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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

or

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission File Number 000-54748

 

ETHEMA HEALTH CORPORATION.

(Exact Name of Registrant as Specified in its Charter)

 

Colorado   84-1227328
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. employer
Identification No.)
     

1590 S. Congress Avenue

West Palm BeachFlorida

  33406
Address of Principal Executive Offices   Zip Code

 

(561290-0239

Registrant’s Telephone Number, Including Area Code

 

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

 

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 ☒ 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 ☒ No ☐

 

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

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒  Smaller reporting company 
  Emerging growth company   

 

If an emerging growth company, 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 whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common shares    GRST   OTC Pink

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Number of shares of common stock outstanding as of November 22, 2021 was 3,354,944,018.

 

 

 

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In particular, statements contained in this Quarterly Report on Form 10-Q, including but not limited to, statements regarding the sufficiency of our cash, our ability to finance our operations and business initiatives and obtain funding for such activities; our future results of operations and financial position, business strategy and plan prospects, or costs and objectives of management for future acquisitions, are forward looking statements. These forward-looking statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “seeks,” “goals,” “estimates,” “predicts,” “potential” and “continue” or similar words. Readers are cautioned that these forward-looking statements are based on our current beliefs, expectations and assumptions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, and those identified under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on April 15, 2021. Therefore, actual results may differ materially and adversely from those expressed, projected or implied in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

 

NOTE REGARDING COMPANY REFERENCES

 

Throughout this Quarterly Report on Form 10-Q, “Ethema,” the “Company,” “we,” “us” and “our” refer to Ethema Health Corporation.

 

 

 

FORM 10-Q

ETHEMA HEALTH CORPORATION

TABLE OF CONTENTS

 

    Page
  PART I - FINANCIAL INFORMATION  
Item l. Financial Statements 1
  Condensed Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020 1
  Unaudited Condensed Consolidated Statements of Operations and Comprehensive (loss) Income for the three and nine months ended September 30, 2021 and 2020 2
  Unaudited Condensed Consolidated Statements of Stockholder's Deficit for the three and nine months ended September 30, 2021 and 2020 3
  Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 4
  Notes to the Unaudited Condensed Consolidated Financial Statements 5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
Item 3. Quantitative and Qualitative Disclosures About Market Risk 37
Item 4. Controls and Procedures 37
     
  PART II - OTHER INFORMATION  
Item 1. Legal Proceedings 38
Item 1A. Risk Factors 38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 38
Item 3. Defaults Upon Senior Securities 38
Item 4. Mine Safety Disclosures 38
Item 5. Other Information 38
Item 6. Exhibits 38
SIGNATURES 39

 

 

 

 

ETHEMA HEALTH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

                 
   

September 30,

2021

 

December 31,

2020

    (Unaudited)    
ASSETS    
         
Current assets                
Cash   $ 62,181     $ 90,500  
Accounts receivable, net     192,049       3,075  
Prepaid expenses     26,546       19,190  
Other current assets     15,266       131,938  
Other investments              690,449  
Total current assets     296,042       935,152  
Non-current assets                
Due on sale of subsidiary     5,090       5,094  
Property and equipment     2,941,008       2,882,220  
Intangibles     1,700,408           
Right of use asset     1,713,532           
Total non-current assets     6,360,038       2,887,314  
Total assets   $ 6,656,080     $ 3,822,466  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
Current liabilities                
Accounts payable and accrued liabilities   $ 879,548     $ 833,615  
Taxes payable     886,869       850,277  
Convertible loans, net of discounts     4,968,628       4,200,217  
Short term loans     179,982       115,375  
Mortgage loans – current portion     3,874,157       115,704  
Government assistance loans     314,149       156,782  
Derivative liability     1,782,072       4,765,387  
Operating lease liabilities     230,172           
Accrued dividends     79,614       15,594  
Related party payables     2,541,672       2,811,849  
Total current liabilities     15,736,863       13,864,800  
Non-current liabilities                
Government assistance loans, net of current portion     47,092       31,417  
Third party loans     628,048       704,271  
Operating lease liabilities, net of current portion     1,555,505           
Mortgage loans, net of current portion              3,848,077  
Deferred taxes     291,851           
Total non-current liabilities     2,522,496       4,583,765  
Total liabilities     18,259,359       18,448,565  
                 
Preferred stock - Series B; $1.00 par value, 400,000 authorized, 400,000 outstanding as of September 30, 2021 and December 31, 2020, respectively.     400,000       400,000  
                 
Stockholders’ deficit                
Preferred stock - Series A; $0.01 par value, 10,000,000 authorized, 4,000,000 outstanding at September 30, 2021 and December 31, 2020, respectively     40,000       40,000  
Common stock - $0.01 par value, 10,000,000,000 shares authorized; 3,111,047,811 and 2,027,085,665 shares issued and outstanding as of September 30, 2021 and December 31, 2020.     31,110,478       20,270,857  
Additional paid-in capital     25,326,799       23,344,885  
Discount for shares issued below par value     (24,137,786 )     (17,728,779 )
Accumulated other comprehensive income     804,634       806,719  
Accumulated deficit     (45,978,688 )     (42,459,781 )
Non-controlling interest     831,284       700,000  
Total stockholders’ deficit     (12,003,279 )     (15,026,099 )
Total liabilities, mezzanine debt and stockholders’ deficit   $ 6,656,080     $ 3,822,466  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

 1

 

 

ETHEMA HEALTH CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

AND COMPREHENSIVE INCOME (LOSS)

 

 

                                 
    Three months ended
September 30, 2021
  Three months ended
September 30, 2020
  Nine months ended
September 30, 2021
  Nine months ended
September 30, 2020
                 
Revenues   $ 866,432     $ 89,829     $ 1,053,383     $ 255,672  
                                 
Operating expenses                                
General and administrative     245,546       11,991       254,012       43,805  
Rental expense     87,874       1,500       90,386       4,000  
Management fee reversal     (229,175 )              (229,175 )         
Professional fees     102,040       40,478       49,332       177,528  
Salaries and wages     415,224       31,297       474,351       73,287  
Depreciation and amortization     125,959       32,010       191,192       91,598  
Total operating expenses     747,468       117,276       830,098       390,218  
                                 
Operating Income (Loss)     118,964       (27,447 )     223,285       (134,546 )
                                 
Other Income (expense)                                
Interest income              1                629  
Gain on debt extinguishment                                12,683,678  
Penalty on convertible debt                       (9,240 )         
Loss on advance                       (120,000 )         
Warrant exercise     (581,516 )              (758,340 )     (95,868 )
Fair value of warrants granted to convertible debt holders                       (976,788 )         
Interest expense     29,052       (124,972 )     (708,936 )     (589,738 )
Amortization of debt discount     (333,237 )     (99,202 )     (1,683,779 )     (628,892 )
Derivative liability movement     2,091,562       (9,841,979 )     544,767       (22,850,631 )
Foreign exchange movements     184,956       (140,811 )     4,218       82,551  
Net income (loss) before taxes     1,509,781       (10,234,410 )     (3,484,813 )     (11,532,817 )
Taxes     18,794                18,794           
Net income (loss)     1,528,575       (10,234,410 )     (3,466,019 )     (11,532,817 )
Net loss attributable to non-controlling interest     22,049                22,049           
Net income (loss) attributable to parent     1,550,624       (10,234,410 )     (3,443,970 )     (11,532,817 )
Preferred stock dividend     (24,858 )     (24,301 )     (74,937 )     (28,952 )
Net income (loss) available to common stockholders     1,525,766       (10,258,711 )     (3,518,907 )     (11,561,769 )
Accumulated other comprehensive (loss) income                                 
Foreign currency translation adjustment     (67,002 )     54,071       (2,085 )     (30,411 )
                                 
Total comprehensive income (loss)   $ 1,458,764     $ (10,204,640 )   $ (3,520,992 )   $ (11,592,180 )
Earnings (loss) per share                                
Basic   $ 0.00     $ (0.01 )   $ (0.00 )   $ (0.01 )
Diluted   $ 0.00     $ (0.01 )   $ (0.00 )   $ (0.01 )
Weighted average common shares outstanding                                
Basic     2,875,702,002       1,841,090,247       2,474,937,755       1,498,132,036  
Diluted     3,996,020,553       1,841,090,247       2,474,937,755       1,498,132,036  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

 2

 

ETHEMA HEALTH CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

 

                                                                                           
    Series A Preferred         Common                                                        
    Shares     Amount         Shares     Amount     Additional Paid in Capital     Discount to par value     Comprehensive Income     Accumulated Deficit           Non-controlling     Total  
                                                                              shareholders interest          
Balance as of December 31, 2020     4,000,000     $ 40,000           2,027,085,665     $ 20,270,857     $ 23,344,885     $ (17,728,779 )   $ 806,719     $ (42,459,781 )         $ 7,00,000     $ (15,026,099 )
Fair value of warrants issued to convertible debt holders     —                      —                  1,207,214                                                 1,207,214  
Warrants exercised     —                      59,999,999       6,00,000                (510,000 )                                      90,000  
Conversion of convertible notes     —                      175,763,466       1,757,635       97,000       (582,850 )                                      1,271,785  
Foreign currency translation     —                      —                                    29,606                               29,606  
Net loss     —                      —                                            (2,368,156 )                    (2,368,156 )
Dividends accrued     —                      —                                             (30,847 )                    (30,847 )
Balance as of March 31, 2021     4,000,000     $ 40,000           2,262,849,130     $ 22,628,492     $ 24,649,099     $ (18,821,629 )   $ 836,325     $ (44,858,784 )         $ 700,000     $ (14,826,497 )
Fair value of warrants issued to convertible debt holders     —                      —                  677,700                                                 677,700  
Warrants exercised     —                      42,353,038       423,530                (336,707 )                                      86,823  
Conversion of convertible notes     —                      296,313,288       2,963,133                (1,603,511 )                                      1,359,622  
Foreign currency translation     —                      —                                    35,311                                35,311  
Net loss     —                      —                                            (2,626,438 )                    (2,626,438 )
Dividends accrued     —                      —                                             (19,232 )                    (19,232 )
Balance as of June 30, 2021     4,000,000     $ 40,000           2,601,515,456     $ 26,015,155     $ 25,326,799     $ (20,761,847 )   $ 871,636     $ (47,504,454 )         $ 700,000     $ (15,312,711 )
Warrants exercised     —                      178,272,725       1,782,727                (1,201,210 )                                      581,517  
Conversion of convertible notes     —                      231,259,630       2,312,596                (1,584,729 )                                      727,867  
Shares issued in consideration of acquisition     —                      100,000,000       1,000,000                (590,000 )                                      410,000  
Fair value of non-controlling interest on acquisition of subsidiary     —                      —                                                            153,333       153,333  
Foreign currency translation     —                      —                                    (67,002 )                             (67,002 )
Net income     —                      —                                            1,550,624             (22,049 )     1,528,575  
Dividends accrued     —                      —                                             (24,858 )                    (24,858 )
Balance as of September 30, 2021     4,000,000     $ 40,000           3,111,047,811     $ 31,110,478     $ 25,326,799     $ (24,137,786 )   $ 804,634     $ (45,978,688 )         $ 831,284     $ (12,003,279 )

 

 

 3

 

 

 

 

                                                                                                         
      Preferred Series A       Preferred Series B       Common       Discount       Additional       Comprehensive       Accumulated      

Controlling 

shareholders

      Non-controlling          
      Shares       Amount       Shares       Amount       Shares       Amount       Par Value       Capital       Income       Deficit       interest       interest       Total  
Balance as of December 31, 2019            $                 $          155,483,897     $ 1,554,838     $        $ 23,188,527     $ 727,976     $ (45,491,885 )   $ (20,020,544 )   $        $ (20,020,544 )
Exercise of warrants     —                  —                  103,000,000       1,030,000       (937,048 )                                92,952                92,952  
Shares issued for commitment fees     —                  —                  2,700,000       27,000                138,780                         165,780                165,780  
Conversion of convertible notes     —                  —                  1,316,679,078       13,166,792       (12,635,787 )                                531,005                531,005  
Foreign currency translation     —                  —                  —                                    (185,813 )              (185,813 )              (185,813 )
Net loss     —                  —                  —                                             (10,338,286 )     (10,338,286 )              (10,338,286 )
Balance as of March 31, 2020                                         1,577,862,975       15,778,630       (13,572,835 )     23,327,307       542,163       (55,830,171 )     (29,754,906 )     (29,754,906 )        
 Exercise of warrants     —                  —                  81,000,000       810,000       (807,084 )                                2,916                2,916  
Conversion of convertible notes     —                  —                  82,227,272       822,273       (793,990 )                                28,283                28,283  
Extinguishment of debt     —                  400,000       400,000       —                  (280,311 )                                119,689       700,000       819,689  
Settlement of liabilities     —                  —                  100,000,000       1,000,000       (975,000 )                                25,000                25,000  
Foreign currency translation     —                  —                  —                                    101,331                101,331                101,331  
Net income     —                  —                  —                                             9,039,879       9,039,879                9,039,879  
Preferred stock dividends accrued     —                  —                  —                                             (4,652 )     (4,652 )              (4,652 )
Balance at June 30, 2020                       400,000       400,000       1,841,090,247       18,410,903       (16,429,220 )     23,327,307       643,494       (46,794,944 )     (20,442,460 )     700,000       (19,742,460 )
Foreign currency translation     —                  —                  —                                    54,071                54,071                54,071  
Net loss     —                  —                  —                                             (10,234,410 )     (10,234,410 )              (10,234,410 )
Preferred stock dividends accrued     —                  —                  —                                             (24,301 )     (24,301 )              (24,301 )
Balance at September 30, 2020                       400,000     $ 400,000       1,841,090,247     $ 18,410,903     $ (16,429,220 )   $ 23,327,307     $ 697,565     $ (57,053,655 )   $ (30,647,100 )   $ 700,000     $ (29,947,100 )

 

 4

 

ETHEMA HEALTH CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

                 
         
    Nine months ended
September 30,
2021
  Nine months ended
September 30,
2020
Operating activities                
Net loss   $ (3,466,019 )   $ (11,532,817 )
Adjustment to reconcile net loss to net cash provided by (used in) operating activities:                
Depreciation and amortization     191,192       91,598  
Gain on debt extinguishment              (12,683,678 )
Non-cash interest accrual on escrow deposit              (24 )
Warrant exercise     758,340       95,868  
Non-cash interest converted to equity     146,174       96,754  
Shares issued for services              165,780  
Fair value of warrants granted     976,788           
Amortization of debt discount     1,683,779       628,893  
Unrealized foreign exchange gain              (146,385 )
Derivative liability movements     (544,767 )     22,850,631  
Movement in receivables reserve              (2,734 )
Non-cash deferred tax movements     (18,794 )        
Amortization of right of use asset     59,028          
Changes in operating assets and liabilities (net of assets acquired and liabilities assumed)                
Accounts receivable     (11,821 )     105,561  
Prepaid expenses and other current assets     130,311       (319,893 )
Accounts payable and accrued liabilities     184,746       215,004  
Operating lease liability     (50,475 )         
Taxes payable     37,430           
Net cash provided by (used in) operating activities     75,912       (435,442 )
                 
Investing activities                
Acquisition of subsidiary, net of cash of $60,324     10,324           
Other investments     (450,537 )        
Acquisition of property, plant and equipment     (31,214 )        
Deposit refunded              5,995  
Net cash (used in) provided by investing activities     (471,427 )     5,995  
                 
Financing activities                
Repayment of bank overdraft              (11,079 )
Repayment of mortgage loans     (87,225 )     (79,134 )
Proceeds from convertible loans     1,017,700       450,000  
Repayment of convertible loans     (478,389 )     (72,412 )
Proceeds from federal assistance loans     173,240       156,782  
Proceeds from short term loans     420,449           
Repayment of short term loans     (404,338 )         
Dividends paid              (14,012 )
Proceeds  from related party notes              3,174  
Repayment of related party notes     (269,238 )         
Net cash provided by financing activities     372,199       433,319  
                 
Effect of exchange rate on cash     (5,003 )     (2,774 )
                 
Net change in cash     (28,319 )     1,098  
Beginning cash balance     90,500       2,975  
Ending cash balance   $ 62,181     $ 4,073  
                 
Supplemental cash flow information                
Cash paid for interest   $ 363,251     $ 251,539  
Cash paid for income taxes   $        $     
                 
Non-cash investing and financing activities                
Fair value of warrants issued   $ 1,884,914     $     
Shares issued in consideration of acquisition   $ 410,000           
Conversion of convertible notes   $ 3,359,274       559,288  
Settlement of liabilities   $          25,000  
Fair value of non-controlling interest     153,333           

 

 

 5

 

 

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Nature of business

 

Ethema Health Corporation (the “Company”) was incorporated under the laws of the state of Colorado, USA, on April 1, 1993. Effective April 4, 2017, the Company changed its name to Ethema Health Corporation and prior to that, on May 2012, the Company had changed its name to Greenstone Healthcare Corporation from Nova Natural Resources Corporation. As of December 31, 2017, the Company owned 100% of the outstanding shares of Greenstone Clinic Muskoka Inc., incorporated in 2010 under the laws of the Province of Ontario, Canada; Cranberry Cove Holdings Ltd., incorporated on January 9, 2004 under the laws of the Province of Ontario, Canada; Addiction Recovery Institute of America (“ARIA”) (formerly Seastone Delray Healthcare, LLC), incorporated on May 17, 2016 under the laws of Florida, USA; and Delray Andrews RE, LLC, incorporated on May 17, 2016 under the laws of Florida, USA.

 

During December 2016, the Company obtained a license to operate and provide addiction treatment healthcare services in Florida, USA. The company commenced operations under this license with effect from January 2017.

 

On February 14, 2017, the Company completed a series of transactions (referred to collectively as the “Restructuring Transactions”), including a Share Purchase Agreement (the “SPA”) whereby the Company acquired 100% of the stock of CCH, which holds the real estate on which the Company previously operated a rehabilitation clinic (“the Canadian Rehab Clinic”). The Company entered into an Asset Purchase Agreement (the “APA”) and lease (the “Lease”) whereby the Company sold all of the Canadian Rehab Clinic business assets and leased the real estate to the buyer. Simultaneously with this transaction, the Company entered into a Real Estate Purchase agreement and Asset Purchase Agreement whereby the Company purchased the real estate and business assets of Seastone Delray (the “Florida Purchase”).

 

The Share Purchase Agreement 

Under the SPA, the Company acquired 100% of the stock of CCH from Leon Developments Ltd. (“Leon Developments”), a company wholly owned by Shawn E. Leon, who is the President, CEO, and CFO of the Company (“Mr. Leon”). CCH owns the real estate on which the Canadian Rehab Clinic is located. The total consideration paid by the Company was CDN$3,517,062, including the assumption of certain liabilities of CCH, which was funded by the assignment to Leon Developments of certain indebtedness owing to the Company in the amount of CDN$659,918, and the issuance of 60,000,000 shares of the Company’s common stock to Leon Developments, valued at US$0.0364 per share.

 

The Asset Purchase Agreement and Lease 

Under the APA, the assets of the Canadian Rehab Clinic were sold by the Company, through its subsidiary, Greenstone Clinic Muskoka Inc. (“Muskoka”), to Canadian Addiction Residential Treatment LP (the “Purchaser”), for a total consideration of CDN$10,000,000. The proceeds of the Muskoka clinic asset sale were used to pay down certain tax debts and operational costs of the Company and to fund the Florida Purchase, mentioned below.

 

Through the APA, substantially all of the assets of the Canadian Rehab Clinic were sold, leaving Ethema with only the underlying clinic real estate, which the Company, through its newly acquired subsidiary, CCH, concurrently leased to the Purchaser. The Lease is a triple net lease and provides for a five (5) year primary term with three (3) five-year renewal options, annual base rent for the first year at CDN$420,000 with annual increases, an option to tenant to purchase the leased premises and certain first refusal rights.

 

The Florida Purchase 

Immediately after closing on the sale of the assets of the Canadian Rehab Clinic, the Company closed on the acquisition of the real estate assets of Seastone Delray pursuant to certain real estate and asset purchase agreements The purchase price for the Seastone assets was US$6,070,000, financed with a purchase money mortgage of US$3,000,000, and US$3,070,000 in cash.

 

On April 2, 2019, the Company disposed of the real property located at 801 Andrews Avenue, Delray Beach for gross proceeds of $3,500,000.

 

Since June 30, 2020, the Company has been actively involved in the operation of a treatment center operated by Evernia Health Center LLC (“Evernia”) at 950 Evernia Street, West Palm Beach Florida. On July 1, 2021, the Company closed on an acquisition, purchasing 75% of the equity of American Treatment Holdings, Inc. (“ATHI”). ATHI owns 100% of the equity of Evernia. The company has been financing the operations of Evernia since June 2020. Evernia is the only treatment center of the Company.  

 

 6

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. Summary of significant accounting policies

 

Financial Reporting

 

The (a) unaudited condensed consolidated balance sheets as of September 30, 2021, which have been derived from the unaudited condensed consolidated financial statements, and as of December 31, 2020, which have been derived from audited consolidated financial statements, and (b) the unaudited condensed consolidated statements of operations and cash flows of the Company, have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of results that may be expected for the year ending December 31, 2021. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on April 15, 2021.

 

All amounts referred to in the notes to the unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.

 

  a) Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

  b) Principals of consolidation and foreign currency translation

 

The accompanying condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries. ATHI and its wholly owned subsidiary Evernia, have been consolidated since July 1, 2021. All intercompany transactions and balances have been eliminated on consolidation.

 

Certain of the Company’s subsidiaries functional currency is the Canadian dollar, while the Company’s reporting currency is the U.S. dollar. All transactions initiated in Canadian dollars are translated into US dollars in accordance with ASC 830, “Foreign Currency Translation” as follows:

 

  Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date.

 

  Non-monetary, non-current and equity at historical rates.

 

  Revenue and expense items and cash flows at the average rate of exchange prevailing during the period.

 

Adjustments arising from such translations are deferred until realization and are included as a separate component of stockholders’ deficit as a component of accumulated other comprehensive income or loss. Therefore, translation adjustments are not included in determining net income (loss) but reported as other comprehensive income (loss).

 

For foreign currency transactions, the Company translates these amounts to the Company’s functional currency at the exchange rate effective on the invoice date. If the exchange rate changes between the time of purchase and the time actual payment is made, a foreign exchange transaction gain or loss results which is included in determining net income for the period.

 

The relevant translation rates are as follows: For the nine months ended September 30, 2021, a closing rate of CDN$1.0000 equals US$0.7849 and an average exchange rate of CDN$1.0000 equals US$0.78937. For the nine months ended September 30, 2020, a closing rate of CAD$1.0000 equals US$0.7497 and an average exchange rate of CAD$1.0000 equals US$0.7507.  

 

 7

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. Summary of significant accounting policies (continued)

 

  c) Business Combinations

 

The Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

 

Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

 

  d) Use of estimates

 

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include valuing equity securities issued in share-based payment arrangements, determining the fair value of assets acquired, allocation of purchase price, impairment of long-lived assets, the collectability of receivables, leasing arrangements, convertible debentures, contingencies and the value of deferred taxes and related valuation allowances. Certain estimates, including evaluating the collectability of receivables and advances, could be affected by external conditions, including those unique to the Company’s industry and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ from the Company’s estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and record adjustments when necessary.

 

  e) Cash and cash equivalents

 

For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash and cash equivalents with several financial institutions in the USA and Canada.

 

The Company primarily places cash balances in the USA with high-credit quality financial institutions located in the United States which are insured by the Federal Deposit Insurance Corporation up to a limit of $250,000 per institution, in Canada which are insured by the Canadian Deposit Insurance Corporation up to a limit of CDN$100,000 per institution.

 

  f) Accounts receivable

 

Accounts receivable primarily consists of amounts due from third-party payors (non-governmental) and private pay patients and is recorded net of allowances for doubtful accounts and contractual discounts. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Accordingly, accounts receivable reported in the Company’s consolidated financial statements is recorded at the net amount expected to be received. The Company’s primary collection risks are (i) the risk of overestimating net revenues at the time of billing that may result in the Company receiving less than the recorded receivable, (ii) the risk of non-payment as a result of commercial insurance companies denying claims, (iii) the risk that patients will fail to remit insurance payments to the Company when the commercial insurance company pays out-of-network claims directly to the patient, (iv) resource and capacity constraints that may prevent the Company from handling the volume of billing and collection issues in a timely manner, (v) the risk that patients do not pay the Company for their self-pay balances (including co-pays, deductibles and any portion of the claim not covered by insurance) and (vi) the risk of non-payment from uninsured patients.

 

 8

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. Summary of significant accounting policies (continued)

 

  g) Allowance for Doubtful Accounts, Contractual and Other Discounts

 

The Company derives the majority of its revenues from commercial payors at in-network rates. Management estimates the allowance for contractual and other discounts based on its historical collection experience. The services authorized and provided and related reimbursement are often subject to interpretation and negotiation that could result in payments that differ from the Company’s estimates. The Company’s allowance for doubtful accounts is based on historical experience, but management also takes into consideration the age of accounts, creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. An account is written off only after the Company has pursued collection efforts or otherwise determines an account to be uncollectible. Uncollectible balances are written-off against the allowance. Recoveries of previously written-off balances are credited to income when the recoveries are made.

 

  h) Property and equipment

 

Property and equipment is recorded at cost. Depreciation is calculated on the straight line basis over the estimated life of the asset.

 

  i) Intangible assets

 

Intangible assets are stated at acquisition cost less accumulated amortization, if applicable, less any adjustments for impairment losses.

 

Amortization is charged on a straight-line basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed to be impaired the Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible and its book value.

 

Licenses to provide substance abuse rehabilitation services are amortized over the expected life of the contract, including any anticipated renewals. The Company expects its licenses to remain in operation for a period of five years.

   

 

 9

 

 

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. Summary of significant accounting policies (continued)

 

  j) Leases

 

The Company accounts for leases in terms of AC 842 whereby leases are classified as either capital or operating leases. Leases that transfer substantially all of the benefits and inherent risks of ownership of property to the Company are accounted for as capital leases. At the time a capital lease is entered into, an asset is recorded together with its related long-term obligation to reflect the acquisition and financing. Equipment recorded under capital leases is amortized on the same basis as described above. Operating leases are recognized on the balance sheet as a lease liability with a corresponding right of use asset for all leases with a term that is more than twelve months. Payments under operating leases are expensed as incurred.

 

  k) Derivatives

 

The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. The Company uses a Black Scholes Option Pricing model to estimate the fair value of convertible debt conversion features at the end of each applicable reporting period. Changes in the fair value of these derivatives during each reporting period are included in the statements of operations. Inputs into the Black Scholes Option Pricing model require estimates, including such items as estimated volatility of the Company’s stock, risk free interest rate and the estimated life of the financial instruments being fair valued.

 

If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.

 

  l) Financial instruments

 

The Company initially measures its financial assets and liabilities at fair value, except for certain non-arm’s length transactions. The Company subsequently measures all its financial assets and financial liabilities at amortized cost.

 

Financial assets measured at amortized cost include cash and accounts receivable.

 

Financial liabilities measured at amortized cost include bank indebtedness, accounts payable and accrued liabilities, harmonized sales tax payable, withholding taxes payable, convertible notes payable, loans payable and related party notes.

 

Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income. The Company recognizes its transaction costs in net income in the period incurred. However, financial instruments that will not be subsequently measured at fair value are adjusted by the transaction costs that are directly attributable to their origination, issuance or assumption. 

 

FASB ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

  ●  Level 1. Observable inputs such as quoted prices in active markets;
  ●  Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
  Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.

 

The Company measures its convertible debt and derivative liabilities associated therewith at fair value. These liabilities are revalued periodically and the resultant gain or loss is realized through the Statement of Operations and Comprehensive Loss.

 

 

 10

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. Summary of significant accounting policies (continued)

  

  m) Related parties

 

Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.

 

  n) Revenue Recognition

 

ASC 606 requires companies to exercise more judgment and recognize revenue using a five-step process.

 

The Company’s provision for doubtful accounts are recorded as a direct reduction to revenue instead of being presented as a separate line item on the consolidated statements of operations and comprehensive loss.

 

As our performance obligations relate to contracts with a duration of one year or less, the Company elected the optional exemption in ASC 606-10-50-14(a). Therefore, the Company is not required to disclose the transaction price for the remaining performance obligations at the end of the reporting period or when the Company expects to recognize the revenue. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients typically are under no obligation to remain admitted in our facilities.

 

The Company receives payments from the following sources for services rendered in our U.S. Facility: (i) commercial insurers; and (ii) individual patients and clients. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC 606-10-32-18 and does not adjust for the effects of a significant financing component.

 

The Company derives a significant portion of its revenue from other payors that receive discounts from established billing rates. The various managed care contracts under which these discounts must be calculated are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for different types of services provided in the Company’s inpatient facilities and cost settlement provisions. Management estimates the transaction price on a payor-specific basis given its interpretation of the applicable regulations or contract terms. The services authorized and provided and related reimbursement are often subject to interpretation that could result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management.

 

Settlements with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future periods as final settlements are determined. In the opinion of management, adequate provision has been made for any adjustments and final settlements. However, there can be no assurance that any such adjustments and final settlements will not have a material effect on the Company’s financial condition or results of operations. The Company’s receivables were $192,049 and $3,075 at September 30, 2021 and December 31, 2020, respectively. Management believes that these receivables are properly stated and are not likely to be settled for a significantly different amount.

 

The Company’s revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those services. The Company derives its revenues from the sale of its services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its revenue transactions:

 

  i. identify the contract with a customer;
  ii. identify the performance obligations in the contract;
  iii. determine the transaction price;
  iv. allocate the transaction price to performance obligations in the contract; and
  v. recognize revenue as the performance obligation is satisfied.

 

 11

 

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. Summary of significant accounting policies (continued)

 

  o) Income taxes

 

The Company accounts for income taxes under the provisions of ASC Topic 740, ”Income Taxes”. Under ASC Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income taxes are provided using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax basis of an asset or liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in income in the period of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of, the deferred tax assets will not be realized.

 

ASC Topic 740 contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties accrued on unrecognized tax benefits within general and administrative expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in general and administrative expenses in the period that such determination is made.

 

  p) Net income (loss) per Share

 

Basic net income (loss) per share is computed on the basis of the weighted average number of common stock outstanding during the period.

 

Diluted net income (loss) per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.

 

Dilution is computed by applying the treasury stock method for options and warrants. Under this method, “in-the money” options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Dilution is computed by applying the if-converted method for convertible preferred stocks. Under this method, convertible preferred stock is assumed to be converted at the beginning of the period (or at the time of issuance, if later), and preferred dividends (if any) will be added back to determine income applicable to common stock. The shares issuable upon conversion will be added to weighted average number of common stock outstanding. Conversion will be assumed only if it reduces earnings per share (or increases loss per share). 

 

  q) Stock based compensation

 

Stock based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over the employee’s requisite service period or vesting period on a straight-line basis. Share-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual forfeitures differ from those estimates. We have minimal awards with performance conditions and no awards dependent on market conditions.

  

 

 12

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  

2. Summary of significant accounting policies (continued)

 

  r) Financial instruments Risks

 

The Company is exposed to various risks through its financial instruments. The following analysis provides a measure of the Company’s risk exposure and concentrations at September 30, 2021 and December 31, 2020.

 

  i. Credit risk

 

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Financial instruments that subject the Company to credit risk consist primarily of accounts receivable.

 

Credit risk associated with accounts receivable is mitigated as only a percentage of the revenue billed to health insurance companies is recognized as income until such time as the actual funds are collected. The revenue is concentrated amongst several health insurance companies located in the US.

 

In the opinion of management, credit risk with respect to accounts receivable is assessed as low.

 

  ii. Liquidity risk

 

Liquidity risk is the risk the Company will not be able to meet its financial obligations as they fall due. The Company is exposed to liquidity risk through its working capital deficiency of $15,440,821, which includes derivative liabilities of $1,782,072, and an accumulated deficit of $45,978,688. The Company is dependent upon the raising of additional capital in order to implement its business plan. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. In the opinion of management, liquidity risk is assessed as high, material and remains unchanged from that of the prior year.

 

  iii. Market risk

 

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises of three types of risk: interest rate risk, currency risk, and other price risk. The Company is exposed to interest rate risk and currency risk.

 

  a. Interest rate risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its convertible debt, mortgage loans, short term loans, third party loans and government assistance loans as of September 30, 2021. In the opinion of management, interest rate risk is assessed as moderate.

 

  b. Currency risk

 

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is subject to currency risk as it has subsidiaries that operate in Canada and are subject to fluctuations in the Canadian dollar. A substantial portion of the Company’s financial assets and liabilities are denominated in Canadian dollars. Based on the net exposures at September 30, 2021, a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an approximate $4,512 increase or decrease in the Company’s after tax net income from operations. The Company has not entered into any hedging agreements to mitigate this risk. In the opinion of management, currency risk is assessed as low, material and remains unchanged from that of the prior year.

 

  c. Other price risk

 

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. In the opinion of management, the Company is not exposed to this risk and remains unchanged from the prior year.

 

 

 13

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  

2. Summary of significant accounting policies (continued)

 

  s) Recent accounting pronouncements

 

The FASB issued several additional updates during the period, none of these standards are either applicable to the Company or require adoption at a future date and none are expected to have a material impact on the consolidated financial statements upon adoption.

 

 

  t) Comparative and prior period disclosures

 

The comparative and prior period disclosed amounts presented in these unaudited condensed consolidated financial statements have been reclassified where necessary to conform to the presentation used in the current year and period.

 

3. Going concern

 

The Company’s condensed consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business. At September 30, 2021 the Company has a working capital deficiency of $15,440,821, including derivative liabilities of $1,782,072 and accumulated deficit of $45,978,688 45,978,688. Management believes that current available resources will not be sufficient to fund the Company’s planned expenditures over the next 12 months. Accordingly, the Company will be dependent upon the raising of additional capital through placement of common shares, and/or debt financing in order to implement its business plan and generating sufficient revenue in excess of costs. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain geographical areas, or techniques that it might otherwise seek to retain. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue operations.

 

The ability of the Company to continue as a going concern is dependent on the Company generating cash from the sale of its common stock or obtaining debt financing and attaining future profitable operations. Management’s plans include selling its equity securities and obtaining debt financing to fund its capital requirements and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.

 

These factors create substantial doubt about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities or other adjustments that may be necessary should the Company not be able to continue as a going concern.

 

 14

 

 

 ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

4. Acquisition of subsidiaries

 

On June 30, 2020, the Company entered into an agreement whereby the Company will acquire 51% of American Treatment Holdings, Inc. (“ATHI”) from The Q Global Trust (“Seller”) and Lawrence B Hawkins (“Hawkins”), which in turn owns 100% of Evernia Health Services LLC. (“Evernia”), which operates drug rehabilitation facilities. The consideration for the acquisition is a loan to be provided by the purchaser to Evernia in the amount of $500,000. As of the date of acquisition, July 1, 2021, the Company had advanced Evernia approximately $1,140,985.

 

The Company originally had a 180 day option, from the advancement of the first tranche to Evernia, to purchase an additional 9% of ETHI for a purchase consideration of $50,000.

 

On April 28, 2021, the Stock Purchase Agreement date June 30, 2020 between the Company and the Q Global Trust, and ATHI was amended whereby the option to purchase an additional 9% of ATHI for $50,000 was amended to purchase an additional 24%, an increase of 15% over the prior option, for 100,000,000 shares of common stock. The remaining condition to closing, the receipt of approval for the change of ownership of the license from the Department of Children and Family Services of Florida, was satisfied by the probationary approval, which was received on June 30, 2021. The Company exercised the option and issued the 100,000,000 shares of common stock and paid $25,000 of the $50,000 due to the Seller, in terms of the amended agreement as of the date of this report. In addition to the consideration paid for the additional equity the Company agreed to execute a promissory note for the payment of any unpaid management fees at the time of Closing such that the unpaid fees shall be paid pari-passu with the repayment of the Loan Agreement and Seller agrees that any funds advanced to the Company by Behavioural Health Holdings, LLC shall be forgiven and considered contributed capital to ATHI. The Company agrees to advance up to $1,100,000 under the Loan Agreement for the funding of the operations of ATHI as required without any contribution required by the Seller. 

 

Pursuant to the terms of the Purchase Agreement, the consideration paid for 75% of the equity of ATHI was $50,000 in cash plus the issuance of 100,000,000 shares of the Company’s common stock with a market value of $410,000 on the date of acquisition.

 

In terms of the agreement, the preliminary purchase price was allocated to the fair market value of tangible and intangible assets acquired and liabilities assumed as follows:

 

       
    Amount
Consideration        
Cash     50,000  
100,000,000 shares of common stock at fair market value     410,000  
Total purchase consideration   $ 460,000  
Recognized amounts of identifiable assets acquired and liabilities assumed        
Cash     60,324  
Other Current assets     198,133  
Property, plant and equipment     130,234  
Right of use asset     1,772,560  
Intangibles     1,789,903  
 Total assets     3,951,154  
Less: liabilities assumed        
Current liabilities assumed     (50,040 )
Intercompany advance     (1,140,985 )
Operating lease liabilities assumed     (1,836,151 )
Imputed Deferred taxation on identifiable intangible acquired     (310,645 )
 Total liabilities     (3,337,821 )
Net identifiable assets acquired and liabilities assumed     613,333  
Fair value of non-controlling interest     (153,333 )
 Total   $ 460,000  

 

 15

 

 

 ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

4. Acquisition of subsidiaries (continued)

 

The amount of revenue and earnings include in the Company’s consolidated statement of operations and comprehensive income (loss) for the nine months ended September 30, 2021 and the revenue and earnings of the combined entity had the acquisition date been January 1, 2020. Evernia only began operations in June 2020.

 

                 
    Revenue   Earnings
         
Actual from July 1, 2021 to September 30, 2021   $ 774,577     $ (88,194 )
                 
2021 Supplemental pro forma from January 1, 2021 to September 30, 2021   $ 2,135,092     $ (3,858,099 )
                 
2020 Supplemental pro forma from inception to September 30, 2020   $ 255,672     $ (11,969,476 )

 

The 2021 and 2020 Supplemental pro forma earnings information was adjusted to account for amortization of intangibles on acquisition of $178,990 and $268,485, respectively.

 

5. Other current assets

 

Other current assets includes the following:

 

On February 25, 2019, the Company entered into a Letter of Intent whereby it would purchase a 33.33% interest in Local Link Wellness, LLC (“LLW”) for gross proceeds of $400,000. LLW proposes to provide a comprehensive addiction treatment program to large employee groups. The Company has advanced LLW a total of $120,000 at September 30, 2021. These funds were advanced as short-term promissory notes that are immediately due and payable.

 

The Company has no intention to close on the purchase of LLW, and management recorded a full reserve against this advance as they believe it is not recoverable.

 

6. Other investments

  

On June 30, 2020, the Company entered into an agreement whereby the Company will acquire 51% of Behavioral Health Holdings, Inc. (“BHHI”) from The Q Global Trust (“Seller”) and Lawrence B Hawkins, which in turn owns 100% of Peace of Mind Counseling Services, Inc. (“PMCS”), which operates drug rehabilitation facilities. The Company has decided not to pursue the acquisition of BHHI.

 

7. Due on sale of business

 

On February 14, 2017, the Company sold its Canadian Rehab Clinic for gross proceeds of CDN$10,000,000, of which CDN$1,500,000 had been retained in an escrow account for a period of up to two years in order to guarantee the warranties provided by the Company in terms of the APA. As of September 30, 2021, CDN$1,055,042 of the escrow had been refunded to the Company and CDN$461,318 had been used to affect building improvements to the premises owned by CCH, for a total reduction of CDN$1,516,360. The remaining escrow balance was CDN$6,485 (approximately US$ 5,090).

 

 16

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

8. Property and equipment

 

Property and equipment consists of the following:  

 

                               
                 
    September 30,
2021
  December 31, 2020
    Cost   Accumulated depreciation   Net book value   Net book value
Land   $ 168,747     $     $ 168,747     $ 168,866  
Property     3,192,171       (576,499 )     2,615,672       2,713,354  
Leasehold improvements     107,566       (2,308 )     105,258        
Furniture and fittings     41,594       (1,926 )     39,668        
Vehicles     12,288       (625 )     11,663       2,713,354  
    $ 3,522,366     $ (581,358 )   $ 2,941,008     $ 2,882,220  

 

Depreciation expense for the nine months ended September 30, 2021 and 2020 was $101,696 and $91,598, respectively.

 

9. Intangibles

 

Intangible assets consist of the Company’s preliminary estimate of the fair value of intangibles acquired with the acquisition of ATHI disclosed in Note 4 above. The Company preliminarily allocated the excess over the tangible assets acquired, less the liabilities assumed to the contract provided to the Company by a health care service provider.

 

Intangible assets consist of the following:  

 

                                 
    September 30,
2021
    December 31, 2020  
    Cost     Accumulated amortization     Net book value     Net book value  
Health care Provider license   $ 1,789,903     $ 89,495     $ 1,700,408     $  

 

The Company evaluates intangible assets for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Intangible asset impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.

 

The Company recorded $89,495 in amortization expense for finite-lived assets for the three and nine months ended September 30, 2021.

 

10. Leases

 

The Company acquired ATHI on July 1, 2021, ATHI’s wholly owned subsidiary had entered into am operating lease agreement for certain real property located at 1590 S. Congress Avenue, West Palm Beach, Florida, with effect from February 1, 2019 for a period of three years, expiring on 1 February 2022. Under the terms of the lease agreement, the lease was extended during October 2021 for a further 5 year period until 1 February 2027.

 

To determine the present value of minimum future lease payments for operating leases at February 1, 2019, the Company was required to estimate a rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment (the "incremental borrowing rate" or "IBR").

 

The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used the average of (i) the five year ARM interest rate as quoted by Freddie Mac adjusted for a risk premium of 20% The Company determined was 4.64% as an appropriate incremental borrowing rate to apply to its real-estate operating lease.

 

 

 17

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

10. Leases (continued)

 

Right of use assets are included in the consolidated balance sheet are as follows:

 

               
    September 30,
2021
  December 31,
2020
Non-current assets                
Right of use assets - operating leases, net of amortization   $ 1,713,532     $     

 

 

Lease costs consists of the following: 

               
                 
    Nine Months Ended September 30,
    2021   2020
                 
Operating lease cost   90,386      $ 4,000  

 

Other lease information: 

       
         
    Nine Months Ended September 30,
    2021   2020
Cash paid for amounts included in the measurement of lease liabilities        
Operating cash flows from operating leases     (87,934 )     (4,000 )
                 
Weighted average remaining lease term – operating leases     5 years and 4 months       —    
                 
Discount rate – operating leases     4.64 %     —   %

 

Maturity of Leases

 

 

Operating lease liability

 

The amount of future minimum lease payments under operating leases are as follows:

       
    Amount
     
Remainder of 2021   $ 79,380  
2022     332,073  
2023     348,677  
2024     366,110  
2025 and thereafter     821,823  
Total undiscounted minimum future lease payments     1,948,063  
Imputed interest     (162,386 )
Total operating lease liability   $ 1,785,677  
         
Disclosed as:        
Current portion   $ 230,172  
Non-Current portion     1,555,505  
 Lease liability   $ 1,785,677  

 

 18

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  

 11. Taxes Payable

 

The taxes payable consist of:

 

  A payroll tax liability of $143,309 (CDN$182,589) in Greenstone Muskoka which has not been settled as yet.
  A GST/HST tax payable of $110,467 (CDN$140,747).
  The Company has assets and operates businesses in Canada and is required to disclose these operations to the US taxation authorities, the requisite disclosure has not been made. Management has reserved the maximum penalty due to the IRS in terms of non-disclosure. This noncompliance with US disclosure requirements is currently being addressed. An amount of $250,000 has been accrued for any potential exposure the Company may have.

 

               
         
    September 30,
2021
  December 31,
2020
         
Payroll taxes   $ 143,309     $ 143,410  
HST/GST payable     110,467       73,503  
US penalties due     250,000       250,000  
Income tax payable     383,093       383,364  
 Taxes Payable   $ 886,869     $ 850,277  

 

12. Short-term Convertible Notes

 

The short-term convertible notes consist of the following:

 

                                                   
                             
    Interest rate   Maturity Date   Principal   Interest   Debt Discount   September 30, 2021   December 31, 2020
Leonite Capital, LLC     8.5 %     $        $        $        $        $ 70,583  
      12.0 %    On Demand     535,866       44,831                580,697       147,058  
                                                     
First Fire Global Opportunities Fund     6.5 %   October 29,2021                                         25,297  
                                                     
Auctus Fund, LLC     0.0 %   On Demand     100,000                         100,000       150,000  
      10.0 %   August 13, 2021                                         40,202  
                                                     
Labrys Fund, LP     12.0 %   November 30, 2021     63,200       8,008       (10,562 )     60,646       26,159  
      11.0 %   May 7, 2022     550,000       24,536       (330,000 )     244,536           
      11.0 %   June 2, 2022     230,000       8,433       (154,383 )     84,050           
                                                     
Ed Blasiak     6.5 %   September 14, 2021     55,000       3,784                58,784       17,347  
                                                     
Joshua Bauman     6.5 %   September 14, 2021     38,889       1,786                40,675       43,247  
                                                     
Geneva Roth Remark Holdings, Inc.     9.0 %   August 29, 2021                                         19,238  
      9.0 %   October 15, 2021                                         6,753  
      9.0 %   January 3, 2022                                             
                                                     
Series N convertible notes     6.0 %   On Demand     3,229,000       570,240                3,799,240       3,654,333  
                                                   
               $ 4,801,955      $ 661,618      $ (494,945 )   $ 4,968,628     $ 4,200,217  

 

 19

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

12. Short-term Convertible Notes (continued)

 

Leonite Capital, LLC

 

Convertible Promissory Notes

 

On December 1, 2017, the Company closed on a private offering to raise US $1,500,000 in capital. The Company issued one senior secured convertible promissory note with a principal amount of $1,650,000 to Leonite Capital, LLC (“Leonite”). The note is convertible into shares of common stock at a conversion price of $0.06 per share, subject to anti-dilution and price protection. The Note bears interest at the rate of 8.5% per annum. The Note’s amended maturity date was December 1, 2018. During the term of the Note the Company and the Subsidiaries was obligated to make monthly payment of accrued and unpaid interest. The Note contains Company and Subsidiary representations and warranties, covenants, events of default, and registration rights. The Company paid a commitment fee of $132,000 settled through the issue of 1,650,000 shares of common stock and paid $20,000 towards the lenders legal fees. In conjunction with this note, the Company issued a five year warrant to purchase 27,500,000 shares of common stock at an exercise price or $0.10 per share, subject to anti-dilution and price protection.

 

The Note provided that the parties use reasonable best efforts to close on the remaining $1,200,000 of availability under the Note by January 1, 2018. As a condition to the closing of the Balance Tranche, the parties must finalize and enter into additional agreements related to the Private Offering, including, but not limited to, (i) a Securities Purchase Agreement; (ii) a Warrant Agreement under which the Investor will have the right to purchase up to 27,500,000 shares of the Company’ common stock for $0.10 per share, subject to adjustment, for a period of five years; (iii) a Securities Pledge Agreement under which the Company and the Subsidiaries will grant the lender a blanket lien on their assets, and the Company will pledge its equity ownership in the Subsidiaries. Upon the closing of the Balance Tranche the maturity date of the Note was to become December 1, 2018.

 

On December 29, 2017, effective as of December 1, 2017, the Company and the Subsidiaries entered into an Amended and Restated Senior Secured Convertible Promissory Note, which note amended and restated the Note to (a) extend the maturity date to December 1, 2018; (b) remove CCH, as an obligor; (c) increase the interest rate by 2.00% per annum, to 8.5% per annum; and (d) issue an additional 250,000 shares of the Company’s common stock to the Investor. In connection with the execution of the amendment, the parties entered into (i) a Securities Purchase Agreement; (ii) a Warrant Agreement under which the Investor will have the right to purchase up to 27,500,000 shares of the Company’ common stock for $0.10 per share, subject to adjustment, for a period of five years; (iii) a Security and Pledge Agreement and a General Security Agreement under which the Company and the Subsidiaries will grant the Investor a blanket lien on their assets, and the Company will pledge its equity ownership in the Subsidiaries; effective January 2, 2018.

 

At the execution of the Note, the Investor funded an initial tranche of $300,000. Thereafter the Investor funded a second tranche of $156,136. Upon the execution of the A&R Note the Investor funded a third tranche of $100,000. Upon the execution of the First Amendment the Investor funded a final tranche of $850,000, with the remaining $93,764 of availability under the A&R Note, as amended, serving as a holdback pursuant to the terms of the First Amendment.

 

On March 29, 2018, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $165,000, including an Original Issue Discount of $15,000, for net proceeds of $150,000. The note had a maturity date of December 1, 2018 and bears interest at a rate of 8.5% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to anti-dilution and price protection. The Company paid a commitment fee of $11,550 settled through the issue of 165,000 shares of common stock. In conjunction with this note the Company issued a five year warrant to purchase 5,500,000 shares of common stock at an exercise price of $0.10 per share, subject to anti-dilution and price protection.

 

 20

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

12. Short-term Convertible Notes (continued)

 

Leonite Capital, LLC (continued)

 

Convertible Promissory notes (continued) 

 

On April 17, 2018, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $605,000, including an Original Issue Discount of $55,000, for net proceeds of $550,000. The note had a maturity date of December 1, 2018 and bears interest at 8.5% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to price protection and anti-dilution protection. The Company paid a commitment fee of $42,350 settled through the issue of 10,083,333 shares of common stock. In conjunction with this note the Company issued a five year warrant to purchase 10,083,333 shares of common stock at an exercise price of $0.10 per share, subject to anti-dilution and price protection.

 

On January 17, 2019, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $71,111, including an Original Issue Discount of $7,111, for net proceeds of $64,000. The note had a maturity date of July 25, 2019 and bears interest at 11.0% per annum. The outstanding principal amount of the note was convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to price protection and anti-dilution protection. The Company paid a commitment fee of $4,978 settled through the issue of 71,111 shares of common stock. In conjunction with this note the Company issued a five year warrant to purchase 1,185,183 shares of common stock at an exercise price of $0.10 per share, subject to anti-dilution and price protection.

 

Effective March 19, 2019, the Company entered into a note extension agreement with Leonite, whereby the convertible notes outstanding to Leonite, amounting to $2,420,000, for consideration of $75,000 added to the principal outstanding on the note on January 1, 2019, a further $75,000 added to the principal outstanding on the note on February 1, 2019 and a further $100,000 added to the principal of the note on March 15, 2019, the maturity date of all of the convertible notes above were extended to December 31, 2019 and has subsequently been partially settled by the transfer of the property located at 810 Andrews Avenue, Delray Beach, Florida, valued at $1,500,000.

 

On August 26, 2019, the Company, entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $60,000, including an Original Issue Discount of $10,000, for net proceeds of $47,000. The note had a maturity date of September 10, 2019 and bears interest at 1.0% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser following the issue date into shares of the Company’s common stock at a conversion price equal to $0.06 per share subject to price protection and anti-dilution protection. In conjunction with this note the Company issued a five year warrant to purchase 1,000,000 shares of common stock at an exercise price of $0.10 per share, subject to anti-dilution and price protection.

 

On October 10, 2019, the Company transferred a warranty deed to the real property located at 810 Andrews Avenue, Delray Beach, Florida to Leonite Capital LLC, in settlement of indebtedness of $1,398,514 and additional expenses related to the disposal of the property of $36,470. These expenses of $36,470 were provided for resulting in net proceeds recognized on the transfer of the property of $1,362,044.

 

On July 12, 2020, the company entered into a debt extinguishment agreement with Leonite whereby the following occurred:

 

  1. The total amount outstanding under the note, including principal and interest was reduced to $150,000
  2. $700,000 of the note was converted into Series A Redeemable Preferred shares in the Company’s subsidiary, Cranberry Cove Holdings, accruing dividends at 10% per annum.
  3. $400,000 of the note was converted into series B Preferred stock in the Company for a 12 month period, mandatorily redeemable by the Company accruing dividends at 6% per annum payable in cash or stock, subject to certain conditions.
  4. The remaining balance of $150,000 will accrue interest at 8.5% per annum and is convertible into common stock and repayable in 6 monthly installments of $25,000 commencing after December 12, 2020.
  5. The existing warrants were cancelled and a new five year warrant, with a cashless exercise option, exercisable for a minimum of 326,286,847 shares of common stock and a maximum of 20% of the outstanding equity of the Company at an initial exercise price of $0.10 per share subject to adjustment based on new stock issuances or the lowest volume weighted exercise price of the stock for 30 days immediately preceding the exercise was issued to Leonite.

 

 

 21

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

12. Short-term Convertible Notes (continued)

 

Leonite Capital, LLC (continued)

 

Convertible Promissory Notes (continued)

 

On December 28, 2020, Leonite converted $80,000 plus accrued interest of $5,949 of the Leonite loan amended on July 12, 2020, into 96,331,811 shares of common stock at a conversion price of $0.0009, thereby realizing a loss on conversion of $240,616. On January 8, 2021, Leonite converted the remaining principal amount of $70,000, plus accrued interest thereon of $137, into 78,763,466 shares of common stock at a conversion price of $0.0009 per share.

 

On July 12, 2020, the Company entered into a Senior Secured Convertible Note agreement with Leonite for $440,000 with an original issue discount of $40,000 for gross proceeds of $400,000, the initial tranche advanced will be for cash of $200,000 plus the OID of $20,000, the remaining advances will be at the discretion of the Leonite. The loan bears interest at 6.5% per annum and matures on June 12, 2021. The Company is required to make monthly payments of the accrued interest on the advances made. The note is convertible into common shares at the option of the holder at $0.10 per share, or 80% multiplied by the price per share paid in subsequent financings or after a six month period from the effective date at 60% of the lowest trading price during the preceding 21 consecutive trading days. The note has both conversion price protection and anti-dilution protection provisions.

 

On July 12, 2020, the Company entered into a five year option agreement with Leonite Capital LLC (“Leonite”) and other investors (collectively the “Transferees”), the Company agreed to sell to Leonite a portion of the total outstanding shares of ATHI from the shares of ATHI held by the company. The Company has provided Leonite an option to purchase 33% of ATHI from the Company for a purchase consideration of $0.0001 per share, based on the advances that Leonite made to the Company totaling $655,000. Leonite shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Leonite to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.

 

In terms of clause 3.12 of the Senior secured convertible Promissory Note Agreement (“Leonite Note”) entered into with Leonite and the amendments thereto, the terms of the convertible promissory note issued to Labrys Fund LP on November 30, 2020, as described below, contained terms more favorable than those contained in the Leonite Note, resulting in an adjustment made to the Original issue discount of $4,000 and the issuance of five year warrants exercisable for 145,454,547 shares of common at an exercise price of $0.00205 per share, for all advances made to the Company by Leonite in terms of the Leonite Note, up to and including December 31, 2020.

 

On January 8, January 22, February 4, and February 19, 2021, Leonite advanced the company an aggregate cash amount of $290,000, including a revised original issue discount of $74,556 for an aggregate principal sum added to the Leonite Note of $364,556.

 

On March 3, 2021, in terms of a conversion notice, Leonite converted the principal sum of $82,681 and interest thereon of $12,319 of the Leonite Note into 97,000,000 shares of common stock at a conversion price of $0.0009 per share.

 

On June 1, 2021, in terms of a conversion notice, Leonite converted the principal sum of $25,084 and interest thereon of $4,166 of the Leonite Note into 30,000,000 shares of common stock at a conversion price of $0.0009 per share.

 

On June 10, 2021, in terms of a conversion notice, Leonite converted the principal sum of $58,908 and interest thereon of $342 of the Leonite Note into 60,000,000 shares of common stock at a conversion price of $0.0009 per share.

 

On September 10, 2021, in terms of a conversion notice, Leonite converted the principal sum of $59,260 and interest thereon of $1,718 of the Leonite Note into 59,259,630 shares of common stock at a conversion price of $0.0010 per share.

 

 

 22

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

12. Short-term Convertible Notes (continued)

 

Power Up Lending Group LTD

 

On July 8, 2019, the Company entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $53,000. The Note had a maturity date of April 30, 2020 and bore interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company had the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note was convertible at any time and from time to time at the election of Power Up during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion.

 

Between January 10, 2020 and January 24, 2020, in terms of conversion notices received, Power Up converted the aggregate principal amount of $53,000 and interest thereon of $1,085 into 75,618,509 shares of common stock at an average conversion price of $0.000715 per share.

 

On July 15 2019, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $83,000. The Note has a maturity date of April 30, 2020 and bore interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company had the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note was convertible at any time and from time to time at the election of Power Up during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion.

 

Between January 24, 2020 and February 27, 2020, in terms of conversion notices received, Power Up converted the aggregate principal amount of $41,400 into 453,800,493 shares of common stock at an average conversion price of 0.0000912 per share.

 

On June 1, 2020, The Company repaid the Power Up Lending Group $41,600 in full settlement of the convertible note entered into on July 15, 2019.

 

First Fire Global Opportunities Fund

 

On March 5, 2019, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $200,000, for net proceeds of $192,000 after the payment of legal fees and origination fees amounting to $8,000. The note had a maturity date of December 9, 2019. The outstanding principal amount of the note was convertible at any time and from time to time at the election of the purchaser. 180 days after the issued date into shares of the Company’s common stock at the lower of $0.08 per share or 65% of the lowest trade price during the ten consecutive trading days immediately prior to conversion. The note had certain buyback terms if the Company consummated a registered or unregistered primary offering of securities for capital raising purposes, or an option to convert at a 20% discount to the offering price to investors.

 

Between September 11, 2019 and December 30, 2019, in terms of a conversion notices received, the Company issued 11,887,445 shares of Common stock in settlement of $36,592 of principal outstanding.

 

Between January 6, 2020 and February 26, 2020, in terms of conversion notices received, First Fire converted an aggregate principal amount of $83,902 into 308,100,000 shares of common stock at an average conversion price of $0.000272 per share.

 

On June 3, 2020, the Company entered into an agreement with First Fire whereby the remaining balance of the convertible note of $73,006 would be settled by two payments of $25,000 each.

 

Between July 2, 2020 and August 17, 2020, the Company repaid the remaining principal outstanding of $50,000 plus additional interest charges of $1,500.

 

 23

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

12. Short-term Convertible Notes (continued)

 

First Fire Global Opportunities Fund (continued)

 

On October 29, 2020, the Company entered into a Securities Purchase Agreement, pursuant to which the Company issued a senior secured convertible promissory note in the aggregate principal amount of $137,500, including an OID of $12,500. The note bears interest at 6.5% per annum and matures on October 29, 2021. The note is senior to any future borrowings and commencing on November 29, 2020 the Company will make monthly payments of the accrued interest under the note. The note may be prepaid at certain prepayment penalties and is convertible into shares of common stock at a conversion price at the option of the holder at $0.001 per share, adjusted for anti-dilution provisions; or 80% of the price per share of subsequent equity financings or; after six months 60% of the lowest trading price during the preceding six month period.

 

On October 29, 2020, the Company entered into a five year option agreement with First Fire whereby the Company agreed to sell to First Fire a portion of the total outstanding shares of ATHI. The Company provided First Fire an option to purchase 6.25% of ATHI from the Company for a purchase consideration of $0.0001 per share, based on the advances that First Fire made to the Company totaling $125,000. First Fire shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by First Fire to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.

 

In terms of clause 3.12 of the Senior secured convertible Promissory Note Agreement (“First Fire Note”) entered into with First Fire, the terms of the convertible promissory note issued to Labrys Fund LP on November 30, 2020, as described below, contained terms more favorable than those contained in the First Fire Note, resulting in an adjustment made to the Original issue discount of $1,389 and the issuance of five year warrants exercisable for50,505,051 shares of common at an exercise price of $0.00205 per share, for the advance made to the Company by First Fire in terms of the First Fire Note.

 

On May 10, 2021, the Company repaid the principal outstanding of $138,889, including interest and early settlement penalty thereon for the payment of $164,913.

  

Auctus Fund, LLC

 

On August 7 2019, the Company, entered into a Securities Purchase Agreement with Auctus Fund, LLC, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $225,000. The Note had a maturity date of May 7, 2020 and bore interest at the rate of ten percent per annum from the date on which the Note was issued until the same became due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company had the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the election of Auctus Fund, LLC during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 60% of the lowest closing bid price of the Company’s common stock for the thirty trading days prior to conversion.

 

On June 15, 2020, The Company entered into an amended agreement with Auctus whereby Auctus agreed to discharge the principal amount of the note by nine equal monthly installments of $25,000 commencing in October 2020. During the nine months ended September 30, 2021, the Company repaid Auctus the principal sum of $50,000.

 

On August 13, 2020, the Company entered into a Securities Purchase Agreement with Auctus Fund LLC, pursuant to which the Company issued a convertible promissory note in the aggregate principal amount of $100,000 for net proceeds of $85,000 after certain fees and expenses of $15,000. The note has a maturity date of August 13, 2021 and bears interest at 10% per annum. The interest due on the note for the full twelve month period is due immediately upon issuance of the note, regardless of acceleration or prepayment. The principal amount of the note is payable in six monthly instalments of $16,666.66 commencing 180 days after the issuance date, the balance outstanding under the note due at maturity date. In the event a default occurs under the Note, the Note is convertible into shares of common stock at a conversion price equal to the lowest trading price over the prior 5 days prior to the date of the note or the five day volume weighted market price prior to the date of conversion. The Company is required to adhere to certain covenants including covenants concerning distributions of capital stock; restrictions on stock repurchases, additional borrowings sales of assets and loans and advances made by the Company. In conjunction with the issuance of the promissory note, the Company issued a five year warrant exercisable for 66,666,666 shares of common stock at an exercisable price of $0.0015 per share subject to anti-dilution and price protection adjustments. The Company also issued a second five year warrant exercisable for 66,666,666 shares of common stock at an exercisable price of $0.0015 per share subject to anti-dilution and price protection adjustments, which warrants will only be exercisable upon an event of default on the convertible note.

 

 24

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

12. Short-term Convertible Notes (continued)

 

Auctus Fund, LLC (continued)

 

On March 9, 2021, Auctus exercised its warrant for 66,666,666 shares of common stock on a cashless exercise basis, resulting in the issue of 59,999,999 shares of common stock.

 

On May 10, 2021, the company settled the remaining balance of the August 13, 2020 convertible promissory with an aggregate principal amount of $95,000, together with interest and settlement penalty thereon for the payment of $110,000.

 

In addition, on May 10, 2021, the Company paid a further $15,000 of principal on the convertible promissory note entered into on August 7, 2019, thereby reducing the principal outstanding to $100,000.

 

Labrys Fund, LP

 

On July 8, 2019, the Company, entered into a Securities Purchase Agreement with Labrys Fund, LP (“Labrys”), pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $282,000 for net proceeds of $253,800 after an original issue discount of $28,200. The Note had a maturity date of January 8, 2020 and bore interest at the rate of twelve percent per annum from the date on which the Note was issued until the same became due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company had the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note was convertible at any time and from time to time at the election of Labrys during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 60% of the lowest closing bid price of the Company’s common stock for the thirty trading days prior to conversion.

 

In connection with the issuance of the convertible promissory note to Labrys, the Company issued 2,700,000 returnable shares. These shares were returnable if the note was paid prior to maturity date on January 8, 2020. The company had not repaid the note on the maturity date, January 8, 2020, therefore the 2,700,000 shares were recorded as a charge to expense as an additional fee amounting to $165,780, the value of the shares on the date of issuance.

 

Between January 15, 2020 and February 25, 2020, in terms of conversion notices received, Labrys converted the aggregate principal sum of $8,936 and interest of $19,867 into 479,160,076 shares of common stock at an average conversion price of 0.00006 per share.

 

On May 15, 2020 the Company entered into an amended agreement with Labrys Fund LP whereby default interest and penalties were waived, no further conversions will be effectuated and the Company committed to make eight equal payments of $25,000 commencing on October 15, 2020, in full settlement of the balance outstanding. No event of default will occur as long as the Company makes all scheduled payments.

 

Between October 21, 2020 and November 30, 2020, the Company repaid principal of $37,500. The Company was unable to adhere to the amended repayment schedule and default penalty and penalty interest was reinstated.

 

On November 30, 2020, Labrys converted principal of $235,564 and interest thereon of $20,416 into 91,421,457 shares of common stock, realizing a gain on conversion of $4,571, thereby extinguishing the note.

 

On November 30, 2020, the Company, entered into a Securities Purchase Agreement with Labrys, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $275,000 for net proceeds of $239,050 after an original issue discount of $27,500 and certain legal expenses. The Note has a maturity date of November 30, 2021 and bears interest at the rate of twelve percent per annum from the date on which the Note was issued until the same became due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note was convertible at any time and from time to time at the election of Labrys during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 60% of the lowest closing bid price of the Company’s common stock for the thirty trading days prior to conversion.

 

In connection with the issuance of the convertible promissory note to Labrys, the Company granted Labrys a five-year warrant to purchase 100,000,000 shares of common stock at an exercise price of $0.00205 per share. The value of the warrant was accounted for as a debt discount.

 

 25

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

12. Short-term Convertible Notes (continued)

 

Labrys Fund, LP (continued)

  

On May 3, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $57,000 including interest thereon of $33,000 into 100,000,000 shares of common stock.

 

On July 7, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $100,800 into 112,000,000 shares of common stock.

 

On September 28, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $54,000 into 60,000,000 shares of common stock.

 

On May 7, 2021, the Company, entered into a Securities Purchase Agreement with Labrys, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $550,000 for net proceeds of $477,700 after an original issue discount of $55,000 and certain legal expenses of $17,300. The Note has a maturity date of May 7, 2022 and bears interest at the rate of eleven percent per annum from the date on which the Note was issued until the same became due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note was convertible at any time and from time to time at the election of Labrys during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to $0.005, subject to anti-dilution adjustments.

 

In connection with the issuance of the convertible promissory note to Labrys, the Company granted Labrys a five-year warrant to purchase 91,666,666 shares of common stock at an exercise price of $0.006 per share. The value of the warrant was accounted for as a debt discount.

 

On June 2, 2021, the Company, entered into a Securities Purchase Agreement with Labrys, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $230,000 for net proceeds of $200,000 after an original issue discount of $23,000 and certain legal expenses of $7,000. The Note has a maturity date of June 2, 2022 and bears interest at the rate of eleven percent per annum from the date on which the Note was issued until the same became due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note was convertible at any time and from time to time at the election of Labrys during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to $0.004, subject to anti-dilution adjustments.

 

In connection with the issuance of the convertible promissory note to Labrys, the Company granted Labrys a five-year warrant to purchase 52,272,727 shares of common stock at an exercise price of $0.0044 per share. The value of the warrant was accounted for as a debt discount.

 

Ed Blasiak

 

On September 14, 2020, the Company entered into a Securities Purchase Agreement with Ed Blasiak (“Blasiak”), pursuant to which the Company issued a senior secured convertible promissory note in the aggregate principal amount of $55,000, including an original issue discount of $5,000. The note bears interest at 6.5% per annum and matures on September 14, 2021. The note is senior to any future borrowings and commencing on October 1, 2020 the Company will make monthly payments of the accrued interest under the note. The note may be prepaid at certain prepayment penalties and is convertible into shares of common stock at a conversion price at the option of the holder at $0.001 per share, adjusted for anti-dilution provisions; or 80% of the price per share of subsequent equity financings or; after six months 60% of the lowest trading price during the preceding six month period.

 

On September 14, 2020, the Company entered into a five year option agreement with Ed Blasiak (“Blasiak”) whereby the Company agreed to sell to Blasiak a portion of the total outstanding shares of ATHI. The Company provided Blasiak an option to purchase 2.5% of ATHI from the Company for a purchase consideration of $0.0001 per share, based on the advances that Blasiak made to the Company totaling $50,000. Blasiak shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Blasiak to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.

 

 

 26

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

12. Short-term Convertible Notes (continued)

 

Joshua Bauman

 

On September 14, 2020, the Company entered into a Securities Purchase Agreement with Joshua Bauman (“Bauman”), pursuant to which the Company issued a senior secured convertible promissory note in the aggregate principal amount of $110,000, including an original issue discount of $10,000. The note bears interest at 6.5% per annum and matures on September 14, 2021. The note is senior to any future borrowings and commencing on October 1, 2020 the Company will make monthly payments of the accrued interest under the note. The note may be prepaid at certain prepayment penalties and is convertible into shares of common stock at a conversion price at the option of the holder at $0.001 per share, adjusted for anti-dilution provisions; or 80% of the price per share of subsequent equity financings or; after six months 60% of the lowest trading price during the preceding six month period.

 

On October 29, 2020, the Company entered into a five year option agreement entered into with Bauman, so that the Company agreed to sell to Bauman a portion of the total outstanding shares of ATHI. The Company provided Bauman an option to purchase 6.25% of ATHI from the Company for a purchase consideration of $0.0001 per share, based on the advances that Bauman made to the Company totaling $125,000. Bauman shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Bauman to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.

 

In terms of clause 3.12 of the Senior secured convertible Promissory Note Agreement (“Bauman Note”) entered into with Joshua Bauman, the terms of the convertible promissory note issued to Labrys Fund LP on November 30, 2020, as described above, contained terms more favorable than those contained in the Bauman Note, resulting in an adjustment made to the Original issue discount of $1,389 and the issuance of five year warrants exercisable for 50,505,051 shares of common at an exercise price of $0.00205 per share, for the advance made to the Company by Bauman in terms of the Bauman Note.

 

On June 8, 2021, in terms of a conversion notice received by the company, Bauman converted the aggregate principal sum of $100,000 including interest thereon of $5,563 into 106,313,288 shares of common stock.

 

Geneva Roth Remark Holdings, Inc

 

On October 29, 2020, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $88,000, for net proceeds of $85,000 after the payment of legal fees and origination fees amounting to $3,000. The note has a maturity date of August 29, 2021 and bears interest at the rate of 9.0% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser. 180 days after the issued date into shares of the Company’s common stock at 61% of the lowest trade price during the ten consecutive trading days immediately prior to conversion. The principal plus the accrued interest of the Note may be prepaid by the Company prior to the expiry of 180 days from issuance date at a prepayment penalty ranging from 112% to 130%.

 

On November 24, 2020, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $53,000, for net proceeds of $50,000 after the payment of legal fees and origination fees amounting to $3,000. The note has a maturity date of October 15, 2021 and bears interest at the rate of 9.0% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser. 180 days after the issued date into shares of the Company’s common stock at 61% of the lowest trade price during the ten consecutive trading days immediately prior to conversion. The principal plus the accrued interest of the Note may be prepaid by the Company prior to the expiry of 180 days from issuance date at a prepayment penalty ranging from 112% to 130%.

 

 27

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

12. Short-term Convertible Notes (continued)

 

Geneva Roth Remark Holdings, Inc (continued)

 

On March 3, 2021, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $53,500, for net proceeds of $50,000 after the payment of legal fees and origination fees amounting to $3,500. The note has a maturity date of January 3, 2022 and bears interest at the rate of 9.0% per annum. The outstanding principal amount of the note is convertible at any time and from time to time at the election of the purchaser. 180 days after the issued date into shares of the Company’s common stock at 61% of the lowest trade price during the ten consecutive trading days immediately prior to conversion. The principal plus the accrued interest of the Note may be prepaid by the Company prior to the expiry of 180 days from issuance date at a prepayment penalty ranging from 112% to 130%.

 

On April 30, 2021 the Company prepaid the note issued on October 29, 2020, to Geneva Roth Remark Holdings, Inc., in the aggregate principal amount of $88,000 including interest and early settlement penalty thereon for a total payment of $119,449.

 

On May 21, 2021, the Company prepaid the note issued on November 24, 2020 to Geneva Roth Remark Holdings, Inc., in the aggregate principal amount of $53,000 including interest and early settlement penalty thereon for a total payment of $71,907.

 

On September 8, 2021, the Company prepaid the note issued on March 3, 2021 to Geneva Roth Remark Holdings, Inc., in the aggregate principal amount of $53,500 including interest and early settlement penalty thereon for a total payment of $72,620.

 

Series N convertible notes

 

Between January 28, 2019 and June 11, 2020, the Company closed several tranches of Series N Convertible notes in which it raised $3,229,000 in principal from accredited investors through the issuance to the investors of the Company’s Series N convertible notes, in the total original principal amount of $3,229,000, which Notes are convertible into the Company’s common stock at a conversion price of $0.08 per share together with three year warrants to purchase up to a total of 52,237,500 shares of the Company’s common stock at an exercise price of $0.12 per share. Both the conversion price under the Notes and the exercise price under the warrants are subject to standard adjustment mechanisms. The notes matured one year from the date of issuance.

 

13. Short term loans

 

LXR Biotech

 

On April 12, 2019, the Company, entered into a secured Promissory Note in the aggregate principal amount of CDN$133,130. The Note had a maturity date of April 11, 2020 and bears interest at the rate of six percent per annum from the date on which the Note was issued.

 

This note has not been repaid as yet and remains outstanding.

 

Leonite Capital, LLC

 

Secured Promissory Notes  

 

On April 16, 2021, the Company, entered into a secured Promissory Note in the aggregate principal amount of $30,000 for net proceeds of $25,000 after an original issue discount of $3,000 and fees of $2,000. The Note had a maturity date of April 19, 2021 and bore interest at the rate of zero percent per annum from the date on which the Note was issued until the same became due and payable.

 

The Company repaid the note on April 19, 2021 for $28,889, after a reduction on the fees paid of $1,111.

 

 28

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

13. Short term loans (continued)

 

Leonite Capital, LLC (continued)

 

Secured Promissory Notes  

 

On April 29, 2021, the Company, entered into a secured Promissory Note in the aggregate principal amount of $46,000 for net proceeds of $40,000 after an original issue discount of $6,000. The Note had a maturity date of May 3, 2021 and bore interest at the rate of zero percent per annum from the date on which the Note was issued until the same became due and payable.

 

The Company repaid the note on May 3, 2021 for $46,000.

 

On April 30, 2021, the Company, entered into a secured Promissory Note in the aggregate principal amount of $140,000 for net proceeds of $126,000 after an original issue discount of $14,000. The Note had a maturity date of May 7, 2021 and bore interest at the rate of zero percent per annum from the date on which the Note was issued until the same became due and payable.

 

The Company repaid the note on May 10, 2021 for $140,000.

 

On May 27, 2021, the Company, entered into a secured Promissory Note in the aggregate principal amount of $70,000 for net proceeds of $60,000 after an original issue discount of $10,000. The Note had a maturity date of June 4, 2021 and bore interest at the rate of zero percent per annum from the date on which the Note was issued until the same became due and payable.

 

The Company repaid the note on June 4, 2021 for $70,000.

 

On September 15, 2021, the Company, entered into a secured Promissory Note in the aggregate principal amount of $60,000 for net proceeds of $50,000 after an original issue discount of $10,000. The Note had a maturity date of September 23, 2021 and bears interest at the rate of zero percent per annum from the date on which the Note was issued until the same became due and payable.

 

The note was still outstanding at September 30, 2021.

 

14. Mortgage loans

 

Mortgage loans is disclosed as follows:

 

                                           
                                             
    Interest 
rate
    Maturity
date
  Principal 
Outstanding
    Accrued 
interest
    September 30,
2021
    December 31,
2020
 
                                   
Cranberry Cove Holdings, Ltd.                                            
Pace Mortgage     4.2 %   July 19, 2022   $ 3,869,260     $ 4,897     $ 3,874,157     $ 3,963,781  
Disclosed as follows:                                            
Short-term portion                               $ 3,874,157     $ 115,704  
Long-term portion                                       3,848,077  
                                $ 3,874,157     $ 3,963,781  

 

The aggregate amount outstanding is payable as follows:

 

   
    Amount
Within the next twelve months   $ 3,874,157  

 

Cranberry Cove Holdings, Ltd.

 

On July 19, 2017, CCH, a wholly owned subsidiary, closed on a loan agreement in the principal amount of CDN$5,500,000. The loan is secured by a first mortgage on the premises owned by CCH located at 3571 Muskoka Road 169, Bala, Ontario. The loan bears interest at the fixed rate of 4.2% with a 5-year primary term and a 25-year amortization. The Company has guaranteed the loan and the Company’s chief executive officer and controlling shareholder also has personally guaranteed the Loan. CCH and the Company have granted the Lender a general security interest in its assets to secure repayment of the Loan. The loan is amortized with monthly installments of CDN $29,531.

 

 29

 

 

ETHEMA HEALTH CORPORATION

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 15. Government assistance loans

 

On May 10, 2020, the Company was granted a government assistance loan in the aggregate principal amount of $156,782. The loan is forgivable if the Company demonstrates that the proceeds were used for expenses such as employee costs during the pandemic. Should the loan not be forgiven, interest is payable on the loan at the rate of 1% per annum and the principal is repayable and interest is payable over an 18 month period. No payments have been made to date and the Company expects the loan to be forgiven, therefore no interest has been accrued.

 

On December 1, 2020, CCH was granted a Covid-19 related government assistance loan in the aggregate principal amount of CDN$ 40,000 (Approximately $31,000). the grant is interest free and CDN$ 10,000 is forgivable if the loan is repaid in full by December 31, 2022. 

 

On January 12, 2021, CCH received a further CDN$ 20,000 Covid-19 related government assistance loan. The loan is interest free and if repaid by December 31, 2022, CDN$ 10,000 is forgivable.

 

On May 3, 2021, a Company subsidiary, Addiction Recovery Institute of America LLC, closed on a second PPP loan through Lendistry for net proceeds of $157,367.

 

 16. Third party loans

 

On April 12, 2019, Eileen Greene, a related party assigned CDN$1,000,000 of the amount owed by the Company to her, to a third party. The loan bears interest at 12% per annum which the Company agreed to pay.

 

During the current period the Company repaid CDN$160,000 (approximately $131,557).

 

17. Derivative liability

 

The short-term convertible notes issued to convertible note holders disclosed in note 12 above, have variable priced conversion rights with no fixed floor price and will reprice dependent on the share price performance over varying periods of time. This gives rise to a derivative financial liability, which was initially valued at inception of the convertible notes at $109,574 using a Black-Scholes valuation model, after taking into account the value of warrants issued to the convertible note holders.

 

The derivative liability is marked-to-market on