NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
Nature of business
Since
2010, the Company has operated addiction treatment centers. Initially the Company operated an addiction treatment center in Ontario Canada
under its Greenestone Muskoka clinic, which was sold on February 14, 2017. Simultaneously with this sale the Company purchased buildings
and operated an addiction treatment center in Delray Beach Florida under its Addiction recovery Institute of America subsidiary with a
license obtained in December 2016, initially though owned properties in Delray Beach and subsequently though leased properties in West
Palm Beach, Florida. Since June 30, 2020, the Company has been actively involved in the management of a treatment center operated by Evernia
in West Palm Beach Florida. On July 1, 2021, the Company closed on the acquisition of 75% of ATHI, which owns 100% of Evernia, once the
probationary approval of a license was obtained from the Department of Children and Family Services of Florida. Evernia is the only active
treatment center operated by the Company.
The
Company also owns the real estate on which its Greenstone Muskoka clinic operated. The current tenant operates an addiction treatment
center on these premises. The Company collects rent on this property, which is treated as a separate business segment.
2.
Summary of significant accounting policies
Financial Reporting
The
Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America (“US GAAP”).
Management
further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal
accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure,
among other items, that i) recorded transactions are valid; ii) valid transactions are recorded; and iii) transactions are recorded in
the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations
and cash flows of the Company for the respective periods being presented.
a)
Use of Estimates
The
preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from
those estimates.
b)
Principals of consolidation and foreign currency translation
The
accompanying consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany transactions
and balances have been eliminated on consolidation.
Certain
of the Company’s subsidiaries functional currency is the Canadian dollar, while the Company’s reporting currency is the U.S.
dollar. All transactions initiated in Canadian dollars are translated into US dollars in accordance with ASC 830, “Foreign Currency
Translation” as follows:
| |
● |
Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date. |
| |
● |
Certain non-monetary assets and liabilities and equity at historical rates. |
| |
● |
Revenue and expense items and cash flows at the average rate of exchange prevailing during the year. |
Adjustments
arising from such translations are deferred until realization and are included as a separate component of stockholders’ deficit
as a component of accumulated other comprehensive income or loss. Therefore, translation adjustments are not included in determining net
income (loss) but reported as other comprehensive income (loss).
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 2. |
Summary of significant accounting policies (continued) |
| |
b) |
Principals of consolidation and foreign currency translation (continued) |
For
foreign currency transactions, the Company translates these amounts to the Company’s functional currency at the exchange rate effective
on the invoice date. If the exchange rate changes between the time of purchase and the time actual payment is made, a foreign exchange
transaction gain or loss results which is included in determining net income for the year.
The
relevant translation rates are as follows: For the year ended December 31, 2022, a closing rate of CDN$1 equals US$0.7383 and an average
exchange rate of CDN$1 equals US$0.7686, for the year ended December 31, 2021, a closing rate of CDN$1.0000 equals US$0.7888 and an average
exchange rate of CDN$1.0000 equals US$0.7977.
c)
Business Combinations
The
Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed for
business combinations with third parties based on their estimated fair values. The excess of the fair value of purchase consideration
over the fair values of these identifiable assets and liabilities is recorded as goodwill.
Such
valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant
estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired
technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value
are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results
may differ from estimates.
d)
Cash and cash equivalents
For
purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months
or less and money market accounts to be cash equivalents. The Company maintains cash and cash equivalents with several financial institution
in the USA and Canada. There were no cash equivalents at December 31, 2022 and 2021.
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.
e)
Accounts receivable
Accounts
receivable primarily consists of amounts due from third-party payors (non-governmental) and private pay patients and is recorded net of
allowances for doubtful accounts and contractual discounts. The Company’s ability to collect outstanding receivables is critical
to its results of operations and cash flows. Accordingly, accounts receivable reported in the Company’s 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.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 2. |
Summary of significant accounting policies (continued) |
f)
Allowance for Doubtful Accounts, Contractual and Other Discounts
The
Company derives the majority of its revenues from commercial payors at in-network rates. Management estimates the allowance for contractual
and other discounts based on its historical collection experience and contractual rates. The services authorized and provided and related
reimbursement are often subject to interpretation and negotiation that could result in payments that differ from the Company’s estimates.
The Company’s allowance for doubtful accounts is based on historical experience, but management also takes into consideration the
age of accounts, creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. An
account is written off only after the Company has pursued collection efforts or otherwise determines an account to be uncollectible. Uncollectible
balances are written-off against the allowance. Recoveries of previously written-off balances are credited to income when the recoveries
are made.
g)
Property and equipment
Property
and equipment is recorded at cost. Depreciation is calculated on the straight line basis over the estimated life of the asset.
h)
Intangible assets
Intangible
assets are stated at acquisition cost less accumulated amortization, if applicable, less any adjustments for impairment losses.
Amortization
is charged on a straight-line basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed
to be impaired the Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible
and its book value.
Licenses
to provide substance abuse rehabilitation services are amortized over the expected life of the contract, including any anticipated renewals.
The Company expects its licenses to remain in operation for a period of five years.
i)
Leases
The
Company accounts for leases in terms of AC 842 whereby leases are classified as either finance or operating leases. Leases that transfer
substantially all of the benefits and inherent risks of ownership of property to the Company are accounted for as finance leases. At the
time a finance lease is entered into, an asset is recorded together with its related long-term obligation to reflect the acquisition and
financing. Property and equipment recorded under finance leases is amortized on the same basis as described above. Operating leases are
recognized on the balance sheet as a lease liability with a corresponding right of use asset for all leases with a term that is more than
twelve months. Payments under operating leases are expensed as incurred.
j)
Derivatives
The
Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine
whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value
with changes in fair value recorded in earnings. The Company previously used 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 were included in the statements of operations. Inputs into the Black Scholes Option Pricing model require
estimates, including such items as estimated volatility of the Company’s stock, risk free interest rate and the estimated life of
the financial instruments being fair valued.
If
the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with
Conversion and Other Options” for consideration of any beneficial conversion feature.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 2. |
Summary of significant accounting policies (continued) |
k)
Financial instruments
The
Company initially measures its financial assets and liabilities at fair value, except for certain non-arm’s length transactions.
The Company subsequently measures all its financial assets and financial liabilities at amortized cost.
Financial
assets measured at amortized cost include cash and accounts receivable.
Financial
liabilities measured at amortized cost include bank indebtedness, accounts payable and accrued liabilities, harmonized sales tax payable,
withholding taxes payable, convertible notes payable, loans payable and related party notes.
Financial
assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized
in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the
allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment
not been recognized previously. The amount of the reversal is recognized in net income. The Company recognizes its transaction costs in
net income in the period incurred. However, financial instruments that will not be subsequently measured at fair value are adjusted by
the transaction costs that are directly attributable to their origination, issuance or assumption.
FASB
ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles,
and expands disclosures about fair value measurements. ASC 820 establishes a three tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value as follows:
| |
● |
Level 1. Observable inputs such as quoted prices in active markets; |
| |
● |
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
| |
● |
Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions. |
The
Company measures its convertible debt and derivative liabilities associated therewith at fair value. These liabilities are revalued periodically
and the resultant gain or loss is realized through the consolidated Statement
of Operations and Comprehensive Loss.
l)
Related parties
Parties
are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled
by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members
of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one
party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting
parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions
are recorded at fair value of the goods or services exchanged.
m)
Revenue recognition
ASC
606 requires companies to exercise more judgment and recognize revenue using a five-step process.
The
Company’s provision for doubtful accounts are recorded as a direct reduction to revenue instead of being presented as a separate
line item on the consolidated statements of operations and comprehensive loss.
As
our performance obligations relate to contracts with a duration of one year or less, the Company elected the optional exemption in ASC
606-10-50-14(a). Therefore, the Company is not required to disclose the transaction price for the remaining performance obligations at
the end of the reporting period or when the Company expects to recognize the revenue. The Company has minimal unsatisfied performance
obligations at the end of the reporting period as our patients typically are under no obligation to remain admitted in our facilities.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 2. |
Summary of significant accounting policies (continued) |
| |
m) |
Revenue recognition
(continued) |
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 $337,074 and $176,011 at
December 31, 2022 and December 31, 2021, respectively. Management believes that these receivables are properly stated and are not likely
to be settled for a significantly different amount.
The
Company’s revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that
reflects the consideration that the Company expects to receive in exchange for those services. The Company derives its revenues from the
sale of its services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be
recognized as it fulfills its obligations under each of its revenue transactions:
| |
i. |
identify the contract with a customer; |
| |
ii. |
identify the performance obligations in the contract; |
| |
iii. |
determine the transaction price; |
| |
iv. |
allocate the transaction price to performance obligations in the contract; and |
| |
v. |
recognize revenue as the performance obligation is satisfied. |
n)
Income taxes
The
Company accounts for income taxes under the provisions of ASC Topic 740, “Income Taxes”. Under ASC Topic
740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income taxes are provided
using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences
by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities. The tax basis of an asset or liability is the amount attributed to that asset or liability
for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in income in the period of change. A valuation allowance
is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of, the
deferred tax assets will not be realized.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 2. |
Summary of significant accounting policies (continued) |
| |
n) |
Income taxes (continued) |
ASC
Topic 740 contains a two-step
approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine
if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including
resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is
more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties accrued on unrecognized tax
benefits within general and administrative expense. To the extent that accrued interest and penalties do not ultimately become payable,
amounts accrued will be reduced and reflected as a reduction in general and administrative expenses in the period that such determination
is made. The tax returns for fiscal 2019, through 2021 are subject to audit or review by the US tax authorities, whereas fiscal 2011 through
2021 are subject to audit or review by the Canadian tax authority.
o)
Net income (loss) per Share
Basic
net income (loss) per share is computed on the basis of the weighted average number of common stock outstanding during the year.
Diluted
net income (loss) per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding.
Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.
Dilution
is computed by applying the treasury stock method for options and warrants. Under this method, “in-the money” options and
warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby
were used to purchase common stock at the average market price during the period. Dilution is computed by applying the if-converted method
for convertible preferred stocks. Under this method, convertible preferred stock is assumed to be converted at the beginning of the period
(or at the time of issuance, if later), and preferred dividends (if any) will be added back to determine income applicable to common stock.
The shares issuable upon conversion will be added to weighted average number of common stock outstanding. Conversion will be assumed only
if it reduces earnings per share (or increases loss per share).
p)
Stock based compensation
Stock
based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over
the employee’s requisite service period or vesting period on a straight-line basis. Share-based compensation expense recognized
in the consolidated statements of operations for the year ended December 31, 2022 and 2021 is based on awards ultimately expected to vest
and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual forfeitures differ from
those estimates. We have no awards with performance conditions and no awards dependent on market conditions.
q)
Financial instruments Risks
The Company is exposed
to various risks through its financial instruments. The following analysis provides a measure of the Company’s risk exposure and
concentrations at the balance sheet date, December 31, 2022 and 2021.
Credit
risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.
Financial instruments that subject the Company to credit risk consist primarily of accounts receivable.
Credit
risk associated with accounts receivable is mitigated as only a percentage of the revenue billed to health insurance companies is recognized
as income until such time as the actual funds are collected. The revenue is concentrated amongst several health insurance companies located
in the US.
In
the opinion of management, credit risk with respect to accounts receivable is assessed as low.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 2. |
Summary of significant accounting policies (continued) |
| |
q) |
Financial instruments Risks (continued) |
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 approximately $12.7 million,
and an accumulated deficit of approximately $43.5 million. The Company is dependent upon the raising of additional capital in order to
implement its business plan. There is no assurance that the Company will be successful with future financing ventures, and the inability
to secure such financing may have a material adverse effect on the Company’s financial condition. In the opinion of management,
liquidity risk is assessed as high, material and remains unchanged from that of the prior year.
Market
risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.
Market risk comprises of three types of risk: interest rate risk, currency risk, and other price risk. The Company is exposed to interest
rate risk and currency risk.
Interest
rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest
rates. The Company is exposed to interest rate risk on its convertible debt, mortgage loans, short term loans, third party loans and government
assistance loans as of December 31, 2022. In the opinion of management, interest rate risk is assessed as moderate.
Currency
risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange
rates. The Company is subject to currency risk as it has subsidiaries that operate in Canada and are subject to fluctuations in the Canadian
dollar. A substantial portion of the Company’s financial assets and liabilities are denominated in Canadian dollars, however net
earnings in foreign currency is minimal and a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result
in an immaterial increase or decrease in the Company’s after tax net income from operations. The Company has not entered into any
hedging agreements to mitigate this risk. In the opinion of management, currency risk is assessed as low, material and remains unchanged
from that of the prior year.
Other
price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the
individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. In the opinion
of management, the Company is not exposed to this risk and remains unchanged from the prior year.
r)
Recent accounting pronouncements
The Financial Accounting Standards Board
(“FASB”) issued additional updates during the year ended December 31, 2022. 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 Company’s consolidated
financial statements upon adoption.
s)
Comparative and prior period disclosures
The
comparative and prior period disclosed amounts presented in these consolidated financial statements have been reclassified where necessary
to conform to the presentation used in the current year and period.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.
Adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
In August 2020, the FASB issued ASU 2020-06,
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies the accounting for convertible
instruments by removing certain separation models in ASC 470-20, Debt—Debt with Conversion and Other Options, for convertible instruments.
The ASU updates the guidance on certain embedded conversion features that are not required to be accounted for as derivatives under Topic
815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, such that those features
are no longer required to be separated from the host contract. The convertible debt instruments will be accounted for as a single liability
measured at amortized cost. This will also result in the interest expense recognized for convertible debt instruments to be typically
closer to the coupon interest rate when applying the guidance in Topic 835, Interest. Further, the ASU made amendments to the EPS guidance
in Topic 260 for convertible debt instruments, the most significant impact of which is requiring the use of the if-converted method for
diluted EPS calculation, and no longer allowing the net share settlement method. The ASU also made revisions to Topic 815-40, which provides
guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting. The amendments
to Topic 815-40 change the scope of contracts that are recognized as assets or liabilities. The ASU is effective for interim and annual
periods beginning after December 15, 2021. Adoption of the ASU can either be on a modified retrospective or full retrospective basis.
On January 1, 2022, the Company adopted
the ASU using the modified retrospective method. We recognized a cumulative effect of initially applying the ASU as an adjustment to the
January 1, 2022 opening balance of accumulated deficit, an adjustment to the convertible note balance outstanding and the elimination
of the derivative liability balance at January 1, 2022.
The prior period consolidated financial
statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.
Accordingly, the cumulative effect of the changes made on
our January 1, 2022 consolidated balance sheet for the adoption of the ASU was as follows:
Cumulative effect of the changes consolidated balance sheet for the adoption
| |
|
Balance
at December 31, 2021 |
|
Adjustments
from adoption of ASU 2020-06 |
|
Adjusted
balance at December 31, 2021 |
| |
|
|
|
|
|
|
| Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated deficit |
|
$ |
44,103,311 |
|
|
$ |
(468,462 |
) |
|
$ |
43,634,849 |
|
| Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Convertible notes, net of
discounts |
|
|
(4,891,938 |
) |
|
|
(47,439 |
) |
|
|
(4,939,377) |
|
| Derivative
liability |
|
|
(515,901 |
) |
|
|
515,901 |
|
|
|
— |
|
The impact of adoption on our consolidated statements of operations
for the year ended December 31, 2022 was to reduce discount amortization by $47,439 and to eliminate any mark-to-market movements on derivative
liabilities as the conversion features of convertible notes and warrants no longer qualify as derivative liabilities.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
4.
Going concern
The
Company’s consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which
assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business. At December
31, 2022 the Company has a working capital deficiency of $12.7 million,
and total liabilities in excess of assets in the amount of $8.8 million
. Management believes that current available resources will not be sufficient to fund the Company’s planned expenditures over the
next 12 months. Accordingly, the Company will be dependent upon the raising of additional capital through placement of common shares,
and/or debt financing in order to implement its business plan and generating sufficient revenue in excess of costs. If the Company raises
additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution,
and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes.
If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants
or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company
may be required to relinquish its rights to certain geographical areas, or techniques that it might otherwise seek to retain. There is
no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have
a material adverse effect on the Company’s financial condition. These consolidated financial statements do not include any adjustments
to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going
concern.
5.
Disposal of subsidiaries
On
December 30, 2022, the Company entered into two agreements whereby it sold Greenstone Muskoka and ARIA to the Company Chairman and CEO
for gross proceeds of $0.
Immediately
prior to the disposal of these subsidiaries, Greenstone Muskoka forgave its intercompany receivable owing from the Company of $6,690,381
and the Company forgave its intercompany balance owing from ARIA of $9,605,315.
The
Company also assumed the liability to pay for the Government assistance loan of $50,073.
The
assets and liabilities disposed of were as follows:
Schedule of
assets and liabilities Disposal
| |
|
Greenstone Muskoka |
|
ARIA |
|
Net book value |
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash |
|
$ |
382 |
|
|
$ |
1,038 |
|
|
$ |
1,420 |
|
| |
|
|
382 |
|
|
|
1,038 |
|
|
|
1,420 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
|
— |
|
|
|
134,795 |
|
|
|
134,795 |
|
| Payroll taxes |
|
|
134,812 |
|
|
|
— |
|
|
|
134,812 |
|
| Income taxes payable |
|
|
360,380 |
|
|
|
— |
|
|
|
360,380 |
|
| |
|
|
495,192 |
|
|
|
134,795 |
|
|
|
629,987 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net liabilities sold |
|
|
494,810 |
|
|
|
133,757 |
|
|
|
628,567 |
|
| Net proceeds realized |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Gain on disposal booked as adjustment to paid in capital |
|
$ |
494,810 |
|
|
$ |
133,757 |
|
|
$ |
628,567 |
|
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
6.
Acquisition of subsidiaries
On
June 30, 2020, the Company entered into an agreement whereby the Company agreed to acquire 51% of American Treatment Holdings, Inc. (“ATHI”)
from The Q Global Trust (“Seller”) and Lawrence B Hawkins (“Hawkins”), which in turn owns 100% of Evernia Health
Services LLC. (“Evernia”), which operates drug rehabilitation facilities. The consideration for the acquisition was a loan
to be provided by the purchaser to Evernia in the amount of $500,000. As of the date of acquisition, July 1, 2021, the Company had advanced
Evernia approximately $1,140,985.
The
Company originally had a 180 day option, from the advancement of the first tranche to Evernia, to purchase an additional 9% of ATHI for
a purchase consideration of $50,000.
On
April 28, 2021, the Stock Purchase Agreement date June 30, 2020 between the Company and the Q Global Trust, and ATHI was amended
whereby the option to purchase an additional 9% of ATHI for $50,000 was amended to purchase an additional 24%, an increase of 15% over
the prior option, for 100,000,000 shares of common stock. The remaining condition to closing, the receipt of approval for the change
of ownership of the license from the Department of Children and Family Services of Florida, was satisfied by the probationary approval,
which was received on June 30, 2021. The Company exercised the option and issued the 100,000,000 shares of common stock and
paid $46,750 of the $50,000 due to
the Seller, in terms of the amended agreement as of the date of this report. In addition to the consideration paid for the additional
equity the Company agreed to execute a promissory note for the payment of any unpaid management fees at the time of Closing such that
the unpaid fees shall be paid pari-passu with the repayment of the Loan Agreement and Seller agrees that any funds advanced to the Company
by Behavioural Health Holdings, LLC shall be forgiven and considered contributed capital to ATHI. The Company agrees to advance up to
$1,100,000 under the Loan Agreement for the funding of the operations of ATHI as required without any contribution required by the
Seller. As at the date of acquisition, July 1, 2021, the Company had advanced Evernia $1,140,985, subsequent to July 1, 2021 to
December 31, 2022, Evernia had repaid $637,602. The balance owing to the company at December 31, 2022 was $503,383.
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 purchase price was allocated to the fair market value of tangible and intangible assets acquired
and liabilities assumed as follows:
Schedule of assets acquired and liabilities assumed
| |
|
|
| |
|
Amount |
| Consideration |
|
|
|
|
| Cash |
|
$ |
50,000 |
|
| 100,000,000 shares of common stock at fair market value |
|
|
410,000 |
|
| Total purchase consideration |
|
$ |
460,000 |
|
| Recognized amounts of identifiable assets acquired and liabilities assumed |
|
|
|
|
| Cash |
|
$ |
60,324 |
|
| Other Current assets |
|
|
198,133 |
|
| Property, plant and equipment |
|
|
130,234 |
|
| Right of use asset |
|
|
1,772,560 |
|
| Intangibles |
|
|
1,789,903 |
|
| Total assets |
|
|
3,951,154 |
|
| Less: liabilities assumed |
|
|
|
|
| Current liabilities assumed |
|
|
(50,040 |
) |
| Intercompany advance |
|
|
(1,140,985 |
) |
| Operating lease liabilities assumed |
|
|
(1,836,151 |
) |
| Imputed Deferred taxation on identifiable intangible acquired |
|
|
(310,645 |
) |
| Total liabilities |
|
|
(3,337,821 |
) |
| Net identifiable assets acquired and liabilities assumed |
|
|
613,333 |
|
| Fair value of non-controlling interest |
|
|
(153,333 |
) |
| Total |
|
$ |
460,000 |
|
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 6. |
Acquisition of subsidiaries (continued) |
The amount of revenue
and earnings include in the Company’s consolidated statements of operations and comprehensive income (loss) for the year ended December
31, 2022 and the revenue and earnings of the combined entity had the acquisition date been January 1, 2021.
Schedule of revenue and earnings
| |
|
Revenue |
|
Earnings |
| |
|
|
|
|
| Actual from January 1, 2022 to December 31, 2022 |
|
$ |
4,411,546 |
|
|
$ |
189,231 |
|
| |
|
|
|
|
|
|
|
|
| 2021 Supplemental pro forma from January 1, 2021 to December 31, 2021 |
|
$ |
3,024,297 |
|
|
$ |
(1,965,484 |
) |
The 2021 Supplemental
pro forma earnings information was adjusted to account for amortization of intangibles on acquisition of $178,990.
7.
Property and equipment
Property and equipment
consists of the following:
Schedule of sale of property
| |
|
December 31,
2022 |
|
December 31, 2021 |
| |
|
Cost |
|
Accumulated depreciation |
|
Net book value |
|
Net book value |
| Land |
|
$ |
158,742 |
|
|
$ |
— |
|
|
$ |
158,742 |
|
|
$ |
169,585 |
|
| Property |
|
|
3,002,913 |
|
|
|
(692,465 |
) |
|
|
2,310,448 |
|
|
|
2,596,590 |
|
| Leasehold improvements |
|
|
416,727 |
|
|
|
(43,407 |
) |
|
|
373,320 |
|
|
|
153,730 |
|
| Furniture and fittings |
|
|
116,809 |
|
|
|
(23,868 |
) |
|
|
92,941 |
|
|
|
42,140 |
|
| Vehicles |
|
|
55,949 |
|
|
|
(17,870 |
) |
|
|
38,079 |
|
|
|
49,268 |
|
| Computer equipment |
|
|
1,450 |
|
|
|
(585 |
) |
|
|
865 |
|
|
|
1,350 |
|
| |
|
$ |
3,752,590 |
|
|
$ |
(778,195 |
) |
|
$ |
2,974,395 |
|
|
$ |
3,012,663 |
|
Depreciation expense
for the year ended December 31, 2022 and 2021 was $182,139
and $146,360,
respectively.
8.
Intangibles
Intangible
assets consist of the Company’s estimate of the fair value of intangibles acquired with the acquisition of ATHI disclosed
in Note 5 above. The Company allocated the excess over the tangible assets acquired, less the liabilities assumed to the
contract provided to the Company by a health care service provider.
Intangible
assets consist of the following:
Schedule of Intangible assets
| |
|
December 31,
2022 |
|
December 31, 2021 |
| |
|
Cost |
|
Accumulated amortization |
|
Net book value |
|
Net book value |
| Health care Provider license |
|
$ |
1,789,903 |
|
|
$ |
(536,971) |
|
|
$ |
1,252,932 |
|
|
$ |
1,610,913 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company evaluates intangible assets for impairment on an annual basis during the last month of each year and at an interim date if indications
of impairment exist. Intangible asset impairment is determined by comparing the fair value of the asset to its carrying amount with an
impairment being recognized only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.
The
Company recorded $357,981 and $178,990 in amortization expense for finite-lived assets for the year ended
December 31, 2022 and 2021,
respectively.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
9.
Leases
The
Company acquired ATHI on July 1, 2021, ATHI’s wholly owned subsidiary had entered into an operating lease agreement for certain
real property located at 950 Evernia Street, West Palm Beach, Florida, with effect from February 1, 2019 for a period of three
years, expiring on February 1, 2022. Under the
terms of the lease agreement, the lease was extended during October 2021 for a further 5 year period until February
1, 2027.
To
determine the present value of minimum future lease payments for operating leases at February 1, 2019, the Company was required to estimate
a rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments
in a similar economic environment (the "incremental borrowing rate" or "IBR").
The
Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options
and certain lease-specific circumstances. For the reference rate, the Company used the average of (i) the five year ARM interest rate
as quoted by Freddie Mac adjusted for a risk premium of 20%. The Company determined that 4.64% per annum was an appropriate incremental
borrowing rate to apply to its real-estate operating lease.
Right of use assets are included in the consolidated balance sheet are as follows:
Schedule of Right of use assets
| |
|
December 31,
2022 |
|
December 31,
2021 |
| Non-current assets |
|
|
|
|
|
|
|
|
| Right-of-use assets – finance leases, net of depreciation, included in Property and equipment |
|
$ |
38,079 |
|
|
$ |
49,268 |
|
| Right-of-use assets - operating leases, net of amortization |
|
$ |
1,393,071 |
|
|
$ |
1,653,816 |
|
Lease costs consists of
the following:
Schedule of lease cost
| |
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
| |
|
2022 |
|
2021 |
| Finance lease cost: |
|
|
|
|
|
|
|
|
| Amortization of right-of-use assets |
|
$ |
11,190 |
|
|
$ |
6,681 |
|
| Interest expense on finance lease liabilities |
|
|
2,443 |
|
|
|
1,367 |
|
| |
|
|
13,633 |
|
|
|
8,048 |
|
| |
|
|
|
|
|
|
|
|
| Operating lease cost |
|
$ |
400,207 |
|
|
$ |
178,679 |
|
| Lease cost |
|
$ |
413,840 |
|
|
$ |
186,727 |
|
Other lease information:
Schedule of Other lease
| |
|
Year ended December 31, |
| |
|
2022 |
|
2021 |
| Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
| Operating cash flows from finance leases |
|
$ |
(2,443 |
) |
|
$ |
(1,367 |
) |
| Operating cash flows from operating leases |
|
|
(380,545 |
) |
|
|
(160,272 |
) |
| Financing cash flows from finance leases |
|
|
(7,437 |
) |
|
|
40,281 |
|
| Cash paid for amounts included in the measurement of lease liabilities |
|
$ |
(390,425 |
) |
|
$ |
(121,358 |
) |
| |
|
|
|
|
|
|
|
|
| Weighted average lease term – finance leases |
|
|
3 years and ten months |
|
|
|
4 years and ten months |
|
| Weighted average remaining lease term – operating leases |
|
|
4 years and 1 months |
|
|
|
5 years and 1 months |
|
| |
|
|
|
|
|
|
|
|
| Discount rate – finance leases |
|
|
6.60 |
% |
|
|
6.61 |
% |
| Discount rate – operating leases |
|
|
4.64 |
% |
|
|
4.64 |
% |
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Maturity
of Leases
Finance
lease liability
The amount of future minimum
lease payments under finance leases as of December 31, 2022 is as follows:
Schedule of Finance lease liability
| |
|
Amount |
| 2023 |
|
$ |
9,829 |
|
| 2024 |
|
|
9,829 |
|
| 2025 |
|
|
9,829 |
|
| 2026 |
|
|
6,195 |
|
2027
|
|
|
1,707 |
|
| |
|
|
37,389 |
|
| Imputed interest |
|
|
(4,546) |
|
| Total finance lease liability |
|
$ |
32,843 |
|
| Disclosed as: |
|
|
|
|
| Current portion |
|
$ |
7,891 |
|
| Non-Current portion |
|
|
24,952 |
|
| Lease liability |
|
$ |
32,843 |
|
Operating
lease liability
The
amount of future minimum lease payments under operating leases are as follows:
Schedule of Operating lease liability
| Schedule of Operating lease liability |
|
|
| |
|
Amount |
| |
|
|
| 2022 |
|
$ |
348,677 |
|
| 2023 |
|
|
366,110 |
|
| 2024 |
|
|
384,416 |
|
| 2025 |
|
|
403,637 |
|
| 2026 |
|
|
33,770 |
|
| Total undiscounted minimum future lease payments |
|
|
1,536,610 |
|
| Imputed interest |
|
|
(43,180 |
) |
| Total operating lease liability |
|
$ |
1,493,430 |
|
| |
|
|
|
|
| Disclosed as: |
|
|
|
|
| Current portion |
|
$ |
287,017 |
|
| Non-Current portion |
|
|
1,206,413 |
|
| Lease liability |
|
$ |
1,493,430 |
|
10.
Taxes Payable
Taxes payable consist
of:
Schedule of taxation payable
| |
|
|
|
|
| |
|
December 31,
2022 |
|
December 31,
2021 |
| |
|
|
|
|
| Payroll taxes |
|
$ |
— |
|
|
$ |
144,020 |
|
| HST/GST payable |
|
|
74,134 |
|
|
|
123,134 |
|
| Income tax payable |
|
|
174,510 |
|
|
|
391,682 |
|
| Taxes Payable |
|
$ |
248,644 |
|
|
$ |
658,836 |
|
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
On December 30, 2022,
the Company sold its Greenstone Muskoka subsidiary to the Company’s Chairman and CEO, who assumed the payroll tax liability of CDN$182,589
(approximately $134,812) and the income tax liability of CDN$488,099 (approximately $14,812).
11.
Short-term Convertible Notes
The
short-term convertible notes consist of the following:
Schedule of short-term convertible notes
| |
|
Interest rate |
|
Maturity Date |
|
Principal |
|
Interest |
|
Debt Discount |
|
December 31, 2022 |
|
December 31, 2021 |
| Leonite Capital, LLC |
|
|
12.0 |
% |
|
On Demand |
|
$ |
129,379 |
|
|
$ |
55,370 |
|
|
$ |
— |
|
|
$ |
184,749 |
|
|
$ |
315,579 |
|
| Leonite Fund I, LP |
|
|
Variable |
|
|
March 1, 2023 |
|
|
745,375 |
|
|
|
11,515 |
|
|
|
(36,060 |
) |
|
|
720,830 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Auctus Fund, LLC |
|
|
0.0 |
% |
|
On Demand |
|
|
80,000 |
|
|
|
— |
|
|
|
— |
|
|
|
80,000 |
|
|
|
100,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Labrys Fund, LP |
|
|
12.0 |
% |
|
On Demand |
|
|
— |
|
|
|
8,826 |
|
|
|
— |
|
|
|
8,826 |
|
|
|
8,826 |
|
| |
|
|
11.0 |
% |
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
354,504 |
|
| |
|
|
11.0 |
% |
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
148,488 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ed Blasiak |
|
|
6.5 |
% |
|
On Demand |
|
|
55,000 |
|
|
|
8,322 |
|
|
|
— |
|
|
|
63,322 |
|
|
|
59,697 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Joshua Bauman |
|
|
11.0 |
% |
|
October 21, 2022 |
|
|
150,000 |
|
|
|
19,710 |
|
|
|
— |
|
|
|
169,710 |
|
|
|
32,387 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Geneva Roth Remark Holdings, Inc. |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Series N convertible notes |
|
|
6.0 |
% |
|
On Demand |
|
|
3,229,000 |
|
|
|
812,813 |
|
|
|
— |
|
|
|
4,041,813 |
|
|
|
3,848,073 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
$ |
4,388,754 |
|
|
$ |
916,556 |
|
|
$ |
(36,060 |
) |
|
$ |
5,269,250 |
|
|
$ |
4,891,938 |
|
Leonite
Capital, LLC
On
July 12, 2020, the Company entered into a Senior Secured Convertible Note agreement with Leonite for $440,000 with an original issue
discount of $40,000 for gross proceeds of $400,000, the initial tranche advanced will be for cash of $200,000 plus the OID of
$20,000, the remaining advances will be at the discretion of the Leonite. The loan bears interest at 6.5% per annum and matures on June
12, 2021. The Company is required to make monthly payments of the accrued interest on the advances made. The note is convertible into
common shares at the option of the holder at $0.10 per share, or 80% multiplied by the price per share paid in subsequent financings or
after a six month period from the effective date at 60% of the lowest trading price during the preceding 21 consecutive trading days.
The note has both conversion price protection and anti-dilution protection provisions.
On
February 28, 2022, in terms of a conversion notice, Leonite converted the principal sum of $149,250 of the Leonite Note into 150,000,000 shares
of common stock at a conversion price of $0.0010 per share.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 11. |
Short-term Convertible Notes (continued) |
Leonite
Fund I, LP
Effective
June 1, 2022, The Company entered into a Note Exchange Agreement whereby the convertible promissory notes entered into with Labrys Fund
LP on May 7, 2021, with. A principal outstanding of $341,000, and on June 2, 2021 with a principal outstanding of $230,000 and accrued
interest thereon of $25,300, were exchanged for a new Senior Secured Convertible Promissory note in the principal amount of $745,375,
including an OID of $149,075. The Note matures on March 1, 2023, and bears interest at the minimum of 10% per annum or the Wall Street
Journal quoted prime rate plus 5.75%.
Interest
is payable monthly and the note may be prepaid with a prepayment
penalty of 10%. The note is convertible into common
stock at a fixed conversion price of $0.01 per share, subject to anti-dilution adjustments and a fundamental transaction clause allowing
the note holder to receive the same consideration as common stockholders would receive.
The
convertible note is secured by all of the assets of Ethema Health Corporation and Addiction Recovery Institute of America, LLC.
Auctus
Fund, LLC
On
August 7 2019, the Company, entered into a Securities Purchase Agreement with Auctus Fund, LLC, pursuant to which the Company issued a
Convertible Promissory Note in the aggregate principal amount of $225,000. The Note had a maturity date of May 7, 2020 and bore
interest at the rate of ten percent per annum from the date on which the Note was issued until the same became due and payable, whether
at maturity or upon acceleration or by prepayment or otherwise. The Company had the right to prepay the Note in terms of agreement. The
outstanding principal amount of the Note is convertible at any time and from time to time at the election of Auctus Fund, LLC during the
period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion
price equal to 60% of the lowest closing bid price of the Company’s common stock for the thirty trading days prior to conversion.
On
June 15, 2020, The Company entered into an amended agreement with Auctus whereby the Company agreed to discharge the principal amount
of the note by nine equal monthly installments of $25,000 commencing in October 2020. During the year ended December 31, 2021, the
Company repaid Auctus the principal sum of $50,000.
During
March 2022, the Company paid $20,000 of principal on the convertible note, thereby reducing the principal outstanding to $80,000. The
note matured May 7, 2020, Auctus Fund LLC has not declared a default and we are in constant discussion with the lender on settling the
note.
Labrys
Fund, LP
On
November 30, 2020, the Company, entered into a Securities Purchase Agreement with Labrys, pursuant to which the Company issued a Convertible
Promissory Note in the aggregate principal amount of $275,000 for net proceeds of $239,050 after an original issue discount
of $27,500 and certain legal expenses. The Note has a maturity date of November 30, 2021 and bears interest at the rate
of twelve percent per annum from the date on which the Note was issued until the same became due and payable, whether at maturity or upon
acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding principal
amount of the Note was convertible at any time and from time to time at the election of Labrys during the period beginning on the date
that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 60% of the lowest
closing bid price of the Company’s common stock for the thirty trading days prior to conversion.
On
May 3, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $57,000 including
interest thereon of $33,000 into 100,000,000 shares of common stock.
On
July 7, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $100,800 into 112,000,000 shares
of common stock.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 11. |
Short-term Convertible Notes (continued) |
Labrys
Fund, LP (continued)
On
September 28, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $54,000 into 60,000,000 shares
of common stock.
On
October 8, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $55,800 into 62,000,000 shares
of common stock.
On
October 15, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $7,400 into 8,222,222 shares
of common stock. The Company has $8,826 of interest outstanding under the convertible promissory note.
On
May 7, 2021, the Company, entered into a Securities Purchase Agreement with Labrys, pursuant to which the Company issued a Convertible
Promissory Note in the aggregate principal amount of $550,000 for net proceeds of $477,700 after an original issue discount
of $55,000 and certain legal expenses of $17,300. The Note has a maturity date of May 7, 2022 and bears interest at the
rate of eleven percent per annum from the date on which the Note was issued until the same became due and payable, whether at maturity
or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note in terms of agreement. The outstanding
principal amount of the Note was convertible at any time and from time to time at the election of Labrys during the period beginning on
the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to $0.005,
subject to anti-dilution adjustments.
On
November 23, 2021, in terms of a conversion notice received by the Company, Labrys converted the aggregate principal sum of $6,329 and
interest of $60,500 into 75,000,000 shares of common stock.
Effective
December 29, 2021, the Company entered into a modification of the convertible note agreement with Labrys whereby the May 7, 2021 note
were amended as follows:
| |
· |
The Maturity date of the note was extended to May 31, 2022. |
| |
· |
The triggering of the dilutive event on October 25, 2021 which reduced the conversion price of the convertible note to $0.001 per share, will not be utilized as long as any events of default under the note are not triggered. |
| |
· |
The Company agreed to make monthly payments under the note totaling $536,000 between January 10, and May 31, 2022. |
During
the year ended December 31, 2022, the Company repaid $195,000 of the outstanding principal of the convertible note, effective June 1,
2022, Labrys sold the note to Leonite Fund I, LP, who was issued a new senior secured convertible promissory note, see above.
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.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 11. |
Short-term Convertible Notes (continued) |
Labrys
Fund, LP (continued)
Effective
December 29, 2021, the Company entered into a modification of the convertible note agreement with Labrys whereby the May 7, 2021 note
were amended as follows:
| |
· |
The Maturity date of the note was extended to June 30, 2022. |
| |
· |
The triggering of the dilutive event on October 25, 2021 which reduced the conversion price of the convertible note to $0.001 per share, will not be utilized as long as any events of default under the note are not triggered. |
| |
· |
The Company agreed to make two equal payments of $127,650 on the note on May 31, and June 30, 2022. |
Effective
June 1, 2022, Labrys sold the note to Leonite Fund I, LP, who was issued a new senior secured convertible promissory note, see above.
Ed
Blasiak
On
September 14, 2020, the Company entered into a Securities Purchase Agreement with Ed Blasiak (“Blasiak”), pursuant to which
the Company issued a senior secured convertible promissory note in the aggregate principal amount of $55,000, including an original issue
discount of $5,000. The note bears interest at 6.5% per annum and matures on September 14, 2021. The note is senior to any future
borrowings and commencing on October 1, 2020 the Company will make monthly payments of the accrued interest under the note. The note may
be prepaid at certain prepayment penalties and is convertible into shares of common stock at a conversion price at the option of the holder
at $0.001 per share, adjusted for anti-dilution provisions; or 80% of the price per share of subsequent equity financings or; after six
months 60% of the lowest trading price during the preceding six month period.
The
note has matured and is in default, Ed Blasiak has not declared a default under the note and we are in communication with Mr. Blasiak
on our ability to repay the note.
Joshua
Bauman
On
September 14, 2020, the Company entered into a Securities Purchase Agreement with Bauman, pursuant to which the Company issued a senior
secured convertible promissory note in the aggregate principal amount of $110,000, including an original issue discount of $10,000. The
note bears interest at 6.5% per annum and matures on September 14, 2021. The note is senior to any future borrowings and commencing
on October 1, 2020 the Company will make monthly payments of the accrued interest under the note. The note may be prepaid at certain prepayment
penalties and is convertible into shares of common stock at a conversion price at the option of the holder at $0.001 per share, adjusted
for anti-dilution provisions; or 80% of the price per share of subsequent equity financings or; after six months 60% of the lowest trading
price during the preceding six month period.
On
June 8, 2021, in terms of a conversion notice received by the Company, Bauman converted the aggregate principal sum of $100,000 including
interest thereon of $5,563 into 106,313,288 shares of common stock.
On
October 25, 2021, in terms of a conversion notice received by the Company, Bauman converted the aggregate principal sum of $37,500 including
interest thereon of $1,155 into 39,405,310 shares of common stock, thereby extinguishing the note.
On
October 21, 2021, the Company entered into a Securities Purchase Agreement with Bauman, pursuant to which the Company issued a senior
secured convertible promissory note in the aggregate principal amount of $150,000, including an original issue discount of $16,250. The
note bears interest at 11.0% per annum, which is guaranteed and earned in full on issue date and matured on October 21, 2022.
The note 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.
The
note has matured and is in default, Mr. Bauman has not declared a default under the note and we are in communication with Mr. Bauman on
our ability to repay the note.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 11. |
Short-term Convertible Notes (continued) |
Geneva
Roth Remark Holdings, Inc
On
October 1, 2021, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory
Note in the aggregate principal amount of $95,200, for net proceeds of $85,000 before the payment of legal fees and origination fees
amounting to $3,750. The note has a maturity date of October 1, 2022 and bears interest at the rate of 8.0% per annum, due immediately
on the issuance date of the note. The outstanding principal amount of the note is payable in nine monthly payments of $11,424 commencing
on November 15, 2021. The note is convertible into shares of common stock upon an event of default at the election of the purchaser. The
conversion price is 75% of the lowest trading price for the preceding five days prior to the date of conversion.
The
note has been repaid as of December 31, 2022.
Series
N convertible notes
Between
January 28, 2019 and June 11, 2020, the Company closed several tranches of Series N Convertible notes in which it raised $3,229,000 in
principal from accredited investors through the issuance to the investors of the Company’s Series N convertible notes, in the total
original principal amount of $3,229,000, which Notes are convertible into the Company’s common stock at a conversion price of $0.08 per
share together with three year warrants to purchase up to a total of 52,237,500 shares of the Company’s common stock at
an exercise price of $0.12 per share. Both the conversion price under the Notes and the exercise price under the warrants are subject
to standard adjustment mechanisms. The notes matured one year from the date of issuance.
The
series N convertible notes matured and are in default. The Company is considering its options to settle these notes.
12.
Short-term Notes
Leonite
Capital, LLC
Secured
Promissory Notes
On
March 1, 2022, the Company entered into a secured Promissory Note in the aggregate principal amount of $124,000 for net proceeds
of $100,000 after an original issue discount of $24,000. Due to the failure to repay the note by due date, a penalty of $37,200 was
added to the principal outstanding and the Company incurs a monthly monitoring fee of $2,000 per month. In addition the note earns interest
at a default rate of 24% per annum on the total balance outstanding, including the monthly monitoring fee and accrued interest.
The
Note had a maturity date of April 1, 2022. This note has not been repaid at the date of this report, we are in negotiations with
Leonite to settle the balance outstanding and no default has been declared.
The
balance outstanding on the note, including default penalty, interest accrued and monthly monitoring fees is $212,579 as of December 31,
2022.
On
May 3, 2022, the Company, entered into a secured Promissory Note in the aggregate principal amount of $76,250 for net proceeds of
$61,000 after an original issue discount of $15,250. Due to the failure to repay the note by due date, a penalty of $22,875 was added
to the principal outstanding and the Company incurs a monthly monitoring fee of $2,000 per month. In addition the note earns interest
at a default rate of 24% per annum on the total balance outstanding, including the monthly monitoring fee and accrued interest.
The
Note had a maturity date of June 17, 2022.
This note has not been repaid at the date of this report, we are in negotiations with Leonite to settle the balance outstanding and no
default has been declared.
The
balance outstanding on the note, including default penalty, interest accrued and monthly monitoring fees is $127,702 as of December 31,
2022.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
12.
Short-term Notes
LXR
Biotech
On
April 12, 2019, the Company, entered into a secured Promissory Note in the aggregate principal amount of CDN$133,130. The Note had a maturity
date of April 11, 2020 and bears interest at the rate of six percent per annum from the date on which the Note was issued.
This
note has not been repaid, is in default and remains outstanding. The balance outstanding at December 31, 2022 was $120,253.
13.
Mortgage loans
Mortgage loans is
disclosed as follows:
Schedule of mortgage loans
| |
|
Interest
rate |
|
|
Maturity date |
|
Principal
Outstanding |
|
|
Accrued
interest |
|
|
December 31,
2022 |
|
|
December 31,
2021 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cranberry Cove Holdings, Ltd. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pace Mortgage |
|
|
4.2 |
% |
|
July 19, 2022 |
|
$ |
3,499,772 |
|
|
$ |
4,833 |
|
|
$ |
3,504,605 |
|
|
$ |
3,864,312 |
|
| Disclosed as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Short-term portion |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,504,605 |
|
|
$ |
3,864,312 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cranberry
Cove Holdings, Ltd.
On July 19, 2017, CCH, a wholly owned subsidiary, closed on a loan agreement in the principal amount of CDN$5,500,000. The loan is secured
by a first mortgage on the premises owned by CCH located at 3571 Muskoka Road 169, Bala, Ontario.
The
loan bears interest at the fixed rate of 4.2% with a 5-year primary term and a 25-year amortization. The Company has guaranteed
the loan and the Company’s chief executive officer and controlling shareholder also has personally guaranteed the Loan. CCH and
the Company have granted the Lender a general security interest in its assets to secure repayment of the Loan. The loan is amortized with
monthly installments of CDN $29,531.
The
loan matured on July 19, 2022, and negotiations with the lender continue, no new terms have been presented to the Company as yet. The
Company has continued to make installments in terms of the original mortgage agreement.
14.
Government assistance loans
On
December 1, 2020, CCH was granted a Covid-19 related government assistance loan in the aggregate principal amount of CDN$ 40,000 (Approximately
$31,000). the grant is interest free and CDN$ 10,000 is forgivable if the loan is repaid in full by December 31, 2022.
On
January 12, 2021, CCH received a further CDN$ 20,000 Covid-19 related government assistance loan. The loan is interest free
and if repaid by December 31, 2022, CDN$ 10,000 is forgivable.
On
May 3, 2021, ARIA was granted a government assistance loan in the aggregate principal amount of $157,367. The loan is forgivable if the
Company demonstrates that the proceeds were used for expenses such as employee costs during the pandemic. Should the loan not be forgiven,
interest is payable on the loan at the rate of 1% per annum and the principal is repayable and interest is payable over an 18 month period.
On
September 21, 2022, ARIA received partial forgiveness of the government assistance loan of $104,368, the balance of the loan plus accrued
interest is due and payable. On December 30, 2022, the Company sold ARIA to its Chairman and CEO and agreed to assume the repayment of
the government assistance loan. As of December 31, 2022, the balance outstanding, including interest thereon was $50,073.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
15.
Receivables funding
May
31, 2022 Funding
On
May 31, 2022 the Company, through its 75% held subsidiary, Evernia Health Center, LLC entered into a Receivables Sale Agreement with Itria
Ventures LLC (“Itria”), whereby $240,000 the Receivables of Evernia were sold to Itria, for gross proceeds of $200,000. The
Company also incurred fees of $4,500, resulting in net proceeds of $195,500. The Company is obliged to pay 6.5% of the receivables until
the amount of $240,000 is paid in full, with periodic repayments of $5,000 per week. The guarantor of the funding is a minority shareholder
in ATHI.
The
Company made weekly cash payment of $5,000 totaling $140,000 on the May 31, 2022 funding and settled the remaining $100,000 liability
out of the proceeds of the December 13, 2022 funding, thereby terminating the funding agreement.
September
26, 2022 Funding
On
September 26, 2022, the Company, through its 75% held subsidiary, Evernia Health Center, LLC entered into a Receivables Sale Agreement
with Itria Ventures LLC (“Itria”), whereby $310,000 of the Receivables of Evernia were sold to Itria, for gross proceeds of
$250,000. The Company also incurred fees of $5,500, resulting in net proceeds of $244,500. The Company is obliged to pay 7.41% of the
receivables until the amount of $310,000 is paid in full, with periodic repayments of $6,458 per week. The guarantor of the funding is
a minority shareholder in ATHI.
The
Company made weekly cash payments of $6,458 totaling $83,958 on the September 26, 2022 funding. The balance outstanding at December 31,
2022 was $226,042, less unamortized discount of $48,254.
December
13, 2022 Funding
On
December 13, 2022, the Company, through its 75% held subsidiary, Evernia Health Center, LLC entered into a Receivables Sale Agreement
with Itria Ventures LLC (“Itria”), whereby $305,000 of the Receivables of Evernia were sold to Itria, for gross proceeds of
$250,000. The Company also incurred fees of $2,500, resulting in net proceeds of $247,500. The Company is obliged to pay 6.08% of the
receivables until the amount of $305,000 is paid in full, with periodic repayments of $6,354 per week. The guarantor of the funding is
a minority shareholder in ATHI.
The
Company made weekly cash payments of $6,354 totaling $6,354 on the December 13, 2022 funding. The balance outstanding at December 31,
2022 was $293,646, less unamortized discount of $54,703.
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$100,000 (approximately $77,953).
17.
Derivative liability
In
prior years, the short-term convertible notes, together with certain warrants issued to convertible note holders disclosed in note 11
above and note 17 below, had fixed conversion price rights. The convertible notes as well as the warrants were afforded down-round protection
which in terms of previous guidance resulted in a derivate liability. The Company adopted ASU 2020-06 with effect from January 1, 2022,
which excluded down-round protection from the determination of a derivative liability.
The prior period consolidated financial
statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.
The
original derivative financial liability was valued at inception at $1,959,959 using a Black-Scholes valuation model.
As
of December 31, 2021, the derivative liability was valued at $515,901.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 17. |
Derivative liability (continued) |
The
movement in derivative liability is as follows:
Schedule of assumption used in Black Scholes
| Schedule of derivative liability |
|
December 31,
2022 |
|
December 31,
2021 |
| |
|
|
|
|
| Opening balance |
|
$ |
515,901 |
|
|
$ |
4,765,387 |
|
| Elimination of derivative liability on adoption of ASU 2020-06 |
|
|
(515,901 |
) |
|
|
— |
|
| Mark-to-market adjustments on converted notes |
|
|
— |
|
|
|
(2,914,119 |
) |
| Derivative liability on issued convertible notes |
|
|
— |
|
|
|
190,824 |
|
| Fair value adjustments to derivative liability |
|
|
— |
|
|
|
(1,526,191 |
) |
| Closing balance |
|
$ |
— |
|
|
$ |
515,901 |
|
18.
Related party transactions
Shawn
E. Leon
As
of December 31, 2022 and December 31, 2021 the Company had a payable to Shawn Leon of $411,611 and $106,100, respectively. Mr. Leon
is a director and CEO of the Company. The balances payable are non-interest bearing and has no fixed repayment terms.
On
December 30, 2022, the Company sold its wholly owned subsidiaries, Greenestone Muskoka and ARIA, to Mr. Leon for gross proceeds of $0.
The Company realized a gain on disposal of $628,567
which was recorded as a credit to Additional Paid in Capital due to the related party nature of the transaction.
Due
to the current financial position of the Group, Mr. Leon forfeited the management fees due to him for the year ended December 31, 2022
and the year ended December 31, 2021.
Leon
Developments, Ltd.
As
of December 31, 2022 and December 31, 2021, the Company owed Leon Developments, Ltd., $850,607 and $935,966, respectively, for funds
advanced to the Company.
Eileen
Greene
As
of December 31, 2022 and December 31, 2021, the Company owed Eileen Greene, the spouse of our CEO, Shawn Leon, $1,451,610 and $1,472,215,
respectively. The amount owing to Ms. Greene is non-interest bearing and has no fixed repayment terms.
All
related party transactions occur in the normal course of operations and in terms of agreements entered into between the parties.
19.
Stockholder’s deficit
Authorized
and outstanding
The
Company has authorized 10,000,000,000 shares with a par value of $0.01 per share. The company has issued
3,729,053,805 and 3,579,053,805 shares of common stock at December 31, 2022 and December 31, 2021,
respectively.
On
January 8, 2021, the Company issued 78,763,466 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $70,137.
On
March 3, 2021, the Company issued 97,000,000 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $95,000.
On
March 9, 2021, the Company received notification of exercise of warrants for 66,666,666 shares on a cashless basis, resulting
in the issuance of 59,999,999 shares of common stock valued on the date of issuance at $90,000.
On
May 3, 2021, the Company issued 100,000,000 shares of common stock to Labrys in connection with a conversion notice received,
converting principal and interest of $90,000.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 19. |
Stockholder’s deficit (continued) |
| |
a) |
Common shares (continued) |
On
May 13 2021, the Company received notification of exercise of warrants for 50,505,051 shares on a cashless basis, resulting
in the issuance of 42,353,038 shares of common stock valued on the date of issuance at $86,824.
On
June 1, 2021, the Company issued 30,000,000 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $59,250.
On
June 8, 2021, the Company issued 106,313,288 shares of common stock to Joshua Bauman in connection with a conversion notice
received, converting principal and interest of $105,563.
On
June 10, 2021, the Company issued 60,000,000 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $59,250.
On
July 1, 2021, in terms of the amendment to the stock Purchase Agreement entered into on June 30, 2020 between the Company and the
Q Global Trust, LLC, and American Treatment Holdings, the company issued 100,000,000 shares of common stock thereby closing
the transaction and acquiring a controlling interest in American Treatment Holdings.
On
July 7, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $100,800 into 112,000,000 shares
of common stock.
On
August 6, 2021, the company received a cashless warrant exercise from Labrys, exercising warrants for 100,000,000 shares for
net shares of 86,333,333 shares of common stock.
On
September 10, 2021, the Company issued 59,259,630 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $60,977.
On
September 24, 2021, the company received a cashless warrant exercise from Labrys, exercising warrants for 91,666,666 shares
for net shares of 54,999,999 shares of common stock.
On
September 24, 2021, the company received a cashless warrant exercise from Labrys, exercising warrants for 60,000,000 shares
for net shares of 36,939,393 shares of common stock.
On
September 28, 2021, the Company issued 60,000,000 shares of common stock to Labrys in connection with a conversion notice received,
converting principal of $54,000.
On
October 8, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $55,800 into 62,000,000 shares
of common stock.
On
October 15, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $7,400 into 8,222,222 shares
of common stock.
On
October 19, 2021, the Company issued 50,496,728 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $49,747.
On
October 25, 2021, the Company issued 39,405,310 shares of common stock to Joshua Bauman in connection with a conversion notice
received, converting principal and interest of $38,655.
On
October 29, 2021, the Company issued 83,771,947 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $83,022.
On
November 22, 2021, the Company issued 58,427,091 shares of common stock to Leonite in connection with a conversion notice received,
converting principal and interest of $57,677.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 19. |
Stockholder’s deficit (continued) |
| |
a) |
Common shares (continued) |
On
November 23,2021, the Company issued 75,000,000 shares of common stock to Labrys in connection with a conversion notice received, converting
principal and interest of $66,829.
On
December 13, 2021, in terms of a conversion notice received by the company, Leonite converted the aggregate principal and interest amount
of $89,933 into 90,682,696 shares of common stock.
On
February 28, 2022, the Company issued 150,000,000 shares of common stock to Leonite in connection with a conversion notice received,
converting principal of $149,250.
| |
b) |
Series A Preferred shares |
Authorized,
issued and outstanding
The
Company has authorized 10,000,000 Series A preferred shares with a par value of $0.01 per share. The company has issued
and outstanding 4,000,000 Series A Preferred shares at December 31, 2022 and December 31, 2021, respectively.
| |
c) |
Series B Preferred shares |
Authorized
and outstanding
The
Company has authorized 400,000 Series B preferred shares with a par value of $1.00 per share. The company has issued and outstanding 400,000 Series
B Preferred shares at December 31, 2022 and December 31, 2021, respectively.
The
Series B preferred shares are mandatorily redeemable by the Company and are therefore classified as mezzanine debt.
Our
board of directors adopted the Greenstone Healthcare Corporation 2013 Stock Option Plan (the “Plan”) to promote our long-term
growth and profitability by (i) providing our key directors, officers and employees with incentives to improve stockholder value and contribute
to our growth and financial success and (ii) enable us to attract, retain and reward the best available persons for positions of substantial
responsibility. A total of 10,000,000 shares of our common stock have been reserved for issuance upon exercise of options granted
pursuant to the Plan. The Plan allows us to grant options to our employees, officers and directors and those of our subsidiaries; provided
that only our employees and those of our subsidiaries may receive incentive stock options under the Plan. We have no issued
options at December 31, 2022 under the Plan.
All
of the warrants have cashless exercise terms whereby in-the-money warrants may be exercised by reducing the number of shares issued in
terms of the warrant exercise to offset the proceeds due on the exercise.
All
of the warrants have price protection features whereby any securities issued subsequent to the date of the warrant issuance date, were
issued at a lower price, or have conversion features that are lower than the current exercise price, or were converted at a lower price,
or are exercisable at a lower price, to the current warrant exercise price, will result in the exercise price of the warrant being set
to the lower issue, conversion or exercise price.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 19. |
Stockholder’s deficit |
A
summary of the Company’s warrant activity during the period from January 1, 2021 to December 31, 2022 is as follows:
Schedule of warrants outstanding
| |
|
No. of shares |
|
Exercise price
per share |
|
Weighted
average exercise
price |
| |
|
|
|
|
|
|
| Outstanding as of January 1, 2021 |
|
|
615,561,379 |
|
|
|
$0.000675 to $0.12 |
|
|
$ |
0.011380 |
|
| Granted |
|
|
471,010,103 |
|
|
|
$0.0020500 |
|
|
|
0.003080 |
|
| Forfeited/cancelled |
|
|
(101,682,866 |
) |
|
|
$0.0015 to $0.12 |
|
|
|
0.039029 |
|
| Exercised |
|
|
(361,111,110 |
) |
|
|
$0.00150 to $0.00205 |
|
|
|
0.003291 |
|
| Outstanding as of December 31, 2021 |
|
|
623,777,506 |
|
|
|
$0.000675 to $0.12 |
|
|
$ |
0.0052875 |
|
| Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Forfeited/cancelled |
|
|
(20,925,000 |
) |
|
|
$0.12 |
|
|
|
0.12 |
|
| Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Outstanding as of December 31, 2022 |
|
|
602,852,506 |
|
|
|
$0.000675 to $0.00205 |
|
|
$ |
0.001306 |
|
The
following table summarizes information about warrants outstanding at December 31, 2022:
Schedule of assumption
| |
|
|
Warrants outstanding |
|
|
Warrants exercisable |
|
| Exercise price |
|
|
No. of shares |
|
|
Weighted average
remaining years |
|
|
Weighted average
exercise price |
|
|
No. of shares |
|
|
Weighted average
exercise price |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $0.000675 |
|
|
|
326,286,847 |
|
|
|
2.53 |
|
|
|
|
|
|
|
326,286,847 |
|
|
|
|
|
| $0.002050 |
|
|
|
276,565,659 |
|
|
|
3.01 |
|
|
|
|
|
|
|
276,565,659 |
|
|
|
|
|
| |
|
|
|
602,852,506 |
|
|
|
2.75 |
|
|
$ |
0.001306 |
|
|
|
602,852,506 |
|
|
$ |
0.001306 |
|
All
of the warrants outstanding at December 31, 2022 are vested. The warrants outstanding at December 31, 2022 have an intrinsic value of
$0.
20.
Segment information
The Company has two reportable
operating segments:
| |
a. |
Rental income from the property owned by CCH subsidiary located at 3571 Muskoka Road, #169, Bala, on which the operations of the Canadian Rehab Clinic were located prior to disposal on February 14, 2017 and subsequently leased to the purchasers of the business of the Canadian Rehab Clinic, for a period of 5 years renewable for a further three five-year periods and with an option to acquire the property at a fixed price. |
| |
b. |
Rehabilitation Services provided to customers, these services were provided to customers at our Evernia, Addiction Recovery Institute of America and Seastone of Delray operations. |
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 20. |
Segment information (continued) |
The
segment operating results of the reportable segments for the year ended December 31, 2022 is disclosed as follows:
Schedule of segment information
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year
ended December 31, 2022 |
| |
|
Rental
Operations |
|
In-Patient
services |
|
Total |
| |
|
|
|
|
|
|
| Revenue |
|
$ |
368,591 |
|
|
$ |
4,452,156 |
|
|
$ |
4,820,747 |
|
| Operating expenses |
|
|
129,427 |
|
|
|
4,202,203 |
|
|
|
4,331,630 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income |
|
|
239,164 |
|
|
|
249,953 |
|
|
|
489,117 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Other (expense) income |
|
|
|
|
|
|
|
|
|
|
|
|
| Other income |
|
|
— |
|
|
|
15,760 |
|
|
|
15,760 |
|
| Forgiveness of government
relief loan |
|
|
— |
|
|
|
104,368 |
|
|
|
104,368 |
|
| Penalty on convertible
notes |
|
|
— |
|
|
|
(60,075) |
|
|
|
(60,075) |
|
| Interest income |
|
|
— |
|
|
|
78 |
|
|
|
78 |
|
| Interest expense |
|
|
(205,133 |
) |
|
|
(383,344) |
|
|
|
(588,477) |
|
| Amortization of debt discount |
|
|
— |
|
|
|
(624,683 |
) |
|
|
(624,683 |
) |
| Foreign exchange movements |
|
|
97,842 |
|
|
|
973,478 |
|
|
|
1,071,320 |
|
| Net income before taxes |
|
|
131,873 |
|
|
|
275,535 |
|
|
|
407,408 |
|
| Taxes |
|
|
— |
|
|
|
(112,220 |
) |
|
|
(112,220 |
) |
| Net income |
|
$ |
131,873 |
|
|
$ |
163,315 |
|
|
$ |
295,188 |
|
The
operating assets and liabilities of the reportable segments as of December 31, 2022 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
December
31, 2022 |
| |
|
Rental
Operations |
|
In-Patient
services |
|
Total |
| |
|
|
|
|
|
|
| Purchase of fixed assets |
|
$ |
— |
|
|
$ |
315,822 |
|
|
$ |
315,822 |
|
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Current assets |
|
|
2,615 |
|
|
|
540,281` |
|
|
|
542,896 |
|
| Non-current assets |
|
|
2,469,190 |
|
|
|
3,551,208 |
|
|
|
6,020,398 |
|
| Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities |
|
|
(4,973,187 |
) |
|
|
(8,315,944 |
) |
|
|
(13,289,131 |
) |
| Non-current liabilities |
|
|
(622,635 |
) |
|
|
(1,484,071 |
) |
|
|
(2,106,706 |
) |
| Mandatory redeemable preferred shares |
|
|
— |
|
|
|
(400,000 |
) |
|
|
(400,000 |
) |
| Intercompany balances |
|
|
(1,420,438 |
) |
|
|
1,420,438 |
|
|
|
— |
|
| Net liability position |
|
$ |
(4,544,455 |
) |
|
$ |
(4,688,088) |
|
|
$ |
(9,232,543) |
|
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 20. |
Segment information (continued) |
The
segment operating results of the reportable segments for the year ended December 31, 2021 is disclosed as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, 2021 |
| |
|
Rental
Operations |
|
In-Patient
services |
|
Total |
| |
|
|
|
|
|
|
| Revenue |
|
$ |
374,517 |
|
|
$ |
1,568,071 |
|
|
$ |
1,942,588 |
|
| Operating expenses |
|
|
128,183 |
|
|
|
1,812,300 |
|
|
|
1,940,483 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income (loss) |
|
|
246,334 |
|
|
|
(244,229 |
) |
|
|
2,105 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Other (expense) income |
|
|
|
|
|
|
|
|
|
|
|
|
| Other income |
|
|
— |
|
|
|
273,373 |
|
|
|
273,373 |
|
| Forgiveness of government relief loan |
|
|
— |
|
|
|
156,782 |
|
|
|
156,782 |
|
| Loss on advance |
|
|
— |
|
|
|
(120,000 |
) |
|
|
(120,000 |
) |
| Fair value of warrants granted to convertible debt holders |
|
|
— |
|
|
|
(854,140 |
) |
|
|
(854,140 |
) |
| Penalty on convertible debt |
|
|
— |
|
|
|
(9,240 |
) |
|
|
(9,240 |
) |
| Interest expense |
|
|
(230,868 |
) |
|
|
(598,657 |
) |
|
|
(829,525 |
) |
| Amortization of debt discount |
|
|
— |
|
|
|
(1,965,551 |
) |
|
|
(1,965,551 |
) |
| Derivative liability movement |
|
|
— |
|
|
|
1,526,191 |
|
|
|
1,526,191 |
|
| Foreign exchange movements |
|
|
(16,150 |
) |
|
|
(18,151 |
) |
|
|
(34,301 |
) |
| Net loss before taxes |
|
|
(684 |
) |
|
|
(1,853,622 |
) |
|
|
(1,854,306 |
) |
| Taxes |
|
|
— |
|
|
|
280,903 |
|
|
|
280,903 |
|
| Net loss |
|
$ |
(684 |
) |
|
$ |
(1,572,719 |
) |
|
$ |
(1,573,403 |
) |
The
operating assets and liabilities of the reportable segments as of December 31, 2021 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2021 |
| |
|
Rental
Operations |
|
In-Patient
services |
|
Total |
| |
|
|
|
|
|
|
| Purchase of fixed assets |
|
$ |
— |
|
|
$ |
132,832 |
|
|
$ |
132,832 |
|
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Current assets |
|
|
1,373 |
|
|
|
270,426 |
|
|
|
271,799 |
|
| Non-current assets |
|
|
2,766,175 |
|
|
|
3,516,332 |
|
|
|
6,282,507 |
|
| Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities |
|
|
(5,401,423 |
) |
|
|
(8,115,379 |
) |
|
|
(13,516,802 |
) |
| Non-current liabilities |
|
|
(693,502 |
) |
|
|
(1,799,383 |
) |
|
|
(2,492,885 |
) |
| Mandatory redeemable preferred shares |
|
|
— |
|
|
|
(400,000 |
) |
|
|
(400,000 |
) |
| Intercompany balances |
|
|
1,284,967 |
|
|
|
(1,284,967 |
) |
|
|
— |
|
| Net liability position |
|
$ |
(2,042,410 |
) |
|
$ |
(7,812,971 |
) |
|
$ |
(9,855,381 |
) |
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
21.
Net income (loss) per common share
For
the year ended December 31, 2022, the computation of basic and diluted earnings per share is calculated as follows:
Schedule of Antidilutive Securities
| |
|
|
|
Number of |
|
Per share |
| |
|
Amount |
|
shares |
|
amount |
| |
|
|
|
|
|
|
| Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
| Net income per share available for common stockholders |
|
$ |
137,598 |
|
|
|
|
|
$ |
0.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
| Warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
| Convertible debt |
|
|
820,739 |
|
|
|
571,555,951 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
| Net income per share available for common stockholders |
|
$ |
958,337 |
|
|
|
4,276,363,181 |
|
|
$ |
0.00 |
|
For
the year ended December 31, 2021, the following warrants and convertible securities were excluded from the computation of diluted net
loss per share as the results would have been anti-dilutive.
Schedule of Antidilutive Securities
| Schedule of Antidilutive Securities |
|
Year ended
December 31,
2021 |
| |
|
|
| Warrants to purchase shares of common stock |
|
|
623,777,506 |
|
| Convertible notes |
|
|
644,839,752 |
|
| |
|
|
1,268,617,258 |
|
| |
|
|
|
|
22.
Commitments and contingencies
| |
a. |
Options granted to purchase shares in ATHI |
On
July 12, 2020, the Company entered into a five year option agreement with Leonite Capital LLC (“Leonite”) and other investors
(collectively the “Transferees”), the Company agreed to sell to Leonite a portion of the total outstanding shares of ATHI
from the shares of ATHI held by the company. The Company provided Leonite an option to purchase 4,000,000 shares of ATHI from the Company
for a purchase consideration of $0.0001 per share (a total consideration of $400), based on the advances that Leonite made to the Company
totaling $396,000. Leonite shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made
by Leonite to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
On
September 14, 2020, the Company entered into a five year option agreement with Ed Blasiak (“Blasiak”) whereby the Company
agreed to sell to Blasiak a portion of the total outstanding shares of ATHI. The Company provided Blasiak an option to purchase 571,428
shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $57), based on the advances
that Blasiak made to the Company totaling $50,000. Blasiak shall share in all distributions by ATHI to the Company, on an as exercised
basis, equal to the advances made by Blasiak to the Company, thereafter the option will be reduced to 50% of the shares exercisable under
the option.
On
October 29, 2020, the Company entered into a five year option agreement with First Fire whereby the Company agreed to sell to First Fire
a portion of the total outstanding shares of ATHI. The Company provided First Fire an option to purchase 1,428,571 shares of ATHI from
the Company for a purchase consideration of $0.0001 per share (a total consideration of $143), based on the advances that First Fire made
to the Company totaling $120,000. First Fire shall share in all distributions by ATHI to the Company, on an as exercised basis, equal
to the advances made by First Fire to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 22. |
Commitments and contingencies (continued) |
| |
a. |
Options granted to purchase shares in ATHI (continued) |
On
October 29, 2020, the Company entered into a five year option agreement entered into with Bauman, so that the Company agreed to sell to
Bauman a portion of the total outstanding shares of ATHI. The Company provided Bauman an option to purchase 1,428,571 shares of ATHI from
the Company for a purchase consideration of $0.0001 per share (a total consideration of $143), based on the advances that Bauman made
to the Company totaling $120,000. Bauman shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the
advances made by Bauman to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
The company has a mortgage
loan as disclosed in note 13 above. The mortgage
loan matured on July 19, 2022 and the Company currently owes $3,504,605. The terms of the loan are currently being negotiated.
The
Company has principal and interest payment commitments under the Convertible notes disclosed under Note 11 above. Conversion of these
notes are at the option of the investor, if not converted these notes may need to be repaid.
From
time to time, the Company and its subsidiaries enter into legal disputes in the ordinary course of business. The Company believes there
are no material legal or administrative matters pending that are likely to have, individually or in the aggregate, a material adverse
effect on its business or results of operations.
23.
Income taxes
The
Company is current in its US and Canadian tax filings as of December 31, 2022.
The
income tax provision/ (benefit) is different from that which would be obtained by applying the statutory Federal income tax rate of 21%
and applicable state tax rates of 5% to income before income tax expense. The items causing this difference for the years ended December
31, 2022 and 2021 are as follows:
Schedule
of reconciliation of income taxes
| |
|
Year
ended December 31, 2022 |
|
Year
ended December 31, 2021 |
| |
|
|
|
|
| Taxation (charge) credit at the
federal and state statutory rate |
|
|
(85,555) |
|
|
|
478,522 |
|
| State taxation |
|
|
(29,345 |
) |
|
|
|
|
| Prior year over provision |
|
|
— |
|
|
|
250,000 |
|
| Foreign taxation |
|
|
— |
|
|
|
(5,309 |
) |
| Permanent differences |
|
|
235,762 |
|
|
|
(271,310 |
) |
| Foreign tax rate differential |
|
|
— |
|
|
|
(100 |
) |
| Net operating loss utilized |
|
|
(233,082) |
|
|
|
5,594 |
|
| Valuation allowance |
|
|
— |
|
|
|
(176,494 |
) |
| Net future tax asset |
|
|
(112,220 |
) |
|
|
280,903 |
|
ETHEMA
HEALTH CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Deferred
income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities at December 31, 2021
and 2020 are as follows:
Schedule
of deferred tax assets and liabilities
| |
|
December
31,
2022 |
|
December
31,
2021 |
| Net operating losses |
|
|
|
|
|
|
|
|
| Net operating
loss carry forward |
|
|
34,945,459 |
|
|
|
34,278,915 |
|
| Prior year adjustment
to opening balances |
|
|
— |
|
|
|
— |
|
| Foreign exchange differential |
|
|
(105,379 |
) |
|
|
8,466 |
|
| Net operating loss utilized |
|
|
(3,514,804) |
|
|
|
(20,719 |
) |
| Net taxable loss |
|
|
4,624,718 |
|
|
|
678,797 |
|
| Disposal of subsidiary |
|
|
(4,872,047 |
) |
|
|
|
|
| Valuation allowance |
|
|
(31,077,947) |
|
|
|
(34,945,459 |
) |
| Net
future tax asset |
|
|
— |
|
|
|
— |
|
The
company has established a valuation allowance against its gross deferred tax assets sufficient to bring its net deferred tax assets to
zero due to the uncertainty surrounding the realization of such assets. Management has determined it is more likely than not that the
net deferred tax assets are not realizable due to the Company’s historical loss position. The valuation allowance for the year
ended December 31, 2022 decreased by $3,867,512.
This was due to the utilization of $(3,514,804) of
net operating losses, the generation of additional losses of $4,624,718 and the disposal of a foreign subsidiary with a net operating
loss of $(4,872,047).
As
of December 31, 2022, the prior three tax years remain open for examination by the federal or state regulatory agencies for purposes of
an audit for tax purposes.
Pursuant
to the Internal Revenue Code of 1986, as amended (“IRC”), §382, the Company’s ability to use its net operating
loss carry forwards to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more than
50% within a three-year period.
The
Company operates in foreign jurisdictions and is subject to audit by taxing authorities. These audits may result in the assessment of
amounts different than the amounts recorded in the consolidated financial statements. The Company liaises with the relevant authorities
in these jurisdictions in regard to its income tax and other returns. Management believes the Company has adequately provided for any
taxes, penalties and interest that may fall due.
23.
Subsequent events
Receivables
Funding
On
January 19, 2023, the Company received funding from an agreement entered into on December 14, 2022 through its 75% held subsidiary, Evernia
Health Center, LLC entered into a Receivables Sale Agreement with Bizfund.com (“Bizfund)”), whereby $132,000 of the Receivables
of Evernia were sold to Bizfund, for gross proceeds of $100,000. The Company is obliged to pay 15.0% of the receivables until the amount
of $132,000 is paid in full, with periodic repayments of $2,750 per week. The guarantor of the funding is a minority shareholder in ATHI.
On
February 14, 2022, the Company, through its 75% held subsidiary, Evernia Health Center, LLC entered into a Receivables Sale Agreement
with Fox Business Funding (“Fox”), whereby $118,800 of the Receivables of Evernia were sold to Fox, for gross proceeds of
$90,000. The Company is obliged to pay 8.0% of the receivables until the amount of $118,800 is paid in full, with periodic repayments
of $2,970 per week. The guarantor of the funding is a minority shareholder in ATHI.