NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
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)
|
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.
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.
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.
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.
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.
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.
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.
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)
|
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.
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.
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.
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
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.
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
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
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,
2020
|
|
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.
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,
2020
|
|
Year
ended December 31,
2019
|
|
|
|
|
|
Operating lease expense
|
|
$
|
5,512
|
|
|
$
|
1,360,117
|
|
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
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,
2020
|
|
December
31,
2019
|
|
|
|
|
|
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
|
|
|
$
|
583
|
|
|
$
|
-
|
|
|
$
|
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
|
|
|
|
477
|
|
|
|
(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
Mortgage loans is
disclosed as follows:
|
|
Interest
rate
|
|
|
Maturity
date
|
|
Principal
Outstanding
|
|
|
Accrued
interest
|
|
|
December
31,
2020
|
|
|
December
31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
2021
|
|
|
115,704
|
|
2022
|
|
|
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.
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
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,
2020
|
|
|
|
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
|
|
|
0
|
%
|
The
movement in derivative liability is as follows:
|
|
December
31,
2020
|
|
December
31,
2019
|
|
|
|
|
|
Opening balance
|
|
$
|
8,694,272
|
|
|
$
|
4,618,080
|
|
Derivative liability mark-to-market on convertible debt extinguishment
|
|
|
126,444,276
|
|
|
|
—
|
|
Derivative liability on revised convertible notes and warrants
arising from convertible debt extinguishment
|
|
|
6,349,265
|
|
|
|
—
|
|
Derivative liability cancelled on debt extinguishment
|
|
|
(144,893,444
|
)
|
|
|
—
|
|
Derivative liability on issued convertible notes and variable priced
warrants
|
|
|
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.
|
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)
|
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)
|
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,
2020
|
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
|
|
|
0
|
%
|
The
volatility of the common stock is estimated using historical data of the Company’s common stock. The risk-free interest
rate used in the Black Scholes pricing model is determined by reference to historical U.S. Treasury constant maturity rates with
maturities approximate to the life of the warrants granted. An expected dividend yield of zero is used in the valuation model,
because the Company does not expect to pay any cash dividends in the foreseeable future.
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.
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
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
|
|
|
—
|
|
|
|
629
|
|
|
|
629
|
|
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,
2020
|
|
|
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,
2019
|
|
|
|
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.
The
company has a mortgage loans as disclosed in note 13 above. The future commitment under this loans is as follows:
|
|
Amount
|
2021
|
|
|
115,704
|
|
2022
|
|
|
3,848,077
|
|
Total
|
|
$
|
3,963,781
|
|
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
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,
2020
|
|
December
31,
2019
|
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.
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.