The accompanying notes are
an integral part of the unaudited condensed consolidated financial statements
The accompanying notes are
an integral part of the unaudited condensed consolidated financial statements
The accompanying notes are
an integral part of the unaudited condensed consolidated financial statements
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
Nature of business
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.
2.
Summary of significant accounting policies
Financial
Reporting
The
(a) unaudited condensed consolidated balance sheets as of September 30, 2022, which have been derived from the unaudited condensed consolidated
financial statements, and as of December 31, 2021, which have been derived from audited consolidated financial statements, and (b) the
unaudited condensed consolidated statements of operations, stockholders’ deficit and cash flows of the Company, have been
prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial
information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended
September 30, 2022 are not necessarily indicative of results that may be expected for the year ending December 31, 2022. These unaudited
condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes
thereto included in the Company’s Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission
(“SEC”) on April 14, 2022.
All
amounts referred to in the notes to the unaudited condensed consolidated financial statements are in United States Dollars ($) unless
stated otherwise.
a)
Use of Estimates
The
preparation of unaudited condensed consolidated financial statements in conformity with 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 dates
of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ
from those estimates. These estimates and assumptions include valuing equity securities issued in share-based payment arrangements, determining
the fair value of assets acquired, allocation of purchase price, impairment of long-lived assets, the collectability of receivables, leasing
arrangements, convertible debentures, contingencies and the value of deferred taxes and related valuation allowances. Certain estimates,
including evaluating the collectability of receivables and advances, could be affected by external conditions, including those unique
to the Company’s industry and general economic conditions. It is possible that these external factors could have an effect on the
Company’s estimates that could cause actual results to differ from the Company’s estimates. The Company re-evaluates all of
its accounting estimates at least quarterly based on these conditions and record adjustments when necessary.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. |
Summary of significant accounting policies (continued) |
b)
Principals of consolidation and foreign currency translation
The
accompanying condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries. ATHI and its
wholly owned subsidiary Evernia, have been consolidated since July 1, 2021. All intercompany transactions and balances have been eliminated
on consolidation.
Certain
of the Company’s subsidiaries functional currency is the Canadian dollar, while the Company’s reporting currency is the U.S.
dollar. All transactions initiated in Canadian dollars are translated into US dollars in accordance with ASC 830, “Foreign Currency
Translation” as follows:
| |
● |
Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date. |
| |
● |
Non-monetary, non-current and equity at historical rates. |
| |
● |
Revenue and expense items and cash flows at the average rate of exchange prevailing during the period. |
Adjustments
arising from such translations are deferred until realization and are included as a separate component of stockholders’ deficit
as a component of accumulated other comprehensive income or loss. Therefore, translation adjustments are not included in determining net
income (loss) but reported as other comprehensive income (loss).
For
foreign currency transactions, the Company translates these amounts to the Company’s functional currency at the exchange rate effective
on the invoice date. If the exchange rate changes between the time of purchase and the time actual payment is made, a foreign exchange
transaction gain or loss results which is included in determining net income for the period.
The
relevant translation rates are as follows: For the nine months ended September 30, 2022, a closing rate of CDN$1.0000 equals US$0.7295
and an average exchange rate of CDN$1.0000 equals US$0.7795. For the nine months ended September 30, 2021, a closing rate of CAD$1.0000 equals
US$0.7849 and an average exchange rate of CAD$1.0000 equals US$0.78937.
c)
Business Combinations
The
Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed 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.
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 institutions
in the USA and Canada.
The
Company primarily places cash balances in the USA with high-credit quality financial institutions located in the United States which are
insured by the Federal Deposit Insurance Corporation up to a limit of $250,000 per institution, in Canada which are insured by the
Canadian Deposit Insurance Corporation up to a limit of CDN$100,000 per institution.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. |
Summary of significant accounting policies (continued) |
e)
Accounts receivable
Accounts
receivable primarily consists of amounts due from third-party payors (non-governmental) and private pay patients and is recorded net of
allowances for doubtful accounts and contractual discounts. The Company’s ability to collect outstanding receivables is critical
to its results of operations and cash flows. Accordingly, accounts receivable reported in the Company’s condensed consolidated financial
statements are 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. 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.
h)
Intangible assets
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.
i)
Leases
The
Company accounts for leases in terms of ASC 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. 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.
ETHEMA HEALTH
CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. |
Summary of significant accounting policies (continued) |
j)
Derivatives
The
Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine
whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value
with changes in fair value recorded in earnings. The Company uses a Black Scholes Option Pricing model to estimate the fair value of convertible
debt conversion features at the end of each applicable reporting period. Changes in the fair value of these derivatives during each reporting
period are included in the condensed consolidated 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.
k)
Financial instruments
The
Company initially measures its financial assets and liabilities at fair value, except for certain non-arm’s length transactions.
The Company subsequently measures all its financial assets and financial liabilities at amortized cost.
Financial
assets measured at amortized cost include cash and accounts receivable.
Financial
liabilities measured at amortized cost include bank indebtedness, accounts payable and accrued liabilities, harmonized sales tax payable,
withholding taxes payable, convertible notes payable, loans payable and related party notes.
Financial
assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized
in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the
allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment
not been recognized previously. The amount of the reversal is recognized in net income. The Company recognizes its transaction costs in
net income in the period incurred. However, financial instruments that will not be subsequently measured at fair value are adjusted by
the transaction costs that are directly attributable to their origination, issuance or assumption.
FASB
ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles,
and expands disclosures about fair value measurements. ASC 820 establishes a three tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value as follows:
| |
● |
Level 1. Observable inputs such as quoted prices in active markets; |
| |
● |
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
| |
● |
Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions. |
The
Company measures its convertible debt and derivative liabilities associated therewith at fair value. These liabilities are revalued periodically
and the resultant gain or loss is realized through the Statement of Operations and Comprehensive Loss.
l)
Related parties
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 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. |
Summary of significant accounting policies (continued) |
m)
Revenue Recognition
ASC
606 requires companies to exercise more judgment and recognize revenue using a five-step process.
The
Company’s provision for doubtful accounts are recorded as a direct reduction to revenue instead of being presented as a separate
line item on the consolidated statements of operations and comprehensive loss.
As
our performance obligations relate to contracts with a duration of one year or less, the Company elected the optional exemption in ASC
606-10-50-14(a). Therefore, the Company is not required to disclose the transaction price for the remaining performance obligations at
the end of the reporting period or when the Company expects to recognize the revenue. The Company has minimal unsatisfied performance
obligations at the end of the reporting period as our patients typically are under no obligation to remain admitted in our facilities.
The
Company receives payments from the following sources for services rendered in our U.S. Facility: (i) commercial insurers; and (ii) individual
patients and clients. As the period between the time of service and time of payment is typically one year or less, the Company elected
the practical expedient under ASC 606-10-32-18 and does not adjust for the effects of a significant financing component.
The
Company derives a significant portion of its revenue from other payors that receive discounts from established billing rates. The various
managed care contracts under which these discounts must be calculated are complex, subject to interpretation and adjustment, and may include
multiple reimbursement mechanisms for different types of services provided in the Company’s inpatient facilities and cost settlement
provisions. Management estimates the transaction price on a payor-specific basis given its interpretation of the applicable regulations
or contract terms. The services authorized and provided and related reimbursement are often subject to interpretation that could result
in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently,
necessitating regular review and assessment of the estimation process by management.
Settlements
with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future
periods as final settlements are determined. In the opinion of management, adequate provision has been made for any adjustments and final
settlements. However, there can be no assurance that any such adjustments and final settlements will not have a material effect on the
Company’s financial condition or results of operations. The Company’s receivables were $287,265 and $176,011 at
September 30, 2022 and December 31, 2021, 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. |
ETHEMA
HEALTH CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. |
Summary of significant accounting policies (continued) |
n)
Income taxes
The
Company accounts for income taxes under the provisions of ASC Topic 740, ”Income Taxes”. Under ASC Topic
740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income taxes are provided
using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences
by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities. The tax basis of an asset or liability is the amount attributed to that asset or liability
for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in income in the period of change. A valuation allowance
is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of, the
deferred tax assets will not be realized.
ASC
Topic 740 contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return.
The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will
be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit
as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties
accrued on unrecognized tax benefits within general and administrative expense. To the extent that accrued interest and penalties do not
ultimately become payable, amounts accrued will be reduced and reflected as a reduction in general and administrative expenses in the
period that such determination is made.
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 period.
Diluted
net income (loss) per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding.
Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.
Dilution
is computed by applying the treasury stock method for options and warrants. Under this method, “in-the money” options and
warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby
were used to purchase common stock at the average market price during the period. Dilution is computed by applying the if-converted method
for convertible preferred stocks. Under this method, convertible preferred stock is assumed to be converted at the beginning of the period
(or at the time of issuance, if later), and preferred dividends (if any) will be added back to determine income applicable to common stock.
The shares issuable upon conversion will be added to weighted average number of common stock outstanding. Conversion will be assumed only
if it reduces earnings per share (or increases loss per share).
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 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.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. |
Summary of significant accounting policies (continued) |
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 September 30, 2022 and December 31, 2021.
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 $13.1milion, which includes derivative liabilities of $0.3 million , and an accumulated
deficit of $44.1 million. 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.
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 September 30, 2022. 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 September 30, 2022, a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result
in an approximate $26,666 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.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. |
Summary of significant accounting policies (continued) |
| |
q) |
Financial instruments Risks (continued) |
| |
iii. |
Market risk (continued) |
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
August 2020, the Financial Accounting Standard board (“FASB”) issued ASU 2020-06 "Debt—Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06").
The update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting
models and limiting the number of embedded conversion features separately recognized from the primary contract. The guidance also includes
targeted improvements to the disclosures for convertible instruments and earnings per share. ASU 2020-06 is effective for fiscal years
beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than
fiscal years beginning after December 15, 2020. The Company is assessing the impact, if any, on the adoption of this update on the Company's
consolidated financial statements.
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 unaudited condensed consolidated financial statements have been reclassified
where necessary to conform to the presentation used in the current period.
3.
Going concern
The
Company’s condensed 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 September
30, 2022 the Company has a working capital deficiency of $13.1 million, including derivative liabilities of $0.3 million and total
liabilities in excess of assets in the amount of $9.8million. Management believes that there is substantial doubt that current available
resources will 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
condensed 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.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4.
Acquisition of subsidiaries
On
June 30, 2020, the Company entered into an agreement whereby the Company agreed 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 was 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 approximately $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 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 $42,500 of the $50,000 due to the Seller, in terms of the amended agreement as of the date of this report. 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 Behavioural 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. As at the date of acquisition, July 1, 2021, the Company had advanced Evernia $1,140,985,
subsequent to July 1, 2021 to September 30, 2022, Evernia had repaid $294,598. The balance owing to the company at September 30, 2022
was $846,387.
Pursuant
to the terms of the 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 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 | ) |
| Intercompany advance | |
| (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 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 4. |
Acquisition of subsidiaries (continued) |
The amount of revenue
and earnings include in the Company’s condensed consolidated statements of operations and comprehensive income (loss) for the nine
months ended September 30, 2022 and the revenue and earnings of the combined entity had the acquisition date been January 1, 2021.
Schedule of revenue and earnings
| |
|
Revenue |
|
Earnings |
| |
|
|
|
|
| Actual from January 1, 2022 to September 30, 2022 |
|
$ |
3,263,987 |
|
|
$ |
157,276 |
|
| |
|
|
|
|
|
|
|
|
| 2021 Supplemental pro forma from January 1, 2021 to September 30, 2021 |
|
$ |
2,135,092 |
|
|
$ |
(3,838,726 |
) |
The 2021 Supplemental
pro forma earnings information was adjusted to account for amortization of intangibles on acquisition of $178,990.
5.
Due on sale of business
On
February 14, 2017, the Company sold its Canadian Rehab Clinic for gross proceeds of CDN$10,000,000, of which CDN$1,500,000 had been
retained in an escrow account for a period of up to two years in order to guarantee the warranties provided by the Company in terms of
the APA. As of September 30, 2022, 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$6,485 (approximately US$ 4,731), and has not been refunded as yet.
6.
Property and equipment
Property
and equipment consists of the following:
Schedule of sale of property
| | |
September 30,
2022 | |
December 31, 2021 |
| | |
Cost | |
Accumulated depreciation | |
Net book value | |
Net book value |
| Land | |
$ | 156,854 | | |
$ | — | | |
$ | 156,854 | | |
$ | 168,585 | |
| Property | |
| 2,967,203 | | |
| (654,558 | ) | |
| 2,312,645 | | |
| 2,596,590 | |
| Leasehold improvements | |
| 396,173 | | |
| (33,260 | ) | |
| 362,913 | | |
| 153,730 | |
| Furniture and fittings | |
| 106,644 | | |
| (19,081 | ) | |
| 87,563 | | |
| 42,140 | |
| Vehicles | |
| 55,949 | | |
| (15,073 | ) | |
| 40,876 | | |
| 49,268 | |
| Computer equipment | |
| 1,450 | | |
| (464 | ) | |
| 986 | | |
| 1,350 | |
| | |
$ | 3,684,273 | | |
$ | (722,436 | ) | |
$ | 2,961,837 | | |
$ | 3,012,663 | |
Depreciation
expense for the nine months ended September 30, 2022 and 2021 was $134,366 and $101,696, respectively.
On
July 18, 2022, the Company, through its subsidiary Evernia, entered into an option and Memorandum of Understanding Purchase, Sale and
Financing Agreement, with the Evernia landlord, Evernia Station Limited Partnership (“Seller”), whereby the Company paid $50,000
for the option to acquire the building on September 30, 2022 for $5,500,000, with an initial deposit of $1,500,000, which was subsequently
renegotiated to $350,000 and paid on October 3, 2022, the $50,000 option price to be applied to the deposit. The expected closing is expected
to be February 1, 2023. The current rental of $27,783 was reduced to $20,206 on payment of the option price of $50,000. The Seller will
provide financing of $4,000,000 at a coupon of 6.36% per annum, with interest only payments of $21,217 per month. The term of the seller
funding will be one year, due and payable on January 31, 2024.
ETHEMA HEALTH
CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7.
Intangibles
Intangible
assets consist of the Company’s estimate of the fair value of intangibles acquired with the acquisition of ATHI disclosed in Note
4 above. The Company 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
| | |
September 30, 2022 | |
December 31, 2021 |
| | |
Cost | |
Accumulated amortization | |
Net book value | |
Net book value |
| Health care Provider license | |
$ | 1,789,903 | | |
$ | (447,475 | ) | |
$ | 1,342,428 | | |
$ | 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 $268,485 and $89,495 in amortization expense for finite-lived assets for the nine months ended September 30, 2022
and 2021, respectively.
8.
Leases
On
April 25, 2022, the Company entered into a real property lease for 5 apartments located at 921 Fern Street, West Palm Beach, Florida. The
lease commenced on May 2, 2022 for a twelve month period, terminating on May 15, 2023. The Company applied the practical expedient
whereby operating leases with a duration of twelve months or less are expensed as incurred
Right
of use assets are included in the condensed consolidated balance sheet are as follows:
Schedule of Right of use assets
| | |
September 30, 2022 | |
December 31,
2021 |
| Non-current assets | |
| | | |
| | |
| Right-of-use assets – finance leases, net of depreciation, included in Property and equipment | |
$ | 40,876 | | |
$ | 49,268 | |
| Right-of-use assets - operating leases, net of amortization | |
$ | 1,459,729 | | |
$ | 1,653,816 | |
Lease costs consists of
the following:
Schedule of Lease costs
| | |
|
|
|
|
|
|
| | |
Nine months ended September 30, |
| | |
2022 | |
2021 |
| Finance lease cost: | |
| | | |
| | |
| Amortization of right-of-use assets | |
$ | 8,392 | | |
$ | — | |
| Interest expense on finance lease liabilities | |
| 1,880 | | |
| — | |
| Finance lease cost | |
| 10,272 | | |
| — | |
| | |
| | | |
| | |
| Operating lease cost | |
| 194,086 | | |
| 90,386 | |
| Lease cost | |
$ | 204,358 | | |
$ | 90,386 | |
ETHEMA HEALTH
CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other lease information:
Schedule of Other lease
| | |
| |
|
| | |
Nine
months ended September 30, |
| | |
2022 | |
2021 |
| Cash paid
for amounts included in the measurement of lease liabilities | |
| |
|
| Operating cash
flows from finance leases | |
$ | (5,531 | ) | |
$ | — | |
| Operating
cash flows from operating leases | |
| (248,724 | ) | |
| (87,934 | ) |
| | |
$ | (254,255 | ) | |
$ | (87,934 | ) |
| | |
| | | |
| | |
| Weighted average remaining
lease term – finance leases | |
| 4
years and one month | | |
| — | |
| Weighted average remaining
lease term – operating leases | |
| 4
years and 4 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 is as follows:
Schedule of Finance lease liability
| |
|
|
| |
|
Amount |
| Remainder of 2022 |
|
$ |
2,457 |
|
| 2023 |
|
|
9,829 |
|
| 2024 |
|
|
9,829 |
|
| 2025 |
|
|
9,829 |
|
| 2026 |
|
|
7,902 |
|
| Total undiscounted minimum future lease payments |
|
|
39,846 |
|
| Imputed interest |
|
|
(5,095 |
) |
| Total finance lease liability |
|
$ |
34,751 |
|
| Disclosed as: |
|
|
|
|
| Current portion |
|
$ |
7,762 |
|
| Non-Current portion |
|
|
26,989 |
|
| Lease liability |
|
$ |
34,751 |
|
Operating
lease liability
The
amount of future minimum lease payments under operating leases are as follows:
Schedule of Operating lease liability
| |
|
|
| |
|
Amount |
| Remainder of 2022 |
|
$ |
83,349 |
|
| 2023 |
|
|
348,677 |
|
| 2024 |
|
|
366,110 |
|
| 2025 |
|
|
384,416 |
|
| 2026 |
|
|
437,407 |
|
| Total undiscounted minimum future lease payments |
|
|
1,619,959 |
|
| Imputed interest |
|
|
(64,455 |
) |
| Total operating lease liability |
|
$ |
1,555,504 |
|
| |
|
|
|
|
| Disclosed as: |
|
|
|
|
| Current portion |
|
$ |
275,372 |
|
| Non-Current portion |
|
|
1,280,132 |
|
| Lease liability |
|
$ |
1,555,504 |
|
ETHEMA HEALTH
CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9.
Taxes Payable
The
taxes payable consist of:
| |
● |
A payroll tax liability of $133,209 (CDN$182,589) in Greenstone Muskoka which has not been settled as yet. |
| |
● |
A GST/HST tax payable of $123,471 (CDN$169,242). |
Schedule of taxation payable
| | |
| |
|
| | |
September 30,
2022 | |
December 31,
2021 |
| | |
| |
|
| Payroll taxes | |
$ | 133,209 | | |
$ | 144,020 | |
| HST/GST payable | |
| 123,471 | | |
| 123,134 | |
| Income tax payable | |
| 506,776 | | |
| 391,682 | |
| Taxes Payable | |
$ | 763,456 | | |
$ | 658,836 | |
10.
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 |
|
September 30,
2022 |
|
December 31, 2021 |
| Leonite Capital, LLC |
|
|
12.0 |
% |
|
On Demand |
|
$ |
129,379 |
|
|
$ |
51,457 |
|
|
$ |
— |
|
|
$ |
180,836 |
|
|
$ |
315,579 |
|
| |
|
|
Variable |
|
|
March 1, 2023 |
|
|
745,375 |
|
|
|
26,803 |
|
|
|
(86,905 |
) |
|
|
685,273 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Auctus Fund, LLC |
|
|
0.0 |
% |
|
On Demand |
|
|
80,000 |
|
|
|
— |
|
|
|
— |
|
|
|
80,000 |
|
|
|
100,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Labrys Fund, LP |
|
|
12.0 |
% |
|
On Demand |
|
|
— |
|
|
|
8,826 |
|
|
|
— |
|
|
|
8,826 |
|
|
|
8,826 |
|
| |
|
|
11.0 |
% |
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
354,504 |
|
| |
|
|
11.0 |
% |
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
148,488 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ed Blasiak |
|
|
6.5 |
% |
|
On Demand |
|
|
55,000 |
|
|
|
7,408 |
|
|
|
— |
|
|
|
62,408 |
|
|
|
59,697 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Joshua Bauman |
|
|
11.0 |
% |
|
October 21, 2022 |
|
|
150,000 |
|
|
|
15,551 |
|
|
|
(8,630 |
) |
|
|
156,921 |
|
|
|
32,387 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Geneva Roth Remark Holdings, Inc. |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Series N convertible notes |
|
|
6.0 |
% |
|
On Demand |
|
|
3,229,000 |
|
|
|
763,980 |
|
|
|
— |
|
|
|
3,992,980 |
|
|
|
3,848,073 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
$ |
4,388,754 |
|
|
$ |
874,025 |
|
|
$ |
(95,535 |
) |
|
$ |
5,167,244 |
|
|
$ |
4,891,938 |
|
ETHEMA HEALTH
CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 10. |
Short-term Convertible Notes (continued) |
Leonite
Capital, LLC
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
February 28, 2022, in terms of a conversion notice, Leonite converted the principal sum of $149,250 of the Leonite Note into 150,000,000 shares
of common stock at a conversion price of $0.0010 per share.
Leonite
Fund I, LP
Effective
June 1, 2022, The Company entered into a Note Exchange Agreement whereby the convertible promissory notes entered into with Labrys Fund
LP on May 7, 2021, with. A principal outstanding of $341,000, and on June 2, 2021 with a principal outstanding of $230,000 and accrued
interest thereon of $25,300, were exchanged for a new Senior Secured Convertible Promissory note in the principal amount of $745,375,
including an OID of $149,075. The Note matures on March 1, 2023, and bears interest at the minimum of 10% per annum or the Wall Street
Journal quoted prime rate plus 5.75%.
Interest
is payable monthly and the note may be prepaid, if prepaid prior to October 3, 2022, the Company will receive a credit of $150,000 towards
the repayment of the note, if the note is prepaid after October 3, 2022, the prepayment penalty shall be 10%. The note is convertible
into common stock at a fixed conversion price of $0.01 per share, subject to anti-dilution adjustments and a fundamental transaction clause
allowing the note holder to receive the same consideration as common stockholders would receive.
The
convertible note is secured by all of the assets of Ethema Health Corporation and Addiction Recovery Institute of America, LLC.
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 the Company 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.
During
March 2022, the Company paid $20,000 of principal on the convertible note, thereby reducing the principal outstanding to $80,000. The
note matured May 7, 2020, Auctus Fund LLC has not declared a default and we are in constant discussion with the lender on settling the
note.
ETHEMA HEALTH
CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 10. |
Short-term Convertible Notes (continued) |
Labrys
Fund, LP
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.
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. The Company has $8,826 of interest outstanding under the convertible promissory note.
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.
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.
Effective December 29,
2021, the Company entered into a modification of the convertible note agreement with Labrys whereby the May 7, 2021 note were amended
as follows:
| |
· |
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. |
During
the nine months ended September 30, 2022, the Company repaid $195,000 of the outstanding principal of the convertible note, effective
June 1, 2022, Labrys sold the note to Leonite Fund I, LP, who was issued a new senior secured convertible promissory note, see above.
ETHEMA HEALTH
CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 10. |
Short-term Convertible Notes (continued) |
Labrys
Fund, LP (continued)
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.
Effective December 29,
2021, the Company entered into a modification of the convertible note agreement with Labrys whereby the May 7, 2021 note were amended
as follows:
| |
· |
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. |
Effective
June 1, 2022, Labrys sold the note to Leonite Fund I, LP, who was issued a new senior secured convertible promissory note, see above.
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.
The
note has matured and is in default, Ed Blasiak has not declared a default under the note and we are in communication with Mr. Blasiak
on our ability to repay the note.
Joshua
Bauman
On
September 14, 2020, the Company entered into a Securities Purchase Agreement with 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
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.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 10. |
Short-term Convertible Notes (continued) |
Joshua
Bauman (continued)
On
October 21, 2021, the Company entered into a Securities Purchase Agreement with 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 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.
The
note has been repaid as of September 20, 2022.
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.
The
series N convertible notes matured and are in default. The Company is considering its options to settle these notes.
11.
Short term loans
LXR
Biotech
On
April 12, 2019, the Company, entered into a secured Promissory Note in the aggregate principal amount of CDN$133,130. The Note had a maturity
date of April 11, 2020 and bears interest at the rate of six percent per annum from the date on which the Note was issued.
This
note has not been repaid, is in default and remains outstanding.
Leonite
Capital, LLC
Secured
Promissory Notes
On
March 1, 2022, the Company entered into a secured Promissory Note in the aggregate principal amount of $124,000 for net proceeds
of $100,000 after an original issue discount of $24,000. The Note had a maturity date of April 1, 2022. This note has not been
repaid at the date of this report and no default has been declared.
On
May 3, 2022, the Company, entered into a secured Promissory Note in the aggregate principal amount of $76,250 for net proceeds of
$61,000 after an original issue discount of $15,250. The Note had a maturity date of June 17, 2022 and bears interest at
the rate of zero percent per annum from the date on which the Note was issued until the same became due and payable.
We
are in discussions with Leonite on the repayment of these notes.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12.
Mortgage loans
Mortgage
loans is disclosed as follows:
Schedule of mortgage loans
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Interest
rate |
|
|
Maturity
date |
|
Principal
Outstanding |
|
|
Accrued
interest |
|
|
September 30,
2022 |
|
|
December 31,
2021 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cranberry Cove Holdings, Ltd. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pace Mortgage |
|
|
4.2 |
% |
|
July 19, 2022 |
|
$ |
3,486,377 |
|
|
$ |
4,414 |
|
|
$ |
3,490,791 |
|
|
$ |
3,864,312 |
|
| Disclosed as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Short-term portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,490,791 |
|
|
$ |
3,864,312 |
|
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 $29,531.
The
loan matured on July 19, 2022, and is currently being renegotiated with the lender, no new terms have been presented to the Company as
yet.
13.
Government assistance loans
On December 1, 2020, CCH
was granted a Covid-19 related government assistance loan in the aggregate principal amount of CDN$ 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.
On
May 3, 2021, the Company was granted a 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
September 21, 2022, the Company received partial forgiveness of the government assistance loan of $104,368, the balance of the loan
plus accrued interest is due and payable. As of September 30, 2022, the balance outstanding, including interest thereon was
$53,757.
14.
Receivables Funding
On
May 31, 2022 the Company, through its 75% held subsidiary, Evernia Health Center, LLC entered into a Receivables Sale Agreement with Itria
Ventures LLC (“Itria”), whereby $240,000 the Receivables of Evernia were sold to Itria, for gross proceeds of $200,000. The
Company also incurred fees of $4,500, resulting in net proceeds of $195,500. The Company is obliged to pay 6.5% of the receivables
until the amount of $240,000 is paid in full, with periodic repayments of $5,000 per week. The guarantor of the funding is a minority
shareholder in ATHI.
On
September 26, 2022, the Company, through its 75% held subsidiary, Evernia Health Center, LLC entered into a Receivables Sale Agreement
with Itria Ventures LLC (“Itria”), whereby $310,000 of the Receivables of Evernia were sold to Itria, for gross proceeds of
$250,000. The Company also incurred fees of $5,500, resulting in net proceeds of $244,500. The Company is obliged to pay 7.41% of the
receivables until the amount of $310,000 is paid in full, with periodic repayments of $6,458 per week. The guarantor of the funding is
a minority shareholder in ATHI.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15.
Third party loans
On
April 12, 2019, Eileen Greene, a related party assigned CDN$1,000,000 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.
During
the current period the Company repaid CDN$100,000 (approximately $77,953).
16.
Derivative liability
The
short-term convertible notes issued to convertible note holders disclosed in note 10 above, have variable priced conversion rights with
no fixed floor price and will reprice dependent on the share price performance over varying periods of time. This gives rise to a derivative
financial liability, which was initially valued at inception of the convertible notes at $1,959,959 using a Black-Scholes valuation
model.
The
derivative liability is marked-to-market on a quarterly basis. As of September 30, 2022, the derivative liability was valued at $300,582.
The
following assumptions were used in the Black-Scholes valuation model:
Schedule of assumption used in Black Scholes
| |
|
Nine months ended
September 30
2022 |
|
| |
|
|
| Calculated stock price |
|
|
$0.0004 to $0.0010 |
|
| Risk free interest rate |
|
|
0.06% to 4.25 |
% |
| Expected life of convertible notes and warrants |
|
|
3 to 33 months |
|
| expected volatility of underlying stock |
|
|
167.1% to 247.0 |
% |
| Expected dividend rate |
|
|
0 |
% |
The
movement in derivative liability is as follows:
Schedule
of derivative liability
| |
|
|
|
|
| |
|
September 30,
2022 |
|
December 31,
2021 |
| |
|
|
|
|
| Opening balance |
|
$ |
515,901 |
|
|
$ |
4,765,387 |
|
| Derivative liability extinguished on convertible notes converted to equity |
|
(39,726 |
) |
|
|
|
(2,914,119 |
) |
| Derivative liability on issued convertible notes |
|
|
— |
|
|
|
190,824 |
|
| Fair value adjustments to derivative liability |
|
|
(175,593 |
) |
|
|
(1,526,191 |
) |
| |
|
|
|
|
|
|
|
|
| Closing balance |
|
$ |
300,582 |
|
|
$ |
515,901 |
|
17.
Related party transactions
Shawn
E. Leon
As
of September 30, 2022 and December 31, 2021 the Company had a payable to Shawn Leon of $423,394 and $106,100, respectively. Mr. Leon
is a director and CEO of the Company. The balances payable are non-interest bearing and has no fixed repayment terms.
Due
to the current financial position of the Group, Mr. Leon forfeited the management fees due to him for the nine months ended September
30, 2022 and the year ended December 31, 2021.
Leon
Developments, Ltd.
As
of September 30, 2022 and December 31, 2021, the Company owed Leon Developments, Ltd., $835,805 and $935,966, respectively, for funds
advanced to the Company.
Eileen
Greene
As
of September 30, 2022 and December 31, 2021, the Company owed Eileen Greene, the spouse of our CEO, Shawn Leon, $1,489,220 and $1,472,215,
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.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 3,729,053,805
and 3,579,053,805 shares of common stock at September 30, 2022 and December 31, 2021, respectively.
On
February 28, 2022, the Company issued 150,000,000 shares of common stock to Leonite in connection with a conversion notice received,
converting principal of $149,250.
| |
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 September 30, 2022 and December 31, 2021, respectively.
| |
c) |
Series B Preferred shares |
Authorized
and outstanding
The
Company has authorized 400,000 Series B preferred shares with a par value of $1.00 per share. The company has issued and outstanding 400,000 Series
B Preferred shares at September 30, 2022 and December 31, 2021, respectively.
The
Series B preferred shares are mandatorily redeemable by the Company and are therefore classified as mezzanine debt.
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 September 30, 2022 under the Plan.
All
of the warrants have cashless exercise terms whereby in-the-money warrants may be exercised by reducing the number of shares issued in
terms of the warrant exercise to offset the proceeds due on the exercise.
All
of the warrants have price protection features whereby any securities issued subsequent to the date of the warrant issuance date, were
issued at a lower price, or have conversion features that are lower than the current exercise price, or were converted at a lower price,
or are exercisable at a lower price, to the current warrant exercise price, will result in the exercise price of the warrant being set
to the lower issue, conversion or exercise price.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 18. |
Stockholder’s deficit |
A
summary of the Company’s warrant activity during the period from January 1, 2021 to September 30, 2022 is as follows:
Schedule of warrants outstanding
| |
|
No. of shares |
|
Exercise price
per share |
|
Weighted
average exercise
price |
| |
|
|
|
|
|
|
| Outstanding as of January 1, 2021 |
|
|
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 |
|
| Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Forfeited/cancelled |
|
|
(20,925,000 |
) |
|
|
$0.12 |
|
|
|
0.12 |
|
| Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Outstanding as of September 30, 2022 |
|
|
602,852,506 |
|
|
|
$0.000675 to $0.00205 |
|
|
$ |
0.001306 |
|
The
following table summarizes information about warrants outstanding at September 30, 2022:
Schedule of assumption
| |
|
|
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 |
|
|
|
2.78 |
|
|
|
|
|
|
|
326,286,847 |
|
|
|
|
|
| $0.002050 |
|
|
|
276,565,659 |
|
|
|
3.27 |
|
|
|
|
|
|
|
276,565,659 |
|
|
|
|
|
| |
|
|
|
602,852,506 |
|
|
|
3.01 |
|
|
$ |
0.001306 |
|
|
|
602,852,506 |
|
|
$ |
0.001306 |
|
All
of the warrants outstanding at September 30, 2022 are vested. The warrants outstanding at September 30, 2022 have an intrinsic value of
$0.
19.
Segment information
The Company has two reportable
operating segments:
| |
a. |
Rental income from the property owned by CCH subsidiary located at 3571 Muskoka Road, #169, Bala, on which the operations of the Canadian Rehab Clinic were located prior to disposal on February 14, 2017 and subsequently leased to the purchasers of the business of the Canadian Rehab Clinic, for a period of 5 years renewable for a further three five-year periods and with an option to acquire the property at a fixed price. |
| |
b. |
Rehabilitation Services provided to customers, these services were provided to customers at our Evernia, Addiction Recovery Institute of America and Seastone of Delray operations. |
ETHEMA
HEALTH CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 19. |
Segment information (continued) |
The
segment operating results of the reportable segments for the nine months ended September 30, 2022 is disclosed as follows:
Schedule of segment information
| | |
|
|
|
|
|
|
|
|
|
|
| | |
Nine months ended September 30, 2022 |
| | |
Rental
Operations | |
In-Patient
services | |
Total |
| | |
| |
| |
|
| Revenue | |
$ | 292,303 | | |
$ | 3,297,387 | | |
$ | 3,586,290 | |
| Operating expenses | |
| (99,515 | ) | |
| (3,105,091 | ) | |
| (3,204,606 | ) |
| | |
| | | |
| | | |
| | |
| Operating income | |
| 192,788 | | |
| 188,896 | | |
| 381,684 | |
| | |
| | | |
| | | |
| | |
| Other (expense) income | |
| | | |
| | | |
| | |
| Other income | |
| — | | |
| 10,018 | | |
| 10,018 | |
| Forgiveness of government assistance loan | |
| — | | |
| 104,368 | | |
| 104,368 | |
| Interest expense | |
| (156,297 | ) | |
| (210,880 | ) | |
| (367,177 | ) |
| Amortization of debt discount | |
| — | | |
| (551,738 | ) | |
| (551,738 | ) |
| Derivative liability movement | |
| — | | |
| 175,593 | | |
| 175,593 | |
| Foreign exchange movements | |
| 116,635 | | |
| 385,715 | | |
| 502,350 | |
| Net income before taxes | |
| 153,126 | | |
| 101,972 | | |
| 255,098 | |
| Taxes | |
| — | | |
| (87,615 | ) | |
| (87,615 | ) |
| Net Income | |
$ | 153,126 | | |
$ | 14,357 | | |
$ | 167,483 | |
The
operating assets and liabilities of the reportable segments as of September 30, 2022 is as follows:
| | |
|
|
|
|
|
|
|
|
|
|
| | |
September 30, 2022 |
| | |
Rental
Operations | |
In-Patient
services | |
Total |
| | |
| |
| |
|
| Purchase of fixed assets | |
$ | — | | |
$ | 285,103 | | |
$ | 285,103 | |
| Assets | |
| | | |
| | | |
| | |
| Current assets | |
| 7,972 | | |
| 952,223 | | |
| 960,195 | |
| Non-current assets | |
| 2,469,499 | | |
| 3,299,226 | | |
| 5,768,725 | |
| Liabilities | |
| | | |
| | | |
| | |
| Current liabilities | |
| (4,974,475 | ) | |
| (9,047,232 | ) | |
| (14,021,707 | ) |
| Non-current liabilities | |
| (603,557 | ) | |
| (1,523,795 | ) | |
| (2,127,352 | ) |
| Mandatory redeemable preferred shares | |
| — | | |
| (400,000 | ) | |
| (400,000 | ) |
| Intercompany balances | |
| (1,263,485 | ) | |
| 1,263,485 | | |
| — | |
| Net liability position | |
$ | (4,364,046 | ) | |
$ | (8,131,754 | ) | |
$ | (9,820,139 | ) |
ETHEMA
HEALTH CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 19. |
Segment information (continued) |
The segment operating results of the reportable segments for the nine months ended September 30, 2021 is disclosed as follows:
| | |
|
|
|
|
|
|
|
|
|
|
| | |
Nine months ended September 30, 2021 |
| | |
Rental
Operations | |
In-Patient
services | |
Total |
| | |
| |
| |
|
| Revenue | |
$ | 278,806 | | |
$ | 774,577 | | |
$ | 1,053,383 | |
| Operating expenses | |
| 111,163 | | |
| 718,935 | | |
| 830,098 | |
| | |
| | | |
| | | |
| | |
| Operating income | |
| 167,643 | | |
| 55,642 | | |
| 223,285 | |
| | |
| | | |
| | | |
| | |
| Other (expense) income | |
| | | |
| | | |
| | |
| Penalty on convertible debt | |
| — | | |
| (9,240 | ) | |
| (9,240 | ) |
| Loss on advance | |
| — | | |
| (120,000 | ) | |
| (120,000 | ) |
| Warrant exercise | |
| — | | |
| (758,340 | ) | |
| (758,340 | ) |
| Fair value of warrants granted to convertible debt holders | |
| — | | |
| (976,788 | ) | |
| (976,788 | ) |
| Interest expense | |
| (173,549 | ) | |
| (535,387 | ) | |
| (708,936 | ) |
| Amortization of debt discount | |
| — | | |
| (1,683,779 | ) | |
| (1,683,779 | ) |
| Derivative liability movement | |
| — | | |
| 544,767 | | |
| 544,767 | |
| Foreign exchange movements | |
| (9,024 | ) | |
| 13,242 | | |
| 4,218 | |
| Net loss before taxes | |
| (14,930 | ) | |
| (3,469,883 | ) | |
| (3,484,813 | ) |
| Taxes | |
| — | | |
| 18,794 | | |
| 18,794 | |
| Net loss | |
$ | (14,930 | ) | |
$ | (3,451,089 | ) | |
$ | (3,466,019 | ) |
The
operating assets and liabilities of the reportable segments as of September 30, 2021 is as follows:
| | |
|
|
|
|
|
|
|
|
|
|
| | |
September 30, 2021 |
| | |
Rental
Operations | |
In-Patient
services | |
Total |
| | |
| |
| |
|
| Purchase of fixed assets | |
$ | — | | |
$ | 31,214 | | |
$ | 31,214 | |
| Assets | |
| | | |
| | | |
| | |
| Current assets | |
| 3,908 | | |
| 292,134 | | |
| 296,042 | |
| Non-current assets | |
| 2,784,419 | | |
| 3,575,619 | | |
| 6,360,038 | |
| Liabilities | |
| | | |
| | | |
| | |
| Current liabilities | |
| (5,395,477 | ) | |
| (10,341,386 | ) | |
| (15,736,863 | ) |
| Non-current liabilities | |
| (675,140 | ) | |
| (1,847,356 | ) | |
| (2,522,496 | ) |
| Mandatory redeemable preferred shares | |
| — | | |
| (400,000 | ) | |
| (400,000 | ) |
| Intercompany balances | |
| 1,254,879 | | |
| (1,254,879 | ) | |
| — | |
| Net liability position | |
$ | (2,027,411 | ) | |
$ | (9,975,868 | ) | |
$ | (12,003,279 | ) |
ETHEMA
HEALTH CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
20.
Net income (loss) per common share
For the three months
ended September 30, 2022, the computation of basic and diluted earnings per share is calculated as follows:
Schedule
of Earnings Per Share
| | |
| |
Number of | |
Per share |
| | |
Amount | |
shares | |
amount |
| | |
| |
| |
|
| Basic earnings per share | |
| | | |
| | | |
| | |
| Net income per share available for common stockholders | |
$ | 458,713 | | |
| | |
$ | 0.00 | |
| | |
| | | |
| | | |
| | |
| Effect of dilutive securities | |
| | | |
| | | |
| | |
| Convertible debt | |
| 163,565 | | |
| 547,490,575 | | |
| | |
| | |
| | | |
| | | |
| | |
| Diluted earnings per share | |
| | | |
| | | |
| | |
| Net income per share available for common stockholders | |
$ | 622,278 | | |
| 4,276,544,380 | | |
$ | 0.00 | |
For the three months
ended September 30, 2021, the computation of basic and diluted earnings per share is calculated as follows:
| | |
| |
Number of | |
Per share |
| | |
Amount | |
shares | |
amount |
| | |
| |
| |
|
| Basic earnings per share | |
| | | |
| | | |
| | |
| Net income per share available for common stockholders | |
$ | 1,525,766 | | |
| | |
$ | 0.00 | |
| | |
| | | |
| | | |
| | |
| Effect of dilutive securities | |
| | | |
| | | |
| | |
| Warrants | |
| — | | |
| 297,205,984 | | |
| | |
| Convertible debt | |
| 123,266 | | |
| 823,112,567 | | |
| | |
| | |
| | | |
| | | |
| | |
| Diluted earnings per share | |
| | | |
| | | |
| | |
| Net income per share available for common stockholders | |
$ | 1,649,032 | | |
| 3,996,020,553 | | |
$ | 0.00 | |
For the nine months
ended September 30, 2022, the computation of basic and diluted earnings per share is calculated as follows:
| | |
| |
Number of | |
Per share |
| | |
Amount | |
shares | |
amount |
| | |
| |
| |
|
| Basic earnings per share | |
| | | |
| | | |
| | |
| Net income per share available for common stockholders | |
$ | 41,135 | | |
| | |
$ | 0.00 | |
| | |
| | | |
| | | |
| | |
| Effect of dilutive securities | |
| | | |
| | | |
| | |
| Convertible debt | |
| 230,724 | | |
| 547,490,575 | | |
| | |
| | |
| | | |
| | | |
| | |
| Diluted earnings per share | |
| | | |
| | | |
| | |
| Net income per share available for common stockholders | |
$ | 271,859 | | |
| 4,244,126,798 | | |
$ | 0.00 | |
For
the nine months ended September 30, 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
| | |
Nine months ended
September 30,
2021 |
| | |
|
| Warrants to purchase shares of common stock | |
| 684,345,057 | |
| Convertible notes (in shares) | |
| 1,056,854,401 | |
| | |
| 1,741,199,458 | |
ETHEMA
HEALTH CORPORATION
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 12 above. The mortgage loan matured on July 19, 2022 and the Company currently owes $3,490,791. The terms of
the loan are currently being negotiated.
The
Company has principal and interest payment commitments under the Convertible notes disclosed under Note 10 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.
22.
Subsequent events
Subsequent
to September 30, 2022, the Company re-negotiated the deposit payable for the acquisition of the Evernia building , in which the treatment
center is housed from $1,500,000 to $350,000 which was paid on October 3, 2022. The expected closing is expected to be February 1, 2023.
The Seller will provide financing of $4,000,000 at a coupon of 6.36% per annum, with interest only payments of $21,217 per month.
Other
than disclosed above, the Company has evaluated subsequent events through the date of the condensed consolidated financial statements
were issued, we did not identify any other subsequent events that would have required adjustment or disclosure in the financial statements.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The
following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations
for the periods indicated. The discussion should be read in conjunction with our consolidated financial statements and the notes presented
herein and the consolidated financial statements and the other information set forth in our Annual Report on Form 10- K for the year ended
December 31, 2021 filed with the Securities and Exchange Commission on April 14, 2022. In addition to historical information, the following Management’s Discussion
and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties.
Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors
discussed herein and any other periodic reports filed and to be filed with the Securities and Exchange Commission.
Plan
of Operation
During
the next twelve months, the Company plans to continue to grow the Evernia business.
With
effect from July 1, 2021, the operations of ATHI, which include Evernia are included in the results of operations.
For the three months ended September 30, 2022
and September 30, 2021.
Revenues
Revenues were $1,424,943
and $866,432 for the three months ended September 30, 2022 and 2021, respectively, an increase of $558,511 or 64.5%. The revenue
from in-patient services related to Evernia was $1,286,425 and $774,577 for the three months ended September 30, 2022 and 2021, respectively.
He increase in Evernia revenue is due to expansion of the facility and the increase in the number of beds available for patients. The
revenue from rental properties was $108,518 and $91,855 and included the rental escalation as per
the agreement.
Operating Expenses
Operating expenses were $1,169,961
and $747,468 for the three months ended September 30, 2022 and 2021, respectively, an increase of $422,493 or 56.5%. The increase
is primarily due to the following:
| |
● |
Payroll expense was $580,433 and $474,351 for the three months ended September 30, 2022 and 2021, respectively, an increase of $106,082 or 22.4%. The increase is primarily due to an increase in headcount to support the growth in revenue. |
| |
● |
Rent expense was $114,717 and $87,874 for the three months ended September 30, 2022 and 2021, respectively, an increase of $26,843 or 30.5%. The increase in rental is due to additional rental expense incurred on apartments used to house additional patients as the business expands. |
| |
● |
Management fees was $30,000 and management fee reversal was $(259,175) for the three months ended September 30, 2022 and 2021, respectively, an increase of $289,175 or 111.6%. Management fees accrued as a payable to our CEO were reversed during the prior period as these fees had not been paid for several years, the current year fee of $30,000 was paid to current management. |
| |
● |
Depreciation expense was $136,609 and $125,959 for the three months ended September 30, 2022 and 2021, respectively, an increase of $10,650 or 8.5%. The increase in depreciation expense is due to the expansion undertaken at the Evernia facility to support the increase in revenue generated by additional patient beds. |
Operating Income
The operating income was
$254,982 and $118,964 for the three months ended September 30, 2022 and 2021, respectively, an increase of $136,018 or 114.3%. The increase
in operating income is due to the increased revenues, offset by the increase in operating expenses, as discussed above.
Forgiveness of government
assistance loan
Forgiveness of federal assistance
loan was $104,368 and $0 for the three months ended September 30, 2022 and 2021, respectively, an increase of $104,368. The Company received
partial relief of the Government assistance loan received in the prior year.
Interest expense
Interest expense was $163,651
and $(29,052) for the three months ended September 30, 2022 and 2021, respectively, an increase of $192,703 or 663.3%. the increase is
due to an adjustment made to accrued interest in the prior year.
Amortization of debt discount
Amortization of debt discount
was $87,704 and $333,237 for the three months ended September 30, 2022 and 2021, respectively, a decrease of $245,533 or 73.7%. The decrease
is primarily due to the conversion of convertible debt over the past twelve months and the repayment of debt during the prior period,
resulting in acceleration of amortization expense in periods prior to the current period.
Derivative liability
movement
The derivative liability
movement was $45,156 and $1,510,046 for the three months ended September 30, 2022 and 2021, respectively. The derivative liability movement
represents the mark to market movements of variably priced convertible notes and warrants issued during the current and prior comparative
period. The decrease in the mark to market movement of $1,464,890, or 97.0%, was primarily due to the conversion of several convertible
notes during the prior period.
Foreign exchange movements
Foreign exchange movements
was $404,538 and $184,956 for the three months ended September 30, 2022 and 2021, respectively, an increase of $219,582 or 118.7%, representing
the realized exchange gains and (losses) on monetary assets and liabilities settled during the current year as well as mark to market
adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars.
Net income before taxes
Net income before taxes was
$556,734 and $1,509,781 for the three months ended September 30, 2022 and 2021, respectively, a decrease of $953,047 or 63.1%. The decrease
is primarily due to the decrease in the derivative liability movement of $1,464,890, offset by the decrease in the amortization of debt
discount of $245,533, the increase in foreign exchange gain of $219,582, the forgiveness of the government assistance loan of $104,368
and the increase in operating income of $136,018, as discussed above.
Income taxes
Income taxes was $(44,652)
and $18,794 for the three months ended September 30, 2022 and 2021, an increase of $63,446 or 337.6%. The increase is due to the profit
generated by Evernia during the current period. In the prior period, the credit related to deferred tax on the value of the intangible
asset on the Evernia acquisition.
Net Income
Net Income was $512,082 and
$1,528,575 for the three months ended September 30, 2022 and 2021, respectively, a decrease of $1,016,493 or 66.5%, is primarily due to
the decrease in net income before taxation and the increase in the income taxes, as discussed above.
For the nine months ended September 30,
2022 and September 30, 2021.
Revenues
Revenues were $3,586,290
and $1,053,383 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $2,532,907 or 240.5%. The revenue
from in-patient services related to Evernia was $3,289,727 and $774,577 for the nine months ended September 30, 2022 and 2021, respectively.
Evernia was acquired on July 1, 2021, the revenue for the current period represents nine months of revenue compared to three months in
the prior period. The revenue from rental properties was $296,563 and $278,806 for the nine months ended September 30, 2022 and 2021,
respectively and included the rental escalation as per the agreement.
Operating
Expenses
Operating expenses were $3,204,606
and $830,098 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $2,374,508 or 286.1%. The increase
is primarily due to the following:
| |
● |
Operating expenses related to ATHI and Evernia was $2,958,903 for the nine months ended September 30, 2022, Evernia was acquired on July 1, 2021. Included in Evernia operating expenses is payroll costs of $1,336,504, outside contractors and professional fees of $374,028, advertising and promotion costs of $80,924 management fees of $90,000, rental expenses of $314,256, and depreciation and amortization expenses of $307,738, which relate primarily to the amortization of intangibles. |
| |
● |
Operating expenses, excluding ATHI and Evernia was $245,703 and $22,628 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $223,075 or 985.8%, primarily due to the $259,175 reversal of unpaid management fees recorded in prior year payables. |
| |
● |
Rent expense, excluding ATHI and Evernia was $0 and $2,512 for the nine months ended September 30, 2022 and 2021, respectively, a decrease of $2,512 or 100.0%. This amount is immaterial. |
| |
● |
Management fees, excluding ATHI and Evernia was $0 and $259,975 for the nine months ended September 30, 2022 and 2021, respectively. Management fees were waived during the current and $259,175 of management fees were reversed as they remained unpaid. |
| |
● |
Salaries and wages, excluding ATHI and Evernia was $119,595 and $83,073 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $36,522 or 43.9%, the increase is due to additional employees retained for administrative functions with the acquisition of Evernia. |
| |
● |
Depreciation expense, excluding ATHI and Evernia was $95,113 and $96,837 for the nine months ended September 30, 2022 and 2021, respectively, a decrease of $1,724, the decrease is immaterial. |
Operating income
The operating income was
$381,684 and $225,285 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $156,399 or 69.3%. In the prior
period, management fees of $259,175 were reversed, after eliminating the reversal of management fees, operating income increased by $415,574,
primarily due to the operating income of $305,084, and the operating income generated by the rental operations.
Penalty
on convertible notes
Penalty
on convertible notes was $0 and $9,240 for the nine months ended September 30, 2022 and 2021, a decrease of $9,240. The penalty on convertible
notes relates to a fee paid in the previous year for the extension of repayment dates on the Labrys note.
Loss
on advance
Loss
on advance was $0 and $120,000 for the nine months ended September 30, 2022 and 2021, respectively, a decrease of $120,000 or 100.0%.
The company provided against funds that were advanced to Local link wellness in the prior year, which management determined to be uncollectible.
Fair
value of warrants granted to convertible debt holders
Fair
value of warrants granted to convertible debt holders was $0 and $976,788 for the nine months ended September 30, 2022 and 2021, a decrease
of $976,788 or 100%. In the prior period, the Company granted warrants to certain convertible debt holders in terms of agreements entered
into with them, whereby any debt issued subsequent to their debt on more favorable terms would result in the debt holders being entitled
to the same terms as issued to the subsequent debt holders. The company issued warrants for a total of 246,464,649 shares of common stock
valued using a Black Scholes valuation model.
Interest expense
Interest expense was $367,177
and $708,936 for the nine months ended September 30, 2022 and 2021, respectively, a decrease of $341.759 or 48.2%, primarily due to a
reduction in overall debt due to conversion of convertible notes over the prior 12 months and the repayment of convertible notes during
the current period.
Amortization of debt discount
Amortization of debt discount
was $551,738 and $1,683,779 for the nine months ended September 30, 2022 and 2021, respectively, a decrease of $1,132,041 or 67.2%. The
decrease is primarily due to the conversion of convertible debt over the past twelve months and the repayment of debt during the prior
period, resulting in acceleration of amortization expense in periods prior to the current period.
Derivative liability
movement
The derivative liability
movement was $175,593 and $(213,573) for the nine months ended September 30, 2022 and 2021, respectively, an increase of $389,166 or 182.2%.
The derivative liability movement represents the mark to market movements of variably priced convertible notes and warrants issued during
the current and prior comparative period.
Foreign exchange movements
Foreign exchange movements
was $502,350 and $4,218 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $498,132 or 11,809.7%, representing
the realized exchange gains and (losses) on monetary assets and liabilities settled during the current year as well as mark to market
adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars.
Net income (loss) before income taxes
Net income before income
taxes was $255,098 and net loss before income taxes was $(3,484,813) for the nine months ended September 30, 2022 and 2021, respectively,
an increase of $3,739,911 or 107.3%, is primarily due to the loss on advance in the prior year, the fair value of the warrants granted
to convertible debt holders, the decrease in interest expense, the decrease in amortization of debt discount and the decrease in derivative
liability movements, as discussed above and the foreign exchange movements, as discussed above.
Income taxes
Income taxes was $(87,615)
and $18,794 for the nine months ended September 30, 2022 and 2021, an increase of $106,409 or 566.2%. The increase is due to the profit
generated by Evernia, which was acquired on July 1, 2021. In the prior year, the credit to income taxes related to deferred taxation on
the intangibles acquired on the acquisition of Evernia.
Net income ( loss)
Net income was $167,483 and
net loss was $(3,466,019) for the nine months ended September 30, 2022 and 2021, respectively, an increase of $3,633,502 or 104.8%, is
primarily due to the increase in net income (loss) before taxation, offset by the increase in taxation, as discussed above.
Commitments
and contingencies
The company
has commitments under operating and finance leases as follows:
The amount of future minimum lease payments under
finance leases as of September 30, 2022 is as follows:
| |
|
Amount |
| Remainder of 2022 |
|
$ |
2,457 |
|
| 2023 |
|
|
9,829 |
|
| 2024 |
|
|
9,829 |
|
| 2025 |
|
|
9,829 |
|
| 2026 |
|
|
7,902 |
|
| |
|
$ |
39,846 |
|
The
amount of future minimum lease payments under operating leases as of September 30, 2022 is as follows:
| |
|
Amount |
| Remainder of 2022 |
|
$ |
83,349 |
|
| 2023 |
|
|
348,677 |
|
| 2024 |
|
|
366,110 |
|
| 2025 |
|
|
384,416 |
|
| 2026 |
|
|
437,407 |
|
| |
|
$ |
1,619,959 |
|
The company also has commitments
under convertible loans, short term loans, mortgage loans. If the convertible loans, as disclosed in note 10, above are not converted
will need to be repaid, the short term loans disclosed in note 11 are repayable on demand and the mortgage loans, disclosed on note 12
above, matured during July 2022, this loan is currently being renegotiated with the lenders..
The Company will need to repay the balance outstanding
on the government assistance loans, including interest thereon.
Liquidity
and Capital Resources
Cash
provided by operating activities was $1,019,112 and 75,912 for the nine months ended September 30, 2022 and 2021, respectively, an increase
of $943,200. The increase is primarily due to the following:
| |
● |
A decrease in net loss of $3,633,502 as discussed under operations above. |
| |
● |
Offset by a decrease in the movement of non-cash items of $2,426,381, primarily due to the derivative liability movement of $389,166, the fair value of warrants of $976,788 in the prior year and the movement in the amortization of debt discount of $1,119,773. |
| |
● |
The movement in working capital increased by $263,919, primarily due to the increase in movement in accounts receivable of $134,012 and prepaid expenses of $144,745. |
Cash
used in investing activities was $335,103 and $471,427 for the nine months ended September 30, 2022 and 2021, respectively In the current
period the Company invested in expanding the Evernia facility, the prior year investment was attributable to the advances made to Evernia,
which acquisition closed on July 1, 2021. The Company paid a $50,000 deposit for the potential acquisition of the building in which the
Evernia treatment center is housed.
Cash
provided by financing was $393,185 and $372,199 for the nine months ended September 30, 2022 and 2021, respectively. In the current period
the Company received $440,000 in receivables funding and repaid $80,000 per the agreement. We also received $160,000 in short term funding
and repaid $289,044. Related parties advanced the company a further $334,299 during the period.
Over
the next twelve months we estimate that the company will require approximately $0.5 million in working capital as it continues to develop
the Evernia facility and it is also exploring several other treatment center options and sources of patients throughout the country.
The Company also has convertible notes, short term loans and secured promissory notes which have matured and are in default and the Company
may have to raise equity or secure debt. There is no assurance that the Company will be successful with future financing ventures, and
the inability to secure such financing may have a material adverse effect on the Company’s financial condition. In the
opinion of management, the Company’s liquidity risk is assessed as high due to this uncertainty.
Recently
Issued Accounting Pronouncements
The recent
Accounting Pronouncements are fully disclosed in note 2 to our unaudited condensed consolidated financial statements.
Management
does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have an effect on the
accompanying unaudited condensed consolidated financial statements.
Off balance
sheet arrangements
We
do not maintain off-balance sheet arrangements nor do we participate in non-exchange traded contracts requiring fair value accounting
treatment.
Inflation
The effect
of inflation on our revenue and operating results was not significant.
Climate
Change
We
believe that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material
effect on our operations.
Item
3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item
4. Controls and Procedures.
Disclosure
Controls and Procedures
The
Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information
required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded,
processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. The Company’s
disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to
allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, the Company’s management, including
the Principal Executive Officer and the Principal Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls
and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded
that due to a lack of segregation of duties the Company’s disclosure controls and procedures are not effective to ensure that information
required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is
accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely
decisions regarding required disclosure. Subject to receipt of additional financing or revenue generated from operations, the Company
intends to retain additional individuals to remedy the ineffective controls.
Changes
in Internal Control
There
has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)
that occurred during our fiscal quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART
II
Item
1. Legal Proceedings.
A suit, claiming past due rent was filed against
the Company in March 2020 for rent of a storage warehouse, the warehouse was abandoned during March 2020. The rental expense was accrued
in our records for $12,293 as of December 31, 2021.
Other than disclosed above,
we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results
of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the executive
officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries
or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have
a material adverse effect.
Item
1A. Risk Factors.
Not applicable
because we are a smaller reporting company.
Item
2. Unregistered sales of equity securities and use of proceeds
On
March 1, 2022, the Company, entered into a secured Promissory Note in the aggregate principal amount of $124,000 for net proceeds of $100,000
after an original issue discount of $24,000. The Note had a maturity date of April 1, 2022 and bears interest at the rate of zero percent
per annum from the date on which the Note was issued until the same became due and payable.
On
February 28, 2022, the Company issued 150,000,000 shares of common stock to Leonite in connection with a conversion notice received, converting
principal of $149,250.
On
May 3, 2022, the Company, entered into a secured Promissory Note in the aggregate principal amount of $76,250 for net proceeds of $61,000
after an original issue discount of $15,250. The Note had a maturity date of June 17, 2022 and bears interest at the rate of zero percent
per annum from the date on which the Note was issued until the same became due and payable.
On
June 1, 2022, The company entered into a Note Exchange Agreement whereby the convertible promissory notes entered into with Labrys Fund
LP on May 7, 2021, with. A principal outstanding of $341,000, and on June 2, 2021 with a principal outstanding of $230,000 and accrued
interest thereon of $25,300, were exchanged for a new Senior Secured Convertible Promissory note in the principal amount of $745,375.
The Note matures on March 1, 2023, and bears interest at the minimum of 10% per annum or the Wall Street Journal quoted prime rate plus
5.75%.
No
shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the
Company under Section 4(a)(2) promulgated thereunder due to the fact that the issuance did not involve a public offering because of the
insubstantial number of persons involved in each offering, the size of the offering, manner of the offering and number of shares offered.
Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(a) (2) of the Securities
Act for these transactions.
Item
3. Defaults upon senior securities
None.
Item
4. Mine Safety Disclosures.
None.
Item
5. Other Information.
Not applicable.
Item
6. Exhibits
*
filed herewith
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ETHEMA
HEALTH CORPORATION
Date: November
14, 2022
By:/s/
Shawn E. Leon
Name:
Shawn E. Leon
Title:
Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
| Name |
|
Position |
|
Date |
| |
|
|
|
|
| /s/Shawn E. Leon |
|
Chief Executive Officer (Principal Executive Officer), |
|
November 14, 2022 |
| Shawn Leon |
|
Chief Financial Officer (Principal Financial Officer), President and Director |
|
|
| |
|
|
|
|
| /s/ John O’Bireck |
|
Director |
|
November 14, 2022 |
| John O’Bireck |
|
|
|
|
| |
|
|
|
|
| /s/ Gerald T. Miller |
|
Director |
|
November 14, 2022 |
| |
|
|
|
|