UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 FORM 10-K/A10-K

☒  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 20182020

or

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to  

Commission file number: 000-15078

Ethema Health Corporation

(Exact name of registrant as specified in its charter)

Colorado 84-1227328

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

810 Andrews1590 S. Congress Avenue

DelrayWest Palm Beach, Florida 3348333406

(Address of principal executive offices)

(561) 450-7679290-0239

(Registrant’s telephone number, including area code)

Securities registered under Section 12(g) of the Act:

Common Stock, $0.01 par value per share

(Title of class) 

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ☐  No  ☒ 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of issuer’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment to this Form 10-K/A. ☒

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐  No  ☒

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2018,2020, based on a closing share price of $0.08$0.0014 was approximately $3,358,696. $2,822,837.

As of April 15, 2019,12, 2021, the registrant had 124,371,4522,269,849,130 shares of its common stock, par value $0.01 per share, outstanding.

ETHEMA HEALTH CORPORATION  

YEAR ENDED DECEMBER 31, 20182020

TABLE OF CONTENTS

PART I

Item 1. Business.

Company History

Ethema Health Corporation (the “Company” or “Ethema”), a Colorado corporation was incorporated under the laws of the State of Colorado on April 1, 1993, and is the surviving company of a merger, effective February 1, 1995, between the Company and Nova Natural Resources Corporation, a Delaware corporation (“Nova Delaware”). The merger was effectuated solely for the purpose of changing the Company’s domicile from Delaware to Colorado. At all times prior to 2001, the Company was engaged in the oil and gas exploration business. Nova Delaware was the successor entity to Nova Petroleum Corporation, a Delaware corporation, and Power Resources Corporation, a Delaware corporation, which merged in 1986 (“the 1986 Merger”). Prior to the 1986 Merger, Nova Petroleum Corporation and Power Resources Corporation had operated since 1979 and 1972, respectively. In 2001, the Company entered into the electronics business and this business was active in 2001 and 2002, as part of the Torita Group. After 2002, the Company continued with various stages of development in this business until 2010.

On April 1, 2010, the Company changed its principal operations from development stage electronics to healthcare services. On March 29, 2010, the Company entered into a one year consulting agreement with GreeneStone Clinic Inc., a Canadian corporation (“Greenestone Clinic”), whereby Greenestone Clinic provided consulting services for the Company’s development and operation of medical clinics in the province of Ontario, Canada. Specifically, Greenestone Clinic provided medical and business expertise in the initial startup of private clinics and technical assistance to ensure that the clinics were in compliance with governmental policy and procedure requirements as well as any operational requirements. At the time of entering into this consulting agreement, Greenestone Clinic operated a clinic at the Muskoka property housing its addiction treatment clinic and provided endoscopy services. The Company started offering medical services in June 2010, offering various medical services, including endoscopy, cardiology and executive medicals, which services were subsequently sold.

On May 15, 2010, the Company secured a sublease of space (which was previously the Rothbart Pain Clinic) of approximately 8,000 sq. ft. to be used as the Company’s executive offices and to run an endoscopy clinic. The Endoscopy clinic was subsequently sold. The Company, through its wholly owned subsidiary GreeneStone Clinic Muskoka Inc. (“GreeneStone Muskoka”), also entered into a lease with the owner of the Muskoka premises on April 1, 2011 and provided mental health and addiction treatment services and operated an in-patient addiction treatment center at this location.

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

On February 14, 2017, the Company completed a series of transactions (referred to collectively as the “Restructuring Transactions”), including a Share Purchase Agreement (the “SPA”) whereby the Company acquired 100% of the stock of Cranberry Cove Holdings Ltd. (“CCH”), which held the real estate on which the Company’s GreeneStone Muskoka operated, an asset purchase agreement (the “APA”) and lease (the “Lease”) whereby the Company sold certain of the GreeneStone Muskoka business assets and leased the real estate to the buyer, and a real estate purchase agreement and asset purchase agreement whereby the Company purchased the real estate and business assets of Seastone Delray (the “Florida Purchase”).

The Share Purchase Agreement

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

The Asset Purchase Agreement and Lease

Under the APA, the assets of GreeneStone Muskoka were sold by the Company, through its subsidiary, GreeneStone Muskoka, to Canadian Addiction Residential Treatment LP (the “Purchaser”), for a total consideration of CDN$10,000,000, plus an additional performance payment of up to CDN$3,000,000 to be received in 2019 if certain clinic performance metrics are met. The Purchaser completed the sale with cash proceeds to the Company of CDN$10,000,000, of which CDN$1,500,000 was held in escrow for up to two years to cover indemnities given by the Company.10,000,000. The proceeds of the GreeneStone Muskoka asset sale were used to pay down certain tax debts and operational costs of the Company and to fund the Florida Purchase, mentioned below.

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

The Florida PurchasePurchases and Business

Immediately after closing on the sale of the assets of the Canadian Rehab Clinic, the Company closed on the acquisition of the business and real estate assets of Seastone Delray pursuant to certain real estate and asset purchase agreements. This business is operated through its wholly owned subsidiary, Addiction Recovery Institute of America, LLC (“ARIA”) (formerly Seastone Delray Healthcare, LLC). The purchase price for the ARIA assets was US$6,070,000 financed with a purchase money mortgage of US$3,000,000, and US$3,070,000 in cash.

On April 4, 2017 the Company changed its Corporate name from Greenestone Healthcare Corporation to Ethema Health Corporation.

On November 2, 2017, the Company entered into an Agreement to purchase from AREP 5400 East Avenue LLC certain buildings in West Palm Beach, Florida, totaling approximately 80,000 square feet, on which the Company planned to operate a substance abuse treatment center. The purchase price of the Property was $20,530,000. The Company made a series of nonrefundable down payments totaling $2,940,546 in 2017 and 2018. The Company could not get the necessary financing to close on the deal.

On May 23, 2018, the Company converted the agreement to purchase AREP 5400 East Avenue LLC. (“the landlord”) into a lease agreement with a purchase option of $17,250,000, increasing August 31, 2018 by $750,000 per month until the purchase option is exercised. The premises is located at 5400, 5402 and 5410 East Avenue, West Palm Beach, Florida (the “Property”). The lease was for an initial 10 years and provided for two additional 10 year extensions.

The Company was previously under agreement to purchase the property from the landlord. The property is presently used as a rehabilitation treatment center. The current tenant at the property, Alternatives in Treatment, LLC, a Florida limited liability company, consented to the Lease and concurrent with the execution of the Lease entered into a Sublease Agreement with the Company.

In June 2018, the Company moved its operations out of the Delray Beach properties and into the leased property at 5400 East Avenue in West Palm Beach.

On August 3, 2018, the Company changed the name of its subsidiary Seastone Delray Healthcare, LLC to Addiction Recovery Institute of America, LLC (“ARIA”).

Recent DevelopmentsThe Company received a license to operate in-patient detoxification and residential treatment services in September 2018.

In June of 2019, the Company and the landlord wished to proceed with marketing the property for sale and agreed to convert the long term lease into a month to month lease for a reduced amount of space on the property and Alternatives in Treatment became a direct tenant of the Landlord in the remainder of the space.

The Company once again had an opportunity to purchase the property in October of 2019 but could not arrange for sufficient financing to complete the purchase and the Landlord subsequently entered into a conditional agreement with another purchaser.

On February 25,December 20, 2019, the Company entered into an agreement with the landlord to terminate the lease agreement on January 31, 2020.

The Company has signed a Letter of Intent whereby it wouldintent to acquire a new facility at another location nearby which has been delayed by the Corona Virus pandemic and a delay in obtaining the licensing for this facility. The Company has been actively involved in the operation of the treatment center operated by Evernia Health Center LLC (“Evernia”) at 950 Evernia Street, West Palm Beach Florida. The Company is under contract to purchase a 33.33%majority interest in Local Link Wellness, LLC (“LLW”) for gross proceedsthis company and has been financing the start up operations of $400,000. LLW proposes to provide a comprehensive addiction treatment program to large employee groups. The company has advanced LLW a total of $110,000 as of April 12, 2019. These funds were advanced as short-term promissory notes thatthis facility. This operation will be immediately duethe Company’s only treatment center operating and payable ifexpects the parties fail to reach a binding agreement by April 30, 2019. Uponpurchase of the closing of a binding agreement, the short-term promissory notes will be converted to equity.

On April 2, 2019, the Company entered into a Commercial Contract whereby the real property at 801 Andrews Avenue, Delray Beach, Florida, consisting of land and condominiums thereon, was sold to JAGGM, LLC for $3,500,000. This transaction is expectedmajority interest to close on April 26, 2019.in the second quarter of 2021.

Corporate Structure

The Company consists of the following entities:

Ethema is the publicly traded investment holding company.

Muskoka previously owned and operated the addiction treatment center in Canada which was sold to Canadian Addiction Residential Treatment LP (“CART”). Muskoka has certain receivables collectible from CART and certain remaining liabilities.

This company was acquired from Leon Developments and owns and leases the property on which CART operates an addiction treatment center.

ARIA operated a treatment center in Delray Beach, Florida out of premises which it had acquired in February 2017. The treatment center was relocated and is now operated out of leased premises in West Palm Beach Florida. The Company has an option to buy the leased premises.

DARE was formed in 2016 to acquire the premises in which ARIA operated its Delray treatment center, the premises were acquired directly into ARIA. DARE has remained dormant since inception.

Employees

As of December 31, 2018,2020, Ethema Health Corporation had 202 employees.

Marketing

The addiction treatment business in the USA operates as an Insured Healthcareinsured healthcare service. Our marketing efforts are long term processes of establishing relationships with relevant professionals and our treatment staff. We use industry specific conferences and functions to network with these professionals.

Approximately 70% of our clients are sourced via the Internet. This is the single biggest focus for our marketing team, Search Engine Optimization (SEO) is very important and the Company aggressively seeks the maximum cost/benefit relationships with specialist firms in this field. We have also focused much of our effort on building relationships with large employer groups and unions that have large numbers of employees requiring addiction treatment services. We believe that these relationships will begin to produce significant referrals in 2019.

Competition

There are a significant amount of treatment facilities in the United States, we compete with these clinics for patients who are typically covered by insured healthcare services.

Environmental Regulations

The Company is not currently subject to any pending administrative or judicial enforcement proceedings arising under environmental laws or regulations. Environmental laws and regulations may be adopted in the future which may have an impact upon the Company’s operations.

Item 1A. Risk Factors.

Not applicable because we are a smaller reporting company.

Item 1B. Unresolved Staff Comments

None. 

Item 2. Properties.

Ethema Executive Offices

The Company’s executive offices are located at 810 Andrews1590 S. Congress Avenue, DelrayWest Palm Beach, Florida, 33483.33406..

West Palm Beach Treatment Operations

The Company treatment operations arewere based in our leased premises at 5400 East Avenue, westWest Palm Beach, Florida, USA.

This facility was operated until January 30, 2020, we have subsequently ceased operations at this facility and are currently exploring new treatment facility options.

The Company has been actively involved in the operation of the treatment center operated by Evernia Health Center LLC (“Evernia”) at 950 Evernia Street, West Palm Beach Florida. The Company is under contract to purchase a majority interest in this company and has been financing the start up operations of this facility. This operation will be the Company’s only treatment center operating and expects the purchase of the majority interest to close in the second quarter of 2021. The Company is accounting for the funds advanced to Evernia as other investments, until such time as the contract to purchase Evernia is closed.

Greenestone Muskoka Treatment Facility

The Greenestone Muskoka Treatment Facility is located in Bala, Ontario at 3571 Highway 169. The property is 43 acres in size and contains approximately 48,000 square feet of buildings. The property is owned by Ethema’s wholly owned Canadian subsidiary CCH and has been leased to the new owner of the Muskoka Clinic for a term of five years, which ends on February 28, 2022. The Lease gives the tenant an option to extend for three additional five (5) year terms, an option to purchase the property at any time for a purchase price of $7,000,000 in the first thirty six (36) months of the term and thereafter at a purchase price increased by $1,500,000 for each successive year up to a maximum of $10,000,000, and a right of first refusal in the event of a sale to a third party.

Delray Beach Real Estate

The real estate acquired in Delray Beach, Florida consist of two parcels of land. The first parcel is located at 810 Andrews Avenue, Delray Beach, Florida, is 0.34 acres in size and has a two story, 2,839 square foot CBS office building constructed in 1963. It is in good condition, and is currently used as an office for addiction treatment services. The second parcel is located at 801 Andrews Avenue, Delray Beach, Florida, is 0.34 acres in size and has a two-story, residential condominium building containing 10 units totaling 8,844 square feet. The improvements were constructed in 1971 with the latest renovation occurring in 2014. The property was being used as a sober home.

On April 3, 2019, the Company concluded an agreement to dispose of the residential condominium building located at 801 Andrews Avenue, Delray Beach, Florida, for gross proceeds of $3,500,000. 

Item 3. Legal Proceedings.

In 2017, a former employee has

A suit, claiming past due rent was filed suit against the Company asserting wrongful dismissal, claiming damages between CDN$43,500 and CDN$50,000 this matterin March 2020 for rent of a storage warehouse, the warehouse was settled for CDN14,070, including applicable legal fees, the settlement remains unpaidabandoned during March 2020. The rental expense was accrued in our records as the plaintiff has not signed the minutes of settlement.

On February 14, 2019, the Company entered into a Settlement Agreement and Release with Gulfstream Roofing, Inc., for improvements made to the leasehold real property located at 5400 East Avenue, West Palm Beach, Florida. The settlement amount was $251,774 was divided into two equal installments of $125,887, which were paid on February 21, 2019 and March 5,December 31, 2019. All claims that the parties have or may have against each other were released in terms of the agreement. 

Other than disclosed above, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 4. Mine Safety Disclosures.

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .

The Company’s common stock is quoted on the Over-the-counter Market (the “OTCQB”“OTC PINK”) under the symbol “GRST”. The Company was sponsored by the market maker Wilson Davis & Co. from Salt Lake City, Utah, which filed a Form 15c2-11 application with the Financial Industry Regulatory Authority (“FINRA”) for the Company in 2011. This application was approved by FINRA in February 2012, and Wilson Davis & Co. first quoted the stock in March 2012.

The following table sets forth the range of high and low bid quotations forFrom March 2012 to January 2020, our common stock for each ofhas been traded on the periods indicated as reported byOTCQB markets under the OTCQB. These quotations reflect interdealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions.symbol “GRST”, in January 2020, the stock was downgraded to the OTC Pink Sheets market.

QuotationsThe last reported sale price of our common stock on the OTCBB reflect bid and ask quotations, may reflect interdealer prices, without retail markup, markdown or commission and may not represent actual transactions.

The number of record holders of the Company’s common stock asOTC Pink on April 12, 2021, was $0.0056 per share. As of April 12, 2019 is 148.2021, there were approximately 154 holders of record of our common stock. 

Dividend Policy

We have nevernot paid any cash dividends on our common shares,stock to date, and we do not anticipate that we will pay anyhave no intention of paying cash dividends with respect to those securities in the foreseeable future. Our current business planWhether we declare and pay dividends is determined by our Board of Directors at their discretion, subject to retaincertain limitations imposed under Nevada corporate law. The timing, amount and form of dividends, if any, future earnings to finance the expansion developmentwill depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our business.Board of Directors.

As of December 31, 2018, there were 10,000,000 common securities authorized for issuance under the Company’s 2013 Stock OptionEquity Compensation Plan (which was previously approved by security holders) of which there were 480,000 options outstanding as of December 31, 2018.Information

Recent Sales of Unregistered Securities

In the securities transactions describedOther than as set forth below shares were issued pursuant to the exemptions from the registration requirements ofor as previously disclosed in our filings with the Securities Act of 1933, as amended, afforded the Company under Section 4(a)(2) promulgated thereunder due to the fact that the issuanceand Exchange Commission, we did not involve a public offering because of the insubstantial number of persons involved in each offering, the size of the offering, manner of the offering and number of shares offered. Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(a) (2) of the Securities Act for these transactions.

 The following is a summary of thesell any equity securities transactions during the year ended December 31, 2018:2020 in transactions that were not registered under the Securities Act.

OnBetween January 1, 2018, the Company recorded an issuance of 80,000 common shares upon the amendment of a Senior Secured Convertible note. The shares were valued at $4,800 or $0.08 per share. 

On March 9, 2018, the Company entered into a Securities Purchase Agreement with an investor whereby the Company borrowed $150,000 in exchange for a convertible promissory note of $153,0006, 2020 and December 28, 2020 in terms of an unsecuredconversion notices received from several convertible promissory note with a maturity date of December 30, 2018. The note bore interest at the rate of 12% per annum. The outstanding principal amount of the Note was convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that was 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the average lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion. During September 2018,holders the Company prepaid the aggregate principal outstanding of $153,000 together with interest thereon and penalty interest, was settled for gross proceeds of $210,800. 

On March 29, 2018, the Company entered into a Securities Purchase Agreement with an investor whereby the Company borrowed $150,000 in exchange for a convertible promissory note of $165,000 in terms of an unsecured convertible promissory note with a maturity date of December 1, 2018. The note bears interest at a rate of 8.5% per annum. The note is convertible upon a repayment default, at the lower of 60% of the lowest traded price over the preceding 30 day trading period prior to the issuance of this note or 60% of the lowest traded price 30 days prior to the conversion date. The term of the note was extended to July 25, 2019 providing no further events of default under the note occur. 

The Company issued the note holder 165,000 shares of common stock valued at $11,550 as a commitment fee and a warrant exercisable for 5,500,0001,586,659,618 shares of common stock at an exercise pricea par value of $0.10$0.01 per share.share to settle $551,908 of convertible debt and accrued interest thereon.

On April 17, 2018, the Company entered into a Securities Purchase Agreement with an investor whereby the Company borrowed $550,000 in exchange for a convertible promissory note of $605,000Between January 6, 2020 and May 2, 2020, in terms of an unsecured convertible promissory note with a maturity date of December 1, 2018. The note bears interest at a rate of 8.5% per annum. The note is convertible upon a repayment default, atwarrant exercise notices received the lower of 60% of the lowest traded price over the preceding 30 day trading period prior to the issuance of this note or 60% of the lowest traded price 30 days prior to the conversion date. The term of the note was extended to July 25, 2019 providing no further events of default under the note occur.

The Company issued the note holder 605,000 shares of common stock valued at $42,350 as a commitment fee and a warrant exercisable for 10,083,333184,000,000 shares of common stock at an exercise pricepar value of $0.10 per share. $0.01 each, These warrants were exercised on a cashless basis.

On July 31, 2018,June 1, 2020, the Company entered into a Securities Purchase Agreement withissued 100,000,000 shares to Ethan Leon, the son of our CEO in settlement of $25,000 of advances made to the Company by Eileen Greene and assigned to Ethan Leon,

On June 12, 2020, the Company issued 400,000 Series B Preferred shares to an investor pursuantat par value of $1.00 per share in partial settlement of convertible debt amounting to which$400,000.

During December 2020, the Company borrowed $150,000issued 4,000,000 Series A Preferred shares at par value of $0.01 per share to Eileen Greene, the spouse of our CEO, in exchange for a Convertible Promissory Note insettlement of $40,000 of advances made to the aggregate principal amount of $153,000. The Note has a maturity date of May 15, 2019 and bears interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has 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 the Purchaser during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion. 

On September 10, 2018, the Company, entered into a Securities Purchase Agreement with an investor pursuant to which the Company borrowed $130,000 in exchange for a Convertible Promissory Note in the aggregate principal amount of $133,000. The Note has a maturity date of September 10, 2019 and bears interest at the rate of nine percent per annum from the date on which the Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has 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 the Purchaser during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion.Company.

On November 5, 2018, the Company entered into a Securities Purchase Agreement with an investor whereby the Company borrowed $100,000 in exchange for a convertible promissory note of $111,111 with a maturity date of November 30, 2018. The note bore interest at a rate of 8% per annum. The note was convertible upon a repayment default, at the lower of 60% of the lowest traded price over the preceding 30 day trading period prior to the issuance of this note or 60% of the lowest traded price 30 days prior to the conversion date. The note was repaid on November 30, 2018. 

The Company issued the note holder 111,111 shares of common stock valued at $8.889 as a commitment fee.

Between May 5, 2018 and December 4, 2018, the Company entered into Securities Purchase Agreements with 14 investors whereby the Company borrowed $2,505,000 in exchange for Convertible Promissory Notes with maturity dates of one year from the date of issuance. The Notes bear interest at the rate of 6% per annum. The Notes are convertible into the Company’s common stock at a conversion price of $0.08 per share. The investors were issued Warrants to purchase up to a total of 31,312,500 shares of the Company’s common stock at an exercise price of $0.12 per share the. Both the conversion price under the Notes and the exercise price under the Warrants are subject to standard anti-dilution adjustment mechanisms. The Notes mature one year from date of issuance.

On December 14, 2018, the Company entered into a Release and Settlement agreement with a former employee whereby the Company issued 100,000 shares of common stock to the employee valued at $8,000. 

Penny Penny Stock

The U.S. Securities and Exchange Commission (the “SEC”) has adopted rules that regulate broker dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a tollfreetoll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

The broker dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account.

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.

Item 6. Selected Financial Data.

Not applicable as we are a smaller reporting company.

Special Note Regarding Forward-Looking Statements 

Many of the matters discussed within this Annual Report on Form 10-K/A (“Annual Report”) contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) on our current expectations and projections about future events. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. Such risks and uncertainties include the risks noted under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere. We do not undertake any obligation to update any forward looking statements. Unless the context requires otherwise, references to “we,” “us,” “our,” and “Ethema,” refer to Ethema Health Corporation and its subsidiaries.

Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake any obligation to update any forward-looking statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our consolidated financial statements would be affected to the extent there are material differences between these estimates. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and accompanying notes to the consolidated financial statements for the year ended December 31, 2018.2020.

Results of operations for the year ended December 31, 20182020 and the year ended December 31, 2017.2019.

The company sold its Greenestone Muskoka Treatment Center effective February 17, 2017, simultaneously with the purchase of the assets and real estate of an addiction treatment center in Delray Beach, Florida. The disposal of the Greenestone Muskoka Treatment Center has been reflected as a discontinued operation in the financial statements as of December 31, 2017 and the results of operations and cash flows for the years ended December 31, 2017.

Revenue

Revenue was $432,515$338,996 and $929,416$359,947 for the years ended December 31, 20182020 and 2017,2019, respectively, a decrease of $469,901$20,951 or 53.5%5.8%.

Revenue from patient treatment was $101,514$0 and $637,833$28,363 for the years ended December 31, 20182020 and 2017,2019, respectively, a decrease of $536,319$28,363 or 84.1%100.0%. The decrease is primarily due to the relocationcessation of the Company’s treatment operations to a significantly largerat our West Palm Beach facility fromin December 2019. We have entered into an LOI to acquire another facility, however the Delray Beach facility during the current year and delays in attracting new patients to our new facility; and an adjustment to the doubtful accounts provision based on current collection experience. The Company is actively building up its customer contact base to increase patient revenues.transaction has not closed as of December 31, 2020.

Revenue from rental income was $331,001$338,996 and $291,583$331,584 for the years ended December 31, 20182020 and 2017,2019, respectively, an increase of $39,418$7,412 or 13.5%. The increase is due to the rental being for a full twelve months during the current year and only 10.5 months in the prior year. The rental is also affected by average exchange rates of the Canadian Dollar to the US Dollar. The Canadian Dollar has weakened from $0.7867 during 2017 to 0.7574 during 2018, a decrease of 3.7%2.2%.

Operating Expenses

Operating expenses was $3,316,833$502,340 and $2,382,573$4,559,682 for the years ended December 31, 20182020 and 2017,2019, respectively, an increasea decrease of $934,260$4,057,342 or 39.2%89.0%. The increasedecrease in operating expenses is attributable to:

Operating loss

The operating loss was $2,884,317$163,344 and $1,453,157$4,199,735 for the years ended December 31, 20182020 and 2017,2019, respectively, an increasea decrease of $1,431,159$4,036,391 or 98.5%96.1%. The increasedecrease is attributable to the decrease in revenue and the increase in rent and other operating expenses discussed above.

Other income

Other income of $6,009was $1,183 and $475,487$6,600 for the years ended December 31, 20182020 and 2017,2019, respectively, a decrease of $469,478$5,417 or 98.7%82.1%. Other income in the prior period consisted of the reversal of a provision raised against a receivable on the disposal of the Endoscopy Clinic amounting to $472,368, the receivable was assigned to Leon Developments as part of the purchase consideration paid on the acquisition of CCH.This amount is immaterial.

Other expenseGain on debt extinguishment

Gain on debt extinguishment was $12,683,678 and $0 for the year ended December 31, 2020 and 2019, respectively. The company entered into several debt extinguishment agreements with convertible debt holders whereby the amounts payable and the payment terms under these convertible notes were renegotiated, this also resulted in the extinguishment of derivative liabilities related to these convertible notes.

Gain (loss) on sale of assets

Other expense

The Gain on sale of $8,000assets was $36,470 and $5,093,954the loss on sale of assets was $1,019,812 for the years ended December 31, 20182020 and 2017, a decrease of $5,085,954 or 99.8%. Other expense2019, respectively. The gain in the current periodyear represents an over-accrual for expenses relating to the settlementdisposal of a previous employee claim in the current year. Other expenseDelray Beach properties and the loss in the prior year represents; (i) $5,074,689 of the excess of the purchase price paid over the carrying value of the assets of CCH. This expenditure was classified as compensation expense to our CEO who owns 100% of Leon Developments, the counterparty to the purchase of the CCH Subsidiary; (ii) $19,265 represents the loss realized on disposing of a portionthe disposal of the mortgage owned byDelray Beach properties during 2019.

Warrant exercise

Warrant exercise was $95,868 and $0 for the Companyyears ended December 31, 2020 and 2019, respectively, an increase of $95,868 or 100%. During the current period a warrant holder exercised warrants for a total of 224,388,247 shares of common stock resulting in CCH,the expense of $95,868 for the issue of 184,000,000 shares.

Penalty on convertible notes

The penalty on convertible notes was $0 and $569,628 for the years ended December 31, 2020 and 2019, respectively. The penalty arose on notes which were in default in 2019, penalties were either levied or provided for in terms of the agreements entered into with the lenders.

Loss on conversion of convertible debentures

Loss on conversion of convertible debentures was $585,351 and $203,981 for the years ended December 31, 2020 and 2019, an increase of 381,370 or 187.0%. The loss on conversion of convertible debentures was due to the conversion of debentures at a discount to face value.market price by several convertible note holders during the current and prior year.

Deposit forfeited

On December 20, 2019, the Company entered into an agreement to terminate the lease agreement on January 30, 2020. The deposit forfeited was $1,665,078 for the year ended December 31, 2019. The deposit forfeited represents deposits initially paid for the acquisition of the West Palm Beach treatment facility located at 5400, 5402 and 5410 East Avenue West Palm Beach. We were unable to consummate the purchase transaction and entered into a lease agreement with the landlord, the deposit initially paid was offset against outstanding rental. The excess was recorded as a forfeiture.

Interest income 

Interest income of $5,334was $629 and $32,074$17,226 for the years ended December 31, 20182020 and 2017,2019, respectively, a decrease of $26,74016,597 or 83.4%96.3%. The interest earnedincome in the prior year consisted ofwas earned on the receivableescrow balance due from the sale of our Endoscopy.

Interest expense

Interest expense of $696,544 and $367,547 for the years ended December 31, 2018 and 2017, respectively, an increase of $329,397 or 89.6% was primarily due to; (i) mortgages assumedGreenstone Muskoka in the prior year for a period of 10.5 months as opposed to 12 months in the current year, (ii) the increase in convertible note funding during the current year of a net $3,337,889 primarily for working capital purposes and deposits paid on the West Palm Beach real estate. 

Debt discount

Debt discount was $4,504,007 and $668,916 for the year ended December 31, 2018 and 2017, respectively, an increase of $3,853,091 or 573.3%. The charge during the current period represents the amortization of the value of the warrants issued over the terms of the convertible loan agreements entered into during 2018 and 2017 and the amortization of the fair value of the beneficial conversion feature of the convertible notes issued to note holders during 2018 and 2017. The fair value of the warrants and the beneficial conversion features are amortized over a six to twelve month period, the term of the underlying convertible securities.

Interest expense

Interest expense was $631,425 and $1,079,038 for the years ended December 31, 2020 and 2019, respectively, a decrease of $447,613 or 41.5%, primarily due to the decrease in mortgage liabilities on the disposal of the Delray Beach properties in the prior year and the conversion of convertible debt to equity during the current year.

Debt discount

Debt discount was $861,657 and $3,338,760 for the years ended December 31, 2020 and 2019, respectively, a decrease of $2,477,103 or 74.2%. The decrease is primarily due to the maturity date of several convertible notes prior to the current year, with the resultant full amortization of debt discount related to those convertible notes.

Derivative liability movement

The derivative liability movement during the current year represents the mark to market movements of variably priced convertible notes and warrants issued during the current and prior years. These securities are marked to market on a quarterly basis and the resultant gain or loss is recorded as a derivative liability movement in the consolidated statementstatements of operations.operations and comprehensive loss.

Foreign exchange movements

Foreign exchange movements of $428,053was $(175,500) and $(81,031)$(311,606) for the years ended December 31, 20182020 and 2017,2019, respectively and represents the realized exchange gains and (losses) on monetary assets and liabilities settled during the current year as well as mark to market adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars.

Net income from discontinued operations

The net income from discontinued operations of $0 and $6,821,889 for the years ended December 31, 2018 and 2017, respectively, a decrease of 100%:

The prior year income is primarily made up as follows:

Taxation

Taxation of $102,232 and $0 for the years ended December 31, 2018 and 2107, respectively, an increase of 100%. Taxation expense is the estimated foreign tax liability on our Canadian operations during the current year.

Net lossincome (loss)

Net income was $3,084,992 and net loss of $(8,178,643) and $(1,368,487)was $(14,962,841) for the years ended December 31, 20182020 and 2017,2019, respectively, an increase of $6,810,156$18,047,833 or 497.6%,120.6%. The increase is primarily due to the increasereduction in operating expenses inand the current year,gain realized on debt extinguishments, offset by the increase in interest expense and debt discount over the prior year offset by the derivative liability movement and the foreign exchange gain in the current year. The prior year included a gain on discontinued operations of $6,821,899 made up of the profit on sale of the Canadian Rehab clinic of $7,494,828, the reversal of the provision raised against the loan on sale of the Endoscopy clinic of $472,368, offset by the compensation charge of $5,074,689 relating to the acquisition of CCH.movements, as discussed above.

Contingency related to outstanding payroll tax liabilities

The Company has also not filed certain foreign assets forms due to the US Federal Government. A provision of $250,000 was made for any potential penalties duedue. This issue is being addressed by our tax advisors.

Liquidity and Capital Resources

Cash used in operating activities from continuing operations of $1,463,544was $101,970 and $4,218,271$2,895,538 for the years ended December 31, 20182020 and 2017,2019, respectively decreased by $2,754,727a decrease of $2,793,568 or 65.3%96.5%. The decrease is primarily due to the following:

Cash used in investing activities from continuing operations of $1,432,110was $684,454 and $5,145,360cash generated by investing activities was $4,556,698 for the years ended December 31, 20182020 and 2017, respectively,2019, respectively. We invested $690,449 in a decrease of $3,713,250 or 72.2%.treatment facility based on West Palm Beach which we have committed to acquiring once we have concluded the sale agreement. In the prior year, we realized net proceeds on the Company acquired the businessdisposal of Seastone for $2,960,000 and made deposits on real estate of $1,748,988, in the current year the deposits on real estate was $1,111,993, a decrease in movement over the prior year of $636,995. Capital expenditure was $320,117 in the current year, primarily due to the leasehold improvements to the Delray facility. Capital expenditure in the prior yearBeach properties of $436,372 was predominantly for improvements made to the Muskoka property currently leased to a third party.$4,756,360.

Cash generated from investing activities from discontinued operations in the prior year was $6,497,400, this was due to the proceeds realized on the sale of the treatment center in Canada in the prior year.

Cash generated by financing activities was $3,360,764$854,019 and $3,299,299, an increase of $61,465 or 1.9%. The Companycash used by financing activities was $1,951,034 for the years ended December 31, 2020 and 2019, respectively. During the current year we raised $4,035,000$1,129,050 from convertible notes and repaid $210,600 in convertible notes, primarily to fund our new facility in West Palm Beach. In the prior year, we repaid the mortgage outstanding on the Delray properties of $3,067,073 out of the proceeds of the property disposal and repaid $2,504,695 to debt investors during the current year, to fund operations and the additional deposits made on the real estate. Certain convertible notes amounting to $697,111 were repaid during the current year. Inin the prior year the mortgage for our Canadian property was refinanced resulting in a net increase in mortgage funding of $1,342,459, in addition the Companywe raised an additional $1,897,500 in convertible notes and repaid $388,458 of the existing convertible notes.$4,035,000 from debt investors.

Over the next twelve months we estimate that the company will require approximately $2.5$6.5 million in funding to repay its obligations, if these obligations are not converted to equity and for funding working capital as it continueswe continue to develop its West Palm Beach facility and it is also exploring several otherseek opportunities for addiction treatment center options and sources of patients throughoutin the country. The company may have to raise equity or secure debt.US markets. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. In the opinion of management, the Company’s liquidity risk is assessed as medium. The company has recently sold its real property located at 801 Andrews Avenue, the proceeds of $3,500,000 will be utilized to settle the outstanding mortgage liability on the property upon closing with the remaining balance of approximately $500,000 being utilized to settle outstanding liabilities and for working capital purposes.  high.

Subsequent to December 31, 2018, the Company entered into the following financing transactions:

Item 8. Financial Statements and Supplementary Data.

ETHEMA HEALTH CORPORATION

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(Expressed in US$ unless otherwise indicated)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Ethema Health Corporation

West Palm Beach, Florida

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Ethema Health Corporation (the “Company”) at December 31, 20182020 and December 31, 2017,2019, and the related consolidated statements of operations and comprehensive loss,income (loss), changes in stockholders’ deficit, and cash flows for each of the years ended December 31, 20182020 and 2017,2019, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the years ended December 31, 20182020 and 2017,2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 6 to the consolidated financial statements, the Company had accumulated deficit of approximately $30.5 million and negative working capital of approximately $13.2 million at December 31, 2018, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 6. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

Basis for Opinion

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

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

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

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 3 to the consolidated financial statements, the Company had accumulated deficit of approximately $42.4 million and negative working capital of approximately $12.9 million at December 31, 2020, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Critical Audit Matter

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accounting for Embedded Conversion Features on Convertible Notes – Refer to Notes 12 and 16 to the Financial Statements

The principal considerations for our determination that performing procedures relating to the valuation of derivatives is a critical audit matter are the significant judgment by management when developing the fair value of the derivative liabilities. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the valuation models used and related variable inputs used within those models.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing management’s process for developing the fair value estimate; evaluating the appropriateness of the valuation techniques; testing the completeness and accuracy of underlying data used in the model; and evaluating the significant assumptions used by management, including the values of expected volatility and discount rate. Evaluating management’s assumptions related to the volatility amounts and discount rates involved evaluating whether the assumptions used by management were reasonable considering the current and historical performance, the consistency with external market and industry data, and whether these assumptions were consistent with evidence obtained in other areas of the audit.

ETHEMA HEALTH CORPORATION

CONSOLIDATED BALANCE SHEETS

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

ETHEMA HEALTH CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS 

AND COMPREHENISIVE LOSSCOMPREHENSIVE INCOME (LOSS)

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

ETHEMA HEALTH CORPORATION

CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ DEFICIT

The accompanying notes are an integral part of the consolidated financial statementsstatement

ETHEMA HEALTH CORPORATION

CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS 

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

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

The Share Purchase Agreement

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

The Asset Purchase Agreement and Lease

Under the APA, the assets of the Canadian Rehab Clinic were sold by the Company, through its subsidiary, GreeneStone Clinic Muskoka Inc. (“Muskoka”), to Canadian Addiction Residential Treatment LP (the “Purchaser”), for a total consideration of CDN$10,000,000, plus an additional payment of up to CDN$3,000,000 as a performance payment to be received in 2019 if certain clinic performance metrics are met. The Purchaser completed the sale with cash proceeds to the Company of CDN$10,000,000, of which CDN$1,500,000 was to remain in escrow for up to two years to cover indemnities given by the Company.10,000,000. The proceeds of the Muskoka clinic asset sale were used to pay down certain tax debts and operational costs of the Company and to fund the Florida Purchase, mentioned below.

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

The Florida Purchase

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

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

Since June 30, 2020, the Company has been actively involved in the operation of the treatment center operated by Evernia Health Center LLC (“Evernia”) at 950 Evernia Street, West Palm Beach Florida. The Company is under contract to purchase a majority interest in this company and has been financing the start up operations of this facility. This operation will be the Company’s only treatment center operating and expects the purchase of the majority interest to close in the second quarter of 2021. 

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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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.

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:

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

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

The relevant translation rates are as follows: For the year ended December 31, 20182020 a closing rate of CDN$1.0000 equals US$0.73300.7854 and an average exchange rate of CDN$1.0000 equals US$0.7574.0.7455. For the year ended December 31, 20172019 a closing rate of CAD$1.0000 equals US$0.79710.7699 and an average exchange rate of CAD$1.0000 equals US$0.7867.0.7536. 

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ASU 2014-09ASC 606 requires companies to exercise more judgment and recognize revenue using a five-step process. The Company adopted ASU 2014-09 using the modified retrospective method for all contracts effective January 1, 2018 [and is using a portfolio approach to group contracts with similar characteristics and analyze historical cash collections trends]. Modified retrospective adoption requires entities to apply the standard retrospectively to the most current period presented in the financial statements, requiring the cumulative effect of the retrospective application as an adjustment to the opening balance of retained earnings at the date of initial application. Prior periods have not been adjusted. No cumulative-effect adjustment in retained earnings was recorded as the adoption of ASU 2014-09 did not significantly impact the Company’s reported historical revenue.

As a result of certain changes required by ASU 2014-09, the majority of theThe 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. The adoption of ASU 2014-09 has no impact on the Company’s accounts receivable as it was historically recorded net of allowance for doubtful accountsoperations and contractual adjustments, and the Company has eliminated the presentation of allowance for doubtful accounts on the consolidated balance sheets.comprehensive loss.

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

The Company receives payments from the following sources for services rendered in our U.S. Facility: (i) commercial insurers; and (ii) individual patients and clients. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC 606-10-32-18 and diddoes 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 under cost reimbursement agreements 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 cost report receivables were $202,654$3,075 and $218,858$105,842 for the years ended December 31, 20182020 and 2017, respectively, and were included in other current assets in the consolidated balance sheets.2019, respectively. Management believes that these receivables are properly stated and are not likely to be settled for a significantly different amount. The net adjustments to estimated cost report settlements resulted in a decrease ina credit to revenues of $262,353$2,734 and $388,018a charge to revenues of $414,603 for the years ended December 31, 20182020 and 2017,2019, respectively. The credit to revenue is due to revenue collected from commercial insurers in excess of our expectations.

The Company has analyzed its revenue transaction pursuant to ASC 606, Revenue, and it has no material impact as a result of the transition from ASC 605 to 606. 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, as defined below.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:

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company has two operating segments from which it derives revenues which is recognized on the basis described below.

In terms of the lease agreement, on a monthly basis as long as the facility is utilized by the tenant

The customers have been treated and provided with services by the Company; there is clear evidence that an arrangement exists; the amount of revenue and related costs can be measured reliably; and it is probable that the economic benefits associated with the transaction will flow to the Company.

The Company’s policy is to measure an asset exchanged or transferred in a nonmonetary transaction at the more reliable measurement of the fair value of the asset given up and the fair value of the asset received, unless:

The Company’s policy is to disclose bank balances underFor purposes of the statements of cash including bank overdrafts with balances that fluctuate frequently from being positive to overdrawn and term depositsflows, the Company considers all highly liquid instruments purchased with a maturity period of three months or less fromand money market accounts to be cash equivalents. The Company maintains cash and cash equivalents with several financial institution in the dateUSA and Canada.

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

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

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

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.

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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:

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

Fixed assets areProperty and equipment is recorded at cost. Depreciation is calculated on the straight line basis over the estimated life of the asset:

LeaseholdBuilding improvements are depreciated using the straight-line method over the term of the lease.

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

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

ASC Topic 740 contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties accrued on unrecognized tax benefits within general and administrative expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in general and administrative expenses in the period that such determination is made. The tax returns for fiscal 2001,2016, through 20172019 are subject to audit or review by the US tax authorities, whereas fiscal 2010 through 2017 are subject to audit or review by the Canadian tax authority.

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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, 20182020 and 20172019 is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual forfeitures differ from those estimates. We have minimal awards with performance conditions and no awards dependent on market conditions.

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

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

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In May 2014, FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606). In August 2015,2020, the FASB issued ASU 2015-14 delayingNo. 2020-06, debt with Conversion and Other Options (subtopic 470-20): and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). Certain accounting models for convertible debt instruments with beneficial conversion features or cash conversion features are removed from the effective implementation date of ASU 2014-09 to fiscal years beginning after December 15, 2017.guidance and for equity instruments the contracts affected are free standing instruments and embedded features that are accounted for as derivatives, the settlement assessment was simplified by removing certain settlement requirements.

This ASU supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2018 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

The Company adopted ASC 606 and analyzed its revenue transaction pursuant to ASC 606, Revenue, and it has no material impact as a result of the transition from ASC 605 to 606. 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.

In February 2016, FASB issued ASU, No. 2016-02, Leases (Topic 842) (ASC 842)

The amendments in this update establishes a comprehensive new lease accounting model. The new standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. The new standard is effective for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted.

A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, including a number of optional practical expedients that entities may elect to apply. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, an update which provides another transition method, the prospective transition method, which allows entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company will adopt the new standard on January 1, 2019 using the prospective transition method. In preparation for adoption of the standard.2021.

The Company has identified all leases and reviewed the leases to determine the impacteffects of ASC 842 on its consolidated financial statements. The Company has elected to apply all of the practical expedients to its leases, which include not reassessing (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases, and (4) not separating the components of leases into lease and non-lease components. Basedthis ASU on the Company’s assessment, the Company has concluded that the adoption of the new standard will result in the recording of a right-of-use asset and a lease liability on the consolidated balance sheet on January 1, 2019. While substantially complete, the Company is still in the process of finalizing its evaluation of the effect of ASC 842 on its financial statements is currently being assessed and disclosures. The adoption of ASU 2016-02, as amended, is expected to result inhave an impact on the recognition of right of use assets and associated obligations on its consolidated balance sheets.

In February 2018, the FASB issued ASU 2018-2, Income Statement- Reporting Comprehensive Income (Topic 220), Reclassificationtreatment of certain tax effects from accumulated other comprehensive income.convertible instruments, if any, and the derivative liabilities, if any, associated with these convertible instruments.

The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting fromFASB issued several additional updates during the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulnessperiod, none of information reported to financial statement users. However, because the amendments only relatethese standards are either applicable to the reclassification of the income tax effects of the Tax CutsCompany or require adoption at a future date and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this Update also require certain disclosures about stranded tax effects.

The amendments in this Updatenone are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.

The Company early adopted this ASU, which was applied retrospectively to the consolidated financial statements and resulted in a reduction in the tax effect of net operating losses carried forward.

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In February 2018, the FASB issued ASU 2018-3 Technical Corrections and Improvements to Financial Instruments – Overall (Sub topic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities.

The amendment clarifies that an entity measuring an equity security using the measurement alternative may change its measurement approach to a fair value method in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should measure all future purchases of identical or similar investments of the same issuer using a fair value method in accordance with Topic 820.

The amendment clarifies that the adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that the observable transaction for a similar security took place.

The amendment clarifies that remeasuring the entire value of forward contracts and purchased options is required when observable transactions occur on the underlying equity securities.

The amendment clarifies that when the fair value option is elected for a financial liability, the guidance in paragraph 825-10-45-5 should be applied, regardless of whether the fair value option was elected under either Subtopic 815-15, Derivatives and Hedging—Embedded Derivatives, or 825-10, Financial Instruments—Overall.

The amendments clarify that for financial liabilities for which the fair value option is elected, the amount of change in fair value that relates to the instrument specific credit risk should first be measured in the currency of denomination when presented separately from the total change in fair value of the financial liability. Then, both components of the change in the fair value of the liability should be remeasured into the functional currency of the reporting entity using end-of-period spot rates.

The amendment clarifies that the prospective transition approach for equity securities without a readily determinable fair value in the amendments in Update 2016-01 is meant only for instances in which the measurement alternative is applied. An insurance entity subject to the guidance in Topic 944, Financial Services—Insurance, should apply a prospective transition method for Correction or Improvement Summary of Amendments when applying the amendments related to equity securities without readily determinable fair values. An insurance entity should apply the selected prospective transition method consistently to the entity’s entire population of equity securities for which the measurement alternative is elected.

The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as they have adopted Update 2016-01.

The amendments in this update are not expected to have a material impact on the consolidated financial statements.statements upon adoption.

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting.

The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.

The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606.

The impact of this ASU on the consolidated financial statements is not expected to be material. 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) Changes to the Disclosure Requirements for Fair Value Measurement.

The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement.

Removals

The following disclosure requirements were removed from Topic 820:

Modifications

The following disclosure requirements were modified in Topic 820:

Additions

The following disclosure requirements were added to Topic 820:

In addition, the amendments clarify that materiality is an appropriate consideration of entities and their auditors when evaluating disclosure requirements.

The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date.

The impact of this ASU on the consolidated financial statements is not expected to be material.

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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, 20182020 and 2017.2019.