UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended: December 31 2021, 2023

or

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

For the transition period from to ______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.)

1590 S. Congress Avenue950 Evernia Street

West Palm Beach, Florida3340133406

(Address of principal executive offices)

(561) (416) 500 0020290-0239

(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 or any amendment to this Form 10-K. ☒

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D.1(b).  ☐

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, 2021,2023, based on a closing share price of $0.0044$0.0006 was approximately $12,207,2712,073,714.

As of April 13, 2022,May 6, 2024, the registrant had 3,729,053,805shares of its common stock, par value $0.01 per share, outstanding.

ETHEMA HEALTH CORPORATION  

YEAR ENDED DECEMBER 31, 20212023

TABLE OF CONTENTS

PART I

Special Note Regarding Forward-Looking Statements

Many of the matters discussed within this 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 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 thefor an assignment to Leon Developments of certain indebtednessCDN$659,918 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.

$2,184,000. CCH held the real estate on which the Company’s GreeneStone Muskoka operated. The Company entered into an Asset Purchase Agreement and Lease

(the Under“APA”) whereby 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” or “CART”), for a total consideration of CDN$10,000,000. The proceeds of the GreeneStone Muskoka asset sale were used to pay down certain tax debts and operational costs ofcompany also entered into a lease agreement whereby the Company andleased the real estate to fund the Florida Purchase, mentioned below.Cart for an initial 5 year period with three 5 year renewal options.

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 Purchases and Business

ImmediatelyOn February 14, 2017, immediately after closing on the sale of the assets of GreeneStone Muskoka, 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 operatedagreements through its wholly owned subsidiary, Addiction Recovery Institute of America, LLC (“ARIA”). 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.6,070,000.

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 (“the Landlord”) 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 the buildings from the Landlord into a real property lease agreement with a purchase option. The lease was for an initial 10 years and provided for two additional 10 year extensions.

In June 2018, the Company moved its ARIA operations into the West Palm Beach properties and in September 2018 received a license to operate in-patient detoxification and residential treatment services.

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.

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

On June 30, 2020, the Company entered into an agreement (“the Stock Purchase Agreement”), whereby the Company agreed to acquire 51% of American Treatment Holdings, Inc. (“ATHI”) from The Q Global Trust (“Seller”) and Lawrence B Hawkins (“Hawkins”), which owned 100% of Evernia Health Services LLC. (“Evernia”), which operates drug rehabilitation facilities. The consideration for the acquisition was a loan to be provided by the Company to Evernia in the amount of $500,000.

The Company originally had a 180 dayhas an option to purchase an additional 9% of ETHI for a purchase consideration of $50,000. On April 28, 2021, the Stock Purchase Agreement was amended whereby the option to purchase an additional 9% of ATHI for $50,000 was amended to purchaseacquire an additional 24%, an increase of 15% over the prior option,ATHI for 100,000,000 shares of common stock and $50,000. The remaining$50,000, on the condition to closing,that a probationary license was approved by the receipt of approval for the change of ownership of the license from theFlorida Department of ChildrenFamily and FamilyChild Services, of Florida, was satisfied by probationary approval, which was received on June 30, 2021. The30,2021, upon which the Company exercised its option to acquire the option and issued the 100,000,000 sharesadditional 24% of common stock,ATHI, resulting in a 75% ownership of ATHI.

On December 30, 2022, the company entered into two agreements whereby it sold two non-operating subsidiaries, Greenstone Muskoka and ARIA to the Company owning 75%Chairman and CEO for gross proceeds of ATHI..$0, after Greenstone Muskoka forgave its intercompany receivable owing from the Company of $6,690,381 and the Company forgave its intercompany balance owing from ARIA of $9,605,315.

On June 30, 2023, the Company entered into an exchange agreement with Leonite Capital, LLC, whereby it exchanged 400,000 Series B shares with a value of $400,000 plus accrued dividends thereon of $61,184 for its entire shareholding in its property owning subsidiary, CCH. The Series B shares were cancelled upon consummation of the transaction.

On October 3, 2022 the Company entered into a purchase and sale agreement with Evernia Station Limited Partnership for the purchase of 950 Evernia Street, West Palm Beach, Florida (“950”), the property in which it operates its treatment center, for gross proceeds of $5,500,000. (“Purchase Agreement”). The closing was originally scheduled for February 1, 2023, however through a series of 6 addendums to the Purchase Agreement requiring the payment of a total $180,000 in extension fees, the Closing was extended to August 3, 2023.

Simultaneously with the closing of the purchase and sale agreements, on August 4, 2023, the Company entered into a long term lease for 950 with an initial term of twenty years, and two ten year extension options. The lessor is Pontus EHC Palm Beach, LLC , a Delaware limited liability company and a portfolio company of Pontus Net Lease Advisors, LLC. The lease is absolutely net and the lease cost for the initial year is $748,000 paid monthly. The lease increases at a rate of 2.75% per year for a total term lease obligation of $19,595,653 over the initial twenty-year term.

Corporate Structure

The Company consists of the following entities:

Ethema is the publicly traded investment holding company, registered in Colorado, U.S.

CCH 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 was operated out of leased premises in West Palm Beach Florida.

DARE has remained dormant since inception.

Muskoka previously owned and operated the addiction treatment center in Canada which was sold to CART.

ATHI owns 100% of the members interest of Evernia. Ethema has been financing the operations of Evernia since June 2020.

Evernia operates a treatment center in West Palm Beach Florida and is a wholly owned subsidiary of ATHI which was acquired by Ethema effective July 1, 2021. The Company has been actively involved in the operation of this treatment center since June 30, 2020.

DARE has remained dormant since inception.

Employees

As of December 31, 2021,2023, Ethema had 4665 employees.

Marketing

The addiction treatment business in the USA operates as an insured 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.

Through Evernia, the Company has an in-network relationship with a single largeseveral health care providerproviders and the majority of the Company’s clients are sourced from thisthese health care provider.providers.

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 1590 S. Congress Avenue,950 Evernia Street, West Palm Beach, Florida, 33406.

West Palm Beach Treatment Operations

The Company, through its acquisition of ATHI, effectively acquired a 75% of the Evernia treatment facility located at 950 Evernia Street, West Palm Beach Florida. The Company has been actively involved in the operation of the Evernia treatment facility since June 2020.

Muskoka Treatment Facility

The Muskoka Treatment Facility is located in Bala, Ontario, 3571 Highway 169. The property is 43 acres and contains approximately 48,000 square feet of buildings. The property is wholly owned by CCH and has been leased to CART for an initial term of five years, which ended on February 28, 2022. The tenant exercised its option to extend the lease term for an additional five years. The lease gives the tenant an option to extend for two additional five (5) year terms, an option to purchase the property at any time for a purchase price of CDN$7,000,000 in the first thirty six (36) months of the term and thereafter at a purchase price increased by CDN$1,500,000 for each successive year up to a maximum of CDN$10,000,000, and a right of first refusal in the event of a sale to a third party.

Item 3. Legal Proceedings.

A suit, claiming past due rent was filed against the Company in March 2020 for rent of a storage warehouse, the warehouse was abandoned during March 2020. The rental expense was accrued in our records for $12,293 as of December 31, 2021.

Other than disclosed above, weWe 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 “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.

From March 2012 to January 2020, our common stock had been traded on the OTCQB markets under the symbol “GRST”, in January 2020, the stock was downgraded to the OTC Pink Sheets market.

The last reported sale price of our common stock on the OTC Pink on April 13, 2022,May 6, 2024 was $0.0007$0.0003 per share. As of April 13, 2022,May 6, 2024, there were approximately 155157 holders of record of our common stock. 

Dividend Policy

We have not paid any cash dividends on our common stock to date, and we have no intention of paying cash dividends in the foreseeable future. Whether we declare and pay dividends is determined by our Board of Directors at their discretion, subject to certain limitations imposed under Colorado corporate law. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.

Equity Compensation Plan Information

See Item 11 - Executive Compensation for equity compensation plan information.

Recent Sales of Unregistered Securities

Other than as set forth below or as previously disclosed in our filings with the Securities and Exchange Commission, we did not sell any equity securities during the year ended December 31, 20212023 in transactions that were notnone registered under the Securities Act.

On January 8, 2021,June 28, 2023 the Company entered into a Warrant Exchange Agreement with a previous lender that exchanged a Warrant outstanding to the previous lender originally issued 78,763,466on June 12, 2020 for a new Warrant dated June 30, 2023. The substantial changes to the warrant affect the number of shares in the warrant, the exercise price and the term. The original warrant provided for the previous lender to have a continuing right to purchase a 20% share of the outstanding common shares until it expired on June 12, 2025 which was originally set at 326,286,847 shares. The new warrant is exercisable for 745,810,761 shares, 20% of the number of common stockshares outstanding on June 28, 2023, with no allowance for adjustment, except normal adjustments due to Leonite Capital, LP (“Leonite”),splits or consolidations, until the new expiry date of June 30, 2027. The exercise price in connectionthe original warrant was $0.10, with allowance for adjustments, which when applied resulted in an exercise price of $0.0004 per share. The exercise price on the new warrant is $0.001 and is only adjustable if the Company issues any shares at a price less than the exercise price during the warrant period except for any issuance of shares to the Company’s president or related parties on any debt outstanding to those parties as of June 30, 2023, and limited to a conversion notice received, converting principal and interestprice of $70,137.

On March 3, 2021, the Company issued 97,000,000 shares of common stock to Leonite in connection with a conversion notice received, converting principal and interest of $95,000.

On March 9, 2021, the Company received notification of exercise of warrants for 66,666,666 shares on a cashless basis from Auctus Fund, LLC (“Auctus”), resulting in the issuance of 59,999,999 shares of common stock valued on the date of issuance at $90,000.

On May 3, 2021, the Company issued 100,000,000 shares of common stock to Labrys Fund LP (“Labrys”) in connection with a conversion notice received, converting principal and interest of $90,000.

On May 13 2021, the Company received notification of exercise of warrants for 50,505,051 shares on a cashless basis from First Fire Global Opportunities Fund, resulting in the issuance of 42,353,038 shares of common stock valued on the date of issuance at $86,824.

 On June 1, 2021, the Company issued 30,000,000 shares of common stock to Leonite in connection with a conversion notice received, converting principal and interest of $29,250.

On June 8, 2021, the Company issued 106,313,288 shares of common stock to Joshua Bauman in connection with a conversion notice received, converting principal and interest of $105,563.

On June 10, 2021, the Company issued 60,000,000 shares of common stock to Leonite in connection with a conversion notice received, converting principal and interest of $59,250.

On July 1, 2021, in terms of the amendment to the stock Purchase Agreement entered into on June 30, 2020 between the Company, the Q Global Trust, LLC, and American Treatment Holdings, the Company issued 100,000,000 shares of common stock thereby closing the transaction and acquiring a 75% interest in ATHI.

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

On August 6, 2021, the Company received a cashless warrant exercise from Labrys, exercising warrants for 100,000,000 shares, resulting in the issuance of 86,333,333 shares of common stock valued on the date of issuance at $176,983.

On September 10, 2021, the Company issued 59,259,630 shares of common stock to Leonite in connection with a conversion notice received, converting principal and interest of $60,977.

On September 24, 2021, the company received a cashless warrant exercise from Labrys, exercising warrants for 91,666,666 shares, resulting in the issuance of 54,999,999 shares of common stock valued on the date of issuance at $242,000.

On September 24, 2021, the company received a cashless warrant exercise from Labrys, exercising warrants for 60,000,000 shares, resulting in the issuance of 36,939,393 shares of common stock valued on the date of issuance at $162,533.

On September 28, 2021, the Company issued 60,000,000 shares of common stock to Labrys in connection with a conversion notice received, converting principal of $54,000.

On October 8, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $55,800 into 62,000,000 shares of common stock.

On October 15, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $7,400 into 8,222,222 shares of common stock.

On October 19, 2021, the Company issued 50,496,728 shares of common stock to Leonite in connection with a conversion notice received, converting principal and interest of $49,747.

On October 25, 2021, the Company issued 39,405,310 shares of common stock to Joshua Bauman in connection with a conversion notice received, converting principal and interest of $38,655.

On October 29, 2021, the Company issued 83,771,947 shares of common stock to Leonite in connection with a conversion notice received, converting principal and interest of $83,022.

On November 22, 2021, the Company issued 58,427,091 shares of common stock to Leonite in connection with a conversion notice received, converting principal and interest of $57,677.

On November 23, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $6,329 and interest of $60,500 into 75,000,000 shares of common stock.

On December 13, 2021, in terms of a conversion notice received by the company, Leonite converted the aggregate principal and interest amount of $89,933 into 90,682,696 shares of common stock.$0.0005 per share.

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 toll-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.

Issuer Purchases of Equity Securities

There were no issuer purchases of equity securities during the fiscal year ended December 31, 2023.

Item 6. Reserved

Special Note Regarding Forward-Looking Statements

Many of the matters discussed within this 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. 

The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, our audited annual financial statements and the related notes thereto, each of which appear elsewhere in this Annual Report. This discussion contains certain forward-looking statements that involve risks and uncertainties in this Annual Report. Actual results could differ materially from those projected in the forward-looking statements. The Management Discussion and Analysis of Financial Condition and Results of Operations below is based upon only the financial performance of Ethema Health Corporation.

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, 2021.2023.

Results of operations for the year ended December 31, 20212023 and the year ended December 31, 2020.2022.

Revenue

Revenue was $1,942,588$5,344,976 and $338,996$4,820,747 for the years ended December 31, 20212023 and 2020,2022, respectively, an increase of $1,603,592$524,229 or 473.0%10.9%.

Revenue from patient treatment was $1,568,071$5,159,680 and $04,411,546 for the years ended December 31, 20212023 and 2020,2022, respectively, an increase of $1,568,071$748,134 or 100.0%17.0%. The increase is due to the acquisitionincrease in the number of Evernia,in-network patients at the facility due to the approval of the facility by a West Palm Beach based treatment facility, on July 1, 2021.number of health care plans over the current year.

Revenue from rental income was $374,517$185,296 and $338,996$377,351 for the years ended December 31, 20212023 and 2020,2022, respectively, an increasea decrease of $35,521$192,055 or 10.5%50.4%. The Company disposed of its real property owning subsidiary, Cranberry Cove Holdings, to a related party , Leonite Capital, LLC on June 30, 2023, revenue was only recognized for the increase is primarily due tofirst half of the contractual increase in rental income..current fiscal year.

Operating Expenses

Operating expenses was $1,940,483$5,886,896 and $502,340$4,331,630 for the years ended December 31, 20212023 and 2020,2022, respectively, an increase of $1,438,143$1,555,266 or 286.3%35.9%. The increase in operating expenses is attributable to:

Operating (loss) profit (loss)

The operating (loss) profit was $2,105$(541,920) and the operating loss was $(163,344)$489,117 for the years ended December 31, 20212023 and 2020,2022, respectively, an increase in loss of $165,449$1,031,037 or 101.3%210.8%. The increase in loss is attributabledue to the acquisitionincrease in operating expenses of Evernia on July 1, 2021,$1,555,266, discussed in detail above, including once off management fees of $245,503, increased professional fees and capital raising fees which resultedare not expected to incur in increasedfuture periods, offset by the increase in revenue primarily due to patients obtained from the health care provider license which Evernia has secured.of $524,229, discussed in detail above.

Other income

Other income was $273,373$0 and $1,183$15,760 for the years ended December 31, 20212023 and 2020,2022, respectively. OtherIn 2022 other income includes; (i) the reversalconsisted of a $250,000 provision raised for rental expenses on a previous property leased by the Company which has, subsequently been disposed of by the Landlord, and (ii) a financial inducement granted to the Company by the Everniaprevious landlord.

Forgiveness of government relief loan

Forgiveness of government relief loan was $156,782$0 and $104,368 for the years ended December 31, 2023 and 2022, respectively, a decrease of $104,368 or 100.0%. The Company received partial forgiveness of the Government assistance loan in the prior year.

Gain on disposal of property

Gain on disposal of property was $2,484,172 and $0 for the year ended December 31, 2023 and 2022, respectively, an increase of $2,484,172 or 100.0%. The Company exercised its option to acquire the property located at 950 Evernia Street, West Palm Beach, Florida, in which its treatment center operations, and subsequently disposed of the property to a third party, realizing a profit on disposal of $2,484,172, after transaction costs.

Loss on debt extinguishment

Loss on debt extinguishment was $277,175 and $0 for the years ended December 31, 20212023 and 2020,2022, respectively, an increase of $156,782$277,175 or 100.0%. The company had met all requirements for forgivenessloss on debt extinguishment is related primarily to replacement warrants issued to Leonite Capital as part of one of its Covid-19 government relief loans and the loan forgiveness was recorded during the fourth quarter.debt settlement reached with Leonite.

GainExtension fee on debt extinguishmentproperty purchase

Gain on debt extinguishment was $0 and $12,601,823 for the years ended December 31, 2021 and 2020, respectively. In the prior year, 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 on sale of assets

The Gainextension fee on sale of assetsthe property purchase was $0 and $36,470 for the years ended December 31, 2021 and 2020, respectively. The gain in the prior year represented an over-accrual for expenses relating to the disposal of the Delray Beach properties.

Loss on advance

Loss on advance was $120,000$140,000 and $0 for the years ended December 31, 20212023 and 2020,2022, respectively, an increase of $120,000 or 100.0%. The company advanced funds to Local link wellness in the prior year, which were deemed to be uncollectible in 2021.

Warrants exercised

Warrant exercise was $0 and $95,868 for the years ended December 31, 2021 and 2020, respectively, a decrease of $95,868 or 100.0%. In the prior year warrants were exercised for 184,000,000 shares of common stock

Fair value of warrants granted to convertible debt holders

Fair value of warrants granted to convertible debt holders was $854,140 and $0 for the years ended December 31, 2021 and 2020, an increase of $854,140$140,000 or 100%. The Company granted warrantsextension fee was levied by the landlord of our West Palm Beach facility to certain convertible debt holdersafford us additional time to structure the acquisition of the facility, which we in termsturn disposed of agreements entered into with them, whereby any debt issued subsequent to their debt on more favorable terms would result in the debt holders being entitled to the same terms as issued to the subsequent debt holders. The company issued warrants for a total of 195,963,598 shares of common stock which was valued using a Black Scholes valuation model.third party lender.

Penalty on convertible notesdebt

PenaltyThe penalty on convertible notes was $9,240$34,688 and $0$60,075 for the years ended December 31, 20212023 and 2020,2022, respectively, an increase of $9,240.$25,387 or 42.3%. The penalty on convertible notes relates to a fee paid for the extensionnote was agreed upon with one of repayment dates on the Labrys note.our lenders whose note was in default and was subsequently settled after June 30, 2023.

Interest income 

Interest income was $0$676 and $629$78 for the years ended December 31, 20212023 and 2020 respectively, a decrease of $629 or 100.0%. The interest2022 respectively. Interest income is immaterial.

Interest expense

Interest expense

Interest expense was $829,525$500,226 and $676,634$588,477 for the years ended December 31, 20212023 and 2020,2022, respectively, an increasea decrease of $152,891$88,251 or 22.6%15.0%, primarily due to the increasedecrease in mortgage interest due to the disposal of CCH, our property owning subsidiary on June 30, 2023, and a decrease in interest expense on convertible note fundingnotes and promissory notes settled during the current year.period.

Debt discount

Debt discount was $1,965,551$281,354 and $861,657$624,683 for the years ended December 31, 20212023 and 2020,2022, respectively, an increasea decrease of $1,103,894$343,329 or 128.1%54.6%. The increasedecrease is primarily due to newthe full amortization of debt discount on convertible notes issued duringin the prior year. The current year andamortization consists of the amortization of loans entered into during the second half of the prior year.discount on receivables funding.

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 statements of operations and comprehensive loss.

Foreign exchange movements

Foreign exchange movements was $(34,301)were $(95,032) and $(175,500)$1,071,320 for the years ended December 31, 20212023 and 2020,2022, respectively, andForeign exchange movements represents the realized exchange gains and (losses) on monetary assets and liabilities settled during the current year as well as mark to market adjustmentsunrealized gains and losses on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars. In the prior year, the foreign exchange movements included the realization of significant translation differences on foreign subsidiaries sold and in the current year we disposed of Cranberry Cove Holdings, our last foreign subsidiary denominated in Canadian Dollars, to a related party.

Net (loss) income before taxation

Net lossincome before taxation was $(1,854,306)$614,453 and net income was $3,084,992$407,408 for the years ended December 31, 20212023 and 2020,2022, respectively, a decreasean increase of $4,939,298$207,045 or 160.1%50.8%. The decreaseincrease is primarily due to the fair valuegain on sale of property, and the warrants granted, thedecrease in debt discount amortization, and interest expense, offset by the prior year gainincrease in the operating loss, the loss on debt extinguishment, offset by the derivative liabilityextension fee paid on the property purchase and the foreign exchange movements, asall discussed in detail above.

Taxation

Taxation credit was $280,903$391,962 and $0$(112,220) for the years ended December 31, 20212023 and 2020,2022, respectively an increase of $280,903$504,182 or 100.0%449.3%. the tax credit aroseThe increase is due to the completion of tax returns for our operating subsidiaries during the current year, which resulted in the reversal of prior years’ accrualpreviously provided for $250,000 in penaltyincome taxes, primarily related to accelerated depreciation allowances on property and equipment and the reversal of the deferred tax for non-disclosure of foreign entitiesliability related to intangible assets. The 2022 charge relates to the profitable Evernia operations, which has been subsequently reversed in the US tax return, a deferred tax movement of $37,588 on the amortization of licenses which arose on the acquisition of ATHI and Evernia, and a small tax provision on profits realized on the ATHI and Evernia results.2023 year.

Net (loss) income

Net loss was $(1,573,403) and net income was $3,084,992$1,006,415 and $295,188 for the years ended December 31, 20212023 and 2020,2022, respectively, a decreasean increase of $4,658,395$711,227 or 151.0%240.9%. The decreaseincrease is primarily due to the reasonsincrease in income before taxation and the reversal of prior period taxation charges and deferred tax balances, discussed above.

Liquidity and Capital Resources

Cash used in operating activities was $85,567$(0.5) million and $101,970 cash generated by operating activities was $1.6 million for the years ended December 31, 20212023 and 2020,2022, respectively a decrease of $16,403$2.1 million or 16.1%129.6%. The decrease is primarily due to the following:

Cash provided by investing activities was $2.5 million and cash used in investing activities was $0.6 million and $0.7 million for the years ended December 31, 20212023 and 2020,2022, respectively. WeThe Company exercised its option to acquire 950 Evernia Street, where it conducts its treatment facility for net proceeds of $5.2 million, net of $0.4 million of deposits previously paid. Upon acquisition, we immediately sold the property for net proceeds of $8.1 million, after fees and expenses related to the disposal. During the current year, we paid a lease deposit of $374,000 for the real property lease entered into immediately upon disposal of the real property. In the prior year we invested $0.5$0.4 million (2020 - $0.7 million) in deposits for the purchase of the Evernia treatment facility basedStreet property and a further $0.3 million in West Palm Beach, prior to acquisition. We also purchased property and equipment of $0.1million, primarily to supportfor the Evernia operation during the current year.treatment center.

Cash generated byused in financing activities was $0.6$(2.1) million and $0.9cash provided by investing activities was $0.3 million for the years ended December 31, 20212023 and 200,2022, respectively. DuringIn the current year, we raised $1.2the Company used a portion of the proceeds from investing activities for the net repayment of convertible notes of $(1.0) million, the net repayment of promissory notes of $(0.1) million and the payment of third party loans of $0.3 million.. The Company also repaid $0.5net receivables funding of $0.4 million, in convertiblemortgage loans of $0.1 million and related party loans of $0.2 million during the current year. In the prior year, we repaid net promissory notes primarily to fund the Evernia operations.of $0.1 million, mortgage loans of $0.1 million, and third party loans of $0.1 million, funded by net receivables funding of $$.4 million and related party loans of $0.3 million.

Over the next twelve months we estimate that the company will require approximately $6.5$4.8 million in funding to repay its obligations if these obligations are not converted to equity andequity. We will need funding for funding working capital as we continue to seek opportunities for addiction treatment in the 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 high.

Going Concern

Our consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that we will be able to meet our obligations and continue our operations in the normal course of business. At December 31, 2023, we had a working capital deficiency of $7.9 million, and total liabilities in excess of assets in the amount of $6.2 million. We believe that current available resources will not be sufficient to fund our planned expenditures over the next 12 months. Accordingly, we will be dependent upon the raising of additional capital through placement of common shares, and/or debt financing in order to implement our business plan and generate sufficient revenue in excess of costs. If we raise additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If we raise additional funds by issuing debt, we may be subject to limitations on its operations, through debt covenants or other restrictions. If we obtain additional funds through arrangements with collaborators or strategic partners, we may be required to relinquish our rights to certain geographical areas, or techniques that it might otherwise seek to retain. There is no assurance that we will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on our financial condition. These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should we be unable to continue as a going concern.

Critical accounting policies

Revenue recognition

We recognize revenue in terms of ASC 606 which requires us to exercise more judgment and recognize revenue using a five-step process as described under our accounting policies in note 2 to the consolidated financial statements.

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

Settlements with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future periods as final settlements are determined. In the opinion of management, adequate provision has been made for any adjustments and final settlements.

Allowance for Doubtful Accounts, Contractual and Other Discounts

In conjunction with Revenue recognition, we recognize revenue based on historical collections received from healthcare providers, recognizing only a percentage of revenues actually billed. Effectively recognizing revenue net of any expected billing differentials. Based on our collection experience, the percentage of revenue recognized is adjusted on a periodic basis, thereby taking into account expected credit losses in the revenue recognition process. The revenue we recognize is already net of expected credit losses.

We account for leases in terms of ASC 842. In terms of ASC 842, the Company assesses whether any asset based leases entered into for periods longer than twelve months meet the definition of financial leases or operation leases, by evaluating the terms of the lease, including the following; the duration of the lease; the implied interest rate in the lease; the cash flows of the lease; and whether the Company intends to retain ownership of the asset at the end of the lease term.

Leases which imply that we will not acquire the asset at the end of the lease term are classified as operating leases, our right to use the asset is reflected as a non-current right of use asset with a corresponding operational lease liability raised at the date of lease inception. The right of use asset and the operational lease liability are amortized over the right of use period using the effective interest rate implied in the operating lease agreement.

Long Lived Assets

The Company evaluates the carrying value of its long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value will be charged to earnings.

Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate, current estimated net sales proceeds from pending offers.

Critical Accounting Estimates

Preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. Our estimates are based on our historical experience, information received from third parties and on various other factors that we believe are reasonable under the circumstances, that results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimated under different assumption or conditions. Significant accounting policies are fundamental to understanding our financial condition and results as they require the use of estimates and assumptions which affect the financial statements and accompanying notes. See Note 2 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for further information.

The Critical accounting policies that involved significant estimation include the following:

Revenue recognition

Management constantly monitors the level of billings and collections on those billings and makes an estimation of the percentage of billings that will ultimately be recorded as revenue. 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.

Since we already make adjustments for expected collections we are constantly taking into account any expected credit losses.

Leases

On August 4, 2023, we entered into an acquisition and immediate disposal transaction with two unrelated third parties for the building which we currently operate our West Palm Beach treatment facility, see note 5 to the consolidated financial statements.

Simultaneously with the acquisition and disposal, on August 4, 2023, we entered into a long term lease for 950 Evernia Street, West Palm Beach, Florida with an initial term of twenty years, and two ten year extension options. The lease is absolutely net and the lease cost for the initial year is $748,000 paid monthly. The lease increases at a rate of 2.75% per year for a total term lease obligation of $19,595,653 over the initial twenty-year term. Due to the initial lease term of twenty years, we are not certain that the extension periods will be exercised at this point in time and accordingly, these have been excluded from the present value of the minimum future lease payments.

To determine the present value of minimum future lease payments for operating leases at August 4, 2023, we were required to estimate a rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment (the "incremental borrowing rate" or "IBR"). Wey determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used the Fannie Mae, in excess of $3,000,000 rate based on an 80% value to loan ratio, averaging the 15 and 30 year indicative rates, resulting in a rate of 7.70%. We determined that 7.70% per annum was an appropriate incremental borrowing rate to apply to its real-estate operating lease.

The present value of the future minimum lease payments was valued at $9,333,953 on August 4, 2023.

Long-lived assets

We have significant long-lived assets, including property and equipment, intangible assets, right-of-use assets and deposits. The Company evaluates the carrying value of its long-lived assets for impairment by comparing managements estimates of undiscounted future cash flows of the assets to the net book value of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. This requires significant estimation of future revenue streams, based on management’s understanding of the business which may not be accurate and may require re-estimation at a future date. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value will be charged to earnings.

Fair value is based upon discounted cash flows of the assets at a rate deemed by management to be reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate, current estimated net sales proceeds from pending offers.

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 and Subsidiaries

West Palm Beach, FL 33401

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Ethema Health Corporation and Subsidiaries (collectively, the “Company”) as of December 31, 2023, the related consolidated statement of operations, stockholders’ deficit and cash flows for each of the year ended December 31, 2023, and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for each of the year ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.

The Company's Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the accompanying consolidated financial statements, the Company has suffered recurring losses from operations, generated negative cash flows from operating activities, has an accumulated deficit and has stated that substantial doubt exists about Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans in regarding these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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

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

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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the 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.

We determined that there are no critical audit matters.

/s/ RBSM LLP

587

We have served as the Company’s auditor since 2023.

New York, NY

May 7, 2024

New York, NY Washington DC Mumbai & Pune, India Boca Raton, FL

San Francisco, CA Las Vegas, NV Beijing, China Athens, Greece

Member: ANTEA International with affiliated offices worldwide

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”)Company) at December 31, 2021 and 2020,2022, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ deficit, and cash flows for each of the yearsyear ended December 31, 2021 and 2020,2022, 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, 2021 and 2020,2022, and the results of its operations and its cash flows for each of the yearsyear ended December 31, 2021 and 2020,2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

The accompanying 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 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 hadhas accumulated deficit of approximately $44.7$43.5 million and negative working capital of approximately $13.2$12.7 million at December 31, 2021,2022, 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 MatterMatters

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 consolidated 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 129 and 1614 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