NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Since
2010, the Company has operated addiction treatment centers. Initially the Company operated an addiction treatment center in Ontario Canada
under its Greenestone Muskoka clinic, which was sold on February 14, 2017. Simultaneously with this sale the Company purchased buildings
and operated an addiction treatment center in Delray Beach Florida under its Addiction recovery Institute of America subsidiary with
a license obtained in December 2016, initially though owned properties in Delray Beach and subsequently though leased properties in West
Palm Beach, Florida. Since June 30, 2020, the Company has been actively involved in the management of a treatment center operated by
Evernia in West Palm Beach Florida. On July 1, 2021, the Company closed on the acquisition of 75% of ATHI, which owns 100% of Evernia,
once the probationary approval of a license was obtained from the Department of Children and Family Services of Florida. Evernia is the
only active treatment center operated by the Company.
The
Company also owns the real estate on which its Greenstone Muskoka clinic operated. The current tenant operates an addiction treatment
center on these premises. The Company collects rent on this property, which is treated as a separate business segment.
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. |
| |
● |
Certain
non-monetary assets and liabilities and equity at historical rates. |
| |
● |
Revenue
and expense items and cash flows at the average rate of exchange prevailing during the year. |
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 year.
The
relevant translation rates are as follows: For the year ended December 31, 2021, a closing rate of CDN$1 equals US$0.7888 and an average
exchange rate of CDN$1 equals US$0.7977, 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.
The
Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed for
business combinations with third parties based on their estimated fair values. The excess of the fair value of purchase consideration
over the fair values of these identifiable assets and liabilities is recorded as goodwill.
Such
valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant
estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired
technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value
are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results
may differ from estimates.
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. There were no
cash equivalents at December 31, 2021
and 2020.
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 in-network rates. Management estimates the allowance for contractual
and other discounts based on its historical collection experience and contractual rates. The services authorized and provided and related
reimbursement are often subject to interpretation and negotiation that could result in payments that differ from the Company’s
estimates. The Company’s allowance for doubtful accounts is based on historical experience, but management also takes into consideration
the age of accounts, creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts.
An account is written off only after the Company has pursued collection efforts or otherwise determines an account to be uncollectible.
Uncollectible balances are written-off against the allowance. Recoveries of previously written-off balances are credited to income when
the recoveries are made.
| |
g) |
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.
Intangible
assets are stated at acquisition cost less accumulated amortization, if applicable, less any adjustments for impairment losses.
Amortization
is charged on a straight-line basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed
to be impaired the Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible
and its book value.
Licenses
to provide substance abuse rehabilitation services are amortized over the expected life of the contract, including any anticipated renewals.
The Company expects its licenses to remain in operation for a period of five years.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 2. |
Summary of significant accounting
policies (continued) |
The
Company accounts for leases in terms of AC 842 whereby leases are classified as either finance 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 finance leases. At
the time a finance lease is entered into, an asset is recorded together with its related long-term obligation to reflect the acquisition
and financing. Property and equipment recorded under finance 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 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.
The
Company initially measures its financial assets and liabilities at fair value, except for certain non-arm’s length transactions.
The Company subsequently measures all its financial assets and financial liabilities at amortized cost.
Financial
assets measured at amortized cost include cash and accounts receivable.
Financial
liabilities measured at amortized cost include bank indebtedness, accounts payable and accrued liabilities, harmonized sales tax payable,
withholding taxes payable, convertible notes payable, loans payable and related party notes.
Financial
assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized
in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the
allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment
not been recognized previously. The amount of the reversal is recognized in net income. The Company recognizes its transaction costs
in net income in the period incurred. However, financial instruments that will not be subsequently measured at fair value are adjusted
by the transaction costs that are directly attributable to their origination, issuance or assumption.
FASB
ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles,
and expands disclosures about fair value measurements. ASC 820 establishes a three tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value as follows:
| ●
|
Level
1. Observable inputs such as quoted prices in active markets; |
| ● |
Level
2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
| ● |
Level
3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions. |
The
Company measures its convertible debt and derivative liabilities associated therewith at fair value. These liabilities are revalued periodically
and the resultant gain or loss is realized through the Statement of Operations and Comprehensive Loss.
Parties
are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled
by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members
of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if
one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting
parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All
transactions are recorded at fair value of the goods or services exchanged.
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 $176,011and $3,075 at
December 31, 2021 and December 31, 2020, respectively. Management believes that these receivables are properly stated and are not
likely to be settled for a significantly different amount.
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. |
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 2018, through 2020 are subject to audit or review by the US
tax authorities, whereas fiscal 2010 through 2020 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) |
| |
o) |
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 year.
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).
| |
p) |
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, 2021 and 2020 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 no awards with performance conditions and no awards dependent on market conditions.
| |
q) |
Financial
instruments Risks |
The
Company is exposed to various risks through its financial instruments. The following analysis provides a measure of the Company’s
risk exposure and concentrations at the balance sheet date, December 31, 2021 and 2020.
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 $13,245,003,
which includes derivative liabilities of $515,901,
and an accumulated deficit of $44,103,311.
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) |
| |
q) |
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, 2021. 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, 2021, a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in
an approximate $6,187 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.
| |
r) |
Recent
accounting pronouncements |
In
November 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
2021-10, Disclosures by Entities about Government Assistance (Topic 832), the update increases the transparency of government assistance,
including the following disclosures: (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect
of the assistance on an entity’s financial statements.
This
ASU is effective for fiscal years beginning after December 15, 2021.
The
effects of this ASU on the Company’s consolidated financial statements is currently being assessed and is not expected to have
an impact on current disclosure.
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.
| |
s) |
Comparative
and prior period disclosures |
The
comparative and prior period disclosed amounts presented in these consolidated financial statements have been reclassified where necessary
to conform to the presentation used in the current year and period.
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. At
December 31, 2021 the Company has a working capital deficiency of $13.2 million, 13.2
million including
derivative liabilities of $0.5 million 515,901 and
total liabilities in excess of assets in the amount of $9.5 million . 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 as a going concern.
| 4. |
Acquisition
of subsidiaries |
On
June 30, 2020, the Company entered into a stock purchase agreement to 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 the date of acquisition, July 1, 2021, the Company had advanced
Evernia $1,140,985.
The
Company originally had a 180 day option, from the advancement of the first tranche to Evernia, to purchase an additional 9% of ATHI for
a purchase consideration of $50,000.
On
April 28, 2021, the Stock Purchase Agreement was amended whereby the option to purchase an additional 9% of ATHI for $50,000 was
amended to purchase an additional 24%, an increase of 15% over the prior option, for 100,000,000 shares of common stock. The remaining
condition to closing, the receipt of approval for the change of ownership of the license from the Department of Children and Family Services
of Florida, was satisfied by the probationary approval, which was received on June 30, 2021. The Company exercised the option and issued
the 100,000,000 shares of common stock and $50,000. As of December 31, 2021, the Company had issued the 100,000,000 shares
of common stock and had paid $42,750 due to the Seller, in terms of the amended agreement. In addition to the consideration paid
for the additional equity the Company agreed to execute a promissory note for the payment of any unpaid management fees at the time of
Closing such that the unpaid fees shall be paid pari-passu with the repayment of the Loan Agreement and Seller agrees that any funds
advanced to the Company by Behavioral Health Holdings, LLC shall be forgiven and considered contributed capital to ATHI. The Company
agrees to advance up to $1,100,000 under the Loan Agreement for the funding of the operations of ATHI as required without any contribution
required by the Seller.
Pursuant
to the terms of the Amended Purchase Agreement, the consideration paid for 75% of the equity of ATHI was $50,000 in cash plus the issuance
of 100,000,000 shares of the Company’s common stock with a market value of $410,000 on the date of acquisition.
In
terms of the agreement, the preliminary purchase price was allocated to the fair market value of tangible and intangible assets acquired
and liabilities assumed as follows:
| Schedule of intangible
assets acquired and liabilities assumed |
|
|
| |
|
Amount |
| Consideration |
|
|
|
|
| Cash |
|
$ |
50,000 |
|
| 100,000,000 shares of common stock at fair market value |
|
|
410,000 |
|
| Total purchase consideration |
|
$ |
460,000 |
|
| Recognized amounts of
identifiable assets acquired and liabilities assumed |
|
|
|
|
| Cash |
|
$ |
60,324 |
|
| Other Current assets |
|
|
198,133 |
|
| Property, plant and equipment |
|
|
130,234 |
|
| Right of use asset |
|
|
1,772,560 |
|
| Intangibles |
|
|
1,789,903 |
|
| Total
assets |
|
|
3,951,154 |
|
| Less: liabilities assumed |
|
|
|
|
| Current liabilities assumed |
|
|
(50,040 |
) |
| Advances |
|
|
(1,140,985 |
) |
| Operating lease liabilities
assumed |
|
|
(1,836,151 |
) |
| Imputed Deferred taxation
on identifiable intangible acquired |
|
|
(310,645 |
) |
| Total liabilities |
|
|
(3,337,821 |
) |
| Net identifiable assets
acquired and liabilities assumed |
|
|
613,333 |
|
| Fair value of non-controlling
interest |
|
|
(153,333 |
) |
| Total |
|
$ |
460,000 |
|
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 4. |
Acquisition of subsidiaries (continued) |
The
amount of revenue and earnings include in the Company’s consolidated statement of operations and comprehensive (loss) income for
the year ended December 31, 2021 and the revenue and earnings of the combined entity had the acquisition date been January 1, 2020. Evernia
only began operations in June 2020, therefore earning were included from June 2020.
| Schedule of revenue
and earnings |
|
|
|
|
| |
|
Revenue |
|
Earnings |
| |
|
|
|
|
| Actual from July 1, 2021 to December
31, 2021 |
|
$ |
1,568,071 |
|
|
$ |
(115,142 |
) |
| |
|
|
|
|
|
|
|
|
| 2021 Supplemental pro forma from January 1, 2021 to
December 31, 2021 |
|
$ |
3,024,297 |
|
|
$ |
(1,965,484 |
) |
| |
|
|
|
|
|
|
|
|
| 2020 Supplemental pro forma from inception to December
31, 2020 |
|
$ |
420,996 |
|
|
$ |
2,142,531 |
|
The
2021 and 2020 Supplemental pro forma earnings information was adjusted to account for amortization of intangibles on acquisition of $178,990 and
$357,981, respectively.
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 proposed to provide a comprehensive addiction treatment program to large
employee groups. The Company had advanced LLW a total of $120,000 at September 30, 2021. These funds were advanced as short-term
promissory notes that were immediately due and payable.
The
Company has no intention to close on the purchase of LLW, and management recorded a full reserve against this advance as they believe
it is not recoverable.
On
June 30, 2020, the Company entered into an agreement to 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 Evernia $690,449.
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.
On
April 28, 2021, the Stock Purchase Agreement date June 30, 2020 between the Company and the Q Global Trust, and ATHI was amended
whereby the option to purchase an additional 9% of ATHI for $50,000 was amended to purchase an additional 24%, an increase of 15% over
the prior option, for 100,000,000 shares of common stock. The remaining condition to closing, the receipt of approval for the change
of ownership of the license from the Department of Children and Family Services of Florida, was satisfied by the probationary approval,
which was received on June 30, 2021. The Company exercised the option and issued the 100,000,000 shares of common stock and
paid $42,750 of the $50,000 due to the Seller as of December 31, 2021. In addition to the consideration paid for the additional
equity the Company agreed to execute a promissory note for the payment of any unpaid management fees at the time of Closing such that
the unpaid fees shall be paid pari-passu with the repayment of the Loan Agreement and Seller agrees that any funds advanced to the Company
by Behavioral Health Holdings, LLC shall be forgiven and considered contributed capital to ATHI. The Company agrees to advance up to
$1,100,000 under the Loan Agreement for the funding of the operations of ATHI as required without any contribution required by the
Seller.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 6. |
Other investments (continued) |
On
June 30, 2020, the Company entered into an agreement to 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. During 2021, the Company decided not to pursue the acquisition of BHHI.
| 7. |
Due
on sale of subsidiary |
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, 2021, 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$6,485 (approximately US$ 5,115).
| 8. |
Property
and equipment |
Property
and equipment consists of the following:
| Schedule
of sale of property |
|
December
31,
2021 |
|
December
31, 2020 |
| |
|
Cost |
|
Accumulated
depreciation |
|
Net
book value |
|
Net
book value |
| Land |
|
$ |
169,585 |
|
|
$ |
— |
|
|
$ |
169,585 |
|
|
$ |
168,866 |
|
| Property |
|
|
3,208,034 |
|
|
|
(611,444 |
) |
|
|
2,596,590 |
|
|
|
2,713,354 |
|
| Leasehold improvements |
|
|
166,195 |
|
|
|
(12,465 |
) |
|
|
153,730 |
|
|
|
— |
|
| Furniture and fittings |
|
|
51,518 |
|
|
|
(9,378 |
) |
|
|
42,140 |
|
|
|
— |
|
| Vehicles |
|
|
55,949 |
|
|
|
(6,681 |
) |
|
|
49,268 |
|
|
|
— |
|
| Computer equipment |
|
|
1,450 |
|
|
|
(100 |
) |
|
|
1,350 |
|
|
|
— |
|
| |
|
$ |
3,652,731 |
|
|
$ |
(640,070 |
) |
|
$ |
3,012,663 |
|
|
$ |
2,882,220 |
|
Depreciation
expense for the year ended December 31, 2021 and 2020 was $146,360
and $121,276,
respectively.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Intangible
assets consist of the Company’s preliminary estimate of the fair value of intangibles acquired with the acquisition of ATHI disclosed
in Note 4 above. The Company preliminarily allocated the excess over the tangible assets acquired, less the liabilities assumed to the
contract provided to the Company by a health care service provider.
Intangible
assets consist of the following:
| Schedule
of Intangible assets |
|
December
31,
2021 |
| |
|
Cost |
|
Accumulated
amortization |
|
Net book
value |
| Health care Provider license |
|
$ |
1,789,903 |
|
|
$ |
178,990 |
|
|
$ |
1,610,913 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The
Company evaluates intangible assets for impairment on an annual basis during the last month of each year and at an interim date if indications
of impairment exist. Intangible asset impairment is determined by comparing the fair value of the asset to its carrying amount with an
impairment being recognized only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.
The
Company recorded $178,990 in
amortization expense for finite-lived assets for the year ended December 31, 2021.
The
Company acquired ATHI on July 1, 2021, ATHI’s wholly owned subsidiary had entered into an operating lease agreement for certain
real property located at 1590 S. Congress Avenue,
West Palm Beach, Florida, with effect from February 1, 2019 for a period of three years, expiring on 1 February 2022. Under the
terms of the lease agreement, the lease was extended during October 2021 for a further 5 year period until 1 February 2027.
To
determine the present value of minimum future lease payments for operating leases at February 1, 2019, the Company was required to estimate
a rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments
in a similar economic environment (the "incremental borrowing rate" or "IBR").
The
Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing
options and certain lease-specific circumstances. For the reference rate, the Company used the average of (i) the five year ARM interest
rate as quoted by Freddie Mac adjusted for a risk premium of 20%. The Company determined that 4.64% per annum was an appropriate
incremental borrowing rate to apply to its real-estate operating lease.
Right of use assets are included in the consolidated balance sheet are as follows:
| Schedule of Right
of use assets |
|
|
|
|
|
|
|
|
| |
|
December
31,
2021 |
|
December
31,
2020 |
| Non-current assets |
|
|
|
|
|
|
|
|
| Right-of-use assets – finance
leases, net of depreciation, included in Property and equipment |
|
$ |
49,268 |
|
|
$ |
— |
|
| Right-of-use assets - operating leases, net of amortization |
|
$ |
1,653,816 |
|
|
$ |
— |
|
Lease
costs consists of the following:
| Schedule of Lease
costs |
|
|
|
|
|
|
|
|
| |
|
Year ended
December 31, |
| |
|
2021 |
|
2020 |
| Finance lease cost: |
|
|
|
|
|
|
|
|
| Amortization of right-of-use assets |
|
$ |
6,681 |
|
|
$ |
— |
|
| Interest expense on finance lease liabilities |
|
|
1,367 |
|
|
|
— |
|
| Finance lease cost |
|
|
8,048 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
| Operating lease cost |
|
$ |
178,679 |
|
|
$ |
5,512 |
|
| Lease cost |
|
$ |
186,727 |
|
|
$ |
5,512 |
|
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Other
lease information:
| Schedule of Other
lease |
|
|
|
|
|
|
|
|
| |
|
Year ended
December 31, |
| |
|
2021 |
|
2020 |
| Cash paid for amounts included in the measurement
of lease liabilities |
|
|
|
|
| Operating cash flows from finance
leases |
|
$ |
(1,367 |
) |
|
$ |
— |
|
| Operating cash flows from operating leases |
|
|
(160,272 |
) |
|
|
(5,512 |
) |
| Financing cash flows from finance leases |
|
|
40,281 |
|
|
|
— |
|
| Cash paid for amounts included in
the measurement of lease liabilities |
|
$ |
(121,358 |
) |
|
$ |
(5,512 |
) |
| |
|
|
|
|
|
|
|
|
| Weighted average lease term – finance leases |
|
|
4
years and ten months |
|
|
|
— |
|
| Weighted average remaining lease term – operating
leases |
|
|
5
years and 1 months |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
| Discount rate – finance leases |
|
|
6.61 |
% |
|
|
— |
|
| Discount rate – operating leases |
|
|
4.64 |
% |
|
|
— |
% |
Maturity
of Leases
Finance
lease liability
The
amount of future minimum lease payments under finance leases as of December 31, 2021 is as follows:
| Schedule of Finance
lease liability |
|
|
|
|
| |
|
Amount |
| 2022 |
|
$ |
9,829 |
|
| 2023 |
|
|
9,829 |
|
| 2024 |
|
|
9,829 |
|
| 2025 |
|
|
9,829 |
|
| 2026 |
|
|
7,902 |
|
| Total undiscounted minimum future
lease payments |
|
|
47,218 |
|
| Imputed interest |
|
|
(6,937 |
) |
| Total finance lease liability |
|
$ |
40,281 |
|
| Disclosed as: |
|
|
|
|
| Current portion |
|
$ |
7,386 |
|
| Non-Current portion |
|
|
32,895 |
|
| Lease liability |
|
$ |
40,281 |
|
Operating
lease liability
The
amount of future minimum lease payments under operating leases are as follows:
| Schedule of Operating
lease liability |
|
|
| |
|
Amount |
| |
|
|
| 2022 |
|
$ |
332,073 |
|
| 2023 |
|
|
348,677 |
|
| 2024 |
|
|
366,110 |
|
| 2025 |
|
|
384,416 |
|
| 2026 |
|
|
437,407 |
|
| Total undiscounted minimum future lease payments |
|
|
1,868,683 |
|
| Imputed interest |
|
|
(134,169 |
) |
| Total operating lease liability |
|
$ |
1,734,514 |
|
| |
|
|
|
|
| Disclosed as: |
|
|
|
|
| Current portion |
|
$ |
241,083 |
|
| Non-Current portion |
|
|
1,493,431 |
|
| Lease liability |
|
$ |
1,734,514 |
|
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Taxes
payable consist of:
| ● |
A
payroll tax liability of $144,021 (CDN$182,589) in Greenestone Muskoka which has not been
settled as yet.
|
| ● |
A
GST/HST tax payable of $123,134 (CDN$156,109).
|
| ● |
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. Previously an amount of $250,000 was accrued for any potential exposure,
this accrual has been reversed in the current year. |
| Schedule of taxation
payable |
|
|
|
|
|
|
|
|
| |
|
December
31,
2021 |
|
December
31,
2020 |
| |
|
|
|
|
| Payroll taxes |
|
$ |
144,020 |
|
|
$ |
143,410 |
|
| HST/GST payable |
|
|
123,134 |
|
|
|
73,503 |
|
| US penalties due |
|
|
— |
|
|
|
250,000 |
|
| Income tax payable |
|
|
391,682 |
|
|
|
383,364 |
|
| Taxes Payable |
|
$ |
658,836 |
|
|
$ |
850,277 |
|
| 12. |
Short-term
Convertible Notes |
The
short-term convertible notes consist of the following:
| Schedule of short-term convertible
notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Interest
rate |
|
Maturity
Date |
|
Principal |
|
Interest |
|
Debt
Discount |
|
December
31, 2021 |
|
December
31, 2020 |
| Leonite Capital, LLC |
|
|
8.5 |
% |
|
— |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
70,583 |
|
| |
|
|
12.0 |
% |
|
On
Demand |
|
|
278,629 |
|
|
|
36,950 |
|
|
|
— |
|
|
|
315,579 |
|
|
|
147,058 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| First Fire Global Opportunities Fund |
|
|
6.5 |
% |
|
October 29,2021 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25,297 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Auctus Fund, LLC |
|
|
0.0 |
% |
|
On Demand |
|
|
100,000 |
|
|
|
— |
|
|
|
— |
|
|
|
100,000 |
|
|
|
150,000 |
|
| |
|
|
10.0 |
% |
|
August 13, 2021 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
40,202 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Labrys Fund, LP |
|
|
12.0 |
% |
|
November
30, 2021 |
|
|
— |
|
|
|
8,826 |
|
|
|
— |
|
|
|
8,826 |
|
|
|
26,159 |
|
| |
|
|
11.0 |
% |
|
May
7, 2022 |
|
|
543,671 |
|
|
|
— |
|
|
|
(189,167 |
) |
|
|
354,504 |
|
|
|
— |
|
| |
|
|
11.0 |
% |
|
June
2, 2022 |
|
|
230,000 |
|
|
|
14,899 |
|
|
|
(96,411 |
) |
|
|
148,488 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ed Blasiak |
|
|
6.5 |
% |
|
September
14, 2021 |
|
|
55,000 |
|
|
|
4,697 |
|
|
|
— |
|
|
|
59,697 |
|
|
|
17,347 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Joshua Bauman |
|
|
6.5 |
% |
|
September
14, 2021 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
43,247 |
|
| |
|
|
11.0 |
% |
|
October
21, 2022 |
|
|
150,000 |
|
|
|
3,210 |
|
|
|
(120,823 |
) |
|
|
32,387 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Geneva Roth Remark Holdings, Inc. |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
) |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Series N convertible notes |
|
|
6.0 |
% |
|
On
Demand |
|
|
3,229,000 |
|
|
|
619,073 |
|
|
|
— |
|
|
|
3,848,073 |
|
|
|
3,654,333 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
$ |
4,660,344 |
|
|
$ |
693,579 |
|
|
$ |
(461,985 |
) |
|
$ |
4,891,938 |
|
|
$ |
4,200,217 |
|
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 12. |
Short-term Convertible Notes
(continued) |
Leonite
Capital, LLC
Convertible
Promissory Notes
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.
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 Leonite 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 option, 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
December 28, 2020, Leonite 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. On January 8, 2021, Leonite converted
the remaining principal amount of $70,000, plus accrued interest thereon of $137, into 78,763,466 shares of common stock at
a conversion price of $0.0009 per share.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 12. |
Short-term Convertible Notes
(continued) |
Leonite
Capital, LLC (continued)
Convertible
Promissory notes (continued)
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.
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 has provided Leonite an option to purchase 33% of ATHI from the Company for
a purchase consideration of $0.0001 per share, based on the advances that Leonite made to the Company totaling $655,000. 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.
In
terms of clause 3.12 of the Senior secured convertible Promissory Note Agreement (“Leonite Note”) entered into with Leonite
and the amendments thereto, the terms of the convertible promissory note issued to Labrys Fund LP on November 30, 2020, as described
below, contained terms more favorable than those contained in the Leonite Note, resulting in an adjustment made to the Original issue
discount of $4,000 and the issuance of five year warrants exercisable for 145,454,547 shares of common at an exercise
price of $0.00205 per share, for all advances made to the Company by Leonite in terms of the Leonite Note, up to and including December
31, 2020.
On
January 8, January 22, February 4, and February 19, 2021, Leonite advanced the company an aggregate cash amount of $290,000, including
a revised original issue discount of $74,556 for an aggregate principal sum added to the Leonite Note of $364,556.
On
March 3, 2021, in terms of a conversion notice, Leonite converted the principal sum of $82,681 and interest thereon of $12,319 of
the Leonite Note into 97,000,000 shares of common stock at a conversion price of $0.0009 per share.
On
June 1, 2021, in terms of a conversion notice, Leonite converted the principal sum of $25,084 and interest thereon of $4,166 of
the Leonite Note into 30,000,000 shares of common stock at a conversion price of $0.0009 per share.
On
June 10, 2021, in terms of a conversion notice, Leonite converted the principal sum of $58,908 and interest thereon of $342 of
the Leonite Note into 60,000,000 shares of common stock at a conversion price of $0.0009 per share.
On
September 10, 2021, in terms of a conversion notice, Leonite converted the principal sum of $59,260 and interest thereon of $1,718 of
the Leonite Note into 59,259,630 shares of common stock at a conversion price of $0.0010 per share.
On
October 19, 2021, in terms of a conversion notice, Leonite converted the principal sum of $44,444 and interest thereon of $5,302 of
the Leonite Note into 50,496,728 shares of common stock at a conversion price of $0.0010 per share.
On
October 29, 2021, the Company issued 83,771,947 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $83,022 at a conversion price of $0.0009 per share.
On
November 22, 2021, in terms of a conversion notice, Leonite converted the principal sum of $50,532 and interest thereon of $7,145 of
the Leonite Note into 58,427,091 shares of common stock at a conversion price of $0.0010 per share.
On
December 13, 2021, in terms of a conversion notice, Leonite converted the principal sum of $89,684 and interest thereon of $249 of
the Leonite Note into 90,682,696 shares of common stock at a conversion price of $0.0010 per share.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 12. |
Short-term Convertible Notes
(continued) |
Power
Up Lending Group LTD
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 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 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 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 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 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 had a maturity date of December 9, 2019. The outstanding principal amount of the note was 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 had certain buyback terms if the Company consummated 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 6.25% of ATHI from the Company
for a purchase consideration of $0.0001 per share, based on the advances that First Fire made to the Company totaling $125,000.
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.
In
terms of clause 3.12 of the Senior secured convertible Promissory Note Agreement (“First Fire Note”) entered into with First
Fire, the terms of the convertible promissory note issued to Labrys Fund LP on November 30, 2020, as described below, contained terms
more favorable than those contained in the First Fire Note, resulting in an adjustment made to the Original issue discount of $1,389 and
the issuance of five year warrants exercisable for 50,505,051 shares of common at an exercise price of $0.00205 per share,
for the advance made to the Company by First Fire in terms of the First Fire Note.
On
May 10, 2021, the Company repaid the principal outstanding of $138,889, including interest and early settlement penalty thereon for the
payment of $164,913.
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. During the year ended December 31, 2021, the Company
repaid Auctus the principal sum of $50,000.
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) |
Auctus
Fund, LLC (continued)
On
March 9, 2021, Auctus exercised its warrant for 66,666,666 shares of common stock on a cashless exercise basis, resulting in the issue
of 59,999,999 shares of common stock.
On
May 10, 2021, the company settled the remaining balance of the August 13, 2020 convertible promissory with an aggregate principal amount
of $95,000, together with interest and settlement penalty thereon for the payment of $110,000.
In
addition, on May 10, 2021, the Company paid a further $15,000 of principal on the convertible promissory note entered into on August
7, 2019, thereby reducing the principal outstanding to $100,000. The note matured May 7, 2020 and remains in default.
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 recorded as a charge to expense as an additional fee amounting
to $165,780, the value of the shares on the date of issuance.
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) |
Labrys
Fund, LP (continued)
On
May 3, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $57,000 including
interest thereon of $33,000 into 100,000,000 shares of common stock.
On
July 7, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $100,800 into 112,000,000 shares
of common stock.
On
September 28, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $54,000 into 60,000,000 shares
of common stock.
On
October 8, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $55,800 into 62,000,000 shares
of common stock.
On
October 15, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $7,400 into 8,222,222 shares
of common stock.
On
May 7, 2021, 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 $550,000 for net proceeds of $477,700 after an original issue discount
of $55,000 and certain legal expenses of $17,300. The Note has a maturity date of May 7, 2022 and bears interest at the
rate of eleven 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
$0.005, subject to anti-dilution adjustments.
In
connection with the issuance of the convertible promissory note to Labrys, the Company granted Labrys a five-year warrant to purchase
91,666,666 shares of common stock at an exercise price of $0.006 per share. The value of the warrant was accounted for as a debt discount.
On
November 23, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $6,329 and
interest of $60,500 into 75,000,000 shares of common stock.
On
June 2, 2021, 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 $230,000 for net proceeds of $200,000 after an original issue discount
of $23,000 and certain legal expenses of $7,000. The Note has a maturity date of June 2, 2022 and bears interest at the
rate of eleven 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
$0.004, subject to anti-dilution adjustments.
In
connection with the issuance of the convertible promissory note to Labrys, the Company granted Labrys a five-year warrant to purchase
52,272,727 shares of common stock at an exercise price of $0.0044 per share. The value of the warrant was accounted for as a debt discount.
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 2.5%
of ATHI from the Company for a purchase consideration of $0.0001 per share, 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.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 12. |
Short-term Convertible Notes
(continued) |
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
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 6.25% of ATHI from the Company
for a purchase consideration of $0.0001 per share, based on the advances that Bauman made to the Company totaling $125,000. 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
June 8, 2021, in terms of a conversion notice received by the company, Bauman converted the aggregate principal sum of $100,000 including
interest thereon of $5,563 into 106,313,288 shares of common stock.
On
October 25, 2021, in terms of a conversion notice received by the company, Bauman converted the aggregate principal sum of $37,500 including
interest thereon of $1,155 into 39,405,310 shares of common stock, thereby extinguishing the note.
On
October 21, 2021, 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 $150,000, including an original issue
discount of $16,250. The note bears interest at 11.0% per annum, which is guaranteed and earned in full on issue date and matures
on October 21, 2022. 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.
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%.
On
March 3, 2021, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory
Note in the aggregate principal amount of $53,500, for net proceeds of $50,000 after the payment of legal fees and origination fees
amounting to $3,500. The note has a maturity date of January 3, 2022 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%.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 12. |
Short-term Convertible Notes
(continued) |
Geneva
Roth Remark Holdings, Inc (continued)
On
April 30, 2021 the Company prepaid the note issued on October 29, 2020, to Geneva Roth Remark Holdings, Inc., in the aggregate principal
amount of $88,000 including interest and early settlement penalty thereon for a total payment of $119,449.
On
May 21, 2021, the Company prepaid the note issued on November 24, 2020 to Geneva Roth Remark Holdings, Inc., in the aggregate principal
amount of $53,000 including interest and early settlement penalty thereon for a total payment of $71,907.
On
September 8, 2021, the Company prepaid the note issued on March 3, 2021 to Geneva Roth Remark Holdings, Inc., in the aggregate principal
amount of $53,500 including interest and early settlement penalty thereon for a total payment of $72,620.
On
October 1, 2021, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory
Note in the aggregate principal amount of $95,200,
for net proceeds of $85,000 before the payment of legal fees and origination fees amounting
to $3,750. The note has a maturity date of October 1, 2022 and
bears interest at the rate of 8.0% per annum, due immediately on the issuance date of the note. The outstanding principal amount of the
note is payable in nine monthly payments of $11,424 commencing on November 15, 2021.
The note is convertible into shares of common stock upon an event of default at the election of the purchaser. The conversion price is
75% of the lowest trading price for the preceding five days prior to the date of conversion.
Series
N convertible notes
Between
January 28, 2019 and June 11, 2020, the Company closed several tranches of Series N Convertible notes in which it raised $3,229,000 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 $3,229,000, which Notes are convertible into the Company’s common stock at a conversion price of $0.08 per
share together with three year warrants to purchase up to a total of 52,237,500 shares of the Company’s common stock
at an exercise price of $0.12 per share. Both the conversion price under the Notes and the exercise price under the warrants are
subject to standard adjustment mechanisms. The notes matured one year from the date of issuance.
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.
Mortgage
loans is disclosed as follows:
| Schedule
of mortgage loans |
|
Interest
rate |
|
|
Maturity
date |
|
Principal
Outstanding |
|
|
Accrued
interest |
|
|
December
31,
2021 |
|
|
December
31,
2020 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cranberry Cove Holdings, Ltd. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pace Mortgage |
|
|
4.2 |
% |
|
July
19, 2022 |
|
$ |
3,858,983 |
|
|
$ |
5,329 |
|
|
$ |
3,864,312 |
|
|
$ |
3,963,781 |
|
| Disclosed as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Short-term portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,864,312 |
|
|
$ |
115,704 |
|
| Long-term portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
3,848,077 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,864,312 |
|
|
$ |
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.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 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 was forgivable
if the Company demonstrated that the proceeds were used for expenses such as employee costs during the pandemic. This loan was forgiven
in September 2021.
On
May 3, 2021, the Company was granted a second government assistance loan in the aggregate principal amount of $157,367. The loan is forgivable
if the Company demonstrates that the proceeds were used for expenses such as employee costs during the pandemic. Should the loan not
be forgiven, interest is payable on the loan at the rate of 1% per annum and the principal is repayable and interest is payable over
an 18 month period. No payments have been made to date and the Company expects the loan to be forgiven, therefore no interest has been
accrued.
On
December 1, 2020, CCH was granted a Covid-19 related government assistance loan in the aggregate principal amount of CDN$ 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.
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.
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, 2021, the derivative liability was valued at $515,901.
The
following assumptions were used in the Black-Scholes valuation model:
| Schedule
of assumption used in Black Scholes |
|
Year
ended
December 31,
2021 |
|
| |
|
|
| Calculated stock price |
|
|
$0.00066 to
$0.0055 |
|
| Risk free interest rate |
|
|
0.01%
to 0.97 |
% |
| Expected life of convertible notes and warrants |
|
|
3 to 60 months |
|
| expected volatility of underlying stock |
|
|
80.9%
to 299.1 |
% |
| Expected dividend rate |
|
|
0 |
% |
The
movement in derivative liability is as follows:
| Schedule of derivative
liability |
|
December
31,
2021 |
|
December
31,
2020 |
| |
|
|
|
|
| Opening balance |
|
$ |
4,765,387 |
|
|
$ |
8,694,272 |
|
| 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 |
|
|
— |
|
|
|
(145,109,526 |
) |
| Mark-to-market adjustments on converted
notes |
|
(2,914,119 |
) |
|
|
|
— |
|
| Derivative liability on issued convertible notes |
|
|
190,824 |
|
|
|
1,129,050 |
|
| Fair value adjustments to derivative liability |
|
|
(1,526,191 |
) |
|
|
7,258,050 |
|
| |
|
|
|
|
|
|
|
|
| Closing balance |
|
$ |
515,901 |
|
|
$ |
4,765,387 |
|
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 17. |
Related
party transactions |
Shawn
E. Leon
As
of December 31, 2021 and 2020 the Company had a payable to Shawn Leon of $106,100 and
$322,744,
respectively. Mr. Leon is a director and CEO of the Company. The balances payable are non-interest bearing and has no fixed repayment
terms.
Management
fees from prior periods due to Mr. Leon amounting to $259,707,
and reflected as a payable to Mr. Leon were reversed during the current year.
Due
to the current financial position of the Group, Mr. Leon forfeited the management fees due to him for the years ended December 31, 2021
and 2020.
Leon
Developments, Ltd.
As
of December 31, 2021 and 2020, the Company owed Leon Developments, Ltd. $935,966 and $930,307, respectively, for funds advanced
to the Company.
Eileen
Greene
As
of December 31, 2021 and 2020, the Company owed Eileen Greene, the spouse of our CEO, Shawn Leon, $1,472,215 and
$1,558,798,
respectively. 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
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 3,579,053,805
and 2,027,085,665 2,207,085,665 shares of common stock at December 31, 2021 and December
31, 2020, respectively.
On
January 8, 2021, the Company issued 78,763,466 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $70,137.
On
March 3, 2021, the Company issued 97,000,000 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $95,000.
On
March 9, 2021, the Company received notification of exercise of warrants for 66,666,666 shares on a cashless basis, resulting
in the issuance of 59,999,999 shares of common stock valued on the date of issuance at $90,000.
On
May 3, 2021, the Company issued 100,000,000 shares of common stock to Labrys in connection with a conversion notice received,
converting principal and interest of $90,000.
On
May 13 2021, the Company received notification of exercise of warrants for 50,505,051 shares on a cashless basis, resulting
in the issuance of 42,353,038 shares of common stock valued on the date of issuance at $86,824.
On
June 1, 2021, the Company issued 30,000,000 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $59,250.
On
June 8, 2021, the Company issued 106,313,288 shares of common stock to Joshua Bauman in connection with a conversion notice
received, converting principal and interest of $105,563.
On
June 10, 2021, the Company issued 60,000,000 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $59,250.
On
July 1, 2021, in terms of the amendment to the stock Purchase Agreement entered into on June 30, 2020 between the Company and the
Q Global Trust, LLC, and American Treatment Holdings, the company issued 100,000,000 shares of common stock thereby closing
the transaction and acquiring a controlling interest in American Treatment Holdings.
On
July 7, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $100,800 into 112,000,000 shares
of common stock.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 18. |
Stockholder’s deficit (continued) |
| |
a) |
Common shares (continued) |
On
August 6, 2021, the company received a cashless warrant exercise from Labrys, exercising warrants for 100,000,000 shares for
net shares of 86,333,333 shares of common stock.
On
September 10, 2021, the Company issued 59,259,630 shares of common stock to Leonite in connection with a conversion notice
received, converting principal and interest of $60,977.
On
September 24, 2021, the company received a cashless warrant exercise from Labrys, exercising warrants for 91,666,666 shares
for net shares of 54,999,999 shares of common stock.
On
September 24, 2021, the company received a cashless warrant exercise from Labrys, exercising warrants for 60,000,000 shares
for net shares of 36,939,393 shares of common stock.
On
September 28, 2021, the Company issued 60,000,000 shares of common stock to Labrys in connection with a conversion notice received,
converting principal of $54,000.
On
October 8, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $55,800 into 62,000,000 shares
of common stock.
On
October 15, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $7,400 into 8,222,222 shares
of common stock.
On
October 19, 2021, the Company issued 50,496,728 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $49,747.
On
October 25, 2021, the Company issued 39,405,310 shares of common stock to Joshua Bauman in connection with a conversion notice
received, converting principal and interest of $38,655.
On
October 29, 2021, the Company issued 83,771,947 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $83,022.
On
November 22, 2021, the Company issued 58,427,091 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $57,677.
On
November 23,2021, the Company issued 75,000,000 shares of common stock to Labrys in connection with a conversion notice received, converting
principal and interest of $66,829.
On
December 13, 2021, in terms of a conversion notice received by the company, Leonite converted the aggregate principal and interest amount
of $89,933 into 90,682,696 shares of common stock.
| |
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. The company has,
issued and outstanding 4,000,000 Series A Preferred shares at December 31, 2021 and December 31, 2020, respectively.
| |
c) |
Series B Preferred shares |
Authorized
and outstanding
The
Company has authorized 400,000 10,000,000 Series B preferred shares with a par value of $1.00 per share. The company has issued
and outstanding 400,000 Series B Preferred shares at December 31, 2021 and December 31, 2020, respectively.
The
Secured Promissory Note Agreements entered into with Leonite and First Fire contain certain conversion price protection and anti-dilution
protection provisions, which were triggered as a result of the terms contained in the promissory note issued to Labrys Fund LP on November
30, 2020. As a result, the Company issued five year warrants exercisable for 195,959,598 shares of common stock at an exercise
price of $0.00205 per share, for all advances made to the Company by the lenders in terms of the secured Promissory Note Agreements.
Between
January 8, 2021 and February 19, 2021, Leonite advanced the Company an additional $290,000 and in terms of clause 3.12 of the Secured
Promissory Note Agreement entered into with Leonite, the Company granted Leonite five year warrants exercisable for 131,111,112 shares
of common stock at an exercise price of $0.00205 per share.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 18. |
Stockholder’s deficit (continued) |
On
March 9, 2021, the Company received a cashless warrant exercise notice, exercising warrants for 66,666,666 shares for net shares
of 59,999,999 shares of common stock.
On
May 13, 2021, the company received a cashless warrant exercise notice, exercising warrants for 50,505,051 shares for net shares
of 42,353,038 shares of common stock.
On
May 7, 2021, in connection with the issuance of the convertible promissory note to Labrys, the Company granted Labrys a five-year
warrant to purchase 91,666,666 shares of common stock at an exercise price of $0.006 per share
On
June 2, 2021, in connection with the issuance of the convertible promissory note to Labrys, the Company granted Labrys a five-year
warrant to purchase 52,272,727 shares of common stock at an exercise price of $0.0044 per share.
On
August 6, 2021, the company received a cashless warrant exercise from Labrys, exercising warrants for 100,000,000 shares for net shares
of 86,333,333 shares of common stock.
On
September 10, 2021, the Company issued 59,259,630 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $60,977.
On
September 24, 2021, the company received a cashless warrant exercise from Labrys, exercising warrants for 91,666,666 shares for net shares
of 54,999,999 shares of common stock.
On
September 24, 2021, the company received a cashless warrant exercise from Labrys, exercising warrants for 60,000,000 shares for net shares
of 36,939,393 shares of common stock.
A
summary of all of the Company’s warrant activity during the period from January 1, 2020 to December 31, 2021 is as follows:
| Schedule
of warrants outstanding |
|
No.
of shares |
|
Exercise
price
per share |
|
Weighted
average exercise
price |
| |
|
|
|
|
|
|
| Outstanding
as of January 1, 2020 |
|
|
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 |
|
|
|
0.011380 |
|
| Granted |
|
|
471,010,103 |
|
|
$ |
0.0020500 |
|
|
|
0.003080 |
|
| Forfeited/cancelled |
|
|
(101,682,866 |
) |
|
|
$0.0015
to 0.12 |
|
|
|
0.039029 |
|
| Exercised |
|
|
(361,111,110 |
) |
|
|
$0.00150
to $0.00205 |
|
|
|
0.003291 |
|
| Outstanding
as of December 31, 2021 |
|
|
623,777,506 |
|
|
|
$0.000675
to $0.12 |
|
|
$ |
0.0052875 |
|
The
warrants granted during the year were valued using a Black Scholes pricing model on the date of grant at $1,732,622 using the following
weighted average assumptions:
| Schedule
of assumption |
|
|
|
|
| |
|
|
|
|
| |
|
Year
ended
December
31,
2021 |
|
| Calculated stock price |
|
|
$0.00205 to 0.0060 |
|
| Risk free interest rate |
|
|
0.36 to 0.80 |
% |
| Expected life of warrants |
|
|
60 months |
|
| expected volatility of underlying stock |
|
|
221.17 to 231.3 |
% |
| Expected dividend rate |
|
|
0 |
% |
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 18. |
Stockholder’s deficit (continued) |
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, 2021:
| Summarizes
information about warrants outstanding |
|
|
Warrants
outstanding |
|
|
Warrants
exercisable |
|
| Exercise
price |
|
|
No.
of shares |
|
|
Weighted
average
remaining
years |
|
|
Weighted
average
exercise
price |
|
|
No.
of shares |
|
|
Weighted
average
exercise
price |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $0.000675 |
|
|
|
326,286,847 |
|
|
|
3.53 |
|
|
|
|
|
|
|
326,286,847 |
|
|
|
|
|
| $0.002050 |
|
|
|
276,565,659 |
|
|
|
4.01 |
|
|
|
|
|
|
|
276,565,659 |
|
|
|
|
|
| $0.120000 |
|
|
|
20,925,000 |
|
|
|
0.33 |
|
|
|
|
|
|
|
20,925,000 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
623,777,506 |
|
|
|
3.64 |
|
|
$ |
0.0052875 |
|
|
|
623,777,506 |
|
|
$ |
0.0052875 |
|
All
of the warrants outstanding at December 31, 2021 are vested. The warrants outstanding at December 31, 2021 have an intrinsic value of
$106,043.
Our
board of directors adopted the Greenstone 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, 2021 under the Plan.
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 Evernia, Addiction Recovery Institute of America
and Seastone of Delray operations. |
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, 2021 is disclosed as follows:
| Schedule of segment information |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year
ended December 31, 2021 |
| |
|
Rental
Operations |
|
In-Patient
services |
|
Total |
| |
|
|
|
|
|
|
| Revenue |
|
$ |
374,517 |
|
|
$ |
1,568,071 |
|
|
$ |
1,942,588 |
|
| Operating expenses |
|
|
128,183 |
|
|
|
1,812,300 |
|
|
|
1,940,483 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income (loss) |
|
|
246,334 |
|
|
|
(244,229 |
) |
|
|
2,105 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Other (expense) income |
|
|
|
|
|
|
|
|
|
|
|
|
| Other income |
|
|
— |
|
|
|
273,373 |
|
|
|
273,373 |
|
| Forgiveness of government
relief loan |
|
|
— |
|
|
|
156,782 |
|
|
|
156,782 |
|
| Loss on advance |
|
|
— |
|
|
|
(120,000 |
) |
|
|
(120,000 |
) |
| Fair value of warrants
granted to convertible debt holders |
|
|
— |
|
|
|
(854,140 |
) |
|
|
(854,140 |
) |
| Penalty on convertible
debt |
|
|
— |
|
|
|
(9,240 |
) |
|
|
(9,240 |
) |
| Interest expense |
|
|
(230,868 |
) |
|
|
(598,657 |
) |
|
|
(829,525 |
) |
| Amortization of debt discount |
|
|
— |
|
|
|
(1,965,551 |
) |
|
|
(1,965,551 |
) |
| Derivative liability movement |
|
|
— |
|
|
|
1,526,191 |
|
|
|
1,526,191 |
|
| Foreign exchange movements |
|
|
(16,150 |
) |
|
|
(18,151 |
) |
|
|
(34,301 |
) |
| Net loss before taxes |
|
|
(684 |
) |
|
|
(1,853,622 |
) |
|
|
(1,854,306 |
) |
| Taxes |
|
|
— |
|
|
|
280,903 |
|
|
|
280,903 |
|
| Net loss |
|
$ |
(684 |
) |
|
$ |
(1,572,719 |
) |
|
$ |
(1,573,403 |
) |
The
operating assets and liabilities of the reportable segments as of December 31, 2021 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December
31, 2021 |
| |
|
Rental
Operations |
|
In-Patient
services |
|
Total |
| |
|
|
|
|
|
|
| Purchase of fixed assets |
|
$ |
— |
|
|
$ |
132,832 |
|
|
$ |
132,832 |
|
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Current assets |
|
|
1,373 |
|
|
|
270,426 |
|
|
|
271,799 |
|
| Non-current assets |
|
|
2,766,175 |
|
|
|
3,516,332 |
|
|
|
6,282,507 |
|
| Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities |
|
|
(5,401,423 |
) |
|
|
(8,115,379 |
) |
|
|
(13,516,802 |
) |
| Non-current liabilities |
|
|
(693,502 |
) |
|
|
(1,799,383 |
) |
|
|
(2,492,885 |
) |
| Mandatory redeemable preferred shares |
|
|
— |
|
|
|
(400,000 |
) |
|
|
(400,000 |
) |
| Intercompany balances |
|
|
1,284,967 |
|
|
|
(1,284,967 |
) |
|
|
— |
|
| Net liability position |
|
$ |
(2,042,410 |
) |
|
$ |
(7,812,971 |
) |
|
$ |
(9,855,381 |
) |
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, 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 | ) |
| 20. |
Net
(loss) income per common share |
For
the year ended December 31, 2021, the following warrants and convertible securities were excluded from the computation of diluted net
loss per share as the results would have been anti-dilutive.
| Schedule of Antidilutive
Securities |
|
Year
ended
December 31,
2021 |
| |
|
|
| Warrants to purchase shares of common
stock |
|
|
623,777,506 |
|
| Convertible notes |
|
|
644,839,752 |
|
| |
|
|
1,268,617,258 |
|
| |
|
|
|
|
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 20. |
Net (loss) income per common
share (continued) |
For
the year ended December 31, 2020, the computation of basic and diluted earnings per share is calculated as follows:
| Schedule of Net
(loss) income per common share | |
| |
| |
|
| | |
| |
Number
of | |
Per
share |
| | |
Amount | |
shares | |
amount |
| | |
| |
| |
|
| Basic earnings per share | |
| | | |
| | | |
| | |
| Net income per
share available for common stockholders | |
$ | 3,084,992 | | |
| 1,594,016,327 | | |
$ | 0.00 | |
| | |
| | | |
| | | |
| | |
| Effect
of dilutive securities | |
| | | |
| | | |
| | |
| Warrants | |
| — | | |
| 263,360,098 | | |
| | |
| Convertible debt | |
| 147,058 | | |
| 187,996,707 | | |
| | |
| | |
| | | |
| | | |
| | |
| Diluted
earnings per share | |
| | | |
| | | |
| | |
| Net
income per share available for common stockholders | |
$ | 3,232,050 | | |
| | |
$ | 0.00 | |
| 21. |
Commitments
and contingencies |
| |
a. |
Options
granted to purchase shares in ATHI |
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.
The
company has a mortgage loan as disclosed in note 14 above. The mortgage loan matures on July 19, 2022 and the Company currently owes
$3,864,312.
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.
The
Company is current in its US tax filings, except for its 2020 filing, as of December 31, 2021 and is not current in its Canadian tax
filings with the 2019 and 2020 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, 2021 and 2020 are as follows:
| Schedule
of reconciliation of income taxes | |
| | | |
| | |
| |
Year
ended December 31, 2021 | |
Year
ended December 31, 2020 |
| | |
| |
|
| Tax credit at
the federal and state statutory rate | |
| 478,522 | | |
| 857,250 | |
| Prior year over provision | |
| 250,000 | | |
| — | |
| Foreign taxation | |
| (5,309 | ) | |
| (56,212 | ) |
| Permanent differences | |
| (271,310 | ) | |
| (1,091,032 | ) |
| Foreign tax rate differential | |
| (100 | ) | |
| 1,061 | |
| Net operating loss utilized | |
| 5,594 | | |
| — | |
| Valuation
allowance | |
| (176,494 | ) | |
| 288,933 | |
| Net future tax asset | |
| 280,903 | | |
| — | |
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 22. |
Income taxes Continued) |
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, 2021 and 2020 are as follows:
| Schedule
of deferred tax assets and liabilities | |
| | | |
| | |
| | |
December
31,
2021 | |
December
31,
2020 |
| Net
operating losses | |
| | | |
| | |
| Net
operating loss carry forward | |
| 34,278,915 | | |
| 32,968,411 | |
| Prior
year adjustment to opening balances | |
| — | | |
| 150,639 | |
| Foreign
exchange differential | |
| 8,466 | | |
| 48,579 | |
| Net
operating loss utilized | |
| (20,719 | ) | |
| — | |
| Net
taxable loss | |
| 678,797 | | |
| 1,111,286 | |
| Valuation
allowance | |
| (34,945,459 | ) | |
| (34,278,915 | ) |
| Net
future tax asset | |
| — | | |
| — | |
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, 2021 increased by $678,797 due to
the additional taxation losses incurred for the year ended December 31, 2021.
As
of December 31, 2021, 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, 2021, 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.
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.
Subsequent
to December 31, 2021, but effective December 29, 2021, the Company entered into amended agreements with Labrys whereby the following
notes were amended as follows:
Note
dated May 7, 2021
·
The Maturity date of the note was extended to May 31, 2022.
| · | The
triggering of the dilutive event on October 25, 2021 which reduced the conversion price of
the convertible note to $0.001 per share, will not be utilized as long as any events of default
under the note are not triggered. |
| · | The
Company agreed to make monthly payments under the note totaling $536,000 between January
10, and May 31, 2022. |
Note
dated June 2, 2021
·
The Maturity date of the note was extended to June 30, 2022.
| · | The
triggering of the dilutive event on October 25, 2021 which reduced the conversion price of
the convertible note to $0.001 per share, will not be utilized as long as any events of default
under the note are not triggered. |
| · | The
Company agreed to make two equal payments of $127,650 on the note on May 31, and June 30,
2022. |
Other
than disclosed above, the Company has evaluated subsequent events through the date the financial statements were issued, we did not identify
any other subsequent events that would have required adjustment or disclosure in the financial statements.