UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

 

[  ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the fiscal year ended December 31, 2019

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the transition period from ___________ to ___________

 

OR

 

[  ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  Date of event requiring this shell company report

 

Commission file number: 333-207107

 

EHAVE, INC

(Exact name of Registrant as specified in its charter)

 

Canada

(Jurisdiction of incorporation or organization)

 

18851 NE 29th Ave., Suite 700

Aventura, FL 33180

(Address of principal executive offices)

 

Securities registered pursuant to Section 12(b) of the Act.

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   None   None

 

Securities registered pursuant to Section 12(g) of the Act.

 

Common Shares, no par value
(Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

 

None
(Title of Class)

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 25,413,919 common shares as at December 31, 2019

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]   Accelerated filer [  ]   Non-accelerated filer [X]  
        Emerging growth company [X]  

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

US GAAP

International Financial Reporting Standards as issued by the

International Accounting Standards Board

Other
[X] [  ] [  ]

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

 

Item 17 [  ]             Item 18 [  ]

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

 

 

     

 

 

 

EHAVE INC.

 

FORM 20-F

 

TABLE OF CONTENTS

 

Item 1. Identity of Directors, Senior Management and Advisers 5
Item 2. Offer Statistics and Expected Timetable 5
Item 3. Key Information 5
Item 4. Information on the Company 19
Item 4A. Unresolved Staff Comments 32
Item 5. Operating and Financial Review and Prospects 32
Item 6. Directors, Senior Management and Employees 43
Item 7. Major Shareholders and Related Party Transactions 48
Item 8. Financial Information 51
Item 9. The Offer and Listing 52
Item 10. Additional Information 53
Item 11. Quantitative and Qualitative Disclosures About Market Risk 66
Item 12. Description of Securities Other Than Equity Securities 66
Item 13. Defaults, Dividend Arrearages and Delinquencies 66
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 66
Item 15. Controls and Procedures 67
Item 16. [Reserved] 68
Item 16A. Audit Committee Financial Expert 68
Item 16B. Code of Ethics 68
Item 16C. Principal Accountant Fees and Services 68
Item 16D. Exemptions from the Listing Standards for Audit Committees 69
Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchases 69
Item 16F. Change in Registrant’s Certifying Accountants 69
Item 16G. Corporate Governance 69
Item 16H. Mine Safety Disclosure 69
Item 17. Financial Statements 69
Item 18 Financial Statements 69
Item 19. Exhibits 69
Signatures 74
Financial Statements F1 - F17

 

  2  

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This annual report contains “forward-looking statements”. Forward-looking statements reflect the current view about future events. When used in this annual report, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions, as they relate to us or our management, identify forward-looking statements. Such statements include, but are not limited to, statements contained in this annual report relating to our business strategy, our future operating results and liquidity and capital resources outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward–looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees of assurance of future performance. We caution you therefore against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, our ability to develop and commercialize new and improved products and services; our ability to raise capital to fund continuing operations; a continued decline in general economic conditions nationally and internationally; decreased demand for our products and services; market acceptance of our products and services; our ability to protect our intellectual property rights; the impact of any infringement actions or other litigation brought against us; competition from other providers and products; changes in government regulation; our ability to complete customer transactions and capital raising transactions; and other factors (including the risks contained in the section of this annual report entitled “Risk Factors”) relating to our industry, our operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

 

  3  

 

 

Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

The forward-looking statements in this annual report are subject to various risks and uncertainties, most of which are difficult to predict and generally beyond our control, including without limitation:

 

  Our limited operating history makes evaluating our business and future prospects difficult and may increase the risk of your investment.
  We have a history of operating losses and expect to continue incurring losses for the foreseeable future.
  If we are unable to obtain additional funding, our business operations will be harmed.
  Our independent auditors have expressed their concern as to our ability to continue as a going concern.
  Our inability to regain or maintain the eligibility to have our common shares quoted on OTC Markets, which may have an unfavorable impact on our stock price and liquidity.
  Our products may not be successful in gaining market acceptance, which would negatively impact our revenues.
  If we are unable to keep up with rapid technological changes in our field, we will be unable to operate profitably.
  Many of our potential competitors are better established and have significantly greater resources which may make it difficult for us to compete in the markets in which we intend to sell our products.
  If we lose any of our key management personnel or consultants, we may not be able to successfully manage our business or achieve our objectives.
  Developments or assertions by us or against us relating to intellectual property rights could materially impact our business.
  Our products could infringe on the intellectual property rights of others which may result in costly litigation and, if we do not prevail, could also cause us to pay substantial damages and prohibit us from selling or licensing our products.
  We have identified material weaknesses in our internal control over financial reporting, and if we are unable to achieve and maintain effective internal control over financial reporting or effective disclosure controls, we may be at risk to accurately report financial results or detect fraud, which could have a material adverse effect on our business.
  The market for our products is immature and volatile and if it does not develop, or if it develops more slowly than we expect, the growth of our business will be harmed.
  If our security measures are breached and unauthorized access to a customer’s data are obtained, our products may be perceived as insecure, we may incur significant liabilities, our reputation may be harmed, and we could lose sales and customers.
  If we fail to comply with applicable health information privacy and security laws and other state and federal privacy and security laws, we may be subject to significant liabilities, reputational harm and other negative consequences, including decreasing the willingness of current and potential customers to work with us.
  Our proprietary software may not operate properly, which could damage our reputation, give rise to claims against us or divert application of our resources from other purposes, any of which could harm our business and operating results.
  We depend on data centers operated by third parties for our products, and any disruption in the operation of these facilities could adversely affect our business.
  If currency exchange rates fluctuate substantially in the future, the results of our operations, which are reported in U.S. dollars, could be adversely affected.
  We may not be in compliance with rules and regulations of the U.S. Food and Drug Administration (the “FDA”) should they become applicable to any products we develop in the future.
  The results of any future clinical trials that we may need to perform in the future may not support our medical device candidate requirements or intended use claims or may result in the discovery of unanticipated inconsistent data.
  A security breach or disruption or failure in a computer or communications systems could adversely affect us.

 

  4  

 

 

PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable

 

ITEM 3. KEY INFORMATION

 

  A. Selected Financial Data

 

The selected financial data presented below for the four years ended December 31, 2019, is presented in U.S. dollars and is derived from our financial statements prepared in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). We have derived the selected financial data as of December 31, 2019, 2018, 2017, and 2016 and for the years ended December 31, 2019, 2018, 2017, and 2016 from our audited financial statements included elsewhere in this Annual Report on Form 20-F. The information set forth below should be read in conjunction with our financial statements (including notes thereto) included under Item 18 and “Operating and Financial Review and Prospects” included under Item 5 and other information provided elsewhere in this annual report on Form 20-F and our financial statements and related notes. The selected financial data in this section is not intended to replace the financial statements and is qualified in its entirety thereby.

 

    2019     2018     2017     2016  
    $     $     $     $  
Revenues from continuing operations                        
Net loss     (3,637,368 )     (5,588,334, )     (4,141,613 )     (1,502,204 )
Net comprehensive loss     (3,794,909 )     (5,381,156 )     (4,208,936 )     (1,466,776 )
Basic and diluted loss per share (1)     (.18 )     (7.17 )     (6.00 )     (5.00 )
Total assets     496,737       460,234       59,275       48,380  
Shareholders’ deficit     (2,230,775 )     (3,733,435 )     (2,009,266 )     (1,191,960 )
Cash dividends declared per share (2)                          
Weighted average number of common shares outstanding     21,454,189       751,028       690,306       321,441  

 

Notes:

 

  (1) On May 29, 2019 the Company effected a 100 for 1 reverse split. All share amounts have been adjusted for the split. In 2019 we issued 25,413,839 shares of common stock (2,541,383,900 pre-split shares) pursuant to certain transactions set forth in Item 4, below. We issued 37,988 (3,798,781 pre-split) shares in 2018. We issued 269,143 (26,914,315 pre-split) common shares in 2017. We issued 162,868 (16,286,796 pre-split) common shares in 2016.

 

  (2) We have not declared or paid any dividends since incorporation.

 

Exchange Rate Data

 

The following table sets forth the exchange rates for Canadian dollars expressed in U.S. dollars that have been used in the audited financial statements included elsewhere in this Annual Report on Form 20-F.

 

$1 Canadian dollar equivalent in U.S. dollars      
At December 31, 2018     0.7329  
At December 31, 2019     0.7715  
Average for the year ended December 31, 2019     0.7538  

 

  5  

 

 

  B. Capitalization and Indebtedness

 

Not applicable

 

  C. Reasons for the Offer and Use of Proceeds

 

Not applicable

 

  D. Risk Factors

 

Investment in our common shares involves a high degree of risk. You should carefully consider, among other matters, the following risk factors in addition to the other information in this Annual Report on Form 20-F when evaluating our business because these risk factors may have a significant impact on our business, financial condition, operating results or cash flow. If any of the material risks described below or in subsequent reports we file with the Securities and Exchange Commission (“SEC”) actually occur, they may materially harm our business, financial condition, operating results or cash flow. Additional risks and uncertainties that we have not yet identified or that we presently consider to be immaterial may also materially harm our business, financial condition, operating results or cash flow.

 

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

 

Our limited operating history makes evaluating our business and future prospects difficult and may increase the risk of your investment.

 

We have a very limited operating history on which investors can base an evaluation of our business, operating results and prospects. We have no operating history with respect to commercializing our software applications and products. Consequently, it is difficult to predict our future revenues, if any, and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business.

 

We began processes to develop relationships with potential customers and distribution partners in November 2016. Completion of our cognitive assessment and remediation tools and the further development and commercialization of our products is dependent upon the availability of sufficient funds. This limits our ability to accurately forecast the cost of the development of our products. If the markets and applications of our products do not develop as we expect or develop more slowly than we expect, our business, prospects, financial condition and operating results will be harmed.

 

We have a history of operating losses and expect to continue incurring losses for the foreseeable future.

 

We were incorporated in 2011. We reported a net loss of $3,637,368 for the fiscal year ended December 31, 2019 and had a net loss of $5,588,334 during the fiscal year ended December 31, 2018. As of December 31, 2019, we had an accumulated deficit of $16,214,826. We cannot anticipate when, if ever, our operations will become profitable. We expect to incur significant net losses as we develop and commercialize our products and pursue our business strategy. We intend to invest significantly in our business before we expect cash flow from operations to be adequate to cover our operating expenses. If we are unable to execute our business strategy and grow our business, for any reason, our business, prospects, financial condition and results of operations will be adversely affected.

 

As reflected in the financial statements for the years ended December 31, 2019, and December 31, 2018, included elsewhere in this Annual Report on Form 20-F, we had no revenues from continuing operations in 2019 and 2018 and need additional cash resources to maintain its operations. These factors raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital. We cannot predict when, if ever, we will be successful in raising additional capital and, accordingly, we may be required to cease operations at any time, if we do not have sufficient working capital to pay our operating costs.

 

  6  

 

 

If we are unable to obtain additional funding, our business operations will be harmed.

 

We raised an aggregate of $270,018 through loans and issuance of convertible debentures and warrants in 2019. We raised an aggregate of $1,867,982 through issuance of convertible debentures and warrants in 2018. We anticipate that we will continue to incur losses and negative cash flows from operations, and that such losses will increase over the next several years due to development costs associated with our MegaTeam and Ehave Dashboard products, until our products reach commercial profitability. As a result of these expected losses and negative cash flows from operations, along with our current cash position, based on our current projections, we may not have sufficient resources to fund operations through the third quarter of 2020. To the extent that we are required to raise additional funds to conduct research and acquire facilities, and to cover costs of operations, we intend to do so through additional public or private offerings of debt or equity securities. There are no assurances that we will be successful in obtaining the level of financing needed for our operations, and we may be unable to secure such funding when needed in adequate amounts or on acceptable terms, if at all. Any additional equity financing may involve substantial dilution to our then existing shareholders. In February 2019, we entered a definitive agreement to sell the Ehave Connect asset in consideration for $904,516 (CAD$1,200,000) of cash and shares of the purchaser’s common shares. That transaction closed in May 2019. However, the Company recorded USD $256,408 (CAD $340,170) of expenses directly associated with the Asset Purchase Agreement The inability to raise the additional capital will restrict our ability to develop and conduct business operations. If we cannot raise additional capital, we will need to reduce our cash burn to last 12 months by focusing our efforts on existing products only, leveraging research funding to conduct additional clinical studies on efficacy and integration and development of new techniques for assessment and rehabilitation.

 

Our independent auditors have expressed their concern as to our ability to continue as a going concern.

 

We reported an accumulated deficit of $16,214,826 and had a stockholders’ deficit of $2,230,775 at December 31, 2019. As a result of our financial condition, we have received a report from our independent registered public accounting firm for our financial statements for the years ended December 31, 2019 and 2018 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern without the infusion of significant additional capital. There can be no assurance that management will be successful in implementing its plans. If we are unable to raise additional financing we may cease operations.

 

Our products may not be successful in gaining market acceptance, which would negatively impact our revenues.

 

Currently, our business strategy is to continue to support the clinical trials of our therapeutic video games, develop the Ehave Dashboard, and gain access to additional technologies at a time and in a manner that we believe is best for our development. We may have difficulties in reaching market acceptance, which could negatively impact our revenues, for a number of reasons including:

 

  any delays in securing partnerships and strategic alliances;
  any technical delays and malfunctions;
  failure to receive regulatory approval on a timely basis or at all; and
  failure to receive a sufficient level of reimbursement from government, insurers or other third-party payors.

 

If we are unable to keep up with rapid technological changes in our field, we will be unable to operate profitably.

 

Our industry is characterized by extensive research efforts and rapid technological progress. If we fail to anticipate or respond adequately to technological developments, our ability to operate profitably could suffer. We cannot assure you that research and discoveries by other companies will not render our software or potential products uneconomical or result in products superior to those we develop or that any products or services we develop will be preferred to any existing or newly-developed products.

 

  7  

 

 

Many of our potential competitors are better established and have significantly greater resources which may make it difficult for us to compete in the markets in which we intend to sell our products.

 

The market for the products we develop is highly competitive. Many of our potential competitors are well established with larger and better resources, longer relationships with customers and suppliers, greater name recognition and greater financial, technical and marketing resources than we have. Increased competition may result in price reductions, reduced gross margins, loss of market share and loss of licensees, any of which could materially and adversely affect our business, operating results and financial condition. We cannot ensure that prospective competitors will not adopt technologies or business plans similar to ours or develop products which may be superior to ours or which may prove to be more popular. It is possible that new competitors will emerge and rapidly acquire market share. We cannot ensure that we will be able to compete successfully against future competitors or that the competitive pressures will not materially and adversely affect our business, operating results and financial condition.

 

If we lose any of our key management personnel or consultants, we may not be able to successfully manage our business or achieve our objectives.

 

Our future success depends in large part upon the leadership and performance of our management and consultants. The Company’s operations and business strategy are dependent upon the knowledge and business contacts of our executive officers and our consultants. Although, we hope to retain the services of our officers and consultants, if any of our officer or consultants should choose to leave us for any reason before we have hired additional personnel, our operations may suffer. If we should lose their services before we are able to engage and retain qualified employees and consultants to execute our business plan, we may not be able to continue to develop our business as quickly or efficiently.

 

In addition, we must be able to attract, train, motivate and retain highly skilled and experienced technical employees in order to successfully develop our business. Qualified technical employees often are in great demand and may be unavailable in the time frame required to satisfy our business requirements. We may not be able to attract and retain sufficient numbers of highly skilled technical employees in the future. The loss of technical personnel or our inability to hire or retain sufficient technical personnel at competitive rates of compensation could impair our ability to successfully grow our business. If we lose the services of any of our personnel, we may not be able to replace them with similarly qualified personnel, which could harm our business.

 

Developments or assertions by us or against us relating to intellectual property rights could materially impact our business.

 

Pursuant to an amendment to the collaboration agreement, effective January 1, 2014, with Toronto’s Hospital for Sick Children (the “Hospital”), all intellectual property rights to the cognitive assessment and rehabilitation software jointly developed with the Hospital belong to the Hospital. Our agreement with Multi-Health Systems Inc. (“MHS”), as amended, provides that all right, title and interest in and to certain tests and other materials published by MHS relating to the tests are and will remain solely and exclusively vested in MHS.

 

We will attempt to protect proprietary and intellectual property rights to our products through licensing and distribution arrangements although we currently do not have any patents or applications for our products.

 

Litigation may also be necessary in the future to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others or to defend against claims of invalidity. Such litigation could result in substantial costs and the diversion of resources.

 

As we create or adopt new software, we will also face an inherent risk of exposure to the claims of others that we have allegedly violated their intellectual property rights.

 

Our products could infringe on the intellectual property rights of others which may result in costly litigation and, if we do not prevail, could also cause us to pay substantial damages and prohibit us from selling or licensing our products.

 

Third parties may assert infringement or other intellectual property claims against us. We may have to pay substantial damages, including damages for past infringement if it is ultimately determined that our products or technology infringe a third party’s proprietary rights. Further, we may be prohibited from selling or providing products before we obtain additional licenses, which, if available at all, may require us to pay substantial royalties or licensing fees. Even if claims are determined to be without merit, defending a lawsuit takes significant time, may be expensive and may divert management’s attention from our other business concerns. Any public announcements related to litigation or interference proceedings initiated or threatened against us could cause our business to be harmed and our stock price to decline.

 

  8  

 

 

We have identified material weaknesses in our internal control over financial reporting, and if we are unable to achieve and maintain effective internal control over financial reporting or effective disclosure controls, we may be at risk to accurately report financial results or detect fraud, which could have a material adverse effect on our business.

 

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring an annual assessment by management of the effectiveness of a public company’s internal controls over financial reporting and an attestation report by the company’s independent auditors addressing this assessment, if applicable. As discussed in Item 15 “Controls and Procedures” based on a review of our internal controls over financial reporting, management concluded that our internal controls over financial reporting was not effective due to the existence of a material weakness relating to a lack of sufficient accounting records and underlying supporting detail as of December 31, 2019. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls. Management has since addressed this weakness and has implemented the necessary changes to have effective controls over financial reporting. For additional information, see Item 15 “Controls and Procedures.”

 

We cannot assure you that we will be able to remediate our existing material weaknesses in a timely manner, if at all, or that in the future additional material weaknesses will not exist, reoccur or otherwise be discovered, a risk that is significantly increased in light of the complexity of our business. If our efforts to remediate these material weaknesses, as described in Item 15 “Controls and Procedures”, are not successful or if other deficiencies occur, our ability to accurately and timely report our financial position, results of operations, cash flows or key operating metrics could be impaired, which could result in late filings of our annual or interim reports under the Exchange Act, restatements of our consolidated financial statements or other corrective disclosures. Our failure to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 on an ongoing, timely basis could result in the loss of investor confidence in the reliability of its financial statements, which in turn could harm our business and negatively impact the trading price of the common shares. In addition, future changes in our accounting, financial reporting, and regulatory environment may create new areas of risk exposure. Failure to modify our existing control environment accordingly may impair our controls over financial reporting and cause our investors to lose confidence in the reliability of our financial reporting, which may adversely affect our share price, suspension of trading or delisting of our common shares by Pink Open Market, or, if we regain the eligibility to have our common shares quoted on the OTCQB Venture Market, the OTCQB Venture Market, or other material adverse effects on our business, reputation, results of operations, financial condition or liquidity. Furthermore, if we continue to have these existing material weaknesses, other material weaknesses or significant deficiencies in the future, it could create a perception that our financial results do not fairly state our financial condition or results of operations. Any of the foregoing could have an adverse effect on the value of our shares.

 

The market for our products is immature and volatile and if it does not develop, or if it develops more slowly than we expect, the growth of our business will be harmed.

 

The market for software-based systems for mental health or treatments using psychedelics is a new and unproven market, and it is uncertain whether it will achieve and sustain demand and market adoption. Our success will depend to a substantial extent on the willingness of customers and healthcare professionals to use our systems, as well as on our ability to demonstrate the value of our software and products to customers and to develop new applications that provide value to customers and users. If customers and users do not perceive the benefits of our products, then our market may not develop at all, or it may develop more slowly than we expect, either of which could significantly adversely affect our operating results. In addition, we have limited insight into trends that might develop and affect our business. We might make errors in predicting and reacting to relevant business, legal and regulatory trends, which could harm our business. If any of these events occur, it could materially adversely affect our business, financial condition or results of operations.

 

  9  

 

 

If our security measures are breached and unauthorized access to a customer’s data are obtained, our products may be perceived as insecure, we may incur significant liabilities, our reputation may be harmed and we could lose sales and customers.

 

Our products involve the storage and transmission of customers’ proprietary information, as well as protected health information, or PHI, which, in the United States, is regulated under the Health Insurance Portability and Accountability Act of 1996 and its implementing regulations, collectively “HIPAA,” and other state and federal privacy and security laws. Because of the extreme sensitivity of this information, the security features of our product are very important. If our security measures, some of which will be managed by third parties, are breached or fail, unauthorized persons may be able to obtain access to sensitive data, including HIPAA-regulated protected health information. A security breach or failure could result from a variety of circumstances and events, including but not limited to third-party action, employee negligence or error, malfeasance, computer viruses, attacks by computer hackers, failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, telecommunication failures, user errors, and catastrophic events.

 

If our security measures were to be breached or fail, our reputation could be severely damaged, adversely affecting customer or investor confidence, customers may curtail their use of or stop using our products and our business may suffer. In addition, we could face litigation, damages for contract breach, penalties and regulatory actions for violations of HIPAA and other state and federal privacy and security regulations, significant costs for investigation, remediation and disclosure and for measures to prevent future occurrences. In addition, any potential security breach could result in increased costs associated with liability for stolen assets or information, repairing system damage that may have been caused by such breaches, incentives offered to customers or other business partners in an effort to maintain the business relationships after a breach and implementing measures to prevent future occurrences, including organizational changes, deploying additional personnel and protection technologies, training employees and engaging third-party experts and consultants. While we maintain insurance covering certain security and privacy damages and claim expenses, we may not carry insurance or maintain coverage sufficient to compensate for all liability and in any event, insurance coverage would not address the reputational damage that could result from a security incident.

 

We plan to outsource important aspects of the storage and transmission of customer information, and thus rely on third parties to manage functions that have material cyber-security risks. These outsourced functions include services such as software design and product development, software engineering, database consulting, data-center security, IT, network security, data storage and Web application firewall services. We cannot assure you that any measures that are taken will adequately protect us from the risks associated with the storage and transmission of customers’ proprietary information and protected health information.

 

We may experience cyber-security and other breach incidents that may remain undetected for an extended period. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against us, we may be unable to anticipate these techniques or to implement adequate preventive measures. In addition, in the event that our customers authorize or enable third parties to access their data or the data of their employees on our systems, we cannot ensure the complete integrity or security of such data in our systems as we would not control access. If an actual or perceived breach of our security occurs, or if we are unable to effectively resolve such breaches in a timely manner, the market perception of the effectiveness of our security measures could be harmed, we could be subject to regulatory action or other damages and we could lose sales and customers.

 

  10  

 

 

If we fail to comply with applicable health information privacy and security laws and other state and federal privacy and security laws, we may be subject to significant liabilities, reputational harm and other negative consequences, including decreasing the willingness of current and potential customers to work with us.

 

Once our products are deployed in the United States, we will be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA established uniform federal standards for certain “covered entities,” which include health care providers, health plans, and health care clearing houses, governing the conduct of specified electronic health care transactions and protecting the security and privacy of protected health information, or PHI. The Health Information Technology for Economic and Clinical Health Act, or HITECH, which was signed into law on February 17, 2009, makes certain of HIPAA’s privacy and security standards directly applicable to “business associates,” which are individuals or entities that create, receive, maintain, or transmit PHI in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA’s requirements and seek attorney’s fees and costs associated with pursuing federal civil actions.

 

In addition, states have enacted privacy and security laws and regulations that regulate the use and disclosure of certain data, with some state laws covering medical and healthcare information. These laws vary by state and could impose additional requirements and penalties on us. For example, some states impose restrictions on the use and disclosure of health information pertaining to mental health or substance abuse. Further, state laws and regulations may require us to notify affected individuals in the event of a data breach involving individually identifiable information, which may be broader than the type of information covered by HIPAA. In addition, the Federal Trade Commission may use its consumer protection authority to initiate enforcement actions in data privacy and security matters.

 

If we are unable to protect the privacy and security of our customers’ data, we could be found to have breached our contracts with our customers, we could face civil and criminal penalties under federal and state laws, we could be subject to litigation and we could suffer reputational harm or other damages. We may not be able to adequately address the business, technical and operational risks created by HIPAA and other privacy and security regulations. Furthermore, we are unable to predict what changes to HIPAA or other laws or regulations might be made in the future or how those changes could affect our business or the costs of compliance.

 

Our proprietary software may not operate properly, which could damage our reputation, give rise to claims against us or divert application of our resources from other purposes, any of which could harm our business and operating results.

 

Proprietary software development is time-consuming, expensive and complex, and may involve unforeseen difficulties. We may encounter technical obstacles, and it is possible that we discover additional problems that prevent our proprietary applications from operating properly. We are currently implementing software with respect to a number of new applications and services. If our software does not function reliably or fails to achieve client expectations in terms of performance, clients could assert liability claims against us or attempt to cancel their contracts with us. This could damage our reputation and impair our ability to attract or maintain clients.

 

Moreover, data services are complex as those we offer have in the past contained, and may in the future develop or contain, undetected defects or errors. Material performance problems, defects or errors in our existing or new software and applications and services may arise in the future and may result from interface of our offering with systems and data that we did not develop and the function of which is outside of our control or undetected in our testing. These defects and errors and any failure by us to identify and address them could result in loss of revenue or market share, diversion of development resources, injury to our reputation and increased service and maintenance costs. The costs incurred in correcting any defects or errors may be substantial and could adversely affect our operating results.

 

  11  

 

 

We depend on data centers operated by third parties for our products, and any disruption in the operation of these facilities could adversely affect our business.

 

We provide our products through a third-party data center. While we control and have access to our servers and all of the components of our network that are located in our external data centers, we do not control the operation of these facilities. The owners of our data centers have no obligation to renew agreements with us on commercially reasonable terms, or at all. If we are unable to renew any such agreements we may enter into on commercially reasonable terms, or if our data center operator is acquired, we may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur significant costs and possible service interruption in connection with doing so.

 

Problems faced by our third-party data center locations could adversely affect the experience of our customers. The operators of the data centers could decide to close their facilities without adequate notice. In addition, any financial difficulties, such as bankruptcy, faced by the operators of the data centers or any of the service providers with whom we or they contract may have negative effects on our business, the nature and extent of which are difficult to predict. Additionally, if our data centers are unable to keep up with our growing needs for capacity, this could have an adverse effect on our business. For example, a rapid expansion of our business could affect the service levels at our data centers or cause such data centers and systems to fail. Any changes in third-party service levels at our data centers or any disruptions or other performance problems with our products could adversely affect our reputation or result in lengthy interruptions in our services. Interruptions in our services might reduce our revenue, cause us to issue refunds to customers for prepaid and unused subscriptions, subject us to potential liability or adversely affect our renewal rates.

 

If currency exchange rates fluctuate substantially in the future, the results of our operations, which are reported in U.S. dollars, could be adversely affected.

 

As our trials are primarily based in Canada and we seek to operate our business on a global scale, we are exposed to the effects of fluctuations in currency exchange rates. We incur certain operating expenses in Canadian dollars. Fluctuations in the exchange rates between the U.S. dollar and the Canadian dollar could result in the dollar equivalent of such expenses being higher. This could have a negative impact on our reported results of operations. Although we may in the future decide to undertake foreign exchange hedging transactions to cover a portion of our foreign currency exchange exposure, we currently do not hedge our exposure to foreign currency exchange risks.

 

Our future U.S. operations and relationships with healthcare providers, investors, consultants, third-party payors, patients, and other customers may be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which in the event of a violation could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

 

Our future U.S. operations and arrangements with healthcare providers, physicians and third-party payors may expose us to broadly applicable fraud and abuse and other federal and state healthcare laws and regulations. These laws may constrain the business and/or financial arrangements and relationships through which we market, sell and distribute our products. Potentially applicable U.S. laws include:

 

  the federal Anti-Kickback Statute, which prohibits the offer, payment, solicitation or receipt of any form of remuneration in return for referring, ordering, leasing, purchasing or arranging for, or recommending the ordering, purchasing or leasing of, items or services payable by Medicare, Medicaid or any other federal healthcare program;
     
  federal false claims laws and civil monetary penalty laws, including the False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other government healthcare programs that are false or fraudulent, or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
     
  HIPAA, which imposes federal criminal and civil liability for executing, or attempting to execute, a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;

 

  12  

 

 

  HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information; and
     
  analogous state laws and regulations, such as state anti-kickback and false claims laws, which may be broader in scope and apply to referrals and items or services reimbursed by any third-party payers, including commercial insurers, many of which differ from each other in significant ways and often are not preempted by federal law, thus complicating compliance efforts.

 

Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available under such laws, it is possible that some of our business activities could be subject to challenge under one or more of such laws. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform. Our risk of being found in violation of these laws is increased by the fact that some of these laws are open to a variety of interpretations. If our past or present operations, practices, or activities are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, imprisonment, damages, fines, disgorgement, contractual damages, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. Further, defending against any such actions can be costly, time-consuming and may require significant resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our customers may be unwilling to use our products and our business may be impaired.

 

We may not be in compliance with rules and regulations of the U.S. Food and Drug Administration (the “FDA”) should they become applicable to any products we develop in the future.

 

We have no current plans to market, advertise or sell computerized cognitive assessment aids in the United States. Types of computerized cognitive assessment aids for the measurement and assessment of behavioral and cognitive abilities such as brain games are games purporting to increase intelligence or cognitive function are currently regulated by the FDA as Class II medical devices. Such brain games may be subject to clinical processes to determine their accuracy or validity. Terminology such as “neuroplasticity”, “attention” and “working memory” have become ubiquitous as the “brain game” market has grown. Current clinical practice refers to the use of cognitive software for the measurement of deficits as an “assessment”, and the use of software tools as rehabilitation methods as “remediation”. Should we decide in the future to market, advertise, or sell products that may be considered by the FDA as computerized cognitive assessment aids, we may be required to undergo costly and time consuming clinical trials to prove the accuracy and validity of our computerized cognitive assessment aids, should we have any such products to market, sell or advertise in the future.

 

The results of any future clinical trials that we may need to perform in the future may not support our medical device candidate requirements or intended use claims or may result in the discovery of unanticipated inconsistent data.

 

We have no current plans to market, advertise or sell computerized cognitive assessment aids in the United States. The clinical trial process may fail to demonstrate that our computerized cognitive assessment aids that we may develop in the future, are safe, effective, and consistent for the desired or proposed indicated uses, which could cause us to abandon a product and may delay development of others. Any requirement to perform unanticipated clinical trials or delay or termination of any such unanticipated future clinical trials may delay or inhibit our ability to commercialize any computerized cognitive assessment aids that we may develop in the future; and affect our ability to generate revenues.

 

  13  

 

 

A security breach or disruption or failure in a computer or communications systems could adversely affect us.

 

Our operations depend on the continued and secure functioning of our computer and communications systems and the protection of electronic information (including sensitive personal information as well as proprietary or confidential information) stored in computer databases maintained by us or by third parties. Such systems and databases are subject to breach, damage, disruption or failure from, among other things, cyber-attacks and other unauthorized intrusions, power losses, telecommunications failures, fires and other natural disasters, armed conflicts or terrorist attacks. We may be subject to threats to our computer and communications systems and databases of unauthorized access, computer hackers, computer viruses, malicious code, cyber-crime, cyber-attacks and other security problems and system disruptions. Unauthorized persons may attempt to hack into our systems to obtain personal data relating to clinical trial participants or employees or our confidential or proprietary information or of third parties or information relating to our business and financial data. If, despite our efforts to secure our systems and databases, events of this nature occur, we could expose clinical trial participants or employees to financial or medical identity theft, lose clinical trial participants or employees or have difficulty attracting new clinical trial participants or employees, be exposed to the loss or misuse of confidential information or business and financial data, have disputes with clinical trial participants or employees, suffer regulatory sanctions or penalties under applicable laws, incur expenses as a result of a data privacy breach, or suffer other adverse consequences including legal action and damage to our reputation.

 

RISKS ASSOCIATED WITH OUR COMMON SHARES AND COMPANY

 

We expect that our stock price will fluctuate significantly.

 

The trading price of our common shares may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this report, these factors include:

 

  announcement of new products by our competitors;
     
  release of new products by our competitors;
     
  adverse regulatory decisions;
     
  developments in our industry or target markets; and
     
  general market conditions including factors unrelated to our operating performance.

 

Recently, the stock market in general has experienced extreme price and volume fluctuations. Continued market fluctuations could result in extreme market volatility in the price of our common shares which could cause a decline in the value of our shares.

 

Market prices for securities of software development companies generally are volatile and the share price for our common shares has been historically volatile. This increases the risk of securities litigation. Factors such as announcements of technological innovations, new commercial products, patents, the development of proprietary rights, results of clinical trials, regulatory actions, publications, financial results, our financial position, future sales of shares by us or our current shareholders and other factors could have a significant effect on the market price and volatility of the common shares.

 

We are unable to predict the impact of COVID-19 on our company.

 

Our diagnostic and treatment tools, MegaTeam and Ninja Reflex, are currently used in hospitals and other medical settings. Because of strain on hospitals and their resources by treatment of patients with COVID-19, hospitals and other facilities are canceling or postponing non-emergency treatments which may include the use of our tools for the treatment of ADHD and related illnesses. Additionally, people are generally avoiding medical facilities except in emergency situations and therefore would not be seeking to utilize our tools in such a setting. While we do not expect this trend to continue indefinitely, its duration and impact cannot be quantified at this time and may negatively impact our business as it is related to MegaTeam and Ninja Reflex.

 

  14  

 

 

If our business is unsuccessful, our shareholders may lose their entire investment.

 

Although shareholders will not be bound by or be personally liable for our expenses, liabilities or obligations beyond their total original capital contributions, should we suffer a deficiency in funds with which to meet our obligations, the shareholders as a whole may lose their entire investment in our Company.

 

Trading of our common shares on the Pink Open Market is limited and sporadic, making it difficult or impossible for our shareholders to sell their shares or liquidate their investments.

 

There is a very limited market for our common shares. On April 30, 2019, our common shares were removed from the OTCQB Venture Market to the Pink Open Market. Prior to the listing of our common shares for trading on the OTCQB Venture Market in November 2016, there was no public market for our common shares. The Pink Open Market is a significantly more limited market than the OTCQB Venture Market and established exchanges such as the New York Stock Exchange or NASDAQ. There is no assurance that a sufficient market will develop in our shares, and the lack of an active market will impair your ability to sell your common shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair value of our common shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration. Even after trading volume increases, trading through the Pink Open Market or the OTCQB Venture Market, if our shares regain eligibility to be quoted on the OTCQB Venture Market, is frequently thin and highly volatile.

 

We may not regain or maintain the eligibility to have our common shares quoted on the OTCQB Venture Market, which may have an unfavorable impact on our stock price and liquidity.

 

On April 30, 2019, our common shares were removed from the OTCQB Venture Market to the Pink Open Market because we were unable to cure our bid price deficiency. The OTCQB Venture Market requires a minimum bid price of $0.01. Broker-dealers often decline to trade in over-the-counter stocks that are quoted on the OTC Pink tier given the market for such securities are often limited, the stocks are more volatile, and the risk to investors is greater. The OTC Pink marketplace also does not provide as much liquidity as the OTCQB Venture Market. Many broker-dealers will not trade or recommend OTC Pink stocks for their clients. Because the OTCQB generally increases transparency by maintaining higher reporting standards and requirements and imposing management certification and compliance requirements, broker-dealers are more likely to trade stocks on the OTCQB marketplace than on the OTC Pink marketplace. If we do not regain our eligibility to be quoted on the OTCQB Venture Market or maintain such eligibility once we regain the eligibility, these factors may reduce the potential market for our common shares by reducing the number of potential investors. This may make it more difficult for investors in our common shares to sell shares to third parties or to otherwise dispose of their shares and could cause our stock price to decline.

 

We effected a reverse split of our common stock on a 100 for 1 basis effective as of May 29, 2019, to cure the bid price deficiency; however, we have not yet made reapplication to the OTCQB Venture Market.

 

The share consolidation may decrease the liquidity of our common shares.

 

At the special meeting of our shareholders held on May 6, 2019, our shareholders approved a resolution authorizing the amendment of our articles to consolidate our issued and outstanding common shares in up to three consecutive share consolidations to occur at any time as determined by our board of directors, within one calendar year of the date of the special meeting, provided that the first consolidation, the second consolidation, and the third consolidation shall collectively effect a consolidation on a basis of between (i) two pre-consolidation shares to one post-consolidation share, and (ii) 200 pre-consolidation shares to one post-consolidation share. On May 13, 2019, we determined a share consolidation ratio of 100 pre-consolidation shares to one post-consolidation share, that was effective as of May 29, 2019. The liquidity of our common shares may be affected adversely by the share consolidation given the reduced number of shares that are outstanding following the share consolidation. In addition, the share consolidation will increase the number of shareholders who own odd lots (less than 100 shares) of our common shares, creating the potential for such shareholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.

 

  15  

 

 

Our common shares are subject to the “penny stock” rules of the SEC and we have no established market for our securities, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

 

The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person’s account for transactions in penny stocks; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (i) obtain financial information and investment experience objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (i) sets forth the basis on which the broker or dealer made the suitability determination; and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common shares and cause a decline in the market value of our stock.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

We are a “foreign private issuer”, and you may not have access to the information you could obtain about us if we were not a “foreign private issuer”.

 

We are considered a “foreign private issuer” under the Securities Act of 1933, as amended. As a foreign private issuer we will not have to file quarterly reports with the SEC nor will our directors, officers and 10% stockholders be subject to Section 16(b) of the Exchange Act. Such exemption may result in shareholders having less data and there being fewer restrictions on insiders’ activities in our securities. As a foreign private issuer we will not be subject to the proxy rules of Section 14 of the Exchange Act. Furthermore, Regulation FD does not apply to non-U.S. companies and will not apply to us. Accordingly, you may not be able to obtain information about us as you could obtain if we were not a “foreign private issuer”.

 

Because the majority of our assets and of our officers and directors are located outside the United States, it may be difficult for an investor to enforce within the United States any judgments obtained against us or any of our officers and directors.

 

A majority of our assets are presently located outside of the United States. In addition, some of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for an investor to effect service of process or enforce within the United States any judgments obtained against us or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. In addition, there is uncertainty as to whether the courts of Canada would recognize or enforce judgments of United States courts obtained against us or our directors and officers predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. There is even uncertainty as to whether the Canadian courts would have jurisdiction to hear original actions brought in Canada against us or our directors and officers predicated upon the securities laws of the United States or any state thereof.

 

  16  

 

 

Because we do not intend to pay any cash dividends on our common shares, our shareholders will not be able to receive a return on their shares unless they sell them.

 

We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common shares in the foreseeable future. Unless we pay dividends, our shareholders will not be able to receive a return on their shares unless they sell them at a price higher than that which they initially paid for such shares.

 

Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our shareholders have limited protections against interested director transactions, conflicts of interest and similar matters.

 

The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York Stock Exchange, the NYSE American and NASDAQ, as a result of Sarbanes-Oxley Act of 2002, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on those exchanges. Because we will not be seeking to be listed on any of the exchanges, we will not be presently required to comply with many of the corporate governance provisions.

 

The concentration of the capital stock ownership with our insiders enable their exercise of significant control over our corporate governance and affairs which may result in their taking actions with which other shareholders do not agree and may limit the ability of other shareholders to influence corporate matters.

 

As of May 1, 2020, approximately 46.7% of our outstanding common shares was controlled by our officers, directors, beneficial owners of 10% or more of our securities and their respective affiliates. These shareholders, if they act together, may be able to exercise significant influence over the outcome of all corporate actions requiring approval of our shareholders, including the election of directors and approval of significant corporate transactions, which may result in corporate action with which other shareholders do not agree. This concentration of ownership may also have the effect of delaying or preventing a change in control which might be in other shareholders’ best interest but which might negatively affect the market price of our common shares.

 

Our authorized capital consists of an unlimited number of shares of one class designated as common shares. We may, in the future, issue additional common shares, which would reduce investors’ percent of ownership and may dilute our share value.

 

Our Articles of Incorporation authorizes the issuance of an unlimited number of our common shares, no par value, of which 25,413,919 shares are currently issued and outstanding. The future issuance of common shares may result in substantial dilution in the percentage of our common shares held by our then existing shareholders. We may value any common shares issued in the future on an arbitrary basis. The issuance of common shares for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors and may have an adverse effect on any trading market of our common shares.

 

Offers or availability for sale of a substantial number of our common shares may cause the price of our common shares to decline.

 

If our shareholders sell substantial amounts of our common shares in the public market, including shares issued in the public offering and shares issued upon conversion of outstanding convertible notes or exercise of outstanding warrants, or upon the expiration of any statutory holding period, under Rule 144, or upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common shares could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

 

  17  

 

 

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act, or JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.

 

For so long as we are an emerging growth company, we will not be required to:

 

● have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002;

 

● comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

● submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

 

● disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

 

We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

Until such time, however, we cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.

 

In addition, when these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them. We cannot predict or estimate the amount of additional costs we may incur as a result of us ceasing to be an emerging growth company or the timing of such costs. In addition, once we no longer qualify as an emerging growth company under the JOBS Act and lose the ability to rely on the exemptions related thereto, depending on our status as per Rule 12b-2 of the Securities Exchange Act of 1934, as amended, our independent registered public accounting firm may also need to attest to the effectiveness of our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002. We will be performing the system and process evaluation and testing (and any necessary remediation) required to comply with the management certification and eventual auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 when we are no longer an emerging growth company. This process will require the investment of substantial time and resources, including by our senior management. As a result, this process may divert internal resources and take a significant amount of time and effort to complete.

 

Since we have elected under Section 107 of the JOBS Act to use the extended transition period with respect to complying with new or revised accounting standards, our financial statements may not be comparable to companies that comply with public company effective dates making it more difficult for an investor to compare our results with other public companies.

 

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 102(b)(2)(B) of the Act for complying with new or revised accounting standards. In other words, as an emerging growth company we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

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We may be classified as a Passive Foreign Investment Company, or PFIC, for U.S. federal income tax purposes in 2019 and may continue to be, or become, a PFIC in future years, which may have negative tax consequences for U.S. investors.

 

We will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (i) at least 75% of our gross income is “passive income” or (ii) on average at least 50% of our assets by value produce passive income or are held for the production of passive income. Based on our estimated gross income, the average value of our gross assets, and the nature of our business, we may be classified as a PFIC in the current taxable year and may be treated, or may become, a PFIC in future years. If we are treated as a PFIC for any taxable year during which a U.S. investor held our common shares, certain adverse U.S. federal income tax consequences could apply to the U.S. investor. See “Item 10. Additional Information – E. Taxation– Passive Foreign Investment Company Rules.”

 

ITEM 4. INFORMATION ON THE COMPANY

 

  A. History and Development of the Company

 

We were incorporated under the laws of the Province of Ontario (specifically under the Business Corporations Act (Ontario)) on October 31, 2011, in the Province of Ontario, Canada, and did business as Behavioural Neurological Applications and Solutions. Effective November 4, 2015, we changed our name to Ehave, Inc.

 

Our principal office is located at 18851 NE 29th Ave, suite 700, Aventura, FL 33180and our telephone number is (954) 233-3511.

 

The SEC maintains an Internet site that contains reports and other information regarding us that we file electronically with the SEC website at www.sec.gov. We also make available free of charge on our website at www.ehave.com, as soon as reasonably practicable after such reports are available on the SEC website.

 

We are not aware of any indication of any public takeover offers by third parties in respect of our common shares during our last and current financial years.

 

Sale of Ehave Connect Assets

 

On March 22, 2019, we entered into an Asset Purchase Agreement with ZYUS Life Sciences Inc. (“ZYUS”), pursuant to which we sold to ZYUS all of our property and assets, including intellectual property, relating to our business relating to our technology stack, data models, user interface flows, application programming interfaces and all existing builds to the health informatics Ehave Connect platform, which includes but is not limited to the input, tracking and extraction of clinical data, but excluding intellectual property in certain patient outcome reporting applications, clinical games, clinical patient data, facts related to patient assessments and personal property (the “Asset Sale”). The Ehave Connect platform contains components specifically designed to be used by medical cannabis patients to efficiently gather and verify patient-reported outcomes and experiences, evaluate treatment progress, enhance patient engagement and improve data modeling.

 

In connection with the Agreement, ZYUS (i) paid us a total purchase price of CAD $1.2 million (US$895,122) in cash, CAD $260,000 (US$193,943) of which was provided to us upon execution of a non-binding term sheet and CAD $100,000 (US$74,594) of which was provided to us on April 30, 2019, pursuant to an advance, and (ii) issued to us at closing 361,011 common shares of ZYUS (the “Consideration Shares”). ZYUS has a security interest in the Consideration Shares in support of any indemnity claims by ZYUS pursuant to the Agreement until the second anniversary of the closing date.

 

The Agreement also contains representations, warranties and covenants of the parties customary for transactions similar to those contemplated by the Agreement. Pursuant to the Agreement, ZYUS, among other things, agreed not to redeem, purchase or otherwise acquire any of its outstanding shares or other securities, subject to certain exceptions, from the date of the Agreement and until the closing date of the Asset Sale, and we agreed to enter into a six month lock-up agreement restricting the resale of the Consideration Shares if ZYUS completes an initial public offering or going public transaction. Such representations and warranties are made solely for purposes of the Agreement and, in some cases, may be subject to qualifications and limitations agreed to by the parties in connection with the negotiated terms of the Agreement and may have been qualified by disclosures that were made in connection with the parties’ entry into the Agreement.

 

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The Agreement also contains indemnification provisions by each party. We will deliver a security agreement granting ZYUS a security interest in the Consideration Shares in support of any indemnity claims by ZYUS pursuant to the Agreement until the second anniversary of the closing date.

 

In addition, we agreed to enter into a non-competition agreement with ZYUS, pursuant to which we agree not to, for a period of four years from the date of the non-competition agreement, within Canada and the United States, conduct business or have any financial or other interest in any business that is the same as or substantially similar to or is competitive with the business of a healthcare software development company for stakeholders in health sectors related to plant-based therapeutics. The non-competition agreement also includes a confidentiality provision that prohibits us from using the confidential information relating to the assets acquired in the Asset Sale for its own benefit or for the benefit of others.

 

The foregoing descriptions of the Agreement, the security agreement and the non-competition agreement are qualified in their entirety by reference to the full text of the Agreement, a form of the security agreement and a form of the non-competition agreement, a copy of which is attached to our Annual Report on Form 20-F as Exhibits 4.60, 4.61 and 4.62 filed on May 15, 2019.

 

On May 22, 2019, the Asset Sale closed. Pursuant to the Purchase Agreement, at closing, the Company received from ZYUS (i) CAD$840,000 in cash (the remaining portion of the total cash purchase price of CAD $1.2 million), of which CAD $260,000 had been provided to us upon execution of a non-binding term sheet and CAD$100,000 had been provided to us on April 30, 2019, pursuant to an advance, and (ii) 361,011 common shares of ZYUS, priced at CAD$5.54 per share.

 

On the closing date, pursuant to the Purchase Agreement, the Company executed (i) a six month lock-up agreement restricting the resale of the Consideration Shares if ZYUS completes an initial public offering or going public transaction; (ii) a security agreement granting ZYUS a security interest in the Consideration Shares in support of any indemnity claims by ZYUS pursuant to the Purchase Agreement until the second anniversary of the closing date; and (iii) a non-competition agreement with ZYUS, pursuant to which we agreed not to, for a period of four years from the date of the non-competition agreement, within Canada and the United States, conduct business or have any financial or other interest in any business that is the same as or substantially similar to or is competitive with the business of a healthcare software development company for stakeholders in health sectors related to plant-based therapeutics. The non-competition agreement also includes a confidentiality provision that prohibits the Company from using confidential information relating to the assets acquired in the Asset Sale for its own benefit or for the benefit of others.

 

In connection with the closing of the Asset Sale, the Company terminated certain collaboration and services agreements with certain third-party partners.

 

On October 30, 2018, we entered in an agreement (the “CHT Agreement”) with Companion Healthcare Technologies Inc. (“CHT”), for the use of Ehave Connect whereby CHT would acquire the exclusive rights to Ehave Connect for use in companion animals. On April 18, 2019, we and CHT agreed that upon closing of the Asset Sale, the CHT Agreement shall be terminated, and we, as consideration, within ten business days following the date of the closing of the Asset Sale, shall pay CHT, in cash, up to CAD$242,000, which includes up to $37,000 for legal fees that CHT incurred in connection with the CHT Agreement, provided that the agreement to terminate the CHT Agreement and our obligation to pay CHT shall no longer be effective if the closing of the Asset Sale does not occur on or prior to June 30, 2019.

 

Share Consolidation

 

At the special meeting of our shareholders held on May 6, 2019, our shareholders approved a resolution authorizing the amendment of our articles to consolidate our issued and outstanding common shares in up to three consecutive share consolidations to occur at any time as determined by our board of directors, within one calendar year of the date of the special meeting, provided that the first consolidation, the second consolidation, and the third consolidation shall collectively effect a consolidation on a basis of between (i) two pre-consolidation shares to one post-consolidation share, and (ii) 200 pre-consolidation shares to one post-consolidation share. On May 13, 2019, we determined a share consolidation ratio of 100 pre-consolidation shares to one post-consolidation share, which was effective as of May 29, 2019.

 

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Removal of our Common shares from the OTCQB Venture Market to Pink Open Market

 

On April 30, 2019, our common shares were removed from the OTCQB Venture Market to the Pink Open Market because we were unable to cure our bid price deficiency. The OTCQB Venture Market requires a minimum bid price of $0.01. Broker-dealers often decline to trade in over-the-counter stocks that are quoted on the OTC Pink tier given the market for such securities are often limited, the stocks are more volatile, and the risk to investors is greater. The share consolidation effective as of May 29, 2019, did cure the bid price deficiency; however, the expected increase in the price of our common shares from the share consolidation may not be maintained, and there can be no assurance that the market price of our common shares following the share consolidation will remain above the minimum bid price requirement to restore or maintain eligibility for quotation of our common shares on OTCQB Venture Market. As of the date of this report we have not made a new application for our common shares to be quoted on the OTCQB Venture Market.

 

Financings

 

From inception and prior to our public offering closed in June 2016, we had been funded by a combination of investment capital and grant financing totaling approximately $1,100,000, comprised of approximately $630,000 of grant financing and $470,000 of equity financing.

 

On May 14, 2015, we effectuated a 100,000:1 forward stock split of our common shares.

 

On July 7, 2015, we closed a private placement of convertible notes with a principal value of $325,000 and commenced the legal and financial processes of becoming an SEC registrant and commencing a public offering.

 

On September 24, 2015, we filed our registration statement on Form F-1, which was declared effective on April 4, 2016, for a public offering of up to 11,002,445 common shares and warrants to purchase 11,002,445 common shares. The registration statement also included a prospectus for resale of up to 11,393,642 common shares issuable upon the conversion of certain convertible notes and 11,393,642 common shares issuable upon the exercise of certain warrants offered by the selling shareholders named in the prospectus.

 

On June 14, 2016, we had a closing of the offering of an aggregate of 6,503,667 common shares and warrants to purchase an aggregate of 6,503,667 common shares, for gross proceeds of $266,000. Subsequent to the initial closing, on June 24, 2016, we had a second closing of the offering of an aggregate of 1,589,242 common shares and warrants to purchase 1,589,242 common shares, for gross proceeds of $65,000. We received total gross proceeds of $331,000 from the offering.

 

On November 14, 2016, we received notice from the Financial Industry Regulatory Authority (“FINRA”) that pursuant to FINRA Rule 6432 and Rule 15c2-11 that our company may initiate a priced quotation on the OTC Bulletin Board under the trading symbol EHVVF. On November 21, 2016, our common shares were listed for trading on the OTCQB Venture Market. On April 30, 2019, our common shares were moved to the Pink Open Market because we were unable able to cure our bid price deficiency.

 

On November 14, 2016, we entered into a definitive securities purchase agreement to sell up to $1,500,026 of convertible promissory notes and warrants in multiple closings in a private placement. We have used the net proceeds from the private placement to further the development of Ehave Connect, for MegaTeam clinical trials, for general marketing and investor relations’ purposes, and for working capital. As of December 31, 2016, we received $259,357 of $309,357 of the firmly committed amount and waived $50,000 of the firmly committed amount for future reassignment as permitted under the agreement. Certain lenders notified us that it will not elect to fund an aggregate of $683,130 of additional loans and have permitted its reassignment, of which $489,368 has been reassigned. In the year ended December 31, 2017, we issued additional convertible promissory notes in an aggregate principal amount of $609,826 pursuant to the note and warrant purchase agreement. As of December 31, 2017, we had received total proceeds of $869,183 pursuant to the note and warrant purchase agreement. On September 24, 2018 we entered into a letter agreement to convert all outstanding convertible promissory notes with aggregate principal amount of $869,183 into common shares of the company upon the closing of a bridge financing of up to $500,000. On February 27, 2019, we closed the bridge loan and all such outstanding convertible promissory notes were converted into 372,228,244 common shares of the Company, and all outstanding warrants were canceled

 

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On October 11, 2017, we entered into Investor Letters, pursuant to which certain persons agreed to purchase securities of the Company on similar terms as certain offerings of the Company that are consummated prior to December 31, 2017, or, if such an offering is not consummated, the purchase amount will be converted into a secured promissory note that matures on January 31, 2018 (which, at the investor’s option, may be converted into common shares of the Company). We received aggregate proceeds of $100,000. No such offerings were consummated prior to December 31, 2017, and such notes were converted into Unsecured Debentures on January 31, 2018 (see below).

 

On November 15, 2017, we issued demand non-interest bearing senior secured promissory notes in the aggregate principal amount of $196,237. Lenders of the promissory notes were issued 2,133,333 common share warrants at an exercise price of $0.075 per share with an expiry date of November 16, 2022. On January 31, 2018 $148,745 of the promissory notes were repaid and $47,932 of the promissory notes were exchanged for Unsecured Debentures. On February 27, 2019, we entered into an agreement to cancel the warrants issued to the lenders in exchange for 31,109,865 common shares of the Company.

 

On January 31, 2018, the Company entered into a secured convertible debenture agreement (the “Secured Debentures”) for total proceeds of $1,218,620 (CAD$1,500,000), issued in two installments. The Secured Debentures are secured against certain of our assets. Under the terms of the Secured Debentures, the principal amount and accrued interest is convertible into common shares of the Company at a conversion price equal to 75% the issue price of common shares under a qualified offering. The conversion of the Secured Debentures is at the option of the holder. At the time of conversion, the holder will also receive an equal amount of common share purchase warrants with an exercise price equal to the issue price. The Secured Debentures are due on July 31, 2018 and bear interest at 10% per annum. The initial installment of the Secured Debentures was issued on January 31, 2018 for proceeds of $609,310 (CAD$750,000). On March 19, 2018, the final instalment of $573,307 (CAD$750,000) was received. The Secured Debentures are secured against the general assets and intellectual property of the Company. On February 27, 2019, we entered into an agreement to convert the note into 1,268,274,936 common shares of the Company.

 

On January 31, 2018, promissory notes with an aggregate principal amount of $311,967 (CAD$384,000) outstanding at December 31, 2017 were exchanged for unsecured convertible debentures (the “Unsecured Debentures”). From January 1, 2018 to January 31, 2018, the Company issued an additional $20,098 (CAD$25,000) Unsecured Debentures for total proceeds of $332,065 (CAD$409,000). On March 19, 2018, an installment of the Unsecured Debentures in the amount of $382,263 (CAD$500,000) was received. Under the terms of the Unsecured Debentures, the principal amount and accrued interest is convertible into common shares of the Company at a conversion price equal to 75% the issue price of common shares under a qualified offering. The conversion of the Unsecured Debentures is at the option of the holder. At the time of conversion, the holder will also receive 120% of the amount of the common shares issued of common share purchase warrants with an exercise price equal to the issue price. The Unsecured Debentures are due on July 31, 2018 and bear interest at 10% per annum. On February 27, 2019, we entered into an agreement to convert the note into 276,809,884 common shares of the Company.

 

On September 27, 2018, we issued demand non-interest bearing senior secured promissory notes in the aggregate principal amount of $85,756 (CAD$111,110), including $11,110 of original issue discount. On February 27, 2019, promissory notes with an aggregate principal amount of $85,756 (CAD$111,110) were exchanged for unsecured debentures for a bridge loan. On February 28, 2019, we entered into an agreement to convert the note into 54,203,662 common shares of the Company.

 

On October 31, 2018, we issued demand senior secured promissory notes in the aggregate principal amount of $57,000.

 

On December 5, 2018, we entered into a securities purchase agreement for $141,000 of promissory notes, including $13,000 of original issue discount. Under the terms of the agreement, the principal amount and accrued interest is convertible into common shares of the Company at a conversion price equal to 73% of the market price. The conversion of the debentures is at the option of the holder between 180 days following the issue of the debentures and the maturity date. The debentures are due on December 5, 2019 and bear interest at 8% per annum.

 

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On January 21, 2019, we issued a senior secured promissory note in the aggregate principal amount of $263,192 (CAD$350,000). The secured promissory note is secured against certain of our assets, including all development tax credits that the Company has applied for and receives. The loan is due on May 21, 2020 and bears and interest rate at 20.07% per annum.

 

On January 28, 2019, we issued demand non-interest bearing senior secured promissory notes in the aggregate principal amount of $85,756 (CAD$125,000), including $18,841(CAD$25,000) of original issue discount.

 

On February 27, 2019, we entered into an agreement to exchange $150,000 in fees owed to Scott Woodrow, a former Director of the Company resigned in February 2019, for 47,564,189 common shares of the Company.

 

On February 27, 2019, we entered into an agreement to exchange $100,000 in fees owed to KW Capital Partners Ltd. for 31,709,460 common shares of the Company.

 

On February 27, 2019, we entered into an agreement to exchange $150,000 in fees and issue common shares previously owed to Bezalel Partners LLC for 47,564,189 common shares of the Company.

 

On February 27, 2019, we entered into agreements to cancel options, cancel option anti-dilution clauses, and cancel employee severance liabilities in exchange for 304,437,002 common shares of the company

 

On February 27, 2019, we entered into an agreement to cancel 2,250,000 compensation warrants that had anti-rachet and anti-dilution provisions for 32,811,191 common shares of the Company.

 

On March 26, 2019, we issued demand non-interest bearing senior secured promissory notes in the aggregate principal amount of $98,351 (CAD$131,683), including $23,663 (CAD$31,683) of original issue discount.

 

On January 10, 2020 we issued a convertible promissory note in the principal amount of $27,500 including $2,500 of original issue discount.

 

On January 14, 2020 we issued a convertible promissory note in the principal amount of $55,000 including $5,000 of original issue discount.

 

On January 15, 2020 we issued a convertible promissory note in the principal amount of $27,500 including $2,500 of original issue discount.

 

On January 17, 2020 we issued a convertible promissory note in the principal amount of $180,000 including $18,000 of original issue discount.

 

On January 23, 2020 we issued convertible promissory notes in the aggregate principal amount of $38,500 including $3,500 of original issue discount.

 

On January 31, 2020 we issued a convertible promissory note in the principal amount of $16,500 including $1,500 of original issue discount.

 

On February 5, 2020 we issued a convertible promissory note in the principal amount of $11,000 including $1,000 of original issue discount.

 

On February 7, 2020 we issued a convertible promissory note in the principal amount of $11,000 including $1,000 of original issue discount.

 

On February 19, 2020 we issued a convertible promissory note in the principal amount of $165,000 including $15,000 of original issue discount.

 

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On February 20, 2020 we issued a convertible promissory note in the principal amount of $27,500 including $2,500 of original issue discount.

 

On February 24, 2020 we issued a convertible promissory note in the principal amount of $11,000 including $1,000 of original issue discount.

 

On February 25, 2020 we issued a convertible promissory note in the principal amount of $27,500 including $2,500 of original issue discount.

 

The proceeds from these private placements were used for general working capital purposes, particularly the development and marketing of the Ehave Connect platform and support of our trials of our games, MegaTeam and NinjaReflex.

 

Business Development Agreements

 

On December 13, 2016, we entered into an agreement with Multi-Health Systems (“MHS”), an international healthcare technology developer of scientifically validated assessments, granting us access to MHS’s extensive library of mental health assessments.

 

On February 3, 2017, we entered into a Strategic Relationship Agreement (the “MedReleaf Agreement”) with MedReleaf Corp. (“MedReleaf”), pursuant to which we and MedReleaf agreed to develop a branded MedReleaf app to advance the study and therapeutic use of medical cannabis. In connection with the MedReleaf Agreement, MedReleaf made an investment of $100,000 into the Company in the form of a convertible note and was granted an option to invest $200,000 into our TSX-V common stock public offering.

 

  B. Business Overview

 

We are creating a mental health data platform that integrates with our proprietary and third-party assessment and therapeutic digital applications. Our product focus is based on two tiers of activities: (1) MegaTeam and Ninja Reflex, our clinically validated digital assessment and rehabilitation software that is engaging for the patient and (2) adaptation of third-party clinically validated digital assessment and rehabilitation software for enhanced patient engagement and data modeling. We intend to provide technology solutions to clinicians, patients, researchers, pharmaceutical companies and payors.

 

MegaTeam is currently available on the Apple iOS App Store and Google Play.

 

MegaTeam and Ninja Reflex Digital Assessment and Rehabilitation Applications

 

Our MegaTeam and Ninja Reflex assessment and rehabilitation products are built on established methodologies for the measurement of cognitive abilities in populations with attention deficit and hyperactivity disorder, or ADHD. Methodologies commonly used today involve repetitive performance of tasks using digital interface. These tasks are repeatedly administered to the patient in order to obtain accurate measures. Many of the assessments used today had been developed using programming methodologies whereby the task is simply exhibited on screen and the patient is instructed to respond to stimuli. Our research has found that patients, in particular those with symptoms of ADHD, have difficulty completing the necessary regiment of tasks due to lack of engagement. Additionally, these tasks are often administered in a clinical setting, often resulting in the patient and their accompanying parent or guardian staying in clinical settings for an extended time. Our products have been developed to address these primary concerns as well as to enable a breadth of cognitive tasks to be assessed and an individualized cognitive rehabilitation program to be administered remotely.

 

The MegaTeam and NinjaReflex applications involve the imbedding of cognitive assessment and rehabilitation tasks within an engaging video game environment. MegaTeam and NinjaReflex were designed and programmed with the intention of providing comparable engagement to video game play. In the design, narrative and programming of our MegaTeam and NinjaReflex games, we utilize experts in children’s digital content and programming. Our tools have been developed on Unity, a common game development platform that can be used on most fixed and mobile devices, enabling the expansion of narrative and the adaptation of new character and game environments to maintain long-term engagement of product differentiation. The underlying cognitive tools and data remain unchanged as the “skin” is adapted for future versions and client profiles. A significant part of the MegaTeam and NinjaReflex development involved assessing user engagement and consultation on characters, narrative and graphic design.

 

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MegaTeam and NinjaReflex applications have been designed for deployment on multiple digital interfaces including PC, Mac, Android and iOS systems. Our applications may be used in a clinic or a patient’s home or remotely, provided there is an adequate data connection.

 

Based on feedback from users and clinical psychologists regarding strong user engagement of our MegaTeam and NinjaReflex products, we believe that our products have a strong capacity for training compliance.

 

Developed MegaTeam and NinjaReflex products include: (1) Stop Signal Reaction Time Assessment (2) N Back Assessment (3) Inhibitory Control Rehabilitation (4) and Working Memory Rehabilitation. We are planning the development of a broader suite of cognitive tasks and rehabilitation mechanisms in order to increase the addressable mental health indications.

 

Ehave Connect Software Platform

 

On March 22, 2019, we entered into the Agreement with Zyus, pursuant to which we will sell to Zyus all of our assets relating to its health informatics Ehave Connect platform. The Ehave Connect platform contains components specifically designed to be used by medical cannabis patients to efficiently gather and verify patient-reported outcomes and experiences, evaluate treatment progress, enhance patient engagement and improve data modeling.

 

Ehave Connect is a cloud-based platform that allows for the input, tracking and extraction of clinical data. Based on the clinical data collected, Ehave Connect is intended to provide patient management and digital assessment tools to healthcare providers and physicians so that they are better equipped to provide diagnosis and treatment to patients in their care.

 

The sale of the Ehave Connect Platform was completed on May 22, 2019.

 

Third Party Content

 

We believe that it is critical to partner across the mental healthcare community, and we have secured partnerships with industry leaders.

 

Partnership with MedReleaf

 

On February 3, 2017, we entered into the MedReleaf Agreement with MedReleaf, pursuant to which we and MedReleaf agreed to develop a branded MedReleaf App to advance the study and therapeutic use of medical cannabis. MedReleaf is Canada’s premium licensed producer and distributor of medical cannabis. The objective of the partnership with MedReleaf is to validate and optimize the use of MedReleaf’s medical cannabis products as therapeutic treatments for various health conditions. We and MedReleaf monitor every step of the medical cannabis treatment life cycle, collect diagnosis data and intake assessments, run validated psychological assessments to monitor treatment response, manage patient treatment plans, and objectively analyze patient outcomes. This agreement was transferred to Zyus as part of the asset sale.

 

Partnership with MHS

 

In December 2016, we signed an agreement with MHS, a leading provider of psychological assessment tools. We have licensed MHS’s gold standard Connors® suite of ADHD assessments, as well as the Davidson Trauma Scale and SPAN assessments for PTSD. We expect to offer MHS’s entire catalogue of tests in time, and in so doing we believe that we can enhance the evaluation of any mental health indication. We plan to move into areas such as anxiety, depression, OCD, autism, and more.

 

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The Hospital for Sick Children

 

In December 2011, we entered into a collaboration with Toronto’s Hospital for Sick Children to identify the clinical needs, design and processes required to create clinical grade toolsets. In addition to specific tools, we have developed a content delivery and patient data platform, known as Resource Knowledge Information Access that enables content to be deployed, monitored, analyzed and accessed remotely by clinicians and patients. These tools were used during randomized control studies of the MegaTeam game and will be used in future trials with the Hospital for Sick Children.

 

Third-party Contract Services

 

We believe that we have the expertise of understanding the complexities of mental health assessments and rehabilitation methodologies, along with game design and programming. Researchers and developers of digital applications for mental health may recognize the advantage of engaged users, but lack the expertise in game based translation. We intend to market our company to researchers and developers with fee-based services to enhance their digital applications. We are working closely with mental health research networks to avail our existing MegaTeam and NinjaReflex tools as well as our programming expertise to enhance and commercialize new products and services.

 

Business Strategy

 

Ehave, Inc. is a provider of digital therapeutics delivering evidence-based therapeutic interventions to patients. Our primary focus is on improving the standard care in therapeutics to prevent or treat brain disorders or diseases through the use of digital therapeutics, psychedelics, independently or together, with medications, devices, and other therapies to optimize patient care and health outcomes meeting privacy and HIPAA & GDPR Compliant. Our main product is the Ehave Dashboard which is a mental health informatics platform that allows clinicians to make objective and intelligent decisions through data insight using Blockchain technology. The Ehave dashboard offers Offline Encrypted Digital Records Empowering Healthcare providers and patients and it’s a powerful machine learning and artificial intelligence platform using artificial intelligence to extract deep insights from audio, video and text to improve research with a growing set of advanced tools and applications developed by Ehave and its leading partners. This empowers patients, healthcare providers, and payers to address a wide range of conditions through high quality, safe, and effective data-driven involvement with intelligent and accessible tools.

 

Our business strategy is to develop and MegaTeam and Ninja Reflex in an effective and timely manner and gain access to additional technologies at a time and in a manner that we believe is best for our development. We intend to achieve our business strategy by focusing on these key areas:

 

 

 

Development of the Ehave Dashboard, an extensible platform upon which powerful, condition-specific

applications can be designed, built, clinically validated, and deployed

     
  expanding MegaTeam and Ninja Reflex with additional game titles, and participate in further clinical studies with Hospital for Sick Children on the CHILD-BRIGHT network, which is a Canadian research network that aims to improve the lives of children with brain-based development disabilities we are a partner to and provider of in-kind services and support);
     
  forming strategic alliances with publishers of psychological assessments, at a time and in a manner where such alliances may complement and expand our research and development efforts on the product and provide sales and marketing capabilities;
     
  developing relationships with pharmaceutical and insurance companies that could be instrumental in deploying our technology to drug development and treatment monitoring; and
     
  developing relationships with companies that could be instrumental in assisting us to access other innovative therapeutics.
     
 

 

develop a Multi-Tier Global Partnership with MyLifeID that will allow individuals to carry their health and mental health records with them at all times. This partnership allows individuals to store their health and mental health history on the MyLifeID Pocket Cloud™, which will be able to be accessed by medical providers through Ehave’s dashboard.

 

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plans to utilize its mental health informatics platform to optimize patient care and health outcomes in conjunction with Psilocybin therapy for mental health. Ehave plans to advance Psilocybin therapy research and commercialization through its wholly-owned subsidiary, Mycotopia Therapy.
     
 

 

plans to close the acquisition of PsychedeliTech; PsychedeliTech a subsidiary of Israel Cannabis Ltd. that produces the Psytech conference worldwide and provides a platform for scientists, business and investors to collaborate in the advancement of the use of psychedelics in medicine.

 

Our business strategy is based on attaining a number of commercial objectives, which, in turn, are supported by a number of product development goals. Our product development presently being conducted is primarily of a research and development nature.

 

Market

 

We anticipate that the principal markets in which our products will compete will initially include North America. Thereafter, we hope to expand our markets to Europe and Asia. Currently our products are being deployed in Canada.

 

Mental healthcare, including its assessment and treatment, is a significant market. Forty-four million adults in the United States are estimated to experience mental illness per year, which is 20% of the population. The size of the U.S. mental health treatment market is $113 billion, and the size of private insurance spending on mental health is $32 billion. The size of the cognitive assessment market world-wide is over $2.4 billion. (Source: Mental Health America - State of Mental Health Report, 2016; SAMSHA Spending Estimates Project, 2010; MarketsandMarkets, 2015).

 

ADHD is a common affliction with worldwide prevalence estimated at approximately 7% (Source: “Prevalence of Attention-Deficit/Hyperactivity Disorder: A Systematic Review and Meta-analysis”, Rae Thomas, Sharon Sanders, Jenny Doust, Elaine Beller, Paul Glasziou, Pediatrics Feb 2015, peds.2014-3482; DOI: 10.1542/peds.2014-3482). ADHD symptoms typically start or are first noticed in preschool age children (“Prevalence of Attention-Deficit/Hyperactivity Disorder: A Systematic Review and Meta-analysis”, Rae Thomas, Sharon Sanders, Jenny Doust, Elaine Beller, Paul Glasziou, Pediatrics Feb 2015, peds.2014-3482; DOI: 10.1542/peds.2014-3482). While symptoms may decline with age, ADHD symptoms and impairments can persist into adolescence and adulthood (Source: “A lifetime of attention-deficit/hyperactivity disorder: diagnostic challenges, treatment and neurobiological mechanism”, Julia Geissler and Klaus-Peter Lesch, Expert Review Of Neurotherapeutics Vol. 11 , Iss. 10,2011).

 

Competition

 

For our MegaTeam and Ninja Reflex game applications, we are aware of a few competitors, including Akili Ineractive, Attentiv, Myndlift and C8Sciences. Many of these companies are currently conducting clinical trials. Our strategy for game development starts from using known proven clinical measures rather than creating new measures, and we believe that the advantage of this methodology is that broad normative data does not need to be established and the barrier to clinical adoption may be lower with known measures that clinicians are already comfortable with.

 

Product Differentiation

 

We strive to provide the best tools and resources for today’s populations suffering from mental illness. Many of the incumbent products have been developed and validated in their academic forms, which, we believe, lack appeal for today’s clients and practitioners. We believe there is a demand for real time, data-rich digital tools that enable individual treatment and ongoing monitoring, while a significant portion of the existing market for cognitive assessment and therapy relies upon paper-based tools and checklists that have little or no connected monitoring capacity or real-time progress reporting. As such, we seek to develop products with the following key features: (1) user engagement, (2) data richness, (3) clinically validated, and (4) multi-screen and mobile deployment.

 

Our assessment products are derived from designs and methods clinically studied. Our plans include the study of our derived products and cognitive rehabilitation software through clinical studies led by hospitals. These studies include multiple phases from pilot studies through affected population studies and allow the measurement, using various criteria and techniques, of the effect of our cognitive rehabilitation program on target populations.

 

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Marketing

 

Our marketing channels consist of direct sales and leveraging partners for market outreach. Our current strategy is for direct sales to publishing partners, medical device partners and pharmaceutical companies. Through these partnerships, we gain access to clinicians and the patients they serve.

 

We also engage a public relations firm to help reach media outlets.

 

Regulatory Requirements

 

Our future business operations and activities in the U.S. may be directly or indirectly subject to subject to certain federal and state laws relating to the privacy and security of health information, and state and federal laws designed to guard against healthcare fraud and abuse, including, but not limited to, those described below.

 

  HIPAA, as amended by HITECH, established comprehensive requirements related to the privacy, security, and transmission of individually identifiable health information. It governs patient privacy practices of healthcare providers, health plans, and healthcare clearinghouses (or “covered entities”), as well as their respective business associates to the extent that they perform services for or on behalf of the covered entities that involve the use or disclosure of protected health information. HIPAA also mandates notification in the event of a breach and regulates standardization of data content, codes and formats used in healthcare transactions. Covered entities and business associates may be subject to significant civil and criminal penalties, as well as enforcement by state attorneys general, for violations of HIPAA or its implementing regulations.

 

  HIPAA also imposes federal criminal and civil liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters.

 

  The federal Anti-Kickback Statute which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order, or recommendation of, an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs.

 

  The federal Civil False Claims Act imposes liability on any person or entity, which, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program. The “qui tam” or “whistleblower” provisions of the False Claims Act allow a private individual to bring actions on behalf of the federal government, alleging that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery.

 

  The federal Civil Monetary Penalties Law prohibits, among other things, the offering or transfer of remuneration to a Medicare or state health care program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program, unless an exception applies.

 

  Analogous state fraud and abuse laws and regulations, such as state anti-kickback and false claims laws, may apply to items or services reimbursed under Medicaid, other state programs, or, in some states, private third-party payors. In addition, many U.S. states have enacted patient confidentiality laws that protect against the disclosure of confidential medical information, and many states have adopted or are considering adopting further legislation in this area, including privacy safeguards, security standards, and data security breach notification requirements. These state laws, which may be even more stringent than the HIPAA requirements, many of which differ from each other in significant ways and are often not preempted by the federal requirements.

 

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FDA’s Medical Device Regulation

 

The FDA has broad authority over the regulation of medical devices marketed for sale in the United States. The FDA regulates the research, clinical testing, manufacturing, safety, labeling, storage, recordkeeping, premarket clearance or approval, promotion, distribution and production of medical devices. The FDA also regulates the export of medical devices manufactured in the United States to international markets.

 

Under the Food, Drug, and Cosmetic Act, or FDCA, the FDA classifies medical devices into one of three classes: Class 1, Class 2 or Class 3. Medical devices deemed to pose lower risk are placed into either Class 1 or Class 2.

 

Class 1 medical devices are deemed to pose the lowest risk to the patient. Accordingly, Class 1 medical devices are subject to the lowest degree of regulatory scrutiny and need only comply with the FDA’s General Controls. The General Controls include compliance with the registration, listing, adverse event reporting requirements, and applicable portions of the Quality Systems Regulation, or QSR, as well as the general misbranding and adulteration prohibitions. Unless specifically exempted in the regulations, general controls require a company that intends to market a Class 1 medical device, like us, to gain clearance for marketing through the 510(k) process. Many Class 1 medical devices, however, are exempt from 510(k) clearance because the level of risk is low.

 

Class 2 medical devices are considered higher risk devices than Class I medical devices. Class 2 medical devices are subject to General Controls as well as additional Special Controls. Special Controls may include labeling requirements, mandatory performance standards, and post market surveillance. Generally, companies that intend to market Class 2 medical devices, like us, must comply with applicable regulations and submit a 510(k) premarket submission for review to receive clearance to list and market their medical devices. The 510(k) must establish substantial equivalence to a predicate medical device. Some Class 2 medical devices are exempt from filing a 510(k) but in some instances, Class II medical devices may be required to file a Premarket Approval, or PMA, application.

 

Medical devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a previously cleared medical device, are classified as Class 3 medical devices and require a PMA before commercialization.

 

All medical device manufacturers must register their establishments with the FDA; such registrations require the payment of user fees. In addition, both 510(k) premarket submissions and PMA applications are subject to the payment of user fees, paid at the time of submission for FDA review.

 

The use of forms and tools for the measurement and assessment of behavioral and cognitive abilities are considered computerized cognitive assessment aids by the FDA. The FDA currently classifies such products as Class II medical devices. Currently we are engaging in clinical trials of Ehave MegaTeam games outside of the United States. Such clinical trials are being performed to prove efficacy and may have supporting evidence in the event that we filed an marketing application in the United States and the FDA requires this data before we are able to market, advertise or sell our Ehave MegaTeam games in the United States.

 

510(k) Clearance Pathway

 

If required to obtain 510(k) clearance for our Ehave MegaTeam games or any other computerized cognitive assessment aid products in the future, such products may be classified as medical devices and we would may be required to submit a premarket notification demonstrating that the proposed medical device is substantially equivalent to a previously cleared 510(k) device. FDA’s 510(k) clearance pathway usually takes from three to twelve months. On average the review time is approximately six months, but it can take significantly longer than twelve months in some instances, as the FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence.

 

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After a medical device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or major change in its intended use, will require a new 510(k) clearance or, depending on the modification, require a PMA. The FDA requires each manufacturer to determine whether the proposed change requires submission of a new 510(k) notice, or a premarket approval, but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or premarket approval is obtained. If the FDA requires us to seek 510(k) clearance or premarket approval for any modifications to a previously cleared product, we may be required to cease marketing or recall the modified device until we obtain this clearance or approval. Also, in these circumstances, we may be subject to significant regulatory fines or penalties. We have made and plan to continue to make additional product enhancements to products that we believe do not require new 510(k) clearances, but we cannot guarantee that the future enhancements, should they occur, will be exempt from new 510(k) clearances.

 

De Novo Reclassification

 

If we decide to market, advertise or sell our Ehave MegaTeam games or any other any other computerized cognitive assessment aid products in the future, such products may not have a suitable predicate medical device to be cleared as a 510(k) medical device. If the FDA finds that there is no suitable predicate medical device, it will automatically be considered our Ehave MegaTeam games or any other computerized cognitive assessment aid products that we apply for clearance to market, advertise or sell in the future a Class III medical device. However, in instances where a medical device is novel and there is no suitable predicate device, but that medical device is deemed to be of low to moderate risk, the FDA may reclassify the device to Class I or Class II via de novo reclassification petition pathway. This process involves the submission of a de novo reclassification petition, and the FDA’s acceptance that “special controls” are adequate to ensure the product’s performance and safety.

 

The FDA now allows de novo reclassification petitions, a mechanism by which a sponsor can directly submit a detailed de novo reclassification petition as the device’s initial submission without having to first receive a not substantially equivalent, or NSE, decision on a 510(k) submission. Historically, the de novo reclassification pathway typically would take at least 9 to 12 months from filing to clearance. Since the enactment of the 21st Century Cures Act, de novo classification petitions may be submitted to the FDA at any time and does not require a FDA finding of not substantially equivalent to a 510(k) application before the petition is made. FDA must respond to any de novo classification requests within 120 days of a completed petition.

 

In the future, we may decide to submit a de novo reclassification petition for our Ehave MegaTeam games or any other computerized cognitive assessment aid products that we may develop. To support a de novo reclassification petition, our objective would be to demonstrate that the proposed medical device poses a low to moderate risk to patients. If the FDA determines that such a product is not a candidate for de novo reclassification, it will require approval of the device for market through the PMA application process.

 

Alternatively, if we seek 510(k) clearance and our medical device is found not substantially equivalent, or NSE, the FDA will consider a de novo petition if our proposed medical device has been determined to be NSE due to: (1) the lack of an identifiable predicate medical device, (2) a new intended use, or (3) different technological characteristics to a predicate device that raise different questions of safety and effectiveness. The de novo classification request should include a description of the medical device, labeling for the device, reasons for the recommended classification and information to support the recommendation. Should the FDA believe our proposed medical device’s general controls or general and special controls provides reasonable assurance of safety and effectiveness, the FDA may classify our medical device as a Class II medical device. If the FDA classifies the device into Class II, we will then receive an approval order to market the device. This device type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently determines that the device will remain in the Class III category, then we may not be marketed until we have obtained a PMA.

 

Premarket Approval Pathway

 

A PMA application must be submitted if a medical device cannot be cleared through the 510(k) process or by de novo reclassification petition. The PMA application process is generally more costly and time consuming than the 510(k) process. A PMA application must be supported by extensive data including, but not limited to, analytical, preclinical, clinical trials, manufacturing, statutory preapproval inspections, and labeling to demonstrate to the FDA’s satisfaction the safety and effectiveness of the medical device for its intended use.

 

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After a PMA application is sufficiently complete, the FDA will accept the application and begin an in-depth review of the submitted information. By statute, the FDA has 180 days to review the “accepted application,” although, generally, review of the application can take between one and three years, but it may take significantly longer. During this review period, the FDA may request additional information or clarification of information already provided. Also during the review period, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the medical device. The preapproval inspections conducted by the FDA include an evaluation of the manufacturing facility to ensure compliance with the QSR, as well as inspections of the clinical trial sites by the Bioresearch Monitoring group to evaluate compliance with good clinical practice and human subject protections. New premarket approval applications or premarket approval application supplements are required for modifications that affect the safety or effectiveness of the medical device, including, for example, certain types of modifications to the medical device’s indication for use, manufacturing process, labeling and design. Significant changes to an approved PMA require a 180-day supplement, whereas less substantive changes may utilize a 30-day notice, or the 135-day supplement. PMA supplements often require submission of the same type of information as a PMA application, except that the supplement is limited to information needed to support any changes from the medical device covered by the original PMA application, and may not require as extensive clinical data or the convening of an advisory panel. None of our products are currently approved under a premarket approval and we do not believe that we will ever have a product that requires a PMA.

 

Clinical Trials

 

Clinical trials are almost always required to support a PMA application or de novo reclassification petition and are sometimes required for a 510(k) premarket notification. If we decide to market, advertise or sell our Ehave MegaTeam and NinjaReflex games or any other any other computerized cognitive assessment aid products that we may develop in the future, and if the FDA believes that such product presents a potential “significant risk” to health, safety, or the welfare of a human subject, the FDA may require us to collect safety and effectiveness data on human subjects regardless of our device’s classification. If we are required to collect data on human subjects, the FDA will require us to file an application for an Investigational Device Exemption, or IDE with the FDA and obtain IDE approval prior to commencing the human clinical trials. The IDE application must be supported by appropriate pre-clinical data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE application must be approved in advance by the FDA for a specified number of patients, unless the product is deemed a “non-significant risk” device and eligible for more abbreviated investigational device exemption requirements. Clinical trials for a significant risk device may begin once the IDE application is approved by the FDA and the appropriate institutional review boards at the clinical trial sites. Future clinical trials of our motion preservation designs will require that we obtain an IDE from the FDA prior to commencing clinical trials and that the trial be conducted under the oversight of an institutional review board at the clinical trial site. Our clinical trials must be conducted in accordance with FDA regulations and other federal and state regulations concerning human subject protection, including informed consent and healthcare privacy. A clinical trial may be suspended by the FDA or the IRB at any time for various reasons, including a belief that the risks to the study participants outweigh the benefits of participation in the study. Even if a study is completed, the results of our clinical trials may not demonstrate the safety and efficacy of the medical device, or may be equivocal or otherwise not be sufficient to obtain approval of our Ehave MegaTeam and NinjaReflex game or any other computerized cognitive assessment aid products that we may develop in the future. At this time, we do not plan on marketing, advertising or selling our Ehave MegaTeam and NinjaReflex games or any other computerized cognitive assessment aid products in the United States and therefore, do not anticipate performing clinical trials in the United States.

 

Patents and Trade Secrets

 

The patent positions and proprietary rights of pharmaceutical and biotechnology firms, including us, are generally uncertain and involve complex legal and factual questions. We believe there will continue to be significant litigation in the industry regarding patent and other intellectual property rights.

 

We have not registered any patents in respect of Megateam and NinjaReflex ; however we maintain our proprietary server architecture and mobile applications as trade secrets. We have registered the trade name “Ehave, Inc.” and own the domain “ehave.com.”

 

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We rely on unpatented trade secrets and improvements, unpatented know-how and continuing technological innovation to develop and maintain our competitive position. No assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to our trade secrets or disclose such technology, or that we can meaningfully protect our rights to our unpatented trade secrets.

 

We require our employees and consultants to execute confidentiality agreements upon the commencement of employment and consulting relationships with us. These agreements provide that all confidential information developed by or made known to an individual during the course of the employment or consulting relationship generally must be kept confidential. In the case of employees, the agreements provide that all inventions conceived by the individual, while employed by us, relating to our business are our exclusive property. While we have implemented reasonable business measurements to protect confidential information, these agreements may not provide meaningful protection for our trade secrets in the event of unauthorized use or disclosure of such information.

 

Seasonality of Business

 

Our results of operations have not been materially impacted by seasonality.

 

  C. Organizational Structure

 

The following is a list of our principal subsidiaries and consolidated affiliated entities as of the date of this annual report on Form 20-F:

 

Name   Place of Formation   Relationship
Mycotopia Therapies, Inc.   Florida, USA   Wholly Owned Subsidiary

 

  D. Property, Plants and Equipment

 

We currently reimburse our CEO for office space that he has under lease. Our lease expense is $2,500 per month. We do not own or lease any other office space, manufacturing facilities or equipment and do not have any current plans to construct or acquire any facilities.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Annual Report on Form 20-F. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs, including our belief as to the potential of MegaTeam and Ninja Reflex applications as an effective remediation tool for ADHD and our expectations as to the success of our research and related content distribution in 2019 and beyond, future financial position, business strategy and plans for future operations, and statements that are not historical facts, involve known and unknown risks and uncertainties]. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 20-F, particularly those in “Item 3. Key Information – D. Risk Factors.” See also “Special Note Regarding Forward-Looking Statements.”

 

With respect to the forward-looking statements made within this Item 5, we have made numerous assumptions regarding among other things: our ability to obtain financing to fund our continuing development programs, the results of our clinical trials, our ability to obtain commercial sales, and future expense levels being within our current expectations. Investors are cautioned against placing undue reliance on forward-looking statements. We do not undertake to update these forward-looking statements except as required by applicable law.

 

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Overview

 

We are creating a medical cannabis and mental health data platform that integrates with our proprietary and third-party assessment and therapeutic digital applications. Our product focus is based on two tiers of activities: (1) MegaTeam and Ninja Reflex, our clinically validated digital assessment and rehabilitation software that is engaging for the patient, and (2) adaptation of custom and third-party clinically validated digital assessment and rehabilitation software for enhanced patient engagement and data modeling. We intend to provide technology solutions to clinicians, patients, researchers, pharmaceutical companies and payors.

 

We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

 

  - have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

 

  - comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

  - submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

 

  - disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.

 

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In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

Recapitalization

 

In February 2019, we entered into agreements with holders of $2.8 million of promissory notes and debentures to exchange such notes and debentures for common shares. In February 2019, we also issued shares of Ehave common stock in return for the cancelation of 4,383,333 Ehave warrants and the cancellation of 8,051,791 Ehave stock options. As a result of the recapitalization described above, all then outstanding promissory notes, warrants and certain options were exchanged for common shares.

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires companies to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and judgments are subject to an inherent degree of uncertainty, and actual results may differ. Our significant accounting policies are more fully described in Note 1 to our financial statements included elsewhere in this Annual Report. Critical accounting estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances, and are particularly important to the portrayal of our financial position and results of operations. Our estimates are primarily guided by observing the following critical accounting policies.

 

Financial Overview

 

Our operations have been funded, to date, primarily through the sale of our common shares in a public offering and series of private placements of convertible notes and warrants. From our inception through December 31, 2019, we have raised an aggregate of approximately $4,744,103 to fund our operations, of which approximately $366,455 was from our public offering in June 2016, and approximately $4,377,648 was from the issuance of convertible notes and warrants. In addition, we received additional aggregate investments of $598,100 from promissory notes that closed in during the first quarter of 2020.

 

Operating Losses

 

Since our inception, we have incurred significant operating losses. Our net losses were $3,637,368 and $5,588,334 for the year ended December 31, 2019 and 2018, respectively. As of December 31, 2019, we had an accumulated deficit of $16,214,826. We expect to continue to incur significant expenses and operating losses over the next several years. Our net losses may fluctuate significantly from quarter to quarter and from year to year. We anticipate that our expenses will increase significantly as we plan to continue development and commercialization of MegaTeam and NinjaReflex products as well as to engage in continuing research and development related to products and services.

 

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  A. Operating Results

 

On March 22, 2019, we entered a definitive asset purchase agreement with ZYUS, pursuant to which ZYUS will acquire all of the assets and rights relating to Ehave Connect Sale (See “Item 4. Information on the Company—A. History and Development of the Company—Proposed Sale of Ehave Connect Asset”). Ehave will continue in our development and trials of digital assessment and therapeutic video games for children with ADD/ADHD. The closing of the Asset Sale remains subject to the satisfaction of customary closing conditions, with a target close date at or around May 22, 2019. Operating results have been separated consistent with this sale between continuing and discontinued operations.

 

Years Ended December 31, 2019, and December 31, 2018

 

Revenues

 

We have no revenue from continuing operations for the year ended December 31, 2019 and the year ended December 31, 2018.

 

Operating Expenses

 

Our total operating expenses, excluding discontinued operations, for the year ended December 31, 2019 was $411,019 compared to $761,936 in 2018, a decrease of $350,917. The decrease in operating expenses is primarily due to the change in the company’s operations. The operating expenses, excluding discontinued operations for the year ended December 31, 2019, consisted of rent of $12,630, professional fees of $250,355, insurance expenses of $39,837, software development of $32,300, and other general and administrative expenses of $75,898. The operating expenses, excluding discontinued operations for the year ended December 31, 2018, consisted of salaries of $294,222, rent of $46,348, professional fees of $209,255, insurance expenses of $29,831, travel expenses of $11,932, software development of $90,060, communications of $139,172 and general and administrative expenses of $381,740 and tax credits of $440,624.

 

    For the years ended
December 31,
 
    2019     2018  
    $     $  
Operating Expenses, excluding discontinued operations                
Salaries     -       294,222  
Rent     12,629       46,348  
Professional fees     250,355       209,255  
Insurance     39,837       29,831  
Travel     -       11,932  
Communications     -       139,172  
Software development     32,300       90,060  
Other general and administrative     75,898       381,740  
Tax credits     -       (440,624)  
Total operating expenses from continuing operations     411,019       761,936  
                 
Warrant expense     -       3,454,400  
Interest , bank charges and financing fees     172,334       405,201  
Foreign exchange gain (loss)     1,099       -  
Net loss from continuing operations     (584,452 )     (4,621,537 )
                 
Loss from discontinued operations     (3,701,024 )     (966,797 )
Gain on sale of intangible assets, net     648,108       -  
Net loss from discontinued operations     (3,052,916 )     (966,797 )
Total Net Loss     (3,637,368 )     (5,588,334 )

 

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Salaries

 

    For the years ended December 31,              
    2019     2018     Increase     %  
    $     $     (decrease)     Change  
                         
From continuing operations     -       294,222       (294,222 )     (100 )
From discontinued operations     276,746       909,607       (632,861 )     (70 )
Total     276,746       1,203,829       (927,083 )     (77 )

 

The decrease in salaries is primarily attributable to the decrease in the number of employees with no employees as at June 1, 2019.

 

Professional Fees

 

    For the years ended December 31,              
    2019     2018     Increase     %  
    $     $     (decrease)     Change  
                         
From continuing operations     250,355       209,255       (41,100 )     (19 )
From discontinued operations     -       -       -          
Total     250,355       209,255       (41,100 )     (19 )

 

The increase in professional fees is primarily attributable to the increase in the use of outside consultants.

 

Communications

 

    For the years ended December 31,              
    2019     2018     Increase     %  
    $     $     (decrease)     Change  
                         
From continuing operations     -       139,172       (139,172 )     (100 )
From discontinued operations     32,740       -       32,740       100  
Total     32,740       139,172       (106,432 )     (325 )

 

The decrease in communications is primarily attributable to fewer news releases and targeted investor outreach.

 

Software Development

 

    For the years ended December 31,              
    2019     2018     Increase     %  
    $     $     (decrease)     Change  
                         
From continuing operations     32,300       90,060       (57,760 )     (64 )
From discontinued operations     -       22,144       (22,144 )     (100 )
Total     32,300       112,204       (79,904 )     (247 )

 

The decrease in software development expenses is due to the sale of Ehave Connect and minimal development on the MegaTeam and Ninja Reflex game applications.

 

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Warrant Expense

 

    For the years ended December 31,              
    2019     2018     Increase     %  
    $     $     (decrease)     Change  
                                                                                                                    
      -       3,454,400       (3,454,400 )     (100 )

 

The decrease in warrant expense is due to no warrants issued in 2019.

 

Net Loss

 

Net loss for the year ended December 31, 2019, was $3,637,368 as compared to a net loss of $5,588,334 in 2018.

 

  B. Liquidity and Capital Resources

 

Through December 31, 2019, we have incurred an accumulated deficit of $16,214,826, primarily as a result of expenses incurred through a combination of development and commercialization activities related to our products and general and administrative expenses supporting those activities, as well as a net loss of $3,637,368 and negative operating cash flows. Our total cash and cash equivalents balance as of December 31, 2019 was $17,530. At December 31, 2019, we had working capital deficit of $2,497,764. We anticipate that we will continue to incur losses and negative cash flows from operations, and that such losses will increase over the next several years due to development costs associated with our Ehave Dashboard, MegaTeam, and Ninja Reflex products, until our products reach commercial profitability. As a result of these expected losses and negative cash flows from operations, along with our current cash position, based on our current projections, we may not have sufficient resources to fund operations through the third quarter of 2020. Therefore, there is substantial doubt about our ability to continue as a going concern.

 

Our plans include the continued commercialization of our products and raising capital through a combination of equity offerings, debt financings, other third-party funding and other collaborations and strategic partnerships. There are no assurances, however, that we will be successful in obtaining the level of financing needed for our operations. We are exploring various financing options including equity funding and strategic collaboration. However, there are no assurances that we will be successful in obtaining the level of financing needed for our operations or that any such financing would be on terms favorable to us. Any future financing may involve substantial dilution to existing investors. If we are unsuccessful in commercializing our products and raising capital, we may need to reduce activities, curtail or cease operations.

 

On April 30, 2019, our common shares were removed from the OTCQB Venture Market to the Pink Open Market because we were unable to cure our bid price deficiency. We expect the share consolidation, expected to be effective as of May 27, 2019, to cure the bid price deficiency; however, the expected increase in the price of our common shares from the share consolidation may not be maintained, and there can be no assurance that the market price of our common shares following the share consolidation will remain above the minimum bid price requirement to restore or maintain eligibility for quotation of our common shares on OTCQB Venture Market. If we fail to restore or maintain the eligibility for quotation of our common shares on OTCQB Venture Market, our ability to obtain additional financing through the public or private sale of our securities would be adversely affected.

 

We received approximately CAD$491,204 in grants in connection with our collaboration with the Hospital and CAD$225,000 from Canada-Israel Research and Development Foundation. In addition, we received aggregate gross proceeds of CAD$490,000 pursuant to our convertible loan and an aggregate of CAD$75,000 from the sale of equity securities in December 2014 and March 2015.

 

On July 7, 2015, we closed a private placement of convertible notes with a principal value of $325,000 and commenced the legal and financial processes of becoming an SEC registrant and commencing a public offering.

 

On September 24, 2015, we filed our registration statement on Form F-1, which was declared effective on April 4, 2016, for a public offering of up to 11,002,445 common shares and warrants to purchase 11,002,445 common shares. The registration statement also included a prospectus for resale of up to 11,393,642 common shares issuable upon the conversion of certain convertible notes and 11,393,642 common shares issuable upon the exercise of certain warrants offered by the selling shareholders named in the prospectus.

 

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On June 14, 2016, we had a closing of the offering of an aggregate of 6,503,667 common shares and warrants to purchase an aggregate of 6,503,667 common shares, for gross proceeds of $266,000. Subsequent to the initial closing, on June 24, 2016, we had a second closing of the offering of an aggregate of 1,589,242 common shares and warrants to purchase 1,589,242 common shares, for gross proceeds of $65,000. We received total gross proceeds of $331,000 from the offering.

 

On November 14, 2016, we received notice from the Financial Industry Regulatory Authority (“FINRA”) that pursuant to FINRA Rule 6432 and Rule 15c2-11 that our company may initiate a priced quotation on the OTC Bulletin Board under the trading symbol EHVVF. On November 21, 2016, our common shares were listed for trading on the OTCQB Venture Market. On April 30, 2019, our common shares were moved to the Pink Open Market because we were unable able to cure our bid price deficiency.

 

On November 14, 2016, we entered into a definitive securities purchase agreement to sell up to $1,500,026 of convertible promissory notes and warrants in multiple closings in a private placement. We have used the net proceeds from the private placement to further the development of Ehave Connect, for MegaTeam clinical trials, for general marketing and investor relations’ purposes, and for working capital. As of December 31, 2016, we received $259,357 of $309,357 of the firmly committed amount and waived $50,000 of the firmly committed amount for future reassignment as permitted under the agreement. Certain lenders notified us that it will not elect to fund an aggregate of $683,130 of additional loans and have permitted its reassignment, of which $489,368 has been reassigned. In the year ended December 31, 2017, we issued additional convertible promissory notes in an aggregate principal amount of $609,826 pursuant to the note and warrant purchase agreement. As of December 31, 2017, we had received total proceeds of $869,183 pursuant to the note and warrant purchase agreement. On September 24, 2018 we entered into a letter agreement to convert all outstanding convertible promissory notes with aggregate principal amount of $869,183 into common shares of the company upon the closing of a bridge financing of up to $500,000. On February 27, 2019, we closed the bridge loan and all such outstanding convertible promissory notes were converted into 372,228,244 common shares, and all outstanding warrants were canceled.

 

On October 11, 2017, we entered into Investor Letters, pursuant to which certain persons agreed to purchase securities of the Company on similar terms as certain offerings of the Company that are consummated prior to December 31, 2017, or, if such an offering is not consummated, the purchase amount will be converted into a secured promissory note that matures on January 31, 2018 (which, at the investor’s option, may be converted into common shares of the Company). We received aggregate proceeds of $100,000. No such offerings were consummated prior to December 31, 2017, and such notes were converted into Unsecured Debentures on January 31, 2018 (see below), which have been converted into common shares on February 27, 2019.

 

On November 15, 2017, we issued demand non-interest bearing senior secured promissory notes in the aggregate principal amount of $196,237. Lenders of the promissory notes were issued 2,133,333 common share warrants at an exercise price of $0.075 per share with an expiry date of November 16, 2022. On January 31, 2018 $148,745 of the promissory notes were repaid and $47,932 of the promissory notes were exchanged for Unsecured Debentures. On February 27, 2019, as part of the recapitalization, we entered into an agreement to cancel the warrants issued to the lenders in exchange for 31,109,865 common shares.

 

On January 31, 2018, we entered into a secured convertible debenture agreement (the “Secured Debentures”) for total proceeds of $1,218,620 (CAD$1,500,000), issued in two installments. The Secured Debentures were secured against the general assets and intellectual property of the Company. Under the terms of the Secured Debentures, the principal amount and accrued interest was convertible into our common shares at a conversion price equal to 75% the issue price of common shares under a qualified offering. The conversion of the Secured Debentures was at the option of the holder. At the time of conversion, the holder was to also receive an equal amount of common share purchase warrants with an exercise price equal to the issue price. The Secured Debentures were due on July 31, 2018 and bore interest at 10% per annum. The initial installment of the Secured Debentures was issued on January 31, 2018 for proceeds of $609,310 (CAD$750,000). On March 19, 2018, the final instalment of $573,307 (CAD$750,000) was received. On February 27, 2019, as part of the recapitalization, we entered into an agreement to convert the Secured Debentures and right to receive warrants into 1,268,274,936 common shares.

 

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On January 31, 2018, certain promissory notes with an aggregate principal amount of $311,967 (CAD$384,000) outstanding at December 31, 2017 were exchanged for unsecured convertible debentures (the “Unsecured Debentures”). From January 1, 2018 to January 31, 2018, we issued an additional $20,098 (CAD$25,000) Unsecured Debentures for total proceeds of $332,065 (CAD$409,000). On March 19, 2018, an installment of the Unsecured Debentures in the amount of $382,263 (CAD$500,000) was received. Under the terms of the Unsecured Debentures, the principal amount and accrued interest was convertible into our common shares at a conversion price equal to 75% the issue price of common shares under a qualified offering. The conversion of the Unsecured Debentures was at the option of the holder. At the time of conversion, the holder was to also receive 120% of the amount of the common shares issued of common share purchase warrants with an exercise price equal to the issue price. The Unsecured Debentures were due on July 31, 2018 and bore interest at 10% per annum. On February 27, 2019, we entered into an agreement to convert the Unsecured Debentures and the right to receive warrants an into 276,809,884 common shares.

 

On September 27, 2018, we issued demand non-interest bearing senior secured promissory notes in the aggregate principal amount of $85,756 (CAD$111,110), including $11,110 of original issue discount. On February 27, 2019, promissory notes with an aggregate principal amount of $85,756 (CAD$111,110) were exchanged for unsecured debentures for a bridge loan. On February 28, 2019, we entered into an agreement to convert the notes into 54,203,662 common shares.

 

On October 31, 2018, we issued demand senior secured promissory notes in the aggregate principal amount of $57,000.

 

On December 5, 2018, we entered into a securities purchase agreement for $141,000 of promissory notes, including $13,000 of original issue discount. Under the terms of the agreement, the principal amount and accrued interest is convertible into common shares of the Company at a conversion price equal to 73% of the market price. The conversion of the debentures is at the option of the holder between 180 days following the issue of the debentures and the maturity date. The debentures are due on December 5, 2019 and bear interest at 8% per annum.

 

On January 21, 2019, we issued a senior secured promissory note in the aggregate principal amount of $263,192 (CAD$350,000). The secured promissory note is secured against certain of our assets, including all development tax credits that the Company has applied for and receives. The loan is due on May 21, 2020 and bears and interest rate at 20.07% per annum.

 

On January 28, 2019, we issued demand non-interest bearing senior secured promissory notes in the aggregate principal amount of $85,756 (CAD$125,000), including $18,841(CAD$25,000) of original issue discount.

 

On February 27, 2019, we entered into an agreement to exchange $150,000 in fees owed to Scott Woodrow, a retired Director of the Company for 47,564,189 common shares of the Company.

 

On February 27, 2019, we entered into an agreement to exchange $100,000 in fees owed to KW Capital Partners Ltd. for 31,709,460 common shares of the Company.

 

On February 27, 2019, we entered into an agreement to exchange $150,000 in fees and common shares owed to Bezalel Partners LLC for 47,564,189 common shares of the Company.

 

On February 27, 2019, we entered into agreements to cancel options, cancel option anti-dilution clauses, and cancel employee severance liabilities in exchange for 304,437,002 common shares of the company

 

On February 27, 2019, we entered into an agreement to cancel 2,250,000 compensation warrants that had anti-rachet and anti-dilution provisions for 32,811,191 common shares of the Company.

 

On March 26, 2019, we issued demand non-interest bearing senior secured promissory notes in the aggregate principal amount of $98,351 (CAD$131,683), including $23,663 (CAD$31,683) of original issue discount.

 

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On January 10, 2020 we issued a convertible promissory note in the principal amount of $27,500 including $2,500 of original issue discount.

 

On January 14, 2020 we issued a convertible promissory note in the principal amount of $55,000 including $5,000 of original issue discount.

 

On January 15, 2020 we issued a convertible promissory note in the principal amount of $27,500 including $2,500 of original issue discount.

 

On January 17, 2020 we issued a convertible promissory note in the principal amount of $180,000 including $18,000 of original issue discount.

 

On January 23, 2020 we issued convertible promissory notes in the aggregate principal amount of $38,500 including $3,500 of original issue discount.

 

On January 31, 2020 we issued a convertible promissory note in the principal amount of $16,500 including $1,500 of original issue discount.

 

On February 5, 2020 we issued a convertible promissory note in the principal amount of $11,000 including $1,000 of original issue discount.

 

On February 7, 2020 we issued a convertible promissory note in the principal amount of $11,000 including $1,000 of original issue discount.

 

On February 19, 2020 we issued a convertible promissory note in the principal amount of $165,000 including $15,000 of original issue discount.

 

On February 20, 2020 we issued a convertible promissory note in the principal amount of $27,500 including $2,500 of original issue discount.

 

On February 24, 2020 we issued a convertible promissory note in the principal amount of $11,000 including $1,000 of original issue discount.

 

On February 25, 2020 we issued a convertible promissory note in the principal amount of $27,500 including $2,500 of original issue discount.

 

The proceeds from these private placements were used for general working capital purposes, particularly the development and marketing of the Ehave Connect platform and support of our trials of our games, MegaTeam and NinjaReflex.

 

On April 6, 2020, the Company entered into a license and development agreement to become an authorized independent reseller of the MyLifeID Pocket Cloud device for a term of three years.

 

On May 6, 2020, the Company entered into an exchange agreement in which Psychedelitech, Inc. (“PsyTech”). Upon consummation of the exchange agreement, PsyTech will become a wholly owned subsidiary of the Company. In accordance with the exchange, following the initial closing Ehave will hold 51% of the PsyTech common stock and PsyTech shareholders will hold 24% of the issued and outstanding Ehave common stock. The initial closing will take place upon the completion of certain customary closing conditions. The final closing will take place when the Company provides funding for the third and fourth PsyTech conferences in the amount up to $250,000, in the aggregate. Upon final closing, the Company will distribute 24,397,362 shares to the PsyTech shareholders who will then control 49% of the Company. The Company has agreed to issue additional earn out shares upon the achievement of certain milestones. The shares issuances are subject to adjustment to achieve certain allocations intended by the parties.

 

We earned total revenue of $0 and $610,596 during the years ended December 31, 2019 and 2018, respectively, for providing services pursuant to contracts we entered into with MedReleaf and credits related to applications submitted for Ontario Interactive Digital Media Tax Credits.

 

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The proceeds from these private placements were used for general working capital purposes, particularly the development and marketing of our platform, Ehave Connect, which was sold to Zyus Corp. on May 22, 2019 (See “Item 4. Information on the Company—A. History and Development of the Company—Proposed Sale of Ehave Connect Asset”).

 

Operating Activities

 

Net cash used in operating activities decreased to $881,364 for the year ended December 31, 2019, from $1,422,077 for the year ended December 31, 2018. The decrease of $540,713 in net cash used in the year ended December 31, 2019 was primarily due to changes operating expenses as described above under “–A. Operating Results—Operating Expenses.”

 

Investing Activities

 

Net cash provided by investing activities increased to $648,108 for the year ended December 31, 2019, from $0 for the year ended December 31, 2018. The increase net cash provided in the year ended December 31, 2018, was primarily due to the sale of intangible assets, specifically the Ehave Connect platform.

 

Financing Activities

 

Net cash provided by financing activities decreased to $270,018 for the year ended December 31, 2019, from $1,897,982 for the year ended December 31, 2018. The decrease of $1,627,964 in net cash provided by financing activities in the year ended December 31, 2019 was primarily due to the decreased financing activity during the year.

 

  C. Research and Development, Patents, and Licenses, etc.

 

Ongoing research and development is critical to our success. We seek to engage with reputable research and clinical institutions to access and assist tools and methods developed. We hope to finance our research and development with government and research grants and internal funds. Our research and development is comprised primarily of software development expenditures. We intend to continue to research and develop new technologies and products for the mental health market. There can be no assurance that we can achieve any or all of our research and development goals.

 

Excluding discontinued operations, we spent $32,300 and $90,060 on software development in 2019 and 2018, respectively. These amounts were spent on the development or improvement of our technologies and products, including salary paid to our employees engaged in research and development activities. See the disclosure in “Item 4. Information on the Company—B. Business Overview” for further information on the Company’s research and development policies.

 

  D. Trend Information

 

It is important to note that historical patterns of expenditures cannot be taken as an indication of future expenditures. The amount and timing of expenditures and availability of capital resources vary substantially from period to period, depending on the level of development activity being undertaken at any one time and the availability of funding from investors and prospective strategic partners. See discussion in Parts A and B of Item 5: “Operating and Financial Review and Prospects” for a description of the trend information relevant to us. Except as disclosed elsewhere in our annual report, we know of no trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our liquidity or capital resources or that would cause reported financial information not necessarily to be indicative of future operating results or financial conditions.

 

  E. Off-Balance Sheet Arrangements

 

We are not party to any transactions, agreements or other contractual arrangements with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.

 

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  F. Tabular Disclosure of Contractual Obligations

 

We have the following contractual obligations as of December 31, 2019:

 

Contractual Obligations   Payments Due by Period  
    Total
$
    Less than 1 year
$
    2-3 years
$
    4-5 years
$
    After 5 years
$
 
Capital lease obligations     -               -          -         -          -  
Operating lease (1)     -       -       -       -       -  
Purchase obligations     -       -       -       -       -  
Other long term obligations     -       -       -       -       -  
Total contractual obligations     -       -       -       -       -  

 

Note:

 

  (1) Our operating leases are comprised of our office leases and exclude our portion of operating costs. Our office lease was terminated in June 2019.

 

We expect to fund our capital expenditure requirements and commitments with existing working capital.

 

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  G. Safe Harbor

 

We seek safe harbor for our forward-looking statements contained in Items 5.E and F. See “Cautionary Note Regarding Forward-Looking Statements”.

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

  A. Directors and Senior Management

 

The following table sets forth the names, ages and positions of our current board members and executive officers:

 

Name   Age   Position with the Company   Director of the
Company Since
Ben Kaplan   47   President, Chief Executive Officer   June 24, 2019
Binyomin Posen   27   Chairman of the Board, Director   August 21, 2018
Zeke Kaplan   34   Director   August 21, 2018

 

The business address of our officers and directors is c/o Ehave, Inc., 18851 NE 29th Ave, suite 700, Aventura, FL 33180.

 

Our directors are elected for a term of one year and serve until such director’s successor is duly elected and qualified. Our executive officer serves at the pleasure of the Board of Directors. None of our directors have any family relationships with any of our other directors or executive officer.

 

Certain of our directors are associated with other companies, which may give rise to conflicts of interest. In accordance with the Business Corporations Act (Ontario), directors who have a material interest in any person who is a party to a material contract or a proposed material contract with us are required, subject to certain exceptions, to disclose that interest and abstain from voting on any resolution to approve that contract. In addition, the directors are required to act honestly and in good faith with a view to the best interests of Ehave Inc.

 

We are not aware of any arrangement or understanding with major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director or officer.

 

Biographies

 

Benjamin Kaplan, CEO

 

Mr. Kaplan is an entrepreneur and an investor in companies both public and private, with a focus on international growth and potential for global presence. He has owned and operated several businesses throughout his career and has been investing and guiding companies for more than 20 years.

 

Binyomin Posen, Chairman of the Board, Director

 

Mr. Posen is a Senior Analyst at Plaza Capital Limited, where he focuses on corporate finance, capital markets and helping companies to go public. After three and a half years of studies overseas, he returned to complete his baccalaureate degree in Toronto. Upon graduating (on the Dean’s List) he began his career as an analyst at a Toronto boutique investment bank where his role consisted of raising funds for IPOs and RTOs, business development for portfolio companies and client relations. He is currently director and senior officer at Agau Resources Inc. and director of Senternet Phi Gamma Inc. and director and senior officer at Jiminex Inc.

 

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Zeke Kaplan, Director

 

Mr. Kaplan is an entrepreneur committed to sustainability and creativity in the Construction and Real Estate industries. Mr. Kaplan is also active in the technology and cannabis industries. He earned a First Class Honors degree from McGill University and holds numerous construction accreditations including being licensed by the City of Toronto.

 

  B. Compensation

 

Directors

 

In the year ended December 31, 2019, each director who was not an officer was not paid a fee or other compensation related to their directorship. In the year ended December 31, 2018, each director who is not a salaried employee of the Company earned a fee of $33,000, which has not been paid.

 

Directors, annually, may elect to take up to 100% of their respective annual retainer in either options or restricted share awards.

 

Officers

 

Summary Compensation Table

 

The following table sets forth information concerning the total compensation paid to our officers in 2019. Our officers are paid fees in Canadian dollars. These amounts are presented in U.S. dollars and have been converted at the average rate of exchange for 2019 ($1.00 = CAD$1.3267).

 

Name and principal
position
  Year     Salary
$
    Share-
based
awards
$ (1)
    Option-
based
awards
$ (1)
    Bonus
$
    All other
compensation
$
    Total
compensation
$
 
Benjamin Kaplan, CEO (2)   2019       90,000                                          
                                                       
Prateek Dwivedi   2019       122,484       2,494,425                                  
Former Chief Executive   2018       300,912       N/A       92,770       150,456       N/A       544,138  
Officer   2017       304,572        N/A       2,672        N/A        N/A       307,244  
(2)   2016       25,853        N/A       73,435        N/A        N/A       99,288  
                                                       
Scott Woodrow   2018       -       N/A       N/A       N/A       -       -  
Former President and Chief Executive Officer, Former Chief Financial Officer and VP of Corporate and Business Development, Former Director   2017       -       N/A       N/A        N/A       116,238 (3)     116,238  
(2)   2016       236,525       N/A       N/A        N/A       N/A       236,525  
                                                       
David Goyette   2019       100,500       501,036       19,8712       38,579       N/A       302,700  
Former Chief Technology Officer   2018       154,309       N/A       109,812       38,579       N/A       302,700  
    2017       154,214        N/A       137,086        N/A        N/A       291,300  
    2016       13,315        N/A        N/A        N/A        N/A       13,315  

 

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Notes:

 

  (1) The value of share and option based awards are based on the grant date assumptions as disclosed in Note 7 “Stock Based Compensation” in our 2019 audited financial statements.
  (2) On December 1, 2016, Mr. Woodrow resigned as President and Chief Executive Officer and Mr. Dwivedi was appointed President and Chief Executive Officer. From October 2011 through April 2018, Scott served as the Company’s Chief Financial Officer, and from July 31, 2018 through April 2018, Scott served as the Company’s VP Corporate and Business Development. Mr. Woodrow served as a director of the Company from October 31, 2011, through February 15, 2019. Mr. Dwivedi resigned all positions with the Company on May 31, 2019 and Mr. Kaplan was appointed as CEO on June 24, 2019.
  (3) Consulting fees paid to NView Management Inc. pursuant to the Services Agreement with the Company, dated January 15, 2017. Scott Woodrow is the president of the NView Management Inc.and provided services as Vice President Corporate and Business Development.

 

Narrative Discussion

 

We have entered into a consulting agreement with the following Executive Officers (each an “Consulting Agreement”). Pursuant to the terms of the Consulting Agreements, the salary for the year 2019 and 2018 are:

 

Name and principal position   Year     Salary $(1)  
Mr. Benjamin Kaplan   2019       90,000  
Chief Executive Officer              

 

  (1) Mr. Kaplan’s salary has been accrued and not paid during 2019.

 

Benjamin Kaplan

 

The Company and Mr. Kaplan entered into a CEO Consulting Agreement for a period of 24 months and sets Mr. Kaplan’s first year cash compensation at $15,000 per month, grants Mr. Kaplan a number of common shares equal to 5% of the issued and outstanding shares as at the contract date, and up to an additional 5% of equity upon a “significant transaction” as defined in the Agreement. This summary is limited by and is subject to the terms of the Agreement that is attached hereto as an Exhibit.

 

Prateek Dwivedi

 

Pursuant to the Employment Agreement with Prateek Dwivedi, dated July 25, 2016, we appointed Mr. Dwivedi as our chief executive officer, his employment to begin upon our achievement of the closure of a financing round in $500,000. Mr. Dwivedi began serving as our president and chief executive officer as of December 1, 2016. On February 27, 2019, we entered into an agreement with Mr. Dwivedi to amend his employment agreement to cancel his Adjustment Equity Award, cancel his 7,327,376 outstanding options, and cancel his termination without cause provisions in exchange for 2,536,550 (253,654,987 pre-split) common shares of the company, which constitutes 10% of the issued and outstanding common shares in the capital of the Company as of the date of the agreement. Mr. Dwivedi resigned effective May 31, 2019. He released the Company from certain sections of his employment agreement. The shares were issued to Mr. Dwivedi.

 

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David Goyette

 

On October 24, 2016, we entered into the Employment Agreement with David Goyette as our chief technology officer, his employment to begin upon our achievement of the closure of a financing round in CAD$500,000. Mr. Goyette began serving as our chief technology officer as of December 1, 2016. On February 27, 2019, we entered into an agreement with Mr. Goyette to amend his employment agreement to cancel his outstanding options, and cancel his notice period in exchange for 50,730,997 common shares of the Company, which constitute 2% of the issued and outstanding common shares in the capital of the Company as of the date of the agreement. Mr. Goyette resigned May 31, 2019.

 

Dianne Parsons

 

On April 28, 2018, we entered into a Services Agreement with Dianne Parsons, C.P.A., pursuant to which, as a contractor, she will initially provide services as controller and chief financial officer of the Company. The initial term of her engagement will continue until June 30, 2019, unless terminated by either the Company or Dianne upon one month prior notice. Dianne Parsons resigned as the Company’s Chief Financial Officer in May of 2019. In addition, the Company may immediately terminate the Services Agreement, with no other obligations, upon default by Dianne in the performance of any of her obligations under the Services Agreement. For the term of the Services Agreement, the Company agreed to pay Dianne CAD$60 per hour for controller activities and CAD$105 per hour for chief financial officer activities.

 

  C. Board Practices

 

Our directors are elected by the shareholders at each Annual General Meeting (or Annual Special Meeting) and typically hold office until the next meeting, at which time they may be re-elected or replaced. Casual vacancies on the board are filled by the remaining directors and the persons filling those vacancies hold office until the next Annual General Meeting (or Annual Special Meeting), at which time they may be re-elected or replaced. Our officers are appointed by the Board of Directors and hold office indefinitely at the pleasure of the Board of Directors.

 

Directors’ Contracts

 

We receive a director’s consent from each of the independent directors upon their acceptance of their director’s position.

 

We do not have any contracts with any of its directors which provide for benefits upon the termination of employment.

 

Compensation Committee

 

Our compensation committee consists of two outside, independent directors under Canadian law: Mr. Kaplan and Mr. Posen. Mr. Kaplan serves as chairman of the compensation committee. The members of the compensation committee have not been officers of the company. Our compensation committee is responsible for making recommendations to the board of directors regarding compensation terms for our officers and directors and for determining salaries and incentive compensation for our executive officers and incentive compensation for our other employees and consultants.

 

Audit Committee

 

Our audit committee consists of Mr. Posen and Mr. Kaplan. Mr. Posen serves as chairman of the audit committee. The audit committee ensures that the Company’s management has designed and implemented an effective system of internal financial controls, assesses the integrity of the financial statements and related financial disclosure of the Company, and reviews the Company’s compliance with regulatory and statutory requirements as they relate to financial statements, taxation matters and disclosure of financial information. The audit committee also reports to the board of directors with respect to such matters and recommends the selection of independent auditors. Additionally, the committee monitors and reports on the independence and performance of the Company’s independent auditors.

 

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  D. Employees

 

The following table sets out the number of our employees at the end of each of the last three fiscal years by activity. All employees are located in Canada.

 

Activity   2019     2018     2017  
Research and development     -       4       5  
Operating     -       2       2  
Total     -       6       7  

 

  E. Share Ownership

 

The following table sets forth certain information as of April 15, 2019, regarding the beneficial ownership of our common shares by each of our directors and all of our executive officers and directors as a group.

 

    Number of common shares
beneficially owned (1)
    % of
Outstanding common
shares (2)
 
Directors and Executive Officers                
Scott Woodrow     1,267,594 (3)     4.99 %
Prateek Dwivedi     2,536,54,99       9.99 %
David Goyette     507,760       1.998 %
Binyomin Posen     -       -  
Zeke Kaplan     -       -  
Ben Kaplan (4)     -       -  
All officers and directors as a group (6 persons):     429,073,117       16.97 %

 

Notes:

 

  (1) Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Ordinary shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.

 

  (2) Based on 2,541,383,906 common shares issued and outstanding on April 15, 2019.

 

  (3) Mr. Woodrow resigned from the board on February 15, 2019. Includes 13,973,623 common shares beneficially owned by 2110345 Ontario Inc. and NView Management Inc. over which Mr. Woodrow has sole voting and dispositive power.
     
  (4) Ben Kaplan was appointed CEO on June 24, 2019. He is entitled to a 5% equity interest in the Company as a signing bonus that has not yet been issued.

 

The following table sets forth the amount and terms of options to acquire common shares of our Company we have granted to our directors, senior management and key employees:

 

  (1) On February 27, 2019, we entered into agreements with Mr. Dwivedi and Mr. Goyette to amend their employment agreements to cancel their outstanding options in exchange for common shares of the company.

 

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Option Plan

 

Our Stock Option Plan (“SOP”) sets the maximum number of common shares which may be issued under options granted pursuant to the SOP which shall be 15% of the number of issued and outstanding common shares of the Company.

 

The SOP authorizes the board of directors of the Company or a committee of the board of directors to issue options to directors, officers, employees and consultants of the Company.

 

The purpose of the SOP is to provide consultants, officers, directors and employees with a proprietary interest in the Company in order to: (i) increase the interest in the Company’s welfare of those individuals who share primary responsibility for the management, growth and protection of the business of the Company; (ii) furnish an incentive to such individuals to continue providing their services to the Company and its subsidiaries; and (iii) provide a means through which the Company and its subsidiaries may attract qualified persons to engage as consultants, officers, directors and employees.

 

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

  A. Major Shareholders

 

The following table lists the beneficial ownership of our securities as of April 15, 2019 by each person known by us to be the beneficial owner of 5% or more of the outstanding shares of any class of our securities. As of April 15, 2019, 2,541,383,906 of our ordinary shares were outstanding. As at April 15, 2019, with the exception of Shareholders disclosed in “Item 6.E Share Ownership”, we are not aware of any shareholder who beneficially owns, directly or indirectly, or exercises control or direction over, our common shares, of more than 5% of the outstanding common shares.

 

Name of Beneficial Owner   Number of
Shares
Beneficially
Owned
    Percentage of
Shares

Outstanding
 
Rocfrim, Inc. (1)(2)     2,137,389       8.4 %
                 
Anthony Heller (3)     11,743,800       46.2 %
                 
Sruli Weinreb (3)     11,743,800       46.2 %
                 
Wannigan Partners(4)     1,522,606       5.99 %

 

(1) Includes (i) 6,973 shares held by Rocpart Inc. (“Rocpart”) over which Mr. Kaplan, as President of Rocpart has sole voting and dispositive power and (ii) 5,476,772 shares held by Rocfrim over which Mr. Kaplan has sole voting and dispositive power.
(2) Jesse Kaplan, President of Rocfrim has sole voting and dispositive power over shares held by Rocfrim.
(3) Includes 286,220,455 common shares directly held by Plazacorp Investments Limited and 868,770,917 common shares held directly by KW Capital Partners Ltd. Anthony Heller is the sole owner of Plazacorp Investments Limited. Anthony Heller and Sruli Weinreb share voting and dispositive power over shares held by Plazacorp Investments Limited and may be deemed to beneficially own the securities held by Plazacorp Investments Limited. KW Capital Partners Ltd. is wholly-owned by Helmsquire Holdings Limited. Anthony Heller is the sole owner of Helmsquire Holdings Limited. Anthony Heller and Sruli Weinreb share voting and dispositive power over shares held by KW Capital Partners Ltd. and may be deemed to beneficially own the securities held by KW Capital Partners Ltd.

 

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(4) Scott Coleman, Vice President of Wannigan Partners has sole voting and dispositive power over shares held by Wannigan Partners

 

The voting rights of our major shareholders do not differ from the voting rights of holders of our shares who are not major shareholders. Each of the above listed securities entitles the holder to one vote at our company’s shareholder meetings.

 

Changes in Percentage Ownership by Major Shareholders

 

As of April 15, 2019, Mr. Woodrow, a founder of the Company, beneficially owned 144,464,470 common shares, or 5.7%, of our then outstanding common shares.

 

As of May 14, 2018, Mr. Woodrow, beneficially owned 19,777,338 common shares, or 27.73%, of our then outstanding common shares.

 

As of May 15, 2017, Mr. Woodrow beneficially owned 19,777,338 common shares, or 27.73%, of our then outstanding common shares.

 

As of March 10, 2016, Romena Holdings Inc. beneficially owned 5,000,000 common shares, or 17.81%, of our then outstanding common shares.

 

As of April 15, 2019 Rocfrim Inc. beneficially owned 192,907,759 common shares, or 7.6%, of our then outstanding common shares.

 

As of May 14, 2018, Rocfrim Inc. beneficially owned 7,840,882 common shares, or 10.84%, of our then outstanding common shares.

 

As of May 15, 2017, Rocfrim Inc. beneficially owned 7,449,646 common shares, or 9.6%, of our then outstanding common shares.

 

As of March 10, 2016, Rocfrim Inc. beneficially owned 5,476,772 common shares, or 16.32% of our then outstanding common shares.

 

As of April 15, 2019, Plazacorp Investments Limited beneficially owned 286,220,455 common shares, or 11.3%, of our then outstanding common shares.

 

As of May 14, 2018, Plazacorp Investments Limited beneficially owned 8,601,992 common shares, or 11.9%, of our then outstanding common shares.

 

As of May 15, 2017, Plazacorp Investments Limited beneficially owned 7,567,951 common shares, or 9.84%, of our then outstanding common shares.

 

As of March 10, 2016, Plazacorp Investments Limited beneficially owned 5,476,772 common shares, or 16.32% of our then outstanding common shares.

 

As of May 14, 2018, David Stefansky beneficially owned 7,612,477 common shares, or 9.99%, of our then outstanding common shares.

 

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As of May 15, 2017, David Stefansky beneficially owned 7,567,951 common shares, or 9.84%, of our then outstanding common shares. Includes 5,590,791 common shares and shares issuable upon exercise of warrants beneficially owned by Bezalel Partners, LLC over which Mr. Stefansky has sole voting and dispositive power.

 

As of March 10, 2016, David Stefansky beneficially owned 7,546,781 common shares, or 9.81% of our then outstanding common shares.

 

As of April 15, 2019, Eisenberg Family Foundation beneficially owned 130,887,307 common shares, or 12.57%, of our then outstanding common shares. Solomon Eisenberg has sole voting and dispositive power over shares held by Eisenberg Family Foundation.

 

As of May 14, 2018, Eisenberg Family Foundation beneficially owned 9,088,710 common shares, or 5.2%, of our then outstanding common shares.

 

As of April 15, 2019, Prateek Dwivedi beneficially owned 253,654,987 common shares, or 10% of our then outstanding common shares.

 

As of April 15, 2019, KW Capital Partners Ltd beneficially owned 868,770,917 common shares, or 34.2% of our then outstanding common shares.

 

As of April 15, 2019, Wannigan Partners beneficially owned 152,260,580 common shares, or 6.0% of our then outstanding common shares.

 

Shares Held in the United States

 

The following table indicates, as of April 15, 2019, the total number of common shares issued and outstanding, the approximate total number of holders of record of common shares, the number of holders of record of common shares with U.S. addresses, the portion of the outstanding common shares held by U.S. holders of record, and the percentage of common shares held by U.S. holders of record. This table does not indicate beneficial ownership of common shares.

 

Total Number of

Holders of Record

  Total Number of
Common Shares
Issued and
Outstanding
   

Number of
US Holders

of
Record

    Number of
Common Shares
Held by
US Holders of
Record
    Percentage of
Common Shares Held
by US Holders of
Record
 
64     2,541,383,906       17       394,895,359       19.02 %

 

Change of Control

 

As of April 15, 2019, there were no arrangements known to the Company which may, at a subsequent date, result in a change of control of the Company.

 

Control by Others

 

To the best of the Company’s knowledge, the Company is not directly or indirectly owned or controlled by another corporation, any foreign government, or any other natural or legal person, severally or jointly.

 

  B. Related Party Transactions

 

Other than the transactions described below, since January 1, 2019, we entered into related party transactions as follows:

 

  We have entered into consulting contracts with each of our officers (see Item 6).
  On January 31, 2018, the Company entered into a secured convertible debenture agreement (the “Secured Debentures”) for total proceeds of $1,218,620 (CAD$1,500,000), issued in two installments. On February 27, 2019, we entered into an agreement to convert the note into 1,268,274,936 common shares of the Company. Binyomin Posen and Zeke Kaplan, directors of the Company, have personal and business relations with some of the lenders.

 

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  On January 31, 2018, promissory notes with an aggregate principal amount of $311,967 (CAD$384,000) outstanding at December 31, 2017 were exchanged for unsecured convertible debentures (the “Unsecured Debentures”). On February 27, 2019, we entered into an agreement to convert the note into 276,809,884 common shares of the Company. Binyomin Posen and Zeke Kaplan, directors of the Company, have personal and business relations with some of the lenders.
  On September 27, 2018, we issued demand non-interest bearing senior secured promissory notes in the aggregate principal amount of $85,756 (CAD$111,110), including $11,110 of original issue discount. On February 27, 2019, promissory notes with an aggregate principal amount of $85,756 (CAD$111,110) were exchanged for unsecured debentures for a bridge loan. On February 28, 2019, we entered into an agreement to convert the note into 54,203,662 common shares of the Company. Binyomin Posen and Zeke Kaplan, directors of the Company, have personal and business relations with some of the lenders.
  On January 28, 2019, we issued demand non-interest bearing senior secured promissory notes in the aggregate principal amount of $85,756 (CAD$125,000), including $18,841(CAD$25,000) of original issue discount. Binyomin Posen and Zeke Kaplan, directors of the Company, have personal and business relations with some of the lenders.
  On February 27, 2019, we entered into agreements to exchange $400,000 in fees for 126,837,838 common shares of the Company. Binyomin Posen and Zeke Kaplan, directors of the Company, have personal and business relations with one of the vendors who exchanged fees.
  On March 26, 2019, we issued demand non-interest bearing senior secured promissory notes in the aggregate principal amount of $98,351 (CAD$131,683), including $23,663 (CAD$31,683) of original issue discount. Binyomin Posen and Zeke Kaplan, directors of the Company, have personal and business relations with some of the lenders.
  On October 30, 2018, we entered in an agreement with CHT, for the use of Ehave Connect whereby CHT will acquire the exclusive rights to Ehave Connect for use in companion animals. Scott Woodrow, a former director and former executive officer of the Company, is the President and a minority shareholder of CHT. On April 18, 2019, we and CHT agreed that upon closing of the Asset Sale, the CHT Agreement shall be terminated, and we, as consideration, within ten business days following the date of the closing of the Asset Sale, shall pay CHT, in cash, up to CAD$242,000, provided that the agreement to terminate the CHT Agreement and our obligation to pay CHT shall no longer be effective if the closing of the Asset Sale does not occur on or prior to June 30, 2019 (See “Item 4. Information on the Company—A. History and Development of the Company—Proposed Sale of Ehave Connect Asset”).

 

  C. Interests of Experts and Counsel

 

Not applicable

 

ITEM 8. FINANCIAL INFORMATION

 

  A. Statements and Other Financial Statements

 

Financial Statements

 

The financial statements filed as part of this annual report are filed under Item 18.

 

Legal Proceedings

 

The directors and the management of the Company do not know of any material, active or pending, legal proceedings against them; nor is the Company involved as a plaintiff in any material proceeding or pending litigation.

 

The directors and the management of the Company know of no active or pending proceedings against anyone that might materially adversely affect an interest of the Company.

 

Dividend Policy

 

We have not paid any dividends on our common shares. We anticipate that, for the foreseeable future, we will retain any future earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends for at least the next several years. We may pay dividends on our common shares in the future if we generate profits and in accordance with the Business Corporations Act (Ontario). Any decision to pay dividends on common shares in the future will be made by the board of directors on the basis of the earnings, financial requirements and other conditions existing at such time.

 

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  B. Significant Changes

 

Except as otherwise disclosed in this Annual Report on Form 20-F, no significant change has occurred since December 31, 2019.

 

ITEM 9. THE OFFER AND LISTING

 

  A. Offering and Listing Details

 

Our common shares are quoted on the Pink Open Market under the symbol “EHVVF.” Our common shares were quoted on the OTCQB Venture Market under the symbol “EHVVF” from November 21, 2016, until they were removed to the Pink Open Market on April 30, 2019, because we were unable to cure our bid price deficiency. Prior to being quoted on the OTCQB Venture Market, there was no established market for our common shares. Our common shares trade and have traded on a limited or sporadic basis and should not be deemed to constitute an established public trading market. Broker-dealers often decline to trade in over-the-counter stocks that are quoted on the Pink Open Market given the market for such securities are often limited, the stocks are more volatile, and the risk to investors is greater. These factors may reduce the potential market for our common shares by reducing the number of potential investors. This may make it more difficult for investors in our common shares to sell shares to third parties or to otherwise dispose of their shares. This could cause our share price to decline, and there is no assurance that there will be liquidity in our common shares.

 

In addition, The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to a few exceptions which we do not meet. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.

 

The share consolidation, was effective as of May 29, 2019; however, the expected increase in the price of our common shares from the share consolidation may not be maintained, and there can be no assurance that the market price of our common shares following the share consolidation will remain above the minimum bid price requirement to restore or maintain eligibility for quotation of our common shares on OTCQB Venture Market. We have not made an application to OTCQB as of the date of this report

 

  B. Plan of Distribution

 

Not applicable

 

  C. Markets

 

Our common shares are quoted on the Pink Open Market under the symbol “EHVVF”.

 

  D. Selling Shareholders

 

Not applicable

 

  E. Dilution

 

Not applicable

 

  F. Expenses of the Issue

 

Not applicable

 

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ITEM 10. ADDITIONAL INFORMATION

 

  A. Share Capital

 

Not applicable

 

  B. Memorandum and Articles of Association

 

Articles of Continuance

 

We are governed by our amended articles of incorporation (the “Articles”) under the Business Corporations Act of Ontario (the “Act”) and by our by-laws (the “By-laws”). Our Articles provide that there are no restrictions on the business we may carry on or on the powers we may exercise. Companies incorporated under the Act are not required to include specific objects or purposes in their articles or by-laws.

 

Directors

 

Subject to certain exceptions, including in respect of voting on any resolution to approve a contract that relates primarily to the director’s remuneration, directors may not vote on resolutions to approve a material contract or material transaction if the director is a party to such contract or transaction. The directors are entitled to remuneration as shall from time to time be determined by the Board of Directors with no requirement for a quorum of independent directors. The directors have the ability under the Act to exercise our borrowing power, without authorization of the shareholders. The Act permits shareholders to restrict this authority through a company’s articles or by-laws (or through a unanimous shareholder agreement), but no such restrictions are in place for us. Our Articles and By-laws do not require directors to hold shares for qualification.

 

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Rights, Preferences and Dividends Attaching to Shares

 

The holders of common shares have the right to receive dividends if and when declared. Each holder of common shares, as of the record date prior to a meeting, is entitled to attend and to cast one vote for each common share held as of such record date at such annual and/or special meeting, including with respect to the election or re-election of directors. Subject to the provisions of our By-laws, all directors may, if still qualified to serve as directors, stand for re-election. The numbers of our Board of Directors are not replaced at staggered intervals but are elected annually.

 

On a distribution of assets on a winding-up, dissolution or other return of capital (subject to certain exceptions) the holders of common shares shall have a right to receive their pro rata share of such distribution. There are no sinking fund or redemption provisions in respect of the common shares. Our shareholders have no liability to further capital calls as all shares issued and outstanding are fully paid and non-assessable.

 

No other classes of shares are currently permitted to be issued.

 

Action Necessary to Change the Rights of Shareholders

 

The rights attaching to the different classes of shares may be varied by special resolution passed at a meeting of that class’s shareholders.

 

Annual and Special Meetings of Shareholders

 

Under the Act and our By-laws, we are required to mail a Notice of Meeting and Management Information Circular to registered shareholders not less than 21 days and not more than 50 days prior to the date of the meeting. Such materials must be filed concurrently with the applicable securities regulatory authorities in Canada and the US. Subject to certain provisions of the By-laws, a quorum of two or more shareholders in person or represented by proxy holding or representing by proxy not less than five (5%) percent of the total number of issued and outstanding shares enjoying voting rights at such meeting is required to properly constitute a meeting of shareholders. Shareholders and their duly appointed proxies and corporate representatives are entitled to be admitted to our annual and/or special meetings.

 

Limitations on the Rights to Own Shares

 

The Articles do not contain any limitations on the rights to own shares. Except as described below, there are currently no limitations imposed by Canadian federal or provincial laws on the rights of non-resident or foreign owners of Canadian securities to hold or vote the securities held. There are also no such limitations imposed by the Articles and By-laws with respect to our common shares.

 

Disclosure of Share Ownership

 

In general, under applicable securities regulation in Canada, a person or company who beneficially owns, directly or indirectly, voting securities of an issuer or who exercises control or direction over voting securities of an issuer or a combination of both, carrying more than 10% of the voting rights attached to all the issuer’s outstanding voting securities is an insider and must, within 10 days of becoming an insider, file a report in the required form effective the date on which the person became an insider. The report must disclose any direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer. Additionally, securities regulation in Canada provides for the filing of a report by an insider of a reporting issuer whose holdings change, which report must be filed within 10 days from the day on which the change takes place.

 

The rules in the US governing the ownership threshold above which shareholder ownership must be disclosed are more stringent than those discussed above. Section 13 of the Exchange Act imposes reporting requirements on persons who acquire beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act) of more than 5% of a class of an equity security registered under Section 12 of the Exchange Act. In general, such persons must file, within 10 days after such acquisition, a report of beneficial ownership with the SEC containing the information prescribed by the regulations under Section 13 of the Exchange Act. This information is also required to be sent to the issuer of the securities and to each exchange where the securities are traded.

 

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Other Provisions of Articles and By-laws

 

There are no provisions in the Articles or By-laws:

 

  delaying or prohibiting a change in control of our company that operate only with respect to a merger, acquisition or corporate restructuring;
     
  discriminating against any existing or prospective holder of shares as a result of such shareholder owning a substantial number of shares;
     
  requiring disclosure of share ownership; or
     
  governing changes in capital, where such provisions are more stringent than those required by law.
     
  C. Material Contracts

 

We have employment contracts with our chief executive officer as summarized in Item 6B.

 

On March 22, 2019, we entered into an Asset Purchase Agreement with Zyus Life Sciences Inc., pursuant to which the Company sold to Zyus all of the Company’s intellectual property and license, marketing, and development agreements relating to its health informatics Ehave Connect platform. See “Item 4. Information on the Company—A. History and Development of the Company—Proposed Sale of Ehave Connect Asset”)

 

On February 27, 2019, we entered into an agreement to cancel 2,250,000 compensation warrants that had anti-rachet and anti-dilution provisions for 328,111 post-split (or 32,811,191 pre-split) common shares of the Company.

 

On February 27, 2019, the Company issued 317,095 shares of common stock in exchange for services fair valued at $158,547 to KW Capital Partners Ltd.

 

On February 27, 2019, the Company issued 475,642 shares of common stock in exchange for services fair valued at $237,821 to Bezalel Partners LLC.

 

On February 27, 2019, we entered an agreement with Mr. Dwivedi to amend his employment agreement to cancel his Adjustment Equity Award, cancel his outstanding options, and cancel his termination without cause provisions in exchange for 2,536,549 (253,654,987 pre-split) common shares of the company, which will constitute 10% of the issued and outstanding common shares in the capital of the Company as of the date of the agreement.

 

On February 27, 2019, we entered into an agreement with Mr. Goyette to amend his employment agreement to cancel his outstanding options, and cancel his notice period in exchange for 507,309 (50,730,997 pre-split) common shares of the company, which will constitute 2% of the issued and outstanding common shares in the capital of the Company as of the date of the agreement.

 

On October 30, 2018, we entered in the CHT Agreement for the use of Ehave Connect whereby CHT would acquire the exclusive rights to Ehave Connect for use in companion animals. On April 18, 2019, we and CHT agreed that upon closing of the Asset Sale, the CHT Agreement shall be terminated, and we, as consideration, within ten business days following the date of the closing of the Asset Sale, shall pay CHT, in cash, up to CAD$242,000, which includes up to $37,000 for legal fees that CHT incurred in connection with the CHT Agreement, provided that the agreement to terminate the CHT Agreement and our obligation to pay CHT shall no longer be effective if the closing of the Asset Sale does not occur on or prior to June 30, 2019 (See “Item 4. Information on the Company—A. History and Development of the Company—Proposed Sale of Ehave Connect Asset”).”

 

On September 27, 2018, we issued demand non-interest bearing senior secured promissory notes in the aggregate principal amount of $85,756 (CAD$111,110), including $11,110 of original issue discount. On February 27, 2019, promissory notes with an aggregate principal amount of $85,756 (CAD$111,110) were exchanged for unsecured debentures for a bridge loan. On February 28, 2019, we entered into an agreement to convert the note into 54,203,662 common shares of the Company.

 

On April 6, 2018, we signed an amendment to the lease of our office space in Oakville, Ontario, for a period of two years, commencing on May 1, 2018 and expiring on May 1, 2020. The total monthly payment under the sublease is $1,607, plus any applicable fees and taxes.

 

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On January 31, 2018, the Company entered into a secured convertible debenture agreement (the “Secured Debentures”) for total proceeds of $1,218,620 (CAD$1,500,000), issued in two installments. The Secured Debentures are secured against certain of our assets. Under the terms of the Secured Debentures, the principal amount and accrued interest is convertible into common shares of the Company at a conversion price equal to 75% the issue price of common shares under a qualified offering. The conversion of the Secured Debentures is at the option of the holder. At the time of conversion, the holder will also receive an equal amount of common share purchase warrants with an exercise price equal to the issue price. The Secured Debentures are due on July 31, 2018 and bear interest at 10% per annum. The initial installment of the Secured Debentures was issued on January 31, 2018 for proceeds of $609,310 (CAD$750,000). On March 19, 2018, the final instalment of $573,307 (CAD$750,000) was received. The Secured Debentures are secured against the general assets and intellectual property of the Company. On February 27, 2019, we entered into an agreement to convert the note into 12,682,749 (1,268,274,936 pre-split) common shares of the Company.

 

On January 31, 2018, promissory notes with an aggregate principal amount of $311,967 (CAD$384,000) outstanding at December 31, 2017 were exchanged for unsecured convertible debentures (the “Unsecured Debentures”). From January 1, 2018 to January 31, 2018, the Company issued an additional $20,098 (CAD$25,000) Unsecured Debentures for total proceeds of $332,065 (CAD$409,000). On March 19, 2018, an installment of the Unsecured Debentures in the amount of $382,263 (CAD$500,000) was received. Under the terms of the Unsecured Debentures, the principal amount and accrued interest is convertible into common shares of the Company at a conversion price equal to 75% the issue price of common shares under a qualified offering. The conversion of the Unsecured Debentures is at the option of the holder. At the time of conversion, the holder will also receive 120% of the amount of the common shares issued of common share purchase warrants with an exercise price equal to the issue price. The Unsecured Debentures are due on July 31, 2018 and bear interest at 10% per annum. On February 27, 2019, we entered into an agreement to convert the note into 2,768,098 (276,809,884 pre-split) common shares of the Company.

 

On November 15, 2017, we issued demand non-interest bearing senior secured promissory notes in the aggregate principal amount of $196,237. Lenders of the promissory notes were issued 21,333 (2,133,333 pre-split) common share warrants at an exercise price of $0.075 per share with an expiry date of November 16, 2022. On January 31, 2018 $148,745 of the promissory notes were repaid and $47,932 of the promissory notes were exchanged for Unsecured Debentures. On February 27, 2019, we entered into an agreement to cancel the warrants in exchange for 311,098 (31,109,865 pre-split) common shares of the Company.

 

On January 21, 2019, we issued a senior secured promissory note in the aggregate principal amount of $263,192 (CAD$350,000). The secured promissory note is secured against certain of our assets, including all development tax credits that the Company has applied for and receives. The loan is due on May 21, 2020 and bears and interest rate at 20.07% per annum.

 

On January 28, 2019, we issued demand non-interest bearing senior secured promissory notes in the aggregate principal amount of $85,756 (CAD$125,000), including $18,841(CAD$25,000) of original issue discount.

 

On February 27, 2019, the Company granted 475,642 shares of common stock to Scott Woodrow, a related party and former Director of the Company, in connection with the letter agreements. On September 24, 2018, the Company entered into a letter agreement (the “Letter Agreement”) in which the Company and Scott Woodrow agreed to convert the outstanding convertible debentures and cancel the outstanding warrants.

 

On February 27, 2019, the Company issued 317,095 shares of common stock in exchange for services fair valued at $158,547 to KW Capital Partners Ltd. .

 

On February 27, 2019, the Company issued 475,642 shares of common stock in exchange for services fair valued at $[ ]237,821 to Bezalel Partners LLC.

 

On February 27, 2019, we entered into agreements to cancel options, cancel option anti-dilution clauses, and cancel employee severance liabilities in exchange for 3,044,370 (304,437,002 pre-split) common shares of the company

 

On February 27, 2019, we entered into an agreement to cancel 2,250,000 compensation warrants that had anti-rachet and anti-dilution provisions for 328,111 (32,811,191 pre-split) common shares of the Company.

 

On March 26, 2019, we issued demand non-interest bearing senior secured promissory notes in the aggregate principal amount of $98,351 (CAD$131,683), including $23,663 (CAD$31,683) of original issue discount.

 

  D. Exchange Controls

 

Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of our securities, except as discussed below in Section E, Taxation.

 

Restrictions on Share Ownership by Non-Canadians

 

There are no limitations under the laws of Canada or in our organizational documents on the right of foreigners to hold or vote securities of our company, except that the Investment Canada Act (the “Investment Canada Act”) may require review and approval by the Minister of Industry (Canada) of certain acquisitions of “control” of our Company by a “non-Canadian.”

 

Investment Canada Act

 

Under the Investment Canada Act, transactions exceeding certain financial thresholds, and which involve the acquisition of control of a Canadian business by a non-Canadian, are subject to review and cannot be implemented unless the Minister of Industry and/or, in the case of a Canadian business engaged in cultural activities, the Minister of Canadian Heritage, are satisfied that the transaction is likely to be of “net benefit to Canada”. If a transaction is subject to review (a “Reviewable Transaction”), an application for review must be filed with the Investment Review Division of Industry Canada and/or the Department of Canadian Heritage prior to the implementation of the Reviewable Transaction. The responsible Minister is then required to determine whether the Reviewable Transaction is likely to be of net benefit to Canada taking into account, among other things, certain factors specified in the Investment Canada Act and any written undertakings that may have been given by the applicant. The Investment Canada Act contemplates an initial review period of up to 45 days after filing; however, if the responsible Minister has not completed the review by that date, the Minister may unilaterally extend the review period by up to 30 days (or such longer period as may be agreed to by the applicant and the Minister) to permit completion of the review. Direct acquisitions of control of most Canadian businesses by or from World Trade Organization (“WTO”) investors are reviewable under the Investment Canada Act only if, in the case of an acquisition of voting securities, the value of the worldwide assets of the Canadian business or, in the case of an acquisition of substantially all the assets of a Canadian business, the value of those assets exceed C$295 million for the year 2008 (this figure is adjusted annually to reflect inflation). Indirect acquisitions (e.g., an acquisition of a US corporation with a Canadian subsidiary) of control of such businesses by or from WTO investors are not subject to review, regardless of the value of the Canadian businesses’ assets. Significantly lower review thresholds apply where neither the investor nor the Canadian business is WTO investor controlled or where the Canadian business is engaged in uranium mining, certain cultural businesses, financial services or transportation services.

 

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Even if the transaction is not reviewable because it does not meet or exceed the applicable financial threshold, the non-Canadian investor must still give notice to Industry Canada and, in the case of a Canadian business engaged in cultural activities, Canadian Heritage, of its acquisition of control of a Canadian business within 30 days of its implementation.

 

Competition Act

 

The Competition Act (Canada) (the “Competition Act”) requires that a pre-merger notification filing be submitted to the Commissioner of Competition (the “Commissioner”) in respect of proposed transactions that exceed certain financial and other thresholds. If a proposed transaction is subject to pre-merger notification, a pre-merger notification filing must be submitted to the Commissioner and a waiting period must expire or be waived by the Commissioner before the transaction may be completed. The parties to a proposed transaction may choose to submit either a short-form filing (in respect of which there is a 14-day statutory waiting period) or a long-form filing (in respect of which there is a 42-day statutory waiting period). However, where the parties choose to submit a short-form filing, the Commissioner may, within 14 days, require that the parties submit a long-form filing, in which case the proposed transaction generally may not be completed until 42 days after the long-form filing is submitted by the parties.

 

The Commissioner may, upon request, issue an advance ruling certificate (“ARC”) in respect of a proposed transaction where she is satisfied that she would not have sufficient grounds on which to apply to the Competition Tribunal for an order under the merger provisions of the Competition Act. If the Commissioner issues an ARC in respect of a proposed transaction, the transaction is exempt from the pre-merger notification provisions. In addition, if the transaction to which the ARC relates is substantially completed within one year after the ARC is issued, the Commissioner cannot seek an order of the Competition Tribunal under the merger provisions of the Competition Act in respect of the transaction solely on the basis of information that is the same or substantially the same as the information on the basis of which the ARC was issued.

 

If the Commissioner is unwilling to issue an ARC, she may nevertheless issue a “no action” letter waiving notification and confirming that she is of the view that grounds do not then exist to initiate proceedings before the Competition Tribunal under the merger provisions of the Competition Act with respect to the proposed transaction, while preserving, during the three years following completion of the proposed transaction, her authority to initiate proceedings should circumstances change.

 

Regardless of whether pre-merger notification is required, the Commissioner may apply to the Competition Tribunal (a special purpose tribunal) for an order under the merger provisions of the Competition Act. If the Competition Tribunal finds that the transaction is or is likely to prevent or lessen competition substantially, it may order that the parties not proceed with the transaction or part of it or, in the event that the transaction has already been completed, order its dissolution or the disposition of some of the assets or shares involved. In addition, the Competition Tribunal may, with the consent of the person against whom the order is directed and the Commissioner, order that person to take any other action as is deemed necessary to remedy any substantial lessening or prevention of competition that the Competition Tribunal determines would or would likely result from the transaction.

 

  E. Taxation

 

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

 

The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership and disposition of common shares.

 

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This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of common shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including, without limitation, specific tax consequences to a U.S. Holder under an applicable income tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of common shares. In addition, except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each prospective U.S. Holder should consult its own tax advisors regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.

 

No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the conclusions described in this summary.

 

Scope of this Summary

 

Authorities

 

This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable, and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied retroactively. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation.

 

U.S. Holders

 

For purposes of this summary, the term “U.S. Holder” means a beneficial owner of common shares that is for U.S. federal income tax purposes:

 

  an individual who is a citizen or resident of the United States;
     
  a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia;
     
  an estate whose income is subject to U.S. federal income taxation regardless of its source; or
     
  a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

 

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U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed

 

This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) have a “functional currency” other than the U.S. dollar; (e) own common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) acquire common shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); or (h) own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of the outstanding shares of the Company. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Income Tax Act (Canada) (the “Tax Act”); (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold common shares in connection with carrying on a business in Canada; (d) persons whose common shares constitute “taxable Canadian property” under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisors regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.

 

If an entity or arrangement that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds common shares, the U.S. federal income tax consequences to such entity or arrangement and the partners (or other owners or participants) of such entity or arrangement generally will depend on the activities of the entity or arrangement and the status of such partners (or owners or participants). This summary does not address the tax consequences to any such partner (or owner or participants). Partners (or other owners or participants) of entities or arrangements that are classified as partnerships or as “pass-through” entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership and disposition of common shares.

 

Passive Foreign Investment Company Rules

 

PFIC Status of the Company

 

If the Company were to constitute a “passive foreign investment company” under the meaning of Section 1297 of the Code (a “PFIC”, as defined below) for any year during a U.S. Holder’s holding period, then certain potentially adverse rules may affect the U.S. federal income tax consequences to a U.S. Holder as a result of the acquisition, ownership and disposition of common shares. The Company may be a PFIC for its current tax year and subsequent tax years. The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any determination made by the Company (or any subsidiary of the Company) concerning its PFIC status. Each U.S. Holder should consult its own tax advisors regarding the PFIC status of the Company and each subsidiary of the Company.

 

In any year in which the Company is classified as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. In addition to penalties, a failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621.

 

The Company generally will be a PFIC if, for a tax year, (a) 75% or more of the gross income of the Company is passive income (the “PFIC income test”) or (b) 50% or more of the value of the Company’s assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the “PFIC asset test”). “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.

 

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For purposes of the PFIC income test and PFIC asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and PFIC asset test described above, and assuming certain other requirements are met, “passive income” does not include certain interest, dividends, rents, or royalties that are received or accrued by the Company from certain “related persons” (as defined in Section 954(d)(3) of the Code) also organized in Canada, to the extent such items are properly allocable to the income of such related person that is not passive income.

 

Under certain attribution rules, if the Company is a PFIC, U.S. Holders will generally be deemed to own their proportionate share of the Company’s direct or indirect equity interest in any company that is also a PFIC (a ‘‘Subsidiary PFIC’’), and will generally be subject to U.S. federal income tax on their proportionate share of (a) any “excess distributions,” as described below, on the stock of a Subsidiary PFIC and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC by the Company or another Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC. In addition, U.S. Holders may be subject to U.S. federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the sale or disposition of common shares. Accordingly, U.S. Holders should be aware that they could be subject to tax under the PFIC rules even if no distributions are received and no redemptions or other dispositions of common shares are made.

 

Default PFIC Rules Under Section 1291 of the Code

 

If the Company is a PFIC for any tax year during which a U.S. Holder owns common shares, the U.S. federal income tax consequences to such U.S. Holder of the acquisition, ownership, and disposition of common shares will depend on whether and when such U.S. Holder makes an election to treat the Company and each Subsidiary PFIC, if any, as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”) or makes a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”). A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”

 

A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code (described below) with respect to (a) any gain recognized on the sale or other taxable disposition of common shares and (b) any “excess distribution” received on the common shares. A distribution generally will be an “excess distribution” to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S. Holder’s holding period for the common shares, if shorter).

 

Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of common shares (including an indirect disposition of the stock of any Subsidiary PFIC), and any “excess distribution” received on common shares or with respect to the stock of a Subsidiary PFIC, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the respective common shares. The amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income (and not eligible for certain preferred rates). The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as “personal interest,” which is not deductible.

 

If the Company is a PFIC for any tax year during which a Non-Electing U.S. Holder holds common shares, the Company will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether the Company ceases to be a PFIC in one or more subsequent tax years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above), but not loss, as if such common shares were sold on the last day of the last tax year for which the Company was a PFIC.

 

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QEF Election

 

A U.S. Holder that makes a timely and effective QEF Election for the first tax year in which the holding period of its common shares begins generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to its common shares. A U.S. Holder that makes a timely and effective QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the net capital gain of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of the Company, which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excess of (a) “earnings and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company. However, for any tax year in which the Company is a PFIC and has no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.

 

A U.S. Holder that makes a timely and effective QEF Election with respect to the Company generally (a) may receive a tax-free distribution from the Company to the extent that such distribution represents “earnings and profits” of the Company that were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the common shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of common shares. The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as “timely” if such QEF Election is made for the first year in the U.S. Holder’s holding period for the common shares in which the Company was a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year. If a U.S. Holder does not make a timely and effective QEF Election for the first year in the U.S. Holder’s holding period for the common shares, the U.S. Holder may still be able to make a timely and effective QEF Election in a subsequent year if such U.S. Holder meets certain requirements and makes a “purging” election to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such common shares were sold for their fair market value on the day the QEF Election is effective. If a U.S. Holder makes a QEF Election but does not make a “purging” election to recognize gain as discussed in the preceding sentence, then such U.S. Holder shall be subject to the QEF Election rules and shall continue to be subject to tax under the rules of Section 1291 discussed above with respect to its common shares. If a U.S. Holder owns PFIC stock indirectly through another PFIC, separate QEF Elections must be made for the PFIC in which the U.S. Holder is a direct shareholder and the Subsidiary PFIC for the QEF rules to apply to both PFICs.

 

A QEF Election will apply to the tax year for which such QEF Election is timely made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, the Company ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which the Company is not a PFIC. Accordingly, if the Company becomes a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which the Company qualifies as a PFIC.

 

U.S. Holders should be aware that there can be no assurances that the Company will satisfy the record keeping requirements that apply to a QEF, or that the Company will supply U.S. Holders with information that such U.S. Holders are required to report under the QEF rules, in the event that the Company is a PFIC. Thus, U.S. Holders may not be able to make a QEF Election with respect to their common shares. Each U.S. Holder should consult its own tax advisors regarding the availability of, and procedure for making, a QEF Election.

 

A U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed United States federal income tax return. However, if the Company does not provide the required information with regard to the Company or any of its Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such entity and will continue to be subject to the rules of Section 1291 of the Code discussed above that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess distributions.

 

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Mark-to-Market Election

 

A U.S. Holder may make a Mark-to-Market Election only if the common shares are marketable stock. The common shares generally will be “marketable stock” if the common shares are regularly traded on (a) a national securities exchange that is registered with the Securities and Exchange Commission, (b) the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and surveillance requirements, and meets other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange effectively promote active trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such stock generally will be “regularly traded” for any calendar year during which such stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Provided that the common shares are “regularly traded” as described in the preceding sentence, the common shares are expected to be marketable stock. However, each U.S. Holder should consult its own tax advisor in this regard.

 

A U.S. Holder that makes a Mark-to-Market Election with respect to its common shares generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to such common shares. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax year of such U.S. Holder’s holding period for the common shares for which the Company is a PFIC and such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, the common shares.

 

A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which the Company is a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the common shares, as of the close of such tax year over (b) such U.S. Holder’s adjusted tax basis in such common shares. A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (a) such U.S. Holder’s adjusted tax basis in the common shares, over (b) the fair market value of such common shares (but only to the extent of the net amount of previously included income as a result of the Mark-to-Market Election for prior tax years).

 

A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder’s tax basis in the common shares to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition of common shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax years). Losses that exceed this limitation are subject to the rules generally applicable to losses provided in the Code and Treasury Regulations.

 

A U.S. Holder makes a Mark-to-Market Election by attaching a completed IRS Form 8621 to a timely filed United States federal income tax return. A Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless the common shares cease to be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisors regarding the availability of, and procedure for making, a Mark-to-Market Election.

 

Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to the common shares, no such election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning, because such stock is not marketable. Hence, the Mark-to-Market Election will not be effective to avoid the application of the default rules of Section 1291 of the Code described above with respect to deemed dispositions of Subsidiary PFIC stock or excess distributions from a Subsidiary PFIC to its shareholder.

 

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Other PFIC Rules

 

Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of common shares that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which common shares are transferred.

 

Certain additional adverse rules may apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example, under Section 1298(b)(6) of the Code, a U.S. Holder that uses common shares as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such common shares.

 

Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with its own tax advisors regarding the availability of the foreign tax credit with respect to distributions by a PFIC.

 

The PFIC rules are complex, and each U.S. Holder should consult its own tax advisors regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares.

 

General Rules Applicable to the Ownership and Disposition of Common Shares

 

The following discussion describes the general rules applicable to the ownership and disposition of the common shares but is subject in its entirety to the special rules described above under the heading “Passive Foreign Investment Company Rules.”

 

Distributions on Common Shares

 

A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a Common Share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current and accumulated “earnings and profits” of the Company, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the Company is a PFIC for the tax year of such distribution or the preceding tax year. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in the common shares and thereafter as gain from the sale or exchange of such common shares. (See “Sale or Other Taxable Disposition of Common Shares” below). However, the Company may not maintain the calculations of its earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may have to assume that any distribution by the Company with respect to the common shares will constitute ordinary dividend income. Dividends received on common shares by corporate U.S. Holders generally will not be eligible for the “dividends received deduction.” Subject to applicable limitations and provided the Company is eligible for the benefits of the Canada-U.S. Tax Convention, dividends paid by the Company to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that the Company not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisors regarding the application of such rules.

 

Sale or Other Taxable Disposition of Common Shares

 

Upon the sale or other taxable disposition of common shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the U.S. dollar value of cash received plus the fair market value of any property received and such U.S. Holder’s tax basis in such common shares sold or otherwise disposed of. A U.S. Holder’s tax basis in common shares generally will be such holder’s U.S. dollar cost for such common shares. Gain or loss recognized on such sale or other disposition generally will be long-term capital gain or loss if, at the time of the sale or other disposition, the common shares have been held for more than one year.

 

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Preferential tax rates currently apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.

 

Additional Considerations

 

Additional Tax on Passive Income

 

Certain U.S. Holders that are individuals, estates or trusts (other than trusts that are exempt from tax) will be subject to a 3.8% tax on all or a portion of their “net investment income,” which includes dividends on the common shares and net gains from the disposition of the common shares. Further, excess distributions treated as dividends, gains treated as excess distributions under the PFIC rules discussed above, and mark-to-market inclusions and deductions are all included in the calculation of net investment income.

 

Treasury Regulations provide, subject to the election described in the following paragraph, that solely for purposes of this additional tax, that distributions of previously taxed income will be treated as dividends and included in net investment income subject to the additional 3.8% tax. Additionally, to determine the amount of any capital gain from the sale or other taxable disposition of common shares that will be subject to the additional tax on net investment income, a U.S. Holder who has made a QEF Election will be required to recalculate its basis in the common shares excluding QEF basis adjustments.

 

Alternatively, a U.S. Holder may make an election which will be effective with respect to all interests in controlled foreign corporations and QEFs held in that year or acquired in future years. Under this election, a U.S. Holder pays the additional 3.8% tax on QEF income inclusions and on gains calculated after giving effect to related tax basis adjustments. U.S. Holders that are individuals, estates or trusts should consult their own tax advisors regarding the applicability of this tax to any of their income or gains in respect of the common shares.

 

Receipt of Foreign Currency

 

The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of common shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method. Each U.S. Holder should consult its own U.S. tax advisors regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.

 

Foreign Tax Credit

 

Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the common shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income that is subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.

 

Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a foreign corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. However, the amount of a distribution with respect to the common shares that is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own U.S. tax advisors regarding the foreign tax credit rules.

 

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Backup Withholding and Information Reporting

 

Under U.S. federal income tax law, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain thresholds. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their common shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.

 

Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, common shares will generally be subject to information reporting and backup withholding tax, at the rate of 24%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.

 

The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules.

 

THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN THEIR OWN PARTICULAR CIRCUMSTANCES.

 

  F. Dividends and Paying Agents

 

Not applicable

 

  G. Statements by Experts

 

Not applicable

 

  H. Documents on Display

 

We are subject to the informational requirements of the Exchange Act and file reports and other information with the SEC. The SEC maintains a Website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. We also make available free of charge on our website at www.ehave.com, as soon as reasonably practicable after such reports are available on the SEC website.

 

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We “incorporate by reference” information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this Form 20-F and more recent information automatically updates and supersedes more dated information contained or incorporated by reference in this Form 20-F.

 

As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements to shareholders.

 

We will provide without charge to each person, including any beneficial owner, to whom a copy of this annual report has been delivered, on the written or oral request of such person, a copy of any or all documents referred to above which have been or may be incorporated by reference in this annual report (not including exhibits to such incorporated information that are not specifically incorporated by reference into such information). Requests for such copies should be directed to us at the following address Prateek Dwivedi, Chief Executive Officer, 277 Lakeshore Road East, Suite 203, Oakville, Ontario, Canada L6J 6J3, +1(905)362-1499, info@ehave.com

 

  I. Subsidiary Information

 

Mycotopia Therapies, Inc. , a subsidiary of the Company, was formed in the State of Florida on December 23, 2019

 

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Foreign Currency Risk

 

We operate primarily in Canada and the United States. Therefore, we are exposed to foreign currency risk associated with our expenses outside of Canada. We do not use financial derivative instruments to manage this market risk.

 

Interest Rate Risk

 

None of the Company’s long-term debt contain interest rate provisions that may be subject to fluctuations in market interest rates. As such, the Company does not have significant interest rate risk or has entered into any financial instruments to mitigate such risk.

 

We do not use financial instruments for trading purposes and are not parties to any leverage derivatives. We do not currently engage in hedging transactions. See “Currency and Exchange Rates” and Item 4 – “Information on the Company”.

 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

 

Not applicable.

PART II

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

 

None

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.

 

  A. Modification of Instruments Defining Rights of Security Holders

 

None

 

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  B. Modification or Issuance of Other Class of Securities

 

None

 

  C. Withdrawal or Substitution of Security

 

None

 

  D. Change of Trustee or Paying Agent

 

None

 

  E. Use of Proceeds

 

None.

 

ITEM 15. CONTROLS AND PROCEDURES

 

  A. Evaluation of Disclosures and Procedures

 

During the review by our Chief Executive Officer and Chief Financial Officer of our Company’s disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and 15d-15(e)), and based on the evaluation of these controls and procedures as of the end of the period covered by this annual report, it was determined that a material weakness was identified in our controls for ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. New procedures are being implemented to eliminate this weakness. The information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

  B. Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As required by Rule 13a-15(c) of the Exchange Act, our management conducted an evaluation of our company’s internal control over financial reporting as of December 31, 2018, based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal controls over financial reporting were not effective due to the existence of a material weakness as it relates to a lack of sufficient segregation of duties with qualified accounting personnel to ensure financial statements are prepared timely and in accordance with applicable professional standards. as of December 31, 2018. Management has since addressed this weakness and has implemented the necessary changes to have effective controls by engaging an independent outside accounting consulting firm to assist with the preparation of its financial statements and regulatory filings.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

  C. Attestation Report of the Registered Public Accounting Firms

 

Not applicable.

 

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  D. Changes in Internal Controls over Financial Reporting

 

Other than changes being implemented to address the material weakness discussed above, there were no changes in our internal controls over financial reporting that occurred during the period that is covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

ITEM 16. [RESERVED]

 

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

 

Our Audit Committee is comprised of Mr. Posen and Mr. Kaplan Our Board has determined that Mr. Posen is an audit committee financial expert. Mr. Posen is independent either under the Rule 5605(d)(2) of the NASDAQ Capital Market and Rule 10A-3 of the Exchange Act.

 

ITEM 16B. CODE OF ETHICS

 

Our board of directors has adopted a Code of Conduct for all Company personnel, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this Code of Conduct may be found on our website at http://www.ehve.com.

 

There were no amendments to our Code of Conduct during the fiscal year ended December 31, 2018. We did not grant any waivers to the provisions of our Code of Conduct during the fiscal year ended December 31, 2018.

 

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Audit Fees and Services

 

During the financial years ended December 31, 2019, and 2018, Turner Stone and Company, L.L.P. received the following fees:

 

    2019     2018  
Item   $     $  
Audit fees     42,500       47,500  
Audit-related fees            
Tax fees            
All other fees            
Total     42,500       47,500  

 

Audit Fees

 

Audit fees were for professional services rendered by Turner Stone and Company for the audit of our annual financial statements and services provided in connection with statutory and regulatory filings or engagements, accounting consultations and subscription to on-line accounting services.

 

Audit-related Fees

 

Audit-related fees are the aggregate fees billed for assurance and related services by Turner Stone and Company that are reasonably related to the performance of the audit or review of our financial statements and are not reported under Audit Fees.

 

Tax Fees

 

Tax fees are the aggregate fees billed for professional services rendered for tax compliance, tax advice, and tax planning.

 

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All Other Fees

 

Other fees are for products and services other than those described under the headings Audit Fees, Audit-Related Fees and Tax Fees above.

 

The Audit Committee pre-approves all audit services to be provided to us by our independent auditors. The Audit Committee’s policy regarding the pre-approval of non-audit services to be provided to us by our independent auditors is that all such services shall be pre-approved by the Audit Committee or by the Chair of the Audit Committee, who must report all such pre-approvals to the Audit Committee at their next meeting following the granting thereof. Non-audit services that are prohibited to be provided to us by our independent auditors may not be pre-approved. In addition, prior to the granting of any pre-approval, the Audit Committee or the Chair, as the case may be, must be satisfied that the performance of the services in question will not compromise the independence of the independent auditors.

 

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

Not applicable.

 

ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES

 

None.

 

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTS

 

None.

 

ITEM 16G. CORPORATE GOVERNANCE

 

Not applicable.

 

ITEM 16H. MINE SAFETY DISCLOSURE

 

Not applicable.

 

PART III

 

ITEM 17. FINANCIAL STATEMENTS.

 

Not applicable.

 

ITEM 18 FINANCIAL STATEMENTS

 

The financial statements appear on pages F-1 through F-17.

 

ITEM 19. EXHIBITS.

 

The following exhibits are filed as part of this annual report:

 

Exhibit
Number
  Description
     
1.1   Articles of Incorporation (1)
1.2   Articles of Amendment to the Articles of Incorporation dated November 30, 2011 (2)
1.3   Articles of Amendment to the Articles of Incorporation dated May 13, 2015 (3)
1.4   Articles of Amendment to the Articles of Incorporation dated June 26, 2015 (4)
1.5   Articles of Amendment to the Articles of Incorporation dated November 4, 2015 (5)
1.6  

Articles of Amendment to the Articles of Incorporation dated May 28, 2019 (5A)

1.7   Bylaws No. 2 (6)
4.1   Form of Convertible Loan Agreement (7)

 

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4.2   Securities Purchase Agreement, dated July 7, 2015, between the Company and the purchasers identified therein (8)
4.3   Form of Secured Convertible Note, dated July 7, 2015 (9)
4.4   Form of Common Stock Purchase Warrant, dated July 7, 2015 (10)
4.5   Form of Lock Up Agreement (11)
4.6   License Agreement, dated April 24, 2015, between the Company and The Governing Counsel of the University of Toronto (12)
4.7   Form of Subscription Agreement (13)
4.8   Office Suite License and Services Agreement, effective November 1, 2015, between iQ Univeristy LP and the Company (14)
4.9   Form of Warrant sold in the registered public offering (15)
4.10   Services Agreement, dated February 1, 2016 with Artimetrix Software Inc. (16)
4.11   Consulting Agreement, dated August 3, 2015 with 8121346 Canada Inc. (17)
4.12   Amendment to Consulting Agreement, dated February 1, 2016 with 8121346 Canada Inc. (18)
4.13   Master Services Agreement, dated December 8, 2015 with Blog Inc LLC (dba Cress & Company) (19)
4.14   Executive Employment Agreement, dated July 25, 2016, between the Company and its President and CEO, Prateek Dwivedi (20)
4.15   Executive Employment Agreement, dated December 1, 2016, between the Company and its Chief Technology Officer, David Goyette (21)
4.16   Offer to Sublease, dated January 30, 2017, between the Company and Home Trust Company (22)
4.17   API Integration & Distribution Agreement dated December 13, 2016 between the Company and MHS (23)
4.18   Letter of Agreement, dated November 1, 2017, between the Company and Tiberend Strategic Advisors, Inc. (24)
4.19   Stock Option Plan, approved on January 12, 2017, at the Annual and Special Meeting of Shareholders (25)
4.20   Note and Warrant Purchase Agreement, dated as of November 14, 2016 (26)
4.21   Form of Convertible Promissory Note (27)
4.22   Strategic Relationship Agreement, dated as of February 3, 2017, between the Company and MedReleaf Corp. (28)
4.23   Amendment to API Integration & Distribution Agreement, dated as of May 4, 2017, between the Company and MHS (29)
4.24   Form of Promissory Note (30)
4.25   Form of Investor Letter (31)
4.26   Form of Promissory Note with Warrants (32)
4.27   Form of Secured Subscription Agreement for Units (33)
4.28   Form of Compensation Option to Purchase Common Shares (34)
4.29   Form of Senior Secured Convertible Debenture (35)
4.30   Form of Warrant to Purchase Common Shares (36)
4.31   Form of Unsecured Subscription Agreement for Units (Premium) (37)
4.32   Form of Unsecured Subscription Agreement for Units (Regular) (38)
4.33   Form of Unsecured Convertible Debenture (39)
4.34   Agreement, dated March 1, 2018, between the Company and Revive Therapeutics Ltd. (40)
4.35   Agreement, dated March 5, 2018, between the Company and Aequus Pharmaceuticals Inc. (41)
4.36   Services Agreement, dated January 15, 2017, between the Company and NView Management Inc. (42)
4.37   Services Agreement, dated April 23, 2018, between the Company and Dianne Parsons, C.P.A. (43)
4.38   Lease, dated April 6, 2018, between the Company and Lisgar Development Limited (44)
4.39   Form of Note Conversion Agreement (Premium, 2018 Notes)(45)
4.40   Form of Note Conversion Agreement (Regular, 2016 Notes)(46)
4.41   Form of Note Conversion Agreement (Regular, 2018 Notes)(47)
4.42   Form of Promissory Note dated September 27, 2018 (48)
4.43   Form of Promissory Note dated September 27, 2018 (49)
4.44   Agreement, dated October 30, 2018, between the Company and Companion Healthcare Technologies. (50)
4.45   Form of Promissory Note dated November 29, 2018 (51)
4.46   Form of Promissory Note dated October 31, 2018 (52)
4.47   Loan Agreement dated January 1, 2019 (53)

  

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4.48   Form of Promissory Note dated January 28, 2019 (54)
4.49   Form of Promissory Note dated January 28, 2019 (55)
4.50   Form of Warrant Cancellation (56)
4.51   Memorandum of Understanding, dated February 27, 2019, between the Company and David Goyette, Chief Technology Officer (57)
4.52   Memorandum of Understanding, dated February 27, 2019, between the Company and Prateek Dwivedi, Chief Executive Officer (58)
4.53   Form of Bridge Loan Agreement (59)
4.54   Form of Bridge Loan Note (60)
4.55   Agreement, dated February 27, 2019, between the Company and Bezalel Partners LLC (61)
4.56   Agreement, dated February 27, 2019, between the Company and KW Capital Partners Ltd (62)
4.57   Agreement, dated February 27, 2019, between the Company and Scott Woodrow (63)
4.58   Form of Note Conversion - Bridge Loan Note (64)
4.59   Form of Promissory Note dated March 26, 2019 (65)
4.60   Asset Purchase Agreement, dated March 22, 2019, between Ehave, Inc. and ZYUS Life Sciences Inc. (66)
4.61   Form of Security Agreement, to be entered into between Ehave, Inc. and ZYUS Life Sciences Inc. (67)
4.62   Form of Non-Competition Agreement, to be entered into between Ehave, Inc. and ZYUS Life Sciences Inc. (68)
4.63   Minutes of Settlement, dated April 18, 2019, between Ehave, Inc. and Companion Healthcare Technologies (69)
4.64   Executive Consulting Agreement dated June 24, 2019 between the Company and Ben Kaplan (70)
12.1*   Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*   Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1*   Certificate of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2*   Certificate of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  

*Filed herewith

+ To be filed by amendment

 

(1) Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form F-1/A filed with the SEC on November 16, 2015.
(2) Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form F-1/A filed with the SEC on November 16, 2015.
(3) Incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form F-1/A filed with the SEC on November 16, 2015.
(4) Incorporated by reference to Exhibit 3.4 to the Company’s Registration Statement on Form F-1/A filed with the SEC on November 16, 2015.
(5) Incorporated by reference to Exhibit 3.6 to the Company’s Registration Statement on Form F-1/A filed with the SEC on November 16, 2015.
(5A)

Incorporated by reference to Exhibit 3.1 to the Company’s Report on Form 6-k filed with the SEC on May 24, 2019

(6) Incorporated by reference to Exhibit 3.5 to the Form 6-K filed with the SEC on January 12, 2017.
(7) Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form F-1 filed with the SEC on September 24, 2015.
(8) Incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form F-1 filed with the SEC on September 24, 2015.
(9) Incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form F-1 filed with the SEC on September 24, 2015.
(10) Incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form F-1 filed with the SEC on September 24, 2015.
(11) Incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form F-1 filed with the SEC on September 24, 2015.
(12) Incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form F-1/A filed with the SEC on November 16, 2015.
(13) Incorporated by reference to Exhibit 10.19 to the Company’s Registration Statement on Form F-1/A filed with the SEC on December 18, 2015.

 

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(14) Incorporated by reference to Exhibit 10.21 to the Company’s Registration Statement on Form F-1/A filed with the SEC on November 16, 2015.
(15) Incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form F-1/A filed with the SEC on December 18, 2015.
(16) Incorporated by reference to Exhibit 10.24 to the Company’s Registration Statement on Form F-1/A filed with the SEC on March 11, 2016.
(17) Incorporated by reference to Exhibit 10.25 to the Company’s Registration Statement on Form F-1/A filed with the SEC on March 11, 2016.
(18) Incorporated by reference to Exhibit 10.26 to the Company’s Registration Statement on Form F-1/A filed with the SEC on March 11, 2016.
(19) Incorporated by reference to Exhibit 10.27 to the Company’s Registration Statement on Form F-1/A filed with the SEC on March 11, 2016.
(20) Incorporated by reference to Exhibit 4.14 to the Company’s Annual Report on Form 20-F filed with the SEC on May 16, 2017.
(21) Incorporated by reference to Exhibit 4.15 to the Company’s Annual Report on Form 20-F filed with the SEC on May 16, 2017.
(22) Incorporated by reference to Exhibit 4.16 to the Company’s Annual Report on Form 20-F filed with the SEC on May 16, 2017.
(23) Incorporated by reference to Exhibit 4.17 to the Company’s Annual Report on Form 20-F filed with the SEC on May 16, 2017.
(24) Incorporated by reference to Exhibit 4.18 to the Company’s Annual Report on Form 20-F filed with the SEC on May 16, 2017.
(25) Incorporated by reference to Exhibit 4.19 to the Company’s Annual Report on Form 20-F filed with the SEC on May 16, 2017.
(26) Incorporated by reference to Exhibit 99.1 to the Form 6-K filed with the SEC on November 23, 2016.
(27) Incorporated by reference to Exhibit 99.2 to the Form 6-K filed with the SEC on November 23, 2016.
(28) Incorporated by reference to Exhibit 4.22 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(29) Incorporated by reference to Exhibit 4.23 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(30) Incorporated by reference to Exhibit 4.24 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(31) Incorporated by reference to Exhibit 4.25 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(32) Incorporated by reference to Exhibit 4.26 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(33) Incorporated by reference to Exhibit 4.27 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(34) Incorporated by reference to Exhibit 4.28 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(35) Incorporated by reference to Exhibit 4.29 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(36) Incorporated by reference to Exhibit 4.30 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(37) Incorporated by reference to Exhibit 4.31 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(38) Incorporated by reference to Exhibit 4.32 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(39) Incorporated by reference to Exhibit 4.33 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(40) Incorporated by reference to Exhibit 4.34 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(41) Incorporated by reference to Exhibit 4.35 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(42) Incorporated by reference to Exhibit 4.36 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(43) Incorporated by reference to Exhibit 4.37 to the Company’s Annual Report on Form 20-F filed with the SEC on August 16, 2018.
(44) Incorporated by reference to Exhibit 4.38 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.

 

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(45) Incorporated by reference to Exhibit 4.39 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(46) Incorporated by reference to Exhibit 4.40 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(47) Incorporated by reference to Exhibit 4.41 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(48) Incorporated by reference to Exhibit 4.42 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(49) Incorporated by reference to Exhibit 4.43 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(50) Incorporated by reference to Exhibit 4.44 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(51) Incorporated by reference to Exhibit 4.45 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(52) Incorporated by reference to Exhibit 4.46 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(53) Incorporated by reference to Exhibit 4.47 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(54) Incorporated by reference to Exhibit 4.48 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(55) Incorporated by reference to Exhibit 4.49 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(56) Incorporated by reference to Exhibit 4.50 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(57) Incorporated by reference to Exhibit 4.51 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(58) Incorporated by reference to Exhibit 4.52 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(59) Incorporated by reference to Exhibit 4.53 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(60) Incorporated by reference to Exhibit 4.54 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(61) Incorporated by reference to Exhibit 4.55 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(62) Incorporated by reference to Exhibit 4.56 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(63) Incorporated by reference to Exhibit 4.57 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(64) Incorporated by reference to Exhibit 4.58 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(65) Incorporated by reference to Exhibit 4.59 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(66) Incorporated by reference to Exhibit 4.60 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(67) Incorporated by reference to Exhibit 4.61 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(68) Incorporated by reference to Exhibit 4.62 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(69) Incorporated by reference to Exhibit 4.63 to the Company’s Annual Report on Form 20-F filed with the SEC on June 14, 2019.
(70) Incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 6-K filed with the SEC on July 22, 2019

 

  73  

 

 

SIGNATURE

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

Date: June 12, 2020

 

EHAVE, INC.

 

/s/ Ben Kaplan  
Ben Kaplan  
Chief Executive Officer and Principal Accounting Officer  

 

  74  

 

 

INDEX TO

 

CONSOLIDATED FINANCIAL STATEMENTS

 

Contents

 

    Page
     
Reports of Independent Registered Public Accounting Firm   F-2
     
Consolidated Financial Statements:    
     
Consolidated Balance Sheets as of December 31, 2019 and 2018   F-3
     
Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the years ended December 31, 2019 and 2018   F-4
     
Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2019 and 2018   F-5
     
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018   F-6
     
Notes to consolidated financial statements   F-7

 

  F- 1  
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of EHAVE, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of EHAVE, Inc. (the “Company”) as of December 31, 2019 and 2018 and the related consolidated statements of operations and other comprehensive income (loss), changes in stockholders’ deficit and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph – Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered continuing losses and negative cash flows from operations, has negative working capital and accumulated deficit and negative stockholders’ equity, all of which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Dallas, Texas

June 12, 2020

 

We have served as the Company’s auditor since 2015.

 

  F- 2  
 

 

EHAVE, INC.

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. Dollars)

 

    December 31,  
    2019     2018  
             
ASSETS                
                 
CURRENT ASSETS:                
Cash   $ 17,530     $ 11,222  
Prepaid expenses     7,804       -  
Refundable taxes     30,831       9,754  
Total current assets     56,165       20,976  
                 
Other receivables     440,572       439,258  
                 
TOTAL ASSETS   $ 496,737     $ 460,234  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
CURRENT LIABILITIES:                
Accounts payable   $ 521,432     $ 438,358  
Taxes payables     6,541       299,241  
Other payables     311,927       182,365  
Promissory notes     270,018       137,143  
Current portion of convertible notes     142,352       2,672,768  
Derivative liability     1,250,584       -  
Accrued interest on convertible notes     51,075       298,884  
Unearned revenue     -       -  
Total current liabilities     2,553,929       4,028,759  
                 
Development grant     173,583       164,908  
TOTAL LIABILITIES     2,727,512       4,193,667  
                 
COMMITMENTS AND CONTINGENCIES                
                 
STOCKHOLDERS’ DEFICIT:                
Common stock, no par value, unlimited shares authorized, 25,413,919 and 751,028 issued and outstanding as of December 31, 2019 and 2018, respectively     7,503,984       1,544,904  
Additional paid in capital     6,338,430       6,999,942  
Accumulated deficit     (16,214,826 )     (12,577,458 )
Accumulated other comprehensive income     141,637       299,179  
                 
TOTAL STOCKHOLDERS’ DEFICIT