,445 237,624 815,949 - - - - 1,053,573
Bonus shares issued to investors - -
2,050,000 20,500 123,000 - - - - 143,500
Shares based compensation - -
5,300,000 53,000 318,000 - - - - 371,000
Cancelation of shares - -
- - (332,863 ) - - - - (332,863 )
Foreign currency translation - -
- - - - 97,565 - - 97,565
Net loss - -
- - - - - (14,962,841 ) - (14,962,841 )
Balance as of December 31, 2019 - $ -
155,483,897 $ 1,554,838 $ 23,188,527 $ - $ 727,976 $ (45,491,885 ) - $ (20,020,544 )
Shares issued for commitment fees - -
2,700,000 27,000 138,780 - - - - 165,780
Warrants exercised - -
184,000,000 1,840,000 - (1,744,132 ) - - - 95,868
Conversion of convertible notes - -
1,586,659,618 15,866,597 - (14,729,336 ) - - - 1,137,261
Settlement of liabilities - -
100,000,000 1,000,000 - (1,255,311 ) - - 700,000 444,689
Settlement of liabilities, related party 4,000,000 40,000
- - - - - - - 40,000
Cancelation of shares - -
(1,757,850 ) (17,578 ) 17,578 - - - - -
Foreign currency translation - -
- - - - 78,743 - - 78,743
Net income - -
- - -
- 3,084,992 - 3,084,992
Dividends accrued - -
- - - - - (52,888 ) - (52,888 )
Balance as of December 31, 2020 4,000,000 $ 40,000
2,027,085,665 $ 20,270,857 $ 23,344,885 $ (17,728,779 ) $ 806,719 $ (42,459,781 ) 700,000 $ (15,026,099 )
The accompanying notes are an integral part of the consolidated financial statement
ETHEMA HEALTH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
December 31,
Year ended
December 31,
Operating activities
Net income (loss) $ 3,084,992 $ (14,962,841 )
Adjustment to reconcile net income (loss) to net cash used in operating activities:
Depreciation expense 121,276 217,018
Gain on debt extinguishment (12,601,823 ) -
Impairment expense - 242,514
Penalty on convertible debt - 410,868
Deposit forfeited - 1,665,078
(Gain) loss on disposal of property (36,470 ) 1,019,812
Loss on convertible debt conversion 585,350 60,481
Bonus shares issued to investors - 143,500
Stock based compensation for services 165,780 375,978
Amortization of debt discount 861,657 3,338,760
Derivative liability movements 7,041,968 2,599,029
Non-cash interest income (23 ) (17,193 )
Exercise of warrants 95,868 -
Unrealized foreign exchange loss 141,927 -
Movement in bad debt reserve (2,734 ) (308,690 )
Changes in operating assets and liabilities
Accounts receivable 105,561 405,566
Prepaid expenses 1,521 121,252
Other current assets (11,938 ) -
Escrow receivable - 395,159
Accounts payable and accrued liabilities 301,035 1,398,171
Taxes payable 44,083 -
Net cash used in operating activities (101,970 ) (2,895,538 )
Investing activities
Proceeds on disposal of property, net of closing costs of $182,344 - 4,756,360
Investment in promissory note - (120,000 )
Deposits refunded 5,995 15,591
Other investments (690,449 ) -
Purchase of fixed assets - (95,254 )
Net cash generated by investing activities (684,454 ) 4,556,697
Financing activities
Increase in bank overdraft - 11,079
Decrease in bank overdraft (11,079 ) -
Repayment of mortgage (105,952 ) (3,067,073 )
Proceeds from convertible notes 1,129,050 2,906,144
Repayment of convertible notes (210,600 ) (2,441,464 )
Proceeds from promissory notes - 907,170
Proceeds from government assistance loans 186,600 -
Preferred stock dividends paid (37,818 ) -
Repayment of promissory notes (150,583 ) (63,231 )
Proceeds (repayment) from related party notes 54,401 (203,660 )
Net cash provided by (used in) financing activities 854,019 (1,951,035 )
Effect of exchange rate on cash 19,930 268,177
Net change in cash 87,525 (21,699 )
Beginning cash balance 2,975 24,674
Ending cash balance $ 90,500 $ 2,975
Supplemental cash flow information
Cash paid for interest $ 180,668 $ 542,582
Cash paid for income taxes $ - $ -
Non cash investing and financing activities
Conversion of debt to equity $ 1,137,261 $ 1,053,573
Conversion of related party payable to common stock $ 25,000 -
Conversion of related party payable to Series A Preferred stock $ 40,000 -
Settlement of liabilities $ 844,689 $ -
Fair value of warrants issued $ - $ 1,320,497
The accompanying notes are an integral part of the consolidated financial statements
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of business
Ethema Health Corporation (the “Company”) was incorporated under the laws of the state of Colorado, USA, on April 1, 1993. Effective April 4, 2017, the Company changed its name to Ethema Health Corporation and prior to that, on May 2012, the Company had changed its name to GreeneStone Healthcare Corporation from Nova Natural Resources Corporation. As of December 31, 2017, the Company owned 100% of the outstanding shares of GreeneStone Clinic Muskoka Inc., incorporated in 2010 under the laws of the Province of Ontario, Canada; Cranberry Cove Holdings Ltd., incorporated on January 9, 2004 under the laws of the Province of Ontario, Canada; Addiction Recovery Institute of America (“ARIA”) (formerly Seastone Delray Healthcare, LLC), incorporated on May 17, 2016 under the laws of Florida, USA; and Delray Andrews RE, LLC, incorporated on May 17, 2016 under the laws of Florida, USA.
During December 2016, the Company obtained a license to operate and provide addiction treatment healthcare services in Florida, USA. The company commenced operations under this license with effect from January 2017.
On February 14, 2017, the Company completed a series of transactions (referred to collectively as the “Restructuring Transactions”), including a Share Purchase Agreement (the “SPA”) whereby the Company acquired 100% of the stock of CCH, which holds the real estate on which the Company previously operated a rehabilitation clinic (“the Canadian Rehab Clinic”). The Company entered into an Asset Purchase Agreement (the “APA”) and lease (the “Lease”) whereby the Company sold all of the Canadian Rehab Clinic business assets and leased the real estate to the buyer. Simultaneously with this transaction, the Company entered into a Real Estate Purchase agreement and Asset Purchase Agreement whereby the Company purchased the real estate and business assets of Seastone Delray (the “Florida Purchase”).
The Share Purchase Agreement
Under the SPA, the Company acquired 100% of the stock of CCH from Leon Developments Ltd. (“Leon Developments”), a company wholly owned by Shawn E. Leon, who is the President, CEO, and CFO of the Company (“Mr. Leon”). CCH owns the real estate on which the Canadian Rehab Clinic is located. The total consideration paid by the Company was CDN$3,517,062, including the assumption of certain liabilities of CCH, which was funded by the assignment to Leon Developments of certain indebtedness owing to the Company in the amount of CDN$659,918, and the issuance of 60,000,000 shares of the Company’s common stock to Leon Developments, valued at US$0.0364 per share.
The Asset Purchase Agreement and Lease
Under the APA, the assets of the Canadian Rehab Clinic were sold by the Company, through its subsidiary, GreeneStone Clinic Muskoka Inc. (“Muskoka”), to Canadian Addiction Residential Treatment LP (the “Purchaser”), for a total consideration of CDN$10,000,000. The proceeds of the Muskoka clinic asset sale were used to pay down certain tax debts and operational costs of the Company and to fund the Florida Purchase, mentioned below.
Through the APA, substantially all of the assets of the Canadian Rehab Clinic were sold, leaving Ethema with only the underlying clinic real estate, which the Company, through its newly acquired subsidiary, CCH, concurrently leased to the Purchaser. The Lease is a triple net lease and provides for a five (5) year primary term with three (3) five-year renewal options, annual base rent for the first year at CDN$420,000 with annual increases, an option to tenant to purchase the leased premises and certain first refusal rights.
The Florida Purchase
Immediately after closing on the sale of the assets of the Canadian Rehab Clinic, the Company closed on the acquisition of the real estate assets of Seastone Delray pursuant to certain real estate and asset purchase agreements The purchase price for the Seastone assets was US$6,070,000, financed with a purchase money mortgage of US$3,000,000, and US$3,070,000 in cash.
On April 2, 2019, the Company disposed of the real property located at 801 Andrews Avenue, Delray Beach for gross proceeds of $3,500,000.
Since June 30, 2020, the Company has been actively involved in the operation of the treatment center operated by Evernia Health Center LLC (“Evernia”) at 950 Evernia Street, West Palm Beach Florida. The Company is under contract to purchase a majority interest in this company and has been financing the start up operations of this facility. This operation will be the Company’s only treatment center operating and expects the purchase of the majority interest to close in the second quarter of 2021.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies
Financial Reporting
The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).
Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that i) recorded transactions are valid; ii) valid transactions are recorded; and iii) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.
a) Use of Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
b) Principals of consolidation and foreign currency translation
The accompanying consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany transactions and balances have been eliminated on consolidation.
Certain of the Company’s subsidiaries functional currency is the Canadian dollar, while the Company’s reporting currency is the U.S. dollar. All transactions initiated in Canadian dollars are translated into US dollars in accordance with ASC 830, “Foreign Currency Translation” as follows:
● Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date.
● Non-monetary, non-current and 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, 2020 a closing rate of CDN$1.0000 equals US$0.7854 and an average exchange rate of CDN$1.0000 equals US$0.7455. For the year ended December 31, 2019 a closing rate of CAD$1.0000 equals US$0.7699 and an average exchange rate of CAD$1.0000 equals US$0.7536.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued)
c) Revenue Recognition
ASC 606 requires companies to exercise more judgment and recognize revenue using a five-step process.
The Company’s provision for doubtful accounts are recorded as a direct reduction to revenue instead of being presented as a separate line item on the consolidated statements of operations and comprehensive loss.
As our performance obligations relate to contracts with a duration of one year or less, the Company elected the optional exemption in ASC 606-10-50-14(a). Therefore, the Company is not required to disclose the transaction price for the remaining performance obligations at the end of the reporting period or when the Company expects to recognize the revenue. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients typically are under no obligation to remain admitted in our facilities.
The Company receives payments from the following sources for services rendered in our U.S. Facility: (i) commercial insurers; and (ii) individual patients and clients. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC 606-10-32-18 and does not adjust for the effects of a significant financing component.
The Company derives a significant portion of its revenue from other payors that receive discounts from established billing rates. The various managed care contracts under which these discounts must be calculated are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for different types of services provided in the Company’s inpatient facilities and cost settlement provisions. Management estimates the transaction price on a payor-specific basis given its interpretation of the applicable regulations or contract terms. The services authorized and provided and related reimbursement are often subject to interpretation that could result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management.
Settlements with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future periods as final settlements are determined. In the opinion of management, adequate provision has been made for any adjustments and final settlements. However, there can be no assurance that any such adjustments and final settlements will not have a material effect on the Company’s financial condition or results of operations. The Company’s receivables were $3,075 and $105,842 for the years ended December 31, 2020 and 2019, respectively. Management believes that these receivables are properly stated and are not likely to be settled for a significantly different amount. The net adjustments to estimated settlements resulted in a a credit to revenues of $2,734 and a charge to revenues of $414,603 for the years ended December 31, 2020 and 2019, respectively. The credit to revenue is due to revenue collected from commercial insurers in excess of our expectations.
The Company’s revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those services. The Company derives its revenues from the sale of its services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its revenue transactions:
i. identify the contract with a customer;
ii. identify the performance obligations in the contract;
iii. determine the transaction price;
iv. allocate the transaction price to performance obligations in the contract; and
v. recognize revenue as the performance obligation is satisfied.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued)
d) Cash and cash equivalents
For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash and cash equivalents with several financial institution in the USA and Canada.
The Company primarily places cash balances in the USA with high-credit quality financial institutions located in the United States which are insured by the Federal Deposit Insurance Corporation up to a limit of $250,000 per institution, in Canada which are insured by the Canadian Deposit Insurance Corporation up to a limit of CDN$100,000 per institution.
e) 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.
f) 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.
g) 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.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued)
g) Financial instruments (continued)
FASB ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
●
Level 1. Observable inputs such as quoted prices in active markets;
● Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
● Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.
The Company measures its convertible debt and derivative liabilities associated therewith at fair value. These liabilities are revalued periodically and the resultant gain or loss is realized through the Statement of Operations and Comprehensive Loss.
h) Property and equipment
Property and equipment is recorded at cost. Depreciation is calculated on the straight line basis over the estimated life of the asset:
Building improvements are depreciated using the straight-line method over the term of the lease.
i) Leases
The Company accounts for leases in terms of AC 842 whereby 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. Operating leases are recognized on the balance sheet as a lease liability with a corresponding right of use asset for all leases with a term that is more than twelve months. Payments under operating leases are expensed as incurred.
j) Income taxes
The Company accounts for income taxes under the provisions of ASC Topic 740, “Income Taxes”. Under ASC Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income taxes are provided using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax basis of an asset or liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in income in the period of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of, the deferred tax assets will not be realized.
ASC Topic 740 contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties accrued on unrecognized tax benefits within general and administrative expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in general and administrative expenses in the period that such determination is made. The tax returns for fiscal 2016, through 2019 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.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued)
k) Net income (loss) per Share
Basic net income (loss) per share is computed on the basis of the weighted average number of common stock outstanding during the period.
Diluted net income (loss) per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.
Dilution is computed by applying the treasury stock method for options and warrants. Under this method, “in-the money” options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Dilution is computed by applying the if-converted method for convertible preferred stocks. Under this method, convertible preferred stock is assumed to be converted at the beginning of the period (or at the time of issuance, if later), and preferred dividends (if any) will be added back to determine income applicable to common stock. The shares issuable upon conversion will be added to weighted average number of common stock outstanding. Conversion will be assumed only if it reduces earnings per share (or increases loss per share).
l) Stock based compensation
Stock based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over the employee’s requisite service period or vesting period on a straight-line basis. Share-based compensation expense recognized in the consolidated statements of operations for the year ended December 31, 2020 and 2019 is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual forfeitures differ from those estimates. We have minimal awards with performance conditions and no awards dependent on market conditions.
m) Derivatives
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. The Company uses a Black Scholes Option Pricing model to estimate the fair value of convertible debt conversion features at the end of each applicable reporting period. Changes in the fair value of these derivatives during each reporting period are included in the statements of operations. Inputs into the Black Scholes Option Pricing model require estimates, including such items as estimated volatility of the Company’s stock, risk free interest rate and the estimated life of the financial instruments being fair valued.
If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued)
n) Recent accounting pronouncements
In August 2020, the FASB issued ASU No. 2020-06, debt with Conversion and Other Options (subtopic 470-20): and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). Certain accounting models for convertible debt instruments with beneficial conversion features or cash conversion features are removed from the guidance and for equity instruments the contracts affected are free standing instruments and embedded features that are accounted for as derivatives, the settlement assessment was simplified by removing certain settlement requirements.
This ASU is effective for fiscal years and interim periods beginning after December 15, 2021.
The effects of this ASU on the Company’s consolidated financial statements is currently being assessed and is expected to have an impact on the treatment of certain convertible instruments, if any, and the derivative liabilities, if any, associated with these convertible instruments.
The FASB issued several additional updates during the period, none of these standards are either applicable to the Company or require adoption at a future date and none are expected to have a material impact on the consolidated financial statements upon adoption.
o) 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, 2020 and 2019.
i. Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Financial instruments that subject the Company to credit risk consist primarily of accounts receivable.
Credit risk associated with accounts receivable 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 $12,929,648, which includes derivative liabilities of $4,765,387, and an accumulated deficit of $42,459,781. The Company is 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 that of the prior year.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued)
o) Financial instruments Risks (continued)
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 interest rate risk on its convertible debt, mortgage loans, short term loans, third party loans and government assistance loans as of December 31, 2020. In the opinion of management, interest rate risk is assessed as moderate.
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, 2020, a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an approximate $10,606 increase or decrease in the Company’s after tax net income from operations. The Company has not entered into any hedging agreements to mitigate this risk. In the opinion of management, currency risk is assessed as low, material and remains unchanged from that of 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.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. 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, 2020 the Company has a working capital deficiency of $12,929,648, including derivative liabilities of $4,765,387 and accumulated deficit of $42,459,781. 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 requirements 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.
4. Other current assets
Other current assets includes the following:
On February 25, 2019, the Company entered into a Letter of Intent whereby it would purchase a 33.33% interest in Local Link Wellness, LLC (“LLW”) for gross proceeds of $400,000. LLW proposes to provide a comprehensive addiction treatment program to large employee groups. The company has advanced LLW a total of $120,000 at December 31, 2020. These funds were advanced as short-term promissory notes that are immediately due and payable and are classified as other current assets on our consolidated balance sheet.
The Company has no intention to close on the purchase of LLW and is currently negotiating with the vendors to provide advertising services in lieu of the return of the $120,000 invested by the Company.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. Other investments
On June 30, 2020, the Company entered into an agreement whereby the Company will acquire 51% of American Treatment Holdings, Inc. (“ATHI”) from The Q Global Trust (“Seller”) and Lawrence B Hawkins (“Hawkins”), which in turn owns 100% of Evernia Health Services LLC. (“Evernia”), which operates drug rehabilitation facilities. The consideration for the acquisition is a loan to be provided by the purchaser to Evernia in the amount of $500,000. As of December 31, 2020, the Company had advanced Avernia approximately $690,449 including accrued interest thereon.
The Company originally had a 180 day option, from the advancement of the first tranche to Evernia, to purchase an additional 9% of ETHI for a purchase consideration of $50,000. The option has been extended and the Company had made a down payment of $10,000 towards exercising this option.
On June 30, 2020, the Company entered into an agreement whereby the Company will acquire 51% of Behavioral Health Holdings, Inc. (“BHHI”) from The Q Global Trust (“Seller”) and Lawrence B Hawkins, which in turn owns 100% of Peace of Mind Counseling Services, Inc. (“PMCS”), which operates drug rehabilitation facilities. The consideration for the acquisition is still to be determined. The Company is currently considering its options to acquire a stake in BHHI and may renegotiate the deal terms.
On July 12, 2020, the Company entered into a five year option agreement with Leonite Capital LLC (“Leonite”) and other investors (collectively the “Transferees”), the Company agreed to sell to Leonite a portion of the total outstanding shares of ATHI from the shares of ATHI held by the company. The Company provided Leonite an option to purchase 4,000,000 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $400), based on the advances that Leonite made to the Company totaling $396,000. Leonite shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Leonite to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
On September 14, 2020, the Company entered into a five year option agreement with Ed Blasiak (“Blasiak”) whereby the Company agreed to sell to Blasiak a portion of the total outstanding shares of ATHI. The Company provided Blasiak an option to purchase 571,428 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $57), based on the advances that Blasiak made to the Company totaling $50,000. Blasiak shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Blasiak to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
On October 29, 2020, the Company entered into a five year option agreement with First Fire whereby the Company agreed to sell to First Fire a portion of the total outstanding shares of ATHI. The Company provided First Fire an option to purchase 1,428,571 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $143), based on the advances that First Fire made to the Company totaling $120,000. First Fire shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by First Fire to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
On October 29, 2020, the Company entered into a five year option agreement entered into with Bauman, so that the Company agreed to sell to Bauman a portion of the total outstanding shares of ATHI. The Company provided Bauman an option to purchase 1,428,571 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $143), based on the advances that Bauman made to the Company totaling $120,000. Bauman shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Bauman to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. Sale of property
On April 2, 2019, the Company entered into a Commercial Contract with a third party whereby the real property at 801 Andrews Avenue, Delray Beach, Florida, consisting of land and condominiums thereon, was sold for $3,500,000. This transaction closed on April 26, 2019.
The loss realized on the disposal was calculated as follows:
Amount
Proceeds received $ 4,975,174
Less: closing costs (182,344 )
Provision for additional expenses (36,470 )
Net proceeds received 4,756,360
Assets sold:
Land 2,753,928
Buildings thereon, net of depreciation 2,949,452
Furniture and fixtures, net of depreciation 72,792
5,776,172
Loss on disposal of property $ 1,019,812
On October 10, 2019, in terms of a deed of transfer the Company disposed of the remaining property located at 810 Andrews Avenue, Delray Beach, Florida to a convertible note holder in partial settlement of the convertible note outstanding for net proceeds of $1,475,174.
During the year ended December 31, 2020, the Company released a provision raised for additional expenses on the disposal of the 810 Andrews Avenue properties mentioned above.
7. Deposit on real estate
On November 2, 2017, the Company entered into an Agreement to purchase from AREP 5400 East Avenue LLC certain buildings in West Palm Beach, Florida, totaling approximately 80,000 square feet, on which the present tenant operates a substance abuse treatment center. The purchase price of the Property was $20,530,000. The Company made a series of nonrefundable down payments totaling $2,940,546 and $1,825,000 as of December 31, 2018 and 2017.
On May 23, 2018, the Company converted the agreement to a lease agreement with a purchase option of $17,250,000, increasing August 31, 2018 by $750,000 per month until the purchase option is exercised. The premises is located at 5400, 5402 and 5410 East Avenue, West Palm Beach, Florida (the “Property”). The lease was for an initial 10 years and provided for two additional 10 year extensions.
The Company previously was under agreement to purchase the property from the landlord. The property is presently used as a rehabilitation treatment center. The current tenant at the property, Alternatives in Treatment, LLC, a Florida limited liability company, consented to the Lease and concurrent with the execution of the Lease entered into a Sublease Agreement with the Company.
On December 20, 2019 the Company entered into an agreement to terminate the lease agreement on January 30, 2020.
As of December 31, 2019, the deposits paid of $2,924,955 were offset against the unpaid rental as of December 31, 2019 of $1,509,877. A contingency reserve of $250,000 was allowed for any future claims the landlord may have against the Company, resulting in a forfeiture of the deposit balance of $1,665,078.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. Due on sale of business
On February 14, 2017, the Company sold its Canadian Rehab Clinic for gross proceeds of CDN$10,000,000, of which CDN$1,500,000 had been retained in an escrow account for a period of up to two years in order to guarantee the warranties provided by the Company in terms of the APA. As of December 31, 2020, CDN$1,055,042 of the escrow had been refunded to the Company and CDN$461,318 had been used to affect building improvements to the premises owned by CCH, for a total reduction of CDN$1,516,360. The remaining escrow balance was CDN$6,485 (approximately US$ 5,094).
9. Property and equipment
Property and equipment consists of the following:
December 31,
December 31, 2019
Cost
Accumulated depreciation
Net book value
Net book value
Land
$ 168,866
$ -
$ 168,866
$ 165,537
Property
3,194,427
(481,073 )
2,713,354
2,785,131
$ 3,363,293
$ (481,073 )
$ 2,882,220
$ 2,950,668
Depreciation expense for the year ended December 31, 2020 and 2019 was $121,276 and $217,018, respectively.
On December 20, 2019, in terms of an agreement with the landlord the lease for the West Palm Beach facility was terminated and the Company impaired the leasehold improvements relating to the leased property, the impairment charge was $242,514.
10. Leases
The Company's leases consisted of operating leases that relate to a real estate rental agreement entered into in May 2018.
On January 30, 2020, the Company verbally terminated the lease with the current landlord who had leased the premises to a third party and subsequently sold the property. The operating lease liability and right-of-use asset had been eliminated as of December 31, 2019.
Total operating lease cost
Individual components of the total lease cost incurred by the Company is as follows:
Year ended December 31,
Year ended December 31,
Operating lease expense $ 5,512 $ 1,360,117
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. Taxes Payable
The taxes payable consist of:
● A payroll tax liability of $143,410 (CDN$182,589) in Greenestone Muskoka which has not been settled as yet.
● A GST/HST tax payable of $73,503 (CDN$93,585).
● 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,
December 31,
Payroll taxes $ 143,410 $ 140,583
HST/GST payable 73,503 26,524
US penalties due 250,000 250,000
Income tax payable 383,364 375,808
$ 850,277 $ 792,915
12. Short-term Convertible Notes
The short-term convertible notes consist of the following:
Interest rate
Maturity Date
Principal
Interest
Debt Discount
December 31, 2020
December 31, 2019
Leonite Capital, LLC
8.5 %
On demand
$ 70,000
$
$ -
$ 70,583
$ 1,213,148
6.5 %
June 12, 2021
396,000
9,060
(258,002 )
147,058
-
Power Up Lending Group Ltd
-
-
-
-
-
-
33,707
-
-
-
-
-
-
51,827
First Fire Global Opportunities Fund
-
-
-
-
-
-
247,361
6.5 %
October 29,2021
137,500
1,564
(113,767 )
25,297
-
Auctus Fund, LLC
10.0 %
May 7, 2020
150,000
-
-
150,000
129,016
10.0 %
August 13, 2021
95,000
3,764
(58,562 )
40,202
-
Labrys Fund, LP
-
-
-
-
-
-
286,057
12.0 %
November 30, 2021
275,000
2,803
(251,644 )
26,159
-
Ed Blasiak
6.5 %
September 14, 2021
55,000
1,073
(38,726 )
17,347
-
Joshua Bauman
6.5 %
September 14, 2021
137,500
2,562
(96,815 )
43,247
-
Geneva Roth Remark Holdings, Inc.
9.0 %
August 29, 2021
88,000
1,001
(69,763 )
19,238
-
9.0 %
October 15, 2021
53,000
(46,724 )
6,753
-
Series N convertible notes
6.0 %
On Demand
3,229,000
425,333
-
3,654,333
3,079,997
$ 4,200,217
$ 5,041,113
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. Short-term Convertible Notes (continued)
Leonite Capital, LLC
On December 1, 2017, the Company closed on a private offering to raise US $1,500,000 in capital. The Company issued one senior secured convertible promissory note with a principal amount of $1,650,000 to Leonite Capital, LLC (“Leonite”). The note is convertible into shares of common stock at a conversion price of $0.06 per share, subject to anti-dilution and price protection. The Note bears interest at the rate of 8.5% per annum. The Note’s amended maturity date was December 1, 2018. During the term of the Note the Company and the Subsidiaries was obligated to make monthly payment of accrued and unpaid interest. The Note contains Company and Subsidiary representations and warranties, covenants, events of default, and registration rights. The Company paid a commitment fee of $132,000 settled through the issue of 1,650,000 shares of common stock and paid $20,000 towards the lenders legal fees. In conjunction with this note, the Company issued a five year warrant to purchase 27,500,000 shares of common stock at an exercise price or $0.10 per share, subject to anti-dilution and price protection.
The Note provided that the parties use reasonable best efforts to close on the remaining $1,200,000 of availability under the Note by January 1, 2018. As a condition to the closing of the Balance Tranche, the parties must finalize and enter into additional agreements related to the Private Offering, including, but not limited to, (i) a Securities Purchase Agreement; (ii) a Warrant Agreement under which the Investor will have the right to purchase up to 27,500,000 shares of the Company’ common stock for $0.10 per share, subject to adjustment, for a period of five years; (iii) a Securities Pledge Agreement under which the Company and the Subsidiaries will grant the lender a blanket lien on their assets, and the Company will pledge its equity ownership in the Subsidiaries. Upon the closing of the Balance Tranche the maturity date of the Note was to become December 1, 2018.
On December 29, 2017, effective as of December 1, 2017, the Company and the Subsidiaries entered into an Amended and Restated Senior Secured Convertible Promissory Note, which note amended and restated the Note to (a) extend the maturity date to December 1, 2018; (b) remove CCH, as an obligor; (c) increase the interest rate by 2.00% per annum, to 8.5% per annum; and (d) issue an additional 250,000 shares of the Company’s common stock to the Investor. In connection with the execution of the amendment, the parties entered into (i) a Securities Purchase Agreement; (ii) a Warrant Agreement under which the Investor will have the right to purchase up to 27,500,000 shares of the Company’ common stock for $0.10 per share, subject to adjustment, for a period of five years; (iii) a Security and Pledge Agreement and a General Security Agreement under which the Company and the Subsidiaries will grant the Investor a blanket lien on their assets, and the Company will pledge its equity ownership in the Subsidiaries; effective January 2, 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.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. Short-term Convertible Notes (continued)
Leonite Capital, LLC (continued)
On March 29, 2018, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $165,000, including an Original Issue Discount of $15,000, for net proceeds of $150,000. The note had a maturity date of December 1, 2018 and bears interest at a rate of 8.5% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to anti-dilution and price protection. The Company paid a commitment fee of $11,550 settled through the issue of 165,000 shares of common stock. In conjunction with this note the Company issued a five year warrant to purchase 5,500,000 shares of common stock at an exercise price of $0.10 per share, subject to anti-dilution and price protection.
On April 17, 2018, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $605,000, including an Original Issue Discount of $55,000, for net proceeds of $550,000. The note had a maturity date of December 1, 2018 and bears interest at 8.5% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to price protection and anti-dilution protection. The Company paid a commitment fee of $42,350 settled through the issue of 10,083,333 shares of common stock. In conjunction with this note the Company issued a five year warrant to purchase 10,083,333 shares of common stock at an exercise price of $0.10 per share, subject to anti-dilution and price protection.
On January 17, 2019, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $71,111, including an Original Issue Discount of $7,111, for net proceeds of $64,000. The note had a maturity date of July 25, 2019 and bears interest at 11.0% per annum. The outstanding principal amount of the note was convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to price protection and anti-dilution protection. The Company paid a commitment fee of $4,978 settled through the issue of 71,111 shares of common stock. In conjunction with this note the Company issued a five year warrant to purchase 1,185,183 shares of common stock at an exercise price of $0.10 per share, subject to anti-dilution and price protection.
Effective March 19, 2019, the Company entered into a note extension agreement with Leonite, whereby the convertible notes outstanding to Leonite, amounting to $2,420,000, for consideration of $75,000 added to the principal outstanding on the note on January 1, 2019, a further $75,000 added to the principal outstanding on the note on February 1, 2019 and a further $100,000 added to the principal of the note on March 15, 2019, the maturity date of all of the convertible notes above were extended to December 31, 2019 and has subsequently been partially settled by the transfer of the property located at 810 Andrews Avenue, Delray Beach, Florida, valued at $1,500,000.
On August 26, 2019, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $60,000, including an Original Issue Discount of $10,000, for net proceeds of $47,000. The note had a maturity date of September 10, 2019 and bears interest at 1.0% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to price protection and anti-dilution protection. In conjunction with this note the Company issued a five year warrant to purchase 1,000,000 shares of common stock at an exercise price of $0.10 per share, subject to anti-dilution and price protection.
On October 10, 2019, the Company transferred a warranty deed to the real property located at 810 Andrews Avenue, Delray Beach, Florida to Leonite Capital LLC, in settlement of indebtedness of $1,398,514 and additional expenses related to the disposal of the property of $36,470. These expenses of $36,470 were provided for resulting in net proceeds recognized on the transfer of the property of $1,362,044.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. Short-term Convertible Notes (continued)
Leonite Capital, LLC (continued)
On July 12, 2020, the company entered into a debt extinguishment agreement with Leonite whereby the following occurred:
1. The total amount outstanding under the note, including principal and interest was reduced to $150,000
2. $700,000 of the note was converted into Series A Redeemable Preferred shares in the Company’s subsidiary, Cranberry Cove Holdings, accruing dividends at 10% per annum.
3. $400,000 of the note was converted into series B Preferred stock in the Company for a 12 month period, mandatorily redeemable by the Company accruing dividends at 6% per annum payable in cash or stock, subject to certain conditions.
4. The remaining balance of $150,000 will accrue interest at 8.5% per annum and is convertible into common stock and repayable in 6 monthly installments of $25,000 commencing after December 12, 2020.
5. The existing warrants were cancelled and a new five year warrant, with a cashless exercise options, exercisable for a minimum of 326,286,847 shares of common stock and a maximum of 20% of the outstanding equity of the Company at an initial exercise price of $0.10 per share subject to adjustment based on new stock issuances or the lowest volume weighted exercise price of the stock for 30 days immediately preceding the exercise was issued to Leonite.
On July 12, 2020, the Company entered into a Senior Secured Convertible Note agreement with Leonite for $440,000 with an original issue discount of $40,000 for gross proceeds of $400,000, the initial tranche advanced will be for cash of $200,000 plus the OID of $20,000, the remaining advances will be at the discretion of the Leonite. The loan bears interest at 6.5% per annum and matures on June 12, 2021. The Company is required to make monthly payments of the accrued interest on the advances made. The note is convertible into common shares at the option of the holder at $0.10 per share, or 80% multiplied by the price per share paid in subsequent financings or after a six month period from the effective date at 60% of the lowest trading price during the preceding 21 consecutive trading days. The note has both conversion price protection and anti-dilution protection provisions. As of December 31, 2020, net proceeds of $360,000 was advanced to the Company.
On July 12, 2020, the Company entered into a five year option agreement with Leonite, the Company agreed to sell to Leonite a portion of the total outstanding shares of ATHI from the shares of ATHI held by the company. The Company provided Leonite an option to purchase 4,000,000 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $400), based on the advances that Leonite made to the Company totaling $396,000. Leonite shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Leonite to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
On December 28, 2020, The Company converted $80,000 plus accrued interest of $5,949 of the Leonite loan amended on July 12, 2020, into 96,331,811 shares of common stock at a conversion price of $0.0009, thereby realizing a loss on conversion of $240,616.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. Short-term Convertible Notes (continued)
Power Up Lending Group LTD
On January 9, 2019, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $53,000 for net proceeds of $50,000 after expenses. The Note had a maturity date of October 30, 2019 and bears interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note was convertible at any time and from time to time at the election of Power Up during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion. On July 8, 2019, the Company repaid the convertible note of $53,000 together with interest thereon and early settlement penalty for gross proceeds of $72,000.
The outstanding principal amount of the Note is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion. On January 28, 2019, the Company repaid the Power Up convertible note entered into on July 31, 2018 of $153,000 together with interest and early settlement penalty thereon for a payout of $207,679.
On July 8, 2019, the Company entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $53,000. The Note had a maturity date of April 30, 2020 and bore interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the election of Power Up during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion.
Between January 10, 2020 and January 24, 2020, in terms of conversion notices received, Power Up converted the aggregate principal amount of $53,000 and interest thereon of $1,085 into 75,618,509 shares of common stock at an average conversion price of $0.000715 per share.
On July 15 2019, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $83,000. The Note has a maturity date of April 30, 2020 and bears interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the election of Power Up during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion.
Between January 24, 2020 and February 27, 2020, in terms of conversion notices received, Power Up converted the aggregate principal amount of $41,400 into 453,800,493 shares of common stock at an average conversion price of 0.0000912 per share.
On June 1, 2020, The Company repaid the Power Up Lending Group $41,600 in full settlement of the convertible note entered into on July 15, 2019.
First Fire Global Opportunities Fund
On March 5, 2019, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $200,000, for net proceeds of $192,000 after the payment of legal fees and origination fees amounting to $8,000. The note has a maturity date of December 9, 2019. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser. 180 days after the issued date into shares of the Company’s common stock at the lower of $0.08 per share or 65% of the lowest trade price during the ten consecutive trading days immediately prior to conversion. The note has certain buyback terms if the Company consummates a registered or unregistered primary offering of securities for capital raising purposes, or an option to convert at a 20% discount to the offering price to investors.
Between September 11, 2019 and December 30, 2019, in terms of a conversion notices received, the Company issued 11,887,445 shares of Common stock in settlement of $36,592 of principal outstanding.
Between January 6, 2020 and February 26, 2020, in terms of conversion notices received, First Fire converted an aggregate principal amount of $83,902 into 308,100,000 shares of common stock at an average conversion price of $0.000272 per share.
On June 3, 2020, the Company entered into an agreement with First Fire whereby the remaining balance of the convertible note of $73,006 would be settled by two payments of $25,000 each.
Between July 2, 2020 and August 17, 2020, the Company repaid the remaining principal outstanding of $50,000 plus additional interest charges of $1,500.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. Short-term Convertible Notes (continued)
First Fire Global Opportunities Fund (continued)
On October 29, 2020, the Company entered into a Securities Purchase Agreement, pursuant to which the Company issued a senior secured convertible promissory note in the aggregate principal amount of $137,500, including an OID of $12,500. The note bears interest at 6.5% per annum and matures on October 29, 2021. The note is senior to any future borrowings and commencing on November 29, 2020 the Company will make monthly payments of the accrued interest under the note. The note may be prepaid at certain prepayment penalties and is convertible into shares of common stock at a conversion price at the option of the holder at $0.001 per share, adjusted for anti-dilution provisions; or 80% of the price per share of subsequent equity financings or; after six months 60% of the lowest trading price during the preceding six month period.
On October 29, 2020, the Company entered into a five year option agreement with First Fire whereby the Company agreed to sell to First Fire a portion of the total outstanding shares of ATHI. The Company provided First Fire an option to purchase 1,428,571 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $143), based on the advances that First Fire made to the Company totaling $120,000. First Fire shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by First Fire to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
Auctus Fund, LLC
On August 7 2019, the Company, entered into a Securities Purchase Agreement with Auctus Fund, LLC, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $225,000. The Note had a maturity date of May 7, 2020 and bore interest at the rate of ten percent per annum from the date on which the Note was issued until the same became due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company had the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the election of Auctus Fund, LLC during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 60% of the lowest closing bid price of the Company’s common stock for the thirty trading days prior to conversion.
On June 15, 2020, The Company entered into an amended agreement with Auctus whereby Auctus agreed to discharge the principal amount of the note by nine equal monthly installments of $25,000 commencing in October 2020.
On August 13, 2020, the Company entered into a Securities Purchase Agreement with Auctus Fund LLC, pursuant to which the Company issued a convertible promissory note in the aggregate principal amount of $100,000 for net proceeds of $85,000 after certain fees and expenses of $15,000. The note has a maturity date of August 13, 2021 and bears interest at 10% per annum. The interest due on the note for the full twelve month period is due immediately upon issuance of the note, regardless of acceleration or prepayment. The principal amount of the note is payable in six monthly instalments of $16,666.66 commencing 180 days after the issuance date, the balance outstanding under the note due at maturity date. In the event a default occurs under the Note, the Note is convertible into shares of common stock at a conversion price equal to the lowest trading price over the prior 5 days prior to the date of the note or the five day volume weighted market price prior to the date of conversion. The Company is required to adhere to certain covenants including covenants concerning distributions of capital stock; restrictions on stock repurchases, additional borrowings sales of assets and loans and advances made by the Company. In conjunction with the issuance of the promissory note, the Company issued a five year warrant exercisable for 66,666,666 shares of common stock at an exercisable price of $0.0015 per share subject to anti-dilution and price protection adjustments. The Company also issued a second five year warrant exercisable for 66,666,666 shares of common stock at an exercisable price of $0.0015 per share subject to anti-dilution and price protection adjustments, which warrants will only be exercisable upon an event of default on the convertible note.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. Short-term Convertible Notes (continued)
Labrys Fund, LP
On July 8, 2019, the Company, entered into a Securities Purchase Agreement with Labrys Fund, LP (“Labrys”), pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $282,000 for net proceeds of $253,800 after an original issue discount of $28,200. The Note had a maturity date of January 8, 2020 and bore interest at the rate of twelve percent per annum from the date on which the Note was issued until the same became due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company had the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note was convertible at any time and from time to time at the election of Labrys during the period beginning on the date that is 180 days following the issue date into shares of the Company's common stock at a conversion price equal to 60% of the lowest closing bid price of the Company's common stock for the thirty trading days prior to conversion.
In connection with the issuance of the convertible promissory note to Labrys, the Company issued 2,700,000 returnable shares. These shares were returnable if the note was paid prior to maturity date on January 8, 2020. The company had not repaid the note on the maturity date, January 8, 2020, therefore the 2,700,000 shares were expensed as an additional fee amounting to $165,780, the value of the shares on the date of grant.
Between January 15, 2020 and February 25, 2020, in terms of conversion notices received, Labrys converted the aggregate principal sum of $8,936 and interest of $19,867 into 479,160,076 shares of common stock at an average conversion price of 0.00006 per share.
On May 15, 2020 the Company entered into an amended agreement with Labrys Fund LP whereby default interest and penalties were waived, no further conversions will be effectuated and the Company committed to make eight equal payments of $25,000 commencing on October 15, 2020, in full settlement of the balance outstanding. No event of default will occur as long as the Company makes all scheduled payments.
Between October 21, 2020 and November 30, 2020, the Company repaid principal of $37,500. The Company was unable to adhere to the amended repayment schedule and default penalty and penalty interest was reinstated.
On November 30, 2020, Labrys converted principal of $235,564 and interest thereon of $20,416 into 91,421,457 shares of common stock, realizing a gain on conversion of $4,571, thereby extinguishing the note.
On November 30, 2020, the Company, entered into a Securities Purchase Agreement with Labrys, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $275,000 for net proceeds of $239,050 after an original issue discount of $27,500 and certain legal expenses. The Note has a maturity date of November 30, 2021 and bears interest at the rate of twelve percent per annum from the date on which the Note was issued until the same became due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note was convertible at any time and from time to time at the election of Labrys during the period beginning on the date that is 180 days following the issue date into shares of the Company's common stock at a conversion price equal to 60% of the lowest closing bid price of the Company's common stock for the thirty trading days prior to conversion.
In connection with the issuance of the convertible promissory note to Labrys, the Company granted Labrys a five-year warrant to purchase 100,000,000 shares of common stock at an exercise price of $0.00205 per share. The value of the warrant was accounted for as a debt discount.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. Short-term Convertible Notes (continued)
Ed Blasiak
On September 14, 2020, the Company entered into a Securities Purchase Agreement with Ed Blasiak (“Blasiak”), pursuant to which the Company issued a senior secured convertible promissory note in the aggregate principal amount of $55,000, including an original issue discount of $5,000. The note bears interest at 6.5% per annum and matures on September 14, 2021. The note is senior to any future borrowings and commencing on October 1, 2020 the Company will make monthly payments of the accrued interest under the note. The note may be prepaid at certain prepayment penalties and is convertible into shares of common stock at a conversion price at the option of the holder at $0.001 per share, adjusted for anti-dilution provisions; or 80% of the price per share of subsequent equity financings or; after six months 60% of the lowest trading price during the preceding six month period.
On September 14, 2020, the Company entered into a five year option agreement with Ed Blasiak (“Blasiak”) whereby the Company agreed to sell to Blasiak a portion of the total outstanding shares of ATHI. The Company provided Blasiak an option to purchase 571,428 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $57), based on the advances that Blasiak made to the Company totaling $50,000. Blasiak shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Blasiak to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
Joshua Bauman
On September 14, 2020, the Company entered into a Securities Purchase Agreement with Joshua Bauman (“Bauman”), pursuant to which the Company issued a senior secured convertible promissory note in the aggregate principal amount of $110,000, including an original issue discount of $10,000. The note bears interest at 6.5% per annum and matures on September 14, 2021. The note is senior to any future borrowings and commencing on October 1, 2020 the Company will make monthly payments of the accrued interest under the note. The note may be prepaid at certain prepayment penalties and is convertible into shares of common stock at a conversion price at the option of the holder at $0.001 per share, adjusted for anti-dilution provisions; or 80% of the price per share of subsequent equity financings or; after six months 60% of the lowest trading price during the preceding six month period.
On September 14, 2020, the Company entered into a five year option agreement with Bauman, whereby the Company agreed to sell a portion of the total outstanding shares of ATHI. The Company provided Bauman an option to purchase 1,142,856 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $114), based on the advances that Bauman made to the Company totaling $110,000. Bauman shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Bauman to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
On October 29, 2020, the Company amended the five year option agreement entered into with Bauman, so that the Company agreed to sell to Bauman a portion of the total outstanding shares of ATHI. The Company provided Bauman an option to purchase 1,428,571 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $143), based on the advances that Bauman made to the Company totaling $120,000. Bauman shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Bauman to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. Short-term Convertible Notes (continued)
Geneva Roth Remark Holdings, Inc
On October 29, 2020, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $88,000, for net proceeds of $85,000 after the payment of legal fees and origination fees amounting to $3,000. The note has a maturity date of August 29, 2021 and bears interest at the rate of 9.0% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser. 180 days after the issued date into shares of the Company’s common stock at 61% of the lowest trade price during the ten consecutive trading days immediately prior to conversion. The principal plus the accrued interest of the Note may be prepaid by the Company prior to the expiry of 180 days from issuance date at a prepayment penalty ranging from 112% to 130%.
On November 24, 2020, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $53,000, for net proceeds of $50,000 after the payment of legal fees and origination fees amounting to $3,000. The note has a maturity date of October 15, 2021 and bears interest at the rate of 9.0% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser. 180 days after the issued date into shares of the Company’s common stock at 61% of the lowest trade price during the ten consecutive trading days immediately prior to conversion. The principal plus the accrued interest of the Note may be prepaid by the Company prior to the expiry of 180 days from issuance date at a prepayment penalty ranging from 112% to 130%.
Series N convertible notes
Between January 28, 2019 and September 17, 2019, the Company closed several tranches of Series N Convertible notes in which it raised $1,643,894 in principal from accredited investors through the issuance to the investors of the Company’s Series N convertible notes, in the total original principal amount of $1,643,894, which Notes are convertible into the Company’s common stock at a conversion price of $0.08 per share together with three year warrants to purchase up to a total of 20,925,000 shares of the Company’s common stock at an exercise price of $0.12 per share. Both the conversion price under the Notes and the exercise price under the warrants are subject to standard adjustment mechanisms. The notes mature one year from the date of issuance.
On May 15, 2019, one investor converted the aggregate principal amount of $950,000 of Series N convertible notes into 11,875,000 shares of common stock at a conversion price of $0.08 per share.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. Mortgage loans
Mortgage loans is disclosed as follows:
Interest
rate
Maturity date
Principal
Outstanding
Accrued
interest
December 31,
December 31,
Cranberry Cove Holdings, Ltd.
Pace Mortgage
4.2 %
July 19, 2022
$ 3,958,315
$ 5,466
$ 3,963,781
$ 3,995,235
$ 3,958,315
$ 5,466
$ 3,963,781
$ 3,995,235
Disclosed as follows:
Short-term portion
$ 115,704
$ 114,290
Long-term portion
3,848,077
3,880,945
$ 3,963,781
$ 3,995,235
The aggregate amount outstanding is payable as follows:
Amount
115,704
3,848,077
Total
$ 3,963,781
Cranberry Cove Holdings, Ltd.
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 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.
14. Short term loans
On April 12, 2019, Eileen Greene, a related party assigned CDN1,000,000 of the amount owed by the Company to her, to a third party. The loan bears interest at 12% per annum which the Company agreed to pay.
15. Government assistance loans
On May 10, 2020, the Company was granted a government assistance loan in the aggregate principal amount of $156,782. The loan is forgivable if the Company demonstrates that the proceeds were used for expenses such as employee costs during the pandemic. Should the loan not be forgiven, interest is payable on the loan at the rate of 1% per annum and the principal is repayable and interest is payable over an 18 month period. No payments have been made to date and the Company expects the loan to be forgiven, therefore no interest has been accrued.
On December 1, 2020, CCH was granted a Covid-19 related government assistance loan in the aggregate principal amount of CDN$ 40,000 (Approximately $31,000). the grant is interest free and CDN$ 10,000 is forgivable if the loan is repaid in full by December 31, 2022.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. Derivative liability
The short-term convertible notes, together with certain warrants issued to convertible note holders disclosed in note 12 above and note 18 below, have variable priced conversion rights with no fixed floor price and will reprice dependent on the share price performance over varying periods of time. This gives rise to a derivative financial liability, which was initially valued at inception of the convertible notes at $1,959,959 using a Black-Scholes valuation model.
The derivative liability is marked-to-market on a quarterly basis. As of December 31, 2020, the derivative liability was valued at $4,765,387.
The following assumptions were used in the Black-Scholes valuation model:
Year ended
December 31,
Calculated stock price
$0.0001 to $0.0034
Risk free interest rate
0.05% to 0.36%
Expected life of convertible notes and warrants
3 to 60 months
expected volatility of underlying stock
193.9% to 779.0%
Expected dividend rate
%
The movement in derivative liability is as follows:
December 31,
December 31,
Opening balance $ 8,694,272 $ 4,618,080
Derivative liability mark-to-market on convertible debt extinguishment 126,444,276 -
Derivative liability on revised convertible notes and warrants arising from convertible debt extinguishment 6,349,265 -
Derivative liability cancelled on debt extinguishment (144,893,444 ) -
Derivative liability on issued convertible notes and variable priced warrants 1,129,050 1,477,163
Fair value adjustments to derivative liability 7,041,968 2,599,029
Closing balance $ 4,765,387 $ 8,694,272
17. Related party transactions
Shawn E. Leon
As of December 31, 2020 and 2019 the Company had a payable to Shawn Leon of $322,744 and $293,072, respectively. Mr. Leon is a director and CEO of the Company. The balances payable are non-interest bearing and has no fixed repayment terms.
Due to the current financial position of the Group, Mr. Leon forfeited the management fees due to him for the years ended December 31, 2020 and 2019.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
17. Related party transactions (continued)
Leon Developments, Ltd.
As of December 31, 2020 and 2019, the Company owed Leon Developments, Ltd. $930,307 and $904,121, respectively, for funds advanced to the Company.
Eileen Greene
As of December 31, 2020 and 2019, the Company owed Eileen Greene, the spouse of our CEO, Shawn Leon, $1,558,798 and $1,595,887, respectively. During the year ended December 31, 2020, Ms. Greene converted $40,000 of funds advanced to the Company to 4,000,000 Series A Preferred shares at a par value of $0.01 per share. During the year ended December 31, 2019, Ms. Greene advanced the company a net $560,824 to fund working capital requirements. The amount owing to Ms. Greene is non-interest bearing and has no fixed repayment terms.
All related party transactions occur in the normal course of operations and in terms of agreements entered into between the parties.
18. Stockholder’s deficit
Authorized, issued and outstanding
On September 20, 2019, in terms of a shareholders resolution and Article of Amendment filed with the Colorado Secretary of State, the Company increased its authorized common share capital to 900,000,000 shares with a par value of $0.01 per share.
On January 6, 2020, the majority of the shareholders of the Company approved an increase in the authorized number of common shares from 900,000,000 to 10,000,000,000 with a par value of $0.01 per share.
Effective August 10, 2020, the Company amended its Articles of Incorporation whereby the authorized share capital was amended to the following:
· Ten billion shares of common stock, par value $0.01 per share;
· Ten million shares of Series A Preferred stock, par value $0.01 per share; and
· Four hundred thousand Series B Preferred stock, par value $1.00 per share.
Series A Preferred stock
The salient terms of the Series A Preferred stock is summarized as follows:
· Convertible into ten shares of common stock six months after the date of issue
· No participation in the profits and losses of the corporation
· No dividend entitlement
· Upon redemption, repurchase or conversion, the Series A Preferred shares shall be cancelled and will not be eligible for reissue.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18. Stockholder’s deficit (continued)
Authorized, issued and outstanding (continued)
Series B Preferred stock
The salient terms of the Series B Preferred stock is summarized as follows:
· Series B Preferred stock will rank senior to all other classes of stock
· Entitled to cumulative dividends at 6% per annum payable in cash or in kind, monthly on the last day of each month, calculated on 360 day year consisting of 12, 30-day periods.
· No voting rights other than on (i) amendment to the articles of incorporation; (ii) mergers, consolidations or reorganizations; (iii) a sale of substantially all of the assets of the Company; (iv) change of the rights and preferences of the Series B preferred stock; (v) fundamental transactions entered into or liquidation of the Company;
· Redeemable at the option of the Company, one year from date of issue;
· Mandatorily redeemable one year after the date of issuance;
· Entitled to participate in any future debt or equity offerings as longs as 10% of the Series B Preferred stock is outstanding.
a) Common shares
Authorized and outstanding
The Company has authorized 10,000,000,000 shares with a par value of $0.01 per share. The company has issued and outstanding 2,027,085,665 and 155,483,897 at December 31, 2020 and 2019, respectively.
On January 17, 2019, the Company issued 71,111 shares of common stock to Leonite in connection with the closing of a financing of a Senior Secured Convertible Note. The shares were valued at $4,978 on the issue date and recorded as a debt discount.
On May 15, 2019, a Series N convertible note holder converted an aggregate principal amount of $950,000 of principal debt into 11,875,000 at a conversion price of $0.08 per share.
During June 2019, the Company issued a total of 5,300,000 shares of common stock to certain consultants, directors and employees for services rendered during the course of the current fiscal year. These shares of common stock were valued at $371,000 at the date of grant.
During June 2019, the Company issued a total of 2,050,000 shares of common stock to certain investors as bonus shares. These shares were valued at $0.07 per share on the date of issuance.
Between September 11, 2019 and December 30, 2019 in terms of conversion notices received from First Fire Global Opportunities Fund, the Company issued 11,887,445 shares of common stock to settle $36,592 of convertible debt.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18. Stockholder’s deficit (continued)
a) Common shares (continued)
Between January 6, 2020 and December 28, 2020, the Company issued 1,586,659,618 shares of common stock upon receipt of conversion notices received from convertible note holders. The shares issued were issued below par based on the market price of the stock on the date of conversion and were valued at $1,137,259. The difference between the conversion price and market price is reflected as finance costs.
On January 8, 2020, the Company recorded the issuance of 2,700,000 shares to Labrys Fund. These shares were originally issued to Labrys fund as shares returnable to the Company dependent on settlement of the convertible note at maturity. The Company did not settle the convertible note or interest thereon at maturity.
Between January 6, 2020 and May 2, 2020, the Company issued 184,000,000 shares of common stock to Leonite Capital LLC in terms of the exercise of 224,390,247 warrants valued at $95,868 at an average exercise price of 0.00043 per share, based on the price protection afforded to the warrant holder.
On June 12, 2020, the Company issued 100,000,000 shares to Ethan Leon for proceeds of $25,000 allocated to him by Ms. Eileen Greene from her related party advance to the Company.
On December 9, 2020, the Company cancelled 1,757,850 shares of common stock previously issued to Mr. Leon, our CEO, as compensation for certain advances to the Company in prior periods. These advances were reinstated as owing to Mr. Leon in the prior year.
b) Series A Preferred shares
Authorized, issued and outstanding
The Company has authorized 10,000,000 Series A preferred shares with a par value of $0.01 per share.
During December 2020, the Company issued 4,000,000 Series A Preferred shares, par value $0.01 per share to Ms. Eileen Greene, for gross proceeds of $40,000 out of related party proceeds previously advanced to the Company by Ms. Greene.
c) Series B Preferred shares
Authorized and outstanding
The Company has authorized 400,000 Series B preferred shares with a par value of $1.00 per share.
With effect from June 12, the Company issued 400,000 Series B shares at a par value of $1.00 per share to Leonite, in settlement of $400,000 of the convertible note owing to Leonite.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18. Stockholder’s deficit (continued)
d) Warrants
The Company issued warrants to Leonite with an initial exercise price of $0.10 per share. The terms of these warrants included a price protection in the form of a reduction in the exercise price should the Company issue any stock at a price below the exercise price. The Company subsequently issued common stock at a price of $0.0000324 per share thereby triggering the price protection clause in the warrant agreement, resulting in an additional 152,017,272,726 warrants exercisable over shares of common stock. Leonite exercised warrants for the cashless purchase of 224,338,247 shares of common stock resulting in the issue of 184,000,000 shares of common stock. The remaining Leonite warrants exercisable for 154,300,675,861 shares of common stock were cancelled in terms of the debt extinguishment agreement entered into with Leonite and the Company issued a five year warrant exercisable for 326,286,847 shares of common stock, exercisable at $0.10 per share or the lowest volume weighted average price over a 30 day period preceding the date of issuance, exercise or twenty four month anniversary of issuance.
In conjunction with the issuance of a convertible note to Auctus, the Company issued a five year warrant exercisable for 66,666,666 shares of common stock at an exercisable price of $0.0015 per share subject to anti-dilution and price protection adjustments. The Company also issued a second five year warrant exercisable for 66,666,666 shares of common stock at an exercisable price of $0.0015 per share subject to anti-dilution and price protection adjustments, which warrants will only be exercisable upon an event of default on the convertible note.
In connection with the issuance of the convertible promissory note to Labrys, the Company granted Labrys a five-year warrant for 100,000,000 shares of common stock at an exercise price of $0.00205 per share.
A summary of all of the Company’s warrant activity during the period January 1, 2019 to December 31, 2020 is as follows:
No. of shares
Exercise price per
share
Weighted average exercise price
Outstanding as of January 1, 2019
97,499,908
$0.003 to $0.12
$ 0.0910000
Granted
27,700,652
$0.10 to $0.12
0.1177300
Adjustment due to price protection
2,456,534,397
$ 0.00204
0.0020400
Forfeited/cancelled
(15,633,709 )
0.03
0.0300000
Exercised
-
-
-
Outstanding as of December 31, 2019
2,566,101,248
$0.00204 to $0.12
$ 0.0044700
Granted
233,333,332
0.0017357
0.0017357
Adjustment due to price protection
152,017,272,726
0.0000324
0.0000324
Forfeited/cancelled
(2,366,666 )
0.0300000
0.0300000
Granted in terms of debt extinguishment
326,286,847
0.000675
0.0006750
Cancelled as part of debt extinguishment
(154,300,675,861 )
0.0000324
0.0000324
Exercised
(224,390,247 )
0.0004
0.0004000
Outstanding as of December 31, 2020
615,561,379
$0.000675 to $0.12
$ 0.0113796
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18. Stockholder’s deficit (continued)
d) Warrants (continued)
The warrants were valued using a Black Scholes pricing model on the date of grant at $1,477,163 using the following weighted average assumptions:
Year ended
December 31,
Calculated stock price
$0.00006 to $0.00205
Risk free interest rate
0.21% to 0.36%
Expected life of warrants
36 to 60 months
expected volatility of underlying stock
193.9% to 236.8%
Expected dividend rate
%
The volatility of the common stock is estimated using historical data of the Company’s common stock. The risk-free interest rate used in the Black Scholes pricing model is determined by reference to historical U.S. Treasury constant maturity rates with maturities approximate to the life of the warrants granted. An expected dividend yield of zero is used in the valuation model, because the Company does not expect to pay any cash dividends in the foreseeable future.
The following table summarizes information about warrants outstanding at December 31, 2020:
Warrants outstanding
Warrants exercisable
Exercise price
No. of shares
Weighted average
remaining years
Weighted average
exercise price
No. of shares
Weighted average
exercise price
$0.00068
326,286,847
4.53
326,286,847
$0.03000
3,703,700
0.28
3,703,700
$0.00150
133,333,332
4.62
133,333,332
$0.00205
100,000,000
4.92
100,000,000
$0.12
52,237,500
0.89
52,237,500
615,561,379
4.28
$ 0.0113796
615,561,379
$ 0.0113796
All of the warrants outstanding as of December 31, 2020 are vested. The warrants outstanding as of December 31, 2020 have an intrinsic value of $1,333,427.
e) 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. We have no issued options at December 31, 2020 under the Plan.
No options were issued, exercised during the year ended December 31, 2020 and 2019, respectively.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
19. Segment information
The Company has two reportable operating segments:
a. Rental income from the property owned by CCH subsidiary located at 3571 Muskoka Road, #169, Bala, on which the operations of the Canadian Rehab Clinic were located prior to disposal on February 14, 2017 and subsequently leased to the purchasers of the business of the Canadian Rehab Clinic, for a period of 5 years renewable for a further three five-year periods and with an option to acquire the property at a fixed price.
b. Rehabilitation Services provided to customers, these services were provided to customers at our Addiction Recovery Institute of America and Seastone of Delray operations.
The segment operating results of the reportable segments for the year ended December 31, 2020 is disclosed as follows:
Year ended December 31, 2020
Rental Operations
In-Patient services
Total
Revenue
$ 338,996
$ -
$ 338,996
Operating expenditure
(134,387 )
(367,953 )
(502,340 )
Operating income (loss)
204,609
(367,953 )
(163,344 )
Other (expense) income
Other income
-
1,183
1,183
Gain on extinguishment of debt
-
12,601,823
12,601,823
Gain on sale of assets
-
36,470
36,470
Loss on debt conversion
-
(585,351 )
(585,351 )
Warrants exercised
-
(95,868 )
(95,868 )
Interest income
-
Interest expense
(241,815 )
(389,610 )
(631,425 )
Amortization of debt discount
-
(861,657 )
(861,657 )
Change in fair value of derivative liability
-
(7,041,968 )
(7,041,968 )
Foreign exchange movements
(77,562 )
(97,938 )
(175,500 )
Net income (loss) before taxation
(114,768 )
3,199,760
3,084,992
Taxation
-
-
-
Net income (loss)
$ (114,768 )
$ 3,199,760
$ 3,084,992
The operating assets and liabilities of the reportable segments as of December 31, 2020 is as follows:
December 31,
Rental Operations
In-Patient services
Total
Purchase of fixed assets
-
-
-
Assets
Current assets
40,912
894,241
935,153
Non-current assets
2,882,220
5,094
2,887,314
Liabilities
Current liabilities
(1,584,724 )
(12,280,077 )
(13,864,801 )
Non-current liabilities
(4,583,765 )
-
(4,583,765 )
Intercompany balances
1,287,681
(1,287,681 )
-
Net liability position
(1,957,676 )
(12,668,423 )
(14,626,099 )
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
19. Segment information (continued)
The segment operating results of the reportable segments for the year ended December 31, 2019 is disclosed as follows:
Year ended December 31, 2019
Rental Operations
In-Patient services
Total
Revenue
$ 331,584
$ 28,363
$ 359,947
Operating expenditure
(17,200 )
(4,542,482 )
(4,559,682 )
Operating income (loss)
314,384
(4,514,119 )
(4,199,735 )
Other (expense) income
Other income
-
6,600
6,600
Loss on sale of assets
-
(1,019,812 )
(1,019,812 )
Penalty on convertible notes
-
(569,628 )
(569,628 )
Loss on debt conversion
-
(203,981 )
(203,981 )
Deposit forfeited
-
(1,665,078 )
(1,665,078 )
Interest income
-
17,226
17,226
Interest expense
(396,100 )
(682,938 )
(1,079,038 )
Amortization of debt discount
-
(3,338,760 )
(3,338,760 )
Change in fair value of derivative liability
-
(2,599,029 )
(2,599,029 )
Foreign exchange movements
(38,992 )
(272,614 )
(311,606 )
Net loss before taxation
(120,708 )
(14,842,133 )
(14,962,841 )
Taxation
-
-
-
Net loss
$ (120,708 )
$ (14,842,133 )
$ (14,962,841 )
The operating assets and liabilities of the reportable segments as of December 31, 2019 is as follows:
December 31, 2019
Rental Operations
In-Patient services
Total
Purchase of fixed assets
72,386
22,868
95,254
Assets
Current assets
4,230
251,212
255,442
Non-current assets
2,955,637
-
2,955,637
Liabilities
Current liabilities
(1,280,442 )
(17,295,416 )
(18,575,858 )
Non-current liabilities
(4,655,765 )
-
(4,655,765 )
Intercompany balances
596,872
(596,872 )
-
Net liability position
(2,379,468 )
(17,641,076 )
(20,020,544 )
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. Net (loss) income per common share
For the year ended December 31, 2019, the following options, warrants and convertible securities were excluded from the computation of diluted net loss per share as the results would have been anti-dilutive.
Year ended
December 31,
Stock options -
Warrants to purchase shares of common stock 2,566,101,248
Convertible notes 1,046,179,457
3,612,280,705
21. 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. Mortgage loans
The company has a mortgage loans as disclosed in note 13 above. The future commitment under this loans is as follows:
Amount
115,704
3,848,077
Total
$ 3,963,781
c. Other
The Company has principal and interest payment commitments under the Convertible notes disclosed under Note 12 above. Conversion of these notes are at the option of the investor, if not converted these notes may need to be repaid.
From time to time, the Company and its subsidiaries enter into legal disputes in the ordinary course of business. The Company believes there are no material legal or administrative matters pending that are likely to have, individually or in the aggregate, a material adverse effect on its business or results of operations.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
22. Income taxes
The Company is current in its US tax filings, except for its 2019 filing, as of December 31, 2020 and is not current in its Canadian tax filings with the 2016 and 2017 returns still outstanding.
The income tax provision/ (benefit) is different from that which would be obtained by applying the statutory Federal income tax rate of 21% and applicable state tax rates of 5% to income before income tax expense. The items causing this difference for the years ended December 31, 2020 and 2019 are as follows:
Year ended December 31, 2020 Year ended December 31, 2019
Tax credit at the federal and state statutory rate 857,250 (3,854,992 )
Foreign taxation (56,212 ) (62,163
Permanent differences (1,091,032 ) 1,569,469
Foreign tax rate differential 1,061 1,173
Valuation allowance 288,933 2,346,513
- -
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities at December 31, 2020 and 2019 are as follows:
December 31,
December 31,
Net operating losses
Net operating loss carry forward 32,968,411 24,023,480
Prior year adjustment to opening balances 150,639 -
Foreign exchange differential 48,579 68,923
Net taxable loss 1,111,286 8,876,008
Valuation allowance (34,278,915 ) (32,968,411 )
- -
The company has established a valuation allowance against its gross deferred tax assets sufficient to bring its net deferred tax assets to zero due to the uncertainty surrounding the realization of such assets. Management has determined it is more likely than not that the net deferred tax assets are not realizable due to the Company’s historical loss position. The valuation allowance for the year ended December 31, 2020 increased by $1,310,504 due to the additional taxation losses incurred for the year ended December 31, 2020 and adjustments made to prior year opening balances.
As of December 31, 2020, the prior three tax years remain open for examination by the federal or state regulatory agencies for purposes of an audit for tax purposes.
Pursuant to the Internal Revenue Code of 1986, as amended (“IRC”), §382, the Company’s ability to use its net operating loss carry forwards to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more than 50% within a three-year period.
As of December 31, 2020, the Company is in arrears on certain US and Canadian tax filings and the amounts presented above are based on estimates. The actual losses available could differ from these estimates. In addition, the Company could be subject to penalties for these unfiled tax returns.
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
22. Income taxes (continued)
As of December 31, 2020 and 2019, the Company has accrued $250,000 in penalties and interest attributable to delinquent tax returns. Management believes the Company has adequately provided for any ultimate amounts that are likely to result from audits of these returns once filed; however, final assessments, if any, could be significantly different than the amounts recorded in the financial statements.
The Company operates in foreign jurisdictions and is subject to audit by taxing authorities. These audits may result in the assessment of amounts different than the amounts recorded in the consolidated financial statements. The Company liaises with the relevant authorities in these jurisdictions in regard to its income tax and other returns. Management believes the Company has adequately provided for any taxes, penalties and interest that may fall due.
The Tax Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017 and significantly changes tax law in the United States by, among other items, reducing the federal corporate income tax rate from a maximum of 35% to 21% (effective January 1, 2018). The Act embraces a territorial system for the taxation of future foreign earnings and modifies certain business deductions by, among other changes, repealing the domestic production activities deduction, further limiting the deductibility of certain executive compensation and increasing the limitation on the deductibility of certain meals and entertainment expenses. On the other hand, the Act permits 100% bonus depreciation on assets placed in service through 2022 (with a phase-out period through 2026). The full effects of these changes will be reflected for the first time in the determination of income tax expense for the year ending December 31, 2018. The Company determined that it had no liability as of December 31, 2018 for the one-time transition tax on deemed repatriated earnings of foreign subsidiaries imposed by the Act.
23. Subsequent events
On January 8, 2021, Leonite converted the remaining balance of the Leonite on demand note in the aggregate principal amount of $70,000 plus accrued interest thereon into 78,763,466 shares of common stock at a conversion price of $0.0009 per share, thereby extinguishing the note.
On March 3, 2021, the Company received a notice of conversion, converting principal and interest in the aggeregate principal amount of $95,000 of the Leonite convertible loan advanced to the Company on July 12, 2020 into 97,000,000 shares of common stock at a conversion price of $0.001 per share.
On March 9, 2021, the Company received a cashless warrant exercise from Auctus Fund, LLC whereby warrants for 66,666,666 shares were exercised at an exercise price of $0.0015 for 59,999,999 net shares.
On January 12, 2021, CCH received a further CDN$ 20,000 Covid-19 related government assistance loan. The loan is interest free and if repaid by December 31, 2022, CDN$ 10,000 is forgivable.
Subsequent to year end, Leonite has advanced the Company an additional $290,000 to the Company for working capital purposes, the option to acquire shares in ATHI from the Company has increased from 4,000,000 to 6,666,667 shares.
The Company intends to continue its operations at a new location in west Palm Beach. A Letter of Intent ("LOI") was signed on February 7, 2020, with a third party that has a property lease and a pending license at its new location. The Company originally anticipated recommencing operations in February 2020, however it has been adversely affected by the COVID-19 pandemic. The LOI requires the Company to provide a working capital loan of up to $500,000, to date the Company has loaned $690,449 as of December 31, 2020. The Company is expected to close on the acquisition shortly.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Annual Evaluation of Disclosure Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Exchange Act), that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), to allow for timely decisions regarding required disclosure.
As required by Exchange Act Rule 13a-15, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as of the end of the period covered by this report. Based on the foregoing evaluation, our Chief Executive Officer and Chief Financial Officer concluded that due to our limited resources our disclosure controls and procedures are not effective in providing material information required to be included in our periodic SEC filings on a timely basis and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure about our internal control over financial reporting discussed below.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Our internal control system was designed to, in general, provide reasonable assurance to our management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. The framework used by management in making that assessment was the criteria set forth in the document entitled “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on that assessment, our management has determined that as of December 31, 2020, our internal control over financial reporting was not effective due to material weaknesses related to a limited segregation of duties due to our limited resources and the small number of employees. Management has determined that this control deficiency constitutes a material weakness which could result in material misstatements of significant accounts and disclosures that could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected. In addition, due to limited staffing, we are not always able to detect minor errors or omissions in reporting.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding management’s assessment of our internal control over financial reporting pursuant to temporary rules of the SEC.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

---

ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.
PART III

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Our current directors and executive officers, their ages and their positions, as of the date of this Annual Report, as follows:
Name Position
Shawn E. Leon Chief Executive Officer, Chief Financial Officer, President and Director
John O’Bireck Director
Gerald T Miller Director
Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.
Shawn E. Leon, Chief Executive Officer, Chief Financial Officer, President and Director
Shawn E. Leon has been an officer and director of the Company since November 2010 and served as the President of the Company’s subsidiaries at all times. In April 2011, Mr. Leon was appointed as the Company’s Chief Executive Officer. Prior to joining the Company, Mr. Leon held the role of President of Greenestone Clinic Inc., Leon Developments Ltd, Port Carling Inn Developments Ltd., 1871 at the Locks Developments Ltd. and Leon Developments Ltd. Mr. Leon graduated with Honors in Business Administration from Wilfrid Laurier University in 1982. Mr. Leon was elected to the Board because of his prior management experience.
John O’Bireck, Director
John O’Bireck of Aurora, Ontario, Canada has been a Control Systems Engineer, since graduating in 1982, and has since been involved with building engineering teams to provide solutions for industrial and transportation industry. He was a cofounder of HayDrive Technologies Ltd. a publicly listed company where he held the positions of Director, Vice-president, Chief Technology Officer and Vice President of Advanced Product Development. Mr. O’Bireck was also the co-founder, Director and President of Supernova Performance Technologies Ltd., a privately held company. In 2014 Mr. O’Bireck was elected as a Director to the Board of Sparta Capital Ltd.
Gerald T. Miller, Director
Gerry Miller of Toronto, Ontario, Canada is the Managing Partner of the Law Firm Gardiner Miller Arnold LLP. Mr. Miller’s practice focuses on a comprehensive range of business, finance and real estate issues. In addition to managing the law firm. Mr. Miller’s runs the business law and real estate practice at Gardiner Miller Arnold LLP Law firm. He advises small to medium sized companies in manufacturing, investing and service related industries. Mr. Miller supervises all merger and acquisition transactions and institutional finance work.
CORPORATE GOVERNANCE
Code of Business Conduct and Ethics
We have adopted a code of conduct that applies to all officers, directors and employees, including those officers responsible for financial reporting. If we make any substantive amendments to the code of conduct or grant any waiver from a provision of the code of conduct to any executive officer or director, we will promptly disclose the nature of the amendment or in a Current Report on Form 8-K to be filed with the SEC.
Our Board of Directors
Our Board currently consists of three members. Our Board judges the independence of its directors by the heightened standards established by the Nasdaq Stock Market. Accordingly, the Board of Directors has determined that our two non-employee directors, Messrs. O’Bireck and Mr. Miller, each meet the independence standards established by the Nasdaq Stock Market and the applicable independence rules and regulations of the SEC. Our Board considers a director to be independent when the director is not one of our or our subsidiaries’ officers or employees or director of our subsidiaries, does not have any relationship which would, or could reasonably appear to, materially interfere with the independent judgment of such director, and the director otherwise meets the independence requirements under the listing standards of the Nasdaq Stock Market and the rules and regulations of the SEC.
Board Committees
Our Board of Directors act as our Audit Committee, our Compensation Committee and our Nominating and Governance Committees.
Audit Committee
The primary purpose of the audit committee is to oversee the quality and integrity of our accounting and financial reporting processes and the audit of our financial statements. The audit committee is responsible for selecting, compensating, overseeing and terminating our independent registered public accounting firm. Specifically, the audit committee’s duties are to recommend to our Board of Directors the engagement of an independent registered public accounting firm to audit our financial statements and to review our accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the external auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls.
Compensation Committee
The compensation committee is responsible for, among other things, reviewing and recommending to our Board the annual salary, bonus, stock compensation and other benefits of our executive officers, including our Chief Executive Officer and Chief Financial Officer; reviewing and providing recommendations regarding compensation and bonus levels of other members of senior management; reviewing and making recommendations to our Board on all new executive compensation programs; reviewing the compensation of our Board; and administering our equity incentive plans. The compensation committee may delegate any or all of its duties or responsibilities to a subcommittee of the compensation committee, to the extent consistent with the Company’s organizational documents and all applicable laws, regulations and rules of markets in which our securities trade, as applicable.
Nominating and Governance Committee
The nominating and governance committee is responsible for, among other things, annually assessing the composition, skills, size and tenure of the Board of Directors in advance of annual meetings and whenever individual directors indicate that their status may change; annually considering new members for nomination to the Board of Directors; causing the Board of Directors to annually review the independence of directors; and developing and monitoring our general approach to corporate governance issues as they may arise.
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, 2020, none of the officers, directors or 10% shareholders were in compliance with Section 16(a).

---

ITEM 11. EXECUTIVE COMPENSATION
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Outstanding Equity Awards at Fiscal Year End
There were no equity awards issued to executive officers during the fiscal year ended December 31, 2020 and there are no outstanding equity awards to named officers as of December 31, 2020.
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
-
$ -
10,000,000
Equity Compensation plans not approved by the stockholders
None
-
-
-
-
$ -
10,000,000
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, 2020.
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
-
-
-
-
-
-
-

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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 2,262,849,130 shares of common Stock issued and outstanding as of April 12, 2021.
Name of beneficial owner
Amount and
nature of beneficial
ownership,
including common
stock
Percentage of
common stock
beneficially owned(1)
Directors and Officers
Shawn E. Leon
171,864,342
(2)
7.6 %
Gerald T. Miller
500,000
(3)
*
John O’Bireck
500,000
(4)
*
All officers and directors as a group (3 persons)
172,864,342
7.6 %
* Less than 1%
(1) Based on 2,262,849,130 shares of common stock outstanding as of April 12, 2021.
(2) Includes 500,000 shares held by Mr. Leon, a further 2,687,300 shares held by Greenestone Clinic, a company controlled by Mr. Leon, a further 60,000,000 shares owned by Leon Developments, a company controlled by Mr. Leon , 8,677,042 shares owned by Eileen Greene, Mr. Leon's spouse and 100,000,000 shares owned by Mr. Leon’s’ son.
(3) Includes 500,000 shares of common stock.
(4) Includes 500,000 shares of common stock.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Party Transactions, and Director Independence
Related Party Transactions
As of December 31, 2020, amounts payable to executive officers or their affiliates for related party payables, as detailed in the below table:
Name
Amount
Owing by the Company
Shawn E. Leon
$ (322,744 )
Leon Developments, LTD(2)
(930,307 )
Eileen Greene(3)
(1,558,798 )
Total
$ (2,811,849 )
(1) Shawn Leon is the Chief Executive Officer of the company
(2) Leon Developments is wholly owned by Shawn Leon, the Company’s Chief Executive Officer
(3) Eileen Greene is the spouse of Shawn Leon.
Shawn E. Leon
As of December 31, 2020 and 2019 the Company had a payable to Shawn Leon of $322,744 and $293,072. Mr. Leon is a director and CEO of the Company. The balances payable are non-interest bearing and has no fixed repayment terms.
Due to the current financial position of the Group, Mr. Leon forfeited the management fees due to him for the years ended December 31, 2020 and 2019.
Leon Developments, Ltd.
As of December 31, 2020 and 2019, the Company owed Leon Developments, Ltd. $930,307 and $904,121, respectively, for funds advanced to the Company.
Eileen Greene
As of December 31, 2020 and 2019, the Company owed Eileen Greene, the spouse of our CEO, Shawn Leon, $1,558,798 and $1,595,887, respectively. During the year ended December 31, 2020, Ms. Greene converted $40,000 of funds advanced to the Company to 4,000,000 Series A Preferred shares at a par value of $0.01 per share. During the year ended December 31, 2019, Ms. Greene advanced the company a net $560,824 to fund working capital requirements. The amount owing to Ms. Greene is non-interest bearing and has no fixed repayment terms.
All related party transactions occur in the normal course of operations and in terms of agreements entered into between the parties.
Directors Independence
The common stock of the Company is currently quoted on the OTC Pink, 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, 2020, 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 ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
Daskal Bolton LLP serves as our independent registered public accounting firm.
The following is a summary of the fees paid by us to Daszkal Bolton LLP for the year ended December 31, 2020 and 2019 for professional services rendered:
Year ended December
31, 2020 Year ended December
31, 2019
Audit fees and expenses $ 77,000 $ 72,000
Taxation preparation fees 4,500 4,500
Audit related fees - -
Other fees - -
$ 81,500 $ 76,500
Audit Fees
Consists of fees billed for professional services rendered for the audit of our consolidated financial statements and review of interim condensed consolidated financial statements included in quarterly reports and services that are normally provided by Daszkal Bolton LLP in connection with statutory and regulatory filings or engagements in fiscal year ended December 31, 2020 and 2019, 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 consolidated financial statements and are not reported under “Audit Fees”.
Tax Fees
Tax Fees consist of the aggregate fees billed for professional services rendered by our principal accounts for tax compliance, tax advice, and tax planning. These services include preparation for federal and state income tax returns.
All Other Fees
We did not incur any other fees billed by auditors for services rendered to our Company, other than the services listed above for the fiscal years ended December 31, 2020 and 2019, respectively.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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, 2020.
1. Independent Auditor’s Report
2. Consolidated Balance Sheets as of December 31, 2020 and 2019
3. Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020 and 2019
4. Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2020 and 2019
5. Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019
6. Notes to Consolidated Financial Statements
(2) All financial statement schedules have been omitted as the required information is either inapplicable or included in the Consolidated Financial Statements or related notes.
(b)
Exhibits
Exhibit No. Description Form SEC File No. Date Filed Herewith Filed by Reference
3.1 Articles of Incorporation of NNRC, Inc. (as filed with the Secretary of State of Colorado on April 1, 1993) 10-K 000-15078 March 28,
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,
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,
X
3.4 Amended and Restated Bylaws of Greenestone Healthcare Corporation 8-K 000-15078 March 29,
X
3.5 Articles of Amendment to the Articles of Incorporation re: Name Change 8-K 000-15078 April 10,
X
3.6
First amendment to Amended and Restated Bylaws 8-K 000-15078 April 10,
X
4.1 Form of Series L Convertible Note and Warrant Agreement 8-K 000-15078
X
4.2
Form of LABRYS LP Convertible Note Agreement 8-K 000-15078 February 2,
X
10.1
Stock Purchase Agreement I 8-K 000-15078 March 29, 2013
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,
X
10.8 Stock Purchase Agreement re: Cranberry Cove Holdings Ltd. 8-K 000-15078 February 17,
X
Exhibit No. Description Form SEC File No. Date Filed Herewith Filed by Reference
10.9
Asset Purchase Agreement re: Sale of Muskoka Clinic 8-K 000-15078 February 17,
X
10.10
Lease of Muskoka Clinic 8-K 000-15078 February
X
16.1
Letter from Jarvis Ryan Associates, LLP 8-K 000-15078 July 19,
X
31.1 Certification of the Principal Executive Officer of the registrant pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (Rule 13(a) -14(a) or Rule 15(d( - 14 (a)
X
31.2 Certification of the Principal Financial Officer of the registrant pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (Rule 13(a) -14(a) or Rule 15(d( - 14 (a)
X
32.1 Certification of the Principal Executive Officer pursuant to Rule 18 U.S.C 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
X
32.2 Certification of the Principal Financial Officer pursuant to Rule 18 U.S.C 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
X
101.INS INS XBRL Instance Document
X
101.SCH SCH XBRL Schema Document
X
101.CAL CAL XBRL Calculation Linkbase Document
X
101.DEF DEF XBRL Definition Linkbase Document
X
101.LAB LAB XBRL Label Linkbase Document
X
101.PRE PRE XBRL Presentation Linkbase Document
X